<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DIVERSA CORPORATION
(NAME OF ISSUER IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 8731 22-3297375
<S> <C> <C>
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
10665 SORRENTO VALLEY ROAD
SAN DIEGO, CA 92121
(858) 623-5106
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JAY M. SHORT, PH.D.
CHIEF EXECUTIVE OFFICER
DIVERSA CORPORATION
10665 SORRENTO VALLEY ROAD
SAN DIEGO, CA 92121
(858) 623-5106
(NAME, ADDRESS, TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
M. WAINWRIGHT FISHBURN, JR., ESQ. FAYE H. RUSSELL, ESQ.
NANCY DENYES KRUEGER, ESQ. MARIA P. SENDRA, ESQ.
DAVID B. BERGER, ESQ. BROBECK, PHLEGER & HARRISON LLP
COOLEY GODWARD LLP 550 WEST "C" STREET
4365 EXECUTIVE DRIVE, SUITE 1100 SAN DIEGO, CALIFORNIA 92101
SAN DIEGO, CALIFORNIA 92121 (619) 234-1966
(858) 550-6000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
---------------
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value... $85,000,000 $22,440
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any. Estimated solely for the purpose
of calculating the amount of the registration fee in accordance with Rule
457(o) 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE 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 AN OFFER TO BUY +
+THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1999
PRELIMINARY PROSPECTUS
SHARES
[DIVERSA LOGO]
COMMON STOCK
-----------
This is an initial public offering of shares of common stock of
Diversa Corporation. We are selling all of the shares of common stock offered
under this prospectus.
We expect the public offering price for our common stock to be between
$ and $ per share. There is currently no public market for our
common stock. We have applied to have our common stock approved for listing on
the Nasdaq National Market under the symbol "DVSA."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------
<TABLE>
<S> <C> <C>
Per
Share Total
-------- --------
Public offering price........................................ $ $
Underwriting discounts and commissions....................... $ $
Proceeds to Diversa.......................................... $ $
</TABLE>
-----------
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock from us at the initial public
offering price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares in New York, New York, on
, 2000.
-----------
BEAR, STEARNS & CO. INC.
DEUTSCHE BANC ALEX. BROWN
HAMBRECHT & QUIST
The date of this prospectus is , 2000
<PAGE>
[GATEFOLD COVER]
[A diagram depicting alternative ecosystems,, progressing to an image entitled
"Diversa: Innovation from BioDiversity Process" representing our proprietary
processes and technologies, which then leads to photographs representing our
four target markets.
[A diagram titled Diversa: Innovation from BioDiversity Process, depicting
movement through our proprietary process and technologies.
We use market data and industry forecasts throughout this prospectus. We
have obtained this information from internal surveys, market research, publicly
available information and industry publications. Industry publications
generally state that the information they provide has been obtained from
sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. Similarly, we believe that the surveys and
market research we or others have performed are reliable, but we have not
independently verified this information. Neither we nor any of the underwriters
represent that any such information is accurate.
DIVERSA, Gene Site Saturation Mutagenesis, GSSM, Pyrolase, GeneReassembly,
DiverseLibraries, PathwayLibraries, DirectEvolution(R), SingleCell and SciLect
are trademarks of Diversa Corporation. This prospectus also refers to trade
names and trademarks of other organizations.
<PAGE>
PROSPECTUS SUMMARY
DIVERSA CORPORATION
You should read the following summary together with the more detailed
information regarding our company and our common stock being sold in this
offering and our financial statements and the notes to our financial statements
appearing elsewhere in this prospectus before making an investment decision.
You should also carefully consider the information discussed in "Risk Factors."
OUR BUSINESS AND TECHNOLOGIES
We believe that we are the global leader in discovering and developing novel
enzymes and other biologically active compounds from diverse environmental
sources for use in agricultural, chemical processing, industrial and
pharmaceutical applications. Our processes significantly speed the discovery
and development of commercially valuable new enzymes and biologically active
small molecules. For example, we launched our first product for an industrial
application within two years of project initiation. Our processes are designed
to help our strategic partners and customers reduce cost, reduce waste, improve
yield and enhance the quality of end products and manufacturing. We believe
that the integration of our capabilities differentiates us from our
competitors. We accomplish this integration utilizing our proprietary methods
in the following manner:
. We collect genetic material from uncultured organisms found in diverse
natural environments;
. We isolate, catalog and store genes and gene pathways in vast DNA
libraries;
. We screen these libraries to analyze more than a billion genes per day
to identify potentially useful enzymes and compounds;
. We optimize these enzymes and compounds by applying our
DirectEvolution(R) genetic modification technologies, including our Gene
Site Saturation Mutagenesis(TM) and GeneReassembly(TM) technologies; and
. We develop novel host organisms for the manufacture of resulting
products.
We believe our ability to construct vast libraries from DNA samples
collected from organisms in diverse environments is an important factor of our
success. Our use of minute DNA samples results in minimal impact to the
surrounding environment and has enabled us to enter into numerous formal
genetic resource access agreements. To date we have obtained samples under
these agreements from Costa Rica, Bermuda, Indonesia, Yellowstone National
Park, Mexico and Iceland. We estimate that our environmental gene libraries, or
DiverseLibraries(TM), currently contain the complete genomes of over 1 million
unique microorganisms. We are also creating PathwayLibraries(TM), libraries of
multi-gene pathways responsible for the production of small molecules.
Our ultra high-throughput screening technologies, such as SingleCell(TM)
screening, and our enrichment technologies, such as biopanning, allow for the
rapid discovery and identification of genes with desired biological activity or
specific DNA sequences. Our DirectEvolution technologies, Gene Site Saturation
Mutagenesis and GeneReassemby, enable us to modify the DNA sequences of genes
in order to optimize new genes for commercial applications.
We intend to commercialize products discovered or developed utilizing our
technologies, both independently and in collaboration with strategic partners.
We have successfully commercialized our first product, Pyrolase(TM) 160, for
the oil and gas services industry, and we have 42 other projects with multiple
production applications in various stages of development. Our strategic
partners are market leaders across multiple industries and include Novartis
Seeds AG, Novartis Agribusiness Biotechnology Research Inc., The Dow Chemical
Company, Rhone-Poulenc Animal Nutrition and Finnfeeds International Limited.
These partners typically fund research costs and provide various types of
payments, which may include exclusivity payments, technology access and
development payments, milestone payments, license and commercialization fees
and royalties. In addition to $9.5 million received through September 30, 1999,
our partners are committed to fund at least $69.1 million under existing
agreements. Our partners have also invested $9.2 million in our equity
securities.
1
<PAGE>
Our intellectual property consists of patents, trade secrets, know-how and
trademarks. Protection of our intellectual property is a strategic priority for
our business. We own 18 issued patents relating to our technologies, have
received notices of allowance with respect to 12 other patent applications and
have over 125 patents pending. In addition, we have in-licensed rights to more
than 25 additional patents that we believe strengthen our intellectual property
portfolio.
OUR TARGET MARKETS AND PRODUCTS
We are developing enzymes and other biologically active compounds for a
number of multi-billion dollar industries, including agricultural, chemical
processing, industrial and pharmaceutical applications. Our target markets
provide both short-term and long-term product revenue opportunities, with
chemical and industrial products having relatively short development and
regulatory approval processes, agricultural products having intermediate term
development and regulatory approval processes, and pharmaceutical products
having longer development and regulatory approval processes.
Within these broad markets we are targeting key market segments where we
believe our technologies and products will create high value and competitive
advantages for our strategic partners and our customers. We are identifying and
producing enzymes that exhibit dramatic increases in activity, efficiency and
stability. Examples of our product applications include the following:
. In agriculture, we are developing a variety of specialty enzymes and
engineered genes to improve crop protection, crop yield and nutritional
value, as well as to reduce harmful environmental waste.
. In chemical processing, we are developing a variety of enzymes to create
manufacturing efficiencies, reduce production costs and accelerate
generation of new chemical products and processes.
. For industrial applications, we successfully commercialized a heat-
tolerant enzyme useful for oil and gas recovery and are developing
numerous products related to enzymatic processes for detergent, corn
processing, textile, pulp and paper processing and fats and oils
applications.
. In pharmaceuticals, we are working to discover small molecule compounds
as candidates for anti-microbials, anti-fungals, anti-virals and other
therapeutic drugs.
OUR STRATEGY
Our goal is to be the leading provider of novel enzymes and biologically
active compounds for use in unique, economically attractive applications. The
key elements of our strategy are to:
. Protect and enhance our technology leadership position;
. Expand our existing DNA libraries through access to novel genetic
material and utilize our proprietary technologies to discover new genes
and gene pathways to provide solutions to market needs;
. Leverage our technologies across diverse markets in order to maximize
our return on investment;
. Pursue additional strategic alliances with market leaders to access
funding and industry-specific expertise and to more efficiently develop
and commercialize a larger product portfolio; and
. Independently develop and commercialize products in selected markets to
capture their full economic value.
2
<PAGE>
CORPORATE INFORMATION
We were incorporated in the State of Delaware in December 1992 under the
name Industrial Genome Sciences, Inc. In August 1997, we changed our name to
Diversa Corporation.
Our executive offices are located at 10665 Sorrento Valley Road, San Diego,
California 92121, and our telephone number is (858) 453-7020. Our web site is
http://www.diversa.com. The information found on our web site is not a part of
this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Diversa................. shares
Common stock to be outstanding after the
offering....................................... shares
Use of proceeds................................. We intend to use the net proceeds from
this offering for research and
development, capital expenditures,
working capital, general corporate
purposes and possible future
acquisitions.
Proposed Nasdaq National Market symbol.......... DVSA
</TABLE>
The share amounts in this table are based on shares outstanding as of September
30, 1999. This table excludes:
. 19,976,434 shares of our common stock reserved for issuance under our
stock option plans, including 8,700,000 shares authorized following
September 30, 1999, of which 7,841,000 shares are subject to outstanding
options with a weighted average exercise price of $0.24 per share;
. 800,000 shares available for issuance under our Non-Employee Directors'
Stock Option Plan approved in December 1999;
. 1,200,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan approved in December 1999;
. 1,048,890 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $0.50 per share; and;
. shares of common stock to be issued at the closing of this
offering to holders of our series A, B and D preferred stock as payment
of a dividend that will begin to accrue on December 21, 1999.
Except as otherwise indicated, information in this prospectus is based on the
following assumptions:
. the conversion of all outstanding shares of our preferred stock into
shares of common stock upon the closing of this offering;
. a -for- reverse-split in our common stock that will take effect
prior to the date of this offering; and
. no exercise of the underwriters' over-allotment option to purchase up to
shares.
4
<PAGE>
SUMMARY FINANCIAL DATA
The following financial information should be read together with the
"Selected Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ------------------
1995 1996 1997 1998 1998 1999
-------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenue........... $ 25 $ 706 $ 1,155 $ 1,347 $ 807 $ 6,459
Total operating
expenses............... 8,857 12,125 12,770 13,536 10,441 12,443
Operating income
(loss)................. (8,832) (11,419) (11,615) (12,189) (9,634) (5,984)
Net income (loss)....... $ (8,904) $ (11,646) $ (11,707) $ (11,845) $ (9,331) $ (5,803)
======== ========= ========= ========= ======== ========
Historical net income
(loss) per share, basic
and diluted............ $ (2.56) $ (2.67) $ (2.53) $ (2.33) $ (1.79) $ (0.89)
======== ========= ========= ========= ======== ========
Historical weighted
average shares
outstanding............ 3,481 4,369 4,626 5,093 5,206 6,538
Pro forma net loss per
share.................. $ (0.18) $ (0.08)
========= ========
Pro forma weighted
average shares
outstanding............ 65,313 72,314
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments.................................. $ 9,763 $24,763 $
Working capital............................... 5,631 17,631
Total assets.................................. 13,072 28,072
Capital lease obligations, less current
portion...................................... 2,400 2,400
Redeemable convertible preferred stock........ 48,402 48,402
Stockholders' equity (deficit)................ (42,693) (42,693)
</TABLE>
Pro forma net loss per share assumes all our preferred stock had been
converted into common stock on the date of original issuance. See our financial
statements for a more detailed description.
The pro forma balance sheet data above assumes the receipt of an initial
payment from Novartis Seeds AG related to a new strategic alliance agreement
signed in December 1999.
The pro forma as adjusted balance sheet data above reflect the sale of
shares of our common stock in this offering at an assumed initial public
offering price of $ per share after deducting estimated underwriting
discounts and commissions and estimated expenses of this offering and the
conversion of all outstanding preferred stock into common stock. See "Use of
Proceeds" and "Capitalization" for a discussion about how we intend to use the
proceeds from this offering and about our capitalization.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently consider immaterial may also impair our
operations. If any of the following risks actually occurs, our business could
be harmed. In that case, the trading price of our common stock could decline,
and you may lose all or part of your investment.
WE HAVE A HISTORY OF NET LOSSES, WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred net losses since our inception, including a net loss of
approximately $11.8 million for the year ended December 31, 1998 and
approximately $5.8 million for the nine months ended September 30, 1999. As of
September 30, 1999, we had an accumulated deficit of approximately $51.7
million. We expect to incur additional losses for at least the next several
years. The extent of our future losses will depend, in part, on the rate of
growth, if any, in our contract revenue and on the level of our expenses. To
date, substantially all of our revenue has been derived from strategic
alliances and grants, and we expect that substantially all of our revenue for
the foreseeable future will result from payments from strategic alliances.
Future revenue from strategic alliances are uncertain because our ability to
generate revenue will depend upon our ability to enter into new strategic
alliances and to meet research, development and commercialization objectives
under new and existing agreements. We expect to spend significant amounts to
fund research and development and enhance our core technologies. As a result,
we expect that our operating expenses will increase significantly in the near
term, and, consequently, we will need to generate significant additional
revenue to achieve profitability. In order for us to generate revenue, we must
not only retain our existing strategic partners and attract new ones, but also
develop products or technologies that our partners choose to commercialize and
from which we can derive revenue through royalties. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
BECAUSE WE ARE AN EARLY STAGE COMPANY DEVELOPING AND DEPLOYING NEW
TECHNOLOGIES, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR TECHNOLOGIES OR PRODUCTS,
WHICH COULD CAUSE US TO BE UNPROFITABLE OR CEASE OPERATIONS.
You must evaluate our business in light of the uncertainties and
complexities affecting an early stage biotechnology company. Our existing
proprietary technologies are new and in the early stage of development. We may
not be successful in the commercial development of these or any further
technologies or products. Successful products require significant development
and investment, including testing, to demonstrate their cost-effectiveness
prior to their commercialization. To date, we have commercialized only one
product, Pyrolase 160, and none of our strategic partners have yet incorporated
our technologies or inventions into their own commercial products from which we
can generate royalties.
We must conduct a substantial amount of additional research and development
on most of our products before any regulatory authority will review them.
Regulatory authorities may not approve our products for commercial sale.
Accordingly, because of these uncertainties, our discovery process may not
result in the identification of product candidates that we or our strategic
partners will commercialize. If we are not able to use our technologies to
discover new materials or products with significant commercial potential, we
will not be able to achieve our objectives or build a sustainable or profitable
business.
6
<PAGE>
WE ARE DEPENDENT ON OUR STRATEGIC PARTNERS, AND OUR FAILURE TO SUCCESSFULLY
MANAGE OUR EXISTING AND FUTURE STRATEGIC ALLIANCE RELATIONSHIPS COULD PREVENT
US FROM DEVELOPING AND COMMERCIALIZING MANY OF OUR PRODUCTS AND ACHIEVING OR
SUSTAINING PROFITABILITY.
We currently have strategic alliance agreements with Novartis Seeds AG,
Novartis Agribusiness Biotechnology Research, Inc. and The Dow Chemical
Company, from which we expect to derive significant future revenue. Since we do
not currently possess the resources necessary to independently develop and
commercialize all of the potential products that may result from our
technologies, we expect to continue to enter into, and in the near-term derive
additional revenue from, strategic alliance agreements to develop and
commercialize products. We will have limited or no control over the resources
that any strategic partner may devote to our products. Any of our present or
future strategic partners may not perform their obligations as expected. These
strategic partners may breach or terminate their agreements with us or
otherwise fail to conduct their collaborative activities successfully and in a
timely manner. Further, our strategic partners may not develop products arising
out of our collaborative arrangements or devote sufficient resources to the
development, manufacture, marketing or sale of these products. If we fail to
enter into or maintain strategic alliance agreements, or if any of these events
occur, we may not be able to commercialize our products, grow our business or
generate sufficient revenue to support our operations. Our present or future
strategic alliance opportunities could be harmed if:
. We do not achieve our research and development objectives under our
strategic alliance agreements;
. We develop products and processes or enter into additional strategic
alliances that could conflict with the business objectives of our
strategic partners;
. We disagree with our strategic partners as to rights to intellectual
property we develop;
. We are unable to manage multiple simultaneous strategic alliances;
. Our strategic partners become competitors of ours or enter into
agreements with our competitors;
. Consolidation in our target markets limits the number of potential
strategic partners; or
. We are unable to negotiate additional agreements having terms
satisfactory to us.
WE DO NOT HAVE THE CAPACITY TO MANUFACTURE PRODUCTS ON A COMMERCIAL SCALE. IF
WE ARE UNABLE TO ACCESS THE CAPACITY TO MANUFACTURE PRODUCTS IN SUFFICIENT
QUANTITY, WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS OR GENERATE
SIGNIFICANT SALES.
We have only limited experience in enzyme manufacturing and we do not have
our own capacity to manufacture products on a commercial scale. We expect to be
dependent to a significant extent on third parties for commercial scale
manufacturing of our products. We are manufacturing our first commercial
product, Pyrolase 160, under a toll manufacturing agreement with a third party.
We also currently lease a pilot facility for process development activities
from a third party, which we intend to vacate by March 2000. We plan to
construct our own pilot development facility during 2000 and have identified
alternative capacity to meet interim requirements. In addition to requiring
investment in equipment, construction of this new facility will necessitate
compliance with applicable regulations. After we complete the construction of
our pilot facility, we will continue to depend on third parties for large-scale
commercial manufacturing. If we fail to complete the construction of our pilot
facility on time or at all, it could interrupt our research and product
development programs and harm our relationships with strategic partners. Any
difficulties or interruptions of service with our third party manufacturers or
our own planned pilot manufacturing facility could disrupt our research and
development efforts, delay our commercialization of products and harm our
relationships with our strategic partners or customers.
7
<PAGE>
WE HAVE ONLY LIMITED EXPERIENCE IN INDEPENDENTLY DEVELOPING, MANUFACTURING,
MARKETING, SELLING AND DISTRIBUTING COMMERCIAL PRODUCTS.
We intend to pursue some product opportunities independently. We currently
have only limited resources and capability to develop, manufacture, market,
sell or distribute products on a commercial scale. We will determine which
products to pursue independently based on various criteria, including:
investment required, estimated time to market, regulatory hurdles,
infrastructure requirements and industry-specific expertise necessary for
successful commercialization. At any time, we may modify our strategy and
pursue alliances for the development and commercialization of some products. We
may pursue products that ultimately require more resources than we anticipate
or which may be technically unsuccessful. In order for us to commercialize
these products directly, we would need to establish or obtain through
outsourcing arrangements the capability to develop, manufacture, market, sell
and distribute products. If we are unable to successfully commercialize
products resulting from our internal product development efforts, we will
continue to incur losses. Even if we successfully develop a commercial product,
we may not generate significant sales and achieve profitability.
ETHICAL, LEGAL AND SOCIAL CONCERNS ABOUT GENETICALLY ENGINEERED PRODUCTS COULD
LIMIT OR PREVENT THE USE OF OUR PRODUCTS AND TECHNOLOGIES AND LIMIT OUR
REVENUE.
Some of our products are genetically engineered. If we are not able to
overcome the ethical, legal and social concerns relating to genetic
engineering, our products may not be accepted. Any of the risks discussed below
could result in expenses, delays or other impediments to our programs or the
public acceptance and commercialization of products dependent on our
technologies or inventions. Our ability to develop and commercialize one or
more of our technologies and products could be limited by the following
factors:
. Public attitudes about the safety and environmental hazards of, and
ethical concerns over, genetic research and genetically engineered
products, which could influence public acceptance of our technologies
and products;
. Public attitude regarding, and potential changes to laws governing,
ownership of genetic material which could harm our intellectual property
rights with respect to our genetic material and discourage strategic
partners from supporting, developing or commercializing our products and
technologies; and
. Governmental reaction to negative publicity concerning genetically
modified organisms, which could result in greater government regulation
of genetic research and derivative products, including labeling
requirements.
The subject of genetically modified organisms has received negative
publicity, which has aroused public debate. The adverse publicity could lead to
greater regulation and trade restrictions on imports of genetically altered
products.
IF WE ARE UNABLE TO CONTINUE TO COLLECT GENETIC MATERIAL FROM DIVERSE NATURAL
ENVIRONMENTS, OUR RESEARCH AND DEVELOPMENT EFFORTS AND OUR PRODUCT DEVELOPMENT
PROGRAMS COULD BE HARMED.
We collect genetic material from organisms found in diverse environments. We
collect material from government-owned land in foreign countries and in areas
of the United States under formal resource access agreements, and from private
lands under individual agreements with private land owners. If our access to
materials under access agreements or other arrangements terminates, it could
harm our internal and our collaborative research and development efforts. We
also collect samples from other environments where agreements are currently not
required, such as the deep sea. All of our agreements with foreign countries
expire in 2002 or earlier, and they are all subject to earlier termination. Our
access agreement with Iceland was terminated, and we have voluntarily ceased
collections of further samples in Yellowstone National Park pending their
resolution of collection guidelines.
8
<PAGE>
ANY INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES COULD HARM OUR
COMPETITIVE POSITION.
Our success depends in part on our ability to obtain patents and maintain
adequate protection of our other intellectual property for our technologies and
products in the United States and other countries. The laws of some foreign
countries do not protect proprietary rights to the same extent as the laws of
the United States, and many companies have encountered significant problems in
protecting their proprietary rights in these foreign countries. These problems
can be caused by, for example, a lack of rules and methods for defending
intellectual property rights.
The patent positions of biotechnology companies, including our patent
position, are generally uncertain and involve complex legal and factual
questions. We will be able to protect our proprietary rights from unauthorized
use by third parties only to the extent that our proprietary technologies are
covered by valid and enforceable patents or are effectively maintained as trade
secrets. We will apply for patents covering both our technologies and products
as we deem appropriate. However, these applications may be challenged and may
not result in issued patents. Our existing patents and any future patents we
obtain may not be sufficiently broad to prevent others from practicing our
technologies or from developing competing products. Furthermore, others may
independently develop similar or alternative technologies or design around our
patented technologies. In addition, our patents may be challenged, invalidated
or fail to provide us with any competitive advantages.
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH, WHICH COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
Our strategy includes entering into and working on simultaneous projects
across multiple industries. We increased the number of our employees from 74 at
December 31, 1998 to 90 at September 30, 1999 and expect to significantly
increase our rate of growth to meet our strategic objectives. If our growth
continues, it will continue to place a strain on us. Our ability to effectively
manage our operations, growth, and various projects requires us to continue to
improve our operational, financial and management controls, reporting systems
and procedures and to attract and retain sufficient numbers of talented
employees. We may not be able to successfully implement improvements to our
management information and control systems in an efficient or timely manner. In
addition, we may discover deficiencies in existing systems and controls.
LITIGATION OR OTHER PROCEEDINGS OR THIRD PARTY CLAIMS OF INFRINGEMENT COULD
REQUIRE US TO SPEND TIME AND MONEY AND COULD SHUT DOWN SOME OF OUR OPERATIONS.
Our commercial success depends on neither infringing patents and proprietary
rights of third parties, nor breaching any licenses or other agreements that we
have entered into with regard to our technologies, products and business. The
patent positions of biotechnology companies involve complex legal and factual
questions and, therefore, enforceability cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. We cannot
be sure that relevant patents have not been issued that could block our ability
to obtain patents or to operate as we would like. Others may develop similar
technologies or duplicate technologies developed by us. We are aware of the
existence of patents in some countries that, if valid, may block our ability to
commercialize products in these countries if we are unsuccessful in
circumventing or acquiring the rights to these patents. We are also aware of
the existence of claims in published patent applications in some countries
that, if granted and valid, may also block our ability to commercialize
products in these countries if we are unable to circumvent or license them.
The biotechnology industry is characterized by extensive litigation
regarding patents and other intellectual property rights. Many biotechnology
companies have employed intellectual property litigation as a way to gain a
competitive advantage. If we became involved in litigation or interference
proceedings declared by the United States Patent and Trademark Office, or
oppositions or other intellectual property proceedings outside of the United
States, to defend our intellectual property rights or as a result of alleged
infringement of the rights of others, we might have to spend significant
amounts of money. We are aware of a significant number of patents and patent
applications relating to aspects of our technologies filed by, and issued to,
third parties. Should any
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<PAGE>
of our competitors have filed patent applications or obtain patents that claim
inventions also claimed by us, we may have to participate in an interference
proceeding declared by the relevant patent regulatory agency to determine
priority of invention and, thus, the right to a patent for these inventions in
the U.S. Such a proceeding could result in substantial cost to us even if the
outcome is favorable. Even if successful on priority grounds, an interference
may result in loss of claims based on patentability grounds raised in the
interference. The litigation or proceedings could divert our management time
and efforts. Even unsuccessful claims could result in significant legal fees
and other expenses, diversion of management time and disruption in our
business. Uncertainties resulting from initiation and continuation of any
patent or related litigation could harm our ability to compete.
An adverse ruling arising out of any intellectual property dispute,
including an adverse decision as to the priority of our inventions, would
undercut or invalidate our intellectual property position. An adverse ruling
could also subject us to significant liability for damages, prevent us from
using processes or products, or require us to license disputed rights from
third parties. Although patent and intellectual property disputes in the
biotechnology area are often settled through licensing or similar arrangements,
costs associated with these arrangements may be substantial and could include
ongoing royalties. Furthermore, necessary licenses may not be available to us
on satisfactory terms, if at all.
CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES AND OTHERS MAY NOT ADEQUATELY PREVENT
DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION.
In order to protect our proprietary technology and processes, we also rely
in part on trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our trade secrets and
proprietary information. These measures may not provide adequate protection for
our trade secrets or other proprietary information. We also seek to protect our
proprietary information by entering into confidentiality agreements with
employees, strategic partners, consultants and other advisors. These agreements
may not effectively prevent disclosure of confidential information and may not
provide an adequate remedy in the event of unauthorized disclosure of
confidential information. In addition, others may independently develop
substantially equivalent proprietary information or techniques or otherwise
gain access to our trade secrets. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of our proprietary rights, and
failure to obtain or maintain trade secret protection could adversely affect
our competitive business position.
MANY POTENTIAL COMPETITORS WHO HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO
MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OURS OBSOLETE.
The biotechnology industry is characterized by rapid technological change,
and the area of gene research is a rapidly evolving field. Our future success
will depend on our ability to maintain a competitive position with respect to
technological advances. Rapid technological development by others may result in
our products and technologies becoming obsolete.
We face, and will continue to face, intense competition from organizations
such as large biotechnology companies, as well as academic and research
institutions and government agencies that are pursuing competing technologies
for modifying DNA. These organizations may develop technologies that are
superior alternatives to our technologies. Further, our competitors may be more
effective at implementing their technologies for modifying DNA to develop
commercial products. Some of these competitors have entered into collaborations
with leading companies within our target markets.
Any products that we develop through our technologies will compete in
multiple, highly competitive markets. Most of the organizations competing with
us have greater capital resources, marketing, research and development staffs
and facilities, experience obtaining regulatory approvals and product
manufacturing and greater marketing capabilities.
Accordingly, our competitors may be able to more easily develop technologies
and products that would render our technologies and products and those of our
strategic partners obsolete and noncompetitive.
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STRINGENT LAWS AND REQUIRED GOVERNMENT APPROVALS COULD DELAY OUR INTRODUCTION
OF PRODUCTS.
All phases, especially the field testing, production and marketing, of our
potential products are subject to significant federal, state, local and/or
foreign governmental regulation. Regulatory agencies may not allow us to
produce and/or market our products in a timely manner or under technically or
commercially feasible conditions, or at all, which could harm our business.
In the United States, products for our target markets are regulated based on
their application, by either the FDA, the Environmental Protection Agency, or
EPA, or, in the case of plants and animals, the United States Department of
Agriculture, or USDA. The FDA regulates drugs, food and feed, as well as food
additives, feed additives and substances generally recognized as safe that are
used in the processing of food or feed. Under current FDA policy, our products,
or products of our strategic partners incorporating our technologies or
inventions, to the extent that they come within the FDA's jurisdiction, may be
subject to lengthy FDA reviews and unfavorable FDA determinations if they raise
safety questions which cannot be satisfactorily answered or are deemed to be
food additives whose safety cannot be demonstrated. An unfavorable FDA ruling
could be difficult to resolve and could prevent a product from being
commercialized. The EPA regulates biologically derived chemical substances not
within the FDA's jurisdiction. An unfavorable EPA ruling could delay
commercialization or require modification of the production process resulting
in higher manufacturing costs, thereby making the product uneconomical. In
addition, the USDA may prohibit genetically engineered plants from being grown
and transported except under an exemption, or under controls so burdensome that
commercialization becomes impracticable. Our future products may not be
exempted by the USDA.
The European regulatory process for these classes of biologically derived
products has been in a state of flux in the recent past, as the EU attempts to
replace country by country regulatory procedures with a consistent EU
regulatory standard in each case. Some country-by-country regulatory oversight
remains. Other than Japan, most other regions of the world generally find
adequate either a United States or a European clearance together with
associated data and information for a new biologically derived product.
IF WE REQUIRE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, WE MAY NEED TO ENTER
INTO FINANCING ARRANGEMENTS WITH UNFAVORABLE TERMS OR WHICH COULD ADVERSELY
AFFECT YOUR OWNERSHIP INTEREST AND RIGHTS AS COMPARED TO OUR OTHER
STOCKHOLDERS. IF SUCH FINANCING IS NOT AVAILABLE, WE MAY NEED TO CEASE
OPERATIONS.
We currently anticipate that our available cash resources and receivables,
committed funding from strategic partners and the net proceeds from this
offering will be sufficient to meet our capital requirements for at least the
next two years. However, our capital requirements depend on several factors,
including:
. The level of research and development investment required to maintain
our technology leadership position;
. Our ability to enter into new agreements with strategic partners or to
extend the terms of our existing collaborative agreements, and the terms
of any agreement of this type;
. The success rate of our discovery efforts associated with milestones and
royalties;
. Our ability to successfully commercialize products developed
independently and the demand for such products;
. The timing and willingness of strategic partners to commercialize our
products that would result in royalties;
. Costs of recruiting and retaining qualified personnel; and
. Our need to acquire or license complementary technologies or acquire
complementary businesses.
If additional capital is required to operate our business, we cannot assure
you that additional financing will be available on terms favorable to us, or at
all. If adequate funds are not available or are not available on acceptable
terms, our ability to fund our operations, take advantage of opportunities,
develop products or
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<PAGE>
technologies or otherwise respond to competitive pressures could be
significantly limited. In addition, if financing is not available, we may need
to cease operations.
If we raise additional funds through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution or such equity securities may provide for
rights, preferences or privileges senior to those of the holders of our common
stock. If we raise additional funds through the issuance of debt securities,
such debt securities would have rights, preferences and privileges senior to
holders of common stock and the terms of such debt could impose restrictions on
our operations.
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. For example, our revenue for the nine
months ended September 30, 1999 was $6.5 million, as compared to $0.8 million
for the same period in 1998. This increase was primarily due to revenue from
new strategic alliances. Revenue in future periods may be greater or less than
revenue in the immediately preceding period or in the comparable period of the
prior year. Some of the factors that could cause our operating results to
fluctuate include:
. Termination of strategic alliances;
. The success rate of our discovery efforts associated with milestones and
royalties;
. The ability and willingness of strategic partners to commercialize
royalty-bearing products on expected timelines;
. Our ability to enter into new agreements with strategic partners or to
extend the terms of our existing strategic alliance agreements, and the
terms of any agreement of this type;
. Our ability to successfully satisfy all pertinent regulatory
requirements;
. Our ability to successfully commercialize products developed
independently and the demand for such products; and
. General and industry specific economic conditions, which may affect our
strategic partners' research and development expenditures.
If revenue declines or does not grow as anticipated due to the expiration of
strategic alliance agreements, failure to obtain new agreements or grants,
lower than expected royalty payments or other factors, we may not be able to
correspondingly reduce our operating expenses. A large portion of our expenses,
including expenses for facilities, equipment and personnel, are relatively
fixed. In addition, we plan to significantly increase operating expenses in
2000. Failure to achieve anticipated levels of revenue could therefore
significantly harm our operating results for a particular fiscal period.
Due to the possibility of fluctuations in our revenue and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL AS NECESSARY, IT COULD DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND
HARM OUR RESEARCH AND DEVELOPMENT EFFORTS.
Our success depends to a significant degree upon the continued contributions
of our executive officers, management and scientific staff. If we lose the
services of one or more of these people, we may be unable to achieve our
business objectives or our stock price could decline. We may not be able to
attract or retain qualified employees in the future due to the intense
competition for qualified personnel among biotechnology
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and other technology-based businesses. If we are not able to attract and retain
the necessary personnel to accomplish our business objectives, we may
experience constraints that will adversely affect our ability to meet the
demands of our strategic partners in a timely fashion or to support our
internal research and development programs. In particular, our product
development programs depend on our ability to attract and retain highly skilled
scientists, including molecular biologists, biochemists and engineers.
Recruiting qualified personnel can be an intensely competitive and time-
consuming process. Although we believe we will be successful in attracting and
retaining qualified personnel, competition for experienced scientists and other
technical personnel from numerous companies and academic and other research
institutions may limit our ability to do so on acceptable terms. All of our
employees are at-will employees, which means that either the employee or
Diversa may terminate their employment at any time. If we experience difficulty
in recruiting and retaining qualified personnel, and in particular scientific
personnel, we may need to provide higher compensation to such personnel than we
currently anticipate or we may incur additional expenses for the recruitment of
qualified personnel.
Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel. The inability to acquire these services or to develop
this expertise could impair the growth, if any, of our business.
IF WE ENGAGE IN ANY ACQUISITION, WE WILL INCUR A VARIETY OF COSTS AND MAY
POTENTIALLY FACE NUMEROUS OTHER RISKS THAT COULD ADVERSELY AFFECT OUR BUSINESS
OPERATIONS.
If appropriate opportunities become available, we may consider acquiring
businesses, technologies or products that we believe are a strategic fit with
our business. We currently have no commitments or agreements with respect to
any material acquisitions. If we do pursue such a strategy, we could:
. Issue equity securities which would dilute current stockholders'
percentage ownership;
. Incur substantial debt; or
. Assume contingent liabilities.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future without a
significant expenditure of operating, financial and management resources, if at
all. In addition, future acquisitions might negatively impact our business
relations with our strategic partners. Further, recent proposed accounting
changes could result in a negative impact on our results of operations as well
as the resulting cost of the acquisition. Any of these adverse consequences
could harm our business.
OUR POTENTIAL THERAPEUTIC DRUG PRODUCTS ARE SUBJECT TO VARIOUS LENGTHY AND
UNCERTAIN REGULATORY PROCESSES, WHICH MAY NOT RESULT IN THE NECESSARY
REGULATORY APPROVAL AND COULD PREVENT THE COMMERCIALIZATION OF THESE PRODUCTS.
Substantially all of our projects to date have focused on non-human
applications of our technologies and products. We have not submitted an
investigational new drug application for any product candidate, and no drug
product candidate developed with our technologies has been approved for
commercialization in the United States or elsewhere.
In the future, we may pursue strategic alliances for further research and
development of drug products for humans. The FDA must approve any drug product
before it can be marketed in the United States. Our product candidates must
also be approved by the regulatory agencies of foreign governments before any
product can be sold in those countries. Before we could file a new drug
application or biologic license application with the FDA, any product candidate
would be required to undergo extensive clinical trials, which could take many
years and require substantial expenditures. The regulatory process also
includes preclinical testing. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay,
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limit or prevent regulatory approval. In addition, delays or rejections may be
encountered based upon changes in regulatory policy or requirements for product
approval during the period of product development and regulatory agency review
of each submitted new drug application or product license application. The
regulatory process is expensive and time consuming. Even after investing
significant time and expenditures, we may not obtain regulatory approval for
any drug products.
WE MAY BE SUED FOR PRODUCT LIABILITY.
We may be held liable if any product we develop, or any product which is
made with the use or incorporation of, any of our technologies, causes injury
or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. Although we intend to obtain product liability insurance,
this insurance may be prohibitively expensive, or may not fully cover our
potential liabilities. Inability to obtain sufficient insurance coverage at an
acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of products developed by
us or our strategic partners. If we are sued for any injury caused by our
products, our liability could exceed our total assets.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY, EVEN IF THE ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. These provisions could discourage
potential take-over attempts and could adversely affect the market price of our
common stock. Because of these provisions, you might not be able to receive a
premium on your investment.
THERE IS NO PRIOR MARKET FOR OUR COMMON STOCK, AND YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE THE INITIAL OFFERING PRICE.
Prior to this offering, there has been no public market for shares of our
common stock. An active, liquid trading market may not develop following
completion of this offering, or if developed, may not be maintained. We will
determine the initial public offering price for the shares through negotiations
between us and representatives of the underwriters. This price may not be
indicative of prices that will prevail later in the trading market. The market
price of the common stock may decline below the initial public offering price,
and you may not be able to resell your shares at or above the initial public
offering price.
SIGNIFICANT VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK COULD EXPOSE US
TO LITIGATION RISK.
The stock market, from time to time, has experienced significant price and
volume fluctuations that are unrelated to the operating performance of
companies. The market prices of technology companies, particularly life science
companies, have been highly volatile. Our stock may be affected by this type of
market volatility, as well as by our own performance. The following factors,
among other risk factors, may have a significant effect on the market price of
our common stock:
. Developments in our relationships with current or future strategic
partners;
. Announcements of technological innovations or new products by us or our
competitors;
. Developments in patent or other proprietary rights;
. Our ability to access genetic material from diverse ecological
environments and practice our technologies;
. Future royalties from product sales, if any, by our strategic partners;
. Fluctuations in our operating results;
. Litigation;
. Developments in domestic and international governmental policy or
regulation; and
. Economic and other external factors or other disaster or crisis.
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In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against that company. A securities class action suit against us
could result in substantial costs and the diversion of management's attention
and resources, which could have a material and adverse effect on our business
and/or the market price of our common stock.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in
the public market after the closing of this offering, or the perception that
these sales could occur. These sales could make it more difficult for us to
sell equity securities in the future at a time and price that we deem
appropriate. Please see the information in this prospectus under the heading
"Shares Eligible for Future Sale" for a description of sales that may occur in
the future. In addition, the market price of our common stock could decline if
we sell additional equity securities in connection with financings or strategic
alliance arrangements.
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS MAY PREVENT OTHER STOCKHOLDERS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS AND DEPRESS OUR STOCK PRICE.
After this offering, our officers, directors and stockholders with at least
5% of our stock will together control approximately % of our outstanding
common stock. If these officers, directors and principal stockholders act
together, they will be able to exert a significant degree of influence over our
management and affairs and over matters requiring stockholder approval,
including the election of directors and approval of mergers or other business
combination transactions. The interests of this concentration of ownership may
not always coincide with our interests or the interests of other stockholders.
For instance, officers, directors and principal stockholders, acting together,
could cause us to enter into transactions or agreements that we would not
otherwise consider. Similarly, this concentration of ownership may have the
effect of delaying or preventing a change in control of our company otherwise
favored by our other stockholders. This concentration of ownership could
depress our stock price.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN
THE NET TANGIBLE BOOK VALUE OF YOUR SHARES.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. Therefore, if you
purchase shares of our common stock in this offering, you will incur immediate
and substantial dilution in pro forma net tangible book value of $ per
share. You may incur additional dilution if the holders of outstanding options
or warrants exercise those options or warrants. Additional information
regarding the dilution to investors in this offering is included in this
prospectus under the heading "Dilution."
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS
OFFERING. WE MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH YOU DO NOT AGREE AND IN WAYS THAT MAY NOT YIELD A FAVORABLE RETURN.
Our management will retain broad discretion over the use of proceeds from
this offering. Stockholders may not deem such uses desirable, and our use of
the proceeds may not yield a significant positive return or any return at all.
While we currently intend to use a majority of the proceeds from this offering
for research and development, capital expenditures, working capital and other
general corporate purposes and to finance potential acquisitions, we have not
yet determined the amount of net proceeds to be used specifically for any of
those purposes. Our use of the proceeds from this offering may vary
substantially from our currently planned uses. As a result, investors in this
offering will be relying on the judgment of our management, having only limited
information about our specific intentions for using the proceeds of this
offering. We may not use the proceeds in a manner that will yield a favorable
return.
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WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND
COSTLY.
Our research and development processes involve the controlled use of
hazardous materials, including chemical, radioactive and biological materials.
Our operations also produce hazardous waste products. We cannot eliminate
entirely the risk of accidental contamination or discharge and any resultant
injury from these materials. Federal, state and local laws and regulations
govern the use, manufacture, storage, handling and disposal of these materials.
We may be sued for any injury or contamination that results from our use or the
use by third parties of these materials, and our liability may exceed our total
assets. In addition, compliance with applicable environmental laws and
regulations may be expensive, and current or future environmental regulations
may impair our research, development or production efforts.
YEAR 2000 ISSUES COULD RESULT IN THE INTERRUPTION OF OUR BUSINESS AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.
Many existing computer programs cannot distinguish between a year beginning
with "20" and a year beginning with "19" because they use only the last two
digits to refer to a year. For example, these programs cannot tell the
difference between the year 2000 and the year 1900. As a result, these programs
may malfunction or fail completely. We have completed our initial assessment of
the year 2000 readiness of our core information technology systems. Through
this process, we contacted key external suppliers of software applications and
computer systems to coordinate the evaluation of potential year 2000 issues. To
date, we have not encountered any material year 2000 problems with software and
information systems provided to us by third parties. We are in the process of
completing minor remediation with regard to software programs, hardware and
microprocessor-controlled equipment. We intend to complete all required
remediation work by the end of the year. However, we believe that it is not
possible to determine with complete certainty that all year 2000 problems
affecting us have been identified or will be corrected. The number of devices
and systems that could be affected and the interactions among these devices and
systems are too numerous to address.
No one can accurately predict which year 2000 problem-related failures will
occur, or the severity, timing, duration or financial consequences of these
potential failures. If year 2000 problems significantly impact our strategic
partners, it could delay our research programs and the commercialization of
products, if any. Business disputes alleging that we failed to comply with the
terms of contracts or industry standards of performance could result in
litigation or contract termination. We could also lose future revenue as a
result of network, software or hardware failures. We also could be materially
adversely affected if third parties, upon whom we depend in order to run our
day-to-day business, experience year 2000 problems. For example, if our
supplier of electricity has not made appropriate year 2000 corrections, we
could experience a power outage and, consequently an interruption of our
research and development.
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SPECIAL STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "intend," "potential" or
"continue" or the negative of these terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially
from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus or to conform these statements to
actual results.
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$ million, based upon an assumed initial public offering price of $
per share, after deducting estimated underwriting discounts and estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that net proceeds will be $ million.
We intend to use the net proceeds of this offering for research and
development, capital expenditures, working capital and general corporate
purposes. Additionally, a portion of the proceeds may be used for possible
future acquisitions. We are not currently a party to any contracts or letters
of intent with respect to any acquisitions. Pending such uses, the net proceeds
of this offering will be invested in short-term, interest-bearing, investment-
grade securities.
DIVIDEND POLICY
We paid dividends of approximately $31,000 in 1995 and approximately $66,000
in 1997 to our series I preferred stockholders. These dividends were paid
pursuant to an agreement related to interest income on escrowed funds, and did
not represent a dividend from operating results. Pursuant to our certificate of
incorporation, our series A, B and D preferred stockholders are entitled to
receive a 5% dividend per annum from December 21, 1999 through the date of
completion of this offering. The annual dividend is $0.05 per share of series A
preferred stock, $0.033 per share of series B preferred stock and $0.0425 per
share of series D preferred stock. We are entitled to pay this dividend in cash
or in shares of common stock valued at the initial public offering price. We
intend to pay these dividends in shares of our common stock. We presently
intend to retain future earnings, if any, to finance the expansion of our
business and do not expect to pay any cash dividends in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of our
board of directors and will be dependent upon our financial condition, results
of operations, capital requirements, general business conditions and other
factors that the board of directors may deem relevant.
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CAPITALIZATION
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes to those statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
--------------------------
PRO
PRO FORMA AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments.. $ 9,763 $24,763 $
======= ======= ========
Capital lease obligations, less current portion.... $ 2,400 $ 2,400 $
------- ------- --------
Redeemable convertible preferred stock, par value
$0.001; 60,718,183 shares authorized; 60,220,183
shares issued and outstanding (actual and pro
forma); no shares issued and outstanding (pro
forma as adjusted)................................ 48,402 48,402
Stockholders' equity (deficit):
Series E convertible preferred stock, par value
$0.001; 5,555,556 shares authorized, 5,555,556
shares issued and outstanding (actual and
pro forma); no shares issued or outstanding (pro
forma as adjusted)............................... 6 6
Common stock, par value $0.001; 82,472,584 shares
authorized, 6,716,812 shares issued and
outstanding (actual and pro forma); shares
issued and outstanding (pro forma as adjusted)... 7 7
Additional paid-in capital........................ 10,012 10,012
Deferred compensation............................. (940) (940)
Notes receivable from stockholders................ (49) (49)
Accumulated deficit............................... (51,719) (51,719)
Accumulated other comprehensive loss.............. (10) (10)
------- ------- --------
Total stockholders' equity (deficit)........... (42,693) (42,693)
------- ------- --------
Total capitalization........................... $ 8,109 $ 8,109 $
======= ======= ========
</TABLE>
This table sets forth as of September 30, 1999:
. our actual capitalization;
. our pro forma capitalization, assuming the receipt of an initial payment
from Novartis Seeds AG related to a new strategic alliance agreement
signed in December 1999; and
. our pro forma as adjusted capitalization to give effect to the sale of
shares of our common stock in this offering at an assumed initial
public offering price of $ per share after deducting estimated
underwriting discounts and commissions and estimated expenses of this
offering and the conversion of all of our outstanding preferred stock
into common stock in conjunction with the closing of the initial public
offering.
This table excludes:
. 19,976,434 shares of our common stock reserved for issuance under our
stock option plans, including 8,700,000 shares authorized following
September 30, 1999, of which 7,841,000 shares are subject to outstanding
options with a weighted average exercise price of $0.24 per share;
. 800,000 shares available for issuance under our Non-Employee Directors
Plan approved in December, 1999;
. 1,200,000 shares available for issuance under our 1999 Employee Stock
Purchase Plan approved in December 1999;
. 1,048,890 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $0.50 per share; and
. shares of common stock to be issued at the closing of this
offering to holders of our series A, B and D preferred stock as payment
of a dividend that will begin to accrue on December 21, 1999.
18
<PAGE>
DILUTION
Our pro forma net tangible book value, as of September 30, 1999, was $ ,
or $ per share of common stock, assuming the conversion of all
outstanding shares of preferred stock into shares of common stock. Pro forma
net tangible book value represents the amount of total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding.
After giving effect to our sale of common stock offered hereby at an assumed
initial public offering price of $ per share, and our receipt of the
estimated net proceeds from the offering, our pro forma net tangible book value
as of September 30, 1999 would have been approximately $ million, or
$ per share. This represents an immediate increase in net tangible
book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $
Pro forma net tangible book value per share before the
offering $
Increase per share attributable to new investors...........
--------
Pro forma net tangible book value per share after this
offering....................................................
--------
Dilution per share to new investors.......................... $
========
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the differences between existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid before deducting the
underwriting discounts and commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
SHARES
PURCHASED TOTAL CONSIDERATION
--------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... % $ % $
New public investors....... % %
------- ----- ----------- --------
Total.................... 100.0% $ 100.0%
======= ===== =========== ========
</TABLE>
The discussion and tables above assume no exercise of stock options or
warrants outstanding as of September 30, 1999. As of September 30, 1999, there
were options outstanding to purchase a total of 7,841,000 shares of common
stock, with a weighted average exercise price of $0.24 per share, and 1,048,890
shares of common stock issuable upon the exercise of outstanding warrants, with
a weighted average exercise price of $0.50 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors.
19
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial data set forth below with respect to the Company's
statements of operations for the years ended December 31, 1997, 1998 and the
nine months ended September 30, 1999, and with respect to the Company's balance
sheets at December 31, 1998 and September 30, 1999 are derived from our
financial statements that have been audited by Ernst & Young LLP, which are
included elsewhere in this prospectus, and are qualified by reference to such
financial statements. The statement 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 are derived from our audited financial statements that are not
included in this prospectus. The statement of operations data for the nine
months ended September 30, 1998 are derived from our unaudited financial
statements also appearing in this prospectus which in the opinion of management
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of our financial position and results of
operations for the unaudited interim period. The selected financial information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------
1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Collaborative revenue... $ -- $ 200 $ 669 $ 625 $ 375 $ 5,766
Grant and product
revenue................ 25 506 486 722 432 693
------- -------- -------- -------- -------- --------
Total revenue......... 25 706 1,155 1,347 807 6,459
Operating expenses:
Research and
development............ 5,306 6,496 7,996 10,182 7,768 7,877
Selling, general and
administrative......... 3,551 4,465 4,774 3,354 2,673 3,206
Restructuring charge.... -- 1,164 -- -- -- --
Amortization of deferred
compensation and other
non-cash compensation
charges................ -- -- -- -- -- 1,360
------- -------- -------- -------- -------- --------
Total operating
expenses............. 8,857 12,125 12,770 13,536 10,441 12,443
------- -------- -------- -------- -------- --------
Operating income
(loss)................. (8,832) (11,419) (11,615) (12,189) (9,634) (5,984)
Other income (expense).. (72) (227) (92) 344 303 181
------- -------- -------- -------- -------- --------
Net income (loss)....... $(8,904) $(11,646) $(11,707) $(11,845) $ (9,331) $ (5,803)
======= ======== ======== ======== ======== ========
Historical net income
(loss) per share, basic
and diluted............ $ (2.56) $ (2.67) $ (2.53) $ (2.33) $ (1.79) $ (0.89)
======= ======== ======== ======== ======== ========
Historical weighted
average shares
outstanding............ 3,481 4,369 4,626 5,093 5,206 6,538
Pro forma net loss per
share.................. $ (0.18) $ (0.08)
======== ========
Pro forma weighted
average shares
outstanding............ 65,313 72,314
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short term investments..... $ 622 $ 5,040 $16,607 $ 5,552 $ 9,763
Working capital............. (1,276) 3,584 13,540 2,470 5,631
Total assets................ 4,769 9,973 20,284 8,706 13,072
Capital lease obligations,
less current portion....... 2,213 1,725 1,500 2,202 2,400
Redeemable convertible
preferred stock............ 10,595 26,182 48,402 48,402 48,402
Stockholders' equity
(deficit).................. (10,580) (22,156) (34,024) (45,738) (42,693)
</TABLE>
See our financial statements for a description of the computation of the
historical and pro forma net income (loss) per share and the number of shares
used in the historical and pro forma per share calculations in "Statement of
Operations Data" above.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes to our financial statements and the other
financial information included elsewhere in this prospectus.
Overview
We were founded in December 1992 and began operations in May 1994. We
believe that we are the global leader in discovering and developing novel
enzymes and other biologically active compounds from diverse environmental
sources for use in agricultural, chemical processing, industrial and
pharmaceutical applications. To date, we have generated revenue from research
collaborations, government grants and enzyme product sales. Our strategic
partners include Novartis Seeds AG, Novartis Agribusiness Biotechnology
Research Inc., The Dow Chemical Company, Rhone-Poulenc Animal Nutrition and
Finnfeeds International Limited. Our current government grants are from the
National Institute of General Medical Sciences, the National Cancer Institute
and the National Institute of Environmental Health Sciences. Our enzyme product
sales to date are comprised of research kits and Pyrolase 160.
We have dedicated substantial resources to the development of our
proprietary technologies, which include capabilities for sample collection from
the world's microbial populations, generation of environmental gene libraries,
screening of these libraries using ultra-high throughput methods capable of
analyzing more than a billion genes per day and optimization via our
DirectEvolution technologies.
Our revenue has increased significantly since our inception, and for the
nine months ended September 30, 1999, we have experienced significant growth
over the comparable period for 1998. This increase was primarily attributable
to the addition of new strategic alliances, which included research funding and
technology access and development fees. Research funding is recognized as
revenue when the services are rendered. Revenue from technology access and
development fees is recognized over the term of the strategic alliance. Revenue
from milestone payments is recognized when the milestone is achieved. Our
strategic partners often pay us before we recognize the revenue, and these
payments are deferred until earned. As of September 30, 1999, we had deferred
revenue of $2.4 million.
We have incurred substantial operating losses since our inception. As of
September 30, 1999, our accumulated deficit was $51.7 million, and total
stockholders' equity, after considering the conversion of all outstanding
shares of preferred stock to common stock, was $5.7 million. We expect to incur
additional operating losses over the next few years as we continue to develop
our technologies and fund internal product research and development.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
Revenue
Our revenue increased $5.7 million to $6.5 million for the nine months ended
September 30, 1999 from $0.8 million for the nine months ended September 30,
1998. This increase was primarily attributable to the addition of new strategic
alliances with Novartis Agribusiness Biotechnology Research, Inc. and The Dow
Chemical Company and, to a much lesser extent, the addition of new government
grants and enzyme product sales. Revenue from collaborations accounted for 89%
of total revenue for the nine months ended September 30, 1999 and for 46% of
total revenue for the nine months ended September 30, 1998.
21
<PAGE>
Research and Development Expenses
Our research and development expenses increased $0.1 million to $7.9 million
for the nine months ended September 30, 1999, from $7.8 million for the nine
months ended September 30, 1998. During 1999, our research efforts were
primarily focused on research associated with strategic alliance agreements and
continued work on internal products, whereas in 1998, we focused significant
resources on development of internal products and proprietary technologies. We
expect that our research and development expenses will increase substantially
to support our collaborative research programs, internal product research and
development and technology development.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses increased $0.5 million to
$3.2 million for the nine months ended September 30, 1999 from $2.7 million for
the nine months ended September 30, 1998. This increase was primarily
attributable to expenses related to separation agreements with former
employees. We expect that our selling, general and administrative expenses will
increase to support our growth and requirements as a public company.
Deferred Compensation and Other Non-Cash Compensation Charges
Deferred compensation for options granted to employees has been determined
as the difference between the exercise price and the fair market value as
estimated by us for financial reporting purposes of our common stock on the
date options were granted. Deferred compensation for options granted to
consultants has been determined in accordance with Statement of Financial
Accounting Standards No. 123 as the fair value of the equity instruments
issued, and is periodically remeasured as the underlying options vest.
In connection with the grant of stock options to employees, we recorded
deferred compensation of approximately $1.5 million in the nine month period
ended September 30, 1999. This amount was recorded as a component of
stockholders' equity and is being amortized as a charge to operations over the
vesting period of the options. We recorded amortization of deferred
compensation of approximately $0.6 million for the nine months ended September
30, 1999. We anticipate recording additional deferred stock compensation for
the grant of stock options to employees in the three months ending December 31,
1999.
We recorded non-cash compensation charges of $0.8 million in conjunction
with the acceleration of vesting for stock options of terminated employees. We
calculated the charge as the difference between the exercise price of the stock
options and the fair market value of our common stock as we estimated for
financial reporting purposes.
Other Income (Expense)
Other income (expense) primarily consists of interest income and interest
expense. Interest income was level at $0.4 million for the nine months ended
September 30, 1999 as compared to the nine months ended September 30, 1998.
Interest expense increased $0.1 million to $0.3 million for the nine months
ended September 30, 1999 from $0.2 million for the nine months ended September
30, 1998. This increase was primarily attributable to expanded equipment lease
financing.
Provision for Income Taxes
We incurred net operating losses for the nine months ended September 30,
1999 and 1998, and accordingly, we did not pay any federal or state income
taxes. As of September 30, 1999, we had federal net operating loss
carryforwards of approximately $47.8 million, which begin to expire in 2009.
The net operating loss carryforwards for state tax purposes were approximately
$32.4 million, which began to expire in 1999. We also had federal research and
development tax credit carryforwards of approximately $1.2 million, which begin
to expire in 2009. Our utilization of the net operating losses and credits may
be subject to substantial annual limitations pursuant to Section 382 of the
Internal Revenue Code, and similar state provisions, as a result of changes in
our ownership structure. The annual limitations may result in the expiration of
net operating losses and credits prior to utilization.
22
<PAGE>
Years Ended December 31, 1998 and 1997
Revenue
Our revenue increased to $1.3 million in 1998 from $1.2 million in 1997.
This increase was primarily attributable to the addition of new government
grants. Revenue from collaborations accounted for 46% of total revenue for 1998
and 58% of total revenue for 1997.
Research and Development Expenses
Our research and development expenses increased $2.2 million, or 28%, to
$10.2 million for 1998 from $8.0 million for 1997. This increase was primarily
attributable to expanded technology development and internal product
development.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses decreased $1.4 million to
$3.4 million for 1998 from $4.8 million for 1997. This decrease was primarily
attributable to lower staffing and related costs and reduced product
advertising and promotions. In addition, 1997 expenses include costs associated
with relocating our facilities from Pennsylvania to California.
Other Income (Expense)
Interest income increased $0.3 million to $0.6 million for 1998 from $0.3
million for 1997. This increase was attributable primarily to higher average
cash balances during 1998. Interest expense was level at $0.3 million year over
year.
Provision for Income Taxes
We incurred net operating losses for 1998 and 1997, and accordingly, we did
not pay any federal or state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our business primarily through private
placements of preferred stock with net proceeds of $55.7 million, and funding
from strategic partners and government grants. As of September 30, 1999, we had
cash, cash equivalents and short-term investments of approximately $9.8
million, and $1.3 million available under an equipment financing line of
credit. We expect to receive an additional $15.0 million in December 1999 from
Novartis Seeds AG as an initial payment under a strategic alliance agreement
signed in December 1999, subject to regulatory clearance of this transaction.
Our funds are currently invested in U.S. Treasury and government agency
obligations and investment-grade corporate obligations.
Our operating activities used cash of $1.3 million in the nine months ended
September 30, 1999 and $8.9 million in the nine months ended September 30,
1998. Our operating activities used cash of $10.8 million in 1998 and $11.2
million in 1997. Our use of cash for all periods primarily resulted from our
losses from operations and the changes in our working capital accounts.
Our investing activities used cash of $5.8 million in the nine months ended
September 30, 1999 and $1.1 million in the nine months ended September 30,
1998. Our investing activities used cash of $1.9 million in 1998 and $0.7
million in 1997. Our investing activities consist primarily of purchases of
property and equipment, and purchases of investment securities.
Our financing activities provided $6.6 million for the nine months ended
September 30, 1999 and $0.5 million for the nine months ended September 30,
1998. Our financing activities provided cash of $0.6 million
23
<PAGE>
in 1998 and $23.5 million in 1997. Our financing activities have consisted
primarily of the sale of preferred stock to both private investors and
strategic partners, and proceeds received and payments made under our capital
lease lines and notes payable.
We expect that the proceeds from this offering, combined with our current
cash and cash equivalents, short-term investments, and funding from existing
strategic alliances and grants will be sufficient to fund our operations for at
least the next two years. This estimate is a forward-looking statement that
involves risks and uncertainties as set forth under the caption "Risk Factors"
in this prospectus. Our future capital requirements and the adequacy of our
available funds will depend on many factors, including scientific progress in
our research and development programs, the magnitude of those programs, our
ability to establish strategic alliance relationships, and competing
technological and market developments. Therefore, it is possible that we may
seek additional financing within this timeframe. If we require additional
capital to fund our operations and such financing is not available, we may need
to cease operations. Alternatively, we may need to enter into financing
arrangements which could dilute some stockholders' ownership interests and
adversely affect their rights.
Year 2000
Many computers, software, and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are commonly referred to as the year 2000 problem.
The year 2000 problem potentially affects the computers, software and other
equipment that we use, operate or maintain in our operations. As a result, we
have formalized our year 2000 compliance plan to be implemented by a team of
employees, led by our internal information technology staff, responsible for
monitoring the assessment and remediation status of our year 2000 projects. We
have been working on this year 2000 compliance plan for the past six months.
Information Technology Systems. As part of our compliance plan, we have made
an assessment of the year 2000 readiness of our core information technology
systems, including our servers, databases, internally developed software,
desktop computers and significant microprocessor-controlled equipment. The
majority of our computer systems and software are less than 26 months old. Our
business system was put into use in 1998 and has been certified year 2000
compliant. We have completed our initial assessment of the year 2000 readiness
of our core information technology systems. Through this process, we contacted
key external suppliers of software applications and computer systems to
coordinate the evaluation of potential year 2000 issues. We are in the process
of completing minor remediation with regard to software programs, hardware and
microprocessor-controlled equipment. When appropriate, we are coordinating our
remediation efforts with our third party suppliers. We plan to complete this
remediation work by the end of 1999.
Systems Other than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices may
be affected by the year 2000 problem. We are currently assessing the potential
effect and costs of remediating the year 2000 problem on our office equipment
and our facilities.
Costs of Remediation. We have spent less than $50,000 to date for
remediation and expect to incur minimal additional costs related to any
required modifications, upgrades or replacements of our internal systems.
While we cannot determine with complete certainty that all year 2000
problems affecting us have been identified or corrected, we do not believe that
the year 2000 problem will have a material adverse effect on our business or
operating results. In addition, we have not deferred any material information
technology projects or equipment purchases, as a result of our year 2000
problem activities.
24
<PAGE>
Most Likely Consequences of Year 2000 Problems. We believe we have
identified, and by the end of the year will have resolved, all year 2000
problems that could materially adversely affect our business operations.
However, we believe that it is not possible to determine with complete
certainty that all year 2000 problems affecting us have been identified or
corrected. The number of devices and systems that could be affected and the
interactions among these devices and systems are too numerous to address. In
addition, no one can accurately predict which year 2000 problem-related
failures will occur or the severity, timing, duration, or financial
consequences of these potential failures. As a result, we believe that the
following consequences are possible:
. Operational inconveniences and inefficiencies for us and our strategic
partners that will divert management's time and attention and financial
and human resources from ordinary business activities;
. Business disputes alleging that we failed to comply with the terms of
contracts or industry standards of performance, some of which could
result in litigation or contract termination; and
. Loss of revenue as a result of network, software or hardware failures.
We also could be materially adversely affected if third parties upon whom we
depend in order to run our day-to-day business experience year 2000 problems.
For example, if our supplier of electricity has not made appropriate year 2000
corrections, we could experience a power outage and, consequently an
interruption of our research and development.
Contingency Plans. We do not anticipate needing to develop contingency plans
to be implemented if our efforts to identify and correct year 2000 problems
affecting our internal systems are not effective. If the need arises, we will
rapidly develop contingency plans that may include:
. Accelerated replacement of affected equipment or software;
. Short to medium-term use of backup equipment and software or other
redundant systems;
. Increased work hours for our personnel or the hiring of additional
information technology staff; and
. The use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.
Our implementation of any of these contingency plans could harm our
business.
Disclaimer. The discussion of our efforts and expectations relating to year
2000 compliance contains forward-looking statements. Our ability to achieve
year 2000 compliance, and the level of incremental costs associated with our
compliance, could be adversely affected by, among other things, the
availability and cost of contract personnel and external resources, third-party
suppliers' ability to modify proprietary software and unanticipated problems
not identified in the ongoing compliance review.
Recently Issued Accounting Standards
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 will be effective for our fiscal
year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an
asset or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless
specific hedge accounting criteria are met. SFAS 133 is not anticipated to have
a significant impact on our operating results or financial condition when
adopted, since we currently do not engage in hedging activities.
25
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
Our risk associated with fluctuating interest expense is limited, however, to
our capital lease obligations, the interest rates under which are closely tied
to market rates, and our investments in interest rate sensitive financial
instruments. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. We ensure the safety
and preservation of our invested principal funds by limiting default risks,
market risk and reinvestment risk. We mitigate default risk by investing in
investment grade securities. A hypothetical 100 basis point adverse move in
interest rates along the entire interest rate yield curve would not materially
affect the fair value of our interest sensitive financial instruments at
December 31, 1998 or September 30, 1999. Declines in interest rates over time
will, however, reduce our interest income while increases in interest rates
over time will increase our interest expense.
26
<PAGE>
BUSINESS
We believe that we are the global leader in discovering and developing novel
enzymes and other biologically active compounds, together known as
biomolecules, from diverse environmental sources for use in agricultural,
chemical processing, industrial and pharmaceutical applications. We apply our
fully-integrated and proprietary processes to obtain previously unaccessed
genetic material from uncultured organisms found in various natural
environments, catalog and store genes in gene libraries, screen these libraries
using methods capable of analyzing more than a billion genes per day, optimize
selected enzymes and compounds by applying our proprietary DirectEvolution(R)
genetic modification technologies, including Gene Site Saturation
Mutagenesis(TM) and GeneReassembly(TM) systems, and we develop novel host
organisms for the manufacture of resulting products. We have entered into a
number of strategic alliances with market leaders across multiple industries,
including: Novartis Seeds AG, Novartis Agribusiness Biotechnology Research
Inc., The Dow Chemical Company, Rhone-Poulenc Animal Nutrition and Finnfeeds
International Limited.
Industry Background
Introduction
Microbes, such as bacteria and fungi, are the world's most abundant and
varied organisms and can be found in almost every ecosystem, including oceans,
deserts, rain forests and arctic regions. Through generations of natural
selection in diverse environments, microbes have developed characteristics that
are broader and more varied than those encountered in plants or animals. These
characteristics, which include the ability to survive in extreme temperature,
tolerate high or low pH and high or low salt environments, are the result of
the highly diverse genetic material found in the microbial world. This genetic
material, commonly known as DNA, is a fundamental molecule found in the cells
of all living organisms and is composed of four different chemical bases called
nucleotides. Nucleotides are arranged into units called genes, which are the
elements of heredity. Each gene carries the instructions for the production of
a protein. One key class of proteins, known as enzymes, carries out the
chemical reactions that give each microbe its unique character. Countless
microbes, each with their unique enzymes, influence our lives in a multitude of
ways. For example, some microbes make the soil fertile, clean up the
environment and supply the atmosphere with oxygen, while others are used to
produce vitamins and drugs, or improve our food.
Commercial Applications
Virtually any product or process that utilizes or could utilize proteins can
potentially be improved using novel, naturally occurring biomolecules.
Consequently, naturally occurring biomolecules are commercially applicable to a
broad range of multi-billion dollar industries. For example, enzymes isolated
from microorganisms have been used in home laundry detergents and for the
production of cheese and sweeteners. While most enzyme applications were
developed prior to the era of biotechnology, new commercial applications have
been limited in the 1990's primarily because of the lack of new varieties of
enzymes. Additionally, a significant portion of the enzymes being used
commercially are not optimal for their intended uses.
Traditional Approaches and Their Limitations
Traditional methods of discovering enzymes and other biologically active
molecules do not utilize a DNA-based approach, but are accomplished by
screening extracts of plants or culturing microorganisms for the activity of
interest. Once an activity is identified, purification is performed and the
relevant molecule is isolated. With respect to biologically active molecules,
this process is followed by the difficult and time consuming task of
determining the chemical structure of the molecule, which requires producing
sufficient quantities of the molecule by culturing a sample in the laboratory.
To date, modern biochemical science has characterized greater than 3,000
enzymes. Nearly all of such enzymes have been identified from organisms that
have been successfully cultured in the laboratory. Therefore, enzymes from only
a small fraction of the billions
27
<PAGE>
of different species of microorganisms living throughout the world have been
characterized. The reasons for this include:
. Less than an estimated 1% of the microorganisms in most habitats will
grow using standard laboratory techniques because it is so difficult to
precisely create the required environmental conditions;
. If an extract from a plant or cultured organism is not collected at the
appropriate time, the activity of interest may not be present, since
enzymes and other bioactive molecules may only be synthesized at
specific times during a cell cycle or under specific conditions; and
. Even if the enzyme or bioactive molecule is isolated, the targeted
recovery of the corresponding gene or genes encoding these molecules is
usually difficult.
Accordingly, the universe of potentially useful compounds from biodiversity
remains largely untapped.
Once an enzyme of interest is discovered, its genetic sequence can be
studied and genetic variation may be introduced in an attempt to modify its
function through this process of evolution. Genetic variation is generated
predominantly by two methods: mutation and recombination. Mutation is the
introduction of changes into a gene. Mutation can be achieved by several
methods, including forcing the DNA to replicate in a manner which intentionally
causes random changes. Mutation is typically achieved by randomly introducing
single DNA base mutations into a gene in an attempt to alter a single amino
acid within the corresponding protein. Each of these methods has deficiencies
that make it virtually impossible to generate all 19 possible amino acid
changes at each position within the protein. To generate all amino acid changes
at each site would require multiple, appropriately positioned DNA base changes.
In actual practice, fewer than six changes, on average, are explored due to
deficiencies in mutation and sampling methods. Recombination, the other method
for producing genetic variation, is the mixing of two or more related genes to
form hybrids. However, the generation of improved variants has, to date, been
inefficient and laborious, or has allowed only closely related genes to be
recombined.
Regardless of the method used to generate the variation, mutation or
recombination, the improved molecules must be selected from numerous unimproved
or defective versions. This selection process requires the ability to quickly
screen large numbers of genes to distinguish the improved versions.
Once a desired gene is found and optimized, commercial production requires
insertion of the gene into a production system or host. Almost all of the
current commercial enzymes used in industrial applications today were derived
from cultured microorganisms and produced in these or similar organisms.
However, genes encoding unique biomolecules may not be able to be expressed and
commercially produced in traditional systems. Thus, traditional methods present
both the problem of novel biomolecule identification and the challenge of
commercial production of any identified biomolecules.
DIVERSA'S SOLUTION AND ADVANTAGES
Our proprietary technologies and tools address the limitations of
traditional approaches for the recovery and modification of novel genes and
linked genes comprising novel gene pathways and the manufacture and
commercialization of related products. Our fully-integrated process includes
the following steps:
. We collect small environmental samples containing heterogeneous
populations of uncultured microbes from diverse ecosystems and extract
the genetic material from these organisms, eliminating the need to grow
and maintain the organisms in cultures in the laboratory. Since small
samples yield sufficient DNA, we minimize our impact on sensitive
environments.
. We create gene expression libraries, DiverseLibraries(TM), from the DNA
extracted from the organisms found in the specified environment, and
PathwayLibraries(TM), libraries of multi-gene pathways responsible for
the production of small molecules. We estimate that our gene expression
libraries currently contain the complete genomes of over 1 million
unique microorganisms, comprising a vast resource of genetic material
that can be screened for valuable commercial products.
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. We employ proprietary methods for quickly and cost-effectively screening
large numbers of novel genes and their variants. Our proprietary
screening techniques efficiently address the tremendous volume of
genetic material captured in our libraries and significantly accelerate
the product development process. Our data management and analysis
system, SciLect(TM), allows us to store and manipulate the vast amount
of information generated from our screening activities.
. We utilize our proprietary DirectEvolution technologies, including Gene
Site Saturation Mutagenesis and GeneReassemby, to enable a full range of
accelerated DNA mutations. This greatly enhances the efficiency of the
evolution process, and reduces the laborious nature of current mutation
and recombination processes.
. We insert a selected gene or pathway into novel hosts for biomolecule
production for the manufacture of resulting products, facilitating
better gene expression and thereby improving the efficiency of
traditional production processes.
[A diagram titled Diversa: Innovation from BioDiversity Process, depicting
movement through our proprietary process and technologies.
We believe the integration of these capabilities enables us to maintain our
leadership in developing and commercializing novel products to address the
needs of our target markets. The genetic diversity of our expansive gene
libraries and our proprietary high-throughput screening and evolution
technologies allow us to shorten the development cycles for novel enzymes and
biologically active compounds. Additionally, our processes are designed to help
our customers improve their manufacturing processes, reduce costs, reduce
waste, improve yield and improve the quality of their end products.
MARKET OPPORTUNITIES
We are developing products for a number of multi-billion dollar markets,
including agricultural, chemical processing, industrial and pharmaceutical
applications. Our target markets provide both short-term and long-term product
revenue opportunities, with chemical and industrial products having relatively
short development and regulatory approval processes, agricultural products
having intermediate term development and regulatory approval processes, and
pharmaceutical products having longer development and regulatory approval
processes.
Within these broad markets we are targeting key segments where we believe
our technologies and products will create high value and competitive advantages
for our strategic partners and our customers. We have been
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able to identify and produce enzymes that exhibit dramatic increases in
efficiency and stability applicable to strategic partners' and customers'
unique requirements, such as high or low temperature stability, high or low pH
tolerance, high or low salt tolerance, or combinations of these features.
Agricultural Products
The growth of the agricultural market has been spurred by the world's
population growth. This growth has led to the demand for new technology that
improves productivity, reduces environmental impact and improves quality,
safety and nutritional value of agricultural products. Animal feed crops, such
as corn, wheat, barley, rye, oats and soybean, can be improved through the
selective development of value-added traits. We estimate that the animal feed
market is currently $36 billion in annual revenue. Additionally, in 1997 $5.9
billion was spent on animal feed additives for the purpose of improving feed
digestibility and increasing nutritional value.
Genetically engineered crops with improved traits are expected to contribute
substantially more value to the existing $15 billion agriculture seeds market.
In addition, consumer and regulatory demands for alternative pest management
solutions will fuel growth in the agrochemical market, estimated at $33 billion
in 1998.
In agriculture, we are developing a variety of specialty enzymes, engineered
genes and small molecules for use in the following applications:
. Crop Protection. We have developed enzymes that will be used as
biological catalysts to produce building blocks for agricultural
chemicals and active ingredients in herbicides and insecticides. We are
also developing genes to be inserted into crops to provide them with
insect resistance and herbicide tolerance. In addition, we are
developing small molecules with anti-fungal properties. These products
are designed to increase crop yield and reduce the environmental impact
of crop protection techniques.
. Animal Feed Additives. Animal feed additives are designed to increase
digestibility of essential vitamins and minerals, increase nutritional
value and animal product yield and reduce harmful materials in waste. We
are developing several classes of enzymes, including phytases,
carbohydrases and proteases, for the increased absorption of organic
phosphorous and digestibility of carbohydrates, as well as the promotion
of weight gain in livestock. We are also developing genes to impart
these same qualities into genetically engineered crops.
. Agricultural Product Processing. We have developed genes for improving
grain processing, nutrition and specialty foods. These applications
include starch and oil modification and breakdown of non-starch
polysaccharides to increase nutritional and food value.
. Animal Health. In addition to the above applications, we intend to
develop vaccines and therapeutics to treat and prevent diseases of farm
animals.
Chemical Processing
The chemical industry currently accounts for $800 billion in revenue
annually. Our focus is on both fine chemicals, such as chiral chemicals used as
building blocks for pharmaceuticals, and high-performance chemicals. The
current market for fine chemicals, one of the fastest growing, highest margin
segments in the chemical industry, is approximately $45 billion, of which an
estimated $25 billion relates to building blocks useful for the manufacture of
chiral and other drugs.
In chemical processing, we are developing a variety of specialty enzymes for
use in the following applications:
. Building Blocks for Production of Chiral Pharmaceuticals. We are
developing enzymes for the production of desired, active and essential
elements for the manufacture of chiral drugs, including many of the
leading revenue generating drugs currently on the market. We believe
these enzymes may also reduce production costs and waste associated with
manufacturing these compounds.
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. High Performance Specialty Chemicals and Polymers. We are developing
enzymes that act as biological catalysts in the production of specialty
chemicals and polymers such as amino acids, anti-oxidants, vitamins and
pigments. These enzymes are intended to reduce manufacturing costs both
by reducing the amount and number of steps necessary to produce these
specialty chemicals and polymers and by reducing the production of
unwanted byproducts from these production processes.
Industrial Enzymes
Industrial enzymes represents a growing market, estimated at $1.8 billion in
revenue in 1998. We believe there are a number of applications within this
market that could provide us with commercial opportunities. We are currently
developing a variety of specialty enzymes for use in the following
applications:
. Oil and Gas Well Breakers. We have developed thermostable enzyme
breakers that improve viscosity control and are designed for use in deep
and high temperature wells. These enzyme breakers allow for improved
extraction of oil and gas from existing wells, resulting in greater
production and increased revenue per well.
. Detergents. We are developing more effective enzymes for solving
currently unmet needs in fabric care, dishwashing and industrial
cleaning. These specialty enzymes are intended to improve removal of
oil, protein, starch and other difficult-to-remove stains, as well as
maintain the original condition of washed fabrics.
. Corn Wet Milling. Corn wet milling enzymes are used to modify the starch
found in corn to produce higher value end products, such as high
fructose corn syrup and ethanol. We are developing new enzymes that we
believe will significantly reduce the costs and energy requirements for
this process, by eliminating the need for particular process adjustments
and the waste that results from these processes.
. Textile Manufacturing. We have developed, and are continuing to develop,
enzymes that assist in the removal of starch from textiles in
manufacturing and also impart desired appearance qualities to the
finished fabric. These enzymes are designed to reduce the manufacturing
cost and waste associated with the use of harsh chemicals currently used
in this process.
. Pulp and Paper Processing. We intend to develop enzymes to aid in pre-
bleaching pulp, which reduces the need to use strong oxidizer chemicals,
such as chlorine and sulfite, in that process. The enzymes we develop
could reduce the cost of pulp processing both by reducing the amount of
oxidizer chemicals required and the expense associated with treating the
waste resulting from the use of these harsh chemicals.
. Production of Modified Oils. We intend to develop enzymes to create
custom products, such as margarines, cooking oils and lubricants,
through the modification of fats and oils. Our enzymes will be directed
to improving product qualities, such as reducing the cholesterol causing
components in margarine and cooking oils and improving the heat
stability of lubricants.
Pharmaceutical Products
According to an industry source, the worldwide pharmaceutical market was
$300 billion in 1998 and is expected to grow to $415 billion by 2002. Our
earlier-stage pharmaceutical program seeks to apply our technologies to the
discovery and development of compounds for selected applications within this
market. We believe that the initial applications for our technologies will lead
to strategic partnerships that include:
. Discovery of Small Molecule Compounds. Using our ultra high-throughput
screening methods, we are working to discover small molecule compounds
as candidates for anti-microbials, anti-fungals, anti-virals and other
therapeutic drugs. We believe that our recombinant product methodologies
can yield results superior to other approaches because natural pathways
can yield more complex chemical structures compared to lab-based
synthesis. In addition, naturally-derived molecules have been pre-
selected in the environment to perform specific biological functions.
Finally, our recombinant small molecule discovery approach permits
higher throughput discovery.
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. Improving Protein Therapeutics, Vaccines and Gene Therapy Products. We
intend to apply our technologies to the improvement of protein
therapeutics, vaccines and gene therapy products. Our DirectEvolution
technologies can be utilized on environmental and human proteins to
generate human therapeutics with enhanced activity, reduced side effects
and extended patent life.
OUR STRATEGY
Our goal is to be the leading provider of novel enzymes and biologically
active compounds for use in agricultural, chemical processing, industrial and
pharmaceutical applications. The key elements of our strategy are to:
Protect and enhance our technology leadership position. We are unique
relative to our competitors in that we have an end-to-end product solution
consisting of access to novel genetic material, assay technologies capable of
screening more than a billion genes per day, multiple evolution technologies
and manufacturing expertise. We have surrounded our technology with a
substantial portfolio of intellectual property, and we will continue to make
investments in developing and protecting these assets.
Expand our existing DNA libraries through access to novel genetic material
and utilize our proprietary technologies to discover new genes and pathways to
provide solutions to market needs. We believe our ability to create expanded
libraries using minute samples of genetic material collected from diverse
environments is an important factor to our success. Our need to use only small
environmental samples results in minimal impact to the surrounding ecosystem,
enabling us to enter into formal genetic resource access agreements. To date,
we have obtained samples under these agreements with Costa Rica, Bermuda,
Indonesia, Yellowstone National Park, Mexico and Iceland. We intend to enter
into additional agreements to further strengthen our biodiversity access
program by expanding both the countries and the types of ecosystems from which
we obtain samples. We have also collected samples from private lands in the
United States and in areas that do not require formal access agreements, such
as the deep sea. Using our proprietary techniques to recover the genes from
these samples, we have constructed our DiverseLibraries. We intend to expand
these DiverseLibraries, which we estimate currently contain the total genomes
of over 1 million unique microorganisms. We are also making a significant
effort to expand our collection of multi-gene pathways, our PathwayLibraries.
We believe that the application of our proprietary technologies to this vast
resource of genetic material will provide us with a myriad of product
candidates for attractive commercial applications.
Leverage our technologies across diverse markets in order to maximize our
return on investment. We are focusing on commercial solutions for a broad range
of applications for the agricultural, chemical, industrial processing and
pharmaceutical industries. Products and processes utilizing genes, proteins,
small molecules, pathways and bioactive molecules are all potential targets.
Discoveries or developments made for any particular market may find use in
other applications, resulting in enhanced revenues, more efficient use of
corporate resources and increased return on investments.
Pursue additional strategic alliances with market leaders to access funding
and industry-specific expertise and to more efficiently develop and
commercialize a larger product portfolio. We will continue to enter into
strategic alliances with leading corporations in our target markets. The key
components of the commercial terms of such arrangements typically include some
combination of the following types of fees: exclusivity fees, technology access
fees, technology development fees, research support payments, milestone
payments, license or commercialization fees and royalties or profit sharing
income from the commercialization of products resulting from the strategic
alliances. These partners represent market leaders across multiple industries,
and include Novartis Seeds AG, Novartis Agribusiness Biotechnology Research
Inc., The Dow Chemical Company, Rhone-Poulenc Animal Nutrition and Finnfeeds
International Limited.
Independently develop and commercialize products in selected markets to
capture their full economic value. In addition to developing enzymes and
bioactive molecules through strategic alliances, we have developed and will
continue to develop products independently. For example, we successfully
introduced our
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first commercial product, Pyrolase 160, into the oil and gas services market in
1999, and are currently developing Pyrolase 200, a second-generation product
with a higher range of temperature stability. We will determine which products
to pursue independently based on various criteria, including: investment
required, estimated time to market, regulatory hurdles, infrastructure
requirements and industry-specific expertise necessary for successful
commercialization. Because we will retain commercial rights to independently
developed products, we expect that these products will provide attractive
margins.
TECHNOLOGIES
DNA Sampling and Processing
Our discovery program begins with access to biodiversity. Biodiversity can
be defined as the total variety of life on earth, including genes, species,
ecosystems and the complex interactions between them. We have obtained samples
from virtually all ecosystems represented on earth including such environments
as: geothermal and hydrothermal vents, acidic soils and boiling mud pots,
alkaline springs, marine and freshwater sediments, marine symbionts, manure
piles, contaminated industrial sites, arctic tundra, dry Antarctic valleys,
super cooled sea ice, microbial mats, bacterial communities associated with
insects and nematodes, fungi and plant endophytes. We also access genetic
material from public and private culture collections. Because we clone DNA
directly from environmental sources, we need to collect only minute samples of
genetic material, which results in minimal impact on the surrounding ecosystem.
As a result, we have been able to obtain broad access to biologically diverse
environments around the world.
Gene Library Generation
To successfully capture the enormous genetic diversity present in uncultured
microbial community samples, we have developed a series of techniques, which
enable substantial recovery of DNA from a wide range of sample types, while
assuring DNA purity.
Our methods for analysis of environmental samples give scientists a rapid
estimation of the total number of species present and the relative abundance of
each species within a sample. DNA recovered from complex environmental samples
often represents the genomes of thousands of different microbial species, some
of which are generally more abundant than others. There may be as much as a
100,000-fold difference in abundance between a dominant species and a rare
species in a single sample. To access the genetic material of rare microbial
species in a given sample, we have developed proprietary normalization
technologies that result in a more equal representation of each species at the
genetic level. Because current culturing techniques are generally incapable of
capturing this underrepresented genetic material, this potentially valuable
source of genetic information has historically not been available to
commercialize.
DiverseLibrary Generation. We have developed proprietary methods for
construction of complex, representative environmental gene libraries. A gene
library is a stored collection of DNA fragments or genes. We store these genes
in library form by cloning or splicing the DNA fragments into a vector, a piece
of DNA that acts as a carrier or a transporter into a host cell. The DNA
fragment spliced into the vector DNA is called a recombinant molecule or clone.
A collection of clones representing the entire DNA isolated from the organisms
in the sample is a representative gene library. In order to capture the
complete genomic diversity present in these complex microbial samples, which
can contain as many as 10,000 distinct genomes, we prepare very large member
libraries. The result is the creation of a DiverseLibrary, which typically
represents genomic coverage of these microorganisms. We estimate that
collectively our DiverseLibraries contain the complete genomes of over 1
million different microorganisms, which far exceeds the estimated 10,000
microorganisms which have been cultured in the laboratory.
PathwayLibrary Generation. We are also developing PathwayLibraries,
collections of multi-gene pathways used in the discovery and production of
small molecules. While a single gene is responsible for the production of an
enzyme, the production of small molecules, such as antibiotics, typically
requires multiple
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genes working together in a coordinated fashion within a genetic pathway. In
addition, whereas the genetic blueprint for the production of an enzyme is
generally contained within approximately 1,000 nucleotides of DNA, the
blueprint for the production of an antibiotic pathway is typically more than
25,000 nucleotides, and can be greater than 100,000 nucleotides. For this
reason, we are developing specific molecular tools that can accommodate and
stably maintain such large pieces of DNA in a library.
Screening and Enrichment
We have developed an array of automated, ultra high-throughput screening
technologies and enrichment strategies. Our proprietary rapid screening
capabilities are designed to discover novel biomolecules by screening for
biological activity, known as expression-based screening, as well as by
identifying specific DNA sequences of interest, known as sequence-based
screening.
We have developed several hundred assays capable of expression-based
screening from thousands to over 1 billion clones per day. Our key screening
technologies include SingleCell screening and high-throughput robotic-based
screening. Our ultra high-throughput SingleCell screening system uses
Flouresence Activated Cell Sorting, or FACS, a technology that enables the
identification of biological activity within a single cell. Our SingleCell
screens have been developed to identify clones based on activity or DNA
sequences. This system incorporates a laser with multiple wavelength
capabilities and the ability to screen up to 50,000 clones per second, or over
1 billion clones per day. The robotic screening system uses a high density
microtiter plate-based format, currently capable of screening and
characterizing up to 1 million clones per day.
If the clone expresses an activity or contains a DNA sequence of interest,
it is isolated for further analysis.
We have also developed rapid methods for sequence-based screening for
targeted genes directly from purified DNA. One of these methods, biopanning,
is a powerful alternative to traditional methods, especially when the gene is
toxic or unstable, or when the expression assay is laborious and time
consuming. Using our proprietary techniques, it is possible to screen 100
million clones per day for DNA sequences of interest.
Because we conduct patented, activity-based screening, we are able to use
gene sequences with known function from our proprietary database to identify
the function of genes in public databases based on their sequences. These
newly identified sequences are then added to the repertoire of proprietary
sequences in our own database. As more microbial genomes are sequenced, our
ability to associate gene sequence with enzyme function will be enhanced. This
sequence database provides us with unique opportunities to find and patent
more sequences with similar function and the potential to modify these
sequences in order to create optimized catalysts and other biomolecules for
various commercial applications.
DirectEvolution
The genetic code is structured such that a sequence of three nucleotides
defines an amino acid. Nature uses 20 common amino acids in proteins arranged
in a sequence, defining the protein structure and activity. Over the course of
evolution, nature has sampled countless sequence possibilities to evolve
enzymes to function optimally within the cell. However, when an enzyme is
removed from its natural cellular environment and used to perform reactions,
such as in a chemical process, its function may not be optimal. Laboratory
methods can accelerate the evolutionary process of optimization outside of the
cell by creating a large number of variants for screening. In the traditional
method for improving proteins, called site-directed mutation, a single site is
typically targeted for change based on prior knowledge of the protein
structure. Other traditional techniques, including random mutation, typically
produce single nucleotide changes which can only access a limited number of
alternative amino acids, typically fewer than 6 of the possible 19
alternatives. These methods are limited by their inability to produce all
sequence variations. Furthermore, the large number of resulting sequences
presents formidable screening challenges.
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We believe our techniques overcome the limitations of these traditional
methods, not only because of our superior screening capabilities, but also by
increasing the number and types of sequence variations we can create. Our
evolution technologies used to modify the DNA sequence of the genes,
DirectEvolution, include Gene Site Saturation Mutagenesis (GSSM) and
GeneReassembly. GSSM creates a family of related genes that all differ from a
parent gene by a single amino acid change at a defined position. By performing
GSSM on a gene encoding a protein, we create all possible single amino acid
substitutions within that protein, removing the need for prior knowledge about
the protein structure and allowing all possibilities to be tested in an
unbiased manner. The family of variant genes created using GSSM is then
available to be screened for proteins with improved qualities, such as
increased ability to work at high temperature, increased reaction rate,
resistance to deactivating chemicals or other properties important in a
chemical process. Individual changes in the gene that cause improvements can
then be combined to create a single highly improved version of the protein.
In addition to altering single genes using the GSSM technique, we use our
proprietary GeneReassembly technologies for the reassembly of related genes
from two or more different species. Our GeneReassembly technologies recombine
multiple genes to create a large population of new gene variants. The new genes
created by GeneReassembly are then screened for one or more desired
characteristics. This evolutionary process can be repeated on reassembled genes
until new genes expressing the desired properties are identified.
GeneReassembly technologies can be used to evolve properties which are coded
for by single genes, multiple genes and entire genomes.
As illustrated in the table below, we believe the combination of our GSSM
and GeneReassembly technologies addresses the broadest range of potential
optimization parameters for any enzyme:
<TABLE>
<CAPTION>
CHARACTERISTICS FOR ENZYME OPTIMIZATION OPTIMAL DIRECTEVOLUTION TECHNOLOGY
- ---------------------------------------------------------------------------------------
<S> <C>
Stability GSSM
- ---------------------------------------------------------------------------------------
Enhancement without inappropriate immune
response GSSM
- ---------------------------------------------------------------------------------------
Activity GeneReassembly/GSSM
- ---------------------------------------------------------------------------------------
Expression GeneReassembly/GSSM
- ---------------------------------------------------------------------------------------
Specificity GeneReassembly/GSSM
</TABLE>
We believe that the ability to selectively apply our GSSM or GeneReassembly
technologies to optimize enzymes provides us with a distinct competitive
advantage. GSSM is better suited in some situations, for example, in the
optimization of an enzyme's stability or its immune response characteristics.
With respect to stability, applying GSSM may significantly improve temperature
tolerance through combining single amino acid alterations at defined positions,
while maintaining the enzyme's overall characteristics, such as specificity. In
one situation, we have used this technology to improve enzyme stability by a
factor of 30,000. Similarly, adverse immune system responses may be avoided by
the incremental changes created by GSSM. In contrast, random shuffling
technologies, which cause dramatic block shifts in DNA structure, are more
likely to reduce stability and create undesirable immune response
characteristics. On the other hand, when optimizing for activity, expression
and specificity, both GSSM and GeneReassembly can produce optimal results.
Because we have multiple evolution technologies combined with optimal natural
enzymes to which we apply these evolution methodologies, we believe that we are
well-positioned to provide the best solutions to our customers.
Our Data Management and Analysis System-SciLect
We have developed and continue to enhance a leading edge, web-based
relational scientific database for internal purposes called SciLect. SciLect
provides a secure, reliable and accurate source for storage, retrieval and
analysis of vast amounts of proprietary biological data. Our SciLect system
includes custom-developed and
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third-party bioinformatics software tools which assist in the acquisition and
analysis of complex data relating to genes, proteins, sequence similarity to
known genes, three-dimensional structure prediction and biological pathways.
SciLect includes information relating to:
. Samples - detailed descriptions of each sample collected;
. DNA extractions - the results of separating or isolating DNA molecules
directly from samples;
. Gene libraries - detailed descriptions of the genetic material in our
DiverseLibraries and PathwayLibraries;
. Screening events - the results of assays from our high-throughput
screening systems;
. Novel enzymes - specific properties or characteristics of each enzyme
(e.g. optimal temperature, optimal pH, specific activity);
. Sequence data and analysis results - the output of raw DNA sequence data
from our ultra high-throughput screening technologies and the analytical
results from the application of our bioinformatics software tools;
. Clone data - descriptions of host organisms containing unique fragments
of DNA or copies of DNA optimized for increasing DNA or enzyme yield;
. Optimization data - results from GSSM and GeneReassembly;
. Expression data - results from the process of optimizing protein
production; and
. Patents - information on key data, genes and processes relating to our
intellectual property portfolio.
Utilizing the combination of SciLect and public databases, we are able to
first verify that we have a unique gene. We are then able to mine public
databases for previously unidentified proteins that can be added to our
portfolio of patented proteins. Publicly available databases of proteins and
genomic data are imported daily to our secure environment. Through the use of
SciLect, we have assembled a large proprietary database of patent-protected,
assembled and annotated unique gene sequences of over 1,000 novel enzymes.
Production--Host Cell Optimization
Production of proteins and pathway products has historically been very
challenging due to the difficulty of producing commercial quantities of these
products in traditional host organisms. This problem can be overcome by finding
or developing a more suitable host organism. In the past, random mutation has
been used in an effort to create more efficient hosts. We believe our host cell
optimization processes will accelerate this effort. We are working on a number
of host organisms to improve their functionality as production hosts by:
. Sequencing the complete DNA of a host organism;
. Engineering defined changes in the host genome by, for instance, adding
or removing genes that, when substituted, will improve production or
permit the host to grow better under industrial conditions;
. Monitoring the effects of changes on the production of enzymes and
pathway products and continuing to engineer changes; and
. Applying our screening technologies to rapidly characterize the effects
of these changes.
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PRODUCTS
We have successfully commercialized our first product, Pyrolase 160, an
enzyme for oil and gas well fracturing operations. Sales of this product
commenced in January 1999, only two years after project initiation. We expect
to commercialize Pyrolase 200, a second generation oilfield enzyme product that
operates at a wider temperature range, in 2000. We believe our independent
development of Pyrolase 160 validates our technologies and illustrates our
ability to develop products rapidly using our proprietary methods.
We intend to commercialize products both independently and in collaboration
with strategic partners. The following chart summarizes the stages of
development for the portfolio of projects we are pursuing. We anticipate that a
single project may lead to multiple commercial product candidates.
[DIAGRAM OF A PYRAMID WITH EIGHT LEVELS, EACH INDICATING A STAGE OF DEVELOPMENT
AND THE NUMBER OF PROGRAMS THAT HAVE PROGRESSED THROUGH THE SPECIFIED STAGE.]
We have 43 projects in various stages of development in our target markets.
Of these, 8 have reached advanced stages of development, of which one has been
commercialized. An additional 15 projects have already entered the product
candidate stage with 20 more projects in various earlier stages of development.
We believe that each of these projects could lead to multiple product solutions
across multiple target markets.
CURRENT ALLIANCES AND OTHER AGREEMENTS
Current Alliances
Our strategy includes pursuing strategic alliances with market leaders in
our target markets. In exchange for selected rights to future products, these
strategic alliances provide us funding and resources to develop and
commercialize a larger product portfolio. In various instances, these strategic
alliances allow us to leverage our partners' established brand recognition,
global market presence, established sales and distribution channels and other
industry-specific expertise. The key components of the commercial terms of such
arrangements typically include some combination of the following types of fees:
exclusivity fees, technology access fees, technology development fees, research
support payments, milestone payments, license or commercialization fees and
royalties or profit sharing from the commercialization of products. In addition
to $9.5 million received through September 30, 1999, our partners are committed
to fund $69.1 million under existing agreements. Our partners have also
purchased $9.2 million of our equity securities.
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To date, we have entered into the following strategic alliances:
Novartis
In January 1999, we entered the agricultural biotechnology arena through a
strategic alliance with Novartis Agribusiness Biotechnology Research, Inc. This
alliance covers a multi-project collaborative research and development
agreement to develop products for crop enhancement and improved agronomic
performance. Under terms of the agreement, we are utilizing our unique
discovery and screening technologies to identify and optimize genes and gene
pathways for use in transgenic crops. The initial projects focus on new genomic
approaches that will provide improved performance and quality traits in crops
and enhance production. Under the agreement, Novartis receives a worldwide
exclusive license to products developed. Novartis purchased $7.3 million of our
series E preferred stock and paid a technology access fee. Additionally,
Novartis funds the research under these projects. We will receive milestone
payments and royalties on the sales of any products developed under this
agreement.
In December 1999, we formed a five-year, renewable strategic alliance with
Novartis Seeds AG. Through a contract joint venture, we will jointly pursue
opportunities in the field of animal feed and agricultural product processing.
We will share in the management of the venture and fund a portion of the sales
and marketing costs of this venture. Under the agreements, Novartis receives
exclusive, worldwide rights in the field of animal feed and project exclusive,
worldwide rights in the field of agricultural product processing. Novartis will
pay us for the license granted under this agreement. Additionally, we will
receive research funding over five years, as well as milestone payments upon
achievement of project objectives and license and commercialization fees for
any resulting products. We will receive a share of the profits in the form of
royalties on any product sales.
Either party may terminate these agreements in the event a material breach
remains uncured for 90 days. Novartis may terminate these agreements within 60
days of a change of control of Diversa.
The Dow Chemical Company
In July 1997, we entered into an alliance with The Dow Chemical Company. The
alliance was for a project involving biocatalytic discovery and optimization
for use in new and existing Dow processes. This initial project was directed
towards the incorporation of a high performance enzyme into a modified chemical
process. Our staff successfully optimized an enzyme for this project with
significantly greater thermostability at a defined temperature, thereby meeting
milestones specified in the agreement.
In July 1999, we entered into a new, three-year research agreement and a
license agreement with Dow . The new agreements significantly broaden the scope
of our original alliance. We are applying our discovery and optimization
technologies for Dow to develop a variety of novel enzymes for multiple
chemical processes on a reaction-exclusive basis. The research agreement
involves multiple projects in the field of chemical processing. Under this
agreement, Dow will pay us for technology development and research support, as
well as possible milestone payments upon achievement of established objectives
and, license and commercialization fees and royalties on sales of any products
incorporating our improved processes. In the license agreement, we grant Dow an
exclusive, worldwide, royalty-bearing license to use enzymes for research
processes. Under this agreement, Dow will pay us license and commercialization
fees and royalties on sales of our royalty-bearing products sold or sublicensed
by Dow. Either party may terminate the research agreement upon failure to pay
amounts due for 30 days or material breach if uncured within 60 days. The
research agreement may also be terminated by Dow with 180 days written notice
or upon a change of control to a Dow competitor with 30 days notice, in both
cases upon the payment of defined penalties. We may terminate the license
agreement in the event of a material breach if uncured for 30 days. Dow may
terminate the license agreement on 3 months written notice.
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Rhone-Poulenc Animal Nutrition
In June 1999, we entered into a six month collaboration agreement with
Rhone-Poulenc Animal Nutrition S.A., RPAN, under which we are using our gene
discovery and optimization technologies to develop novel enzymes which can be
used for biotransformation as an alternative to chemical synthesis. RPAN will
receive an option to obtain an exclusive, worldwide royalty-bearing license to
the targeted enzymes for a specified field. If RPAN does not exercise its
option, the agreement will expire. If RPAN exercises its option, the term of
this agreement will continue until the expiration of all patent rights covering
the licensed enzymes. RPAN supports research costs and will pay us a license
fee and a royalty based upon cost savings attributable to licensed enzymes.
This agreement may be terminated by either party upon material breach if
uncured within 30 days.
Finnfeeds International Limited
In May 1996, we formed an alliance with Finnfeeds International Limited. The
companies worked jointly to identify and develop a novel phytase enzyme that
when used as an additive in animal feed applications allows higher utilization
of phytic acid phosphates from the feed, thereby increasing its nutritional
value. The addition of phytase to animal feed reduces the need for inorganic
phosphorus supplementation and lowers the level of harmful phosphates that are
introduced to the environment through animal waste, resulting in inorganic
phosphate cost savings and a significant reduction in environmental pollution.
Finnfeeds paid us for research support and purchased $1.9 million of our series
C preferred stock. We achieved all milestones under the agreement.
Following the completion of the initial objectives of our alliance with
Finnfeeds, in December 1998, we entered into a license agreement with
Finnfeeds. Under this license agreement, we granted Finnfeeds an exclusive,
worldwide license to an enzyme and related technology for specified uses.
Finnfeeds has continuing royalty obligations to us on product sales that
incorporate the licensed technology. Finnfeeds can terminate this agreement at
any time upon six months notice to us. We can terminate this agreement upon
material breach by Finnfeeds if uncured within 60 days.
License Agreements
In addition to our strategic alliances, we have entered into various
agreements whereby we have in-licensed patented technologies to supplement our
internally developed methods, the most significant of which we have outlined
below.
Invitrogen Corporation
In March 1999, we signed an agreement with Invitrogen Corporation for the
exchange of proprietary technologies and products in specified fields of use.
Under the terms of the agreement, we have an exclusive license to use
Invitrogen's TOPO Cloning technology in the field of cloning nucleic acids from
mixed populations and uncultured organisms. Invitrogen has an option to access
selected proprietary DNA modifying enzymes for use in the research reagent
marketplace. The TOPO Cloning technology broadens our portfolio of cloning
technologies. We paid Invitrogen a license fee and will pay an annual
maintenance fee in exchange for materials. Each party will have a royalty
obligation for the life of the patent rights on product sales that incorporate
the licensed technology. We can terminate this agreement with 90 days written
notice. Invitrogen can terminate with 90 days written notice upon our failure
to make any payment or immediately upon our default if uncured within 90 days.
Terragen Discovery, Inc.
In November 1999, we signed a royalty-free cross-license agreement with
Terragen Discovery, Inc. granting non-exclusive, worldwide license rights for
the life of specified patents. We granted rights to our
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<PAGE>
patents protecting accessing genomes of uncultured organisms for the discovery
of pathways producing novel small molecules for pharmaceutical applications and
Terragen granted us co-exclusive rights to patents protecting generation and
screening of combinatorial libraries from mixed populations of organisms for
all fields of use. Under the agreement, we paid Terragen a license fee and will
pay an annual maintenance fee. The term of the licenses we granted to Terragen
and that Terragen granted to us will continue until the expiration of all valid
claims within the licensed patent rights. Either party may terminate this
agreement in the event a material breach remains uncured for 60 days. Both
parties have rights to terminate under special conditions.
One Cell Systems, Inc.
In December 1997, we entered into a research license agreement with One Cell
Systems, Inc. which provided us with non-exclusive access to One Cell's
proprietary encapsulation technologies for an initial term of twelve months.
This agreement was extended in February 1999. Under the terms of the agreement,
we receive equipment and reagents to use the proprietary technology in exchange
for annual payments. The extension to the agreement expires on December 31,
1999 but is renewable for a subsequent term at One Cell's option.
Mycogen Corporation
In December 1997, we signed a license agreement with Mycogen Corporation for
access to its proprietary expression system. Under the terms and conditions of
the agreement, we have an exclusive, worldwide license to use the system for
the production of enzymes in exchange for a license fee and royalties paid to
Mycogen. The agreement can be terminated by either party upon material breach
if uncured for 60 days.
Biodiversity Access Agreements
We have obtained genetic material under formal genetic resource access
agreements with Costa Rica, Bermuda, Indonesia, Yellowstone National Park,
Mexico and Iceland. Pursuant to the terms of these agreements, we have obtained
non-exclusive access to collect samples from diverse ecosystems, we own the
samples collected and we pay a royalty to the other party on the sale of
products derived from the samples. All of these agreements expire in 2002 or
earlier, and they are all subject to earlier termination. Our access agreement
with Iceland was terminated, and we have voluntarily ceased collections of
further samples in Yellowstone National Park pending their resolution of
collection guidelines. If an access agreement terminates and a new agreement is
not established, we will not be permitted to collect any further materials from
the specified location; however, we will retain the right to use any samples we
have already collected.
COMPETITION
We believe we are the leader in the field of biomolecule discovery and
optimization from biodiversity. We are not aware of another company that has
the scope and integration of the technologies and processes that we have. There
are, however, a number of competitors who are competent in various steps
throughout our technology process. For example, Terragen Discovery is involved
in accessing organisms from diverse environments. A number of companies are
performing high-throughput screening of molecules. Maxygen, Inc. and Evotech
have alternative evolution technologies. Integrated Genomics Inc., Myriad
Genetics, Inc., ArQule, Inc. and Aurora Biosciences Corporation perform
screening, sequencing and/or bioinformatics services. Novo Nordisk A/S and
Genencor International Inc. are involved in development, overexpression,
fermentation and purification of enzymes. There are also a number of academic
institutions involved in various phases of our technologies. Many of these
competitors have significantly greater financial and human resources than we
do.
We believe that the principal competitive factors in our market are access
to genetic material, technological experience and expertise and proprietary
position. We believe that we compete favorably with respect to the foregoing
factors.
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Any products that we develop will compete in highly competitive markets.
Many of our potential competitors in these markets have substantially greater
financial, technical and marketing resources than we do, and we cannot assure
you that they will not succeed in developing products that would render our
products or those of our strategic partners obsolete or noncompetitive. In
addition, many of these competitors have significantly greater experience than
we do in their respective fields. Our ability to compete successfully will
depend on our ability to develop proprietary products that reach the market in
a timely manner and are technologically superior to and/or are less expensive
than other products on the market. Current competitors or other companies may
develop technologies and products that are more effective than ours. Our
technologies and products may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or
more of our competitors. The existing approaches of our competitors or new
approaches or technology developed by our competitors may be more effective
than those developed by us.
MANUFACTURING STRATEGY
Our manufacturing strategy is to secure contract manufacturing relationships
with qualified third parties possessing sufficient industrial fermentation
capacity to meet our commercial production requirements. We plan to place our
own technical personnel on site at contract manufacturing facilities to plan
and supervise our production. Our employees have extensive experience in scale-
up and production of industrial fermentation products, including industrial
enzymes. We have cleared regulatory requirements for our first two commercial
enzymes, and are producing our first product at commercial scale. We are
manufacturing this product, Pyrolase 160, under a toll manufacturing agreement
with a third party. We also currently lease a pilot facility for process
development activities from a third-party, which we intend to vacate by March
2000. We plan to construct our own pilot development facility during 2000 and
have identified alternative capacity to meet interim requirements. In addition
to requiring investment in equipment, construction of this new facility will
necessitate compliance with applicable regulations. After we complete the
construction of our pilot facility, we will continue to depend on third parties
for large-scale commercial manufacturing.
We do not currently depend on any single supplier for the raw materials
necessary for the operation of our business. We may become dependent on a
single supplier in the future.
GOVERNMENT REGULATION
Many of our product opportunities, and all of our projects to date, have
applications other than as regulated drug products. Non-drug biologically
derived products are regulated, in the United States, based on their
application, by either the FDA, the Environmental Protection Agency (EPA) or,
in the case of plants and animals, United States Department of Agriculture
(USDA). In addition to regulating drugs, the FDA also regulates food and food
additives, feed and feed additives, and GRAS (Generally Recognized As Safe)
substances used in the processing of food. The EPA regulates biologically
derived chemicals not within the FDA's jurisdiction. Although the food and
industrial regulatory process can vary significantly in time and expense from
application to application, the timelines generally are shorter in duration
than the drug regulatory process, ranging from six months to three years.
The European regulatory process for these classes of biologically derived
products has undergone significant change in the recent past, as the EU
attempts to replace country by country regulatory procedures with a consistent
EU regulatory standard in each case. Some country-by-country regulatory
oversight remains. Other than Japan, most other regions of the world generally
accept either a United States or a European clearance together with associated
data and information for a new biologically derived product.
In the United States, transgenic agricultural products may be reviewed, by
the FDA, EPA and USDA, depending on the plant and the trait engineered into it.
The regulatory process for these agricultural products can take up to five
years of field testing under USDA oversight, and up to another two years for
applicable agencies to complete their reviews.
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Outside of the United States, scientifically-based standards, guidelines and
recommendations pertinent to transgenic and other products intended for the
international marketplace are being developed by, among others, the
representatives of national governments within the jurisdiction of the
standard-setting bodies, including Codex Alimentarius, the International Plant
Protection Convention and the Office des International Epizooties. The use of
the existing standard-setting bodies to address concerns about products of
biotechnology is intended to harmonize risk-assessment methodologies and
evaluation of specific products or classes of products.
PROPRIETARY RIGHTS
Our intellectual property consists of patents, copyrights, trade secrets,
know-how and trademarks. Protection of our intellectual property is a strategic
priority for our business. Our ability to compete effectively depends in large
part on our ability to obtain patents for our technologies and products,
maintain trade secrets and operate without infringing the rights of others and
to prevent others from infringing on our proprietary rights. We own 18 issued
patents relating to our technologies, have received notices of allowance with
respect to 12 other patent applications and have over 125 patents pending. In
addition, we have in-licensed more than 25 additional patents or patent
applications that we believe strengthen our patent position.
The patent positions of biotechnology companies involve complex legal and
factual questions and, therefore, enforceability cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or circumvented.
We cannot be sure that relevant patents have not been issued that could block
our ability to obtain patents or to operate as we would like to. Others may
develop similar technologies or duplicate technologies developed by us. We are
aware of the existence of patents in some countries that, if valid, may block
our ability to commercialize products in these countries if we are unsuccessful
in circumventing or acquiring the rights to these patents. We are also aware of
the existence of claims in published patent applications in some countries
that, if granted and valid, may also block our ability to commercialize
products in these countries if we are unable to curcumvent or license them.
The biotechnology industry is characterized by extensive litigation
regarding patents and other intellectual property rights. Many biotechnology
companies have employed intellectual property litigation as a way to gain a
competitive advantage. Third parties may sue us in the future to challenge our
patent rights or claim infringement of their patents. An adverse determination
in litigation or interference proceedings to which we may become a party could
subject us to significant liabilities to third parties, require us to license
disputed rights from third parties or require us to cease using the disputed
technology. We are aware of a significant number of patents and patent
applications relating to aspects of our technologies filed by, and issued to,
third parties. Should any of our competitors have filed patent applications or
obtain patents that claim inventions also claimed by us, we may have to
participate in an interference proceeding declared by the relevant patent
regulatory agency to determine priority of invention and, thus, the right to a
patent for these inventions in the U.S. Such a proceeding could result in
substantial cost to us even if the outcome is favorable. Even if successful on
priority grounds, an interference may result in loss of claims based on
patentability grounds raised in the interference. Although patent and
intellectual property disputes in the biotechnology area are often settled
through licensing or similar arrangements, costs associated with these
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot be certain that the necessary licenses would be
available to us on satisfactory terms, if at all.
We recently received a letter from a privately held biotechnology company
suggesting that we may want to consider licensing patents held by that third
party. We believe that we have defenses to any infringement claim with respect
to such patents. However, we cannot be certain that the third party will not
initiate litigation alleging that our technologies infringe claims of such
patent or that a court would not find such claims valid and infringed.
We also rely on trade secrets, technical know-how and continuing invention
to develop and maintain our competitive position. We have taken security
measures to protect our trade secrets, proprietary know-how and technologies
and confidential data and continue to explore further methods of protection.
Our policy is to
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execute confidentiality agreements with our employees and consultants upon the
commencement of an employment or consulting arrangement with us. These
agreements generally require that all confidential information developed or
made known to the individual by us during the course of the individual's
relationship with us to be kept confidential and not disclosed to third
parties. These agreements also generally provide that inventions conceived by
the individual in the course of rendering services to us shall be our exclusive
property. There can be no assurance that proprietary information will not be
disclosed, that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets or that we can meaningfully protect our trade secrets.
EMPLOYEES
As of November 30, 1999, we had approximately 97 full-time employees, 25 of
whom hold Ph.D. degrees. Of these employees, 76 were engaged in research and
development and 21 were engaged in business development, finance and general
administration. None of our employees are represented by labor unions or
covered by collective bargaining agreements. We have not experienced any work
stoppages and consider our employee relations to be good.
FACILITIES
Our executive offices and research and development facilities are currently
located in San Diego, California. We lease approximately 24,900 square feet of
space. These facilities are leased through January 31, 2002. We are also
negotiating a sublease for approximately 3,000 square feet of adjacent
laboratory space for use through December 2000. To meet our expected growth
needs, we have selected two site alternatives in proximity to our current space
and are currently in "build-to-suit" lease negotiations for approximately
75,000 square feet of space. We plan to occupy the new space in late 2000, at
which time we plan to sublease our current space for the remaining term.
LEGAL PROCEEDINGS
We are not presently a party to any material legal proceedings.
SCIENTIFIC ADVISORY BOARD
We have established a select group of scientists to advise us on scientific
and technical matters in areas of the Company's business. The scientific
advisors are compensated with a $15,000 annual fee, payable quarterly. We have
also entered into consulting and other agreements with a number of our
scientific advisors under which they have received options to purchase shares
of our common stock.
None of our scientific advisers is employed by us, and they may have other
commitments to, or consulting or advisory contracts with, their employers or
other entities that may conflict or compete with their obligations to us. Our
scientific advisors include:
<TABLE>
<CAPTION>
NAME TITLE/AFFILIATION
- ---- -----------------
<S> <C>
Melvin I. Simon, Ph.D.................... Chairman and Professor of Biology
California Institute of Technology
Karl O. Stetter, Ph.D.................... Chairman and Professor of Microbiology
University of Regensburg, Germany
Robert M. Kelly, Ph.D.................... Professor of Chemical Engineering
North Carolina State University
George M. Whitesides, Ph.D............... Chairman and Professor of Chemistry
Harvard University
</TABLE>
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jay M. Short, Ph.D. .................... 41 President, Chief Executive Officer and
Chief Technology Officer, Director
William H. Baum......................... 54 Senior Vice President, Business Development
Karin Eastham........................... 50 Senior Vice President, Finance, Chief
Financial Officer and Secretary
R. Patrick Simms........................ 55 Senior Vice President, Operations
Carolyn A. Erickson..................... 35 Vice President, Intellectual Property
Daniel T. Carroll (1)................... 73 Director
James H. Cavanaugh, Ph.D. (1)........... 62 Director
Patricia M. Cloherty (1)................ 57 Director
Peter Johnson (1)....................... 54 Director
Donald D. Johnston (2).................. 74 Director
Mark Leschly (2)........................ 31 Director
Melvin I. Simon, Ph.D. (2).............. 62 Director
</TABLE>
- --------
(1) Member of human resources (compensation) committee.
(2) Member of audit committee.
Dr. Jay M. Short was appointed our Chief Executive Officer in February 1999.
He has served as our Chief Technology Officer and as a director since September
1994 and also as our President since June 1998. Dr. Short served as President
of Stratacyte, Inc. and Vice President of Research & Development and Operations
for Stratagene Cloning Systems, both molecular biology companies based in La
Jolla, California. Dr. Short serves as a Director for Invitrogen Corporation, a
gene expression company, and StressGen Biotechnologies Corp., a company engaged
in the medical application of stress proteins. Dr. Short received his Ph.D.
from Case Western Reserve University and his B.A. from Taylor University.
Mr. William H. Baum joined us in August 1997 as Vice President, Sales and
Marketing, and was promoted to Senior Vice President, Business Development in
November 1999. Mr. Baum was Vice President of Global Sales and Marketing with
International Specialty Products, a specialty chemical company, from July 1993
to August 1997. Prior to joining International Specialty, Mr. Baum was with
Betz Laboratories, also a specialty chemical company, for 20 years in a variety
of international and domestic executive management positions including
Executive Vice President of European Operations and as Managing Director of
Germany. Mr. Baum received a B.S. from Widener University.
Ms. Karin Eastham was appointed Senior Vice President, Finance, Chief
Financial Officer and Secretary in May 1999. Ms. Eastham served as Vice
President, Finance and Administration and Chief Financial Officer of CombiChem,
Inc., a computational chemistry company, from April 1997 to April 1999. From
October 1992 through April 1997, Ms. Eastham served as Vice President, Finance
and Administration and Chief Financial Officer of Cytel Corporation, a
biopharmaceutical company. Ms. Eastham also held several positions, including
Vice President, Finance and Administration, at Boehringer Mannheim Corporation,
from June 1976 to August 1988. Ms. Eastham received a B.S. and an M.B.A. from
Indiana University. She is a Certified Public Accountant.
Mr. R. Patrick Simms has served as our Senior Vice President, Operations
since October 1998. He served as our Vice President, Process Development and
Manufacturing from February 1997 to October 1998. Mr. Simms served as Senior
Vice President, Business Development and Manufacturing, at Biosys, Inc., an
agricultural biotechnology company focusing on natural insecticide products,
from March 1990 to February 1997. Biosys filed for reorganization under Chapter
11 of the U.S. Bankruptcy Code in September 1996. Mr. Simms subsequently filed
for liquidation under Chapter 7 of the U.S. Bankruptcy Code in February 1997.
From December 1984 to March 1990, Mr. Simms served as Vice President,
Commercial Operations, at
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Genencor, a biotech company focusing on industrial enzymes. Prior to joining
Genencor, Mr. Simms spent 18 years with A.E. Staley in a wide range of
technical and operational positions. Mr. Simms received a B.S. from West
Virginia University .
Ms. Carolyn A. Erickson has served as Vice President, Intellectual Property
since November 1999. From July 1994 to November 1999, Ms. Erickson held several
positions with us, including Director of Intellectual Property. Prior to
joining us, from April 1988 to June 1994 Ms. Erickson held several positions in
Business Development/Technology Transfer, Product Management, Marketing and
Technical Sales for Stratagene Cloning Systems. Ms. Erickson received a B.A.
from the University of California, San Diego.
Dr. James H. Cavanaugh has been a director since December 1992 and our
Chairman since October 1998. Dr. Cavanaugh is President of HealthCare Ventures
LLC, a health care venture capital management company. Dr. Cavanaugh was
formerly President of SmithKline & French Laboratories--U.S., the
pharmaceutical division of SmithKline Beckman Corporation. Previously, he was
President of SmithKline Beckman's clinical laboratory business and, before
that, President of Allergan International. Prior to his industry experience,
Dr. Cavanaugh served as Staff Assistant to The President for Health Affairs and
then Deputy Director of the Domestic Council. Under President Ford, he was
appointed Deputy Assistant to the President for Domestic Affairs and Deputy
Chief of the White House Staff. Dr. Cavanaugh is on the board of directors of
LeukoSite, Inc. and MedImmune, Inc., and non-executive Chairman of the Board of
Shire Pharmaceuticals Group plc. He also serves on the boards of the National
Center for Genome Resources and the National Committee for Quality Health Care.
Dr. Cavanaugh received a Ph.D. and M.A. from the University of Iowa and a B.S.
degree from Farleigh Dickinson University.
Mr. Daniel T. Carroll has been a director since October 1996. Mr. Carroll
has been Chairman of The Carroll Group, a management consulting firm, since
1982. From early 1980 until early 1982, he was President and Chief Executive
Officer and a director of Hoover Universal, Inc. From 1975 until early 1980, he
was President of Gould Inc. He served as President of the Management Consulting
Division at Booz Allen & Hamilton, Inc. from 1954 to 1972. He is a director of
A.M. Castle & Co., American Woodmark Corporation, Aon Corporation, Comshare,
Inc., Oshkosh Truck Corporation, Wolverine World Wide, Inc., and Woodhead
Industries Inc. Mr. Carroll earned an A.B. degree from Dartmouth College and an
M.A. from the University of Minnesota.
Ms. Patricia M. Cloherty has been a director since May 1996. Ms. Cloherty is
a special limited partner of Patricof & Co. Ventures, Inc., a venture capital
company. From 1988 through 1999, and from 1970 to 1977, she was Managing
Director of that firm, and Co-Chairman from 1996 through 1999. She is past
president and chairman of the National Venture Capital Association and in 1992,
the National Association of Small Business Investment Companies presented her
with its highest honor, the "Lifetime Achievement Award". Ms. Cloherty was
founding president of the Committee of 200, an organization of the country's
leading women entrepreneurs and corporate executives. She is a director of
several privately-held companies. She holds a B.A. from the San Francisco
College for Women and M.A. and M.I.A. degrees from Columbia University.
Mr. Peter Johnson has been a director since December 1999. Mr. Johnson was a
founder of Agouron Pharmaceuticals, Inc. and has served as President and Chief
Executive Officer of Agouron since its inception in 1984. He received a B.A.
and a M.A. from the University of California, San Diego.
Mr. Donald D. Johnston has been a director since September 1993. Since 1986,
Mr. Johnston has worked as a consultant for various companies, including
Johnson & Johnson, Human Genome Sciences, Inc. and Health Care Investment
Corporation. He worked in product and general management for Johnson & Johnson
from 1962 to 1986, including serving as President of J&J Baby Products Co. from
1972 to 1977. Mr. Johnston also served as a director of Johnson & Johnson from
1975 through 1986. Mr. Johnston currently serves on the board of directors of
Osteotech, Inc. Mr. Johnston received a B.A. degree in Economics from the
University of Cincinnati.
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Mr. Mark Leschly has been a director since August 1999. Mr. Leschly is a
managing director of Rho Management Company, Inc. Prior to joining Rho in July
1999, beginning in 1994 Mr. Leschly worked at HealthCare Ventures where he was
a general partner. Prior to Healthcare Ventures, he worked at McKinsey &
Company, a management consulting company. Mr. Leschly is a director of several
privately-held companies and is a member of the advisory board of the Harvard
AIDS Institute. Mr. Leschly received a B.A. from Harvard University and an
M.B.A. from the Stanford Graduate School of Business.
Dr. Melvin I. Simon has been a director since May 1994. Dr. Simon is
Chairman and has been a professor in the Division of Biology at the California
Institute of Technology since 1982, where he is currently the Anne P. and
Benjamin F. Biaggini Professor of Biological Sciences. From 1965 to 1982, Dr.
Simon was a professor at the University of California, San Diego. He received a
B.S. from the City College of New York and a Ph.D. from Brandeis University.
CLASSIFIED BOARD
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, three of the nominees to the board will be
elected to one-year terms, two will be elected to two-year terms and three will
be elected to three-year terms. After these initial terms, directors will be
elected for three-year terms. Messrs. Carroll and Leschly and Ms. Cloherty and
have been designated Class I directors whose terms expire at the 2001 annual
meeting of stockholders. Messrs. Johnson and Johnston have been designated
Class II directors whose terms expire at the 2002 annual meeting of
stockholders. Drs. Cavanaugh, Short and Simon have been designated Class III
directors whose terms expire at the 2003 annual meeting of stockholders. For
additional discussion regarding the effects of our classified board, see
"Description of Capital Stock--Possible Anti-Takeover Matters".
COMMITTEES OF THE BOARD OF DIRECTORS
Our human resources committee reviews and makes recommendations to the board
concerning compensation and benefits of all of our executive officers,
administers our stock option plan and establishes and reviews general policies
relating to compensation and benefits of our employees. The human resources
committee currently consists of Messrs. Carroll and Johnson, Dr. Cavanaugh and
Ms. Cloherty.
The audit committee of the board of directors reviews our internal
accounting procedures and consults with and reviews the services provided by
our independent accountants. The audit committee currently consists of Dr.
Simon and Messrs. Leschly and Johnston.
DIRECTOR COMPENSATION
Prior to the completion of this offering, our directors did not receive cash
compensation for their service as members of the board of directors, except for
Messrs. Carroll and Johnston, who each received $10,000 per year, and Dr.
Simon, who received $25,000 for his service as a director and as a scientific
advisor. Non-employee directors are reimbursed for expenses in connection with
attendance at board and committee meetings. Following the completion of this
offering, our directors will receive $1,500 for each board meeting attended.
Dr. Simon will continue to receive compensation in connection with his service
under our consulting agreement with him. We do not provide additional
compensation for committee participation or special assignments of the board of
directors. From time to time, some of our directors have received grants of
options to purchase shares of our common stock under the 1997 Equity Incentive
Plan in connection with their employment agreements. For information concerning
options we have granted to our non-employee directors, please see the
description under the caption "Certain Transactions--Agreements with Officers
and Directors" included in this prospectus. See "--Executive Compensation--
Employment Agreements" for a description of employment agreements with employee
directors. Upon the completion of this offering, all of our non-
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employee directors will be eligible to receive equity incentives in the form of
stock option grants under our 1999 Non-Employee Directors Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, Messrs. Caroll and Johnson,
Dr. Cavanaugh and Ms. Cloherty served as members of our human resources
committee. We have never employed any member of the human resources committee
of our board of directors. None of our executive officers serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving on our board of directors or our human
resources committee of the board of directors. For information on recent
purchases of our capital stock by the members of our human resources committee
or their respective affiliates, please see the description under the caption
"Certain Transactions--Sales of Stock and Notes" included in this prospectus.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or
earned or accrued for services rendered to us in all capacities during the
fiscal year ended December 31, 1998 to our current and former Chief Executive
Officer, the three other most highly compensated officers whose total salary
and bonus exceeded $100,000 in fiscal 1998 and our current Chief Financial
Officer. In accordance with SEC rules, the compensation described in the table
does not include medical, group life insurance or other benefits which are
available generally to all our salaried employees and perquisites and other
personal benefits which do not exceed the lesser of $50,000 or 10% of the
officers' total salary and bonus disclosed in this table. We refer to these
officers as our named executive officers in other parts of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS
--------------------------- -------- -------- ------- ------------
<S> <C> <C> <C> <C>
Jay M. Short, Ph.D. (1)..................... $243,000 $545,000 -- 2,885,624
Current President, Chief Executive Officer
and Chief Technology Officer
Terrance J. Bruggeman (2)................... $270,000 $ 65,000 $25,000(3) --
Former Chief Executive Officer
William H. Baum............................. $195,000 $ 28,000 -- --
Senior Vice President, Business
Development
Karin Eastham (4)........................... -- -- -- --
Current Senior Vice President, Finance,
Chief Financial Officer and Secretary
R. Patrick Simms............................ $173,000 $ 29,000 $ 7,096(5) 100,000
Senior Vice President, Operations
Kathleen H. Van Sleen (6)................... $190,000 $ 36,000 $ 4,949(5) --
Former Vice President, Finance and
Administration,
Chief Financial Officer and Secretary
</TABLE>
- --------
(1) In 1998, Dr. Short held the title of Chief Technology Officer and, from
June 1998, President. At the time of Dr. Short's appointment as President
he was awarded a bonus of $1,000,000 payable in two equal installments of
$500,000 in 1998 and 1999.
(2) Mr. Bruggeman resigned as Chief Executive Officer in February 1999.
47
<PAGE>
(3) Consists of $16,700 for reimbursement of relocation costs and $8,300 for a
cost of living adjustment for relocation.
(4) Ms. Eastham commenced her employment as Senior Vice President, Finance,
Chief Financial Officer and Secretary in April 1999 at a base salary of
$210,000.
(5) For reimbursement of relocation costs.
(6) Ms. Van Sleen resigned as Vice President, Finance and Administration, Chief
Financial Officer and Secretary in March 1999.
OPTION GRANTS
The following table sets forth information concerning stock options granted
to our named executive officers during the fiscal year ended December 31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES
PERCENTAGE OF STOCK
OF TOTAL PRICE
NUMBER OF OPTIONS APPRECIATION
SECURITIES GRANTED TO FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM
OPTIONS IN FISCAL PRICE EXPIRATION -------------
NAME GRANTED YEAR (PER SHARE) DATE 5% 10%
---- ---------- ---------- ----------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Jay M. Short, Ph.D...... 2,885,624 84.5% $0.20 06/25/08 $ $
Terrance J. Bruggeman... -- -- -- -- -- --
William H. Baum......... -- -- -- -- -- --
Karin Eastham........... -- -- -- -- -- --
R. Patrick Simms........ 100,000 2.9% $0.20 08/26/08 $ $
Kathleen H. Van Sleen... -- -- -- -- -- --
</TABLE>
The figures above represent options granted under our 1997 Equity Incentive
Plan. We granted options to purchase 3,414,874 shares of our common stock in
1998. All options were granted at an exercise price equal to the fair market
value of the common stock on the date of grant as determined by our board of
directors.
The options granted to our employees typically vest in 25% increments on
each of the four annual anniversaries of the date of grant. The options granted
to our consultants generally vest in 33% increments on each of the three annual
anniversaries of the date of the grant or in accordance with specified
performance goals over a ten-year term. Options granted to the persons listed
above expire 10 years from the grant date.
The potential realizable value represents amounts, net of exercise price
before taxes, that may be realized upon exercise of the options immediately
prior to the expiration of their terms assuming appreciation of 5% and 10% over
the option term. The 5% and 10% values are calculated based on rules
promulgated by the SEC and an assumed initial public offering price of $
per share and do not reflect our estimate of future stock price growth. The
actual value realized may be greater or less than the potential realizable
value set forth in the table.
We have never granted stock appreciation rights.
48
<PAGE>
OPTIONS EXERCISED AND FISCAL YEAR-END VALUES
The following table sets forth information concerning the number and value
of options exercised by each of the named executive officers as of December 31,
1998 and the value and number of unexercised options held by each of the named
executive officers at December 31, 1998. The value of unexercised in-the-money
options at December 31, 1998 represents an amount equal to the difference
between the assumed initial public offering price of $ per share and the
option exercise price, multiplied by the number of unexercised in-the-money
options. An option is in-the-money if the fair market value of the underlying
shares exceeds the exercise price of the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998
SHARES ACQUIRED VALUE ------------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay M. Short, Ph.D...... 73,688 $114,001 268,776 3,354,840 $ $
Terrance J. Bruggeman... -- -- 823,228 823,232
William H. Baum......... -- -- 85,936 189,064
Karin Eastham........... -- -- -- -- -- --
R. Patrick Simms........ -- -- 128,124 296,876
Kathleen H. Van Sleen... -- -- 216,248 283,752
</TABLE>
1994 EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
Introduction. On October 12, 1994, our board adopted, and on December 20,
1994, our stockholders approved our 1994 Employee Incentive and Non-Qualified
Stock Option Plan. The plan was subsequently amended to, among other things,
authorize a total of 8,390,000 shares of common stock for issuance under the
plan. The 1994 plan was terminated by our board on August 28, 1997. We will not
grant any additional stock options under the 1994 plan; however, termination of
the plan did not affect any outstanding options which remained in effect. Since
the plan has been terminated, shares subject to stock awards that in the past
have expired, and in the future either expire or otherwise terminate, without
having been exercised in full, will not be available for grant under the plan.
The terminated 1994 plan permitted the grant of options to our directors
employed by us, officers, employees and consultants. Outstanding options are
either incentive stock options within the meaning of Section 422 of the
Internal Revenue Code to employees or nonstatutory stock options.
The 1994 plan is administered by the board or a committee appointed by the
board. The board has delegated the authority to administer the 1994 plan to its
human resources committee. Subject to the limitations set forth in the 1994
plan, the board and the committee exercised the authority to select the
eligible persons to whom award grants are to be made, to designate the number
of shares to be covered by stock options, to determine whether an option was an
incentive stock option or a nonstatutory stock option, to establish vesting
schedules, to specify the exercise price of options and the type of
consideration to be paid upon exercise and, subject to specified restrictions,
to specify other terms of awards.
The maximum term of options granted under the 1994 plan is ten years. Stock
options granted under the 1994 plan generally are non-transferable. Options
exercisable on the date of termination of employment, or such other
relationship with us, generally expire three months after the termination of an
optionholder's service, except that all unexercised options will be immediately
terminated if the optionholder is terminated for cause or if the board makes a
determination that the optionee was engaged in disloyalty, convicted of a
felony, disclosed company trade secrets or breached a non-competition agreement
with us. However, if an optionholder is
49
<PAGE>
permanently disabled or dies during his or her service, that person's options
exercisable on the date of disability or death generally may be exercised up to
12 months following disability or death unless, in the case of disability, such
person commences employment with a competitor during such time.
The exercise prices of options granted under the 1994 plan were determined
by the board or committee in accordance with the guidelines set forth in the
1994 plan. The exercise prices of incentive stock options granted under the
plan could not be less than 100% of the fair market value of the common stock
on the date of the grant or 110% of the fair market value on the date of the
grant if the optionee, at the time of the grant, owned more than 10% of the
total combined voting power of all of our stock. The exercise price of a
nonstatutory stock option could not be less than $0.01 per share.
In the event of a change in control in our ownership as defined in our plan,
all outstanding stock awards under the 1994 plan must either be assumed or
substituted by the surviving entity. In the event the surviving entity does not
assume or substitute such stock awards, then the vesting and exercisability of
outstanding awards will accelerate prior to the change in control and such
awards will terminate to the extent not exercised prior to the change in
control.
Notwithstanding the previously described change in control provision, in the
event that a change in control occurs and within one month prior to, or 13
months after, such change in control an employee's employment is involuntarily
terminated as defined in the 1994 plan, then the vesting and exercisability of
all options held by such employee under the 1994 plan will be accelerated in
full on the effective date of his involuntary termination.
As of September 30, 1999, we had issued and outstanding under the 1994 plan
options to purchase approximately 539,000 shares of common stock and
approximately 2,203,000 shares of common stock had been purchased upon the
exercise of options under the 1994 plan. The per share exercise prices of these
options range from $0.146 to $0.60.
1997 EQUITY INCENTIVE PLAN
On August 28, 1997, our board adopted our 1997 Equity Incentive Plan, and
the plan was approved by our stockholders on October 15, 1997. The plan has
been subsequently amended, most recently in 1999 to authorize a total of
16,812,531 shares of common stock for issuance under the plan. Shares subject
to stock awards that have expired or otherwise terminated without having been
exercised in full again become available for grant.
The 1997 plan permits the grant of options to our directors, employees and
consultants. Options may be either incentive stock options to employees within
the meaning of Section 422 of the Internal Revenue Code or nonstatutory stock
options. In addition, the 1997 plan permits the grant of stock bonuses and
rights to purchase restricted stock. Except in specified circumstances, no
person may be granted options covering more than 2,000,000 shares of common
stock in any calendar year.
The 1997 plan is administered by the board or a committee appointed by the
board. The board has delegated the authority to administer the 1997 plan to its
human resources committee. Subject to the limitations set forth in the 1997
plan, the compensation committee and the administrator have the authority to
select the eligible persons to whom award grants are to be made, to designate
the number of shares to be covered by each award, to determine whether an
option is to be an incentive stock option or a nonstatutory stock option, to
establish vesting schedules, to specify the exercise price of options and the
type of consideration to be paid upon exercise and, subject to specified
restrictions, to specify other terms of awards.
The maximum term of options granted under the 1997 plan is ten years.
Incentive stock options granted under the 1997 plan generally are non-
transferable. Nonstatutory stock options generally are nontransferable,
although the applicable option agreement may permit some transfers. Options
generally expire three months after the termination of an optionholder's
service. However, if an optionholder is permanently disabled or dies
50
<PAGE>
during his or her service, that person's options generally may be exercised up
to 12 months following disability or death.
The exercise price of options granted under the 1997 plan is determined by
the board or committee in accordance with the guidelines set forth in the 1997
plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of the grant. The
exercise price of a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of grant.
Options granted under the 1997 plan vest at the rate determined by the board
or committee and specified in the option agreement. The terms of any stock
bonuses or restricted stock purchase awards granted under the 1997 plan will be
determined by the board or committee. The purchase price of restricted stock
under any restricted stock purchase agreement will be determined by the board
or committee and will not be less than 85% of the fair market value of our
common stock on the date of grant. Stock bonuses and restricted stock purchase
agreements awarded under the 1997 plan are generally nontransferable, although
the applicable award agreement may permit some transfers.
In the event of a change in control in our ownership as defined in our plan,
all outstanding stock awards under the 1997 plan must either be assumed or
substituted by the surviving entity. In the event the surviving entity does not
assume or substitute such stock awards, then the vesting and exercisability of
outstanding awards will accelerate prior to the change in control and such
awards will terminate to the extent not exercised prior to the change in
control. Notwithstanding the previously described change in control provision,
in the event that a change in control occurs and within one month prior to, or
13 months after, such change in control an employee's employment is
involuntarily terminated as defined in the 1997 plan, then the vesting and
exercisability of all options held by such employee under the 1997 plan will be
accelerated in full on the effective date of his involuntary termination.
The board may amend or terminate the 1997 plan at any time. Amendments will
generally be submitted for stockholder approval to the extent required by
applicable law.
As of September 30, 1999, we had issued and outstanding under the 1997 plan
options to purchase approximately 7,302,000 shares of common stock and
approximately 181,000 shares had been purchased upon the exercise of options.
The per share exercise prices of these options range from $0.20 to $0.70.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In December 1999, our board adopted our 1999 Non-Employee Directors' Stock
Option Plan. We intend to seek stockholder approval of the plan prior to the
closing of this offering. The plan provides for the automatic grant of options
to purchase shares of common stock to our non-employee directors. The
directors' plan is administered by the board, unless the board delegates
administration to a committee of at least two disinterested directors.
A total of 800,000 shares of common stock have been reserved for issuance
under the directors' plan, none of which are currently subject to outstanding
options. Pursuant to the terms of the directors' plan:
. on the closing of this offering, each person who is then a non-employee
director will be granted an option to purchase 80,000 shares of common
stock;
. each person who, after the closing of this offering, for the first time
becomes a non-employee director automatically will be granted, upon the
date of his or her initial appointment or election to be a non-employee
director, a one-time option to purchase 80,000 shares of common stock;
and
. on the date of each annual meeting of our stockholders commencing with
the 2001 annual meeting of stockholders, each person who is elected to
be a non-employee director at such annual meeting automatically will be
granted an option to purchase 20,000 shares of common stock, pro-rated
to the extent that a director did not serve as a director for a full
year prior to the annual meeting.
51
<PAGE>
Options granted under the directors' plan shall vest in equal monthly
installments over three years from the date of grant and must be exercised
within ten years from the date they are granted. Options granted under the
directors' plan may be exercised prior to vesting, subject to our repurchase.
The exercise price of options under the directors' plan will equal 100% of the
fair market value of the common stock on the date of grant. Options granted
under the directors' plan are generally transferable to family members and
trusts under which the director or members of the director's family are
beneficiaries. Unless otherwise terminated by the board of directors, the
directors' plan automatically terminate when all of our common stock reserved
for issuance under the directors' plan has been issued.
EMPLOYEE STOCK PURCHASE PLAN
In December 1999, our board adopted the 1999 Employee Stock Purchase Plan.
We intend to seek stockholder approval of the plan prior to the closing of this
offering. A total of 1,200,000 shares of common stock has been reserved for
issuance under the purchase plan. The purchase plan is intended to qualify as
an employee stock purchase plan within the meaning of Section 423 of the
Internal Revenue Code. Under the purchase plan, the board of directors may
authorize participation by eligible employees, including officers, in periodic
offering following the commencement of the purchase plan. The initial offering
under the purchase plan will commence on the effective date of this offering
and terminate on February 28, 2002.
Unless otherwise determined by the board, employees are eligible to
participate in the purchase plan only if they are employed by us or one of our
subsidiaries designated by the board of directors for at least 20 hours per
week, are customarily employed for at lest five months per calendar year and do
not beneficially own more than 5% of our outstanding capital stock. Employees
who participate in an offering may have up to 15% of their earnings withheld
pursuant to the purchase plan. The amount withheld is then used to purchase
shares of common stock on specified dates determined by the board of directors.
The price of common stock purchased under the purchase plan will be equal to
85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment.
In the event of a merger, reorganization, consolidation or liquidation, the
board of directors has discretion to provide that each right to purchase common
stock will be assumed or an equivalent right substituted by the successor
corporation or the board of directors may provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to such
merger or other transaction. The board of directors has the authority to amend
or terminate the purchase plan, provided, however, that no such action may
adversely affect any outstanding rights to purchase common stock.
EMPLOYMENT AGREEMENTS
In August 1994, we entered into an employment offer letter with Jay M.
Short, Ph.D., our President, Chief Executive Officer and Chief Technology
Officer. Pursuant to his employment offer letter, Dr. Short's annual
compensation was initially set at a base salary of $200,000 and a target bonus
of 20% of his base salary. The 20% bonus was guaranteed for the first year. We
also paid Dr. Short a signing bonus of $75,000. In addition, we granted Dr.
Short 163,755 shares of our common stock and he also received a stock option
under our 1994 plan to purchase 98,253 shares of common stock. This option
vested 25% in September 1995, with the remainder vesting annually over the
following three years. In the event Dr. Short's employment is terminated
without cause, he will receive severance compensation equal to six months'
salary.
In June 1998 we entered into a second letter agreement with Dr. Short under
which we paid Dr. Short a bonus of $500,000 in each of June 1998 and June 1999
and granted him a stock option under our 1997 plan to purchase 2,885,624 shares
of our common stock at an exercise price of $0.20 per share. This option vested
25% in June 1999 with the remainder vesting in equal quarterly installments
over the following three years. However, vesting this option will be
accelerated in full upon the sale of Diversa or upon Dr. Short's termination of
employment without cause. This second offer letter also provides that if Dr.
Short's employment is terminated without cause at any time prior to June 25,
2000 he will receive severance compensation equal to twenty-four months'
salary. After June 25, 2000 Dr. Short's severance will revert to six months'
salary as described in his original offer letter.
52
<PAGE>
In February 1997, we entered into an employment offer letter with R. Patrick
Simms, our Senior Vice President, Operations. Pursuant to his employment offer
letter, Mr. Simms' annual compensation was initially set at a base salary of
$165,000 and a bonus of up to 20% of his base salary. The calculation of each
annual bonus is based on both Mr. Simms' job performance as well as our
performance. In addition, we granted Mr. Simms a stock option under our 1994
plan to purchase 200,000 shares of our common stock. This option vests 25% on
the first anniversary of the date of grant with the remainder vesting quarterly
over the following three years. Mr. Simms was also offered the right to
purchase up to $50,000 of our series B preferred stock on the same terms
offered to our other series B preferred stock investors. Mr. Simms exercised
this right in May 1997 and acquired 39,147 shares of our series B preferred
stock in exchange for $25,000 in cash and delivery of a promissory note for
$25,000. The note carries an interest rate of 6.64%, is payable in four equal
annual installments commencing in October 1998 and is secured by his shares of
series B preferred stock. Mr. Simms also was reimbursed $25,000 for relocation
costs. In the event that Mr. Simms' employment is terminated without cause, he
will receive severance compensation equal to six months' base salary and
benefits until he commences new employment.
In July 1997, we entered into an employment offer letter with William H.
Baum, our Senior Vice President, Business Development. Pursuant to his
employment offer letter, Mr. Baum's annual compensation was initially set at a
base salary of $195,000 and a target bonus of 20% of his base salary, with a
guaranteed bonus of $13,000 for 1997 only. We also paid him a hiring bonus of
$30,000, paid in two equal installments on September 1, 1997 and March 1, 1998.
In addition, we granted Mr. Baum a stock option under our 1994 plan to purchase
275,000 shares of our common stock. This option vests 25% on the first
anniversary of his date of hire with the remainder vesting quarterly over the
following three years. In the event Mr. Baum's employment is terminated without
cause, he will receive severance compensation equal to six months of his then-
current base salary and we will continue to pay his employee benefits until he
commences new employment. Mr. Baum was reimbursed $50,000 for relocation costs.
Mr. Baum was offered the right to purchase up to $50,000 of our series D
preferred stock on the same terms offered to our other series D preferred stock
investors. Mr. Baum exercised this right in October 1997 and acquired 58,824
shares of our series D preferred stock in exchange for delivery of a promissory
note for $50,000. The note carries an interest rate of 6.64%, is payable in
four equal annual installments commencing in October 1998 and is secured by his
shares of series D preferred stock.
In April 1999, we entered into an employment offer letter with Karin
Eastham, our Senior Vice President, Finance and Chief Financial Officer.
Pursuant to her employment offer letter, Ms. Eastham's annual compensation was
initially set at a base salary of $210,000 and a target bonus of 20% of her
base salary. The 20% bonus was guaranteed for the first year. In addition, we
granted Ms. Eastham a stock option under our 1997 plan to purchase 600,000
shares of our common stock. This option vests 25% at the earlier of the first
anniversary of the date of hire and the closing of this initial public
offering, with the remainder vesting quarterly over three years.
For a description of recent severance agreements with Terrance J. Bruggeman
and Kathleen H. Van Sleen, see the descriptions provided under the caption
"Certain Transactions -- Agreements with Officers and Directors."
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. In addition, our bylaws require us to
indemnify our directors and officers, and allow us to indemnify our other
employees and agents, to the fullest extent permitted by law. We have also
entered into agreements to indemnify some of our directors and executive
officers. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and executive officers. At present,
there is no pending litigation or proceeding involving any director, officer,
employee or agent where indemnification will be required or permitted. We are
not aware of any threatened litigation or proceeding that might result in a
claim for such indemnification. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or
persons controlling our company pursuant to the foregoing provisions, we have
been informed that, in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
53
<PAGE>
CERTAIN TRANSACTIONS
SALES OF STOCK AND NOTES
Series B Preferred Stock Financing. In May 1997, Mr. Simms, our Senior Vice
President, Operations, and Ms. Van Sleen, our former Chief Financial Officer,
Vice President, Finance and Administration and Secretary, exercised rights to
purchase 37,879 and 75,758 shares, respectively, of our series B preferred
stock at a price of $0.66 per share. The shares of series B preferred stock
issued to Mr. Simms and Ms. Van Sleen will automatically convert into an
aggregate of 113,637 shares of common stock upon the closing of this offering.
Mr. Simms paid for a portion of his shares and Ms. Van Sleen paid for all of
her shares by delivering full-recourse promissory notes in the amount of
$25,000 and $50,000, respectively. The notes are payable over four years in
equal annual installments commencing on March 30, 1998, and bear interest at
6.64% per year. In 1999, we forgave the then outstanding balance under the note
receivable from Ms. Van Sleen, $37,500, pursuant to the terms of a severance
agreement more fully described below.
Bridge Loan Financing. In September 1997, we issued and sold $3,432,804 of
secured convertible promissory notes to 15 accredited investors. The promissory
notes carried an interest rate of 8.0% per year and under their terms
automatically converted into 4,038,592 shares of series D preferred stock in
October 1997. Investors owning 5% or more of our capital stock and directors
and officers who participated in this transaction include:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SERIES D PREFERRED
STOCK UPON
INVESTOR PROMISSORY NOTE CONVERSION
-------- --------------- -------------------
<S> <C> <C>
HealthCare Ventures Entities................ $1,001,162 1,177,837
Patricof & Co. Ventures Entities............ 1,000,000 1,176,470
Rho Management Trust II..................... 410,153 482,532
Donald D. Johnston.......................... 500,000 588,235
Melvin I. Simon, Ph.D. ..................... 20,000 23,529
</TABLE>
Dr. Cavanaugh, one of our directors, is a general partner of HealthCare
Partners III, L.P., HealthCare Partners IV, L.P. and HealthCare Partners V,
L.P., which are the general partners of HealthCare Ventures III, L.P.,
HeathCare Ventures IV, L.P. and HealthCare Ventures V, L.P., respectively.
Together, these partnerships own greater than 10% of our capital stock. In this
prospectus we refer to HealthCare Ventures III, L.P., HeathCare Ventures IV,
L.P. and HealthCare Ventures V, L.P., collectively, as entities affiliated with
HealthCare Ventures.
Ms. Cloherty, one of our directors, is President of Patricof & Co. Managers,
Inc. and Patricof & Co. Ventures, Inc., and General Partner of APA Pennsylvania
Partners II, L.P. Patricof & Co. Ventures, Inc. is an investment advisor to APA
Excelsior IV, L.P. and APA Excelsior IV/Offshore, L.P. APA Pennsylvania
Partners II, L.P. is the general partner of The P/A Fund, L.P. Patricof & Co.
Managers, Inc. is the general partner of APA Excelsior IV Partners, L.P., the
general partner of Patricof Private Investment Club, L.P. Collectively, APA
Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P., The P/A Fund, L.P. and
Patricof Private Investment Club, L.P. own greater than 10% of our capital
stock, and are collectively referred to in this prospectus as entities
affiliated with Patricof & Co. Ventures.
Mr. Leschly, one of our directors, is a managing director of Rho Management
Company, Inc., which serves as the investment advisor to Rho Management Trust
II.
Mr. Johnston and Dr. Simon are members of our board of directors.
Series D Preferred Stock Financing. In October 1997, we issued 24,809,555
shares of series D preferred stock for $0.85 per share to 27 accredited
investors. The series D preferred stock will automatically convert
54
<PAGE>
into an aggregate of 24,809,555 shares of common stock upon the closing of this
offering. Investors owning 5% or more of our shares and directors and officers
who participated in this transaction include:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NUMBER OF COMMON STOCK
INVESTOR SERIES D SHARES UPON CONVERSION
-------- --------------- ---------------
<S> <C> <C>
HealthCare Ventures Entities.................... 6,206,103 6,206,103
Patricof & Co. Ventures Entities................ 2,184,999 2,184,999
Rho Management Trust II......................... 2,336,042 2,336,042
State of Michigan............................... 5,882,353 5,882,353
William H. Baum................................. 58,824 58,824
Donald D. Johnston.............................. 588,235 588,235
Melvin I. Simon, Ph.D. ......................... 23,529 23,529
</TABLE>
Mr. Baum is our Senior Vice President, Business Development.
Series E Preferred Stock Financing. In connection with our entering into a
collaboration agreement with Novartis Agribusiness Biotechnology Research, Inc.
in January 1999, we sold 5,555,556 shares of series E preferred stock to
Novartis for $1.32 per share under the terms of a series E preferred stock
purchase agreement. The series E preferred stock will automatically convert
into an aggregate of 5,555,556 shares of common stock upon the closing of this
offering. The stock purchase agreement designates a portion of the total
proceeds received of $12.5 million as a technology access fee and another
portion as advance payments for research support under the collaboration
agreement. The stock purchase agreement also grants Novartis an option to
purchase from us concurrently with the offering described in this prospectus
shares of our common stock having an aggregate value of up to 10% of the gross
proceeds to us from this offering. We are required to provide Novartis with
notice of our proposed initial public offering, after which Novartis is
required to indicate whether it wishes to exercise its option.
The shares of series E preferred stock were subsequently transferred to
Novartis Seeds AG, an affiliate of Novartis Agribusiness Biotechnology
Research, Inc. In December 1999, we entered into a joint venture agreement with
Novartis Seeds AG. For a further description of this joint venture and the
collaboration agreement, see "Business--Current Alliances and Other
Agreements."
Registration Rights. In connection with the preferred stock financings, we
granted registration rights to all of our preferred stockholders. See
"Description of Capital Stock--Registration Rights" for a more complete
description of registration rights we granted to our stockholders.
AGREEMENTS WITH OFFICERS AND DIRECTORS
In May 1994, we entered into a four year consulting agreement with Melvin I.
Simon, Ph.D. under which Dr. Simon agreed to provide us with at least 20 days
of service each year. Under his agreement, Dr. Simon will serve as a member and
chairman of our scientific advisory board, serve on our board of directors and
provide other consulting services. His compensation initially was set at
$75,000 per year, payable quarterly. We amended Dr. Simon's consulting
agreement in October 1996 to limit Dr. Simon's services to attendance at up to
three scientific advisory board meetings and 12 board and board committee
meetings per year and reducing his annual compensation to $25,000 per year. In
addition, we granted Dr. Simon a stock option to purchase 20,000 shares of our
common stock under our 1994 plan in consideration for his agreement to amend
the original agreement. This initial 20,000 share option was fully vested and
exercisable upon its grant to Dr. Simon and carried an exercise price of $0.146
per share. We also granted Dr. Simon a second stock option to purchase 60,000
shares of common stock having an exercise price of $0.146 per share that vested
over a period of three years. This second option grant was fully vested
effective as of October 1999.
55
<PAGE>
We amended Dr. Simon's consulting agreement a second time in October 1999.
This second amendment provides that Dr. Simon's annual compensation will
continue at $25,000 per year for an additional three year term. This second
amendment also provides that Dr. Simon will attend up to six board meetings and
one scientific advisory board meeting per year. We will pay Dr. Simon an
additional $1,000 per day for any additional service he performs. We also
granted Dr. Simon a stock option to purchase 65,000 shares of our common stock
under our 1997 plan, with 25,000 shares vesting in October 2000 and 20,000
shares in each of the following two years.
In August 1997 we granted Daniel T. Carroll a stock option under our 1997
plan to purchase 15,000 shares of our common stock with an exercise price of
$0.15 per share. This option was fully vested upon its grant. In February 1998
we granted Mr. Carroll a second stock option under our 1997 plan to purchase
15,000 shares of our common stock with an exercise price of $0.20 per share.
This option vests in equal annual installments over a period of three years.
In August 1997 we granted Donald D. Johnston a stock option under our 1997
plan to purchase 15,000 shares of our common stock with an exercise price of
$0.15 per share. This option was fully vested upon its grant. In February 1998
we granted Mr. Johnston a second stock option under our 1997 plan to purchase
15,000 shares of our common stock with an exercise price of $0.20 per share.
This option vests in equal annual installments over a period of three years.
In February 1999, we entered into a Separation Agreement with Terrance J.
Bruggeman, our former Chief Executive Officer. Under this agreement, we agreed
to continue to make severance payments to Mr. Bruggeman in the form of
continuation of his base salary until the earlier of 12 months following his
final day of employment and the date on which he begins employment with another
company. We further agreed to pay Mr. Bruggeman an additional $50,000 as an
additional severance payment, reimburse him up to an additional $25,700 for
various other expenses and pay for up to 18 months of continued health and
dental insurance following his final day of employment. In addition, effective
as of his last day of employment, we accelerated the vesting of options to
purchase an aggregate of 411,616 shares of our common stock having an exercise
price of $0.15 per share.
In March 1999, we entered into a Separation Agreement with Kathleen H. Van
Sleen, our former Chief Financial Officer, Vice President, Finance and
Administration, Treasurer and Secretary. Under this agreement, we paid Ms. Van
Sleen $224,000 and forgave outstanding indebtedness of $42,000. We further
agreed to pay for up to 12 months of health, dental and life insurance. In
addition, we agreed that the term and vesting of options to purchase an
aggregate of 600,000 shares of our common stock will continue until March 30,
2000, after which Ms. Van Sleen will have 90 days to exercise her vested
options. The extension of vesting on those options will result in the vesting
of an additional 181,250 options with an average exercise price of $0.17 per
share.
In December 1999, we granted Peter Johnson a stock option under our 1997
plan to purchase 120,000 shares of our common stock with an exercise price of
$2.00 per share. This option vests in equal annual installments over a period
of three years.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of November 15, 1999, and after the sale of
shares in this offering, by:
. Each person who is known by us to own beneficially more than 5% of our
outstanding common stock;
. Each named executive officer;
. Each of our directors; and
. All of our current directors and executive officers as a group.
Except as indicated below, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable. Unless otherwise indicated, the address for each stockholder is c/o
Diversa Corporation, 10665 Sorrento Valley Road, San Diego, California 92121.
Beneficial ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities.
Percentage of beneficial ownership is based on 72,694,083 shares of common
stock outstanding as of November 15, 1999 and assuming shares of
common stock outstanding after completion of this offering.
The table assumes no exercise of the underwriters' over-allotment option. If
the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of shares of our common stock, and up to shares of
common stock will be outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
------------------------
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY BEFORE AFTER
OWNER OWNED OFFERING OFFERING
- ------------------------------ ---------------- ---------- ----------
<S> <C> <C> <C>
Funds Affiliated with HealthCare
Ventures (1).................... 16,547,749 22.6% %
Funds Affiliated with Patricof &
Co. Ventures, Inc. (2).......... 13,299,644 18.3% %
Rho Management Trust II (3)...... 6,779,318 9.3% %
State of Michigan (4)............ 5,882,353 8.1% %
Novartis Agribusiness
Biotechnology Research, Inc.
(5)............................. 5,555,556 7.6% %
Jay M. Short, Ph.D. (6).......... 1,875,685 2.5% %
Terrance J. Bruggeman............ 1,234,846 1.7% %
William H. Baum (7).............. 226,011 * *
Karin Eastham (8)................ 150,000 * *
R. Patrick Simms (9)............. 298,522 * *
Kathleen H. Van Sleen (10)....... 442,008 * *
James H. Cavanaugh, Ph.D. (1).... 16,547,749 22.6% %
Daniel T. Carroll (11)........... 25,000 * *
Patricia M. Cloherty (2)......... 13,299,644 18.3% %
Peter Johnson.................... -- * *
Donald D. Johnston (12).......... 1,740,782 2.4% %
Mark Leschly (3)................. 6,779,318 9.3% %
Melvin I. Simon, Ph.D. (13)...... 565,990 * %
All executive officers and
directors as a group (11
persons) (14)................... % %
</TABLE>
- --------
* Less than one percent.
(1) Includes:
. 9,301,477 shares held by HealthCare Ventures III, L.P., including
310,123 shares issuable upon exercise of warrants exercisable within 60
days of November 15, 1999, which represents 12.7% and %,
respectively, of the total number of shares outstanding before and
after this offering.
57
<PAGE>
. 2,734,113 shares held by HealthCare Ventures IV, L.P., including 91,045
shares issuable upon exercise of warrants exercisable within 60 days of
November 15, 1999, which represents 3.8% and %, respectively, of
the total number of shares outstanding before and after this offering.
. 4,512,159 shares held by HealthCare Ventures V, L.P., which represents
6.2% and %, respectively, of the total number of shares
outstanding before and after this offering.
James H. Cavanaugh, Ph.D. is a managing member of the general partner of
each of the above-listed investment funds, and shares investment and
voting power over these shares with the other managing members of each of
the general partners of these funds, none of whom are affiliated with us.
Dr. Cavanaugh disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein. The address for HealthCare
Ventures LLC is 44 Nassau St., Princeton, New Jersey 08542.
(2) Includes:
. 8,784,584 shares held by APA Excelsior IV, L.P., which represents
12.08% and %, respectively, of the total number of shares
outstanding before and after this offering.
. 2,792,652 shares held by The P/A Fund, L.P., which represents 3.84% and
%, respectively, of the total number of shares outstanding before
and after this offering.
. 1,548,352 shares held by APA Excelsior IV/Offshore, L.P., which
represents 2.13% and %, respectively, of the total number of
shares outstanding before and after this offering.
. 174,056 shares held by Patricof Private Investment Club, L.P., which
represents less than 1% of the total number of shares outstanding both
before and after this offering.
Patricia M. Cloherty is an officer or a general partner of a managing
member of the general partner of or investment advisor to APA Excelsior IV,
L.P., The P/A Fund, L.P., APA Excelsior IV/Offshore, L.P. and Patricof
Private Investment Club, L.P., and shares investment and voting power over
these shares with the other managing members or general partners of the
funds, none of whom are affiliated with us. Ms. Cloherty disclaims
beneficial ownership of such shares except to the extent of her pecuniary
interest therein. The address for Patricof & Co. Ventures, Inc. is 445 Park
Avenue, 11th Floor, New York, New York 10022.
(3) Includes 58,940 shares issuable upon exercise of warrants exercisable
within 60 days of November 15, 1999. Mark Leschly is a managing director
of Rho Management Company, Inc., financial advisor to Rho Management Trust
II. Mr. Leschly disclaims beneficial ownership of the shares held by Rho
Management Trust II except to the extent of his pecuniary interest
therein. The address for Rho Management Trust II is 767 Fifth Avenue, 43rd
Floor, New York, New York 10153.
(4) The address for the State of Michigan is Department of Treasury, Treasury
Building, 30 West Allegan, Lansing, Michigan 48922.
(5) The address for Novartis Agribusiness Biotechnology Research, Inc. is 3054
Cornwallis Road, Research Triangle, North Carolina 27709. These shares
were assigned to Novartis Seeds AG. The address for Novartis Seeds AG is
.
(6) Includes 1,535,382 shares issuable upon exercise of options exercisable
within 60 days of November 15, 1999.
(7) Includes 167,187 shares issuable upon exercise of options exercisable
within 60 days of November 15, 1999.
(8) Includes 150,000 shares issuable upon exercise of options exercisable upon
completion of this offering.
(9) Includes 204,375 shares issuable upon exercise of options exercisable
within 60 days of November 15, 1999.
(10) Includes 366,250 shares issuable upon exercise of options exercisable
within 60 days of November 15, 1999.
58
<PAGE>
(11) Includes 25,000 shares issuable upon exercise of options exercisable
within 60 days of November 15, 1999.
(12) Includes 25,000 shares issuable upon exercise of options exercisable
within 60 days of November 15, 1999.
(13) Includes 40,000 shares issuable upon exercise of options exercisable
within 60 days of November 15, 1999.
(14) Includes shares listed in footnotes (6)-(9) and (11)-(13) above.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock, after
giving effect to the conversion of all outstanding preferred stock into common
stock, will consist of shares of common stock, $0.001 par value,
and shares of preferred stock, $0.001 par value.
The following is a summary of various provisions of our common stock,
preferred stock, amended and restated certificate of incorporation and bylaws.
COMMON STOCK
As of September 30, 1999, there were 6,716,812 shares of common stock
outstanding, held by approximately 93 stockholders of record. An additional
65,775,739 shares of our common stock will be issued upon conversion of all
outstanding shares of the preferred stock on the closing of this offering. All
outstanding shares of common stock are, and the common stock to be issued in
this offering will be, fully paid and nonassessable.
The following summarizes the rights of holders of our common stock:
. Each holder of shares of common stock is entitled to one vote per share
on all matters to be voted on by stockholders generally, including the
election of directors;
. There are no cumulative voting rights;
. The holders of our common stock are entitled to dividends and other
distributions as may be declared from time to time by the board of
directors out of funds legally available for that purpose, if any;
. Upon our liquidation, dissolution or winding up, the holders of shares
of common stock will be entitled to share ratably in the distribution of
all of our assets remaining available for distribution after
satisfaction of all our liabilities and the payment of the liquidation
preference of any outstanding preferred stock; and
. The holders of commons stock have no preemptive or other subscription
rights to purchase shares of our stock, nor are they entitled to the
benefits of any redemption or sinking fund provisions.
PREFERRED STOCK
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Our certificate of incorporation authorizes our board of
directors to create and issue one or more series of preferred stock and
determine the rights and preferences of each series within the limits set forth
in our certificate of incorporation and applicable law. Among other rights, the
board of directors may determine, without further vote or action by our
stockholders:
. The number of shares constituting the series and the distinctive
designation of the series;
. The dividend rate on the shares of the series, whether dividends will be
cumulative, and if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of the series;
. Whether the series will have voting rights in addition to the voting
rights provided by law, and if so, the terms of the voting rights;
. Whether the series will have conversion privileges and, if so, the terms
and conditions of conversion;
. Whether or not the shares of the series will be redeemable or
exchangeable, and, if so, the dates, terms and conditions of redemption
or exchange, as the case may be;
. Whether the series will have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
the sinking fund; and
. The rights of the shares of the series in the event of our voluntary or
involuntary liquidation, dissolution or winding up and the relative
rights or priority, if any, of payment of shares of the series.
60
<PAGE>
Unless otherwise provided by our board of directors, the shares of all
series of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although we have
no present plans to issue any shares of preferred stock, any future issuance of
shares of preferred stock, or the issuance of rights to purchase preferred
shares, may have the effect of delaying, deferring or preventing a change in
control in our company or an unsolicited acquisition proposal. The issuance of
preferred stock also could decrease the amount of earnings and assets available
for distribution to the holders of common stock or could adversely affect the
rights and powers, including voting rights, of the holders of the common stock.
REGISTRATION RIGHTS
The holders of the 65,775,739 outstanding shares of our common stock which
will be issued upon conversion of the preferred stock on the closing of this
offering, which are referred to below as our preferred investors, have the
right to cause us to register their shares under the Securities Act as follows:
. DEMAND REGISTRATION RIGHTS: Each class of our preferred investors,
excluding the holders of the series E preferred stock, may make one
demand for registration by providing a written demand from the holders
of at least 50% of the shares of common stock issued upon conversion of
such class of preferred stock demanding registration. All of our
preferred investors, including the holders of the series E preferred
stock, acting as a single class may make two demands for registration by
providing, in each instance, a written demand from the holders of at
least 50% of the shares of common stock issued upon conversion of all of
the preferred stock. We must use our best efforts to effect such
registration as soon as possible after receipt of notice.
. PIGGYBACK REGISTRATION RIGHTS: Our preferred investors can request to
have their shares registered any time we file a registration statement
to register any of our securities for our own account. Such registration
opportunities are unlimited but the number of shares that can be
registered may be eliminated entirely or cut back by the underwriters.
. S-3 REGISTRATION RIGHTS: After we have qualified for registration on
Form S-3, our preferred investors can request us to register their
shares if the aggregate price of the shares to the public is not less
than $500,000. Except for former holders of our series E preferred stock
who are limited to only three such registrations, such registration
opportunities are unlimited. However, we are not obligated to register
the shares of any single stockholder on Form S-3 more than once during
any single calendar year.
We are required to bear substantially all costs incurred in connection with
any such registrations, other than underwriting discounts and commissions. The
foregoing registration rights could result in substantial future expenses for
us and adversely affect any future equity or debt offerings.
POSSIBLE ANTI-TAKEOVER MATTERS
Certificate of Incorporation and Bylaws
Our certificate of incorporation authorizes our board of directors to
establish one or more series of undesignated preferred stock, the terms of
which can be determined by the board of directors at the time of issuance. See
"--Preferred Stock" for a description of our preferred stock. Our certificate
of incorporation also provides that all stockholder action must be effected at
a duly called meeting of stockholders and not by a consent in writing. Our
bylaws provide that our board of directors will be classified into three
classes of directors. Please see "Management--Classified Board" for a list of
our directors and the class to which they belong. Our bylaws also require that
stockholders give advance notice to our secretary of any nominations for
director or other business to be brought by stockholders at any stockholders'
meeting and require a supermajority vote of members of our board of directors
and/or stockholders to amend some bylaw provisions.
61
<PAGE>
These provisions of our certificate of incorporation and our bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control. Such provisions may also have the effect of preventing changes in
our management.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law which,
subject to specified exceptions, prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder--defined as any
person or entity that is the beneficial owner of at least 15% of a
corporation's voting stock--for a period of three years following the time that
such stockholder became an interested stockholder, unless:
. Prior to that time, the corporation's board of directors approved either
the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. Upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the corporation's voting stock outstanding at the time the
transaction commenced, excluding, for purposes of determining the number
of shares outstanding, those shares owned by persons who are directors
and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; and
. At or subsequent to such time, the business combination is approved by
the corporation's board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least two-thirds of the outstanding voting stock
that is not owned by the interested stockholder.
Section 203 defines business combination to include:
. Any merger or consolidation involving the corporation and the interested
stockholder;
. Any sale, lease, exchange, mortgage, transfer, pledge or other
disposition involving the interested stockholder and 10% or more of the
assets of the corporation;
. Subject to specified exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. Any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; and
. The receipt by the interested stockholder of the benefit of any loans,
advance, guarantees, pledges or other financial benefits provided by or
through the corporation.
NASDAQ NATIONAL MARKET
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "DVSA."
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for our common stock is
.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our common stock in the public market
could adversely affect the market price of our common stock. Furthermore, since
only a limited number of shares will be available for sale shortly after this
offering because of contractual and legal restrictions on resale described
below, sales of substantial amounts of common stock in the public market after
the restrictions lapse could adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, the shares sold in this offering, will
generally be freely tradable without restriction or further registration under
the Securities Act. Of the remaining 72,811,798 shares, shares of
common stock may be sold in the public market upon expiration of lock-up
agreements 180 days after the date of this prospectus is declared effective,
subject to the volume and other restrictions of Rule 144.
In general, under Rule 144 as currently in effect, our affiliates and other
stockholders who have beneficially owned restricted shares for at least one
year will be entitled to sell in any three-month period a number of shares that
does not exceed the greater of
. 1% of the then outstanding shares of our common stock; or
. The average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the SEC.
Sales pursuant to Rule 144 are subject to requirements relating to manner of
sale, notice, and the availability of current public information about us. A
stockholder who is not deemed to have been an affiliate of ours at any time
during the 90 days immediately preceding the sale and who has beneficially
owned restricted shares for at least two years is entitled to sell those shares
under Rule 144(k) without regard to the limitations described above.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 of the Securities Act, as currently in effect, may
be relied upon with respect to the resales of securities originally purchased
from us by our employees, directors, officers, consultants or advisers prior to
the date we become subject to the reporting requirements of the Securities
Exchange Act, pursuant to written compensatory benefit plans or written
contracts relating to the compensation of those persons. In addition, the SEC
has indicated that Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements of the Exchange
Act, along with the shares acquired upon exercise of such options, including
exercises after the date of this prospectus. Securities issued in reliance on
Rule 701 are restricted securities and, subject to the contractual restrictions
described above, beginning 90 days after the date of this prospectus, may be
sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its minimum holding period requirements.
Shortly after this offering, we may also file a registration statement under
the Securities Act covering shares of common stock reserved for issuance under
our equity incentive plans. Such registration statement will cover
approximately 10,470,531 shares. Shares registered under this registration
statement will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market, unless such shares are
subject to the lock-up agreements described above.
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives, Bear, Stearns & Co. Inc., Deutsche Bank Securities Inc. and
Hambrecht & Quist LLC, has severally agreed to purchase from us the aggregate
number of shares of our common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- -----------
<S> <C>
Bear, Stearns & Co. Inc. ...........................................
Deutsche Bank Securities Inc. ......................................
Hambrecht & Quist LLC...............................................
-----------
Total...........................................................
===========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions, including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
Under the underwriting agreement, the underwriters are obliged to purchase and
pay for all of the above shares of our common stock if any are purchased.
PUBLIC OFFERING PRICE
The underwriters propose to offer the shares of common stock directly to the
public at the offering price set forth on the cover page of this prospectus and
at that price less a concession not in excess of $ per share of common
stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and those dealers may
reallow, concessions not in excess of $ per share of common stock to
other dealers. After this offering, the offering price, concessions and other
selling terms may be changed by the underwriters. Our common stock is offered
subject to receipt and acceptance by the underwriters and subject to other
conditions, including the right to reject orders in whole or in part. The
underwriters have informed us that the underwriters do not expect to confirm
sales of common stock to any accounts over which they exercise discretionary
authority.
The following table summarizes the per share and total public offering price
of the shares of common stock in the offering, the underwriting compensation to
be paid to the underwriters by us and the proceeds of the offering, before
expenses, to us. The information presented assumes either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
TOTAL
-------------------------
WITHOUT WITH
OVER- OVER-
PER SHARE ALLOTMENT ALLOTMENT
--------- ------------ ------------
<S> <C> <C> <C>
Public offering price..................... $ $ $
Underwriting discounts and commissions
payable by us............................
Proceeds, before expenses, to us..........
</TABLE>
The underwriting discount and commission per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to us per share of common stock.
We estimate total expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $ .
64
<PAGE>
OVER-ALLOTMENT OPTION TO PURCHASE ADDITIONAL SHARES
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be obligated to purchase additional shares of common stock in
proportion to their respective purchase commitments as shown in the table set
forth above, subject to various conditions.
INDEMNIFICATION AND CONTRIBUTION
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the
Securities Act or will contribute to payments that the underwriters may be
required to make in respect of those liabilities.
LOCK-UP AGREEMENTS
Our directors and officers and stockholders holding shares have
agreed that they will not offer, sell or agree to sell, directly or indirectly,
or otherwise dispose of any shares of common stock in the public market without
the prior written consent of Bear, Stearns & Co. Inc. for a period of 180 days
from the date of this prospectus.
In addition, we have agreed that for a period of 180 days from the date of
this prospectus, we will not, without the prior written consent of Bear,
Stearns & Co. Inc., offer, sell or otherwise dispose of any shares of common
stock, except that we may issue, and grant options to purchase, shares of
common stock under our stock option plans and employee stock purchase plan.
NASDAQ NATIONAL MARKET QUOTATION
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the common stock will be
determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in those negotiations, the
primary factors will be our results of operations in recent periods, estimates
of our prospects and the industry in which we compete, an assessment of our
management, the general state of the securities markets at the time of this
offering and the prices of similar securities of generally comparable
companies. We have applied for approval for the quotation of our common stock
on the Nasdaq National Market, under the symbol "DVSA." We cannot assure you,
however, that an active or orderly trading market will develop for the common
stock or that the common stock will trade in the public market subsequent to
this offering at or above the initial offering price.
STABILIZATION, SYNDICATE SHORT POSITION AND PENALTY BIDS
In order to facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
actually sold to them. The underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in this offering are reclaimed if shares of
common stock previously distributed in this offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued at any time.
65
<PAGE>
RESERVED SHARE PROGRAM
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our directors, officers, employees, business associates,
vendors and related persons. Purchases of reserved shares are to be made
through an account at Bear, Stearns & Co. Inc. in accordance with Bear, Stearns
& Co. Inc.'s procedures for opening an account and transacting in securities.
The number of shares available for sale to the general public will be reduced
to the extent that any reserved shares are purchased. Any reserved shares not
purchased by our directors, officers, employees, business associates, vendors
and related persons will be offered by the underwriters to the general public
on the same terms as the other shares offered by this prospectus.
LEGAL MATTERS
Cooley Godward llp, San Diego, California will pass on the validity of the
shares of common stock offered by this prospectus for us and certain other
legal matters. Upon the completion of this offering, attorneys with Cooley
Godward llp, through an investment partnership, will beneficially own a total
of 35,294 shares of our common stock.
Brobeck, Phleger & Harrison LLP, San Diego, California will pass on legal
matters in connection with this offering for the underwriters.
EXPERTS
The audited financial statements included in this prospectus have been
audited by Ernst & Young LLP, independent auditors, as described in their
report. We have included our financial statements in this prospectus in
reliance upon Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
In August 1999, we dismissed PricewaterhouseCoopers LLP as our independent
accountants. The former independent accountants' report did not contain an
adverse opinion, a disclaimer of opinion or any qualifications or modifications
related to uncertainty, limitation of audit scope or application of accounting
principles. The former independent accountants' report does not cover any of
our financial statements in this registration statement. There were no
disagreements with the former public accountants on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure with respect to our financial statements up through the time of
dismissal that, if not resolved to the former accountants' satisfaction, would
have caused them to make reference to the subject matter of the disagreement in
connection with their report. In August 1999, we retained Ernst & Young LLP as
our independent public accountants. The decision to retain Ernst & Young LLP
was approved by resolution of the audit committee of the board of directors.
Prior to retaining Ernst & Young LLP, we had not consulted with Ernst & Young
regarding accounting principles.
66
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.,
a registration statement on Form S-1 under the Securities Act, with respect to
the common stock offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules to the registration statement. For further information with
respect to us and our common stock, reference is made to the registration
statement and the exhibits and schedules filed as part of the registration
statement. Statements contained in this prospectus as to the contents of any
contract or document filed as an exhibit to the registration statement are
qualified by reference to the applicable exhibit as filed.
A copy of the registration statement, and the exhibits and schedules to the
registration statement, as well as reports and other information filed by us
with the SEC may be inspected without charge at the public reference facilities
maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048, and copies of all or
any part of the registration statement may be obtained from those offices upon
the payment of the fees prescribed by the SEC. You can obtain information about
the operation of the public reference facilities by calling the SEC at 1-800-
SEC-0330. In addition, registration statements and other filings we make with
the SEC through its electronic data gathering, analysis and retrieval, or
EDGAR, system, including our registration statement, are publicly available
through the Internet. The SEC maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the SEC. The SEC's web site is http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with the Exchange
Act, will file periodic reports, proxy statements and other information with
the SEC.
67
<PAGE>
DIVERSA CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors....................... F-2
Balance Sheets as of December 31, 1998 and September 30, 1999........... F-3
Statements of Operations for the years ended December 31, 1997 and 1998
and the nine months ended September 30, 1998 (unaudited) and 1999...... F-4
Statement of Stockholders' Deficit for the years ended December 31, 1997
and 1998 and the nine months ended September 30, 1999.................. F-5
Statements of Cash Flows for the years ended December 31, 1997 and 1998
and the nine months ended September 30, 1998 (unaudited) and 1999...... F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Diversa Corporation
We have audited the accompanying balance sheets of Diversa Corporation as of
December 31, 1998 and September 30, 1999, and the related statements of
operations, stockholders' deficit, and cash flows for the years ended December
31, 1997 and 1998 and the nine months ended September 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diversa Corporation at
December 31, 1998 and September 30, 1999 and the results of its operations and
its cash flows for the years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1999, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
November 10, 1999, except for Note 11,
as to which the date is December 15, 1999
F-2
<PAGE>
DIVERSA CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
SEPTEMBER EQUITY AS OF
DECEMBER 31, 30, SEPTEMBER 30,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 4,473,000 $ 3,924,000
Short-term investments............. 1,079,000 5,839,000
Accounts receivable, net of
allowance of $6,000 and $1,000 at
December 31, 1998 and September
30, 1999, respectively............ 48,000 189,000
Other current assets............... 410,000 342,000
------------ ------------
Total current assets............. 6,010,000 10,294,000
Property and equipment, net.......... 2,622,000 2,707,000
Other assets......................... 74,000 71,000
------------ ------------
Total assets......................... $ 8,706,000 $ 13,072,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................... $ 235,000 $ 400,000
Accrued liabilities................ 1,530,000 1,276,000
Deferred revenue................... 301,000 2,410,000
Notes payable...................... 552,000 --
Current portion of capital lease
obligations....................... 922,000 577,000
------------ ------------
Total current liabilities........ 3,540,000 4,663,000
------------ ------------
Capital lease obligations, less
current portion..................... 2,202,000 2,400,000
Deposit from sublessee............... 300,000 300,000
Commitments and contingencies (Note
7)
Redeemable Convertible Preferred
Stock--$0.001 par value;
60,718,183 shares authorized,
60,220,183 shares issued and
outstanding at September 30, 1999;
no shares issued and outstanding
pro forma......................... 48,402,000 48,402,000 $ --
Stockholders' equity (deficit):
Series E Convertible Preferred
Stock--$0.001 par value; 5,555,556
shares authorized, issued and
outstanding at September 30, 1999;
no shares issued and outstanding
pro forma.......................... -- 6,000 --
Common stock--$0.001 par value;
82,472,584 shares authorized,
6,716,812 shares issued and
outstanding at September 30, 1999,
5,347,322 shares issued and
outstanding at December 31, 1998;
72,492,163 shares issued and
outstanding pro forma.............. 6,000 7,000 72,000
Additional paid-in capital.......... 263,000 10,012,000 58,355,000
Deferred compensation............... -- (940,000) (940,000)
Notes receivable from stockholders.. (93,000) (49,000) (49,000)
Accumulated deficit................. (45,916,000) (51,719,000) (51,719,000)
Accumulated other comprehensive
income (loss)...................... 2,000 (10,000) (10,000)
------------ ------------ ------------
Total stockholders' equity
(deficit)....................... (45,738,000) (42,693,000) $ 5,709,000
------------ ============ ============
Total liabilities and
stockholders' equity (deficit).. $ 8,706,000 $ 13,072,000
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
DIVERSA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------------
1997 1998 1998 1999
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Collaborative revenue.. $ 669,000 $ 625,000 $ 375,000 $ 5,766,000
Grant and product
revenue............... 486,000 722,000 432,000 693,000
------------ ------------ ----------- -----------
Total revenue............ 1,155,000 1,347,000 807,000 6,459,000
Operating expenses:
Research and
development........... 7,996,000 10,182,000 7,768,000 7,877,000
Selling, general and
administrative........ 4,774,000 3,354,000 2,673,000 3,206,000
Amortization of
deferred compensation
and other non-cash
compensation charges.. -- -- -- 1,360,000
------------ ------------ ----------- -----------
Total operating
expenses................ 12,770,000 13,536,000 10,441,000 12,443,000
------------ ------------ ----------- -----------
Loss from operations..... (11,615,000) (12,189,000) (9,634,000) (5,984,000)
Other income (expense)... (25,000) 99,000 54,000 67,000
Interest income.......... 288,000 553,000 465,000 420,000
Interest expense......... (355,000) (308,000) (216,000) (306,000)
------------ ------------ ----------- -----------
Net loss................. $(11,707,000) $(11,845,000) $(9,331,000) $(5,803,000)
============ ============ =========== ===========
Historical net loss per
share, basic and
diluted................. $ (2.53) $ (2.33) $ (1.79) $ (0.89)
============ ============ =========== ===========
Shares used in
calculating historical
net loss per share,
basic and diluted....... 4,626,000 5,093,000 5,206,000 6,538,000
Pro forma net loss per
share................... $ (0.18) $ (0.08)
============ ===========
Shares used in
calculating pro forma
net loss per share...... 65,313,000 72,314,000
</TABLE>
See accompanying notes.
F-4
<PAGE>
DIVERSA CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES E
CONVERTIBLE NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE OTHER
----------------- ----------------- PAID-IN DEFERRED FROM ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS DEFICIT INCOME (LOSS)
--------- ------ --------- ------ ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996............ -- $ -- 4,542,644 $5,000 $ 187,000 $ -- $ (50,000) $(22,298,000) $ --
Issuance of notes
receivable from
stockholders
related to sale
of preferred
stock .......... -- -- -- -- -- -- (113,000) -- --
Stock options
exercised....... -- -- 146,408 -- 18,000 -- -- -- --
Dividends........ -- -- -- -- -- -- -- (66,000) --
Net loss and
comprehensive
loss............ -- -- -- -- -- -- -- (11,707,000) --
--------- ------ --------- ------ ----------- ----------- ---------- ------------ --------
Balance at
December 31,
1997............ -- -- 4,689,052 5,000 205,000 -- (163,000) (34,071,000) --
Comprehensive
income (loss):
Net loss........ -- -- -- -- -- -- -- (11,845,000) --
Unrealized gain
on available-
for-sale
securities..... -- -- -- -- -- -- -- -- 2,000
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Stock options
exercised....... -- -- 658,270 1,000 58,000 -- -- -- --
Payments received
on notes
receivable...... -- -- -- -- -- -- 70,000 -- --
--------- ------ --------- ------ ----------- ----------- ---------- ------------ --------
Balance at
December 31,
1998............ -- -- 5,347,322 6,000 263,000 -- (93,000) (45,916,000) 2,000
Comprehensive
income (loss):
Net loss........ -- -- -- -- -- -- -- (5,803,000) --
Unrealized loss
on available-
for-sale
securities..... -- -- -- -- -- -- -- -- (12,000)
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Issuance of
preferred stock,
net of issuance
costs of
$71,000......... 5,555,556 6,000 -- -- 7,256,000 -- -- -- --
Issuance of stock
options to
former employee
as part of
severance
agreement....... -- -- -- -- 782,000 -- -- -- --
Stock options
exercised....... -- -- 1,369,490 1,000 193,000 -- -- -- --
Forgiveness of
notes receivable
related to
employee
terminations.... -- -- -- -- -- -- 44,000 -- --
Deferred
compensation
related to stock
options......... -- -- -- -- 1,518,000 (1,518,000) -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 578,000 -- -- --
--------- ------ --------- ------ ----------- ----------- ---------- ------------ --------
Balance at
September 30,
1999............ 5,555,556 $6,000 6,716,812 $7,000 $10,012,000 $ (940,000) $ (49,000) $(51,719,000) $(10,000)
========= ====== ========= ====== =========== =========== ========== ============ ========
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
--------------
<S> <C>
Balance at
December 31,
1996............ $(22,156,000)
Issuance of notes
receivable from
stockholders
related to sale
of preferred
stock .......... (113,000)
Stock options
exercised....... 18,000
Dividends........ (66,000)
Net loss and
comprehensive
loss............ (11,707,000)
--------------
Balance at
December 31,
1997............ (34,024,000)
Comprehensive
income (loss):
Net loss........ (11,845,000)
Unrealized gain
on available-
for-sale
securities..... 2,000
--------------
Comprehensive
loss........... (11,843,000)
Stock options
exercised....... 59,000
Payments received
on notes
receivable...... 70,000
--------------
Balance at
December 31,
1998............ (45,738,000)
Comprehensive
income (loss):
Net loss........ (5,803,000)
Unrealized loss
on available-
for-sale
securities..... (12,000)
--------------
Comprehensive
loss........... (5,815,000)
Issuance of
preferred stock,
net of issuance
costs of
$71,000......... 7,262,000
Issuance of stock
options to
former employee
as part of
severance
agreement....... 782,000
Stock options
exercised....... 194,000
Forgiveness of
notes receivable
related to
employee
terminations.... 44,000
Deferred
compensation
related to stock
options......... --
Amortization of
deferred
compensation.... 578,000
--------------
Balance at
September 30,
1999............ $(42,693,000)
==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
DIVERSA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------------
1997 1998 1998 1999
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net loss............... $(11,707,000) $(11,845,000) $(9,331,000) $ (5,803,000)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 842,000 1,178,000 852,000 1,116,000
Loss on disposal of
property and
equipment............ 86,000 -- -- --
Amortization of
deferred
compensation......... -- -- -- 578,000
Issuance of stock
options to former
employees............ -- -- -- 782,000
Forgiveness of notes
receivable........... -- -- -- 44,000
Change in operating
assets and
liabilities:
Accounts receivable,
net.................. (61,000) 233,000 234,000 (140,000)
Other current assets.. (64,000) (137,000) (42,000) 68,000
Other assets.......... 48,000 78,000 (7,000) 5,000
Accounts payable...... (10,000) (294,000) (243,000) 165,000
Accrued liabilities... (312,000) (335,000) (351,000) (254,000)
Deferred revenue...... -- 301,000 -- 2,109,000
------------ ------------ ----------- ------------
Net cash used in
operating
activities........... (11,178,000) (10,821,000) (8,888,000) (1,330,000)
Investing activities:
Purchases of property
and equipment......... (1,310,000) (1,234,000) (1,148,000) (1,021,000)
Proceeds from release
of restricted
investment
securities............ 263,000 405,000 50,000 --
Purchases of
investments........... -- (21,710,000) (16,910,000) (26,922,000)
Maturities of
investments........... -- 20,633,000 16,910,000 22,150,000
Deposit from
sublessee............. 300,000 -- -- --
------------ ------------ ----------- ------------
Net cash used in
investing
activities........... (747,000) (1,906,000) (1,098,000) (5,793,000)
Financing activities:
Advances under capital
lease obligations..... 1,024,000 1,624,000 1,289,000 441,000
Principal payments on
capital leases........ (978,000) (1,146,000) (849,000) (768,000)
Proceeds from repayment
of notes receivable
from stockholders..... 1,402,000 70,000 34,000 --
Payments on long-term
debt/note payable..... (15,000) (14,000) (11,000) (556,000)
Proceeds from sales of
preferred and common
stock, net of issuance
costs................. 22,125,000 59,000 40,000 7,457,000
Payments of preferred
stock dividends....... (66,000) -- -- --
------------ ------------ ----------- ------------
Net cash provided by
financing
activities........... 23,492,000 593,000 503,000 6,574,000
------------ ------------ ----------- ------------
Net (decrease) increase
in cash and cash
equivalents............ 11,567,000 (12,134,000) (9,483,000) (549,000)
Cash and cash
equivalents at
beginning of period.... 5,040,000 16,607,000 16,607,000 4,473,000
------------ ------------ ----------- ------------
Cash and cash
equivalents at end of
period................. $ 16,607,000 $ 4,473,000 $ 7,124,000 $ 3,924,000
============ ============ =========== ============
Supplemental disclosure
of cash flow
information:
Interest paid.......... $ 363,000 $ 368,000 $ 254,000 $ 306,000
============ ============ =========== ============
Supplemental schedule of
noncash investing and
financing activities:
Conversion of bridge
notes to preferred
stock................. $ 3,433,000 $ -- $ -- $ --
============ ============ =========== ============
Conversion of Series I
preferred stock to
Series D preferred
stock................. $ 668,000 $ -- $ -- $ --
============ ============ =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Diversa Corporation (the "Company") was incorporated under the laws of the
State of Delaware on December 21, 1992 and received initial funding to commence
its operations in May 1994. The Company discovers and develops novel enzymes
and other biologically active compounds from diverse environmental sources for
use in agricultural, chemical processing, industrial and pharmaceutical
applications.
Interim Financial Information
The financial information for the nine months ended September 30, 1998 is
unaudited, but has been prepared on the same basis as the annual financial
statements and, in the opinion of management, includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the operating results and cash flows for
such period. Results for the interim period are not necessarily indicative of
the results to be expected for any subsequent period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers cash equivalents to be only those investments which
are highly liquid, readily convertible to cash and which mature within three
months from the date of purchase. The Company generally invests its excess cash
in U.S. Government securities and investment grade corporate obligations.
Short-term Investments
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities, to its
investments. Under SFAS No. 115, the Company classifies its short-term
investments as "Available-for-Sale" and records such assets at estimated fair
value in the balance sheet, with unrealized gains and losses, if any, reported
in stockholders equity (deficit).
At December 31, 1998, all short-term investments consist of investments in
U.S. government treasury securities. At September 30, 1999, short-term
investments consist of the following:
<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
COST FAIR VALUE GAIN (LOSS)
------ ---------- -----------
<S> <C> <C> <C>
Corporate obligations............................ $1,262 $1,261 $ (1)
Debt securities of U.S. Government agencies...... 4,104 4,093 (11)
Commercial paper................................. 485 485 --
------ ------ -------
$5,851 $5,839 $ (12)
====== ====== =======
</TABLE>
These investments all mature in less than one year.
F-7
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash equivalents and
short-term investments. The Company limits its exposure to credit loss by
placing its cash and investments with high credit quality financial
institutions.
During the years ended December 31, 1997 and 1998, and the nine month
periods ended September 30, 1998 and 1999, the Company had collaborative
research agreements that accounted for 58%, 46%, 46% and 89%, respectively, of
total revenue.
Property and Equipment
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (generally three to five years) using the straight-
line method. Amortization of leasehold improvements is computed over the
shorter of the lease term or the estimated useful life of the related assets.
Impairment of Long-Lived Assets
The Company assesses potential impairment of its long-lived assets when
there is evidence that events or changes in circumstances indicate that assets
may be impaired. An impairment loss would be recognized when the sum of the
expected future cash flows is less than the carrying amount of the assets.
During the years ended December 31, 1997 and 1998, and the periods ended
September 30, 1998 and 1999, no such indicators of impairment were identified
and no impairment losses were recorded.
Fair Value of Financial Instruments
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, are carried at cost,
which management believes approximates fair value because of the short-term
maturity of these instruments.
Revenue Recognition
Strategic alliance revenues are earned and recognized on a percentage of
completion basis as research costs are incurred in accordance with the
provisions of each strategic alliance agreement. Fees paid to initiate research
projects are deferred and amortized over the project period in accordance with
SEC Staff Accounting Bulletin (SAB) No. 101. Milestone payments are recognized
as revenue upon the completion of the milestone. Revenue from grants is
recognized on a percentage of completion basis as related costs are incurred.
Revenue from product sales is recognized at the time of shipment to the
customer.
Research and Development
Expenditures relating to research and development are expensed in the period
incurred.
Income Taxes
Current income tax expense (benefit) is the amount of income taxes expected
to be payable (receivable) for the current year. A deferred income tax asset or
liability is computed for the expected future impact of differences between the
financial reporting and tax bases of assets and liabilities, as well as the
expected future tax benefit to be derived from tax loss and credit
carryforwards. Deferred income tax expense is generally the
F-8
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
net change during the year in the deferred income tax asset or liability.
Valuation allowances are established when realizability of deferred tax assets
is uncertain. The effect of tax rate changes is reflected in tax expense
(benefit) during the period in which such changes are enacted.
Stock-Based Compensation
As permitted by SFAS No. 123, the Company accounts for common stock options
granted to employees using the intrinsic value method and, thus, recognizes no
compensation expense for options granted with exercise prices equal to or
greater than the fair value of the Company's common stock on the date of the
grant. In 1999, the Company recognized deferred stock compensation related to
certain stock option grants (see Note 5).
Deferred compensation for options granted to non-employees has been
determined in accordance with SFAS No. 123 and EITF 96-18 as the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred charges for options granted to
non-employees are periodically remeasured as the underlying options vest.
Comprehensive Income (Loss)
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income (loss) and its components; the Company has
disclosed its comprehensive income (loss) as a component of its statement of
stockholders' equity (deficit).
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity with
the SFAS No. 128, Earnings per Share, and SAB 98, for all periods presented.
Under the provisions of SAB 98, common stock and convertible preferred stock
that has been issued or granted for nominal consideration prior to the
anticipated effective date of the initial public offering must be included in
the calculation of basic and diluted net loss per common share as if these
shares had been outstanding for all periods presented. To date, the Company has
not issued or granted shares for nominal consideration.
In accordance with SFAS No. 128, basic and diluted net loss per share has
been computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the statements of
operations, has been computed for the year ended December 31, 1998 and the nine
months ended September 30, 1999 as described above, and also gives effect to
the assumed conversion of preferred stock which will automatically convert to
common stock immediately prior to the completion of the Company's initial
public offering (using the "as if converted" method) from the original date of
issuance.
F-9
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The following table presents the calculation of basic, diluted and pro forma
basic and diluted net loss per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------------
1997 1998 1998 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net loss................. $(11,707,000) $(11,845,000) $(9,331,000) $(5,803,000)
Basic and diluted net
loss per share.......... $ (2.53) $ (2.33) $ (1.79) $ (0.89)
============ ============ =========== ===========
Weighted-average shares
used in computing
historical net loss per
share, basic and
diluted................. 4,626,000 5,093,000 5,206,000 6,538,000
Pro forma:
Net loss............... $(11,845,000) $(5,803,000)
Pro forma net loss per
share, basic and diluted
(unaudited)............. $ (0.18) $ (0.08)
============ ===========
Shares used above........ 5,093,000 6,538,000
Pro forma adjustment to
reflect weighted-
average effect of
assumed conversion of
convertible preferred
stock (unaudited)..... 60,220,000 65,776,000
------------ -----------
Shares used in
computing pro forma
net loss per share,
basic and diluted
(unaudited)........... 65,313,000 72,314,000
</TABLE>
The Company has excluded all convertible preferred stock, outstanding stock
options and warrants, and shares subject to repurchase from the calculation of
diluted loss per common share because all such securities are antidilutive for
all applicable periods presented. The total number of shares excluded from the
calculations of diluted net loss per share, prior to application of the
treasury stock method for options and warrants, was 68,039,000 and 69,799,000
for the years ended December 31, 1997 and 1998, respectively, and 74,666,000
for the nine months ended September 30, 1999. Such securities, had they been
dilutive, would have been included in the computation of diluted net loss per
share.
Segment Reporting
As of January 1, 1998, the Company adopted SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information. SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers. The Company has determined that it operates in only one
segment. Accordingly, the adoption of this statement had no impact on the
Company's financial statements.
Effect of New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which will be
effective January 1, 2001. This statement establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized
F-10
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
in earnings unless specific hedge accounting criteria are met. The Company
believes the adoption of SFAS No. 133 will not have a material effect on the
financial statements.
2. BALANCE SHEET DETAILS
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Laboratory equipment............................. $ 4,228,000 $ 5,076,000
Computer equipment............................... 1,735,000 2,005,000
Furniture and fixtures........................... 274,000 313,000
Leasehold improvements........................... 77,000 121,000
----------- -----------
6,314,000 7,515,000
Accumulated depreciation and amortization........ (3,692,000) (4,808,000)
----------- -----------
Total............................................ $ 2,622,000 $ 2,707,000
=========== ===========
</TABLE>
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Compensation...................................... $ 855,000 $ 707,000
Professional fees................................. 334,000 247,000
Property taxes.................................... 67,000 95,000
Other............................................. 274,000 227,000
---------- ----------
$1,530,000 $1,276,000
========== ==========
</TABLE>
3. SIGNIFICANT STRATEGIC ALLIANCES
Novartis Agribusiness Biotechnology Research
In January 1999, the Company entered into a strategic alliance with Novartis
Agribusiness Biotechnology Research Inc. ("Novartis"). Under the agreement, the
Company will receive research funding from Novartis to conduct multiple
independent research projects with the intention of identifying and developing
biomolecules that meet the scientific specifications of Novartis. In
conjunction with the transaction, Novartis purchased 5,555,556 shares of Series
E Convertible Preferred Stock, paid a technology access fee, and provided
project research funding to the Company, for aggregate total proceeds of $12.5
million. The Company is recognizing the research payments and the technology
access fee on a percentage of completion basis as research is performed. The
terms of the stock purchase agreement permit Novartis to purchase shares of our
common stock equivalent to 10% of the shares offered in an initial public
offering at the initial public offering price.
Revenue recognized under the strategic alliance with Novartis was
approximately $4.3 million (75% of total collaborative revenues) for the nine
months ended September 30, 1999, consisting of research funding of $1.8
million, and amortization of technology access fees of $2.5 million.
F-11
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The Dow Chemical Company
In July 1999, the Company expanded its existing strategic alliance with The
Dow Chemical Company ("Dow"). Under the expanded agreement, the Company will
seek to identify and develop enzymes that can be utilized by Dow to manufacture
chemical compounds. The three-year agreement requires Dow to make an up-front
technology access payment, with similar equal payments on the first and second
anniversaries of the agreement's effective date. Dow will also fund the
research costs for the duration of the contract. The Company is amortizing the
initial technology access fee over the first 12 months of the agreement.
Revenue recognized under the strategic alliance with Dow was approximately
$0.8 million (14% of total collaborative revenues) for the nine months ended
September 30, 1999, consisting of research funding of $0.5 million, and
technology access fees of $0.3 million.
In June 1997, the Company entered into an initial agreement with Dow to
develop an enzyme to be used in a Dow industrial process. As of December 31,
1998, the Company had successfully achieved the three technical milestones as
outlined in the agreement.
Finnfeeds International Limited
In May 1996, the Company entered into a strategic alliance with Finnfeeds
International Limited ("Finnfeeds") to jointly discover new enzymes for the
animal feed market. In conjunction with the agreement, the Company issued
844,444 shares of its Series C Redeemable Convertible Preferred Stock to
Finnfeeds for $1,900,000 (Note 4).
In December 1998, the Company and Finnfeeds entered into a license agreement
to commercialize an enzyme developed under the strategic alliance. Under the
terms of the agreement, the Company granted Finnfeeds an exclusive license to
manufacture, use and sell the developed enzyme. In consideration for the
license, the Company will be paid a royalty on related product sales made by
Finnfeeds.
Other Agreements
The Company has signed various agreements with research institutions,
governmental and commercial entities. Generally these agreements call for the
Company to pay research support, cost reimbursement and, in some cases,
subsequent royalty payments in the event a product is commercialized.
4. PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Characteristics and Terms Applicable to Preferred Stock
The Company has Series A, B, C, D and E preferred stock (the "Preferred
Stock") outstanding at September 30, 1999. All outstanding shares of Preferred
Stock automatically convert into Common Stock upon the effective date of an
initial public offering ("IPO") with gross proceeds exceeding $25 million and a
price per share of not less than $3.00. The Preferred Stock is convertible at
any time into Common Stock of the Company at a conversion ratio (one to one)
determined based on a formula provided in the Company's Restated Certificate of
Incorporation. The Company has reserved the full number of shares of Common
Stock issuable upon conversion of the Preferred Stock.
F-12
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
A summary of convertible preferred stock issued and outstanding as of
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
LIQUIDATION
SHARES PREFERENCE
---------- -----------
<S> <C> <C>
Series A............................................ 10,000,000 $10,000,000
Series B............................................ 24,566,184 16,873,681
Series C............................................ 844,444 --
Series D............................................ 24,809,555 21,088,122
Series E............................................ 5,555,556 4,722,223
---------- -----------
65,775,739 $52,684,026
========== ===========
</TABLE>
The liquidation preference on the Series C Preferred Stock is determined by
the board of directors of the Company, and is based on the board's
interpretation of the value of the intellectual property rights related to the
genes and gene-sequencing technology developed under the Finnfeeds
collaboration agreement.
Dividends are payable when and if declared by the board of directors for
the Series A, B and D Stockholders. Such dividends will be declared so that
each of these Stockholders participates equally. From December 21, 1999 until
the date of the consummation of the first sale of common shares in an IPO, the
Series A, B and D Preferred Stockholders are entitled to a 5% dividend per
annum. The dividend for the Series A, B and D Preferred stock is $0.05,
$0.033, and $0.0425 per share, respectively, or such greater amount of
dividends as the Preferred Stockholders would be entitled to if converted into
Common Stock. Dividends are payable when and if declared by the board of
directors on the Series C and E Preferred Stock, but are junior to the
dividends on the Series A, B and D Preferred Stock.
The Preferred Stockholders have voting rights on an "as if converted" basis
on most matters; however, the approval of a majority of the Preferred
Stockholders voting as a separate class is required for certain transactions.
In the event of a liquidation, the Series A, B and D Preferred Stockholders
are entitled to receive on a pro rata basis a liquidation payment in an amount
equal to the original issuance price of the Preferred Stock plus any unpaid
cumulative dividends plus declared but unpaid dividends, as well as a pro rata
distributive share of any remaining assets on an "as if fully converted" basis
with the Common Stock.
The Company will be required to redeem the Series A, B, C and D Preferred
Stock on and after May 2001, upon a written request of the Preferred
Stockholders representing not less than 75% of the combined voting power of
the Preferred Stock. The redemption price of the Preferred Stock is equal to
the original issuance price, plus unpaid cumulative dividends and declared but
unpaid dividends. The Series C Preferred Stock will be redeemed only after
full redemption of the Series A, B and D Preferred Stock.
Series A Redeemable Convertible Preferred Stock
During 1994 and 1995, the Company issued a total of 10,000,000 shares of
Series A Redeemable Convertible Preferred Stock for aggregate net proceeds of
$9,927,000.
Series B Redeemable Convertible Preferred Stock
In May 1996, the Company issued 18,939,394 shares of Series B Redeemable
Convertible Preferred Stock (the "Series B Preferred Stock") for aggregate net
proceeds of $11,947,000. In December 1996, the Company
F-13
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
issued an additional 4,545,455 shares of Series B Redeemable Convertible
Preferred Stock for aggregate proceeds of $3,000,000. In conjunction with the
issuance of Series B Redeemable Convertible Preferred Stock, rights were
granted to certain key employees and consultants to purchase an additional
1,272,727 shares of Series B Preferred Stock for $840,000. In December 1996,
certain of these individuals exercised their rights and purchased 967,698
shares of Series B Preferred Stock for $640,000.
In May 1997, two key employees exercised their rights and purchased a total
of 113,637 shares of Series B Preferred Stock for $0.66 per share in exchange
for promissory notes aggregating $75,000. The notes are payable over four years
in equal annual installments commencing March 30, 1998, and bear interest at
6.64% per annum. These notes have been recorded as a separate component of
stockholders' equity (deficit). The right to purchase an additional $125,000 in
Series B Preferred Stock expired in May 1997. In 1999, the Company forgave
$44,000 related to notes receivable from certain employees, and recorded
compensation expense for the forgiveness.
Series C Redeemable Convertible Preferred Stock
In July 1997, the Company issued 844,444 shares of Series C Redeemable
Convertible Preferred Stock (the "Series C Preferred Stock") to Finnfeeds for
$2.25 per share in conjunction with a collaboration agreement (Note 3). Total
issuance costs of $10,000 were netted against the cash proceeds. The rights of
the Series C Preferred Stock are junior to the rights of Series A, B and D
Preferred Stock, and on par with the Series E Preferred Stock.
Series D Redeemable Convertible Preferred Stock
In October 1997, the Company issued 24,809,555 shares of Series D Redeemable
Convertible Preferred Stock (the "Series D Preferred Stock") for $0.85 per
share. The $21,088,000 total issuance price of the Series D Preferred Stock
included the conversion of bridge notes in the amount of $3,433,000, the
exchange of Series I Preferred Stock in the amount of $688,000 and a $50,000
note receivable from a key employee which is payable over four years in equal
annual installments commencing December 1997, and bears interest at 6.64% per
annum. Total issuance costs of $165,000 were netted against the cash proceeds.
Series E Convertible Preferred Stock
In January 1999, in conjunction with a strategic alliance signed with
Novartis (Note 3), the Company sold 5,555,556 shares of Series E Convertible
Preferred Stock. The terms of the stock purchase agreement designate a portion
of the proceeds as a technology access fee, a portion of the proceeds as
advance payments for research support under the collaboration agreement, and
$7,333,000 for the Series E Convertible Preferred Stock ($1.32 per share). The
rights of the Series E Convertible Preferred Stock are junior to the rights of
Series A, B and D with respect to dividends and liquidation preferences.
5. STOCK OPTION PLANS AND WARRANTS
The 1997 Equity Incentive Plan
In August 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan") which provides for the granting of incentive or non-statutory
stock options, stock bonuses, and rights to purchase restricted stock to
employees, directors, and consultants as administered by the human resources
committee of the board of directors. Unless terminated sooner by the board of
directors, the 1997 Plan will terminate in August 2007.
F-14
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
The incentive and non-statutory stock options are granted with an exercise
price of not less than 100% and 85%, respectively, of the estimated fair value
of the underlying common stock as determined by the board of directors. The
1997 Plan allows a purchase price for each restricted stock purchase that is
not less than 85% of the estimated fair value of the Company's common stock as
determined by the board of directors.
Options granted under the 1997 Plan vest over periods ranging up to four
years and are exercisable over periods not exceeding ten years. The aggregate
number of shares which may be awarded under the 1997 Plan is 16,812,531, and an
equal number of shares of common stock are reserved for the exercise of these
options. This aggregate number includes 8,700,000 shares which were authorized
by the board of directors in October 1999.
The Restated 1994 Employee Incentive and Non-Qualified Stock Option Plan
The Restated 1994 Employee Incentive and Non-Qualified Stock Option Plan
(the "1994 Plan") provides for the granting of incentive or non-qualified stock
options to employees and consultants as administered by the human resources
committee of the board of directors. The incentive stock options are granted
with an exercise price of not less than the estimated fair value of the
underlying common stock as determined by the board of directors. The non-
qualified stock options are granted with an exercise price of not less than
$0.01.
Options granted under the 1994 Plan vest over periods ranging up to four
years and are exercisable over periods not exceeding ten years. Options to
purchase 3,163,903 shares have been granted under the 1994 Plan. In August
1997, this Plan was terminated and there are no options available for future
grant.
Information with respect to the plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance at January 1, 1997...................... 3,685,000 $0.14
Granted....................................... 3,465,000 $0.15
Exercised..................................... (146,000) $0.12
Cancelled..................................... (234,000) $0.16
----------
Balance at December 31, 1997.................... 6,770,000 $0.15
Granted....................................... 3,414,000 $0.20
Exercised..................................... (658,000) $0.09
Cancelled..................................... (996,000) $0.15
----------
Balance at December 31, 1998.................... 8,530,000 $0.17
Granted....................................... 1,397,000 $0.53
Exercised..................................... (1,369,000) $0.14
Cancelled..................................... (717,000) $0.16
----------
Balance at September 30, 1999................... 7,841,000 $0.24
==========
</TABLE>
At September 30, 1999, options to purchase approximately 2,993,000 shares
were exercisable and approximately 1,051,000 shares remain available for grant.
F-15
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Following is a further breakdown of the options outstanding as of September
30, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE WEIGHED AVERAGE EXERCISE
OPTIONS REMAINING LIFE AVERAGE EXERCISE OPTIONS PRICE OF OPTIONS
RANGE OF EXERCISE PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE EXERCISABLE
------------------------ ----------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.01--$0.17............ 2,688,000 7.5 $0.15 1,707,000 $0.14
$0.20................... 4,018,000 8.7 $0.20 1,286,000 $0.20
$0.60--$0.70............ 1,135,000 9.6 $0.60 -- $ --
--------- ---------
$0.01--$0.70............ 7,841,000 8.4 $0.24 2,993,000 $0.17
</TABLE>
Adjusted pro forma information regarding net loss and net loss per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options and stock purchase plan under the fair
value method of SFAS No. 123. The fair value for these options was estimated at
the date of grant using the "Minimum Value" method for option pricing with the
following assumptions for 1997, 1998 and 1999; risk-free interest rates of
6.50%; dividend yield of 0%; and a weighted-average expected life of the
options of five years.
For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period. The Company's
adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
-------------------------- SEPTEMBER 30,
1997 1998 1999
------------ ------------ -----------------
<S> <C> <C> <C>
Adjusted pro forma net loss.. $(11,781,000) $(11,907,000) $(5,969,000)
Adjusted pro forma basic net
loss per share.............. $ (2.55) $ (2.34) $ (0.91)
</TABLE>
The pro forma effect on net loss for 1997, 1998 and 1999 is not likely to be
representative of the pro forma effects on reported net income or loss in
future years because these amounts reflect less than four years of vesting.
During the year ended December 31, 1998 and during the nine months ended
September 30, 1999, in connection with the grant of certain stock options to
employees, the Company recorded deferred stock compensation totaling
approximately $1.5 million, representing the difference between the exercise
price and the fair value of the Company's common stock as estimated by the
Company's management for financial reporting purposes on the date such stock
options were granted. Deferred compensation is included as a reduction of
stockholders' equity and is being amortized to expense over the vesting period
of the options. During the nine months ended September 30, 1999, the Company
recorded amortization of deferred stock compensation expense of approximately
$578,000. Additional deferred compensation will be recorded for stock options
granted to employees from October 1999 through December 1999.
The Company has a total of approximately 1,049,000 warrants outstanding,
consisting of 501,000 warrants to purchase Series A Preferred Stock at $1.00
per share, and approximately 548,000 warrants to purchase common stock at
between $0.01 and $0.15 per share. The common stock warrants were issued in
previous years in connection with certain debt and equity financing
transactions, and expire through 2006. The Series A Preferred Stock warrants
were issued in conjunction with a lease financing agreement, and expire at the
later of February 2005, or the fifth anniversary of the completion of an
initial public offering.
F-16
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
6. BENEFIT PLAN
The Company has a 401(k) plan which allows participants to defer a portion
of their income through contributions. Such deferrals are fully vested and are
not taxable to the participant until distributed from the plan upon
termination, retirement, permanent disability or death. During the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999, the
Company made discretionary contributions of approximately $39,000, $45,000 and
$0, respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office and laboratory space as well as equipment under
noncancelable leases as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
Three months ending December 31:
1999................................................ $ 153,000 $ 141,000
Year ending December 31:
2000................................................ 892,000 563,000
2001................................................ 914,000 580,000
2002................................................ 887,000 49,000
2003................................................ 669,000 --
Thereafter............................................ 149,000 --
---------- ----------
Total minimum lease payments.......................... 3,664,000 $1,333,000
==========
Amount representing interest.......................... 687,000
----------
Present value of minimum capital lease obligations.... 2,977,000
Current portion....................................... 577,000
----------
Long-term capital lease obligation.................... $2,400,000
==========
</TABLE>
The operating lease commitment includes rental payments due under the
Company's San Diego facility lease and excludes approximately $390,000 in
payments due related to a previously occupied facility for which the Company
has sublessee rental commitments to meet substantially all required lease
payments, and has received a $300,000 deposit from the sublessee. For the years
ended December 31, 1997 and 1998, and the periods ended September 30, 1998 and
1999, rent and administrative service expense under operating leases for the
San Diego facility was approximately $413,000, $516,000, $398,000 and $399,000,
respectively.
Equipment acquired under capital leases is included in property and
equipment, and amounted to $4,971,000 and $5,621,000 ($2,421,000 and $1,877,000
net of accumulated amortization) as of December 31, 1998 and September 30,
1999, respectively. The Company's capital lease obligations mature at various
dates through 2004 with interest rates ranging from 9.5% to 15.7%. As of
September 30, 1999, the Company has $1,282,000 available under lease financing
lines.
F-17
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
8. NOTES PAYABLE
In March 1995, the Company issued a $600,000 note payable with a 9% per
annum interest rate payable in connection with the acquisition of fixed assets.
The note was paid in full in 1999.
9. RELATED PARTY TRANSACTIONS
Included in the statement of operations are consulting fees and reimbursed
expenses to various stockholders, amounting to approximately $275,000 and
$322,000 for the year ended December 31, 1998 and the nine month period ended
September 30, 1999, respectively.
10. INCOME TAXES
Significant components of the Company's deferred tax assets are shown below.
A valuation allowance of $19,269,000 and $21,594,000 has been recognized to
offset the deferred tax assets at December 31, 1998 and September 30, 1999,
respectively, as realization of such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 16,584,000 $ 18,631,000
Start-up costs................................... 556,000 556,000
Allowances and accrued liabilities............... 574,000 574,000
Federal and state tax credits.................... 1,391,000 1,669,000
Depreciation..................................... 164,000 164,000
------------ ------------
Total deferred tax assets........................ 19,269,000 21,594,000
Valuation allowance.............................. (19,269,000) (21,594,000)
------------ ------------
Net deferred tax assets............................ $ -- $ --
============ ============
</TABLE>
At September 30, 1999, the Company has federal and California net operating
loss carryforwards of approximately $47,823,000 and $32,420,000, respectively.
The federal net operating loss carryforwards will begin to expire in 2009. The
California net operating loss carryforwards will continue to expire in 2000
(approximately $760,000 expired in 1999). The Company also has federal and
California tax credits of approximately $1,242,000 and $663,000, respectively,
which will expire in 2009.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of
the Company's net operating loss and credit carryforwards may be limited in the
event of a cumulative change in ownership of more than 50%. However, the
Company does not believe such limitation will have a material effect upon the
utilization of these carryforwards.
11. SUBSEQUENT EVENTS
Agreement with Terragen Discovery Inc.
In November 1999, the Company signed a license agreement with Terragen
Discovery Inc. ("Terragen") under which Terragen and the Company will cross
license certain technologies. Under the terms of the agreement, the Company
will make an initial payment as well as annual maintenance payments to
Terragen. The Terragen license was acquired to enhance the Company's
intellectual property position in accessing biodiverse uncultured organisms and
may reduce the risk of possible future patent infringement claims. As our
scientists are relying upon the Company's existing technology, and use of this
license is uncertain, a charge will be recorded in the fourth quarter related
to the entire cost of the license.
F-18
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
Novartis Joint Venture
In December 1999, we formed a five-year, renewable strategic alliance with
Novartis Seeds AG ("Novartis"). Through a contract joint venture, we will
jointly pursue opportunities in the field of animal feed and agricultural
product processing. We will share in the management of the venture and fund a
portion of the sales and marketing costs of this venture. Under the agreements,
Novartis receives exclusive, worldwide rights in the field of animal feed and
project exclusive, worldwide rights in the field of agricultural product
processing. Novartis will pay us for the license granted under this agreement,
of which $15 million will be due within 30 days of regulatory approval.
Additionally, we will receive research funding over five years, as well as
milestone payments upon achievement of project objectives and license and
commercialization fees for any resulting products. We will receive a share of
the profits in the form of royalties on any product sales.
Initial Public Offering
In December 1999, the board of directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is closed under the terms presently
anticipated, all of the preferred stock outstanding will automatically convert
into 65,775,739 shares of common stock. Unaudited pro forma stockholders'
equity, as adjusted for the assumed conversion of the preferred stock, is set
forth on the balance sheet.
Authorization of Preferred Stock
In December 1999, the board of directors approved an amendment to the
Company's articles of incorporation to authorize an additional 5,000,000 shares
of undesignated preferred stock, for which the board of directors is authorized
to fix the designation, powers, preferences, and rights, and authorized an
additional 5,000,000 shares of common stock.
1999 Employee Stock Purchase Plan
In December 1999, the board of directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 1,200,000 shares of the
Company's common stock have been reserved for issuance under the Purchase Plan.
The Purchase Plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during defined offering periods.
The price at which stock is purchased under the Purchase Plan is equal to 85%
of the fair market value of the common stock on the first or last day of the
offering period, whichever is lower. The initial offering period will commence
on the effective date of the offering. In addition, the Purchase Plan provides
for annual increases of shares available for issuance under the Purchase Plan
beginning with fiscal 2001.
1999 Nonemployee Directors Stock Option Plan
In December 1999, the Company adopted the 1999 Nonemployee Directors Stock
Option Plan and reserved a total of 800,000 shares of common stock for issuance
thereunder. Each nonemployee director who becomes a director of the Company
will be automatically granted a nonstatutory stock option to purchase 80,000
shares of common stock on the date on which such person first becomes a
director. At each board meeting immediately following each annual stockholders
meeting beginning with the first board meeting after the 1999 Annual
Stockholders Meeting, each nonemployee director will automatically be granted a
nonstatutory option to purchase 5,000 shares of common stock. The exercise
price of options under the director plan will be equal to the fair market value
of the common stock on the date of grant. The maximum term of the options
F-19
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 IS UNAUDITED)
granted under the director plan is ten years. Each initial grant under the
director plan will vest as to 25% of the shares subject to the option one year
after the date of grant and at a rate of 25% of the shares at the end of each
year. Each subsequent grant will vest in full one year after the date of grant.
The director plan will terminate in September 2009, unless terminated earlier
in accordance with the provisions of the director plan.
F-20
<PAGE>
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You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
Until , 2000, all dealers that effect trans- actions of these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
Special Statement Regarding Forward-Looking Statements................... 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Information........................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 27
Management............................................................... 44
Certain Transactions..................................................... 54
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 64
Legal Matters............................................................ 66
Experts.................................................................. 66
Where You Can Find More Information...................................... 67
Index to Financial Statements............................................ F-1
</TABLE>
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[DIVERSA LOGO]
SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
DEUTSCHE BANC ALEX. BROWN
HAMBRECHT & QUIST
, 2000
- -------------------------------------------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All the amounts
shown are estimates except for the SEC registration fee and the NASD filing
fee.
<TABLE>
<S> <C>
Registration fee......................................................... 22,400
NASD filing fee.......................................................... 9,000
Nasdaq National Market listing fee....................................... *
Printing and engraving expenses.......................................... *
Legal fees and expenses.................................................. *
Accounting fees and expenses............................................. *
Blue Sky fees and expenses............................................... *
Transfer agent and registrar fees........................................ *
Premium for directors' and officers' insurance........................... *
Miscellaneous............................................................ *
------
Total................................................................ *
======
</TABLE>
- --------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws require that directors and officers be indemnified to
the maximum extent permitted by Delaware law.
The Delaware General Corporation Law (the "Delaware GCL") provides that a
director or officer of a corporation (i) shall be indemnified by the
corporation for all expenses of litigation or other legal proceedings when he
is successful on the merits, (ii) may be indemnified by the corporation for the
expenses, judgments, fines and amounts paid in settlement of such litigation
(other than a derivative suit) even if he is not successful on the merits 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 corporation (and, in the case of a
criminal proceeding, had no reason to believe his conduct was unlawful), and
(iii) may be indemnified by the corporation for expenses of a derivative suit
(a suit by a stockholder alleging a breach by a director or officer of a duty
owed to the corporation), even if he is not successful on the merits, 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 corporation, provided that no such
indemnification may be made in accordance with this clause (iii) if the
director or officer is adjudged liable to the corporation, unless a court
determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses. The
indemnification described in clauses (ii) and (iii) above shall be made upon
order by a court or a determination by (i) a majority of disinterested
directors, (ii) if there are no such directors or if such directors so direct,
by independent legal counsel in a written opinion or (iii) the stockholders
that indemnification is proper because the applicable standard of conduct is
met. Expenses incurred by a director or officer in defending an action may be
advanced by the corporation prior to the final disposition of such action upon
receipt of an undertaking by such director or officer to repay such expenses if
it is ultimately determined that he is not entitled to be indemnified in
connection with the proceeding to which the expenses relate. The Company's
Certificate of Incorporation includes a provision eliminating, to the fullest
extent permitted by Delaware law, director liability for monetary damages for
breaches of fiduciary duty.
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with each director or officer designated by the Board of
Directors. The Indemnity Agreements require that the Company indemnify
II-1
<PAGE>
directors and officers who are parties thereto in all cases to the fullest
extent permitted by Delaware law. Under the Delaware GCL, except in the case of
litigation in which a director or officer is successful on the merits,
indemnification of a director or officer is discretionary rather than
mandatory. Consistent with the Company's Bylaw provision on the subject, the
Indemnity Agreements require the Company to make prompt payment of litigation
expenses at the request of the director or officer in advance of
indemnification provided that he undertakes to repay the amounts if it is
ultimately determined that he is not entitled to indemnification for such
expenses. The advance of litigation expenses is mandatory; under the Delaware
GCL such advance would be discretionary. Under the Indemnity Agreements, the
director or officer is permitted to bring suit to seek recovery of amounts due
under the Indemnity Agreements and is entitled to recover the expenses of
seeking such recovery unless a court determines that the action was not made in
good faith or was frivolous. Without the Indemnity Agreements, the Company
would not be required to pay the director or officer for his expenses in
seeking indemnification recovery against the Company. Under the Indemnity
Agreements, directors and officers are not entitled to indemnity or advancing
of expenses (i) if such director or officer has recovered payment under an
insurance policy for the subject claim, or has otherwise been indemnified
against the subject claim, (ii) for actions initiated or brought by the
director or officer and not by way of defense (except for actions seeking
indemnity or expenses from the Company), (iii) if the director or officer
violated section 16(b) of the Exchange Act or similar provisions of law or (iv)
if a court of competent jurisdiction determines that the director or officer
failed to act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any proceeding
which is of a criminal nature, had reasonable cause to believe his conduct was
unlawful. Absent the Indemnity Agreements, indemnification that might be made
available to directors and officers could be changed by amendments to the
Company's Certificate of Incorporation or Bylaws.
The underwriting agreement provides that the underwriters are obligated,
under some circumstances, to indemnify our directors, officers and controlling
persons against specified liabilities, including liabilities under the
Securities Act. Reference is made to the form of underwriting agreement filed
as Exhibit 1.1 to this registration statement.
In addition, we have an existing directors and officers liability insurance
policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1997, the Registrant has sold and issued the following
unregistered securities:
(a) On July 14, 1997, the Registrant issued and sold 844,444 shares of its
Series C Preferred Stock to Finnfeeds International Limited for a purchase
price of $1,900,000, in connection with the Registrant's Collaboration
Agreement with Finnfeeds International Limited. The Registrant relied on the
exemption provided by Section 4(2) and/or Regulation D promulgated under the
Securities Act. The sale was made without general solicitation or advertising.
The purchaser was a sophisticated investor with access to all relevant
information necessary to evaluate the investment and represented to the
Registrant that the securities were being acquired for investment.
(b) On September 2, 1997, the Registrant issued to 15 investors, secured
promissory notes for an aggregate of $3,432,804 that were convertible into
shares of the Registrant's Series D Preferred Stock. The Registrant relied on
the exemption provided by Section 4(2) and/or Regulation D promulgated under
the Securities Act. The issuances were made without general solicitation or
advertising. Each investor was a sophisticated investor with access to all
relevant information necessary to evaluate the investment and represented to
the Registrant that the securities were being acquired for investment.
(c) On October 22, 1997, the Registrant issued and sold an aggregate of
24,809,555 shares of its Series D Preferred Stock to 27 investors for an
aggregate purchase price of $21,088,122, which reflected the conversion of all
of the Registrant's outstanding Series I Preferred Stock and convertible,
secured promissory notes into Series D Preferred Stock. The Registrant relied
on the exemption provided by Section 4(2) and/or
II-2
<PAGE>
Regulation D promulgated under the Securities Act. The sales were made without
general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to the Registrant that the securities were being
acquired for investment.
(d) On January 25, 1999, the Registrant issued and sold 5,555,556 shares of
its Series E Preferred Stock to Novartis Agribusiness Biotechnology Research,
Inc. for a purchase price of $7,333,334 in connection with a Collaboration
Agreement between the parties. The Registrant relied on the exemption provided
by Section 4(2) and/or Regulation D promulgated under the Securities Act. The
sale was made without general solicitation or advertising. The purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment and represented to the Registrant that the securities
were being acquired for investment.
(e) From time to time since January 1, 1997, the Registrant has granted
stock options to purchase shares of its common stock to various employees and
consultants pursuant to its 1994 Employee Incentive and Non-Qualified Stock
Option Plan. With respect to all grants of options, exemption from registration
was unnecessary in that the transactions did not involve a "sale" of securities
as that term is used in Section 2(a)(3) of the Securities Act.
(f) From time to time since August 28, 1997, the Registrant has granted
stock options to purchase shares of its common stock to various employees and
consultants pursuant to its 1997 Equity Incentive Plan. With respect to all
grants of options, exemption from registration was unnecessary in that the
transactions did not involve a "sale" of securities as that term is used in
Section 2(a)(3) of the Securities Act.
(g) As of September 30, 1999, the Registrant had issued and sold, in the
aggregate, 181,333 shares of its common stock for per share exercise prices
ranging from $0.20 to $0.70 to employees and consultants pursuant to their
exercise of stock options granted under the Registrant's 1994 Employee
Incentive and Non-Qualified Stock Option Plan. The Registrant relied on the
exemption provided by Rule 701 under the Securities Act.
(h) As of September 30, 1999, the Registrant had issued and sold, in the
aggregate, 2,203,295 shares of its common stock for per share exercise prices
ranging from $0.146 to $0.60 to employees and consultants pursuant to their
exercise of stock options granted under the Registrant's 1997 Equity Incentive
Plan. The Registrant relied on the exemption provided by Rule 701 under the
Securities Act.
The common stock amounts and per share exercise prices in the descriptions
above reflect the -for- stock split of the Registrant's common stock which
will take place prior to effectiveness of this offering. The recipients of the
above-described securities represented their intention to acquire the
securities for investment only and not with a view to distribution thereof.
Appropriate legends were affixed to the stock certificates issued in such
transactions. All recipients had adequate access, through employment or other
relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION OF DOCUMENT
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriter's Agreement.
3.1 Registrant's Certification of Incorporation, as amended, as currently
in effect.
3.2 Registrant's Bylaws, as amended, as currently in effect.
3.3 Form of Amended and Restated Certificate of Incorporation, to be filed
prior to the Closing.
3.4 Form of Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of this offering.
3.5 Form of Registrant's Amended and Restated Bylaws, to be effective upon
the closing of this offering.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION OF DOCUMENT
------- ----------------------------------------------------------------------
<C> <S>
4.1* Form of common stock Certificate of Registrant.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement entered into between the Company and its
directors and executive officers.
10.2 1994 Employee Incentive and Non-Qualified Stock Option Plan, as
amended.
10.3 Form of Stock Option Agreement under the 1994 Employee Incentive and
Non-Qualified Stock Option Plan.
10.4 1997 Equity Incentive Plan.
10.5 Form of Stock Option Grant Notice and Stock Option Agreement under the
1997 Equity Incentive Plan.
10.6 1999 Non-Employee Directors' Stock Option Plan.
10.7 Form of Stock Option Grant Notice and Related Stock Option Agreement
under the 1999 Non-Employee Directors' Stock Option Plan.
10.8 1999 Employee Stock Purchase Plan.
10.9 Amended and Restated Stockholders' Agreement by and among the Company
and the Stockholders identified therein, dated January 25, 1999.+
10.10 Form of Warrant Agreement to purchase Series A Preferred Stock (with
schedule of holders attached).
10.11 Form of Warrant Agreement to purchase Common Stock (with schedule of
holders attached).
10.12 Form of Warrant Agreement to purchase Common Stock (with schedule of
holders attached).
10.13 Multi-Tenant Office R&D Building Lease by and between the Company and
Sycamore/San Diego Investors, dated September 24, 1996.
10.14 Master Lease Agreement by and between the Transamerica Business Credit
Corporation and the Company, dated April 4, 1997.
10.15* License Agreement between the Company and The Dow Chemical Company,
dated July 20, 1997 and July 22, 1997.+
10.16* Collaborative Research Agreement by and between the Company and The
Dow Chemical Company, dated July 20, 1999 and July 22, 1999.+
10.17 License Agreement by and between the Company and Finfeeds
International Limited, dated December 1, 1998.+
10.18 Collaboration Agreement by and between the Company and Novartis
Agribusiness Biotechnology Research, Inc., dated January 25, 1999, as
amended.+
10.19 Stock Purchase Agreement by and between the Company and Novartis
Agribusiness Biotechnology Research, Inc., dated January 25, 1999.+
10.20 Collaboration Agreement by and between the Company and Rhone-Poulenc
Animal Nutrition S.A., dated June 28, 1999.+
10.21 License Agreement by and between the Company and Invitrogen
Corporation, dated March 29, 1999.+
10.22* License Agreement by and between the Company and Mycogen Corporation,
dated December 1997, as amended on March 6, 1998 and December 19,
1997.+
10.23 Patent Cross-License Agreement by and between the Company and Terragen
Discovery Inc., dated November 18, 1999.+
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION OF DOCUMENT
------- ---------------------------------------------------------------------
<C> <S>
10.24 Joint Venture Agreement by and between the Company and Novartis Seeds
AG, dated December 1, 1999.+
10.25 Research Lease by and between the Company One Cell Systems, Inc.,
dated February 16, 1999.+
10.26 Research and Development Agreement by and between the Company and
Novartis Enzymes, Inc., dated December 1, 1999.+
10.27 Employment Offer Letter to Patrick Simms, dated February 3, 1997.
10.28 Employment Offer Letter to Jay Short, dated August 30, 1994.
10.29 Employment Offer Letter to Karin Eastham, dated April 2, 1999.
10.30 Employment Offer Letter to William H. Baum, dated July 31, 1997.
10.31 Separation Agreement by and between the Company and Terrance J.
Bruggeman, effective as of April 12, 1999.
10.32 Separation Agreement by and between the Company and Kathleen H. Van
Sleen, effective as of May 10, 1999.
10.33 Letter Agreement with Jay M. Short, Ph.D., dated June 25, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to pages II-7 and II-8.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential Treatment will be requested with respect to portions of this
exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.
(b) Schedules
All schedules are omitted because they are not required, are not applicable
or the information is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Act, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Exchange Act (and, where applicable, each filing of an
II-5
<PAGE>
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(2) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(3) For the purpose of determining any liability under the 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
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, in the
City of San Diego, County of San Diego, State of California, on the 15th day of
December, 1999.
By:/s/ Jay M. Short
-----------------------------------
Jay M. Short, Ph.D.
President, Chief Executive Officer
and Chief Technology Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jay M. Short and Karin Eastham and each of them,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act
of 1933, as amended, which relates to this Registration Statement, 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 and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, to their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jay M. Short President, Chief Executive December 15, 1999
_________________________________ Officer, Chief Technology
Jay M. Short, Ph.D. Officer and Director
(Principal Executive
Officer)
/s/ Karin Eastham Senior Vice President, December 15, 1999
____________________________________ Finance and Chief Financial
Karin Eastham Officer (Principal Financial
Officer)
/s/ James H. Cavanaugh Director December 15, 1999
____________________________________
James H. Cavanaugh, Ph.D.
/s/ Daniel T. Carroll Director December 15, 1999
____________________________________
Daniel T. Carroll
/s/ Patricia M. Cloherty Director December 15, 1999
____________________________________
Patricia M. Cloherty
/s/ Donald D. Johnston Director December 15, 1999
____________________________________
Donald D. Johnston
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director December , 1999
____________________________________
Mark Leschly
Director December , 1999
____________________________________
Melvin I. Simon, Ph.D.
/s/ Peter Johnson Director December 15, 1999
____________________________________
Peter Johnson
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION OF DOCUMENT
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriter's Agreement.
3.1 Registrant's Certification of Incorporation, as amended, as currently
in effect.
3.2 Registrant's Bylaws, as amended, as currently in effect.
3.3 Form of Amended and Restated Certificate of Incorporation, to be filed
prior to the Closing.
3.4 Form of Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of this offering.
3.5 Form of Registrant's Amended and Restated Bylaws, to be effective upon
the closing of this offering.
4.1* Form of common stock Certificate of Registrant.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement entered into between the Company and its
directors and executive officers.
10.2 1994 Employee Incentive and Non-Qualified Stock Option Plan, as
amended.
10.3 Form of Stock Option Agreement under the 1994 Employee Incentive and
Non-Qualified Stock Option Plan.
10.4 1997 Equity Incentive Plan.
10.5 Form of Stock Option Grant Notice and Stock Option Agreement under the
1997 Equity Incentive Plan.
10.6 1999 Non-Employee Directors' Stock Option Plan.
10.7 Form of Stock Option Grant Notice and Related Stock Option Agreement
under the 1999 Non-Employee Directors' Stock Option Plan.
10.8 1999 Employee Stock Purchase Plan.
10.9 Amended and Restated Stockholders' Agreement by and among the Company
and the Stockholders identified therein, dated January 25, 1999.+
10.10 Form of Warrant Agreement to purchase Series A Preferred Stock (with
schedule of holders attached).
10.11 Form of Warrant Agreement to purchase Common Stock (with schedule of
holders attached).
10.12 Form of Warrant Agreement to purchase Common Stock (with schedule of
holders attached).
10.13 Multi-Tenant Office R&D Building Lease by and between the Company and
Sycamore/San Diego Investors, dated September 24, 1996.
10.14 Master Lease Agreement by and between the Transamerica Business Credit
Corporation and the Company, dated April 4, 1997.
10.15* License Agreement between the Company and The Dow Chemical Company,
dated July 20, 1997 and July 22, 1997.+
10.16* Collaborative Research Agreement by and between the Company and The
Dow Chemical Company, dated July 20, 1999 and July 22, 1999.+
10.17 License Agreement by and between the Company and Finfeeds
International Limited, dated December 1, 1998.+
10.18 Collaboration Agreement by and between the Company and Novartis
Agribusiness Biotechnology Research, Inc., dated January 25, 1999, as
amended.+
10.19 Stock Purchase Agreement by and between the Company and Novartis
Agribusiness Biotechnology Research, Inc., dated January 25, 1999.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION OF DOCUMENT
------- ----------------------------------------------------------------------
<C> <S>
10.20 Collaboration Agreement by and between the Company and Rhone-Poulenc
Animal Nutrition S.A., dated June 28, 1999.+
10.21 License Agreement by and between the Company and Invitrogen
Corporation, dated March 29, 1999.+
10.22* License Agreement by and between the Company and Mycogen Corporation,
dated December 1997, as amended on March 6, 1998 and December 19,
1997.+
10.23 Patent Cross-License Agreement by and between the Company and Terragen
Discovery Inc., dated November 18, 1999.+
10.24 Joint Venture Agreement by and between the Company and Novartis Seeds
AG, dated December 1, 1999.+
10.25 Research Lease by and between the Company One Cell Systems, Inc.,
dated February 16, 1999.+
10.26 Research and Development Agreement by and between the Company and
Novartis Enzymes, Inc., dated December 1, 1999.+
10.27 Employment Offer Letter to Patrick Simms, dated February 3, 1997.
10.28 Employment Offer Letter to Jay Short, dated August 30, 1994.
10.29 Employment Offer Letter to Karin Eastham, dated April 2, 1999.
10.30 Employment Offer Letter to William H. Baum, dated July 31, 1997.
10.31 Separation Agreement by and between the Company and Terrance J.
Bruggeman, effective as of April 12, 1999.
10.32 Separation Agreement by and between the Company and Kathleen H. Van
Sleen, effective as of May 10, 1999.
10.33 Letter Agreement with Jay M. Short, Ph.D., dated June 25, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to pages II-7 and II-8.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential Treatment will be requested with respect to portions of this
exhibit. Omitted portions will be filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
SEVENTH RESTATED CERTIFICATE OF INCORPORATION
OF
DIVERSA CORPORATION
PURSUANT TO SECTION 242
OF THE GENERAL CORPORATION LAW OF
THE STATE OF DELAWARE
Diversa Corporation (hereinafter called the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By an Action by Unanimous Written Consent, the Board of Directors of the
Corporation duly adopted a resolution pursuant to Sections 141 and 242 of the
General Corporation Law of the State of Delaware, setting forth an amendment to
the Seventh Restated Certificate of Incorporation of the Corporation and
declaring said amendment to be advisable. The holders of (i) at least a
majority of the issued and outstanding shares of Common Stock, voting as a
class, (ii) at least 75% of the issued and outstanding shares of Common Stock
and Preferred Stock of the Corporation, voting as a class, (iii) at least 75% of
the issued and outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series
E Preferred Stock, voting as a class, (iv) at least a majority of the issued and
outstanding shares of Series A Preferred Stock, voting as a class, (v) at least
a majority of the issued and outstanding shares of Series B Preferred Stock,
voting as a class, and (vi) at least a majority of the issued and outstanding
shares of Series D Preferred Stock, voting as a class, 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 amendment is as follows:
A. Paragraph 1 of Article III of the Seventh Restated Certificate of
Incorporation is hereby amended such that it reads in its entirety as
follows:
"1. AUTHORIZATION, DESIGNATION AND AMOUNT. The total number of
shares of all classes of stock which the Corporation shall have authority
to issue is 157,449,323 consisting of 66,276,739 shares of Preferred Stock,
par value $.001 per share (the "Preferred Stock"), of which 10,501,000
shares shall be designated "Series A Convertible Preferred Stock" (the
"Series A Preferred Stock"), 24,566,184 shall be designated "Series B
Convertible Preferred Stock" (the "Series B Preferred Stock"), 844,444
shall be designated "Series C Convertible Preferred Stock" (the "Series C
Preferred Stock"), 24,809,555 shall be designated "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock") and
1.
<PAGE>
5,555,556 shall be designated "Series E Convertible Preferred Stock" (the
"Series E Preferred Stock"), and 91,172,584 shares of Common Stock, par
value $.001 per share (the "Common Stock"). The number of shares, powers,
terms, conditions, designations, preferences and privileges, relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, of the Preferred Stock, and the Common Stock
shall be as set forth in this Article III, or with respect to any shares as
to which the powers, terms, conditions, designations, preferences and
privileges, relative, participating, optional and other special rights, and
qualifications, limitations and restrictions have not been set forth in
this Article III, the Board of Directors of the Corporation is expressly
authorized to the fullest extent permitted by law, at any time and from
time to time; to divide the authorized and unissued shares into classes or
series, or both, and to provide for the powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional
and other special rights, and qualifications, limitations and restrictions
of the shares of the class or series. The number of authorized shares of
Common Stock may be increased or decreased (but not below the combined
number of shares thereof then outstanding, plus that number of shares
reserved for purposes of effecting the conversion of the Series Preferred
Stock into Common Stock) by the affirmative vote of the holders of 75% of
(i) the issued and outstanding Common Stock (voting together with the
holders of Series Preferred Stock in accordance with Sections A.6(a),
B.6(a), C.6(a), D.6(a) and E.6(a) hereof), (ii) the issued and outstanding
Series Preferred Stock and (iii) any other class or series of capital stock
entitled to vote, irrespective of the provisions of Section 242(b)(2) of
the General Corporation Law."
B. Subpart c. of the definition of "Excluded Stock" under Article III, Part G
of the Seventh Restated Certificate of Incorporation is hereby amended such
that it reads in its entirety as follows:
"c. Common Stock issued to employees, consultants or others who
provide services to the Corporation, pursuant to any options to purchase or
rights to subscribe for such Common Stock granted pursuant to an option or
rights plan, agreement or arrangement approved by the Corporation's Board
of Directors, but not to exceed 19,975,624 shares of Common Stock, giving
effect to appropriate adjustment to prevent dilution thereof."
C. Part A.3(d) of Article III of the Seventh Restated Certificate of
Incorporation is hereby amended such that it reads in its entirety as
follows:
"d. From and after the Series A Preferred Fifth Anniversary Date and
until the date of the consummation of the Corporation's first Public
Offering, the Series A Preferred Stock will be entitled, pari passu with
the Series B and Series D Preferred Stock, to dividends, to be paid
quarterly, in cash or in kind at the discretion of the Board of Directors,
at an annual rate of five percent
2.
<PAGE>
(5%) of the Series A Preferred Original Purchase Price (or such greater
amount of dividends as such Series A Preferred Stock would be entitled to
if such Series A Preferred Stock were converted into Common Stock), as
adjusted for any combinations or divisions or similar recapitalizations
affecting the Series A Preferred Stock after the Series A Preferred
Original Issuance Date, payable on the first day of January, April, July
and October (and any dividends payable to holders of Series A Preferred
Stock which are not paid shall be cumulative). Upon conversion of any
Series A Preferred Stock, all accrued but unpaid cumulative dividends and
any declared but unpaid dividends shall be paid in cash, or in additional
shares of Common Stock at the Series A Preferred Conversion Price then in
effect in the discretion of the Board of Directors; provided that if the
conversion takes place in connection with the Corporation's first Public
Offering, then the additional shares will be at the price per share offered
to the public in the first Public Offering. Nothing in this Section A.3(d)
shall be deemed to limit the rights of the Series A Preferred Stock under
Sections A.3(b) and A.3(c) hereof.
D. Part B.3(d) of Article III of the Seventh Restated Certificate of
Incorporation is hereby amended such that it reads in its entirety as
follows:
"d. From and after the Series A Preferred Fifth Anniversary Date and
until the date of the consummation of the Corporation's first Public
Offering, the Series B Preferred Stock will be entitled, pari passu with
the Series A and Series D Preferred Stock, to dividends, to be paid
quarterly, in cash or in kind at the discretion of the Board of Directors,
at an annual rate of five percent (5%) of the Series B Preferred Original
Purchase Price (or such greater amount of dividends as such Series B
Preferred Stock would be entitled to if such Series B Preferred Stock were
converted into Common Stock), as adjusted for any combinations or divisions
or similar recapitalizations affecting the Series B Preferred Stock after
the Series B Preferred Original Issuance Date, payable on the first day of
January, April, July and October (and any dividends payable to holders of
Series D Preferred Stock which are not paid shall be cumulative). Upon
conversion of any Series B Preferred Stock, all accrued but unpaid
cumulative dividends and any declared but unpaid dividends shall be paid in
cash, or in additional shares of Common Stock at the Series B Preferred
Conversion Price then in effect in the discretion of the Board of
Directors; provided that if the conversion takes place in connection with
the Corporation's first Public Offering, then the additional shares of
Common Stock will be at the price per share offered to the public in the
first Public Offering. Nothing in this Section B.3(d) shall be deemed to
limit the rights of the Series B Preferred Stock under Sections B.3(b) and
B.3(c) hereof."
E. Part D.3(d) of Article III of the Seventh Restated Certificate of
Incorporation is hereby amended such that it reads in its entirety as
follows:
3.
<PAGE>
"d. From and after the Series A Preferred Fifth Anniversary Date and
until the date of the consummation of the Corporation's first Public
Offering, the Series D Preferred Stock will be entitled, pari passu with
the Series A and Series B Preferred Stock, to dividends, to be paid
quarterly, in cash or in kind at the discretion of the Board of Directors,
at an annual rate of five percent (5%) of the Series D Preferred Original
Purchase Price (or such greater amount of dividends as such Series D
Preferred Stock would be entitled to if such Series D Preferred Stock were
converted into Common Stock), as adjusted for any combinations or divisions
or similar recapitalizations affecting the Series D Preferred Stock after
the Series D Preferred Original Issuance Date, payable on the first day of
January, April, July and October (and any dividends payable to holders of
Series D Preferred Stock which are not paid shall be cumulative). Upon
conversion of any Series D Preferred Stock, all accrued but unpaid
cumulative dividends and any declared but unpaid dividends shall be paid in
cash, or in additional shares of Common Stock at the Series D Preferred
Conversion Price then in effect in the discretion of the Board of
Directors; provided that if the conversion takes place in connection with
the Corporation's first Public Offering, then the additional shares of
Common Stock will be at the price per share offered to the public in the
first Public Offering. Nothing in this Section D.3(d) shall be deemed to
limit the rights of the Series D Preferred Stock under Sections D.3(b) and
D.3(c) hereof."
4.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of the Seventh Restated Certificate of Incorporation of the
Corporation to be duly executed on its behalf by its Chief Executive Officer and
attested by its Secretary the 3rd day of December, 1999.
DIVERSA CORPORATION
By: /s/ Jay M. Short, Ph.D.
--------------------------------------
Chief Executive Officer
Jay M. Short, Ph.D.
ATTEST:
/s/ Karin Eastham
- ---------------------------
Secretary
Karin Eastham
5.
<PAGE>
SEVENTH
RESTATED CERTIFICATE OF INCORPORATION
OF
DIVERSA CORPORATION
DIVERSA CORPORATION (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
FIRST: The name of the Corporation is Diversa Corporation. A
Certificate of Incorporation of the Corporation originally was filed by the
Corporation with the Secretary of State of Delaware on December 21, 1992. The
Corporation was originally incorporated under the name Industrial Genome
Sciences, Inc. A Restated Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on April 20, 1994. A Second
Restated Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on December 20, 1994. A Certificate of Amendment
of the Second Restated Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on March 7, 1995. A Certification of
Designation of the Corporation was filed with the Secretary of State of Delaware
on March 7, 1995. A Certificate of Amendment of the Second Restated Certificate
of Incorporation of the Corporation was filed with the Secretary of State of
Delaware on July 24, 1995. A Certificate of Amendment of the Second Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on January 11, 1996. A Third Restated Certificate of
Incorporation was filed with the Secretary of State of Delaware on May 7, 1996.
A Certificate of Amendment of the Third Restated Certificate of Incorporation
was filed with the Secretary of State of Delaware on August 22, 1996. A Second
Certificate of Amendment of the Third Restated Certificate of Incorporation was
filed with the Secretary of State of Delaware on August 22, 1996. A Third
Certificate of Amendment was filed with the Secretary of State of Delaware on
December 3, 1996. A Fourth Certificate of Amendment was filed with the
Secretary of State of Delaware on June 9, 1997. A Fourth Restated Certificate of
Incorporation was filed with the Secretary of State of Delaware on July 10,
1997. A Certificate of Amendment of the Fourth Restated Certificate of
Incorporation was filed on August 14, 1997, changing the name of the Corporation
from Recombinant BioCatalysis, Inc. to Diversa Corporation. A Fifth Restated
Certificate of Incorporation was filed with the Secretary of State of Delaware
on October 17, 1997. A Sixth Restated Certificate of Incorporation was filed
with the Secretary of State of Delaware on August 24, 1998.
SECOND: This Seventh Restated Certificate of Incorporation which restates,
amends and supersedes the Certificate of Incorporation of the Corporation as
originally filed and thereafter amended and restated as described in First
above, was duly adopted in accordance with the provisions of Sections 242 and
245 of the General Corporation Law, and was approved by written consent of the
stockholders of the Corporation given in accordance with the provisions of
Section 228 of the General Corporation Law (prompt notice of such action having
been given to those stockholders who did not consent in writing).
1.
<PAGE>
THIRD: The text of the Certificate of Incorporation of the Corporation is
hereby restated, amended and superseded to read in its entirety as follows:
ARTICLE I.
NAME
The name of the corporation is Diversa Corporation
ARTICLE II.
PURPOSE
The Corporation is organized to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law.
ARTICLE III.
CAPITAL STOCK
1. AUTHORIZATION, DESIGNATION AND AMOUNT. The total number of shares of
all classes of stock which the Corporation shall have authority to issue is
148,749,323 consisting of 66,276,739 shares of Preferred Stock, par value $.001
per share (the "Preferred Stock"), of which 10,501,000 shares shall be
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock"), 24,566,184 shall be designated "Series B Convertible Preferred Stock"
(the "Series B Preferred Stock"), 844,444 shall be designated "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock"), 24,809,555 shall
be designated "Series D Convertible Preferred Stock" (the "Series D Preferred
Stock") and 5,555,556 shall be designated "Series E Convertible Preferred Stock"
(the "Series E Preferred Stock"), and 82,472,584 shares of Common Stock, par
value $.001 per share (the "Common Stock"). The number of shares, powers,
terms, conditions, designations, preferences and privileges, relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, of the Preferred Stock, and the Common Stock shall
be as set forth in this Article III, or with respect to any shares as to which
the powers, terms, conditions, designations, preferences and privileges,
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions have not been set forth in this Article III, the
Board of Directors of the Corporation is expressly authorized to the fullest
extent permitted by law, at any time and from time to time; to divide the
authorized and unissued shares into classes or series, or both, and to provide
for the powers, terms, conditions, designations, preferences and privileges,
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions of the shares of the class or series. The number
of authorized shares of Common Stock may be increased or decreased (but not
below the combined number of shares thereof then outstanding, plus that number
of shares reserved for purposes of effecting the conversion of the Series
Preferred Stock into Common Stock) by the affirmative vote of the holders of 75%
of (i) the issued and outstanding Common Stock (voting together with the holders
of Series Preferred Stock in accordance with Sections A.6(a), B.6(a), C.6(a),
D.6(a) and E.6(a) hereof), (ii) the issued and outstanding Series Preferred
Stock and (iii) any other class
2.
<PAGE>
or series of capital stock entitled to vote, irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law.
PART A. SERIES A CONVERTIBLE PREFERRED STOCK.
1. TERMS. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series A Preferred Stock shall be as set forth herein.
2. RANKING. The Corporation's Series A Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series B and Series D Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section A.4 hereof and with respect to
redemption, only to the extent provided in Section A.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A, Series B and Series D Preferred Stock, as otherwise approved by
the affirmative vote or consent of the holders of 75% of the issued and
outstanding shares of Series A, Series B and Series D Preferred Stock voting
together. The Series A Preferred Stock shall have the following designations,
powers, preferences, relative, participating, optional or other special rights,
qualifications, limitations and restrictions:
3. DIVIDENDS.
a. Dividends are payable on the Series A Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series A Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series A
Preferred Stock and each outstanding share of Series B and Series D Preferred
Stock, so that all outstanding shares of Series A, Series B and Series D
Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series A Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series A Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series A Preferred Stock and (B) any cumulative dividends in accordance
with Section A.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series A Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
3.
<PAGE>
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series A Preferred
Stock, so that all outstanding shares of Series A Preferred Stock will
participate ratably with the shares of Common Stock and the shares of each other
class or series of stock ranking pari passu with or junior to the Series A
Preferred Stock in such dividend or distribution. For purposes of determining
its proportional share of the dividend or distribution, each share of the Series
A Preferred Stock and any other applicable class or series of convertible
securities shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series A Preferred Stock will be entitled, pari passu with the
Series B and Series D Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series A Preferred Original Purchase Price (or such
greater amount of dividends as such Series A Preferred Stock would be entitled
to if such Series A Preferred Stock were converted into Common Stock), as
adjusted for any combinations or divisions or similar recapitalizations
affecting the Series A Preferred Stock after the Series A Preferred Original
Issuance Date, payable on the first day of January, April, July and October (and
any dividends payable to holders of Series A Preferred Stock which are not paid
shall be cumulative). Upon conversion of any Series A Preferred Stock, all
accrued but unpaid cumulative dividends and any declared but unpaid dividends
shall be paid in cash, or in additional shares of Common Stock at the Series A
Preferred Conversion Price then in effect in the discretion of the Board of
Directors. Nothing in this Section A.3(d) shall be deemed to limit the rights of
the Series A Preferred Stock under Sections A.3(b) and A.3(c) hereof.
4. RIGHTS ON LIQUIDATION, DISSOLUTION, WINDING-UP.
a. With respect to rights on Liquidation, the Series A Preferred
Stock shall rank (x) pari passu with the Series B and Series D Preferred Stock,
(y) senior and prior to the Series C Preferred Stock and Series E Preferred
Stock (but only to the extent provided in this Section A.4) and (z) senior and
prior to the Common Stock and to all other classes or series of stock issued by
the Corporation, except in the case of a change in the relative ranking upon
Liquidation of the Series A, Series B and Series D Preferred Stock, as otherwise
approved by the affirmative vote or consent of the holders of 75% of the issued
and outstanding shares of Series A, Series B and Series D Preferred Stock voting
together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series A Preferred Stock, the holders of Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series B and Series D Preferred Stockholders, an amount
per share equal to the Series A Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
4.
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c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series A Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section A.4(b) hereof and to pay to the Series B and Series
D Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections B.4(b) and D.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have been
made to (i) the Series A, Series B and Series D Preferred Stockholders of the
full amount to which they shall be entitled pursuant to Sections A.4(b), B.4(b)
and D.4(b) hereof, respectively, and (ii) the Series C and Series E Preferred
Stockholders of the full amount to which they shall be entitled pursuant to
Section C.4(b) and E.4(b) hereof, respectively, with respect to each other class
or series of capital stock (other than the Series C Preferred Stock, Series E
Preferred Stock and the Common Stock) ranking on Liquidation junior to such
Series A Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class, shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding and among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series D
Preferred Stockholders and each class or series of capital stock (other than the
Series C Preferred Stock, Series E Preferred Stock and the Common Stock) junior
to the Series A Preferred Stock the full amounts to which they shall be entitled
pursuant to the immediately preceding sentence, the Series A, Series B and
Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series A
Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof), and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
e. In the event of any Liquidation, after payment shall have been
made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking senior to the Common Stock, the Series A, Series B and Series D
Preferred Stockholders shall be entitled to share ratably (calculated with
respect to such Series A, Series B and Series D Preferred Stock as provided in
the next sentence) with the holders of Common Stock in all
5.
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remaining assets of the Corporation available for distribution to its
stockholders. For purposes of calculating the amount of any payment to be paid
pursuant to this Section A.4(e) upon any such Liquidation, each share of Series
A, Series B and Series D Preferred Stock shall be deemed to be that number of
shares of Common Stock into which such share is then convertible, rounded to the
nearest one-tenth of a share.
5. MERGER, CONSOLIDATION, ETC.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than 75%
in voting power of all of the shares of Series Preferred Stock then outstanding,
voting together as a separate class, made prior to the consummation of such
transaction, the proceeds of or any property deliverable from such transaction
shall be distributed among the holders of the Series Preferred Stock and the
Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4 and E.4
hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. VOTING.
a. GENERAL. In addition to the rights otherwise provided for
herein or by law, the Series A Preferred Stockholders shall be entitled to vote,
together with the Series B Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series A
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series A Preferred Stock shall entitle the holder thereof to one
vote per
6.
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share for each share of Common Stock (including fractional shares) into which
each share of Series A Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. ELECTION OF BOARD OF DIRECTORS.
(i) In addition to the rights specified in Sections A.6(a),
B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting power of
the Series A, Series B, Series C and Series D Preferred Stock, voting together
as a separate class or in such other manner as the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall agree among themselves in
the Stockholders' Agreement, shall have the exclusive right to elect to the
Board of Directors of the Corporation that number of directors which shall be
equal to a majority of the total number of directors on the Board of Directors
at any given time. In any election of Preferred Directors pursuant to this
Section A.6(b) and Sections B.6(b), C.6(b) and D.6(b), each share of issued and
outstanding Series A, Series B, Series C and Series D Preferred Stock shall
entitle the holder thereof to the number of votes per share that equals the
number of shares of Common Stock (including fractional shares) into which each
such share is then convertible, rounded up to the nearest one-tenth of a share.
The voting rights of the Series A, Series B, Series C and Series D Preferred
Stockholders contained in this Section A.6(b) and Sections B.6(b), C.6(b) and
D.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
A.6(b) and Sections B.6(b), C.6(b) and D.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. PROTECTIVE PROVISIONS. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or agree
to authorize or issue any shares of capital stock of the Corporation, any right,
warrant, or option to
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receive any capital stock, or any security convertible into or exchangeable for
capital stock or any capitalized lease with any equity feature with respect to
the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in any
manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose of
all or substantially all of the properties or assets of the Corporation or any
of its subsidiaries;
(v) declare or pay any dividend (other than as required by
Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry out
any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the Certificate
of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws of
the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any
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mandatory purchase or other analogous fund for the redemption, purchase or
acquisition of, any shares of Common Stock, except (a) pursuant to Sections A.8,
B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement approved by the Board
of Directors with an officer, director, employee or consultant providing for the
repurchase of any capital stock of the Corporation owned by such officer,
director, employee or consultant at the option of the Corporation, which is
either (A) set forth on Schedule 4.10 of the Series B Stock Purchase Agreement,
or (B) issued pursuant to the Option Plan, as amended, the 1997 Equity Incentive
Plan, or any other stock option plan of the Corporation or one or more
amendments to the Option Plan, from and after May 13, 1996, approved by the
Board of Directors and by the holders of 75% of the then issued and outstanding
Series Preferred Stock, voting together as a separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
A.6(c) and Sections B.6(c), C.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. CONVERSION.
a. RIGHT TO CONVERT.
(i) Any Series A Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series A Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series A
Preferred Stock so converted equal to the quotient of the Series A Preferred
Original Purchase Price divided by the Series A Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series A Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series A Preferred Stock with
respect to Series A Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section A.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section A.7(a)(ii)(c) hereof, shall cease and the shares of Series A Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series A Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
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(c) Holders of Series A Preferred Stock converted
into shares of Common Stock pursuant to this Section A.7 shall be entitled to
payment of any accrued but unpaid cumulative dividend and any declared but
unpaid dividends payable with respect to such shares of Series A Preferred
Stock, up to and including the Conversion Date or the Closing Date, as the case
may be.
b. MECHANICS OF CONVERSION.
(i) Any Series A Preferred Stockholder that exercises its
right to convert its shares of Series A Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
A.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series A Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to
be issued shall be deemed to have become a stockholder of record of Common Stock
on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
A Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series A Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series A Preferred Stock from the Preferred Certificate
so surrendered.
c. ISSUANCE OF COMMON STOCK ON CONVERSION.
(i) If a Series A Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered.
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(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series A Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. CONVERSION PRICE; ADJUSTMENT. The "Series A Preferred
Conversion Price" with respect to the Series A Preferred Stock shall initially
be equal to the Series A Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to
time after the Series A Preferred Original Issuance Date, make a Dilutive
Issuance, the Series A Preferred Conversion Price in effect immediately prior to
each such Dilutive Issuance shall automatically be lowered to a price
(calculated to the nearest cent) determined by multiplying the Series A
Preferred 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
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation in such Dilutive
Issuance so issued would purchase at the Series A Preferred Conversion Price;
and (B) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of such
additional shares of Common Stock so issued in such Dilutive Issuance; provided
that, for the purpose of this Section A.7(d)(i), all shares of Common Stock
issuable upon exercise or conversion of options or convertible securities
outstanding immediately prior to such issuance (other than any additional shares
of Common Stock issuable with respect to shares of Series Preferred Stock,
convertible securities, or outstanding options, warrants or other rights for the
purchase of shares of Common Stock or convertible securities, solely as a result
of either (x) the Dilutive Issuance or (y) the adjustment of the Series A
Preferred Conversion Price (or other conversion ratios applicable to other
Series Preferred Stock and otherwise) resulting from the Dilutive Issuance)
shall be deemed to be outstanding.
For the purposes of any adjustment of the Series A Preferred Conversion Price
pursuant to this Section A.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in
whole or in part for cash, the consideration shall be deemed to be the amount of
cash paid therefor, plus the value of any property other than cash received by
the Corporation as provided in Section A.7(d)(i)(b) hereof, less any discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than cash,
the value of such property or consideration other than cash shall be deemed to
be the fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
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(c) In the case of the issuance of (I) options to
purchase or rights to subscribe for Common Stock, (II) securities convertible
into or exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections A.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase, or rights to subscribe for, such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (determined in the manner provided in Sections A.7(d)(i)(a) and (b)
hereof);
(3) if there is any decrease in the conversion or
exercise price of, or any increase in the number of shares to be received upon
exercise, conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series A Preferred Conversion Price shall be
automatically lowered to reflect such change; and
(4) on the expiration of any right or option
referred to in Sections A.7(d)(i)(c)(1) or (2) hereof or on the termination of
any right to convert or exchange any convertible or exchangeable securities
referred to in Section A.7(d)(i)(c)(2) hereof, the Series A Preferred Conversion
Price then in effect shall thereupon be readjusted to the Series A Preferred
Conversion Price as would have been in effect had the adjustment made upon the
granting or issuance of such rights or options or convertible or exchangeable
securities been made upon the basis of the issuance or sale of only the number
of shares of Common Stock actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such convertible or exchangeable
securities.
(ii) If the Corporation shall at any time after the
Series A Preferred Original Issuance Date fix a record date for the subdivision,
split-up or stock dividend of shares of Common Stock, then, following the record
date fixed for the determination of holders of Common Stock entitled to receive
such subdivision, split-up or dividend (or the date of such subdivision, split-
up or dividend, if no record date is fixed), the Series A Preferred Conversion
Price shall be appropriately decreased so that the number of shares of Common
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Stock issuable on conversion of each share of the Series A Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series A Preferred
Original Issuance Date, the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date fixed for such combination (or the date of such
combination, if no record date is fixed), the Series A Preferred Conversion
Price shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of Series A Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series A Preferred
Original Issuance Date, an Extraordinary Transaction is consummated, the Series
A Preferred Conversion Price with respect to the Series A Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series A Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series A Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section A.7(d)(iv)
shall similarly apply to successive Extraordinary Transactions.
(v) All calculations under this Section A.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(vi) In any case in which the provisions of this Section
A.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series A Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section A.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. NOTICE OF ADJUSTMENTS.
(i) Whenever the Series A Preferred Conversion Price
shall be adjusted as provided in Section A.7(d) hereof, the Corporation shall
file, at its principal office, at the office of the transfer agent for the
Series A Preferred Stock, if any, or at such other place as may be designated by
the Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series A
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt
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requested, postage prepaid, to each Series A Preferred Stockholder at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section A.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file
a registration statement under the Securities Act for a Public Offering or to
take any action of the types described in clauses (i), (ii), (iii) or (iv) of
Section A.7(d) hereof, the Corporation shall give notice to each Series A
Preferred Stockholder, in the manner set forth in Section A.7(e)(i) hereof,
which shall specify the record date, if any, with respect to any such action and
the date on which such action is to take place. The notice shall also set forth
such facts as are reasonably necessary to indicate the effect of such action (to
the extent such effect may be known at the date of such notice) on the Series A
Preferred Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of shares of Series A
Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least ten (10) days prior to the date
so fixed, and in case of all other action, such notice shall be given at least
fifteen (15) days prior to the taking of such proposed action. Failure to give
notice under this Section A.7(e)(ii), or any defect therein, shall not affect
the legality or validity of any such action.
f. TRANSFER TAXES. The Corporation shall pay all
documentary, stamp or other transactional taxes (excluding income taxes)
attributable to the issuance or delivery of shares of capital stock of the
Corporation upon conversion of any shares of Series A Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
shares of Series A Preferred Stock in respect of which such shares are being
issued.
g. RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve, free from preemptive rights, out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock, sufficient shares of
Common Stock to provide for the conversion of all outstanding shares of Series A
Preferred Stock.
h. STATUS OF COMMON STOCK. All shares of Common Stock
which may be issued in connection with the conversion provisions set forth
herein will, upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. REDEMPTION.
a. On and after the Series B Preferred Fifth Anniversary
Date or at any time if an Event of Noncompliance is declared in accordance with
the Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then
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outstanding, voting together as a single class, made, from time to time, at any
date on or after the Series B Preferred Fifth Anniversary Date or upon the
declaration of an Event of Noncompliance, the Corporation shall redeem (unless
otherwise prevented by law) all of the shares of Series A, Series B and Series D
Preferred Stock, at a redemption price per share for each such series of Series
Preferred Stock equal to (i) the Series A Preferred Original Purchase Price, the
Series B Preferred Original Purchase Price or the Series D Preferred Original
Purchase Price, as applicable, plus (ii) an amount equal to any accrued but
unpaid cumulative dividends thereon and any declared but unpaid dividends
thereof, and, then, all of the shares of Series C Preferred Stock, at a
redemption price per share for such Series C Preferred Stock equal to (i) the
Series C Preferred Original Purchase Price plus (ii) an amount equal to any
accrued but unpaid dividends thereon and any declared but unpaid dividends
thereon. For purposes of determining whether the requisite 75% of the holders of
Series A, Series B, Series C and Series D Preferred Stock are participating in
the Redemption Notice, each share of issued and outstanding Series A, Series B,
Series C and Series D Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series A, Series B, Series C and Series D Preferred Stock is
then convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any
Series A Preferred Stockholder with respect to the shares of Series A Preferred
Stock redeemed on that Redemption Date, except the right to receive the
Redemption Payment as provided herein, shall cease, and such shares shall no
longer be deemed to be outstanding, whether or not the Corporation has received
the certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series A Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section A.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series A, Series B and
Series D Preferred Stock entitled to redemption for any reason, the redemption
of the Series A, Series B and Series D Preferred Stock shall be pro rata based
upon the total amount that would be paid by the Corporation to each Series A,
Series B and Series D Preferred Stockholder if all of the shares of Series A,
Series B and Series D Preferred Stock were fully redeemed pursuant to Sections
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A.8(a), B.8(a) and D.8(a) hereof. At any time on or after the Redemption Date,
the holders of the Series A Preferred Stock shall be entitled to receive the
Redemption Payment for each of the shares of Series A Preferred Stock held by
such holder which are to be redeemed by the Corporation upon actual delivery to
the Corporation or its transfer agent of the certificate(s) representing the
shares to be redeemed. Upon redemption of only a portion of the number of shares
covered by a Series A Preferred Stock certificate, the Corporation shall issue
and deliver to or upon the written order of the holder of such Series A
Preferred Stock certificate, at the expense of the Corporation, a new
certificate covering the number of shares of Series A Preferred Stock being
redeemed representing the unredeemed portion of the Series A Preferred Stock
certificate, which new certificate shall entitle the holder thereof to all the
rights, powers and privileges of a holder of such shares.
d. Notwithstanding anything to the contrary contained in
this Section A.8, the Corporation shall not be obligated to acquire any shares
on any Redemption Date to the extent that the acquisition thereof would violate
any law, statute, rule, regulation, policy or guideline promulgated by any
federal, state, local or foreign governmental authority applicable to the
Corporation, provided that the Corporation shall use all legally permissible
methods in the reduction of capital and revaluation of assets, including
appraisal, in order to obtain a legal source of funds with which to pay the
Redemption Payment and shall acquire such shares as soon as permitted by
applicable laws, statutes, rules, regulations, policies and guidelines.
9. MISCELLANEOUS.
a. Shares of Series A Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series A Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
c. The shares of the Series A Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART B. SERIES B CONVERTIBLE PREFERRED STOCK.
1. TERMS. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series B Preferred Stock shall be as set forth herein.
2. RANKING. The Corporation's Series B Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series A and Series D Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section B.4 hereof and with respect to
redemption, only to the extent provided in Section B.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A, Series B and Series D Preferred
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Stock, as otherwise approved by the affirmative vote or consent of the holders
of 75% of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together. The Series B Preferred Stock shall have the
following designations, powers, preferences, relative, participating, optional
or other special rights, qualifications, limitations and restrictions:
3. DIVIDENDS.
a. Dividends are payable on the Series B Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series B Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series B
Preferred Stock and each outstanding share of the Series A and Series D
Preferred Stock, so that all outstanding shares of Series A, Series B and Series
D Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series B Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series B Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series B Preferred Stock and (B) any cumulative dividends in accordance
with Section B.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series B Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series B Preferred
Stock, so that all outstanding shares of Series B Preferred Stock will
participate ratably with the shares of Common Stock and the shares of each other
class or series of stock ranking pari passu with or junior to the Series B
Preferred Stock in such dividend or distribution. For purposes of determining
its proportional share of the dividend or distribution, each share of the Series
B Preferred Stock and any other applicable class or series of convertible
securities shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series B Preferred Stock will be entitled, pari passu with the
Series A and Series D Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series B Preferred Original Purchase Price (or such
greater amount of dividends as such Series B Preferred Stock would be entitled
to if such Series B Preferred Stock were converted into Common Stock), as
adjusted for any combinations or
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divisions or similar recapitalizations affecting the Series B Preferred Stock
after the Series B Preferred Original Issuance Date, payable on the first day of
January, April, July and October (and any dividends payable to holders of Series
B Preferred Stock which are not paid shall be cumulative). Upon conversion of
any Series B Preferred Stock, all accrued but unpaid cumulative dividends and
any declared but unpaid dividends shall be paid in cash, or in additional shares
of Common Stock at the Series B Preferred Conversion Price then in effect in the
discretion of the Board of Directors. Nothing in this Section B.3(d) shall be
deemed to limit the rights of the Series B Preferred Stock under Sections B.3(b)
and B.3(c) hereof.
4. RIGHTS ON LIQUIDATION, DISSOLUTION, WINDING-UP.
a. With respect to rights on Liquidation, the Series B Preferred
Stock shall rank (x) pari passu with the Series A and Series D Preferred Stock,
(y) senior and prior to the Series C Preferred Stock and Series E Preferred
Stock (but only to the extent provided in this Section B.4) and (z) senior and
prior to the Common Stock and to all other classes or series of stock issued by
the Corporation, except in the case of a change in the relative ranking upon
Liquidation of the Series A, Series B and Series D Preferred Stock, as otherwise
approved by the affirmative vote or consent of the holders of 75% of the issued
and outstanding shares of Series A, Series B and Series D Preferred Stock voting
together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series B Preferred Stock, the holders of Series B
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series A and Series D Preferred Stockholders, an amount
per share equal to the Series B Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series B Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section B.4(b) hereof and to pay to the Series A and Series
D Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections A.4(b) and D.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have
been made to (i) the Series A, Series B and Series D Preferred Stockholders of
the full amount to which they shall be entitled pursuant to Sections A.4(b),
B.4(b) and D.4(b) hereof, respectively, and (ii) the Series C and Series E
Preferred Stockholders of the full amount to which they shall be entitled
pursuant to Section C.4(b) and E.4(b) hereof, respectively, with respect to each
other
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class or series of capital stock (other than the Series C Preferred Stock,
Series E Preferred Stock and the Common Stock) ranking on Liquidation junior to
such Series B Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding, among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, Series B Preferred Stockholders, the Series D Preferred
Stockholders, and each class or series of capital stock (other than the Series C
Preferred Stock, Series E Preferred Stock and the Common Stock) junior to the
Series B Preferred Stock the full amounts to which they shall be entitled
pursuant to the immediately preceding sentence, the Series A, Series B and
Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series A
Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof) and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
e. In the event of any Liquidation, after payment shall have been
made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking senior to the Common Stock, the Series A, Series B and Series D
Preferred Stockholders shall be entitled to share ratably (calculated with
respect to such Series A, Series B and Series D Preferred Stock as provided in
the next sentence) with the holders of Common Stock in all remaining assets of
the Corporation available for distribution to its stockholders. For purposes of
calculating the amount of any payment to be paid pursuant to this Section B.4(e)
upon any such Liquidation, each share of Series A, Series B and Series D
Preferred Stock shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
5. MERGER, CONSOLIDATION, ETC.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a
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majority of the voting securities of the surviving corporation immediately
thereafter), then the Corporation shall give written notice to each Series
Preferred Stockholder no less than 20 days prior to the closing of any such
transaction notifying the Series Preferred Stockholders of the terms and timing
of the closing of such transaction and of the rights of the Series Preferred
Stockholders under Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than 75%
in voting power of all of the shares of Series Preferred Stock then outstanding,
voting together as a separate class, made prior to the consummation of such
transaction, the proceeds of or any property deliverable from such transaction
shall be distributed among the holders of the Series Preferred Stock and the
Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4 and E.4
hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. VOTING.
a. GENERAL. In addition to the rights otherwise provided for
herein or by law, the Series B Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series B
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series B Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series B Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. ELECTION OF BOARD OF DIRECTORS.
(i) In addition to the rights specified in Sections A.6(a),
B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting power of
the Series A, Series B, Series C and Series D Preferred Stock, voting together
as a separate class or in such other manner as the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall agree among themselves in
the Stockholders' Agreement, shall have the exclusive right to elect to the
Board of Directors of the Corporation that number of directors which shall be
equal to a majority of the total number of directors on the Board of Directors
at any given time. In any election of Preferred Directors pursuant to this
Section B.6(b) and Sections A.6(b), C.6(b) and D.6(b), each share of issued and
outstanding Series A, Series B, Series C and Series D Preferred Stock shall
entitle the holder thereof to the number of votes per share that equals the
number of shares of Common Stock (including fractional shares) into which each
such share is then
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convertible, rounded up to the nearest one-tenth of a share. The voting rights
of the Series A, Series B, Series C and Series D Preferred Stockholders
contained in this Section B.6(b) and Sections A.6(b), C.6(b) and D.6(b) may be
exercised at a special meeting of the Series Preferred Stockholders called as
provided in accordance with the By-laws of the Corporation, at any annual or
special meeting of the Stockholders of the Corporation, or by written consent of
the holders of Series Preferred Stock in lieu of a meeting. The Preferred
Directors elected pursuant to this Section B.6(b) and Sections A.6(b), C.6(b)
and D.6(b) shall serve from the date of their election and qualification until
their successors have been duly elected and qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii)A vacancy in the directorships to be elected pursuant to
Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. PROTECTIVE PROVISIONS. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or agree
to authorize or issue any shares of capital stock of the Corporation, any right,
warrant, or option to receive any capital stock, or any security convertible
into or exchangeable for capital stock or any capitalized lease with any equity
feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in any
manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii)amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock; (IV) sell, abandon, transfer, lease or otherwise dispose of all
or substantially all of the properties or assets of the Corporation or any of
its subsidiaries;
(v) declare or pay any dividend (other than as required by
Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in
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respect of the Series B Preferred Stock and by Section D.3(d) hereof in respect
of the Series D Preferred Stock) or make any distribution (whether in cash,
shares of capital stock of the Corporation, or other property) on shares of its
capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended,
the 1997 Equity Incentive Plan, or any other stock option plan of the
Corporation or one or more amendments to the Option Plan, from and after May 13,
1996, approved by the Board of Directors and by the holders of 75% of the then
issued and outstanding Series Preferred Stock, voting together as a separate
class.
In any vote or written consent in lieu of a meeting pursuant to this Section
B.6(c) and Sections A.6(c), C.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
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7. CONVERSION.
a. RIGHT TO CONVERT.
(i) Any Series B Preferred Stockholder shall have the right,
at any time or from time to time, prior to the Closing Date to convert any or
all of its shares of Series B Preferred Stock into that number of fully paid and
nonassessable shares of Common Stock for each share of Series B Preferred Stock
so converted equal to the quotient of the Series B Preferred Original Purchase
Price divided by the Series B Preferred Conversion Price (as last adjusted and
then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series B Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series B Preferred Stock with
respect to Series B Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section B.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section B.7(a)(ii)(c) hereof, shall cease and the shares of Series B Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series B Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
(c) Holders of Series B Preferred Stock converted into
shares of Common Stock pursuant to this Section B.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series B Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
b. MECHANICS OF CONVERSION.
(i) Any Series B Preferred Stockholder that exercises
its right to convert its shares of Series B Preferred Stock into Common Stock
shall deliver the Preferred Certificate, duly endorsed or assigned in blank to
the Corporation, during regular business hours, at the office of the transfer
agent of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
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(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
B.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series B Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to be
issued shall be deemed to have become a stockholder of record of Common Stock on
the Conversion Date or the Closing Date, as the case may be, unless the transfer
books of the Corporation are closed on that date, in which event such holder
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open; provided, that the Series B Preferred
Conversion Price shall be that in effect on the Conversion Date or the Closing
Date, as the case may be.
(v) Upon conversion of only a portion of the shares of Series
B Preferred Stock covered by a Preferred Certificate, the Corporation, at its
own expense, shall issue and deliver to or upon the written order of the holder
of such Preferred Certificate, a new certificate representing the number of
unconverted shares of Series B Preferred Stock from the Preferred Certificate so
surrendered.
C. ISSUANCE OF COMMON STOCK ON CONVERSION.
(i) If a Series B Preferred Stockholder shall surrender more
than one Preferred Certificate for conversion at any one time, the number of
such shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Series B Preferred Stock so
surrendered.
(ii) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series B Preferred Stock. The Corporation shall pay a
cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
D. CONVERSION PRICE; ADJUSTMENT. The "Series B Preferred Conversion
Price" with respect to the Series B Preferred Stock shall initially be equal to
the Series B Preferred Original Purchase Price and shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to
time after the Series B Preferred Original Issuance Date, make a Dilutive
Issuance, the Series B Preferred Conversion Price in effect immediately prior to
each such Dilutive Issuance shall automatically be lowered to a price
(calculated to the nearest cent) determined by multiplying the Series B
Preferred 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
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation in such Dilutive
Issuance so issued would purchase at the Series B Preferred
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Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance plus the number
of such additional shares of Common Stock so issued in such Dilutive Issuance;
provided that, for the purpose of this Section B.7(d)(i), all shares of Common
Stock issuable upon exercise or conversion of options or convertible securities
outstanding immediately prior to such issuance (other than any additional shares
of Common Stock issuable with respect to shares of Series Preferred Stock,
convertible securities, or outstanding options, warrants or other rights for the
purchase of shares of Common Stock or convertible securities, solely as a result
of either (x) the Dilutive Issuance or (y) the adjustment of the Series B
Preferred Conversion Price (or other conversion ratios applicable to other
Series Preferred Stock and otherwise) resulting from the Dilutive Issuance)
shall be deemed to be outstanding.
For the purposes of any adjustment of the Series B Preferred Conversion Price
pursuant to this Section B.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in
whole or in part for cash, the consideration shall be deemed to be the amount of
cash paid therefor, plus the value of any property other than cash received by
the Corporation as provided in Section B.7(d)(i)(b) hereof, less any discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than cash,
the value of such property or consideration other than cash shall be deemed to
be the fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
(c) In the case of the issuance of (I) options to
purchase or rights to subscribe for Common Stock, (II) securities convertible
into or exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections B.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase, or rights to subscribe for, such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall
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be deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the consideration
received by the Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such securities or the exercise
of any related options or rights (determined in the manner provided in Sections
B.7(d)(i)(a) and (b) hereof);
(3) if there is any decrease in the conversion or
exercise price of, or any increase in the number of shares to be received upon
exercise, conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series B Preferred Conversion Price shall be
automatically lowered to reflect such change; and
(4) on the expiration of any right or option
referred to in Sections B.7(d)(i)(c)(1) or (2) hereof or on the termination of
any right to convert or exchange any convertible or exchangeable securities
referred to in Section B.7(d)(i)(c)(2) hereof, the Series B Preferred Conversion
Price then in effect shall thereupon be readjusted to the Series B Preferred
Conversion Price as would have been in effect had the adjustment made upon the
granting or issuance of such rights or options or convertible or exchangeable
securities been made upon the basis of the issuance or sale of only the number
of shares of Common Stock actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such convertible or exchangeable
securities.
(ii) If the Corporation shall at any time after the Series B
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series B Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series B Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series B Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series B Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series B Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series B Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series B
Preferred Conversion Price with respect to the Series B Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series B Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the
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number of shares of Common Stock deliverable (immediately prior to the
effectiveness of the Extraordinary Transaction) upon conversion of such Series B
Preferred Stock would have been entitled to receive upon such Extraordinary
Transaction. The provisions of this Section B.7(d)(iv) shall similarly apply to
successive Extraordinary Transactions.
(v) All calculations under this Section B.7(d) shall be made
to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(vi) In any case in which the provisions of this Section
B.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series B Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section B.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
E. NOTICE OF ADJUSTMENTS.
(i) Whenever the Series B Preferred Conversion Price shall be
adjusted as provided in Section B.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series B
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series B
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series B
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section B.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
B.7(d) hereof, the Corporation shall give notice to each Series B Preferred
Stockholder, in the manner set forth in Section B.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series B Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series B Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under
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this Section B.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
F. TRANSFER TAXES. The Corporation shall pay all documentary, stamp
or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series B Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
B Preferred Stock in respect of which such shares are being issued.
G. RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve, free from preemptive rights, out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of Series B Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series B Preferred Stock.
H. STATUS OF COMMON STOCK. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and nonassessable,
free from preemptive rights and free from all taxes, liens or charges with
respect thereto created or imposed by the Corporation.
8. REDEMPTION.
A. On and after the Series B Preferred Fifth Anniversary Date or at
any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then outstanding, voting
together as a single class, made, from time to time, at any date on or after the
Series B Preferred Fifth Anniversary Date or upon the declaration of an Event of
Noncompliance, the Corporation shall redeem (unless otherwise prevented by law)
all of the shares of Series A, Series B and Series D Preferred Stock, at a
redemption price per share for each such series of Series Preferred Stock equal
to (i) the Series A Preferred Original Purchase Price, Series B Preferred
Original Purchase Price or Series D Preferred Original Purchase Price, as
applicable, plus (ii) an amount equal to any accrued but unpaid cumulative
dividends thereon and any declared but unpaid dividends thereof, and, then, all
of the shares of Series C Preferred Stock, at a redemption price per share for
such Series C Preferred Stock equal to (i) the Series C Preferred Original
Purchase Price plus (ii) an amount equal to any accrued but unpaid dividends
thereon and any declared but unpaid dividends thereon. For purposes of
determining whether the requisite 75% of the holders of Series A, Series B,
Series C and Series D Preferred Stock are participating in the Redemption
Notice, each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to one vote per share
for each share of Common Stock (including fractional shares) into which each
share of Series A, Series B, Series C and Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
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B. On and after the Redemption Date, all rights of any Series B
Preferred Stockholder with respect to the shares of Series B Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series B Preferred Stock shall continue
until the Corporation cures such default.
C. The Requesting Holders shall send their Redemption Notice
pursuant to this Section B.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series A, Series B and
Series D Preferred Stock entitled to redemption for any reason, the redemption
of the Series A, Series B and Series D Preferred Stock shall be pro rata based
upon the total amount that would be paid by the Corporation to each Series A,
Series B and Series C Preferred Stockholder if all of the Series A, Series B and
Series C Preferred Stock were fully redeemed pursuant to Sections A.8(a), B.8(a)
and D.8(a) hereof. At any time on or after the Redemption Date, the holders of
the Series B Preferred Stock shall be entitled to receive the Redemption Payment
for each of the shares of Series B Preferred Stock held by such holder which are
to be redeemed by the Corporation upon actual delivery to the Corporation or its
transfer agent of the certificate(s) representing the shares to be redeemed.
Upon redemption of only a portion of the number of shares covered by a Series B
Preferred Stock certificate, the Corporation shall issue and deliver to or upon
the written order of the holder of such Series B Preferred Stock certificate, at
the expense of the Corporation, a new certificate covering the number of shares
of Series B Preferred Stock being redeemed representing the unredeemed portion
of the Series B Preferred Stock certificate, which new certificate shall entitle
the holder thereof to all the rights, powers and privileges of a holder of such
shares.
D. Notwithstanding anything to the contrary contained in this Section
B.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal
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source of funds with which to pay the Redemption Payment and shall acquire such
shares as soon as permitted by applicable laws, statutes, rules, regulations,
policies and guidelines.
9. MISCELLANEOUS.
A. Shares of Series B Preferred Stock are not subject to or entitled
to the benefit of a sinking fund.
B. Redeemed shares of Series B Preferred Stock shall not be reissued
but shall be retired. Upon the retirement of redeemed shares the capital of the
Corporation shall be reduced.
C. The shares of the Series B Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART C. SERIES C CONVERTIBLE PREFERRED STOCK.
1. TERMS. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series C Preferred Stock shall be as set forth herein.
2. RANKING. The Corporation's Series C Preferred Stock shall rank, as to
dividends and upon redemption and Liquidation, (x) junior to the Series A,
Series B and Series D Preferred Stock (but, with respect to Liquidation, only to
the extent provided in Sections A.4, B.4, C.4, D.4 and E.4 hereof and with
respect to redemption, only to the extent provided in Sections A.8, B.8, C.8 and
D.8 hereof), (y) pari passu with the Series E Preferred Stock and (z) senior and
prior to the Common Stock and to all other classes or series of stock issued by
the Corporation. The Series C Preferred Stock shall have the following
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions:
3. DIVIDENDS.
A. Dividends are payable on the Series C Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series C Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series C
and each outstanding share of Series E Preferred Stock, so that all outstanding
shares of Series C and Series E Preferred Stock will participate equally with
each other ratably per share.
B. So long as any Series C Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series C Preferred Stock, unless prior thereto or
simultaneously therewith all dividends and distributions previously
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declared on the Series C Preferred Stock shall have been paid or the Corporation
shall have irrevocably deposited or set aside cash or United States Obligations
sufficient for the payment thereof.
C. If the Board of Directors declares dividends or other
distributions (other than (i) on Liquidation, (ii) on the Series A Preferred
Stock pursuant to Section A.3(d) hereof, (iii) on the Series B Preferred Stock
pursuant to Section B.3(d) hereof, or (iv) on the Series D Preferred Stock
pursuant to Section D.3(d) hereof) on the Common Stock or any other class or
series of stock ranking pari passu with or junior to the Series C Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series C Preferred
Stock, so that all outstanding shares of Series C Preferred Stock will
participate ratably with the Common Stock and each other class or series of
stock ranking pari passu with or junior to the Series C Preferred Stock in such
dividend or distribution. For purposes of determining its proportional share of
the dividend or distribution, each share of the Series C Preferred Stock and any
other applicable class or series of convertible securities shall be deemed to be
that number of shares of Common Stock into which such share is then convertible,
rounded to the nearest one-tenth of a share.
4. RIGHTS ON LIQUIDATION, DISSOLUTION, WINDING-UP.
A. With respect to rights on Liquidation, the Series C Preferred
Stock shall rank (x) junior to the Series A, Series B and Series D Preferred
Stock (but only to the extent provided in this Section C.4), (y) pari passu with
the Series E Preferred Stock and (z) senior and prior to the Common Stock and to
all other classes or series of stock issued by the Corporation.
B. Subject to the holders of Series A Preferred Stock set forth in
Section A.4 hereof, the holders of Series B Preferred Stock set forth in Section
B.4 hereof and the holders of Series D Preferred Stock set forth in Section D.4
hereof, in the event of any Liquidation, whether voluntary or involuntary,
before any payment of cash or distribution of other property shall be made to
the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series C Preferred Stock, the holders of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series E Stockholders, an amount per share equal to the
Series C Preferred Liquidation Preference divided by the number of outstanding
shares of Series C Preferred Stock whether from capital, surplus or earnings,
plus an amount equal to any accrued but unpaid cumulative dividends thereon and
any declared but unpaid dividends thereon.
C. If, upon any Liquidation, the assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the Series C
Preferred Stockholders the full amounts to which each of them shall be entitled
pursuant to Section C.4(b) hereof and to pay the Series E Preferred Stockholders
the full amount to which each of them shall be entitled pursuant to Section
E.4(b) hereof, then the Series C and Series E Preferred Stockholders shall share
ratably in any distribution of assets according to the respective amounts which
would be
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payable to them in respect of the shares of Series C or Series E Preferred
Stock, as the case may be, held upon such distribution if all amounts payable on
or with respect to such shares were paid in full pursuant to Sections C.4(b) and
E.4(b) hereof.
D. In the event of any Liquidation, the Series C Preferred Stock
shall not be entitled to receive any payment of cash or distribution of property
other than as expressly provided in this Section C.4.
5. MERGER, CONSOLIDATION, ETC.
A. In the event the Corporation intends to sell, lease or otherwise
dispose of all or substantially all of the assets of the Corporation, effect any
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is transferred (other than in connection with a
Public Offering), or merge or consolidate with or into any other corporation,
corporations or other entity or entities (other than a merger or consolidation
in which the Series Preferred Stockholders receive securities of the surviving
corporation having substantially similar rights to the Series Preferred Stock
and in which the stockholders of the Corporation immediately prior to such a
transaction are holders of at least a majority of the voting securities of the
surviving corporation immediately thereafter), then the Corporation shall give
written notice to each Series Preferred Stockholder no less than 20 days prior
to the closing of any such transaction notifying the Series Preferred
Stockholders of the terms and timing of the closing of such transaction and of
the rights of the Series Preferred Stockholders under Sections A.5(b), B.5(b),
C.5(b), D.5(b) and E.5(b) hereof.
B. Upon the affirmative vote of the holders of not less than 75% in
voting power of all of the shares of Series Preferred Stock then outstanding,
voting together as a separate class, made prior to the consummation of such
transaction, the proceeds of or any property deliverable from such transaction
shall be distributed among the holders of the Series Preferred Stock and the
Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4 and E.4
hereof as if such transaction were a Liquidation.
C. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. VOTING.
A. GENERAL. In addition to the rights otherwise provided for herein
or by law, the Series C Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series C
Preferred Stockholders voting together as a
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separate class or with the other holders of Series Preferred Stock as a separate
class, each share of issued and outstanding Series C Preferred Stock shall
entitle the holder thereof to one vote per share for each share of Common Stock
(including fractional shares) into which each share of Series C Preferred Stock
is then convertible, rounded to the nearest one-tenth of a share.
B. ELECTION OF BOARD OF DIRECTORS.
(i) In addition to the rights specified in Sections A.6(a),
B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting power of
the Series A, Series B, Series C and Series D Preferred Stock, voting together
as a separate class or in such other manner as the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall agree among themselves in
the Stockholders' Agreement, shall have the exclusive right to elect to the
Board of Directors of the Corporation that number of directors which shall be
equal to a majority of the total number of directors on the Board of Directors
at any given time. In any election of Preferred Directors pursuant to this
Section C.6(b) and Sections A.6(b), B.6(b) and D.6(b), each share of issued and
outstanding Series A, Series B, Series C and Series D Preferred Stock shall
entitle the holder thereof to the number of votes per share that equals the
number of shares of Common Stock (including fractional shares) into which each
such share is then convertible, rounded up to the nearest one-tenth of a share.
The voting rights of the Series A, Series B, Series C and Series D Preferred
Stockholders contained in this Section C.6(b) and Sections A.6(b), B.6(b) and
D.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
C.6(b) and Sections A.6(b), B.6(b) and D.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant to
Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
C. PROTECTIVE PROVISIONS. So long as any Series Preferred Stock is
outstanding, the Corporation shall not, without the written consent in lieu of a
meeting, or the affirmative vote at a meeting called for such purpose, of the
holders of shares representing at least 75% of the combined voting power of the
issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
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(i) except for "Excluded Stock", authorize, issue or agree to
authorize or issue any shares of capital stock of the Corporation, any right,
warrant, or option to receive any capital stock, or any security convertible
into or exchangeable for capital stock or any capitalized lease with any equity
feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in any
manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose of
all or substantially all of the properties or assets of the Corporation or any
of its subsidiaries;
(v) declare or pay any dividend (other than as required by
Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry out
any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of Preferred
Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital stock
as shares ranking senior to or on parity with the Series Preferred Stock with
respect to rights on Liquidation, redemption or for the payment of any dividend
or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the Certificate of
Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws of
the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
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(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
C.6(c) and Sections A.6(c), B.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. CONVERSION.
A. RIGHT TO CONVERT.
(i) Any Series C Preferred Stockholder shall have the right,
at any time or from time to time, prior to the Closing Date to convert any or
all of its shares of Series C Preferred Stock into that number of fully paid and
nonassessable shares of Common Stock for each share of Series C Preferred Stock
so converted equal to the quotient of the Series C Preferred Original Purchase
Price divided by the Series C Preferred Conversion Price (as last adjusted and
then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series C Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series C Preferred Stock with
respect to Series C Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section C.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section C.7(a)(ii)(c) hereof, shall cease and the shares of Series C Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series C Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
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(c) Holders of Series C Preferred Stock converted into
shares of Common Stock pursuant to this Section C.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series C Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
B. MECHANICS OF CONVERSION.
(i) Any Series C Preferred Stockholder that exercises its
right to convert its shares of Series C Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by written
notice stating that such holder elects to convert such shares and stating the
name or names (with address) in which the Common Certificate(s) are to be
issued. Such conversion shall be deemed to have been effected on the date when
the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
C.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series C Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to be
issued shall be deemed to have become a stockholder of record of Common Stock on
the Conversion Date or the Closing Date, as the case may be, unless the transfer
books of the Corporation are closed on that date, in which event such holder
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open; provided, that the Series C Preferred
Conversion Price shall be that in effect on the Conversion Date or the Closing
Date, as the case may be.
(v) Upon conversion of only a portion of the shares of Series
C Preferred Stock covered by a Preferred Certificate, the Corporation, at its
own expense, shall issue and deliver to or upon the written order of the holder
of such Preferred Certificate, a new certificate representing the number of
unconverted shares of Series C Preferred Stock from the Preferred Certificate so
surrendered.
C. ISSUANCE OF COMMON STOCK ON CONVERSION.
(i) If a Series C Preferred Stockholder shall surrender more
than one Preferred Certificate for conversion at any one time, the number of
such shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Series C Preferred Stock so
surrendered.
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(ii) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series C Preferred Stock. The Corporation shall pay a
cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
D. CONVERSION PRICE; ADJUSTMENT. The "Series C Preferred Conversion
Price" with respect to the Series C Preferred Stock shall initially be equal to
the Series C Preferred Original Purchase Price and shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall at any time after the Series C
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series C Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series C Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time after the Series C Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series C Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iii) If, at any time after the Series C Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series C
Preferred Conversion Price with respect to the Series C Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series C Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series C Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section C.7(d)(iii)
shall similarly apply to successive Extraordinary Transactions.
(iv) All calculations under this Section C.7(d) shall be made
to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(v) In any case in which the provisions of this Section C.7(d)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of that
event (A) issuing to the holder of any share of Series C Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
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the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section C.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
E. NOTICE OF ADJUSTMENTS.
(i) Whenever the Series C Preferred Conversion Price shall be
adjusted as provided in Section C.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series C
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series C
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series C
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section C.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii) or (iii) of Section
C.7(d) hereof, the Corporation shall give notice to each Series C Preferred
Stockholder, in the manner set forth in Section C.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series C Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series C Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section C.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
F. TRANSFER TAXES. The Corporation shall pay all documentary, stamp
or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series C Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
C Preferred Stock in respect of which such shares are being issued.
G. RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve, free from preemptive rights, out of its authorized but unissued shares
of Common
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Stock, solely for the purpose of effecting the conversion of the shares of
Series C Preferred Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series C Preferred Stock.
H. STATUS OF COMMON STOCK. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and nonassessable,
free from preemptive rights and free from all taxes, liens or charges with
respect thereto created or imposed by the Corporation.
8. REDEMPTION.
A. On and after the Series B Preferred Fifth Anniversary Date or at
any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then outstanding, voting
together as a single class, made, from time to time, at any date on or after the
Series B Preferred Fifth Anniversary Date or upon the declaration of an Event of
Noncompliance, the Corporation shall redeem (unless otherwise prevented by law)
all of the shares of Series A, Series B and Series D Preferred Stock, at a
redemption price per share for each such series of Series Preferred Stock equal
to (i) the Series A Preferred Original Purchase Price, Series B Preferred
Original Purchase Price or the Series D Preferred Original Purchase Price, as
applicable, plus (ii) an amount equal to any accrued but unpaid cumulative
dividends thereon and any declared but unpaid dividends thereof, and, then, all
of the shares of Series C Preferred Stock, at a redemption price per share for
such Series C Preferred Stock equal to (i) the Series C Preferred Original
Purchase Price plus (ii) an amount equal to any accrued but unpaid dividends
thereon and any declared but unpaid dividends thereon. For purposes of
determining whether the requisite 75% of the holders of Series A, Series B,
Series C and Series D Preferred Stock are participating in the Redemption
Notice, each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to one vote per share
for each share of Common Stock (including fractional shares) into which each
share of Series A, Series B, Series C and Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
B. On and after the Redemption Date, all rights of any Series C
Preferred Stockholder with respect to the shares of Series C Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series C Preferred Stock shall continue
until the Corporation cures such default.
C. The Requesting Holders shall send their Redemption Notice pursuant
to this Section C.8 by first-class, certified mail, return receipt requested,
postage prepaid, to the Corporation at its principal place of business or to any
transfer agent of the
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Corporation. The Corporation shall fix a date for redemption which shall not be
more than 60 days after the receipt of Redemption Notices from the Requesting
Holders. Not less than 45 days prior to the Redemption Date, written notice
shall be mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Series A, Series B, Series C and Series D Preferred Stock, at the
address last shown on the records of the Corporation for such holder or given by
the holder to the Corporation for the purpose of notice, notifying such holder
of the redemption to be effected, the Redemption Date fixed, the Redemption
Payment, the place at which payment may be obtained and the date on which such
holder's conversion rights as to such shares terminate and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, such holder's certificate or certificates representing the shares to
be redeemed. In the event of only a partial redemption of the outstanding shares
of the Series C Preferred Stock entitled to redemption for any reason, the
redemption of the Series C Preferred Stock shall be pro rata based upon the
total amount that would be paid by the Corporation to each Series C Preferred
Stockholder if all of the shares of the Series C Preferred Stock were fully
redeemed pursuant to Section C.8(a) hereof. At any time on or after the
Redemption Date, the holders of the Series C Preferred Stock shall be entitled
to receive the Redemption Payment for each of the shares of Series C Preferred
Stock held by such holder which are to be redeemed by the Corporation upon
actual delivery to the Corporation or its transfer agent of the certificate(s)
representing the shares to be redeemed. Upon redemption of only a portion of the
number of shares covered by a Series C Preferred Stock certificate, the
Corporation shall issue and deliver to or upon the written order of the holder
of such Series C Preferred Stock certificate, at the expense of the Corporation,
a new certificate covering the number of shares of Series C Preferred Stock
being redeemed representing the unredeemed portion of the Series C Preferred
Stock certificate, which new certificate shall entitle the holder thereof to all
the rights, powers and privileges of a holder of such shares.
D. Notwithstanding anything to the contrary contained in this Section
C.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
9. MISCELLANEOUS.
A. Shares of Series C Preferred Stock are not subject to or entitled
to the benefit of a sinking fund.
B. Redeemed shares of Series C Preferred Stock shall not be reissued
but shall be retired. Upon the retirement of redeemed shares the capital of the
Corporation shall be reduced.
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C. The shares of the Series C Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART D. SERIES D CONVERTIBLE PREFERRED STOCK.
1. TERMS. The number of shares, powers, terms, conditions, designations,
preferences and privileges, relative, participating, optional and other special
rights, and qualifications, limitations and restrictions, if any, of the Series
D Preferred Stock shall be as set forth herein.
2. RANKING. The Corporation's Series D Preferred Stock shall rank, as to
dividends and upon redemption and Liquidation, (x) pari passu with the Series A
and Series B Preferred Stock, (y) senior and prior to the Series C Preferred
Stock and Series E Preferred Stock (but, with respect to Liquidation, only to
the extent provided in Section D.4 hereof and with respect to redemption, only
to the extent provided in Section D.8 hereof), and (z) senior and prior to the
Common Stock and to all other classes or series of stock issued by the
Corporation, except in the case of a change in the relative ranking of the
Series A Preferred Stock, the Series B Preferred Stock and the Series D
Preferred Stock, as otherwise approved by the affirmative vote or consent of the
holders of 75% of the issued and outstanding shares of Series A, Series B and
Series D Preferred Stock voting together. The Series D Preferred Stock shall
have the following designations, powers, preferences, relative, participating,
optional or other special rights, qualifications, limitations and restrictions:
3. DIVIDENDS.
A. Dividends are payable on the Series D Preferred Stock, when, as
and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series D Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series D
Preferred Stock and each outstanding share of Series A and Series B Preferred
Stock, so that all outstanding shares of Series A, Series B and Series D
Preferred Stock will participate equally with each other ratably per share.
B. So long as any Series D Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series D Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series D Preferred Stock and (B) any cumulative dividends in accordance
with Section D.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
C. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series D Preferred
Stock in cash, property or securities
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(excluding Common Stock) of the Corporation (or subscription or other rights to
purchase or acquire securities (excluding Common Stock) of the Corporation), the
Board of Directors shall simultaneously declare a dividend or distribution on
the same terms, at the same or equivalent rate, and in the same form on each
share of Series D Preferred Stock, so that all outstanding shares of Series D
Preferred Stock will participate ratably with the shares of Common Stock and the
shares of each other class or series of stock ranking pari passu with or junior
to the Series D Preferred Stock in such dividend or distribution. For purposes
of determining its proportional share of the dividend or distribution, each
share of the Series D Preferred Stock and any other applicable class or series
of convertible securities shall be deemed to be that number of shares of Common
Stock into which such share is then convertible, rounded to the nearest one-
tenth of a share.
D. From and after the Series A Preferred Fifth Anniversary Date and
until the date of the consummation of the Corporation's first Public Offering,
the Series D Preferred Stock will be entitled, pari passu with the Series A and
Series B Preferred Stock, to dividends, to be paid quarterly, in cash or in kind
at the discretion of the Board of Directors, at an annual rate of five percent
(5%) of the Series D Preferred Original Purchase Price (or such greater amount
of dividends as such Series D Preferred Stock would be entitled to if such
Series D Preferred Stock were converted into Common Stock), as adjusted for any
combinations or divisions or similar recapitalizations affecting the Series D
Preferred Stock after the Series D Preferred Original Issuance Date, payable on
the first day of January, April, July and October (and any dividends payable to
holders of Series D Preferred Stock which are not paid shall be cumulative).
Upon conversion of any Series D Preferred Stock, all accrued but unpaid
cumulative dividends and any declared but unpaid dividends shall be paid in
cash, or in additional shares of Common Stock at the Series D Preferred
Conversion Price then in effect in the discretion of the Board of Directors.
Nothing in this Section D.3(d) shall be deemed to limit the rights of the Series
D Preferred Stock under Sections D.3(b) and D.3(c) hereof.
4. RIGHTS ON LIQUIDATION, DISSOLUTION, WINDING-UP.
A. With respect to rights on Liquidation, the Series D Preferred
Stock shall rank (x) pari passu with the Series A and Series B Preferred Stock,
(y) senior and prior to the Series C Preferred Stock and Series E Preferred
Stock (but only to the extent provided in this Section D.4) and (z) senior and
prior to the Common Stock and to all other classes or series of stock issued by
the Corporation, except in the case of a change in the relative ranking upon
Liquidation of the Series A, Series B and Series D Preferred Stock, as otherwise
approved by the affirmative vote or consent of the holders of 75% of the issued
and outstanding shares of Series A, Series B and Series D Preferred Stock voting
together.
B. In the event of any Liquidation, whether voluntary or involuntary,
before any payment of cash or distribution of other property shall be made to
the Series C Preferred Stockholders, Series E Preferred Stockholders or the
Common Stockholders or any other class or series of stock ranking on Liquidation
junior to the Series D Preferred Stock, the holders of Series D Preferred Stock
shall be entitled to receive out of the assets of the Corporation legally
available for distribution to its stockholders, pari passu with the rights of
the Series A and Series B Preferred Stockholders, an amount per share equal to
the Series D Preferred Original Purchase Price whether from capital, surplus or
earnings, plus an amount
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equal to any accrued but unpaid cumulative dividends thereon and any declared
but unpaid dividends thereon.
C. If, upon any Liquidation, the assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the Series D
Preferred Stockholders the full amounts to which each of them shall be entitled
pursuant to Section D.4(b) hereof and to pay to the Series A and Series B
Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections A.4(b) and B.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
D. In the event of any Liquidation, after payment shall have been
made to (i) the Series A, Series B and Series D Preferred Stockholders of the
full amount to which they shall be entitled pursuant to Sections A.4(b), B.4(b)
and D.4(b) hereof, respectively, and (ii) the Series C and Series E Preferred
Stockholders of the full amount to which they shall be entitled pursuant to
Section C.4(b) and E.4(b) hereof, respectively, with respect to each other class
or series of capital stock (other than the Series C Preferred Stock, Series E
Preferred Stock and the Common Stock) ranking on Liquidation junior to such
Series D Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class, shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding and among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series D
Preferred Stockholders and each class or series of capital stock (other than the
Series C Preferred Stock, and Series E Preferred Stock and the Common Stock)
junior to the Series D Preferred Stock the full amounts to which they shall be
entitled pursuant to the immediately preceding sentence, the Series A, Series B
and Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series A
Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof), and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
E. In the event of any Liquidation, after payment shall have been
made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking
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senior to the Common Stock, the Series A, Series B and Series D Preferred
Stockholders shall be entitled to share ratably (calculated with respect to such
Series A, Series B and Series D Preferred Stock as provided in the next
sentence) with the holders of Common Stock in all remaining assets of the
Corporation available for distribution to its stockholders. For purposes of
calculating the amount of any payment to be paid pursuant to this Section D.4(e)
upon any such Liquidation, each share of Series A, Series B and Series D
Preferred Stock shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
5. MERGER, CONSOLIDATION, ETC.
A. In the event the Corporation intends to sell, lease or otherwise
dispose of all or substantially all of the assets of the Corporation, effect any
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is transferred (other than in connection with a
Public Offering), or merge or consolidate with or into any other corporation,
corporations or other entity or entities (other than a merger or consolidation
in which the Series Preferred Stockholders receive securities of the surviving
corporation having substantially similar rights to the Series Preferred Stock
and in which the stockholders of the Corporation immediately prior to such a
transaction are holders of at least a majority of the voting securities of the
surviving corporation immediately thereafter), then the Corporation shall give
written notice to each Series Preferred Stockholder no less than 20 days prior
to the closing of any such transaction notifying the Series Preferred
Stockholders of the terms and timing of the closing of such transaction and of
the rights of the Series Preferred Stockholders under Sections A.5(b), B.5(b),
C.5(b), D.5(b) and E.5(b) hereof.
B. Upon the affirmative vote of the holders of not less than 75% in
voting power of all of the shares of Series Preferred Stock then outstanding,
voting together as a separate class, made prior to the consummation of such
transaction, the proceeds of or any property deliverable from such transaction
shall be distributed among the holders of the Series Preferred Stock and the
Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4 and E.4
hereof as if such transaction were a Liquidation.
C. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. VOTING.
A. GENERAL. In addition to the rights otherwise provided for herein
or by law, the Series D Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote
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or action of the Series D Preferred Stockholders voting together as a separate
class or with the other holders of Series Preferred Stock as a separate class,
each share of issued and outstanding Series D Preferred Stock shall entitle the
holder thereof to one vote per share for each share of Common Stock (including
fractional shares) into which each share of Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
B. ELECTION OF BOARD OF DIRECTORS.
(i) In addition to the rights specified in Sections A.6(a),
B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting power of
the Series A, Series B, Series C and Series D Preferred Stock, voting together
as a separate class or in such other manner as the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall agree among themselves in
the Stockholders' Agreement, shall have the exclusive right to elect to the
Board of Directors of the Corporation that number of directors which shall be
equal to a majority of the total number of directors on the Board of Directors
at any given time. In any election of Preferred Directors pursuant to this
Section D.6(b) and Sections A.6(b), B.6(b) and C.6(b), each share of issued and
outstanding Series A, Series B, Series C and Series D Preferred Stock shall
entitle the holder thereof to the number of votes per share that equals the
number of shares of Common Stock (including fractional shares) into which each
such share is then convertible, rounded up to the nearest one-tenth of a share.
The voting rights of the Series A, Series B, Series C and Series D Preferred
Stockholders contained in this Section D.6(b) and Sections A.6(b), B.6(b) and
C.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
D.6(b) and Sections A.6(b), B.6(b) and C.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant to
Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
C. PROTECTIVE PROVISIONS. So long as any Series Preferred Stock is
outstanding, the Corporation shall not, without the written consent in lieu of a
meeting, or the affirmative vote at a meeting called for such purpose, of the
holders of shares representing at least 75% of the combined voting power of the
issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
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(i) except for "Excluded Stock", authorize, issue or agree to
authorize or issue any shares of capital stock of the Corporation, any right,
warrant, or option to receive any capital stock, or any security convertible
into or exchangeable for capital stock or any capitalized lease with any equity
feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in any
manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose of all
or substantially all of the properties or assets of the Corporation or any of
its subsidiaries;
(v) declare or pay any dividend (other than as required by
Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry out
any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of Preferred
Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital stock
as shares ranking senior to or on parity with the Series Preferred Stock with
respect to rights on Liquidation, redemption or for the payment of any dividend
or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the Certificate of
Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws of
the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
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(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
D.6(c) and Sections A.6(c), B.6(c), C.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. CONVERSION.
A. RIGHT TO CONVERT.
(i) Any Series D Preferred Stockholder shall have the right,
at any time or from time to time, prior to the Closing Date to convert any or
all of its shares of Series D Preferred Stock into that number of fully paid and
nonassessable shares of Common Stock for each share of Series D Preferred Stock
so converted equal to the quotient of the Series D Preferred Original Purchase
Price divided by the Series D Preferred Conversion Price (as last adjusted and
then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series D Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series D Preferred Stock with
respect to Series D Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section D.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section D.7(a)(ii)(c) hereof, shall cease and the shares of Series D Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series D Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
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(c) Holders of Series D Preferred Stock converted into
shares of Common Stock pursuant to this Section D.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series D Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
B. MECHANICS OF CONVERSION.
(i) Any Series D Preferred Stockholder that exercises its
right to convert its shares of Series D Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by written
notice stating that such holder elects to convert such shares and stating the
name or names (with address) in which the Common Certificate(s) are to be
issued. Such conversion shall be deemed to have been effected on the date when
the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
D.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series D Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to be
issued shall be deemed to have become a stockholder of record of Common Stock on
the Conversion Date or the Closing Date, as the case may be, unless the transfer
books of the Corporation are closed on that date, in which event such holder
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open; provided, that the Series D Preferred
Conversion Price shall be that in effect on the Conversion Date or the Closing
Date, as the case may be.
(v) Upon conversion of only a portion of the shares of Series
D Preferred Stock covered by a Preferred Certificate, the Corporation, at its
own expense, shall issue and deliver to or upon the written order of the holder
of such Preferred Certificate, a new certificate representing the number of
unconverted shares of Series D Preferred Stock from the Preferred Certificate so
surrendered.
C. ISSUANCE OF COMMON STOCK ON CONVERSION.
(i) If a Series D Preferred Stockholder shall surrender more
than one Preferred Certificate for conversion at any one time, the number of
such shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Series D Preferred Stock so
surrendered.
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(ii) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series D Preferred Stock. The Corporation shall pay a
cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
D. CONVERSION PRICE; ADJUSTMENT. The "Series D Preferred Conversion
Price" with respect to the Series D Preferred Stock shall initially be equal to
the Series D Preferred Original Purchase Price and shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to time
after the Series D Preferred Original Issuance Date, make a Dilutive Issuance,
the Series D Preferred Conversion Price in effect immediately prior to each such
Dilutive Issuance shall automatically be lowered to a price (calculated to the
nearest cent) determined by multiplying the Series D Preferred 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 issuance plus (2) the number
of shares of Common Stock which the aggregate consideration received or to be
received by the Corporation in such Dilutive Issuance so issued would purchase
at the Series D Preferred Conversion Price; and (B) the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of such additional shares of Common Stock so
issued in such Dilutive Issuance; provided that, for the purpose of this Section
D.7(d)(i), all shares of Common Stock issuable upon exercise or conversion of
options or convertible securities outstanding immediately prior to such issuance
(other than any additional shares of Common Stock issuable with respect to
shares of Series Preferred Stock, convertible securities, or outstanding
options, warrants or other rights for the purchase of shares of Common Stock or
convertible securities, solely as a result of either (x) the Dilutive Issuance
or (y) the adjustment of the Series D Preferred Conversion Price (or other
conversion ratios applicable to other Series Preferred Stock and otherwise)
resulting from the Dilutive Issuance) shall be deemed to be outstanding.
For the purposes of any adjustment of the Series D Preferred Conversion Price
pursuant to this Section D.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in
whole or in part for cash, the consideration shall be deemed to be the
amount of cash paid therefor, plus the value of any property other than
cash received by the Corporation as provided in Section D.7(d)(i)(b)
hereof, less any discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than cash,
the value of such property or consideration other than cash shall be deemed to
be the fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
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(c) In the case of the issuance of (I) options to
purchase or rights to subscribe for Common Stock, (II) securities convertible
into or exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections D.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase, or rights to subscribe for, such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (determined in the manner provided in Sections D.7(d)(i)(a) and (b)
hereof);
(3) if there is any decrease in the conversion or
exercise price of, or any increase in the number of shares to be received upon
exercise, conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series D Preferred Conversion Price shall be
automatically lowered to reflect such change; and
(4) on the expiration of any right or option
referred to in Sections D.7(d)(i)(c)(1) or (2) hereof or on the termination of
any right to convert or exchange any convertible or exchangeable securities
referred to in Section D.7(d)(i)(c)(2) hereof, the Series D Preferred Conversion
Price then in effect shall thereupon be readjusted to the Series D Preferred
Conversion Price as would have been in effect had the adjustment made upon the
granting or issuance of such rights or options or convertible or exchangeable
securities been made upon the basis of the issuance or sale of only the number
of shares of Common Stock actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such convertible or exchangeable
securities.
(ii) If the Corporation shall at any time after the Series D
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series D Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common
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Stock issuable on conversion of each share of the Series A Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series D Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series D Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series D Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series D Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series D
Preferred Conversion Price with respect to the Series D Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series D Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series D Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section D.7(d)(iv)
shall similarly apply to successive Extraordinary Transactions.
(v) All calculations under this Section D.7(d) shall be made
to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(vi) In any case in which the provisions of this Section D.7(d)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of that
event (A) issuing to the holder of any share of Series D Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section D.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
E. NOTICE OF ADJUSTMENTS.
(i) Whenever the Series D Preferred Conversion Price shall be
adjusted as provided in Section D.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series D
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series D
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt
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requested, postage prepaid, to each Series D Preferred Stockholder at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section D.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
D.7(d) hereof, the Corporation shall give notice to each Series D Preferred
Stockholder, in the manner set forth in Section D.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series D Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series D Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section D.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
F. TRANSFER TAXES. The Corporation shall pay all documentary, stamp
or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series D Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
D Preferred Stock in respect of which such shares are being issued.
G. RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve, free from preemptive rights, out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of Series D Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series D Preferred Stock.
H. STATUS OF COMMON STOCK. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and nonassessable,
free from preemptive rights and free from all taxes, liens or charges with
respect thereto created or imposed by the Corporation.
8. REDEMPTION.
A. On and after the Series B Preferred Fifth Anniversary Date or at
any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then
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outstanding, voting together as a single class, made, from time to time, at any
date on or after the Series B Preferred Fifth Anniversary Date or upon the
declaration of an Event of Noncompliance, the Corporation shall redeem (unless
otherwise prevented by law) all of the shares of Series A, Series B and Series D
Preferred Stock, at a redemption price per share for each such series of Series
Preferred Stock equal to (i) the Series A Preferred Original Purchase Price, the
Series B Preferred Original Purchase Price or the Series D Preferred Original
Purchase Price, as applicable, plus (ii) an amount equal to any accrued but
unpaid cumulative dividends thereon and any declared but unpaid dividends
thereof, and, then, all of the shares of Series C Preferred Stock, at a
redemption price per share for such Series C Preferred Stock equal to (i) the
Series C Preferred Original Purchase Price plus (ii) an amount equal to any
accrued but unpaid dividends thereon and any declared but unpaid dividends
thereon. For purposes of determining whether the requisite 75% of the holders of
Series A, Series B, Series C and Series D Preferred Stock are participating in
the Redemption Notice, each share of issued and outstanding Series A, Series B,
Series C and Series D Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series A, Series B, Series C and Series D Preferred Stock is
then convertible, rounded to the nearest one-tenth of a share.
B. On and after the Redemption Date, all rights of any Series D
Preferred Stockholder with respect to the shares of Series D Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series D Preferred Stock shall continue
until the Corporation cures such default.
C. The Requesting Holders shall send their Redemption Notice pursuant
to this Section D.8 by first-class, certified mail, return receipt requested,
postage prepaid, to the Corporation at its principal place of business or to any
transfer agent of the Corporation. The Corporation shall fix a date for
redemption which shall not be more than 60 days after the receipt of Redemption
Notices from the Requesting Holders. Not less than 45 days prior to the
Redemption Date, written notice shall be mailed, first class postage prepaid, to
each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A, Series B, Series C
and Series D Preferred Stock, at the address last shown on the records of the
Corporation for such holder or given by the holder to the Corporation for the
purpose of notice, notifying such holder of the redemption to be effected, the
Redemption Date fixed, the Redemption Payment, the place at which payment may be
obtained and the date on which such holder's conversion rights as to such shares
terminate and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, such holder's certificate or certificates
representing the shares to be redeemed. In the event of only a partial
redemption of the outstanding shares of the Series A, Series B and Series D
Preferred Stock entitled to redemption for any reason, the redemption of the
Series A, Series B and Series D Preferred Stock shall be pro rata based upon the
total amount that would be paid by the Corporation to each Series A, Series B
and Series D Preferred Stockholder if all of the shares of Series A, Series B
and Series D Preferred Stock were fully redeemed pursuant to Sections
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A.8(a), B.8(a) and D.8(a) hereof. At any time on or after the Redemption Date,
the holders of the Series D Preferred Stock shall be entitled to receive the
Redemption Payment for each of the shares of Series D Preferred Stock held by
such holder which are to be redeemed by the Corporation upon actual delivery to
the Corporation or its transfer agent of the certificate(s) representing the
shares to be redeemed. Upon redemption of only a portion of the number of shares
covered by a Series D Preferred Stock certificate, the Corporation shall issue
and deliver to or upon the written order of the holder of such Series D
Preferred Stock certificate, at the expense of the Corporation, a new
certificate covering the number of shares of Series D Preferred Stock being
redeemed representing the unredeemed portion of the Series D Preferred Stock
certificate, which new certificate shall entitle the holder thereof to all the
rights, powers and privileges of a holder of such shares.
D. Notwithstanding anything to the contrary contained in this Section
D.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
9. MISCELLANEOUS.
A. Shares of Series D Preferred Stock are not subject to or entitled
to the benefit of a sinking fund.
B. Redeemed shares of Series D Preferred Stock shall not be reissued
but shall be retired. Upon the retirement of redeemed shares the capital of the
Corporation shall be reduced.
C. The shares of the Series D Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART E. SERIES E CONVERTIBLE PREFERRED STOCK.
1. TERMS. The number of shares, powers, terms, conditions, designations,
preferences and privileges, relative, participating, optional and other special
rights, and qualifications, limitations and restrictions, if any, of the Series
E Preferred Stock shall be as set forth herein.
2. RANKING. The Corporation's Series E Preferred Stock shall rank, as to
dividends and upon Liquidation, (x) junior to the Series A, Series B and Series
D Preferred Stock (but, with respect to Liquidation, only to the extent provided
in Sections A.4, B.4, C.4, D.4 and E.4 hereof), (y) pari passu with the Series C
Preferred Stock and (z) senior and prior to the Common Stock and to all other
classes or series of stock issued by the Corporation. The Series E Preferred
Stock shall have the following designations, powers, preferences, relative,
participating, optional or other special rights, qualifications, limitations and
restrictions:
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3. DIVIDENDS.
A. Dividends are payable on the Series E Preferred Stock, when, as
and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series E Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series E
and each outstanding share of Series C Preferred Stock, so that all outstanding
shares of Series E and Series C Preferred Stock will participate equally with
each other ratably per share.
B. So long as any Series E Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series E Preferred Stock, unless prior thereto or
simultaneously therewith all dividends and distributions previously declared on
the Series E Preferred Stock shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
C. If the Board of Directors declares dividends or other
distributions (other than (i) on Liquidation, (ii) on the Series A Preferred
Stock pursuant to Section A.3(d) hereof, (iii) on the Series B Preferred Stock
pursuant to Section B.3(d) hereof, or (iv) on the Series D Preferred Stock
pursuant to Section D.3(d) hereof) on the Common Stock or any other class or
series of stock ranking pari passu with or junior to the Series E Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series E Preferred
Stock, so that all outstanding shares of Series E Preferred Stock will
participate ratably with the Common Stock and each other class or series of
stock ranking pari passu with or junior to the Series E Preferred Stock in such
dividend or distribution. For purposes of determining its proportional share of
the dividend or distribution, each share of the Series E Preferred Stock and any
other applicable class or series of convertible securities shall be deemed to be
that number of shares of Common Stock into which such share is then convertible,
rounded to the nearest one-tenth of a share.
4. RIGHTS ON LIQUIDATION, DISSOLUTION, WINDING-UP.
A. With respect to rights on Liquidation, the Series E Preferred
Stock shall rank (x) junior to the Series A, Series B and Series D Preferred
Stock (but only to the extent provided in this Section E.4), (y) pari passu with
the Series C Preferred Stock and (z) senior and prior to the Common Stock and to
all other classes or series of stock issued by the Corporation.
B. Subject to the rights of the holders of Series A Preferred Stock
set forth in Section A.4 hereof, the holders of Series B Preferred Stock set
forth in Section B.4 hereof, the holders of Series C Preferred Stock set forth
in Section C.4 hereof and the holders of Series D Preferred Stock set forth in
Section D.4 hereof, in the event of any Liquidation, whether
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voluntary or involuntary, before any payment of cash or distribution of other
property shall be made to the Common Stockholders or any other class or series
of stock ranking on Liquidation junior to the Series E Preferred Stock, the
holders of Series E Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution to its
stockholders, pari passu with the rights of the Series C Stockholders, an amount
per share equal to the Series E Preferred Liquidation Preference whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
C. If, upon any Liquidation, the assets of the Corporation available
for distribution to its stockholders shall be insufficient to pay the Series E
Preferred Stockholders the full amounts to which each of them shall be entitled
pursuant to Section E.4(b) hereof and to pay the Series C Preferred Stockholders
the full amount to which each of them shall be entitled pursuant to Section
C.4(b) hereof, then the Series E and Series C Preferred Stockholders shall share
ratably in any distribution of assets according to the respective amounts which
would be payable to them in respect of the shares of Series E or Series C
Preferred Stock, as the case may be, held upon such distribution if all amounts
payable on or with respect to such shares were paid in full pursuant to Sections
E.4(b) and C.4(b) hereof.
D. In the event of any Liquidation, the Series E Preferred Stock
shall not be entitled to receive any payment of cash or distribution of property
other than as expressly provided in this Section E.4.
5. MERGER, CONSOLIDATION, ETC.
A. In the event the Corporation intends to sell, lease or otherwise
dispose of all or substantially all of the assets of the Corporation, effect any
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is transferred (other than in connection with a
Public Offering), or merge or consolidate with or into any other corporation,
corporations or other entity or entities (other than a merger or consolidation
in which the Series Preferred Stockholders receive securities of the surviving
corporation having substantially similar rights to the Series Preferred Stock
and in which the stockholders of the Corporation immediately prior to such a
transaction are holders of at least a majority of the voting securities of the
surviving corporation immediately thereafter), then the Corporation shall give
written notice to each Series Preferred Stockholder no less than 20 days prior
to the closing of any such transaction notifying the Series Preferred
Stockholders of the terms and timing of the closing of such transaction and of
the rights of the Series Preferred Stockholders under Sections A.5(b), B.5(b),
C.5(b), D.5(b) and E.5(b) hereof.
B. Upon the affirmative vote of the holders of not less than 75% in
voting power of all of the shares of Series Preferred Stock then outstanding,
voting together as a separate class, made prior to the consummation of such
transaction, the proceeds of or any property deliverable from such transaction
shall be distributed among the holders of the Series Preferred Stock and the
Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4 and E.4
hereof as if such transaction were a Liquidation.
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C. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. VOTING.
A. GENERAL. In addition to the rights otherwise provided for herein
or by law, except as provided in Section E.6(b) hereof, the Series E Preferred
Stockholders shall be entitled to vote, together with the Series A Preferred
Stockholders, the Series B Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series E
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series E Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series E Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
B. ELECTION OF BOARD OF DIRECTORS. The Series E Preferred
Stockholders shall not have any right to vote for the election of members to the
Board of Directors of the Corporation.
C. PROTECTIVE PROVISIONS. So long as any Series Preferred Stock is
outstanding, the Corporation shall not, without the written consent in lieu of a
meeting, or the affirmative vote at a meeting called for such purpose, of the
holders of shares representing at least 75% of the combined voting power of the
issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or agree to
authorize or issue any shares of capital stock of the Corporation, any right,
warrant, or option to receive any capital stock, or any security convertible
into or exchangeable for capital stock or any capitalized lease with any equity
feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in any
manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose of all
or substantially all of the properties or assets of the Corporation or any of
its subsidiaries;
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(v) declare or pay any dividend (other than as required by
Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry out
any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of Preferred
Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital stock
as shares ranking senior to or on parity with the Series Preferred Stock with
respect to rights on Liquidation, redemption or for the payment of any dividend
or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the Certificate of
Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws of
the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
E.6(c) and Sections A.6(c), B.6(c), C.6(c) and D.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of
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votes per share that equals the number of shares of Common Stock (including
fractional shares) into which each such share is then convertible, rounded to
the nearest one-tenth of a share.
7. CONVERSION.
A. RIGHT TO CONVERT.
(i) Any Series E Preferred Stockholder shall have the right,
at any time or from time to time, prior to the Closing Date to convert any or
all of its shares of Series E Preferred Stock into that number of fully paid and
nonassessable shares of Common Stock for each share of Series E Preferred Stock
so converted equal to the quotient of the Series E Preferred Original Purchase
Price divided by the Series E Preferred Conversion Price (as last adjusted and
then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series E Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series E Preferred Stock with
respect to Series E Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section E.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section E.7(a)(ii)(c) hereof, shall cease and the shares of Series E Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series E Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
(c) Holders of Series E Preferred Stock converted into
shares of Common Stock pursuant to this Section E.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series E Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
B. MECHANICS OF CONVERSION.
(i) Any Series E Preferred Stockholder that exercises its
right to convert its shares of Series E Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by written
notice stating that such holder elects to convert such shares and stating the
name or names (with
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address) in which the Common Certificate(s) are to be issued. Such conversion
shall be deemed to have been effected on the date when the aforesaid delivery is
made.
(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
E.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series E Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to be
issued shall be deemed to have become a stockholder of record of Common Stock on
the Conversion Date or the Closing Date, as the case may be, unless the transfer
books of the Corporation are closed on that date, in which event such holder
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open; provided, that the Series E Preferred
Conversion Price shall be that in effect on the Conversion Date or the Closing
Date, as the case may be.
(v) Upon conversion of only a portion of the shares of Series
E Preferred Stock covered by a Preferred Certificate, the Corporation, at its
own expense, shall issue and deliver to or upon the written order of the holder
of such Preferred Certificate, a new certificate representing the number of
unconverted shares of Series E Preferred Stock from the Preferred Certificate so
surrendered.
C. ISSUANCE OF COMMON STOCK ON CONVERSION.
(i) If a Series E Preferred Stockholder shall surrender more
than one Preferred Certificate for conversion at any one time, the number of
such shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Series E Preferred Stock so
surrendered.
(ii) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series E Preferred Stock. The Corporation shall pay a
cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
D. CONVERSION PRICE; ADJUSTMENT. The "Series E Preferred Conversion
Price" with respect to the Series E Preferred Stock shall initially be equal to
the Series E Preferred Original Purchase Price and shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall at any time after the Series E
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series E Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common
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Stock issuable on conversion of each share of the Series E Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(ii) If, at any time after the Series E Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series E Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series E Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iii) If, at any time after the Series E Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series E
Preferred Conversion Price with respect to the Series E Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series E Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series E Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section E.7(d)(iii)
shall similarly apply to successive Extraordinary Transactions.
(iv) All calculations under this Section E.7(d) shall be made
to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(v) In any case in which the provisions of this Section E.7(d)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of that
event (A) issuing to the holder of any share of Series E Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section E.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
E. NOTICE OF ADJUSTMENTS.
(i) Whenever the Series E Preferred Conversion Price shall be
adjusted as provided in Section E.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series E
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series E
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt
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requested, postage prepaid, to each Series E Preferred Stockholder at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section E.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii) or (iii) of Section
E.7(d) hereof, the Corporation shall give notice to each Series E Preferred
Stockholder, in the manner set forth in Section E.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series E Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series E Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section E.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
F. TRANSFER TAXES. The Corporation shall pay all documentary, stamp
or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series E Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
E Preferred Stock in respect of which such shares are being issued.
G. RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve, free from preemptive rights, out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of Series E Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series E Preferred Stock.
H. STATUS OF COMMON STOCK. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and nonassessable,
free from preemptive rights and free from all taxes, liens or charges with
respect thereto created or imposed by the Corporation.
8. MISCELLANEOUS.
A. Shares of Series E Preferred Stock are not entitled to a right of
redemption by the Company .
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B. Shares of Series E Preferred Stock are not subject to or entitled
to the benefit of a sinking fund.
C. The shares of the Series E Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART F. COMMON STOCK.
1. COMMON STOCK.
A. VOTING. Each holder of Common Stock shall be entitled to one vote
for each share of Common Stock held of record on all matters as to which holders
of Common Stock shall be entitled to vote, which voting rights shall not be
cumulative. In any election of directors, no holder of Common Stock shall be
entitled to more than one (1) vote per share.
B. OTHER RIGHTS. Each share of Common Stock issued and outstanding
shall be identical in all respects with each other such share, and no dividends
shall be paid on any shares of Common Stock unless the same dividend is paid on
all shares of Common Stock outstanding at the time of such payment. Except for
and subject to those rights expressly granted to the holders of any class or
series of capital stock having a preference over the Common Stock and except as
may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have all other rights of stockholders, including, without
limitation, (a) the right to receive dividends, when and as declared by the
Board of Directors, out of assets lawfully available therefor, and (b) in the
event of any distribution of assets upon a Liquidation, the right to receive
ratably and equally along with the holders of the Series A Preferred Stock in
accordance with Section A.4 hereof, the holders of the Series B Preferred Stock
in accordance with Section B.4 hereof, the holders of the Series D Preferred
Stock in accordance with Section D.4 hereof, and the holders of any other
capital stock then entitled to participate, all the assets and funds of the
Corporation remaining after the payment of all claims and obligations of the
Corporation, as provided by the General Corporation Law.
PART G. DEFINITIONS.
1. As used in Article III of this Seventh Restated Certificate of
Incorporation, the following terms shall have the meanings provided therefor
below or elsewhere in this Seventh Restated Certificate of Incorporation as
referred to below:
"CLOSING DATE" shall mean the date of the closing of the Corporation's
first Public Offering.
"COMMON CERTIFICATE" shall mean the certificate(s) for the shares of
Common Stock issued upon the conversion of Series Preferred Stock.
"COMMON STOCK" shall have the meaning set forth Section 1 of this
Article III.
"COMMON STOCKHOLDERS" shall mean the holders of Common Stock.
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"CONVERSION DATE" shall mean the date on which any Series Preferred
Stockholder delivers a Preferred Certificate for conversion into Common Stock in
accordance with Sections A.7(b)(ii), B.7(b)(ii), C.7(b)(ii), D.7(b)(ii) or
E.7(b)(ii) hereof.
"CURRENT MARKET PRICE" of one share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for the thirty (30)
consecutive business days ending on the fifth (5th) business day before the day
in question (as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such thirty (30) business day period)
as follows:
A. If the Common Stock is listed or admitted for trading on a
national securities exchange, the closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading.
B. If the Common Stock is not at the time listed or admitted for
trading on any such exchange, then such price as shall be equal to the last
reported sale price, or, if there is no such sale price, the average of the last
reported bid and asked prices, as reported by the Nasdaq on such day.
C. If, on any day in question, the security shall not be listed or
admitted to trading on a national securities exchange or quoted on the Nasdaq,
then such price shall be equal to the last reported bid and asked prices on such
day as reported by the National Quotation Bureau, Inc. or any similar reputable
quotation and reporting service, if such quotation is not reported by the
National Quotation Bureau, Inc.
D. If the Common Stock is not traded in such manner that the
quotations referred to in this definition are available for the period required
hereunder, the Current Market Price shall be determined by the Board of
Directors of the Corporation.
"DILUTIVE ISSUANCE" shall mean an issuance of any shares of Common
Stock (which term, for purposes of this definition, shall be deemed to include
all other securities convertible into, or exchangeable or exercisable for,
shares of Common Stock (including, but not limited to, Series Preferred Stock)
or options to purchase or other rights to subscribe for such convertible or
exchangeable securities), other than Excluded Stock, for a consideration per
share less than the applicable Series A Preferred Conversion Price, Series B
Preferred Conversion Price or Series D Preferred Conversion Price in effect
immediately prior to the issuance of such Common Stock or other securities.
"EVENT OF NONCOMPLIANCE" shall be as defined in the Stockholders'
Agreement.
"EXCLUDED STOCK" shall mean:
A. Common Stock issued upon conversion of any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock;
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B. Securities issued pursuant to the acquisition of another
corporation, partnership, joint venture, trust or other entity by the
Corporation by merger, consolidation, stock acquisition, reorganization, or
otherwise whereby the Corporation, or its shareholders of record immediately
prior to the effectiveness of such transaction, directly or indirectly own at
least the majority of the voting power of such other entity or the resulting or
surviving corporation immediately after such transaction;
C. Common Stock issued to employees, consultants or others who
provide services to the Corporation, pursuant to any options to purchase or
rights to subscribe for such Common Stock granted pursuant to an option or
rights plan, agreement or arrangement approved by the Corporation's Board of
Directors, but not to exceed 11,275,624 shares of Common Stock, giving effect to
appropriate adjustment to prevent dilution thereof;
D. Common Stock issued upon exercise of options granted pursuant to
the Restricted Stock Option Agreements (as defined in the Stockholders'
Agreement);
E. Common Stock issued in transactions described in Sections
A.7(d)(ii)-(iii), B.7(d)(ii)-(iii), C.7(d)(i)-(ii), D.7(d)(ii)-(iii) or
E.7(d)(ii)-(iii) hereof;
F. (i) The warrant issued to Comdisco, Inc. to initially acquire up
to 501,000 shares of Series A Preferred Stock, (ii) up to 501,000 shares of
Series A Preferred Stock issuable in connection with the exercise of the
warrant, and (iii) the Common Stock into which such Series A Preferred Stock is
convertible;
G. The warrants issued to the holders of Series I Preferred Stock
previously issued by the Corporation, in connection with the issuance of Series
I Preferred Stock, to acquire 100,000 shares of Common Stock and the issuance of
the shares of Common Stock in connection with the exercise of the warrants;
H. The warrants issued to the parties to the Loan Agreement with the
Corporation dated January 12, 1996 to acquire up to 450,000 shares of Common
Stock and the issuance of Common Stock in connection with the exercise of the
warrants;
I. (a) Up to 18,939,394 shares of Series B Preferred Stock issued
pursuant to the Series B Stock Purchase Agreement, (b) up to 5,818,184 shares of
Series B Preferred Stock issued pursuant to options therein, and (c) the Common
Stock into which such Series B Preferred Stock is convertible; and
J. (a) Up to 24,809,555 shares of Series D Preferred Stock issued
pursuant to the Series D Stock Purchase Agreement and (b) the Common Stock into
which such Series D Preferred Stock is convertible.
K. (a) Up to 5,555,556 shares of Series E Preferred Stock issued
pursuant to the Series E Stock Purchase Agreement and (b) the Common Stock into
which such Series E Preferred Stock is convertible.
L. Common Stock issued to Novartis Agribusiness Biotechnology
Research, Inc. or its assigns upon the occurrence of an underwritten initial
public offering of the
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Corporation pursuant to that certain Stock Purchase Agreement between the
Corporation and Novartis Agribusiness Biotechnology Research, Inc. dated as of
the Series E Preferred Original Issuance Date.
"EXTRAORDINARY TRANSACTION" shall mean any capital reorganization, or
any reclassification of the capital stock of the Corporation (other than a
change in par value or from par value to no par value or from no par value to
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the Corporation with
or into another corporation (other than a consolidation or merger which has been
treated as a Liquidation under Sections A.5, B.5, C.5, D.5 and E.5 hereof or in
which the Corporation is the continuing corporation and which does not result in
any change in the powers, designations, preferences and rights (or the
qualifications, limitations or restrictions, if any) of the Series Preferred
Stock).
"LIQUIDATION" shall mean any liquidation, dissolution or winding-up of
the affairs of the Corporation.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
"1997 EQUITY INCENTIVE PLAN" shall mean the Corporation's 1997 Equity
Incentive Plan, as the same may be amended from time to time.
"OPTION PLAN" shall mean the Corporation's Restated 1994 Employee
Incentive and Non-Qualified Stock Option Plan, as amended.
"PREFERRED STOCK" shall have the meaning set forth Section 1 of this
Article III.
"PREFERRED CERTIFICATE" shall mean the certificate(s) of Series
Preferred Stock delivered for conversion into Common Stock pursuant to Sections
A.7(b)(i), B.7(b)(i), C.7(b)(i), D.7(b)(i) or E.7(b)(i) hereof.
"PREFERRED DIRECTORS" shall mean the directors of the Corporation
which the Series A, Series B, Series C and Series D Preferred Stockholders have
the right to elect pursuant to Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and
D.6(b)(i) hereof.
"PROPORTIONAL ADJUSTMENT" shall mean an adjustment made to the price
of the Series Preferred Stock upon the occurrence of a stock split, reverse
stock split, stock dividend, stock combination, reclassification or other
similar change with respect to such security, such that the price of one share
of the Series Preferred Stock before the occurrence of any such change shall
equal the aggregate price of the share (or shares or fractional share) of such
security (or any other security) received by the holder of the Series Preferred
Stock with respect thereto upon the effectiveness of such change.
"PUBLIC OFFERING" shall mean an Underwritten Offering by the
Corporation of authorized but unissued shares of Common Stock at a price per
share of not less than $3.00 (adjusted to reflect subsequent stock dividends,
stock splits or recapitalizations) resulting in
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gross proceeds to the Corporation (before deducting underwriting commissions and
expenses of the offering) of not less than $25,000,000.
"REDEMPTION DATE" shall mean the date fixed for any redemption pursuant
to Sections A.8(c), B.8(c), C.8(c) or D.8(c) hereof.
"REDEMPTION NOTICE" shall mean a request for redemption of the Series
Preferred Stockholders pursuant to Sections A.8(a), B.8(a), C.8(a) or D.8(a)
hereof.
"REDEMPTION PAYMENT" shall mean the redemption payment to which a
Series A Preferred Stockholder is entitled pursuant to Section A.8 hereof, a
Series B Preferred Stockholder is entitled pursuant to Section B.8 hereof, a
Series C Preferred Stockholder is entitled pursuant to Section C.8 hereof or a
Series D Preferred Stockholder is entitled pursuant to Section D.8 hereof.
"REQUESTING HOLDERS" shall mean the Series Preferred Stockholders
making a request for redemption pursuant to Sections A.8(a), B.8(a), C.8(a) or
D.8(a) hereof.
"SECURITIES ACT" shall mean the Securities Act of 1993, as amended,
and the rules and regulations promulgated thereunder.
"SERIES A PREFERRED CONVERSION PRICE" shall have the meaning set forth
in Section A.7(d) hereof.
"SERIES A PREFERRED FIFTH ANNIVERSARY DATE" shall mean the fifth (5th)
anniversary of the Series A Preferred Original Issuance Date.
"SERIES A PREFERRED ORIGINAL ISSUANCE DATE" shall mean the date of
first issuance by the Corporation of a share of Series A Preferred Stock.
"SERIES A PREFERRED ORIGINAL PURCHASE PRICE" shall mean $1.00 per
share, subject to Proportional Adjustment.
"SERIES A PREFERRED STOCK" shall have the meaning set forth in Section
1 of this Article III.
"SERIES A PREFERRED STOCKHOLDERS" shall mean the holders of the
outstanding shares of Series A Preferred Stock.
"SERIES B PREFERRED CONVERSION PRICE" shall have the meaning set forth
in Section B.7(d) hereof.
"SERIES B PREFERRED FIFTH ANNIVERSARY DATE" shall mean the fifth (5th)
anniversary of the Series B Preferred Original Issuance Date.
"SERIES B PREFERRED ORIGINAL ISSUANCE DATE" shall mean the date of
first issuance by the Corporation of a share of Series B Preferred Stock.
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"SERIES B PREFERRED ORIGINAL PURCHASE PRICE" shall mean $0.66 per
share, subject to Proportional Adjustment.
"SERIES B PREFERRED STOCK" shall have the meaning set forth in Section
1 of this Article III.
"SERIES B PREFERRED STOCKHOLDERS" shall mean the holders of the
outstanding shares of Series B Preferred Stock.
"SERIES B STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase
Agreement for the sale of Series B Preferred Stock dated as of May 13, 1996, as
amended by the Amendment to Stock Purchase Agreement dated as of May 13, 1996.
"SERIES C PREFERRED LIQUIDATION PREFERENCE" shall mean the fair value,
as determined by the Board of Directors of the Corporation in its reasonable
discretion, of the Corporation's intellectual property rights in the genes and
gene sequences developed by the Corporation pursuant to the Collaboration
Agreement dated as of January 2, 1997, as amended between the Corporation and
Finnfeeds International Limited.
"SERIES C PREFERRED ORIGINAL ISSUANCE DATE" shall mean the date of
first issuance by the Corporation of a share of Series C Preferred Stock.
"SERIES C PREFERRED ORIGINAL PURCHASE PRICE" shall mean $2.25 per
share, subject to Proportional Adjustment.
"SERIES C PREFERRED STOCK" shall have the meaning set forth in Section
1 of this Article III.
"SERIES C PREFERRED STOCKHOLDERS" shall mean the holders of the
outstanding shares of Series C Preferred Stock.
"SERIES D PREFERRED CONVERSION PRICE" shall have the meaning set forth
in Section D.7(d) hereof.
"SERIES D PREFERRED ORIGINAL ISSUANCE DATE" shall mean the date of
first issuance by the Corporation of a share of Series D Preferred Stock.
"SERIES D PREFERRED ORIGINAL PURCHASE PRICE" shall mean $0.85 per
share, subject to Proportional Adjustment.
"SERIES D PREFERRED STOCK" shall have the meaning set forth Section 1
of this Article III.
"SERIES D PREFERRED STOCKHOLDERS" shall mean the holders of the
outstanding shares of Series D Preferred Stock.
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"SERIES D STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase
Agreement and Agreement and Plan of Reorganization for the sale of Series D
Preferred Stock dated as of October 22, 1997.
"SERIES E PREFERRED LIQUIDATION PREFERENCE" shall mean an amount equal
to the Series D Preferred Original Purchase Price.
"SERIES E PREFERRED ORIGINAL ISSUANCE DATE" shall mean the date of
first issuance by the Corporation of a share of Series E Preferred Stock.
"SERIES E PREFERRED ORIGINAL PURCHASE PRICE" shall mean $2.25 per
share, subject to Proportional Adjustment.
"SERIES E PREFERRED STOCK" shall have the meaning set forth in Section
1 of this Article III.
"SERIES E PREFERRED STOCKHOLDERS" shall mean the holders of the
outstanding shares of Series E Preferred Stock.
"SERIES PREFERRED STOCK" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock, collectively.
"SERIES PREFERRED STOCKHOLDERS" shall mean the Series A Preferred
Stockholders, the Series B Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders and the Series E Preferred
Stockholders, collectively.
"STOCKHOLDERS' AGREEMENT" shall mean the Amended and Restated
Stockholders' Agreement among the Corporation and certain Series Preferred
Stockholders of the Corporation dated as of the Series E Preferred Original
Issuance Date, as may be amended from time to time.
"UNDERWRITTEN OFFERING" shall mean a firm commitment offering by one
or more underwriters in an offering registered on Form S-1 under the Securities
Act.
"UNITED STATES OBLIGATIONS" shall mean any obligations, the payment of
which is backed by the full faith and credit of the United States.
ARTICLE IV.
REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of the registered agent of the Corporation at
such address is The Corporation Trust Company.
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ARTICLE V.
BOARD OF DIRECTORS
The number of directors of the Corporation shall be such number as from
time to time shall be fixed by, or in the manner provided in, the By-laws of the
Corporation. Unless and except to the extent that the By-laws of the
Corporation otherwise require, the election of directors of the Corporation need
not be by written ballot.
ARTICLE VI.
BY-LAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized to adopt,
amend or repeal the By-laws of the Corporation.
ARTICLE VII.
PERPETUAL EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VIII.
AMENDMENTS AND REPEAL
Except as otherwise specifically provided in this Seventh Restated
Certificate of Incorporation, the Corporation reserves the right at any time,
and from time to time, to amend, alter, change or repeal any provision contained
in this Seventh Restated Certificate of Incorporation, and to add or insert
other provisions authorized at such time by the laws of the State of Delaware,
in the manner now or hereafter prescribed by law; and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Seventh Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this Article VIII.
ARTICLE IX.
COMPROMISES AND ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the 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 the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of the
General Corporation Law or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under Section 279 of the
General Corporation Law, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders
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of the Corporation, as the case may be, to be summoned in such manner as such
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 the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, then such compromise or arrangement and such
reorganization shall, if sanctioned by the court to which such application has
been made, be binding on all the creditors or class of creditors, and/or on all
of the stockholders or class of stockholders of the Corporation, as the case may
be, and also on the Corporation.
ARTICLE X.
LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of his or her fiduciary duty as
director; provided, however, that nothing contained in this Article X shall
eliminate or limit the liability of a director:
A. for any breach of the director's duty of loyalty to the
Corporation or its stockholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law;
C. under Section 174 of the General Corporation Law; or
D. for any transaction from which the director derived improper
personal benefit.
No amendment to or repeal of this Article X 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 or repeal.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the undersigned has caused this Seventh Restated
Certificate of Incorporation to be duly executed on behalf of the Corporation on
December __, 1998.
DIVERSA CORPORATION
By: /s/ Terrance J. Bruggeman
---------------------------
Terrance J. Bruggeman
Chief Executive Officer
ATTEST:
/s/ Kathleen H. Van Sleen
- ------------------------------
Kathleen H. Van Sleen
Secretary
72.
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EXHIBIT 3.2
BYLAWS
OF
DIVERSA CORPORATION
(A DELAWARE CORPORATION)
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I OFFICES......................................................................... 1
Section 1. Registered Office............................................................ 1
Section 2. Other Offices................................................................ 1
ARTICLE II CORPORATE SEAL.................................................................. 1
Section 3. Corporate Seal............................................................... 1
ARTICLE III STOCKHOLDERS' MEETINGS.......................................................... 1
Section 4. Place Of Meetings............................................................ 1
Section 5. Annual Meetings.............................................................. 1
Section 6. Special Meetings............................................................. 3
Section 7. Notice Of Meetings........................................................... 4
Section 8. Quorum....................................................................... 5
Section 9. Adjournment And Notice Of Adjourned Meetings................................. 5
Section 10. Voting Rights................................................................ 5
Section 11. Joint Owners Of Stock........................................................ 6
Section 12. List Of Stockholders......................................................... 6
Section 13. Action Without Meeting....................................................... 6
Section 14. Organization................................................................. 6
ARTICLE IV DIRECTORS....................................................................... 7
Section 15. Number And Term Of Office.................................................... 7
Section 16. Powers....................................................................... 7
Section 17. Classes of Directors......................................................... 7
Section 18. Vacancies.................................................................... 8
Section 19. Resignation.................................................................. 9
Section 20. Removal...................................................................... 9
Section 21. Meetings..................................................................... 10
Section 22. Quorum And Voting............................................................ 10
Section 23. Action Without Meeting....................................................... 11
Section 24. Fees And Compensation........................................................ 11
Section 25. Committees................................................................... 11
Section 26. Organization................................................................. 12
</TABLE>
i.
<PAGE>
Table Of Contents
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE V OFFICERS.................................................................................. 13
Section 27. Officers Designated..................................................................... 13
Section 28. Tenure And Duties Of Officers........................................................... 13
Section 29. Delegation Of Authority................................................................. 14
Section 30. Resignations............................................................................ 14
Section 31. Removal................................................................................. 14
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION...... 15
Section 32. Execution Of Corporate Instruments...................................................... 15
Section 33. Voting Of Securities Owned By The Corporation........................................... 15
ARTICLE VII SHARES OF STOCK........................................................................... 15
Section 34. Form And Execution Of Certificates...................................................... 15
Section 35. Lost Certificates....................................................................... 16
Section 36. Transfers............................................................................... 16
Section 37. Fixing Record Dates..................................................................... 16
Section 38. Registered Stockholders................................................................. 17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION....................................................... 17
Section 39. Execution Of Other Securities........................................................... 17
ARTICLE IX DIVIDENDS................................................................................. 18
Section 40. Declaration Of Dividends................................................................ 18
Section 41. Dividend Reserve........................................................................ 18
ARTICLE X FISCAL YEAR............................................................................... 18
Section 42. Fiscal Year............................................................................. 18
ARTICLE XI INDEMNIFICATION........................................................................... 18
Section 43. Indemnification Of Directors, Officers, Employees And Other Agents...................... 18
ARTICLE XII NOTICES................................................................................... 21
Section 44. Notices................................................................................. 21
ARTICLE XIII AMENDMENTS................................................................................ 23
SECTION 45. AMENDMENTS................................................................................ 23
</TABLE>
ii.
<PAGE>
Table Of Contents
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE XIV LOANS TO OFFICERS............................................................................. 23
Section 45. Loans To Officers....................................................................... 23
</TABLE>
iii.
<PAGE>
BYLAWS
OF
DIVERSA CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meetings.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders:
(i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or
at the direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a
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stockholder of record at the time of giving of notice provided for in the
following paragraph, who is entitled to vote at the meeting and who complied
with the notice procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90/th/) day nor earlier than the close of business on
the one hundred twentieth (120/th/) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120/th/) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90/th/) day prior to such annual meeting
or the tenth (10/th/) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books,
2.
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and of such beneficial owner, (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner, and (iii) whether either such stockholder or beneficial
owner intends to deliver a proxy statement and form of proxy to holders of, in
the case of the proposal, at least the percentage of the corporation's voting
shares required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10/th/) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total
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number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption). At any time or times that the
corporation is subject to Section 2115(b) of the California General Corporation
Law ("CGCL"), stockholders holding five percent (5%) or more of the outstanding
shares shall have the right to call a special meeting of stockholders only as
set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120/th/) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90/th/) day prior to such meeting or the tenth (10/th/)
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
Section 7. Notice Of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of
4.
<PAGE>
stockholders may be waived in writing, signed by the person entitled to notice
thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of
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stockholders. Every person entitled to vote shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
Section 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or even-
split in interest.
Section 12. List Of Stockholders. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Section 13. Action Without Meeting. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are
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necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business for
the meeting, rules and procedures for maintaining order at the meeting and the
safety of those present, limitations on participation in such meeting to
stockholders of record of the corporation and their duly authorized and
constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number And Term Of Office. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Classes of Directors.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock of the corporation (the
"Initial Public Offering"), the directors shall be divided into three classes
designated as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. At the first annual meeting of stockholders following
the closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the Initial Public Offering, the term
of office of the Class III directors shall expire and Class III directors shall
be elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
During such time or times that the corporation is subject to Section 2115(b) of
the CGCL, this Section 17(a) shall become effective and apply only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of the
CGCL.
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(b) In the event that the corporation is unable to have a
classified Board of Directors under applicable law, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.
(c) No stockholder entitled to vote at an election for directors
may cumulate votes to which such stockholder is entitled, unless, at the time of
the election, the corporation (i) is subject to (S)2115(b) of the CGCL and (ii)
is not or ceases to be a "listed" corporation under Section 301.5 of the CGCL.
During this time, every stockholder entitled to vote at an election for
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 18. Vacancies.
(a) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section 18 in the case of the
death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the
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directors chosen by the directors then in offices as aforesaid, which election
shall be governed by Section 211 of the DGCL.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
Section 19. Resignation. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
Section 20. Removal.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section 20(a) above shall no longer apply and removal shall be as provided
in Section 141(k) of the DGCL.
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Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 22. Quorum And Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a
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quorum shall be one-third of the exact number of directors fixed from time to
time in accordance with the Certificate of Incorporation, a quorum of the Board
of Directors shall consist of a majority of the exact number of directors fixed
from time to time by the Board of Directors in accordance with the Certificate
of Incorporation; provided, however, at any meeting whether a quorum be present
or otherwise, a majority of the directors present may adjourn from time to time
until the time fixed for the next regular meeting of the Board of Directors,
without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. Committees.
(a) Executive Committee. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
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(c) Term. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President (if a director), or if the President is absent, the most
senior Vice President (if a director), or, in the absence of any such person, a
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
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ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
Section 28. Tenure And Duties Of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) Duties of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
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(e) Duties of Secretary. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
Section 29. Delegation Of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
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ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION
Section 32. Execution Of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 33. Voting Of Securities Owned By The Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form And Execution Of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights
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of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL.
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
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(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution Of Other Securities. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
Section 40. Declaration Of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation
and applicable law, if any, may be declared by the Board of Directors pursuant
to law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and applicable law.
Section 41. Dividend Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification Of Directors, Officers, Employees And Other
Agents.
(a) Directors And Officers. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the DGCL or any
other applicable law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the DGCL or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) Employees and Other Agents. The corporation shall have power
to indemnify its employees and other agents as set forth in the DGCL or any
other applicable law. The Board of Directors shall have the power to delegate
the determination of whether indemnification shall be given to any such person
to such officers or other persons as the Board of Directors shall determine.
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(c) Expenses. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Section 43 to a director or officer shall be enforceable by or on behalf of
the person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the DGCL or any other
applicable law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the DGCL or
any other
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applicable law, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct. In any suit brought by a director or officer to enforce a
right to indemnification or to an advancement of expenses hereunder, the burden
of proving that the director or officer is not entitled to be indemnified, or to
such advancement of expenses, under this Section 43 or otherwise shall be on the
corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) Survival of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the DGCL or any
other applicable law, the corporation, upon approval by the Board of Directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Section 43.
(h) Amendments. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Section 43 that shall
not have been invalidated, or by any other applicable law. If this Section 43
shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
officer to the full extent under any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
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(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 43 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice To Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) Notice To Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to
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such address as such director shall have filed in writing with the Secretary,
or, in the absence of such filing, to the last known post office address of such
director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) Failure To Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) Notice To Person With Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the DGCL,
the certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.
(h) Notice To Person With Undeliverable Address. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such
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person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate need not state that notice was not given
to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XIII
AMENDMENTS
Section 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
Section 45. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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EXHIBIT 3.3
Eighth
Restated Certificate of Incorporation
of
Diversa Corporation
Diversa Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
First: The name of the Corporation is Diversa Corporation. A
Certificate of Incorporation of the Corporation was originally filed by the
Corporation with the Secretary of State of Delaware on December 21, 1992. The
Corporation was originally incorporated under the name Industrial Genome
Sciences, Inc.
Second: This Restated Certificate of Incorporation which restates,
amends and supersedes the Certificate of Incorporation of the Corporation as
originally filed and thereafter amended and restated, was duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law, and was approved by written consent of the stockholders of the
Corporation given in accordance with the provisions of Section 228 of the
General Corporation Law (prompt notice of such action having been given to those
stockholders who did not consent in writing).
Third: The text of the Certificate of Incorporation of the Corporation is
hereby amended, restated and superseded to read in its entirety as follows:
ARTICLE I.
Name
The name of the corporation is Diversa Corporation
ARTICLE II.
Purpose
The Corporation is organized to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law.
ARTICLE III.
Capital Stock
1. Authorization, Designation and Amount. The total number of shares of
all classes of stock which the Corporation shall have authority to issue is
162,449,323 consisting of 71,276,739 shares of Preferred Stock, par value $.001
per share (the "Preferred Stock"), of which 10,501,000 shares shall be
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock"), 24,566,184 shall be designated "Series B Convertible Preferred Stock"
(the
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"Series B Preferred Stock"), 844,444 shall be designated "Series C Convertible
Preferred Stock" (the "Series C Preferred Stock"), 24,809,555 shall be
designated "Series D Convertible Preferred Stock" (the "Series D Preferred
Stock") and 5,555,556 shall be designated "Series E Convertible Preferred Stock"
(the "Series E Preferred Stock"), and 91,172,584 shares of Common Stock, par
value $.001 per share (the "Common Stock"). The number of shares, powers, terms,
conditions, designations, preferences and privileges, relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions, of the Preferred Stock, and the Common Stock shall be as set forth
in this Article III, or with respect to any shares as to which the powers,
terms, conditions, designations, preferences and privileges, relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions have not been set forth in this Article III, the
Board of Directors of the Corporation is expressly authorized to the fullest
extent permitted by law, at any time and from time to time; to divide the
authorized and unissued shares into classes or series, or both, and to provide
for the powers, terms, conditions, designations, preferences and privileges,
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions of the shares of the class or series. The number of
authorized shares of Common Stock may be increased or decreased (but not below
the combined number of shares thereof then outstanding, plus that number of
shares reserved for purposes of effecting the conversion of the Series Preferred
Stock into Common Stock) by the affirmative vote of the holders of 75% of (i)
the issued and outstanding Common Stock (voting together with the holders of
Series Preferred Stock in accordance with Sections A.6(a), B.6(a), C.6(a),
D.6(a) and E.6(a) hereof), (ii) the issued and outstanding Series Preferred
Stock and (iii) any other class or series of capital stock entitled to vote,
irrespective of the provisions of Section 242(b)(2) of the General Corporation
Law. Upon the amendment of this article (the "Effective Time"), each ______
shares of the corporation's Common Stock issued and outstanding shall,
automatically and without any action on the part of the respective holders
thereof, be converted into and shall become one (1) share of Common Stock of the
corporation. No fractional shares shall be issued and, in lieu thereof, any
holder of less than one share of Common Stock entitled to receive cash for such
holder's fractional share based upon the fair market value of the corporation's
Common Stock as of the Effective Time.
2. Issuance of Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. Except as provided below with respect to
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock,
the Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the General Corporation Law, to fix
or alter from time to time the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
2.
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PART A. Series A Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series A Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series A Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series B and Series D Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section A.4 hereof and with respect to
redemption, only to the extent provided in Section A.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A, Series B and Series D Preferred Stock, as otherwise approved by
the affirmative vote or consent of the holders of 75% of the issued and
outstanding shares of Series A, Series B and Series D Preferred Stock voting
together. The Series A Preferred Stock shall have the following designations,
powers, preferences, relative, participating, optional or other special rights,
qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series A Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series A Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series A
Preferred Stock and each outstanding share of Series B and Series D Preferred
Stock, so that all outstanding shares of Series A, Series B and Series D
Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series A Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series A Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series A Preferred Stock and (B) any cumulative dividends in accordance
with Section A.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series A Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series A Preferred
Stock, so that all outstanding shares of Series A Preferred Stock will
participate ratably with the shares of Common Stock and
3.
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the shares of each other class or series of stock ranking pari passu with or
junior to the Series A Preferred Stock in such dividend or distribution. For
purposes of determining its proportional share of the dividend or distribution,
each share of the Series A Preferred Stock and any other applicable class or
series of convertible securities shall be deemed to be that number of shares of
Common Stock into which such share is then convertible, rounded to the nearest
one-tenth of a share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series A Preferred Stock will be entitled, pari passu with the
Series B and Series D Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series A Preferred Original Purchase Price (or such
greater amount of dividends as such Series A Preferred Stock would be entitled
to if such Series A Preferred Stock were converted into Common Stock), as
adjusted for any combinations or divisions or similar recapitalizations
affecting the Series A Preferred Stock after the Series A Preferred Original
Issuance Date, payable on the first day of January, April, July and October (and
any dividends payable to holders of Series A Preferred Stock which are not paid
shall be cumulative). Upon conversion of any Series A Preferred Stock, all
accrued but unpaid cumulative dividends and any declared but unpaid dividends
shall be paid in cash, or in additional shares of Common Stock at the Series A
Preferred Conversion Price then in effect in the discretion of the Board of
Directors; provided that if the conversion takes place in connection with the
Corporation's first Public Offering, then the additional shares will be at the
price per share offered to the public in the first Public Offering. Nothing in
this Section A.3(d) shall be deemed to limit the rights of the Series A
Preferred Stock under Sections A.3(b) and A.3(c) hereof.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series A
Preferred Stock shall rank (x) pari passu with the Series B and Series D
Preferred Stock, (y) senior and prior to the Series C Preferred Stock and Series
E Preferred Stock (but only to the extent provided in this Section A.4) and (z)
senior and prior to the Common Stock and to all other classes or series of stock
issued by the Corporation, except in the case of a change in the relative
ranking upon Liquidation of the Series A, Series B and Series D Preferred Stock,
as otherwise approved by the affirmative vote or consent of the holders of 75%
of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series A Preferred Stock, the holders of Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series B and Series D Preferred Stockholders, an amount
per share equal to the Series A Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
4.
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c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series A Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section A.4(b) hereof and to pay to the Series B and Series
D Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections B.4(b) and D.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have
been made to (i) the Series A, Series B and Series D Preferred Stockholders of
the full amount to which they shall be entitled pursuant to Sections A.4(b),
B.4(b) and D.4(b) hereof, respectively, and (ii) the Series C and Series E
Preferred Stockholders of the full amount to which they shall be entitled
pursuant to Section C.4(b) and E.4(b) hereof, respectively, with respect to each
other class or series of capital stock (other than the Series C Preferred Stock,
Series E Preferred Stock and the Common Stock) ranking on Liquidation junior to
such Series A Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class, shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding and among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series D
Preferred Stockholders and each class or series of capital stock (other than the
Series C Preferred Stock, Series E Preferred Stock and the Common Stock) junior
to the Series A Preferred Stock the full amounts to which they shall be entitled
pursuant to the immediately preceding sentence, the Series A, Series B and
Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series A
Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof), and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
e. In the event of any Liquidation, after payment shall have
been made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking senior to the Common Stock, the Series A, Series B and Series D
Preferred Stockholders shall be entitled to share ratably (calculated with
respect to such Series A, Series B and Series D Preferred Stock as provided in
the next sentence) with the holders of Common Stock in all
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remaining assets of the Corporation available for distribution to its
stockholders. For purposes of calculating the amount of any payment to be paid
pursuant to this Section A.4(e) upon any such Liquidation, each share of Series
A, Series B and Series D Preferred Stock shall be deemed to be that number of
shares of Common Stock into which such share is then convertible, rounded to the
nearest one-tenth of a share.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, the Series A Preferred Stockholders shall be entitled to vote,
together with the Series B Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series A
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series A Preferred Stock shall entitle the holder thereof to one
vote per
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share for each share of Common Stock (including fractional shares) into which
each share of Series A Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections
A.6(a), B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting
power of the Series A, Series B, Series C and Series D Preferred Stock, voting
together as a separate class or in such other manner as the holders of the
Series A, Series B, Series C and Series D Preferred Stock shall agree among
themselves in the Stockholders' Agreement, shall have the exclusive right to
elect to the Board of Directors of the Corporation that number of directors
which shall be equal to a majority of the total number of directors on the Board
of Directors at any given time. In any election of Preferred Directors pursuant
to this Section A.6(b) and Sections B.6(b), C.6(b) and D.6(b), each share of
issued and outstanding Series A, Series B, Series C and Series D Preferred Stock
shall entitle the holder thereof to the number of votes per share that equals
the number of shares of Common Stock (including fractional shares) into which
each such share is then convertible, rounded up to the nearest one-tenth of a
share. The voting rights of the Series A, Series B, Series C and Series D
Preferred Stockholders contained in this Section A.6(b) and Sections B.6(b),
C.6(b) and D.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
A.6(b) and Sections B.6(b), C.6(b) and D.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained
in Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. Protective Provisions. So long as any Series Preferred
Stock is outstanding, the Corporation shall not, without the written consent in
lieu of a meeting, or the affirmative vote at a meeting called for such purpose,
of the holders of shares representing at least 75% of the combined voting power
of the issued and outstanding Series A, Series B, Series C, Series D and Series
E Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to
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receive any capital stock, or any security convertible into or exchangeable for
capital stock or any capitalized lease with any equity feature with respect to
the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination
in any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of the Corporation or
any of its subsidiaries;
(v) declare or pay any dividend (other than as required
by Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any
8.
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mandatory purchase or other analogous fund for the redemption, purchase or
acquisition of, any shares of Common Stock, except (a) pursuant to Sections A.8,
B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement approved by the Board
of Directors with an officer, director, employee or consultant providing for the
repurchase of any capital stock of the Corporation owned by such officer,
director, employee or consultant at the option of the Corporation, which is
either (A) set forth on Schedule 4.10 of the Series B Stock Purchase Agreement,
or (B) issued pursuant to the Option Plan, as amended, the 1997 Equity Incentive
Plan, or any other stock option plan of the Corporation or one or more
amendments to the Option Plan, from and after May 13, 1996, approved by the
Board of Directors and by the holders of 75% of the then issued and outstanding
Series Preferred Stock, voting together as a separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
A.6(c) and Sections B.6(c), C.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series A Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series A Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series A
Preferred Stock so converted equal to the quotient of the Series A Preferred
Original Purchase Price divided by the Series A Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series A Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series A Preferred Stock with
respect to Series A Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section A.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section A.7(a)(ii)(c) hereof, shall cease and the shares of Series A Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-
class mail, postage prepaid, to each Series A Preferred Stockholder at such
holder's address appearing on the Corporation's records a copy of (i) each
registration statement filed by the Corporation under the Securities Act and
each amendment thereof and each exhibit and schedule thereto and (ii) each order
of the Securities and Exchange Commission declaring any such registration
statement to be effective.
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(c) Holders of Series A Preferred Stock converted
into shares of Common Stock pursuant to this Section A.7 shall be entitled to
payment of any accrued but unpaid cumulative dividend and any declared but
unpaid dividends payable with respect to such shares of Series A Preferred
Stock, up to and including the Conversion Date or the Closing Date, as the case
may be.
b. Mechanics of Conversion.
(i) Any Series A Preferred Stockholder that exercises
its right to convert its shares of Series A Preferred Stock into Common Stock
shall deliver the Preferred Certificate, duly endorsed or assigned in blank to
the Corporation, during regular business hours, at the office of the transfer
agent of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such holder,
at the place designated by such holder, the Common Certificate(s) for the number
of full shares of Common Stock to which such holder is entitled and a cash
payment for any fractional interest in a share of Common Stock, as provided in
Section A.7(c) hereof, and for any accrued but unpaid cumulative dividends and
any declared but unpaid dividends, payable with respect to the converted shares
of Series A Preferred Stock, up to and including the Conversion Date or the
Closing Date, as the case may be.
(iv) The person in whose name each Common Certificate is
to be issued shall be deemed to have become a stockholder of record of Common
Stock on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
A Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series A Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series A Preferred Stock from the Preferred Certificate
so surrendered.
C. Issuance of Common Stock on Conversion.
(i) If a Series A Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered.
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(ii) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series A Preferred Stock. The Corporation shall pay a
cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
D. Conversion Price; Adjustment. The "Series A Preferred Conversion
Price" with respect to the Series A Preferred Stock shall initially be equal to
the Series A Preferred Original Purchase Price and shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to time
after the Series A Preferred Original Issuance Date, make a Dilutive Issuance,
the Series A Preferred Conversion Price in effect immediately prior to each such
Dilutive Issuance shall automatically be lowered to a price (calculated to the
nearest cent) determined by multiplying the Series A Preferred 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 issuance plus (2) the number
of shares of Common Stock which the aggregate consideration received or to be
received by the Corporation in such Dilutive Issuance so issued would purchase
at the Series A Preferred Conversion Price; and (B) the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of such additional shares of Common Stock so
issued in such Dilutive Issuance; provided that, for the purpose of this Section
A.7(d)(i), all shares of Common Stock issuable upon exercise or conversion of
options or convertible securities outstanding immediately prior to such issuance
(other than any additional shares of Common Stock issuable with respect to
shares of Series Preferred Stock, convertible securities, or outstanding
options, warrants or other rights for the purchase of shares of Common Stock or
convertible securities, solely as a result of either (x) the Dilutive Issuance
or (y) the adjustment of the Series A Preferred Conversion Price (or other
conversion ratios applicable to other Series Preferred Stock and otherwise)
resulting from the Dilutive Issuance) shall be deemed to be outstanding.
For the purposes of any adjustment of the Series A Preferred Conversion Price
pursuant to this Section A.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in whole or
in part for cash, the consideration shall be deemed to be the amount of cash
paid therefor, plus the value of any property other than cash received by the
Corporation as provided in Section A.7(d)(i)(b) hereof, less any discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than cash,
the value of such property or consideration other than cash shall be deemed to
be the fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
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(c) In the case of the issuance of (I) options to purchase
or rights to subscribe for Common Stock, (II) securities convertible into or
exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections A.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of, or in exchange for, any such convertible
or exchangeable securities or upon the exercise of options to purchase, or
rights to subscribe for, such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have been issued at
the time such securities were issued or such options or rights were issued and
for a consideration equal to the consideration received by the Corporation for
any such securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(determined in the manner provided in Sections A.7(d)(i)(a) and (b) hereof);
(3) if there is any decrease in the conversion or
exercise price of, or any increase in the number of shares to be received upon
exercise, conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series A Preferred Conversion Price shall be
automatically lowered to reflect such change; and
(4) on the expiration of any right or option referred to
in Sections A.7(d)(i)(c)(1) or (2) hereof or on the termination of any right to
convert or exchange any convertible or exchangeable securities referred to in
Section A.7(d)(i)(c)(2) hereof, the Series A Preferred Conversion Price then in
effect shall thereupon be readjusted to the Series A Preferred Conversion Price
as would have been in effect had the adjustment made upon the granting or
issuance of such rights or options or convertible or exchangeable securities
been made upon the basis of the issuance or sale of only the number of shares of
Common Stock actually issued upon the exercise of such options or rights or upon
the conversion or exchange of such convertible or exchangeable securities.
(ii) If the Corporation shall at any time after the Series A
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series A Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common
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Stock issuable on conversion of each share of the Series A Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series A Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series A Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series A Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series A
Preferred Conversion Price with respect to the Series A Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series A Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series A Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section A.7(d)(iv)
shall similarly apply to successive Extraordinary Transactions.
(v) All calculations under this Section A.7(d) shall be made to
the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a share,
as the case may be.
(vi) In any case in which the provisions of this Section A.7(d)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of that
event (A) issuing to the holder of any share of Series A Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section A.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series A Preferred Conversion Price shall be
adjusted as provided in Section A.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series A
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series A
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt
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requested, postage prepaid, to each Series A Preferred Stockholder at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section A.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
A.7(d) hereof, the Corporation shall give notice to each Series A Preferred
Stockholder, in the manner set forth in Section A.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series A Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series A Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section A.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series A Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
A Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series A Preferred
Stock.
h. Status of Common Stock. All shares of Common Stock which
may be issued in connection with the conversion provisions set forth herein
will, upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date
or at any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then
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outstanding, voting together as a single class, made, from time to time, at any
date on or after the Series B Preferred Fifth Anniversary Date or upon the
declaration of an Event of Noncompliance, the Corporation shall redeem (unless
otherwise prevented by law) all of the shares of Series A, Series B and Series D
Preferred Stock, at a redemption price per share for each such series of Series
Preferred Stock equal to (i) the Series A Preferred Original Purchase Price, the
Series B Preferred Original Purchase Price or the Series D Preferred Original
Purchase Price, as applicable, plus (ii) an amount equal to any accrued but
unpaid cumulative dividends thereon and any declared but unpaid dividends
thereof, and, then, all of the shares of Series C Preferred Stock, at a
redemption price per share for such Series C Preferred Stock equal to (i) the
Series C Preferred Original Purchase Price plus (ii) an amount equal to any
accrued but unpaid dividends thereon and any declared but unpaid dividends
thereon. For purposes of determining whether the requisite 75% of the holders of
Series A, Series B, Series C and Series D Preferred Stock are participating in
the Redemption Notice, each share of issued and outstanding Series A, Series B,
Series C and Series D Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series A, Series B, Series C and Series D Preferred Stock is
then convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any Series A
Preferred Stockholder with respect to the shares of Series A Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series A Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section A.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series A, Series B and
Series D Preferred Stock entitled to redemption for any reason, the redemption
of the Series A, Series B and Series D Preferred Stock shall be pro rata based
upon the total amount that would be paid by the Corporation to each Series A,
Series B and Series D Preferred Stockholder if all of the shares of Series A,
Series B and Series D Preferred Stock were fully redeemed pursuant to Sections
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A.8(a), B.8(a) and D.8(a) hereof. At any time on or after the Redemption Date,
the holders of the Series A Preferred Stock shall be entitled to receive the
Redemption Payment for each of the shares of Series A Preferred Stock held by
such holder which are to be redeemed by the Corporation upon actual delivery to
the Corporation or its transfer agent of the certificate(s) representing the
shares to be redeemed. Upon redemption of only a portion of the number of
shares covered by a Series A Preferred Stock certificate, the Corporation shall
issue and deliver to or upon the written order of the holder of such Series A
Preferred Stock certificate, at the expense of the Corporation, a new
certificate covering the number of shares of Series A Preferred Stock being
redeemed representing the unredeemed portion of the Series A Preferred Stock
certificate, which new certificate shall entitle the holder thereof to all the
rights, powers and privileges of a holder of such shares.
d. Notwithstanding anything to the contrary contained in this
Section A.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
9. Miscellaneous.
a. Shares of Series A Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series A Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
c. The shares of the Series A Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART B. Series B Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series B Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series B Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series A and Series D Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section B.4 hereof and with respect to
redemption, only to the extent provided in Section B.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A, Series B and Series D Preferred
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Stock, as otherwise approved by the affirmative vote or consent of the holders
of 75% of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together. The Series B Preferred Stock shall have the
following designations, powers, preferences, relative, participating, optional
or other special rights, qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series B Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series B Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series B
Preferred Stock and each outstanding share of the Series A and Series D
Preferred Stock, so that all outstanding shares of Series A, Series B and Series
D Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series B Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series B Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series B Preferred Stock and (B) any cumulative dividends in accordance
with Section B.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series B Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series B Preferred
Stock, so that all outstanding shares of Series B Preferred Stock will
participate ratably with the shares of Common Stock and the shares of each other
class or series of stock ranking pari passu with or junior to the Series B
Preferred Stock in such dividend or distribution. For purposes of determining
its proportional share of the dividend or distribution, each share of the Series
B Preferred Stock and any other applicable class or series of convertible
securities shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series B Preferred Stock will be entitled, pari passu with the
Series A and Series D Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series B Preferred Original Purchase Price (or such
greater amount of dividends as such Series B Preferred Stock would be entitled
to if such Series B Preferred Stock were converted into Common Stock), as
adjusted for any combinations or
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divisions or similar recapitalizations affecting the Series B Preferred Stock
after the Series B Preferred Original Issuance Date, payable on the first day of
January, April, July and October (and any dividends payable to holders of Series
D Preferred Stock which are not paid shall be cumulative). Upon conversion of
any Series B Preferred Stock, all accrued but unpaid cumulative dividends and
any declared but unpaid dividends shall be paid in cash, or in additional shares
of Common Stock at the Series B Preferred Conversion Price then in effect in the
discretion of the Board of Directors; provided that if the conversion takes
place in connection with the Corporation's first Public Offering, then the
additional shares of Common Stock will be at the price per share offered to the
public in the first Public Offering. Nothing in this Section B.3(d) shall be
deemed to limit the rights of the Series B Preferred Stock under Sections B.3(b)
and B.3(c) hereof.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series B
Preferred Stock shall rank (x) pari passu with the Series A and Series D
Preferred Stock, (y) senior and prior to the Series C Preferred Stock and Series
E Preferred Stock (but only to the extent provided in this Section B.4) and (z)
senior and prior to the Common Stock and to all other classes or series of stock
issued by the Corporation, except in the case of a change in the relative
ranking upon Liquidation of the Series A, Series B and Series D Preferred Stock,
as otherwise approved by the affirmative vote or consent of the holders of 75%
of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series B Preferred Stock, the holders of Series B
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series A and Series D Preferred Stockholders, an amount
per share equal to the Series B Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series B Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section B.4(b) hereof and to pay to the Series A and Series
D Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections A.4(b) and D.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have
been made to (i) the Series A, Series B and Series D Preferred Stockholders of
the full amount to
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which they shall be entitled pursuant to Sections A.4(b), B.4(b) and D.4(b)
hereof, respectively, and (ii) the Series C and Series E Preferred Stockholders
of the full amount to which they shall be entitled pursuant to Section C.4(b)
and E.4(b) hereof, respectively, with respect to each other class or series of
capital stock (other than the Series C Preferred Stock, Series E Preferred Stock
and the Common Stock) ranking on Liquidation junior to such Series B Preferred
Stock (in descending order of seniority), the Series A, Series B and Series D
Preferred Stockholders, as a class shall be entitled to receive an amount equal
(and in like kind) to the aggregate preferential amount fixed for each such
junior class or series of capital stock, which amount shall be distributed
ratably among the Series A Preferred Stockholders in an equal amount per share
of the Series A Preferred Stock then outstanding, among the Series B Preferred
Stockholders in an equal amount per share of the Series B Preferred Stock then
outstanding and among the Series D Preferred Stockholders in an equal amount per
share of the Series D Preferred Stock then outstanding. If, upon any
Liquidation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the Series A Preferred Stockholders,
Series B Preferred Stockholders, the Series D Preferred Stockholders, and each
class or series of capital stock (other than the Series C Preferred Stock,
Series E Preferred Stock and the Common Stock) junior to the Series B Preferred
Stock the full amounts to which they shall be entitled pursuant to the
immediately preceding sentence, the Series A, Series B and Series D Preferred
Stockholders shall be entitled to share ratably with each such other class or
series of capital stock in any distribution of assets according to the
respective preferential amounts fixed for the Series A Preferred Stock (pursuant
to Section A.4(b) hereof), the Series B Preferred Stock (pursuant to Section
B.4(b) hereof) and the Series D Preferred Stock (pursuant to Section D.4(b)
hereof) and each such junior class or series of capital stock (pursuant to the
applicable terms thereof), which would be payable in respect of the shares held
by them upon such distribution if all such preferential amounts payable on or
with respect to such shares were paid in full.
e. In the event of any Liquidation, after payment shall have been
made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking senior to the Common Stock, the Series A, Series B and Series D
Preferred Stockholders shall be entitled to share ratably (calculated with
respect to such Series A, Series B and Series D Preferred Stock as provided in
the next sentence) with the holders of Common Stock in all remaining assets of
the Corporation available for distribution to its stockholders. For purposes of
calculating the amount of any payment to be paid pursuant to this Section B.4(e)
upon any such Liquidation, each share of Series A, Series B and Series D
Preferred Stock shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or otherwise
dispose of all or substantially all of the assets of the Corporation, effect any
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is transferred (other than in connection with a
Public Offering), or merge or consolidate with or into any other corporation,
corporations or other entity or entities (other than a merger or
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consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than 75% in
voting power of all of the shares of Series Preferred Stock then outstanding,
voting together as a separate class, made prior to the consummation of such
transaction, the proceeds of or any property deliverable from such transaction
shall be distributed among the holders of the Series Preferred Stock and the
Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4 and E.4
hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for herein
or by law, the Series B Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series B
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series B Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series B Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections A.6(a),
B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting power of
the Series A, Series B, Series C and Series D Preferred Stock, voting together
as a separate class or in such other manner as the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall agree among themselves in
the Stockholders' Agreement, shall have the exclusive right to elect to the
Board of Directors of the Corporation that number of directors which shall be
equal to a majority of the total number of directors on the Board of Directors
at any given time. In any election of Preferred Directors pursuant to this
Section B.6(b) and Sections A.6(b), C.6(b) and
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D.6(b), each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to the number of votes
per share that equals the number of shares of Common Stock (including fractional
shares) into which each such share is then convertible, rounded up to the
nearest one-tenth of a share. The voting rights of the Series A, Series B,
Series C and Series D Preferred Stockholders contained in this Section B.6(b)
and Sections A.6(b), C.6(b) and D.6(b) may be exercised at a special meeting of
the Series Preferred Stockholders called as provided in accordance with the By-
laws of the Corporation, at any annual or special meeting of the Stockholders of
the Corporation, or by written consent of the holders of Series Preferred Stock
in lieu of a meeting. The Preferred Directors elected pursuant to this Section
B.6(b) and Sections A.6(b), C.6(b) and D.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in Sections
A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. Protective Provisions. So long as any Series Preferred Stock is
outstanding, the Corporation shall not, without the written consent in lieu of a
meeting, or the affirmative vote at a meeting called for such purpose, of the
holders of shares representing at least 75% of the combined voting power of the
issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or agree to
authorize or issue any shares of capital stock of the Corporation, any right,
warrant, or option to receive any capital stock, or any security convertible
into or exchangeable for capital stock or any capitalized lease with any equity
feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in any manner,
the number of shares of the Common Stock then outstanding into a different
number of shares, with or without par value, without making the identical change
as a whole in the number of shares of Series Preferred Stock then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
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(iv) sell, abandon, transfer, lease or otherwise dispose of all or
substantially all of the properties or assets of the Corporation or any of its
subsidiaries;
(v) declare or pay any dividend (other than as required by Section
A.3(d) hereof in respect of the Series A Preferred Stock, by Section B.3(d)
hereof in respect of the Series B Preferred Stock and by Section D.3(d) hereof
in respect of the Series D Preferred Stock) or make any distribution (whether in
cash, shares of capital stock of the Corporation, or other property) on shares
of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any subsidiary of
the Corporation to merge or consolidate with or into, any other corporation,
corporations or other entity or entities, or effect any transaction or series of
related transactions in which more than 50% of the voting power of the
Corporation is transferred (other than in connection with a Public Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry out any
partial Liquidation or distribution or transaction in the nature of a partial
Liquidation or distribution;
(viii) increase the number of shares of any series of Preferred Stock
of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital stock as
shares ranking senior to or on parity with the Series Preferred Stock with
respect to rights on Liquidation, redemption or for the payment of any dividend
or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the Certificate
of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws of the
Corporation so as to adversely affect the rights of the holders of the Series
Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise acquire
for value (including through an exchange), or set apart money or other property
for any mandatory purchase or other analogous fund for the redemption, purchase
or acquisition of, any shares of Common Stock, except (a) pursuant to Sections
A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement approved by the
Board of Directors with an officer, director, employee or consultant providing
for the repurchase of any capital stock of the Corporation owned by such
officer, director, employee or consultant at the option of the Corporation,
which is either (A) set forth on Schedule 4.10 of the Series B Stock Purchase
Agreement, or (B) issued pursuant to the Option Plan, as amended, the 1997
Equity Incentive Plan, or any other stock option plan of the Corporation or one
or more amendments to the Option Plan, from and after May 13, 1996, approved by
the Board of Directors and by the holders of 75% of the then issued and
outstanding Series Preferred Stock, voting together as a separate class.
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In any vote or written consent in lieu of a meeting pursuant to this Section
B.6(c) and Sections A.6(c), C.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series B Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series B Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series B
Preferred Stock so converted equal to the quotient of the Series B Preferred
Original Purchase Price divided by the Series B Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series B Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series B Preferred Stock with
respect to Series B Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section B.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section B.7(a)(ii)(c) hereof, shall cease and the shares of Series B Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-
class mail, postage prepaid, to each Series B Preferred Stockholder at such
holder's address appearing on the Corporation's records a copy of (i) each
registration statement filed by the Corporation under the Securities Act and
each amendment thereof and each exhibit and schedule thereto and (ii) each order
of the Securities and Exchange Commission declaring any such registration
statement to be effective.
(c) Holders of Series B Preferred Stock converted
into shares of Common Stock pursuant to this Section B.7 shall be entitled to
payment of any accrued but unpaid cumulative dividend and any declared but
unpaid dividends payable with respect to such shares of Series B Preferred
Stock, up to and including the Conversion Date or the Closing Date, as the case
may be.
b. Mechanics of Conversion.
(i) Any Series B Preferred Stockholder that exercises its
right to convert its shares of Series B Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
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(ii) Each Preferred Certificate shall be accompanied by written
notice stating that such holder elects to convert such shares and stating the
name or names (with address) in which the Common Certificate(s) are to be
issued. Such conversion shall be deemed to have been effected on the date when
the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the Corporation shall
issue and deliver to or upon the written order of such holder, at the place
designated by such holder, the Common Certificate(s) for the number of full
shares of Common Stock to which such holder is entitled and a cash payment for
any fractional interest in a share of Common Stock, as provided in Section
B.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series B Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to be
issued shall be deemed to have become a stockholder of record of Common Stock on
the Conversion Date or the Closing Date, as the case may be, unless the transfer
books of the Corporation are closed on that date, in which event such holder
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open; provided, that the Series B Preferred
Conversion Price shall be that in effect on the Conversion Date or the Closing
Date, as the case may be.
(v) Upon conversion of only a portion of the shares of Series B
Preferred Stock covered by a Preferred Certificate, the Corporation, at its own
expense, shall issue and deliver to or upon the written order of the holder of
such Preferred Certificate, a new certificate representing the number of
unconverted shares of Series B Preferred Stock from the Preferred Certificate so
surrendered.
c. Issuance of Common Stock on Conversion.
(i) If a Series B Preferred Stockholder shall surrender more than
one Preferred Certificate for conversion at any one time, the number of such
shares of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Series B Preferred Stock so
surrendered.
(ii) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series B Preferred Stock. The Corporation shall pay a
cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. Conversion Price; Adjustment. The "Series B Preferred Conversion
Price" with respect to the Series B Preferred Stock shall initially be equal to
the Series B Preferred Original Purchase Price and shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to time
after the Series B Preferred Original Issuance Date, make a Dilutive Issuance,
the Series B Preferred Conversion Price in effect immediately prior to each such
Dilutive Issuance shall automatically be lowered to a price (calculated to the
nearest cent) determined by multiplying the
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Series B Preferred 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 issuance plus (2) the number of shares of Common Stock which the
aggregate consideration received or to be received by the Corporation in such
Dilutive Issuance so issued would purchase at the Series B Preferred Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of such
additional shares of Common Stock so issued in such Dilutive Issuance; provided
that, for the purpose of this Section B.7(d)(i), all shares of Common Stock
issuable upon exercise or conversion of options or convertible securities
outstanding immediately prior to such issuance (other than any additional shares
of Common Stock issuable with respect to shares of Series Preferred Stock,
convertible securities, or outstanding options, warrants or other rights for the
purchase of shares of Common Stock or convertible securities, solely as a result
of either (x) the Dilutive Issuance or (y) the adjustment of the Series B
Preferred Conversion Price (or other conversion ratios applicable to other
Series Preferred Stock and otherwise) resulting from the Dilutive Issuance)
shall be deemed to be outstanding.
For the purposes of any adjustment of the Series B Preferred Conversion Price
pursuant to this Section B.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in whole or in part
for cash, the consideration shall be deemed to be the amount of cash paid
therefor, plus the value of any property other than cash received by the
Corporation as provided in Section B.7(d)(i)(b) hereof, less any discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for consideration in
whole or in part in property or consideration other than cash, the value of such
property or consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Board of Directors of the
Corporation, irrespective of any accounting treatment; provided, however, that
such fair market value shall not exceed the aggregate Current Market Price of
the shares of Common Stock being issued, less any cash consideration paid for
such shares.
(c) In the case of the issuance of (I) options to purchase or rights
to subscribe for Common Stock, (II) securities convertible into or exchangeable
for Common Stock or (III) options to purchase or rights to subscribe for such
convertible or exchangeable securities:
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase, or rights to subscribe
for Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections B.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
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(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of, or in exchange for, any such convertible or
exchangeable securities or upon the exercise of options to purchase, or rights
to subscribe for, such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Corporation for any
such securities and related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(determined in the manner provided in Sections B.7(d)(i)(a) and (b) hereof);
(3) if there is any decrease in the conversion or exercise
price of, or any increase in the number of shares to be received upon exercise,
conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series B Preferred Conversion Price shall be
automatically lowered to reflect such change; and
(4) on the expiration of any right or option referred to in
Sections B.7(d)(i)(c)(1) or (2) hereof or on the termination of any right to
convert or exchange any convertible or exchangeable securities referred to in
Section B.7(d)(i)(c)(2) hereof, the Series B Preferred Conversion Price then in
effect shall thereupon be readjusted to the Series B Preferred Conversion Price
as would have been in effect had the adjustment made upon the granting or
issuance of such rights or options or convertible or exchangeable securities
been made upon the basis of the issuance or sale of only the number of shares of
Common Stock actually issued upon the exercise of such options or rights or upon
the conversion or exchange of such convertible or exchangeable securities.
(ii) If the Corporation shall at any time after the Series B
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series B Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series B Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series B Preferred Original Issuance
Date, the number of shares of Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series B Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series B Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series B Preferred Original Issuance
Date, an Extraordinary Transaction is consummated, the Series B Preferred
Conversion Price with respect to the Series B Preferred Stock outstanding after
the Extraordinary
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Transaction shall be adjusted to provide that the shares of Series B Preferred
Stock outstanding immediately prior to the effectiveness of the Extraordinary
Transaction shall be convertible into the kind and number of shares of stock or
other securities or property of the Corporation or of the corporation resulting
from or surviving such Extraordinary Transaction which the holder of the number
of shares of Common Stock deliverable (immediately prior to the effectiveness of
the Extraordinary Transaction) upon conversion of such Series B Preferred Stock
would have been entitled to receive upon such Extraordinary Transaction. The
provisions of this Section B.7(d)(iv) shall similarly apply to successive
Extraordinary Transactions.
(v) All calculations under this Section B.7(d) shall be made to
the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a share,
as the case may be.
(vi) In any case in which the provisions of this Section B.7(d)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of that
event (A) issuing to the holder of any share of Series B Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section B.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series B Preferred Conversion Price shall be
adjusted as provided in Section B.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series B
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series B
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series B
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section B.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
B.7(d) hereof, the Corporation shall give notice to each Series B Preferred
Stockholder, in the manner set forth in Section B.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series B Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of
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such action or deliverable upon conversion of shares of Series B Preferred
Stock. In the case of any action which would require the fixing of a record
date, such notice shall be given at least ten (10) days prior to the date so
fixed, and in case of all other action, such notice shall be given at least
fifteen (15) days prior to the taking of such proposed action. Failure to give
notice under this Section B.7(e)(ii), or any defect therein, shall not affect
the legality or validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary, stamp
or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series B Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
B Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all times
reserve, free from preemptive rights, out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of Series B Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series B Preferred Stock.
h. Status of Common Stock. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and nonassessable,
free from preemptive rights and free from all taxes, liens or charges with
respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date or at
any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then outstanding, voting
together as a single class, made, from time to time, at any date on or after the
Series B Preferred Fifth Anniversary Date or upon the declaration of an Event of
Noncompliance, the Corporation shall redeem (unless otherwise prevented by law)
all of the shares of Series A, Series B and Series D Preferred Stock, at a
redemption price per share for each such series of Series Preferred Stock equal
to (i) the Series A Preferred Original Purchase Price, the Series B Preferred
Original Purchase Price or Series D Preferred Original Purchase Price, as
applicable, plus (ii) an amount equal to any accrued but unpaid cumulative
dividends thereon and any declared but unpaid dividends thereof, and, then, all
of the shares of Series C Preferred Stock, at a redemption price per share for
such Series C Preferred Stock equal to (i) the Series C Preferred Original
Purchase Price plus (ii) an amount equal to any accrued but unpaid dividends
thereon and any declared but unpaid dividends thereon. For purposes of
determining whether the requisite 75% of the holders of Series A, Series B,
Series C and Series D Preferred Stock are participating in the Redemption
Notice, each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to one vote per share
for
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each share of Common Stock (including fractional shares) into which each
share of Series A, Series B, Series C and Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any Series B
Preferred Stockholder with respect to the shares of Series B Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series B Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section B.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series A, Series B and
Series D Preferred Stock entitled to redemption for any reason, the redemption
of the Series A, Series B and Series D Preferred Stock shall be pro rata based
upon the total amount that would be paid by the Corporation to each Series A,
Series B and Series C Preferred Stockholder if all of the Series A, Series B and
Series C Preferred Stock were fully redeemed pursuant to Sections A.8(a), B.8(a)
and D.8(a) hereof. At any time on or after the Redemption Date, the holders of
the Series B Preferred Stock shall be entitled to receive the Redemption Payment
for each of the shares of Series B Preferred Stock held by such holder which are
to be redeemed by the Corporation upon actual delivery to the Corporation or its
transfer agent of the certificate(s) representing the shares to be redeemed.
Upon redemption of only a portion of the number of shares covered by a Series B
Preferred Stock certificate, the Corporation shall issue and deliver to or upon
the written order of the holder of such Series B Preferred Stock certificate, at
the expense of the Corporation, a new certificate covering the number of shares
of Series B Preferred Stock being redeemed representing the unredeemed portion
of the Series B Preferred Stock certificate, which new certificate shall entitle
the holder thereof to all the rights, powers and privileges of a holder of such
shares.
d. Notwithstanding anything to the contrary contained in this
Section B.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the
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extent that the acquisition thereof would violate any law, statute, rule,
regulation, policy or guideline promulgated by any federal, state, local or
foreign governmental authority applicable to the Corporation, provided that the
Corporation shall use all legally permissible methods in the reduction of
capital and revaluation of assets, including appraisal, in order to obtain a
legal source of funds with which to pay the Redemption Payment and shall acquire
such shares as soon as permitted by applicable laws, statutes, rules,
regulations, policies and guidelines.
9. Miscellaneous.
a. Shares of Series B Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series B Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
c. The shares of the Series B Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART C. Series C Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series C Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series C Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) junior to the Series A,
Series B and Series D Preferred Stock (but, with respect to Liquidation, only to
the extent provided in Sections A.4, B.4, C.4, D.4 and E.4 hereof and with
respect to redemption, only to the extent provided in Sections A.8, B.8, C.8 and
D.8 hereof), (y) pari passu with the Series E Preferred Stock and (z) senior and
prior to the Common Stock and to all other classes or series of stock issued by
the Corporation. The Series C Preferred Stock shall have the following
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series C Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series C Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series C
and each outstanding share of Series E Preferred Stock, so that all outstanding
shares of Series C and Series E Preferred Stock will participate equally with
each other ratably per share.
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b. So long as any Series C Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series C Preferred Stock, unless prior thereto or
simultaneously therewith all dividends and distributions previously declared on
the Series C Preferred Stock shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than (i) on Liquidation, (ii) on the Series A Preferred
Stock pursuant to Section A.3(d) hereof, (iii) on the Series B Preferred Stock
pursuant to Section B.3(d) hereof, or (iv) on the Series D Preferred Stock
pursuant to Section D.3(d) hereof) on the Common Stock or any other class or
series of stock ranking pari passu with or junior to the Series C Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series C Preferred
Stock, so that all outstanding shares of Series C Preferred Stock will
participate ratably with the Common Stock and each other class or series of
stock ranking pari passu with or junior to the Series C Preferred Stock in such
dividend or distribution. For purposes of determining its proportional share of
the dividend or distribution, each share of the Series C Preferred Stock and any
other applicable class or series of convertible securities shall be deemed to be
that number of shares of Common Stock into which such share is then convertible,
rounded to the nearest one-tenth of a share.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series C
Preferred Stock shall rank (x) junior to the Series A, Series B and Series D
Preferred Stock (but only to the extent provided in this Section C.4), (y) pari
passu with the Series E Preferred Stock and (z) senior and prior to the Common
Stock and to all other classes or series of stock issued by the Corporation.
b. Subject to the holders of Series A Preferred Stock set forth
in Section A.4 hereof, the holders of Series B Preferred Stock set forth in
Section B.4 hereof and the holders of Series D Preferred Stock set forth in
Section D.4 hereof, in the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Common Stockholders or any other class or series of stock ranking
on Liquidation junior to the Series C Preferred Stock, the holders of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series E Stockholders, an amount per share equal to the
Series C Preferred Liquidation Preference divided by the number of outstanding
shares of Series C Preferred Stock whether from capital, surplus or earnings,
plus an amount equal to any accrued but unpaid cumulative dividends thereon and
any declared but unpaid dividends thereon.
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c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series C Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section C.4(b) hereof and to pay the Series E Preferred
Stockholders the full amount to which each of them shall be entitled pursuant to
Section E.4(b) hereof, then the Series C and Series E Preferred Stockholders
shall share ratably in any distribution of assets according to the respective
amounts which would be payable to them in respect of the shares of Series C or
Series E Preferred Stock, as the case may be, held upon such distribution if all
amounts payable on or with respect to such shares were paid in full pursuant to
Sections C.4(b) and E.4(b) hereof.
d. In the event of any Liquidation, the Series C Preferred
Stock shall not be entitled to receive any payment of cash or distribution of
property other than as expressly provided in this Section C.4.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, the Series C Preferred Stockholders shall be entitled to vote,
together with the Series A
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Preferred Stockholders, the Series B Preferred Stockholders, the Series D
Preferred Stockholders, the Series E Preferred Stockholders and the Common
Stockholders and any other class or series of stock then entitled to vote, as
one class on all matters as to which Common Stockholders shall be entitled to
vote, in the same manner and with the same effect as the Common Stockholders,
except as otherwise required by the General Corporation Law. In any such vote,
and in any vote or action of the Series C Preferred Stockholders voting together
as a separate class or with the other holders of Series Preferred Stock as a
separate class, each share of issued and outstanding Series C Preferred Stock
shall entitle the holder thereof to one vote per share for each share of Common
Stock (including fractional shares) into which each share of Series C Preferred
Stock is then convertible, rounded to the nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections
A.6(a), B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting
power of the Series A, Series B, Series C and Series D Preferred Stock, voting
together as a separate class or in such other manner as the holders of the
Series A, Series B, Series C and Series D Preferred Stock shall agree among
themselves in the Stockholders' Agreement, shall have the exclusive right to
elect to the Board of Directors of the Corporation that number of directors
which shall be equal to a majority of the total number of directors on the Board
of Directors at any given time. In any election of Preferred Directors pursuant
to this Section C.6(b) and Sections A.6(b), B.6(b) and D.6(b), each share of
issued and outstanding Series A, Series B, Series C and Series D Preferred Stock
shall entitle the holder thereof to the number of votes per share that equals
the number of shares of Common Stock (including fractional shares) into which
each such share is then convertible, rounded up to the nearest one-tenth of a
share. The voting rights of the Series A, Series B, Series C and Series D
Preferred Stockholders contained in this Section C.6(b) and Sections A.6(b),
B.6(b) and D.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
C.6(b) and Sections A.6(b), B.6(b) and D.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
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c. Protective Provisions. So long as any Series Preferred
Stock is outstanding, the Corporation shall not, without the written consent in
lieu of a meeting, or the affirmative vote at a meeting called for such purpose,
of the holders of shares representing at least 75% of the combined voting power
of the issued and outstanding Series A, Series B, Series C, Series D and Series
E Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to receive any capital stock, or any security
convertible into or exchangeable for capital stock or any capitalized lease with
any equity feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in
any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of the Corporation or
any of its subsidiaries;
(v) declare or pay any dividend (other than as required
by Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
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(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
C.6(c) and Sections A.6(c), B.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series C Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series C Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series C
Preferred Stock so converted equal to the quotient of the Series C Preferred
Original Purchase Price divided by the Series C Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series C Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series C Preferred Stock with
respect to Series C Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section C.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section C.7(a)(ii)(c) hereof, shall cease and the shares of Series C Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
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(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series C Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
(c) Holders of Series C Preferred Stock converted into
shares of Common Stock pursuant to this Section C.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series C Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
b. Mechanics of Conversion.
(i) Any Series C Preferred Stockholder that exercises its
right to convert its shares of Series C Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
C.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series C Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to
be issued shall be deemed to have become a stockholder of record of Common Stock
on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
C Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series C Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series C Preferred Stock from the Preferred Certificate
so surrendered.
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c. Issuance of Common Stock on Conversion.
(i) If a Series C Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series C Preferred
Stock so surrendered.
(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series C Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. Conversion Price; Adjustment. The "Series C Preferred
Conversion Price" with respect to the Series C Preferred Stock shall initially
be equal to the Series C Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall at any time after the Series
C Preferred Original Issuance Date fix a record date for the subdivision, split-
up or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series C Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series C Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time after the Series C Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series C Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iii) If, at any time after the Series C Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series C
Preferred Conversion Price with respect to the Series C Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series C Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series C Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section C.7(d)(iii)
shall similarly apply to successive Extraordinary Transactions.
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(iv) All calculations under this Section C.7(d) shall be made to
the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a share,
as the case may be.
(v) In any case in which the provisions of this Section C.7(d)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of that
event (A) issuing to the holder of any share of Series C Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section C.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series C Preferred Conversion Price shall be
adjusted as provided in Section C.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series C
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series C
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series C
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section C.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii) or (iii) of Section
C.7(d) hereof, the Corporation shall give notice to each Series C Preferred
Stockholder, in the manner set forth in Section C.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series C Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series C Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section C.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary, stamp
or other transactional taxes (excluding income taxes) attributable to the
issuance or
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delivery of shares of capital stock of the Corporation upon conversion of any
shares of Series C Preferred Stock; provided, however, that the Corporation
shall not be required to pay any taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificate for such shares
in a name other than that of the holder of the shares of Series C Preferred
Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series C Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series C Preferred
Stock.
h. Status of Common Stock. All shares of Common Stock which
may be issued in connection with the conversion provisions set forth herein
will, upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date
or at any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then outstanding, voting
together as a single class, made, from time to time, at any date on or after the
Series B Preferred Fifth Anniversary Date or upon the declaration of an Event of
Noncompliance, the Corporation shall redeem (unless otherwise prevented by law)
all of the shares of Series A, Series B and Series D Preferred Stock, at a
redemption price per share for each such series of Series Preferred Stock equal
to (i) the Series A Preferred Original Purchase Price, Series B Preferred
Original Purchase Price or the Series D Preferred Original Purchase Price, as
applicable, plus (ii) an amount equal to any accrued but unpaid cumulative
dividends thereon and any declared but unpaid dividends thereof, and, then, all
of the shares of Series C Preferred Stock, at a redemption price per share for
such Series C Preferred Stock equal to (i) the Series C Preferred Original
Purchase Price plus (ii) an amount equal to any accrued but unpaid dividends
thereon and any declared but unpaid dividends thereon. For purposes of
determining whether the requisite 75% of the holders of Series A, Series B,
Series C and Series D Preferred Stock are participating in the Redemption
Notice, each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to one vote per share
for each share of Common Stock (including fractional shares) into which each
share of Series A, Series B, Series C and Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any Series C
Preferred Stockholder with respect to the shares of Series C Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the
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Corporation pays the Redemption Payment, or irrevocably deposits or sets aside
cash in an amount equal to the Redemption Payment; provided, however, that if
the Corporation defaults in the payment of the Redemption Payment, the rights of
the holder with respect to such shares of Series C Preferred Stock shall
continue until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section C.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series C Preferred Stock
entitled to redemption for any reason, the redemption of the Series C Preferred
Stock shall be pro rata based upon the total amount that would be paid by the
Corporation to each Series C Preferred Stockholder if all of the shares of the
Series C Preferred Stock were fully redeemed pursuant to Section C.8(a) hereof.
At any time on or after the Redemption Date, the holders of the Series C
Preferred Stock shall be entitled to receive the Redemption Payment for each of
the shares of Series C Preferred Stock held by such holder which are to be
redeemed by the Corporation upon actual delivery to the Corporation or its
transfer agent of the certificate(s) representing the shares to be redeemed.
Upon redemption of only a portion of the number of shares covered by a Series C
Preferred Stock certificate, the Corporation shall issue and deliver to or upon
the written order of the holder of such Series C Preferred Stock certificate, at
the expense of the Corporation, a new certificate covering the number of shares
of Series C Preferred Stock being redeemed representing the unredeemed portion
of the Series C Preferred Stock certificate, which new certificate shall entitle
the holder thereof to all the rights, powers and privileges of a holder of such
shares.
d. Notwithstanding anything to the contrary contained in this
Section C.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
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9. Miscellaneous.
a. Shares of Series C Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series C Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
c. The shares of the Series C Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART D. Series D Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series D Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series D Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series A and Series B Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section D.4 hereof and with respect to
redemption, only to the extent provided in Section D.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A Preferred Stock, the Series B Preferred Stock and the Series D
Preferred Stock, as otherwise approved by the affirmative vote or consent of the
holders of 75% of the issued and outstanding shares of Series A, Series B and
Series D Preferred Stock voting together. The Series D Preferred Stock shall
have the following designations, powers, preferences, relative, participating,
optional or other special rights, qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series D Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series D Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series D
Preferred Stock and each outstanding share of Series A and Series B Preferred
Stock, so that all outstanding shares of Series A, Series B and Series D
Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series D Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series D Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions
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previously declared on the Series D Preferred Stock and (B) any cumulative
dividends in accordance with Section D.3(d) hereof shall have been paid or the
Corporation shall have irrevocably deposited or set aside cash or United States
Obligations sufficient for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series D Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series D Preferred
Stock, so that all outstanding shares of Series D Preferred Stock will
participate ratably with the shares of Common Stock and the shares of each other
class or series of stock ranking pari passu with or junior to the Series D
Preferred Stock in such dividend or distribution. For purposes of determining
its proportional share of the dividend or distribution, each share of the Series
D Preferred Stock and any other applicable class or series of convertible
securities shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series D Preferred Stock will be entitled, pari passu with the
Series A and Series B Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series D Preferred Original Purchase Price (or such
greater amount of dividends as such Series D Preferred Stock would be entitled
to if such Series D Preferred Stock were converted into Common Stock), as
adjusted for any combinations or divisions or similar recapitalizations
affecting the Series D Preferred Stock after the Series D Preferred Original
Issuance Date, payable on the first day of January, April, July and October (and
any dividends payable to holders of Series D Preferred Stock which are not paid
shall be cumulative). Upon conversion of any Series D Preferred Stock, all
accrued but unpaid cumulative dividends and any declared but unpaid dividends
shall be paid in cash, or in additional shares of Common Stock at the Series D
Preferred Conversion Price then in effect in the discretion of the Board of
Directors; provided that if the conversion takes place in connection with the
Corporation's first Public Offering, then the additional shares of Common Stock
will be at the price per share offered to the public in the first Public
Offering. Nothing in this Section D.3(d) shall be deemed to limit the rights of
the Series D Preferred Stock under Sections D.3(b) and D.3(c) hereof.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series D
Preferred Stock shall rank (x) pari passu with the Series A and Series B
Preferred Stock, (y) senior and prior to the Series C Preferred Stock and Series
E Preferred Stock (but only to the extent provided in this Section D.4) and (z)
senior and prior to the Common Stock and to all other classes or series of stock
issued by the Corporation, except in the case of a change in the relative
ranking upon Liquidation of the Series A, Series B and Series D Preferred Stock,
as otherwise approved by the
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affirmative vote or consent of the holders of 75% of the issued and outstanding
shares of Series A, Series B and Series D Preferred Stock voting together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series D Preferred Stock, the holders of Series D
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series A and Series B Preferred Stockholders, an amount
per share equal to the Series D Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series D Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section D.4(b) hereof and to pay to the Series A and Series
B Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections A.4(b) and B.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have
been made to (i) the Series A, Series B and Series D Preferred Stockholders of
the full amount to which they shall be entitled pursuant to Sections A.4(b),
B.4(b) and D.4(b) hereof, respectively, and (ii) the Series C and Series E
Preferred Stockholders of the full amount to which they shall be entitled
pursuant to Section C.4(b) and E.4(b) hereof, respectively, with respect to each
other class or series of capital stock (other than the Series C Preferred Stock,
Series E Preferred Stock and the Common Stock) ranking on Liquidation junior to
such Series D Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class, shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding and among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series D
Preferred Stockholders and each class or series of capital stock (other than the
Series C Preferred Stock, and Series E Preferred Stock and the Common Stock)
junior to the Series D Preferred Stock the full amounts to which they shall be
entitled pursuant to the immediately preceding sentence, the Series A, Series B
and Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series
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A Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof), and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
e. In the event of any Liquidation, after payment shall have
been made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking senior to the Common Stock, the Series A, Series B and Series D
Preferred Stockholders shall be entitled to share ratably (calculated with
respect to such Series A, Series B and Series D Preferred Stock as provided in
the next sentence) with the holders of Common Stock in all remaining assets of
the Corporation available for distribution to its stockholders. For purposes of
calculating the amount of any payment to be paid pursuant to this Section D.4(e)
upon any such Liquidation, each share of Series A, Series B and Series D
Preferred Stock shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance
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with the By-laws of the Corporation or by written consent of the holders of
Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, the Series D Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series D
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series D Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series D Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections
A.6(a), B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting
power of the Series A, Series B, Series C and Series D Preferred Stock, voting
together as a separate class or in such other manner as the holders of the
Series A, Series B, Series C and Series D Preferred Stock shall agree among
themselves in the Stockholders' Agreement, shall have the exclusive right to
elect to the Board of Directors of the Corporation that number of directors
which shall be equal to a majority of the total number of directors on the Board
of Directors at any given time. In any election of Preferred Directors pursuant
to this Section D.6(b) and Sections A.6(b), B.6(b) and C.6(b), each share of
issued and outstanding Series A, Series B, Series C and Series D Preferred Stock
shall entitle the holder thereof to the number of votes per share that equals
the number of shares of Common Stock (including fractional shares) into which
each such share is then convertible, rounded up to the nearest one-tenth of a
share. The voting rights of the Series A, Series B, Series C and Series D
Preferred Stockholders contained in this Section D.6(b) and Sections A.6(b),
B.6(b) and C.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
D.6(b) and Sections A.6(b), B.6(b) and C.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained
in Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
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(iii) A vacancy in the directorships to be elected
pursuant to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and
D.6(b)(i)-(ii) hereof (including any vacancy created on account of an increase
in the number of directors on the Board of Directors) may be filled only by vote
at a meeting called in accordance with the By-laws of the Corporation or written
consent in lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i),
C.6(b)(i) and D.6(b)(i) hereof or, with respect to a Preferred Director, as
provided for in the Stockholders' Agreement.
c. Protective Provisions. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to receive any capital stock, or any security
convertible into or exchangeable for capital stock or any capitalized lease with
any equity feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination
in any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever,
the designations, powers, preferences, relative, participating, optional or
other special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise
dispose of all or substantially all of the properties or assets of the
Corporation or any of its subsidiaries;
(v) declare or pay any dividend (other than as
required by Section A.3(d) hereof in respect of the Series A Preferred Stock, by
Section B.3(d) hereof in respect of the Series B Preferred Stock and by Section
D.3(d) hereof in respect of the Series D Preferred Stock) or make any
distribution (whether in cash, shares of capital stock of the Corporation, or
other property) on shares of its capital stock other than the Series Preferred
Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or
carry out any partial Liquidation or distribution or transaction in the nature
of a partial Liquidation or distribution;
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(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-
laws of the Corporation so as to adversely affect the rights of the holders of
the Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or
otherwise acquire for value (including through an exchange), or set apart money
or other property for any mandatory purchase or other analogous fund for the
redemption, purchase or acquisition of, any shares of Common Stock, except (a)
pursuant to Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any
agreement approved by the Board of Directors with an officer, director, employee
or consultant providing for the repurchase of any capital stock of the
Corporation owned by such officer, director, employee or consultant at the
option of the Corporation, which is either (A) set forth on Schedule 4.10 of the
Series B Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as
amended prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other
stock option plan of the Corporation or one or more amendments to the Option
Plan, from and after May 13, 1996, approved by the Board of Directors and by the
holders of 75% of the then issued and outstanding Series Preferred Stock, voting
together as a separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
D.6(c) and Sections A.6(c), B.6(c), C.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series D Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series D Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series D
Preferred Stock so converted equal to the quotient of the Series D Preferred
Original Purchase Price divided by the Series D Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series D Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of
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Series D Preferred Stock with respect to Series D Preferred Stock, except the
right to receive shares of Common Stock in accordance with this Section
D.7(a)(ii)(a) and any accrued but unpaid dividends and any declared but unpaid
dividends as in accordance with Section D.7(a)(ii)(c) hereof, shall cease and
the shares of Series D Preferred Stock shall no longer be deemed to be
outstanding, whether or not the Corporation has received the certificates
representing such shares.
(b) The Corporation shall promptly send by
first-class mail, postage prepaid, to each Series D Preferred Stockholder at
such holder's address appearing on the Corporation's records a copy of (i) each
registration statement filed by the Corporation under the Securities Act and
each amendment thereof and each exhibit and schedule thereto and (ii) each order
of the Securities and Exchange Commission declaring any such registration
statement to be effective.
(c) Holders of Series D Preferred Stock
converted into shares of Common Stock pursuant to this Section D.7 shall be
entitled to payment of any accrued but unpaid cumulative dividend and any
declared but unpaid dividends payable with respect to such shares of Series D
Preferred Stock, up to and including the Conversion Date or the Closing Date, as
the case may be.
b. Mechanics of Conversion.
(i) Any Series D Preferred Stockholder that exercises
its right to convert its shares of Series D Preferred Stock into Common Stock
shall deliver the Preferred Certificate, duly endorsed or assigned in blank to
the Corporation, during regular business hours, at the office of the transfer
agent of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such holder,
at the place designated by such holder, the Common Certificate(s) for the number
of full shares of Common Stock to which such holder is entitled and a cash
payment for any fractional interest in a share of Common Stock, as provided in
Section D.7(c) hereof, and for any accrued but unpaid cumulative dividends and
any declared but unpaid dividends, payable with respect to the converted shares
of Series D Preferred Stock, up to and including the Conversion Date or the
Closing Date, as the case may be.
(iv) The person in whose name each Common Certificate
is to be issued shall be deemed to have become a stockholder of record of Common
Stock on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open;
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provided, that the Series D Preferred Conversion Price shall be that in effect
on the Conversion Date or the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series D Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series D Preferred Stock from the Preferred Certificate
so surrendered.
c. Issuance of Common Stock on Conversion.
(i) If a Series D Preferred Stockholder shall
surrender more than one Preferred Certificate for conversion at any one time,
the number of such shares of Common Stock issuable upon conversion thereof shall
be computed on the basis of the aggregate number of shares of Series D Preferred
Stock so surrendered.
(ii) No fractional shares of Common Stock shall be
issued upon conversion of shares of Series D Preferred Stock. The Corporation
shall pay a cash adjustment for such fractional interest in an amount equal to
the then Current Market Price of a share of Common Stock multiplied by such
fractional interest.
d. Conversion Price; Adjustment. The "Series D Preferred
Conversion Price" with respect to the Series D Preferred Stock shall initially
be equal to the Series D Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time
to time after the Series D Preferred Original Issuance Date, make a Dilutive
Issuance, the Series D Preferred Conversion Price in effect immediately prior to
each such Dilutive Issuance shall automatically be lowered to a price
(calculated to the nearest cent) determined by multiplying the Series D
Preferred 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
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation in such Dilutive
Issuance so issued would purchase at the Series D Preferred Conversion Price;
and (B) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of such
additional shares of Common Stock so issued in such Dilutive Issuance; provided
that, for the purpose of this Section D.7(d)(i), all shares of Common Stock
issuable upon exercise or conversion of options or convertible securities
outstanding immediately prior to such issuance (other than any additional shares
of Common Stock issuable with respect to shares of Series Preferred Stock,
convertible securities, or outstanding options, warrants or other rights for the
purchase of shares of Common Stock or convertible securities, solely as a result
of either (x) the Dilutive Issuance or (y) the adjustment of the Series D
Preferred Conversion Price (or other conversion ratios applicable to other
Series Preferred Stock and otherwise) resulting from the Dilutive Issuance)
shall be deemed to be outstanding.
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For the purposes of any adjustment of the Series D Preferred Conversion Price
pursuant to this Section D.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock
in whole or in part for cash, the consideration shall be deemed to be the amount
of cash paid therefor, plus the value of any property other than cash received
by the Corporation as provided in Section D.7(d)(i)(b) hereof, less any
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
(b) In the case of the issuance of Common Stock
for consideration in whole or in part in property or consideration other than
cash, the value of such property or consideration other than cash shall be
deemed to be the fair market value thereof as determined in good faith by the
Board of Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
(c) In the case of the issuance of (I) options
to purchase or rights to subscribe for Common Stock, (II) securities convertible
into or exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options to purchase, or
rights to subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in Sections D.7(d)(i)(a) and
(b) hereof, if any, received by the Corporation upon the issuance of such
options or rights plus the minimum purchase price provided in such options or
rights for the Common Stock covered thereby;
(2) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of, or in exchange for, any
such convertible or exchangeable securities or upon the exercise of options to
purchase, or rights to subscribe for, such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (determined in the manner provided in Sections D.7(d)(i)(a) and (b)
hereof);
(3) if there is any decrease in the
conversion or exercise price of, or any increase in the number of shares to be
received upon exercise, conversion or exchange of any such options, rights or
convertible or exchangeable securities (other than a change resulting from the
antidilution provisions thereof), the Series D Preferred Conversion Price shall
be automatically lowered to reflect such change; and
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(4) on the expiration of any right or option referred
to in Sections D.7(d)(i)(c)(1) or (2) hereof or on the termination of any right
to convert or exchange any convertible or exchangeable securities referred to in
Section D.7(d)(i)(c)(2) hereof, the Series D Preferred Conversion Price then in
effect shall thereupon be readjusted to the Series D Preferred Conversion Price
as would have been in effect had the adjustment made upon the granting or
issuance of such rights or options or convertible or exchangeable securities
been made upon the basis of the issuance or sale of only the number of shares of
Common Stock actually issued upon the exercise of such options or rights or upon
the conversion or exchange of such convertible or exchangeable securities.
(ii) If the Corporation shall at any time after the Series
D Preferred Original Issuance Date fix a record date for the subdivision, split-
up or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series D Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series A Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series D Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series D Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series D Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series D Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series D
Preferred Conversion Price with respect to the Series D Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series D Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series D Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section D.7(d)(iv)
shall similarly apply to successive Extraordinary Transactions.
(v) All calculations under this Section D.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(vi) In any case in which the provisions of this Section
D.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series D Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
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the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section D.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series D Preferred Conversion Price shall
be adjusted as provided in Section D.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series D
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series D
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series D
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section D.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
D.7(d) hereof, the Corporation shall give notice to each Series D Preferred
Stockholder, in the manner set forth in Section D.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series D Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series D Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section D.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series D Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
D Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common
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Stock, solely for the purpose of effecting the conversion of the shares of
Series D Preferred Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series D Preferred Stock.
h. Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date
or at any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then outstanding, voting
together as a single class, made, from time to time, at any date on or after the
Series B Preferred Fifth Anniversary Date or upon the declaration of an Event of
Noncompliance, the Corporation shall redeem (unless otherwise prevented by law)
all of the shares of Series A, Series B and Series D Preferred Stock, at a
redemption price per share for each such series of Series Preferred Stock equal
to (i) the Series A Preferred Original Purchase Price, the Series B Preferred
Original Purchase Price or the Series D Preferred Original Purchase Price, as
applicable, plus (ii) an amount equal to any accrued but unpaid cumulative
dividends thereon and any declared but unpaid dividends thereof, and, then, all
of the shares of Series C Preferred Stock, at a redemption price per share for
such Series C Preferred Stock equal to (i) the Series C Preferred Original
Purchase Price plus (ii) an amount equal to any accrued but unpaid dividends
thereon and any declared but unpaid dividends thereon. For purposes of
determining whether the requisite 75% of the holders of Series A, Series B,
Series C and Series D Preferred Stock are participating in the Redemption
Notice, each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to one vote per share
for each share of Common Stock (including fractional shares) into which each
share of Series A, Series B, Series C and Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any Series D
Preferred Stockholder with respect to the shares of Series D Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series D Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section D.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the
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Corporation. The Corporation shall fix a date for redemption which shall not be
more than 60 days after the receipt of Redemption Notices from the Requesting
Holders. Not less than 45 days prior to the Redemption Date, written notice
shall be mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Series A, Series B, Series C and Series D Preferred Stock, at the
address last shown on the records of the Corporation for such holder or given by
the holder to the Corporation for the purpose of notice, notifying such holder
of the redemption to be effected, the Redemption Date fixed, the Redemption
Payment, the place at which payment may be obtained and the date on which such
holder's conversion rights as to such shares terminate and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, such holder's certificate or certificates representing the shares to
be redeemed. In the event of only a partial redemption of the outstanding shares
of the Series A, Series B and Series D Preferred Stock entitled to redemption
for any reason, the redemption of the Series A, Series B and Series D Preferred
Stock shall be pro rata based upon the total amount that would be paid by the
Corporation to each Series A, Series B and Series D Preferred Stockholder if all
of the shares of Series A, Series B and Series D Preferred Stock were fully
redeemed pursuant to Sections A.8(a), B.8(a) and D.8(a) hereof. At any time on
or after the Redemption Date, the holders of the Series D Preferred Stock shall
be entitled to receive the Redemption Payment for each of the shares of Series D
Preferred Stock held by such holder which are to be redeemed by the Corporation
upon actual delivery to the Corporation or its transfer agent of the
certificate(s) representing the shares to be redeemed. Upon redemption of only a
portion of the number of shares covered by a Series D Preferred Stock
certificate, the Corporation shall issue and deliver to or upon the written
order of the holder of such Series D Preferred Stock certificate, at the expense
of the Corporation, a new certificate covering the number of shares of Series D
Preferred Stock being redeemed representing the unredeemed portion of the Series
D Preferred Stock certificate, which new certificate shall entitle the holder
thereof to all the rights, powers and privileges of a holder of such shares.
d. Notwithstanding anything to the contrary contained in this
Section D.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
9. Miscellaneous.
a. Shares of Series D Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series D Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
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c. The shares of the Series D Preferred Stock shall not
have any preferences, voting powers or relative, participating, optional,
preemptive or other special rights except as set forth above in this Seventh
Restated Certificate of Incorporation of the Corporation.
PART E. Series E Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series E Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series E Preferred Stock shall rank,
as to dividends and upon Liquidation, (x) junior to the Series A, Series B and
Series D Preferred Stock (but, with respect to Liquidation, only to the extent
provided in Section A.4, B.4, C.4, D.4 and E.4 hereof), (y) pari passu with the
Section C Preferred Stock and (z) senior and prior to the Common Stock and to
all other classes or series of stock issued by the Corporation. The Series E
Preferred Stock shall have the following designations, powers, preferences,
relative, participating, optional or other special rights, qualifications,
limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series E Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series E Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series E
and each outstanding share of the Series C Preferred Stock, so that all
outstanding shares of Series E and Series C Preferred Stock will participate
equally with each other ratably per share.
b. So long as any Series E Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series E Preferred Stock, unless prior thereto or
simultaneously therewith all dividends and distributions previously declared on
the Series E Preferred Stock shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than (i) on Liquidation, (ii) on the Series A Preferred
Stock pursuant to Section A.3(d) hereof, (iii) on the Series B Preferred Stock
pursuant to Section B.3(d) hereof, or (iv) on the Series D Preferred Stock
pursuant to Section D.3(d) hereof) on the Common Stock or any other class or
series of stock ranking pari passu with or junior to the Series E Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series E Preferred
Stock, so
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that all outstanding shares of Series E Preferred Stock will participate ratably
with the Common Stock and each other class or series of stock ranking pari passu
with or junior to the Series E Preferred Stock in such dividend or distribution.
For purposes of determining its proportional share of the dividend or
distribution, each share of the Series E Preferred Stock and any other
applicable class or series of convertible securities shall be deemed to be that
number of shares of Common Stock into which such share is then convertible,
rounded to the nearest one-tenth of a share.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series E
Preferred Stock shall rank (x) junior to the Series A, Series B and Series D
Preferred Stock (but only to the extent provided in this Section E.4), (y) pari
passu with the Series C Preferred Stock and (z) senior and prior to the Common
Stock and to all other classes or series of stock issued by the Corporation.
b. Subject to the rights of the holders of Series A Preferred
Stock set forth in Section A.4 hereof, the holders of Series B Preferred Stock
set forth in Section B.4 hereof, the holders of Series C Preferred Stock set
forth in Section C.4 hereof and the holders of Series D Preferred Stock set
forth in Section D.4 hereof, in the event of any Liquidation, whether voluntary
or involuntary, before any payment of cash or distribution of other property
shall be made to the Common Stockholders or any other class or series of stock
ranking on Liquidation junior to the Series E Preferred Stock, the holders of
Series E Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series C Stockholders, an amount per share equal to the
Series E Preferred Liquidation Preference whether from capital, surplus or
earnings, plus an amount equal to any accrued but unpaid cumulative dividends
thereon and any declared but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series E Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section E.4(b) hereof and to pay the Series C Preferred
Stockholders the full amount to which each of them shall be entitled pursuant to
Section C.4(b) hereof, then the Series E and Series C Preferred Stockholders
shall share ratably in any distribution of assets according to the respective
amounts which would be payable to them in respect of the shares of Series E or
Series C Preferred Stock, as the case may be, held upon such distribution if all
amounts payable on or with respect to such shares were paid in full pursuant to
Sections E.4(b) and C.4(b) hereof.
d. In the event of any Liquidation, the Series E Preferred
Stock shall not be entitled to receive any payment of cash or distribution of
property other than as expressly provided in this Section E.4.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is
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transferred (other than in connection with a Public Offering), or merge or
consolidate with or into any other corporation, corporations or other entity or
entities (other than a merger or consolidation in which the Series Preferred
Stockholders receive securities of the surviving corporation having
substantially similar rights to the Series Preferred Stock and in which the
stockholders of the Corporation immediately prior to such a transaction are
holders of at least a majority of the voting securities of the surviving
corporation immediately thereafter), then the Corporation shall give written
notice to each Series Preferred Stockholder no less than 20 days prior to the
closing of any such transaction notifying the Series Preferred Stockholders of
the terms and timing of the closing of such transaction and of the rights of the
Series Preferred Stockholders under Sections A.5(b), B.5(b), C.5(b), D.5(b) and
E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, except as provided in Section E.6(b) hereof, the Series E
Preferred Stockholders shall be entitled to vote, together with the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series C
Preferred Stockholders, the Series D Preferred Stockholders, the Series E
Preferred Stockholders and the Common Stockholders and any other class or series
of stock then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series E
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series E Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series E Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. Election of Board of Directors. The Series E Preferred
Stockholders shall not have any right to vote for the election of members to the
Board of Directors of the Corporation.
c. Protective Provisions. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at
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least 75% of the combined voting power of the issued and outstanding Series A,
Series B, Series C, Series D and Series E Preferred Stock, voting together as a
single class:
(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to receive any capital stock, or any security
convertible into or exchangeable for capital stock or any capitalized lease with
any equity feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in
any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of the Corporation or
any of its subsidiaries;
(v) declare or pay any dividend (other than as required
by Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
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(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
E.6(c) and Sections A.6(c), B.6(c), C.6(c) and D.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series E Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series E Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series E
Preferred Stock so converted equal to the quotient of the Series E Preferred
Original Purchase Price divided by the Series E Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series E Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series E Preferred Stock with
respect to Series E Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section E.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section E.7(a)(ii)(c) hereof, shall cease and the shares of Series E Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series E Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation
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under the Securities Act and each amendment thereof and each exhibit and
schedule thereto and (ii) each order of the Securities and Exchange Commission
declaring any such registration statement to be effective.
(c) Holders of Series E Preferred Stock converted into
shares of Common Stock pursuant to this Section E.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series E Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
b. Mechanics of Conversion.
(i) Any Series E Preferred Stockholder that exercises its
right to convert its shares of Series E Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
E.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series E Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to
be issued shall be deemed to have become a stockholder of record of Common Stock
on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
E Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series E Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series E Preferred Stock from the Preferred Certificate
so surrendered.
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c. Issuance of Common Stock on Conversion.
(i) If a Series E Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series E Preferred
Stock so surrendered.
(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series E Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. Conversion Price; Adjustment. The "Series E Preferred
Conversion Price" with respect to the Series E Preferred Stock shall initially
be equal to the Series E Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall at any time after the Series
E Preferred Original Issuance Date fix a record date for the subdivision, split-
up or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series E Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series E Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time after the Series E Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series E Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series E Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iii) If, at any time after the Series E Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series E
Preferred Conversion Price with respect to the Series E Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series E Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series E Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section E.7(d)(iii)
shall similarly apply to successive Extraordinary Transactions.
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(iv) All calculations under this Section E.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(v) In any case in which the provisions of this Section
E.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series E Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section E.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series E Preferred Conversion Price
shall be adjusted as provided in Section E.7(d) hereof, the Corporation shall
file, at its principal office, at the office of the transfer agent for the
Series E Preferred Stock, if any, or at such other place as may be designated by
the Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series E
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series E
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section E.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii) or (iii) of Section
E.7(d) hereof, the Corporation shall give notice to each Series E Preferred
Stockholder, in the manner set forth in Section E.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series E Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series E Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section E.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or
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delivery of shares of capital stock of the Corporation upon conversion of any
shares of Series E Preferred Stock; provided, however, that the Corporation
shall not be required to pay any taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificate for such shares
in a name other than that of the holder of the shares of Series E Preferred
Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series E Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series E Preferred
Stock.
h. Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Miscellaneous.
a. Shares of Series E Preferred Stock are not entitled to a
right of redemption by the Company.
b. Shares of Series E Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
c. The shares of the Series E Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART F. Common Stock.
1. Common Stock.
a. Voting. Each holder of Common Stock shall be entitled to one
vote for each share of Common Stock held of record on all matters as to which
holders of Common Stock shall be entitled to vote, which voting rights shall not
be cumulative. In any election of directors, no holder of Common Stock shall be
entitled to more than one (1) vote per share.
b. Other Rights. Each share of Common Stock issued and
outstanding shall be identical in all respects with each other such share, and
no dividends shall be paid on any shares of Common Stock unless the same
dividend is paid on all shares of Common Stock outstanding at the time of such
payment. Except for and subject to those rights expressly granted to the holders
of any class or series of capital stock having a preference over the Common
Stock and except as may be provided by the laws of the State of Delaware, the
holders of Common Stock shall have all other rights of stockholders, including,
without limitation, (a) the right to receive dividends, when and as declared by
the Board of Directors, out of assets
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lawfully available therefor, and (b) in the event of any distribution of assets
upon a Liquidation, the right to receive ratably and equally along with the
holders of the Series A Preferred Stock in accordance with Section A.4 hereof,
the holders of the Series B Preferred Stock in accordance with Section B.4
hereof, the holders of the Series D Preferred Stock in accordance with Section
D.4 hereof, and the holders of any other capital stock then entitled to
participate, all the assets and funds of the Corporation remaining after the
payment of all claims and obligations of the Corporation, as provided by the
General Corporation Law.
PART G. Definitions.
1. As used in Article III of this Seventh Restated Certificate of
Incorporation, the following terms shall have the meanings provided therefor
below or elsewhere in this Seventh Restated Certificate of Incorporation as
referred to below:
"Closing Date" shall mean the date of the closing of the Corporation's
first Public Offering.
"Common Certificate" shall mean the certificate(s) for the shares of
Common Stock issued upon the conversion of Series Preferred Stock.
"Common Stock" shall have the meaning set forth Section 1 of this
Article III.
"Common Stockholders" shall mean the holders of Common Stock.
"Conversion Date" shall mean the date on which any Series Preferred
Stockholder delivers a Preferred Certificate for conversion into Common Stock in
accordance with Sections A.7(b)(ii), B.7(b)(ii), C.7(b)(ii), D.7(b)(ii) or
E.7(b)(ii) hereof.
"Current Market Price" of one share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for the thirty (30)
consecutive business days ending on the fifth (5th) business day before the day
in question (as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such thirty (30) business day period)
as follows:
a. If the Common Stock is listed or admitted for trading on a
national securities exchange, the closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading.
b. If the Common Stock is not at the time listed or admitted
for trading on any such exchange, then such price as shall be equal to the last
reported sale price, or, if there is no such sale price, the average of the last
reported bid and asked prices, as reported by the Nasdaq on such day.
c. If, on any day in question, the security shall not be listed
or admitted to trading on a national securities exchange or quoted on the
Nasdaq, then such price shall be equal to the last reported bid and asked prices
on such day as reported by the National
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Quotation Bureau, Inc. or any similar reputable quotation and reporting service,
if such quotation is not reported by the National Quotation Bureau, Inc.
d. If the Common Stock is not traded in such manner that the
quotations referred to in this definition are available for the period required
hereunder, the Current Market Price shall be determined by the Board of
Directors of the Corporation.
"Dilutive Issuance" shall mean an issuance of any shares of Common
Stock (which term, for purposes of this definition, shall be deemed to include
all other securities convertible into, or exchangeable or exercisable for,
shares of Common Stock (including, but not limited to, Series Preferred Stock)
or options to purchase or other rights to subscribe for such convertible or
exchangeable securities), other than Excluded Stock, for a consideration per
share less than the applicable Series A Preferred Conversion Price, Series B
Preferred Conversion Price or Series D Preferred Conversion Price in effect
immediately prior to the issuance of such Common Stock or other securities.
"Event of Noncompliance" shall be as defined in the Stockholders'
Agreement.
"Excluded Stock" shall mean:
a. Common Stock issued upon conversion of any shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock;
b. Securities issued pursuant to the acquisition of another
corporation, partnership, joint venture, trust or other entity by the
Corporation by merger, consolidation, stock acquisition, reorganization, or
otherwise whereby the Corporation, or its shareholders of record immediately
prior to the effectiveness of such transaction, directly or indirectly own at
least the majority of the voting power of such other entity or the resulting or
surviving corporation immediately after such transaction;
c. Common Stock issued to employees, consultants or others who
provide services to the Corporation, pursuant to any options to purchase or
rights to subscribe for such Common Stock granted pursuant to an option or
rights plan, agreement or arrangement approved by the Corporation's Board of
Directors, but not to exceed 19,975,624 shares of Common Stock, giving effect to
appropriate adjustment to prevent dilution thereof;
d. Common Stock issued upon exercise of options granted
pursuant to the Restricted Stock Option Agreements (as defined in the
Stockholders' Agreement);
e. Common Stock issued in transactions described in Sections
A.7(d)(ii)-(iii), B.7(d)(ii)-(iii), C.7(d)(i)-(ii), D.7(d)(ii)-(iii) or
E.7(d)(ii)-(iii) hereof;
f. (i) The warrant issued to Comdisco, Inc. to initially
acquire up to 501,000 shares of Series A Preferred Stock, (ii) up to 501,000
shares of Series A Preferred Stock issuable in connection with the exercise of
the warrant, and (iii) the Common Stock into which such Series A Preferred Stock
is convertible;
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g. The warrants issued to the holders of Series I Preferred
Stock previously issued by the Corporation, in connection with the issuance of
Series I Preferred Stock, to acquire 100,000 shares of Common Stock and the
issuance of the shares of Common Stock in connection with the exercise of the
warrants;
h. The warrants issued to the parties to the Loan Agreement
with the Corporation dated January 12, 1996 to acquire up to 450,000 shares of
Common Stock and the issuance of Common Stock in connection with the exercise of
the warrants;
i. (a) Up to 18,939,394 shares of Series B Preferred Stock
issued pursuant to the Series B Stock Purchase Agreement, (b) up to 5,818,184
shares of Series B Preferred Stock issued pursuant to options therein, and (c)
the Common Stock into which such Series B Preferred Stock is convertible; and
j. (a) Up to 24,809,555 shares of Series D Preferred Stock
issued pursuant to the Series D Stock Purchase Agreement and (b) the Common
Stock into which such Series D Preferred Stock is convertible.
k. (a) Up to 5,555,556 shares of Series E Preferred Stock
issued pursuant to the Series E Stock Purchase Agreement and (b) the Common
Stock into which such Series E Preferred Stock is convertible.
l. Common Stock issued to Novartis Agribusiness Biotechnology
Research, Inc. or its assigns upon the occurrence of an underwritten initial
public offering of the Corporation pursuant to that certain Stock Purchase
Agreement between the Corporation and Novartis Agribusiness Biotechnology
Research, Inc. dated as of the Series E Preferred Original Issuance Date.
"Extraordinary Transaction" shall mean any capital reorganization, or
any reclassification of the capital stock of the Corporation (other than a
change in par value or from par value to no par value or from no par value to
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the Corporation with
or into another corporation (other than a consolidation or merger which has been
treated as a Liquidation under Sections A.5, B.5, C.5, D.5 and E.5 hereof or in
which the Corporation is the continuing corporation and which does not result in
any change in the powers, designations, preferences and rights (or the
qualifications, limitations or restrictions, if any) of the Series Preferred
Stock).
"Liquidation" shall mean any liquidation, dissolution or winding-up of
the affairs of the Corporation.
"Nasdaq" shall mean the National Association of Securities Dealers
Automated Quotations System.
"1997 Equity Incentive Plan" shall mean the Corporation's 1997 Equity
Incentive Plan, as the same may be amended from time to time.
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"Option Plan" shall mean the Corporation's Restated 1994 Employee
Incentive and Non-Qualified Stock Option Plan, as amended.
"Preferred Stock" shall have the meaning set forth Section 1 of this
Article III.
"Preferred Certificate" shall mean the certificate(s) of Series
Preferred Stock delivered for conversion into Common Stock pursuant to Sections
A.7(b)(i), B.7(b)(i), C.7(b)(i), D.7(b)(i) or E.7(b)(i) hereof.
"Preferred Directors" shall mean the directors of the Corporation
which the Series A, Series B, Series C and Series D Preferred Stockholders have
the right to elect pursuant to Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and
D.6(b)(i) hereof.
"Proportional Adjustment" shall mean an adjustment made to the price
of the Series Preferred Stock upon the occurrence of a stock split, reverse
stock split, stock dividend, stock combination, reclassification or other
similar change with respect to such security, such that the price of one share
of the Series Preferred Stock before the occurrence of any such change shall
equal the aggregate price of the share (or shares or fractional share) of such
security (or any other security) received by the holder of the Series Preferred
Stock with respect thereto upon the effectiveness of such change.
"Public Offering" shall mean an Underwritten Offering by the
Corporation of authorized but unissued shares of Common Stock at a price per
share of not less than $3.00 (adjusted to reflect subsequent stock dividends,
stock splits or recapitalizations) resulting in gross proceeds to the
Corporation (before deducting underwriting commissions and expenses of the
offering) of not less than $25,000,000.
"Redemption Date" shall mean the date fixed for any redemption
pursuant to Sections A.8(c), B.8(c), C.8(c) or D.8(c) hereof.
"Redemption Notice" shall mean a request for redemption of the Series
Preferred Stockholders pursuant to Sections A.8(a), B.8(a), C.8(a) or D.8(a)
hereof.
"Redemption Payment" shall mean the redemption payment to which a
Series A Preferred Stockholder is entitled pursuant to Section A.8 hereof, a
Series B Preferred Stockholder is entitled pursuant to Section B.8 hereof, a
Series C Preferred Stockholder is entitled pursuant to Section C.8 hereof or a
Series D Preferred Stockholder is entitled pursuant to Section D.8 hereof.
"Requesting Holders" shall mean the Series Preferred Stockholders
making a request for redemption pursuant to Sections A.8(a), B.8(a), C.8(a) or
D.8(a) hereof.
"Securities Act" shall mean the Securities Act of 1993, as amended,
and the rules and regulations promulgated thereunder.
"Series A Preferred Conversion Price" shall have the meaning set forth
in Section A.7(d) hereof.
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"Series A Preferred Fifth Anniversary Date" shall mean the fifth (5th)
anniversary of the Series A Preferred Original Issuance Date.
"Series A Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series A Preferred Stock.
"Series A Preferred Original Purchase Price" shall mean $1.00 per
share, subject to Proportional Adjustment.
"Series A Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series A Preferred Stockholders" shall mean the holders of the
outstanding shares of Series A Preferred Stock.
"Series B Preferred Conversion Price" shall have the meaning set forth
in Section B.7(d) hereof.
"Series B Preferred Fifth Anniversary Date" shall mean the fifth (5th)
anniversary of the Series B Preferred Original Issuance Date.
"Series B Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series B Preferred Stock.
"Series B Preferred Original Purchase Price" shall mean $0.66 per
share, subject to Proportional Adjustment.
"Series B Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series B Preferred Stockholders" shall mean the holders of the
outstanding shares of Series B Preferred Stock.
"Series B Stock Purchase Agreement" shall mean the Stock Purchase
Agreement for the sale of Series B Preferred Stock dated as of May 13, 1996, as
amended by the Amendment to Stock Purchase Agreement dated as of May 13, 1996.
"Series C Preferred Liquidation Preference" shall mean the fair value,
as determined by the Board of Directors of the Corporation in its reasonable
discretion, of the Corporation's intellectual property rights in the genes and
gene sequences developed by the Corporation pursuant to the Collaboration
Agreement dated as of January 2, 1997, as amended between the Corporation and
Finnfeeds International Limited.
"Series C Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series C Preferred Stock.
"Series C Preferred Original Purchase Price" shall mean $2.25 per
share, subject to Proportional Adjustment.
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"Series C Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series C Preferred Stockholders" shall mean the holders of the
outstanding shares of Series C Preferred Stock.
"Series D Preferred Conversion Price" shall have the meaning set forth
in Section D.7(d) hereof.
"Series D Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series D Preferred Stock.
"Series D Preferred Original Purchase Price" shall mean $0.85 per
share, subject to Proportional Adjustment.
"Series D Preferred Stock" shall have the meaning set forth Section 1
of this Article III.
"Series D Preferred Stockholders" shall mean the holders of the
outstanding shares of Series D Preferred Stock.
"Series D Stock Purchase Agreement" shall mean the Stock Purchase
Agreement and Agreement and Plan of Reorganization for the sale of Series D
Preferred Stock dated as of October 22, 1997.
"Series E Preferred Liquidation Preference" shall mean an amount equal
to the Series D Preferred Original Purchase Price.
"Series E Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series E Preferred Stock.
"Series E Preferred Original Purchase Price" shall mean $2.25 per
share, subject to Proportional Adjustment.
"Series E Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series E Preferred Stockholders" shall mean the holders of the
outstanding shares of Series E Preferred Stock.
"Series Preferred Stock" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock, collectively.
"Series Preferred Stockholders" shall mean the Series A Preferred
Stockholders, the Series B Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders and the Series E Preferred
Stockholders, collectively.
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"Stockholders' Agreement" shall mean the Amended and Restated
Stockholders' Agreement among the Corporation and certain Series Preferred
Stockholders of the Corporation dated as of the Series E Preferred Original
Issuance Date, as may be amended from time to time.
"Underwritten Offering" shall mean a firm commitment offering by one
or more underwriters in an offering registered on Form S-1 under the Securities
Act.
"United States Obligations" shall mean any obligations, the payment of
which is backed by the full faith and credit of the United States.
ARTICLE IV.
Registered Agent
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of the registered agent of the Corporation at
such address is The Corporation Trust Company.
ARTICLE V.
Management and Bylaws
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
PART A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Board of Directors
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of
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the Class II directors shall expire and Class II directors shall be elected for
a full term of three years. At the third annual meeting of stockholders
following the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting. During such time or times that
the corporation is subject to Section 2115(b) of the California General
Corporation Law ("CGCL"), this Section A.2.a of this Article V shall become
effective and be applicable only when the corporation is a "listed" corporation
within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation is unable to have a
classified board under applicable law, Section 301.5 of the CGCL, Section A. 2.
a. of this Article V shall not apply and all directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
c. No stockholder entitled to vote at an election for directors
may cumulate votes to which such stockholder is entitled, unless, at the time of
such election, the corporation (i) is subject to Section 2115(b) of the CGCL and
(ii) is not or ceases to be a "listed" corporation under Section 301.5 of the
CGCL. During this time, every stockholder entitled to vote at an election for
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. Removal of Directors
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire
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number of directors authorized at the time of such director's most recent
election were then being elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the General Corporation Law.
4. Vacancies
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
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PART B.
1. Bylaw Amendments
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws.
Advance notice of stockholder nominations for the election of directors and
of business to be brought by stockholders before any meeting of the stockholders
of the corporation shall be given in the manner provided in the Bylaws of the
corporation.
ARTICLE VI.
Limitation of Liability
PART A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
PART B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
PART C. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
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ARTICLE VII.
Amendment and Repeal
PART A. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, except as provided in paragraph
B. of this Article VII, and all rights conferred upon the stockholders herein
are granted subject to this reservation.
PART B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
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In Witness Whereof, the undersigned has caused this Seventh Restated
Certificate of Incorporation to be duly executed on behalf of the Corporation on
December __, 1998.
Diversa Corporation
By:___________________________________
Jay M. Short, Ph.D.
President and Chief Executive Officer
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EXHIBIT 3.4
Restated Certificate of Incorporation
of
Diversa Corporation
Diversa Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), hereby certifies as follows:
First: The name of the Corporation is Diversa Corporation. A
Certificate of Incorporation of the Corporation was originally filed by the
Corporation with the Secretary of State of Delaware on December 21, 1992. The
Corporation was originally incorporated under the name Industrial Genome
Sciences, Inc.
Second: This Restated Certificate of Incorporation which restates, amends
and supersedes the Certificate of Incorporation of the Corporation as originally
filed and thereafter amended and restated, was duly adopted in accordance with
the provisions of Sections 242 and 245 of the DGCL, and was approved by written
consent of the stockholders of the Corporation given in accordance with the
provisions of Section 228 of the DGCL (prompt notice of such action having been
given to those stockholders who did not consent in writing).
Third: The text of the Certificate of Incorporation of the Corporation is
hereby amended, restated and superseded to read in its entirety as follows:
ARTICLE I.
Name
The name of this corporation is Diversa Corporation.
ARTICLE II.
Purpose
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE III.
Capital Stock
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is seventy million
(70,000,000) shares. Sixty-five million (65,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of one-
tenth of one cent ($.001).
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B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the DGCL, to fix or alter from time
to time the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions of any wholly
unissued series of Preferred Stock, and to establish from time to time the
number of shares constituting any such series or any of them; and to increase or
decrease the number of shares of any series subsequent to the issuance of shares
of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be decreased in
accordance with the foregoing sentence, the shares constituting such decrease
shall resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
ARTICLE IV.
Registered Agent
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of the registered agent of the Corporation at
such address is The Corporation Trust Company.
ARTICLE V.
Management and Bylaws
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Board of Directors
a. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "1993 Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the
2.
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second annual meeting of stockholders following the Initial Public Offering, the
term of office of the Class II directors shall expire and Class II directors
shall be elected for a full term of three years. At the third annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. During such
time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), this Section A.2.a of this Article
V shall become effective and be applicable only when the corporation is a
"listed" corporation within the meaning of Section 301.5 of the CGCL.
b. In the event that the corporation is unable to have a
classified board under applicable law, Section 301.5 of the CGCL, Section A. 2.
a. of this Article V shall not apply and all directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
c. No stockholder entitled to vote at an election for directors
may cumulate votes to which such stockholder is entitled, unless, at the time of
such election, the corporation (i) is subject to Section 2115(b) of the CGCL and
(ii) is not or ceases to be a "listed" corporation under Section 301.5 of the
CGCL. During this time, every stockholder entitled to vote at an election for
directors may cumulate such stockholder's votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which such stockholder's shares are otherwise entitled, or
distribute the stockholder's votes on the same principle among as many
candidates as such stockholder thinks fit. No stockholder, however, shall be
entitled to so cumulate such stockholder's votes unless (i) the names of such
candidate or candidates have been placed in nomination prior to the voting and
(ii) the stockholder has given notice at the meeting, prior to the voting, of
such stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Removal of Directors
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire
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number of directors authorized at the time of such director's most recent
election were then being elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.
4. Vacancies
a. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy by the directors then
in office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
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B.
1. Bylaw Amendments
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
ARTICLE VI.
Limitation of Liability
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
ARTICLE VII.
Amendments and Repeal
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
5.
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B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
6.
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In Witness Whereof, the undersigned has caused this Restated Certificate of
Incorporation to be duly executed on behalf of the Corporation on ______________
_______, 2000.
Diversa Corporation
By:_____________________________________
Jay M. Short, Ph.D.
President and Chief Executive Officer
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EXHIBIT 3.5
RECOMBINANT BIOCATALYSIS, INC.
BY - LAWS/1/
ARTICLE I
OFFICES
Section 1.1 The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware, until otherwise established by the
Board of Directors, and a statement of such change is filed in the manner
provided by statute.
Section 1.2 The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 All meetings of the stockholders shall be held at such time
and place, within or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2 A meeting of stockholders shall be held in each year for the
election of directors at such time and place as the Board of Directors shall
determine. Any other proper business, notice of which was given in the notice of
the meeting or in a duly executed waiver of notice thereof, may be transacted at
the annual meeting. Elections of directors need not be by written ballot, unless
otherwise provided in the certificate of incorporation.
Section 2.3 Unless otherwise provided by law, written notice of the
annual meeting shall be given to each stockholder entitled to vote thereat not
less than ten nor more than sixty days before the date of the meeting.
Section 2.4 The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder during ordinary
business hours, for a period of at least ten days prior to the election, either
at a place within the city, town or village where the election is to be held and
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of election during the whole time
thereof, and subject to the inspection of any stockholder who may be present.
- -------------------------------------
/1/ Amended and restated as of August 14, 1996.
1.
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Section 2.5 Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the President and shall be called by the
President or Secretary at the request in writing of stockholders owning at least
twenty percent in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 2.6 Unless otherwise provided by law, written notice of a
special meeting of stockholders, stating the time, place and object thereof,
shall be given to each stockholder entitled to vote thereat, not less than ten
nor more than sixty days before the date fixed for the meeting.
Section 2.7 Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 2.8 The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.9 When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 2.10 Except as set forth in the Certificate of Incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period, and, except where
the transfer books of the corporation have been closed or a date has been fixed
as a record date for the determination of its stockholders entitled to vote, no
share of stock shall be voted on at any election for directors which has been
transferred on the books of the corporation within twenty days next preceding
such election of directors.
Section 2.11 Any action required to be taken at any annual or special
meeting of stockholders, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
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Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
Section 3.1 The number of directors which shall constitute the whole
board shall be such number as the Board of Directors may determine. Except as
hereinafter provided in Section 3.2 of this Article, the directors, other than
those constituting the first Board of Directors, shall be elected by the
stockholders, and each director shall hold office until his successor is elected
and qualified or until his earlier resignation or removal. Directors need not be
stockholders.
Section 3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director.
Section 3.3 The business of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4 The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 3.5 The first meeting of each newly elected Board of Directors
shall be held immediately after and at the same place as the meeting of the
stockholders at which it was elected and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present.
Section 3.6 Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 3.7 Special meetings of the Board may be called by the President
on twenty-four hours notice to each director, either personally, by telephone,
by mail, by telegram or by telefacsimile; special meetings shall be called by
the President or Secretary in like manner and on like notice on the written
request of two directors.
Section 3.8 At all meetings of the Board a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
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Section 3.9 Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
COMMITTEES OF DIRECTORS
Section 3.10 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. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution or amending the by-laws of the corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
Section 3.11 Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 3.12 The Board of Directors shall have the authority to fix the
compensation of directors.
PARTICIPATION IN MEETING BY TELEPHONE
Section 3.13 Members of the Board of Directors or any committee
designated by such board may participate in a meeting of the Board or of a
committee of the Board by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
CHAIRMAN OF THE BOARD OF DIRECTORS
Section 3.14 The Board of Directors may appoint a Chairman from among the
members of the Board of Directors. The Chairman of the Board, if one has been
appointed, shall preside at all meetings of the stockholders and directors and
shall exercise such other powers and perform such other duties as shall be
established from time to time by the Board of Directors. In addition, the Board
of Directors may appoint one or more Vice Chairmen from among the members of the
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Board of Directors. The Vice-Chairman or Vice-Chairmen, if there be more than
one, shall exercise such powers and perform such duties as shall be established
from time to time by the Board of Directors.
ARTICLE IV
NOTICES
Section 4.1 Except as set forth in Section 3.7, notices to directors and
stockholders shall be in writing and delivered personally or mailed to the
directors or stockholders at their addresses appearing on the books of the
corporation. Notice by mail shall be deemed to be given at the time when the
same shall be mailed. Notice to directors may also be given by telefacsimile or
telegram. Notice by telefacsimile shall be deemed to be given at the time when
the sender's facsimile machine generates a report confirming receipt of the
notice transmitted by telefacsimile.
Section 4.2 Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or by these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular, or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE V
OFFICERS
Section 5.1 The officers of the Corporation shall be a Chief Executive
Officer, a President, a Secretary, and a Treasurer, or persons who shall act as
such, regardless of the name or title by which they may be designated, elected
or appointed by the Board, and, in addition, the Corporation may have one or
more Vice Presidents and such other officers and assistant officers as the Board
may elect. Any number of offices may be held by the same person, unless the
certificate of incorporation otherwise provides.
Section 5.2 The officers and assistant officers shall be elected or
appointed by the Board at its annual meetings, or as soon thereafter as
possible, and shall hold office for a term of one year and until their
successors are selected and qualified or until their earlier death, resignation
or removal.
Section 5.3 The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 5.4 The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
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Section 5.5 Any officer elected or appointed by the Board of Directors
may be removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the corporation shall be
filled by the Board of Directors.
THE CHIEF EXECUTIVE OFFICER
Section 5.6 The Chief Executive Officer shall be the chief executive
officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board are carried into effect. In the absence of the Chairman of the Board, the
Chief Executive Officer shall preside at all meetings of the stockholders and
the Board. The Chief Executive Officer shall execute bonds, mortgages and other
contracts requiring a seal, under seal of the corporation, except where required
or permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Chief
Executive Officer or the Board to some other officer or agent of the
Corporation.
THE PRESIDENT
Section 5.7 The President shall report to the Chief Executive Officer
and shall, in the absence or disability of the Chief Executive Officer, perform
the duties and exercise the powers of the Chief Executive Officer, and shall
perform such other duties and have such other powers as may delegated or
designated by the Chief Executive Officer from time to time.
THE VICE-PRESIDENTS
Section 5.8 The Vice-President, or if there shall be more than one, the
Vice-Presidents, in the order determined by the Board of Directors, shall, in
the absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.9 The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 5.10 The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors, shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform
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such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.11 The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 5.12 He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors at
its regular meetings or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 5.13 If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 5.14 The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors,
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1 Every holder of stock in the corporation shall be entitled
to have a certificate signed by, or in the name of the corporation by, the
Chairman or Vice-Chairman of the Board of Directors, or President or a Vice-
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Section 6.2 Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such Chairman or Vice-Chairman
of the Board of Directors, President, Vice-President, Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary may be facsimile. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such
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certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
LOST CERTIFICATES
Section 6.3 The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed upon the issuance of such new
certificate.
TRANSFERS OF STOCK
Section 6.4 Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transactions upon its books,
unless the corporation has a duty to inquire as to adverse claims with respect
to such transfer which has not been discharged. The corporation shall have no
duty to inquire into adverse claims with respect to such transfer unless (a) the
corporation has received a written notification of an adverse claim at a time
and in a manner which affords the corporation a reasonable opportunity to act on
it prior to the issuance of a new, reissued or re-registered share certificate
and the notification identifies the claimant, the registered owner and the issue
of which the share or shares is a part and provides an address for
communications directed to the claimant; or (b) the corporation has required and
obtained, with respect to a fiduciary, a copy of a will, trust, indenture,
articles of co-partnership, by-laws or other controlling instruments, for a
purpose other than to obtain appropriate evidence of the appointment or
incumbency of the fiduciary, and such documents indicate, upon reasonable
inspection, the existence of an adverse claim.
Section 6.5 The corporation may discharge any duty of inquiry by any
reasonable means, including notifying an adverse claimant by registered or
certified mail at the address furnished by him or, if there be no such address,
at his residence or regular place of business that the security has been
presented for registration of transfer by a named person, and that the transfer
will be registered unless within thirty days from the date of mailing the
notification, either (a) an appropriate restraining order, injunction or other
process issues from a court of competent jurisdiction; or (b) an indemnity bond,
sufficient in the corporation's judgment to protect the corporation and any
transfer agent, registrar or other agent of the corporation involved from any
loss which it or they may suffer by complying with the adverse claim, is filed
with the corporation.
FIXING RECORD DATE
8.
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Section 6.6 (a) In order that the corporation may determine the
stockholders entitled to notice or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(2) 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.
(3) 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 thereto.
(c) 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.
REGISTERED STOCKHOLDERS
Section 6.7 Prior to due presentment for transfer of any share or
shares, the corporation shall treat the registered owner thereof as the person
exclusively entitled to vote, to receive notifications and to all other benefits
of ownership with respect to such share or shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1 Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
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Section 7.2 Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 7.3 All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other persons as the Board
of Directors may from time to time designate.
FISCAL YEAR
Section 7.4 The fiscal year of the corporation shall be as determined by
the Board.
SEAL
Section 7.5 The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE VIII
AMENDMENTS
Section 8.1 These by-laws may be altered or repealed at any regular
meeting of the stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors if notice of such
alteration or repeal be contained in the notice of such special meeting.
ARTICLE IX
INDEMNIFICATION
Section 9.1 The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding 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 corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or
10.
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proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 9.2 The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit 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 corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 9.3 To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections 9.1 or 9.2 of this Article,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 9.4 Any indemnification under sections 9.1 or 9.2 of this
Article (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such section. Such
determination shall be made:
1. By the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
2. If such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or
3. By the stockholders.
Section 9.5 Expenses incurred in defending a civil or criminal action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article. Such expenses incurred by other
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employees and agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
Section 9.6 The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 9.7 The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 9.8 The indemnification and advancement of expenses provided by
or granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
12.
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EXHIBIT 10.1
INDEMNITY AGREEMENT
This Agreement is made and entered into this __________ day of
__________, 2000 by and between Diversa Corporation, a Delaware corporation
(the "Corporation"), and __________ ("Agent").
Recitals
Whereas, Agent performs a valuable service to the Corporation in
__________ capacity as __________ of the Corporation;
Whereas, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
Whereas, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Corporation and its agents, officers, employees and
other agents with respect to indemnification of such persons; and
Whereas, in order to induce Agent to continue to serve as __________
of the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
Now, Therefore, in consideration of Agent's continued service as
__________ after the date hereof, the parties hereto agree as follows:
Agreement
1. Services to the Corporation. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. Indemnity of Agent. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE>
3. Additional Indemnity. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 41
of the Bylaws.
4. Limitations on Additional Indemnity. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2.
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vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. Partial Indemnification. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. Notification and Defense of Claim. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Agent's separate counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Corporation or
as to which Agent shall have made the conclusion provided for in clause (ii)
above; and
3.
<PAGE>
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. Enforcement. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. Survival of Rights.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
4.
<PAGE>
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. Headings. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
or to such other address as may have been furnished to Agent by the Corporation.
5.
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In Witness Whereof, the parties hereto have executed this Agreement on and
as of the day and year first above written.
Diversa Corporation
By:_________________________________
Title:______________________________
Agent
____________________________________
__________
Address:
____________________________________
____________________________________
6.
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EXHIBIT 10.2
DIVERSA CORPORATION
AMENDED AND RESTATED 1994
EMPLOYEE INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
AS AMENDED ON DECEMBER 13, 1999
SECTION 1. PURPOSES.
The purposes of the Plan are (a) to recognize and compensate selected
Employees of the Company and its Subsidiaries who contribute to the development
and success of the Company and its Subsidiaries; (b) to maintain the competitive
position of the Company and its Subsidiaries by attracting and retaining key
Employees; and (c) to provide incentive compensation to such key Employees based
upon the Company's performance, as measured by the appreciation in Common Stock.
The Plan is intended to comply with the conditions and requirements for employee
benefit plans under Rule 16b-3, as amended effective May 1, 1991, promulgated
under Section 16 of the Exchange Act. The Options issued pursuant to the Plan
are intended to constitute either Incentive Stock Options, or non-qualified
stock options, as determined by the Committee, or the Board if no Committee has
been appointed, at the time of Award. The type of Options Awarded will be
specified in the Option Agreement between the Company and the Optionee. The
terms of this Plan shall be incorporated into the Option Agreement to be
executed by the Optionee.
SECTION 2. DEFINITIONS.
(a) "Award" shall mean a grant of Options to an Employee pursuant to
the provisions of this Plan. Each separate grant of Options to an Employee and
each group of Options which matures on a separate date is treated as a separate
Award.
(b) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(c) "Change of Control" shall mean the happening of an event, which
shall be deemed to have occurred upon the earliest to occur of the following
events: (i) the date the stockholders of the Company (or the Board, if
stockholder action is not required) approve a plan or other arrangement pursuant
to which the Company will be dissolved or liquidated, or (ii) the date the
stockholders of the Company (or the Board, if stockholder action is not
required) approve a definitive agreement to sell or otherwise dispose of all or
substantially all of the assets of the Company, or (iii) the date the
stockholders of the Company (or the Board, if stockholder action is not
required) and the stockholders of the other constituent corporations (or their
respective boards of directors, if and to the extent that stockholder action is
not required) have approved a definitive agreement to merge or consolidate the
Company with or into another corporation, other than, in either case, a merger
or consolidation of the Company in which holders of shares of the Company's
voting capital stock immediately prior to the merger or consolidation will have
at least 50% of the ownership of voting capital stock of the surviving
corporation immediately after the merger or consolidation (on a fully diluted
basis), which voting
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capital stock is to be held in the same proportion (on a fully diluted basis) as
such holders' ownership of voting capital stock of the Company immediately
before the merger or consolidation, or (iv) the date any entity, person or group
(within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act), other than (A) the Company, or (B) any of its Subsidiaries, or (C) any of
the holders of the capital stock of the Company, as determined on the date that
this Plan is adopted by the Board, or (D) any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its Subsidiaries or (E)
any Affiliate (as such term is defined in Rule 405 promulgated under the
Securities Act) of any of the foregoing, shall have acquired beneficial
ownership of, or shall have acquired voting control over more than 50% of the
outstanding shares of the Company's voting capital stock (on a fully diluted
basis), unless the transaction pursuant to which such person, entity or group
acquired such beneficial ownership or control resulted from the original
issuance by the Company of shares of its voting capital stock and was approved
by at least a majority of directors who shall have been either members of the
Board on the date that this Plan is adopted by the Board or members of the Board
for at least twelve (12 ) months prior to the date of such approval, or (v) the
first day after the date of this Plan when directors are elected such that there
shall have been a change in the composition of the Board such that a majority of
the Board shall have been members of the Board for less than twelve (12) months,
unless the nomination for election of each new director who was not a director
at the beginning of such twelve (12) month period was approved by a vote of at
least sixty percent (60%) of the directors then still in office who were
directors at the beginning of such period, or (vi) the date upon which the Board
determines (in its sole discretion) that based on then current available
information, the events described in clause (iv) are reasonably likely to occur.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan, if one is appointed, in which event
the Committee shall possess the power and authority of the Board.
(f) "Company" shall mean Diversa Corporation, a Delaware corporation.
(g) "Common Stock" shall mean common stock of the Company, $. 001
par value per share.
(h) "Disinterested Person" shall have the meaning set forth in Rule
16(b)-3(c)(2)(i), as amended effective May 1, 1991 or thereafter, promulgated
under Section 16 of the Exchange Act.
(i) "Disability" or "Disabled" shall mean the inability of an
Optionee to perform his or her normal employment duties for the Company, its
Parent, any of its Subsidiaries or its successors, as the case may be, resulting
from a mental or physical illness, impairment or any other similar occurrence
which can be expected to result in death or which has lasted or can be expected
to last for a period of twelve (12) consecutive months, as determined by the
Board.
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(j) "Employee" shall mean any person, including officers and
directors, employed by the Company, its Parent, any of its Subsidiaries or its
successors. The payment of directors' fees by the Company, its Parent, any of
its Subsidiaries or its successors, as the case may be, shall not be sufficient
to constitute employment. Additionally, solely for purposes of determining
those persons eligible under the Plan to be recipients of Awards of Options,
which Options shall be limited to non-qualified stock options, and not for the
purpose of affecting the status of the relationship between such person and the
Company, the term "Employee" shall include independent contractors of and
consultants to the Company.
(k) "Exchange Act" shall mean The Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean the fair market value of a share
of Common Stock, as determined pursuant to Section 8 hereof.
(m) "Incentive Stock Option" shall mean an Option which is an
incentive stock option within the meaning of Section 422 of the Code.
(n) "Option" shall mean an Incentive Stock Option or a non-qualified
stock option to purchase Shares that is Awarded pursuant to the Plan.
(o) "Option Agreement" shall mean a written agreement substantially
in the form of Exhibit A, or such other form or forms as the Board (subject to
the terms and conditions of this Plan) may from time to time approve evidencing
and reflecting the terms of an Option.
(p) "Optionee" shall mean an Employee to whom an Option is Awarded.
(q) "Parent" shall mean a "parent corporation" whether now or
hereafter existing, as defined in Sections 424(e) and (g) of the Code.
(r) "Plan" shall mean the Diversa Corporation. 1994 Employee
Incentive and Non-qualified Stock Option Plan, as amended from time to time.
(s) "Pool" shall mean the pool of shares of Common Stock subject to
the Plan, as described and set forth in Section 6 hereof.
(t) "Securities Act" shall mean The Securities Act of 1933, as
amended.
(u) "Shares" shall mean shares of Common Stock contained in the Pool,
as adjusted in accordance with Section 9 of the Plan.
(v) "Stock Purchase Agreement" shall mean an agreement substantially
in the form attached hereto as Exhibit B, or such other form as the Board
(subject to the terms and conditions of this Plan) may from time to time
approve, which an Optionee shall be required to execute as a condition of
purchasing Shares upon the exercise of an Option.
3.
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(w) "Subsidiary" shall mean a subsidiary corporation, whether now or
hereafter existing, as defined in Sections 424(f) and (g) of the Code.
SECTION 3. PARTICIPATION.
Participants in the Plan shall be selected by the Board from the
Employees (including Employees who also may be members of the Board) of the
Company, its Parent and its Subsidiaries or their successors. The Board may
make Awards at any time and from time to time to Employees. Any Award may
include or exclude any Employee, as the Board shall determine in its sole
discretion.
SECTION 4. ADMINISTRATION.
(a) PROCEDURE. The Plan shall be administered by the Board. Members
of the Board who are eligible for Options or have been Awarded Options may vote
on any matters affecting the administration of the Plan or the Award of any
Options pursuant to the Plan, except that no such member shall act upon the
Award of an Option to himself, but any such member may be counted in determining
the existence of a quorum at any meeting of the Board or Committee during which
action is taken with respect to the Award of Options to him.
The Board may at any time appoint a Committee consisting of not less
than two persons to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe. Members of the Committee shall
serve for such period of time as the Board may determine. From time to time the
Board may increase the size of the Committee and appoint additional members
thereto, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee and thereafter directly administer the Plan. In the event the
Company has a class of equity securities registered under Section 12 of the
Exchange Act and unless the Board determines otherwise, from the effective date
of such registration until six months after the termination of such
registration, all Awards of Options to eligible officers or directors of the
Company shall be made solely by the Board, only if each member is a
Disinterested Person, or, otherwise, by a Committee of two or more directors,
each of whom is a Disinterested Person.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan, the
Board or its Committee shall have the authority, in its discretion: (i) to Award
Options; (ii) to determine, upon review of relevant information and in
accordance with Section 8 of the Plan, the Fair Market Value per Share; (iii) to
determine the exercise price of the Options to be Awarded in accordance with
Sections 7 and 8 of the Plan; (iv) to determine the Employees to whom, and the
time or times at which, Options shall be Awarded, and the number of Shares to be
subject to each Option; (v) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vi) to determine the terms and provisions of
each Option Awarded under the Plan, each Option Agreement and each Stock
Purchase Agreement (which need not be identical with the terms of other Options,
Option Agreements and Stock Purchase Agreements) and, with the consent of the
Optionee, to modify or amend an outstanding Option, Option Agreement or Stock
Purchase Agreement; (vii) to accelerate the vesting or exercise date of any
Option; (viii) to determine whether any Optionee will be required to execute a
stock repurchase agreement or other
4.
<PAGE>
agreement as a condition to the exercise of an Option, and to determine the
terms and provisions of any such agreement (which need not be identical with the
terms of any other such agreement) and, with the consent of the Optionee, to
amend any such agreement; (ix) to interpret the Plan or any agreement entered
into with respect to the Award or exercise of Options; (x) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the Award of an Option previously Awarded by the Board or to take such other
actions as may be necessary or appropriate with respect to the Company's rights
pursuant to Options or agreements relating to the Award or exercise thereof; and
(xi) to make such other determinations and establish such other procedures as it
deems necessary or advisable for the administration of the Plan.
(c) EFFECT OF THE BOARD'S OR COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Board or the Committee shall be final
and binding with respect to all Options and Optionees.
(d) LIMITATION OF LIABILITY. Notwithstanding anything herein to the
contrary (with the exception of Section 3 1 hereof), no member of the Board or
of the Committee shall be liable for any good faith determination, act or
failure to act in connection with the Plan or any Option Awarded hereunder.
SECTION 5. ELIGIBILITY.
Options may be Awarded only to Employees. An Employee who has been
Awarded an Option, if he or she is otherwise eligible, may be Awarded additional
Options.
SECTION 6. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of Shares which may be Awarded and sold under the Plan is Eight
Million Three Hundred Ninety Thousand (8,390,000) Shares (collectively, the
"Pool"). Options Awarded from the Pool may be either Incentive Stock Options or
non-qualified stock options, as determined by the Board. If an Option should
expire or become unexercisable for any reason without having been exercised in
full, or, if Shares are subsequently repurchased by the Company, the unpurchased
or repurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, return to the Plan and become available for future Award
under the Plan.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
Each Option Awarded pursuant to the Plan shall be authorized by the
Board and shall be evidenced by an Option Agreement in such form as the Board
may from time to time determine. Each Option Agreement shall incorporate by
reference all other terms and conditions of the Plan, including the following
terms and conditions:
(a) NUMBER OF SHARES. The number of Shares subject to the Option,
which may include fractional Shares.
5.
<PAGE>
(b) OPTION PRICE. The price per Share payable on the exercise of any
Option which is an Incentive Stock Option shall be stated in the Option
Agreement and shall be no less than the Fair Market Value per share of the
Common Stock on the date such Option is Awarded, without regard to any
restriction other than a restriction which will never lapse. Notwithstanding
the foregoing, if an Option which is an Incentive Stock Option shall be Awarded
under this Plan to any Employee who, at the time of the Award of such Option,
owns stock possessing more than 10% of the total combined voting power of all
classes of the stock of the Company (or its Parent or Subsidiaries), the price
per Share payable upon exercise of such Option shall be no less than 110 percent
(110%)of the Fair Market Value of the stock on the date such Option is Awarded.
The price per Share payable on the exercise of an Option which is a non-
qualified stock option shall be at least $. 01 per Share and shall be stated in
the Option Agreement.
(c) CONSIDERATION. The consideration to be paid for the Shares to be
issued upon the exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of cash, check, promissory
notes or shares of Common Stock having a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, or any combination of such methods of payment, or
such other consideration and method of payment permitted under any laws to which
the Company is subject and which is approved by the Board. In making its
determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
(1) If the consideration for the exercise of an Option is a
promissory note, it may, in the discretion of the Board, be either full recourse
or nonrecourse and shall bear interest at a per annum rate which is not less
than the applicable federal rate determined in accordance with Section 1274(d)
of the Code as of the date of exercise. In such an instance the Company may
retain the Shares purchased upon the exercise of the Option in escrow as
security for payment of the promissory note.
(2) If the consideration for the exercise of an Option is the
surrender of previously acquired and owned shares of Common Stock, the Optionee
will be required to make representations and warranties satisfactory to the
Company regarding his title to the shares of Common Stock used to effect the
purchase, including without limitation, representations and warranties that the
Optionee has good and marketable title to such shares of Common Stock free and
clear of any and all liens, encumbrances, charges, equities, claims, security
interests, options or restrictions, and has full power to deliver such shares of
Common Stock without obtaining the consent or approval of any person or
governmental authority other than those which have already given consent or
approval in a manner satisfactory to the Company. The value of the shares of
Common Stock used to effect the purchase shall be the Fair Market Value of such
shares of Common Stock on the date of exercise as determined by the Board in its
sole discretion, exercised in good faith.
(d) FORM OF OPTION. The Option Agreement will state whether the
Option Awarded is an Incentive Stock Option or a non-qualified stock Option, and
will constitute a binding determination as to the form of Option Awarded.
6.
<PAGE>
(e) EXERCISE OF OPTIONS. Any Option Awarded hereunder shall be
exercisable at such times and under such conditions as may be determined by the
Board and as shall be permissible under the terms of the Plan, including
performance criteria with respect to the Company and/or the Optionee, and as
shall be permissible under the terms of the Plan.
An Option may be exercised in accordance with the provisions of
this Plan as to all or any portion of the Shares then exercisable under an
Option from time to time during the term of the Option. An Option may not be
exercised solely for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company at its principal executive office in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full payment for the Shares with respect to which the
Option is exercised has been received by the Company, accompanied by an executed
Stock Purchase Agreement and any other agreements required by the terms of the
Plan and/or Option Agreement. Full payment may consist of such consideration and
method of payment allowable under Section 7 of the Plan. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Option is exercised, except as provided in Section 9 of the Plan.
As soon as practicable after any proper exercise of an Option in
accordance with the provisions of the Plan, the Company shall, without transfer
or issue tax to the Optionee, deliver to the Optionee at the principal executive
office of the Company or such other place as shall be mutually agreed upon
between the Company and the Optionee, a certificate or certificates representing
the Shares for which the Option shall have been exercised. The time of issuance
and delivery of the certificate(s) representing the Shares for which the Option
shall have been exercised may be postponed by the Company for such period as may
be required by the Company, with reasonable diligence, to comply with any
applicable listing requirements of any national or regional securities exchange
or any law or regulation applicable to the issuance or delivery of such Shares.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for Award under the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(f) TERM AND VESTING OF OPTIONS.
(1) Notwithstanding any other provision of this Plan, no Option
shall be (A) Awarded under this Plan after ten (10) years from the date on which
this Plan is adopted by the Board, or (B) exercisable more than ten (10) years
from the date of Award; provided, however, that if an Incentive Stock Option
shall be Awarded under this Plan to any Employee who, at the time of the Award
of such Option, owns stock possessing more than 10% of the total combined voting
power for all classes of the stock of he Company (or its Parent or
Subsidiaries), the foregoing clause (B) shall be deemed modified by substituting
"five (5) years" for the term "ten (10) years" that appears therein.
7.
<PAGE>
(2) No Option Awarded to any Optionee shall be treated as an
Incentive Stock Option, to the extent such Option would cause the aggregate Fair
Market Value of all Shares with respect to which Incentive Stock Options are
exercisable by such Optionee for the first time during any calendar year
(determined as of the date of Award of each such Option) to exceed $100,000.
For purposes of determining whether an Incentive Stock Option would cause such
aggregate Fair Market Value to exceed the $100,000 limitation, such Incentive
Stock Options shall be taken into account in the order Awarded. For purposes of
this subsection, Incentive Stock Options include all incentive stock options
under all plans of the Company and its Parent and Subsidiaries that are
incentive stock option plans within the meaning of Section 422 of the Code.
Options Awarded hereunder shall mature and become exercisable in whole or in
part, in accordance with such vesting schedule as the Board shall determine,
which schedule shall be stated in the Option Agreement. Options may be
exercised in any order elected by the Optionee whether or not the Optionee holds
any unexercised Options under this Plan or any other plan of the Company.
(g) TERMINATION OF OPTIONS.
(1) Unless sooner terminated as provided in this Plan, each
Option shall be exercisable for the period of time as shall be determined by the
Board and set forth in the Option Agreement, and shall be void and unexercisable
thereafter.
(2) Except as otherwise provided herein or in the Option
Agreement, upon the termination of the Optionee's employment or other
relationship with the Company for any reason, Options exercisable on the date of
termination of employment or such other relationship shall be exercisable by the
Optionee (or in the case of the Optionee's death subsequent to termination of
employment or such other relationship, by the Optionee's executor(s) or
administrator(s)) for a period of three (3) months from the date of the
Optionee's termination of employment or such other relationship.
(3) Upon the Disability or death of an Optionee while in the
employ of or engagement by the Company, Options held by such Optionee which are
exercisable on the date of Disability or death shall be exercisable for a period
of twelve (12 ) months commencing on the date of the Optionee's Disability or
death, by the Optionee or his legal guardian or representative or, in the case
of death, by his executor(s) or administrator(s); provided, however, that if
such disabled Optionee shall commence any employment or engagement during such
one (1) year period with or by a competitor of the Company (including, but not
limited to, full or part-time employment or independent consulting work), as
determined solely in the judgment of the Board, all Options held by such
Optionee which have not yet been exercised shall terminate immediately upon the
commencement thereof.
(4) Options may be terminated at any time by agreement between
the Company and the Optionee.
(h) FORFEITURE. Notwithstanding any other provision of this Plan, if
the Optionee's employment or engagement is terminated for "cause" (as such term
is defined in the Optionee's employment agreement or invention and non-
disclosure agreement with the
8.
<PAGE>
Company, but if the Optionee is not a party to any such agreement, then, as such
term is defined in the Stock Purchase Agreement) or if the Board makes a
determination that the Optionee (i) has engaged in any type of disloyalty to the
Company, including without limitation, fraud, embezzlement, theft, or dishonesty
in the course of his employment or engagement, or (ii) has been convicted of a
felony or (iii) has disclosed trade secrets or confidential information of the
Company or has breached a non-competition agreement with the Company, all
unexercised Options shall terminate upon the earlier of the date of termination
of employment or engagement for "cause" or the date of such a finding. In the
event of such a finding, in addition to immediate termination of all unexercised
Options, the Optionee shall forfeit all Shares for which the Company has not yet
delivered share certificates to the Optionee and the Company shall refund to the
Optionee the Option purchase price paid to it. Notwithstanding anything herein
to the contrary, the Company may withhold delivery of share certificates pending
the resolution of any inquiry that could lead to a finding resulting in
forfeiture.
SECTION 8. DETERMINATION OF FAIR MARKET VALUE OF COMMON STOCK.
(a) Except to the extent otherwise provided in this Section 8, the
Fair Market Value of a share of Common Stock shall be determined by the Board in
its sole discretion.
(b) Notwithstanding the provisions of Section 8(a), in the event that
shares of Common Stock are traded in the over-the-counter market, the Fair
Market Value of a share of Common Stock shall be the mean of the bid and asked
prices for a share of Common Stock on the relevant valuation date as reported in
THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotations ("NASDAQ")
System), as applicable or, if there is no trading on such date, on the next
trading date. In the event shares of Common Stock are listed on a national or
regional securities exchange or traded through NASDAQ/NMS, the Fair Market Value
of a share of Common Stock shall be the closing price for a share of Common
Stock on the exchange or on NASDAQ/NMS, as reported in THE WALL STREET JOURNAL
on the relevant valuation date, or if there is no trading on that date, on the
next trading date.
SECTION 9. ADJUSTMENTS.
(a) Subject to required action by the stockholders, if any, the
number of Shares as to which Options may be Awarded under this Plan and the
number of Shares subject to outstanding Options and the option prices thereof
shall be adjusted proportionately for any increase or decrease in the number of
outstanding shares of Common Stock of the Company resulting from stock splits,
reverse stock splits, stock dividends, reclassifications and recapitalizations.
(b) No fractional Shares shall be issuable on account of any action
aforesaid, and the aggregate number of Shares into which Shares then covered by
the Option, when changed as the result of such action, shall be reduced to the
number of whole Shares resulting from such action, unless the Board, in its sole
discretion, shall determine to issue scrip certificates in respect to any
fractional Shares, which scrip certificates, in such event, shall be in a form
and have such terms and conditions as the Board in its discretion shall
prescribe.
9.
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SECTION 10. RIGHTS AS A STOCKHOLDER.
The Optionee shall have no rights as a stockholder of the Company and
shall not have the right to vote nor receive dividends with respect to any
Shares subject to an Option until such Option has been exercised and a
certificate with respect to the Shares purchased upon such exercise has been
issued to him.
SECTION 11. TIME OF AWARDING OPTIONS.
The date of Award of an Option shall, for all purposes, be the date on
which the Board makes the determination Awarding such Option. Notice of the
determination shall be given to each Employee to whom an Option is so Awarded
within a reasonable time after the date of such Award.
SECTION 12. MODIFICATION, .EXTENSION AND RENEWAL OF OPTION.
Subject to the terms and conditions of the Plan, the Board may modify,
extend or renew an Option, or accept the surrender of an Option (to the extent
not theretofore exercised). Notwithstanding the foregoing, (a) no modification
of an Option which adversely affects the Optionee shall be made without the
consent of the Optionee, and (b) no Incentive Stock Option may be modified,
extended or renewed if such action would cause it to cease to be an "incentive
stock option" within the meaning of Section 422 of the Code.
SECTION 13. PURCHASE FOR INVESTMENT AND OTHER RESTRICTIONS.
The issuance of Shares on the exercise of an Option shall be
conditioned on obtaining such appropriate representations, warranties,
restrictions and agreements of the Optionee as set forth in the applicable Stock
Purchase Agreement. Among other representations, warranties, restrictions and
agreements, the Optionee shall represent and agree that the purchase of Shares
under the applicable Option Agreement shall be for investment, and not with a
view to the public resale or distribution thereof, unless the Shares subject to
the Option are registered under the Securities Act and the transfer or sale of
such Shares complies with all other laws, rules and regulations applicable
thereto. Unless the Shares are registered under the Securities Act, the Optionee
shall acknowledge that the Shares purchased on exercise of the Option are not
registered under the Securities Act and may not be sold or otherwise transferred
unless the Shares have been registered under the Securities Act in connection
with the sale or other transfer thereof, or that counsel satisfactory to the
Company has issued an opinion satisfactory to the Company that the sale or other
transfer of such Shares is exempt from registration under the Securities Act,
and unless said sale or transfer is in compliance with all other applicable
laws, rules and regulations, including all applicable federal and state
securities laws, rules and regulations. Additionally, the Shares, when issued
upon the exercise of an Option, shall be subject to other transfer restrictions,
rights of first refusal and rights of repurchase as set forth in or incorporated
by reference into the applicable Stock Purchase Agreement. The certificates
representing the Shares shall contain the following legend:
10.
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES
LAWS. THESE SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR OTHERWISE,
OR IN ANY WAY ENCUMBERED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE
STATE SECURITIES LAWS, OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO
DIVERSA CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND
UNDER APPLICABLE STATE SECURITIES LAWS. MOREOVER, THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO AND RESTRICTED BY THE PROVISIONS OF A
CERTAIN STOCK PURCHASE AND RESTRICTION AGREEMENT BETWEEN DIVERSA CORPORATION
AND THE STOCKHOLDER, A COPY OF WHICH AGREEMENT WILL BE FURNISHED BY DIVERSA
CORPORATION UPON WRITTEN REQUEST AND WITHOUT CHARGE, AND ALL OF THE
PROVISIONS OF SUCH AGREEMENT ARE INCORPORATED BY REFERENCE IN THIS
CERTIFICATE.
SECTION 14. TRANSFERABILITY.
No Option shall be assignable or transferable otherwise than by will
or by the laws of descent and distribution. During the lifetime of the
Optionee, his Options shall be exercisable only by him, or, in the event of his
legal incapacity or Disability by his legal guardian or representative.
SECTION 15. OTHER PROVISIONS.
The Option Agreement and Stock Purchase Agreement may contain such
other provisions as the Board in its discretion deems advisable and which are
not inconsistent with the provisions of this Plan, including, without
limitation, restrictions upon or conditions precedent to the exercise of the
Option.
SECTION 16. CHANGE OF CONTROL PROVISIONS.
(A) ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of a
Change of control, then any surviving corporation or acquiring corporation shall
assume any Options outstanding under the Plan or shall substitute similar
Options (including an option to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 16(a) for those
outstanding under the Plan). In the event any surviving corporation or acquiring
corporation refuses to assume such Options or to substitute similar Options for
those outstanding under the Plan, then with respect to Options held by Optionees
whose Continuous Service (as defined below) has not terminated, the vesting of
such Options (and, if applicable, the
11.
<PAGE>
time during which such Options may be exercised) shall be accelerated in full,
and the Options shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Options outstanding under the Plan, such
Options shall terminate if not exercised (if applicable) prior to such event.
(B) SPECIAL ACCELERATION PROVISIONS. Notwithstanding any other provisions
of this Plan to the contrary, if (i) a Change of control occurs and (ii) within
one (1) month prior to the date of such Change of control or thirteen (13)
months after the date of such Change of control the Continuous Service of a
Optionee terminates due to an involuntary termination (not including death or
Disability) without Cause (as defined below) or due to a Constructive
Termination (as defined below), then the vesting and exercisability of all
Options held by such Optionee shall be accelerated; provided, however, that if
such potential acceleration of the vesting and exercisability of Options would
cause a contemplated Change of control transaction that would otherwise be
eligible to be accounted for as a "pooling-of-interests" transaction to become
ineligible for such accounting treatment under generally accepted accounting
principles as determined by the Company's independent certified public
accountants (the "Accountants") prior to the in Control, such acceleration shall
not occur.
"CONTINUOUS SERVICE" means that the Optionee's service with the Company or
a parent or subsidiary of the Company within the meaning of 424(e) and (f),
respectively (an "Affiliate"), as an Employee, is not interrupted or terminated.
The Optionee's Continuous Service shall not be deemed to have terminated merely
because of a change in the capacity in which the Optionee renders service to the
Company or an Affiliate as an Employee or a change in the entity for which the
Optionee renders such service, provided that there is no interruption or
termination of the Optionee's Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
"CAUSE" means the occurrence of any of the following (and only the
following): (i) conviction of the terminated Optionee of any felony involving
fraud or act of dishonesty against the Company or its Affiliates; (ii) conduct
by the terminated Optionee which, based upon good faith and reasonable factual
investigation and determination of the Company (or, if the terminated Optionee
is an Officer, of the Board), demonstrates gross unfitness to serve; or (iii)
intentional, material violation by the terminated Optionee of any statutory or
fiduciary duty of the terminated Optionee to the Company or its Affiliates. In
addition, if the terminated Optionee is not an Officer, Cause also shall include
poor performance of the terminated Optionee's services for the Company or its
Affiliates as determined by the Company following (A) written notice to the
Optionee describing the nature of such deficiency and (b) the Optionee's failure
to cure such deficiency within thirty (30) days following receipt of the such
written notice.
"CONSTRUCTIVE TERMINATION" means the occurrence of any of the following
events or conditions: (i) (A) a change in the Optionee's status, title,
position or responsibilities (including reporting responsibilities) which
represents an adverse change from the Optionee's status, title, position or
responsibilities as in effect at any time within ninety (90) days preceding the
date of a
12.
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Change of control (as defined in subsection 2(c)) or at any time thereafter; (B)
the assignment to the Optionee of any duties or responsibilities which are
inconsistent with the Optionee's status, title, position or responsibilities as
in effect at any time within ninety (90) days preceding the date of a Change of
control or at any time thereafter; or (C) any removal of the Optionee from or
failure to reappoint or reelect the Optionee to any of such offices or
positions, except in connection with the termination of the Optionee's
Continuous Service for Cause, as a result of the Optionee's Disability or death
or by the Optionee other than as a result of Constructive Termination; (ii) a
reduction in the Optionee's annual base compensation or any failure to pay the
Optionee any compensation or benefits to which the Optionee is entitled within
five (5) days of the date due; (iii) the Company's requiring the Optionee to
relocate to any place outside a forty (40) mile radius of the Optionee's current
work site, except for reasonably required travel on the business of the Company
or its Affiliates which is not materially greater than such travel requirements
prior to the Change of control; (iv) the failure by the Company to (A) continue
in effect (without reduction in benefit level and/or reward opportunities) any
material compensation or employee benefit plan in which the Optionee was
participating at any time within ninety (90) days preceding the date of a Change
of control or at any time thereafter, unless such plan is replaced with a plan
that provides substantially equivalent compensation or benefits to the Optionee,
or (B) provide the Optionee with compensation and benefits, in the aggregate, at
least equal (in terms of benefit levels and/or reward opportunities) to those
provided for under each other employee benefit plan, program and practice in
which the Optionee was participating at any time within ninety (90) days
preceding the date of a Change of control or at any time thereafter; (v) any
material breach by the Company of any provision of an agreement between the
Company and the Optionee, whether pursuant to this Plan or otherwise, other than
a breach which is cured by the Company within fifteen (15) days following notice
by the Optionee of such breach; or (vi) the failure of the Company to obtain an
agreement, satisfactory to the Optionee, from any successors and assigns to
assume and agree to perform the obligations created under this Plan.
(C) PARACHUTE PAYMENTS. In the event that the acceleration of the vesting
and exercisability of the Options provided for in subsection 16(b) and benefits
otherwise payable to a Optionee (i) constitute "parachute payments" within the
meaning of Section 280G of the Code, or any comparable successor provisions, and
(ii) but for this subsection would be subject to the excise tax imposed by
Section 4999 of the Code, or any comparable successor provisions (the "Excise
Tax"), then such Optionee's benefits hereunder shall be either
(I) provided to such Optionee in full, or
(II) provided to such Optionee as to such lesser extent which
would result in no portion of such benefits being subject to
the Excise Tax,
whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, and any
other applicable taxes, results in the receipt by such Optionee, on an after-tax
basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under the Excise Tax. Unless the
Company and such Optionee otherwise agree in writing, any determination required
13.
<PAGE>
under this subsection shall be made in writing in good faith by the Accountants.
In the event of a reduction of benefits hereunder, the Optionee shall be given
the choice of which benefits to reduce. For purposes of making the calculations
required by this subsection, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code, and other
applicable legal authority. The Company and the Optionee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this subsection. The Company
shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this subsection.
If, notwithstanding any reduction described in this subsection, the IRS
determines that the Optionee is liable for the Excise Tax as a result of the
receipt of the payment of benefits as described above, then the Optionee shall
be obligated to pay back to the Company, within thirty (30) days after a final
IRS determination or in the event that the Optionee challenges the final IRS
determination, a final judicial determination, a portion of the payment equal to
the "Repayment Amount." The Repayment Amount with respect to the payment of
benefits shall be the smallest such amount, if any, as shall be required to be
paid to the Company so that the Optionee's net after-tax proceeds with respect
to any payment of benefits (after taking into account the payment of the Excise
Tax and all other applicable taxes imposed on such payment) shall be maximized.
The Repayment Amount with respect to the payment of benefits shall be zero if a
Repayment Amount of more than zero would not result in the Optionee's net after-
tax proceeds with respect to the payment of such benefits being maximized. If
the Excise Tax is not eliminated pursuant to this paragraph, the Optionee shall
pay the Excise Tax.
Notwithstanding any other provision of this subsection 16(c), if (i)
there is a reduction in the payment of benefits as described in this subsection,
(ii) the IRS later determines that the Optionee is liable for the Excise Tax,
the payment of which would result in the maximization of the Optionee's net
after-tax proceeds (calculated as if the Optionee's benefits had not previously
been reduced), and (iii) the Optionee pays the Excise Tax, then the Company
shall pay to the Optionee those benefits which were reduced pursuant to this
subsection contemporaneously or as soon as administratively possible after the
Optionee pays the Excise Tax so that the Optionee's net after-tax proceeds with
respect to the payment of benefits is maximized.
If the Optionee either (i) brings any action to enforce rights pursuant
to this subsection 16(c), or (ii) defend any legal challenge to his or her
rights hereunder, the Optionee shall be entitled to recover attorneys' fees and
costs incurred in connection with such action, regardless of the outcome of such
action; provided, however, that in the event such action is commenced by the
Optionee, the court finds the claim was brought in good faith.
SECTION 17. AMENDMENT OF THE PLAN.
Insofar as permitted by law and the Plan, the Board may from time to
time suspend, terminate or discontinue the Plan or revise or amend it in any
respect whatsoever with respect to any Shares at the time not subject to an
Option; provided, however, that without
14.
<PAGE>
approval of the stockholders, no such revision or amendment may change the
aggregate number of Shares for which Options may be Awarded hereunder, change
the designation of the class of Employees eligible to receive Options or
decrease the price at which Options may be Awarded.
Any other provision of this Section 17 notwithstanding (with the
exception of Section 31 hereof), the Board specifically is authorized to adopt
any amendment to this Plan deemed by the Board to be necessary or advisable to
assure that the Incentive Stock Options or the non-qualified stock Options
available under the Plan continue to be treated as such, respectively, under all
applicable laws.
SECTION 18. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Shares pursuant
to the exercise of Options shall be used for general corporate purposes.
SECTION 19. NO OBLIGATION TO EXERCISE OPTION.
The Awarding of an Option shall impose no obligation upon the Optionee
to exercise such Option.
SECTION 20. APPROVAL OF STOCKHOLDERS.
This Plan shall become effective on the date that it is adopted by the
Board; provided, however, that it shall become limited to a non-qualified stock
option plan if it is not approved by the holders of a majority of the Company's
outstanding voting stock within one year (365 days) of its adoption by the
Board. The Board may Award Options hereunder prior to approval of the Plan or
any material amendments thereto by the holders of a majority of the Company's
outstanding voting stock; provided, however, that any and all Options so Awarded
automatically shall be converted into non-qualified stock options if the Plan is
not approved by such stockholders within 365 days of its adoption or material
amendment.
SECTION 21. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Options Awarded under the Plan are conditioned upon the Company
obtaining any required permit or order from appropriate governmental agencies,
authorizing the Company to issue such Options and Shares issuable upon the
exercise thereof.
(b) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(c) As a condition to the exercise of an Option, the Board may
require the person exercising such Option to execute an agreement with, and/or
may require the person
15.
<PAGE>
exercising such Option to make any representation and/or warranty to, the
Company as may be, in the judgment of counsel to the Company, required under
applicable law or regulation, including but not limited to a representation and
warranty that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation and warranty is appropriate under
any of the aforementioned relevant provisions of law.
SECTION 22. RESERVATION OF SHARES.
The Company, during the term of this Plan, shall at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
The Company, during the term of this Plan, shall use its best efforts
to seek to obtain from appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain from any such regulatory agency having jurisdiction the
requisite authorization(s) deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any Shares hereunder, or the inability of the
Company to confirm to its satisfaction that any issuance and sale of any Shares
hereunder will meet applicable legal requirements, shall relieve the Company of
any liability in respect to the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
SECTION 23. STOCK OPTION AND STOCK PURCHASE AGREEMENTS.
Options shall be evidenced by an Option Agreement in such form or
forms as the Board shall approve from time to time. Upon the exercise of an
Option, the Optionee shall sign and deliver to the Company a Stock Purchase
Agreement in such form or forms as the Board shall approve from time to time.
SECTION 24. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) The Company shall pay all original issue and transfer taxes (but
not income taxes, if any) with respect to the Award of Options and/or the issue
and transfer of Shares pursuant to the exercise thereof, and all other fees and
expenses necessarily incurred by the Company in connection therewith, and will
from time to time use its best efforts to comply with all laws and regulations
which, in the opinion of counsel for the Company, shall be applicable thereto.
(b) The Award of Options hereunder and the issuance of Shares
pursuant to the exercise thereof is conditioned upon the Company's reservation
of the right to withhold in accordance with any applicable law, from any
compensation or other amounts payable to the Optionee, any taxes required to be
withheld under federal, state or local law as a result of the Award or exercise
of such Option or the sale of the Shares issued upon exercise thereof. To the
extent that compensation or other amounts, if any, payable to the Optionee is
insufficient to pay any taxes required to be so withheld, the Company may, in
its sole discretion, require the Optionee (or such other person entitled herein
to exercise the Option), as a condition of the
16.
<PAGE>
exercise of an Option, to pay in cash to the Company an amount sufficient to
cover such tax liability or otherwise to make adequate provision for the
Company's satisfaction of its withholding obligations under federal, state and
local law.
SECTION 25. NOTICES.
Any notice to be given to the Company pursuant to the provisions of
this Plan shall be addressed to the Company in care of its Secretary (or such
other person as the Company may designate from time to time) at its principal
executive office, and any notice to be given to an Optionee shall be delivered
personally or addressed to him or her at the address given beneath his or her
signature on his or her Option Agreement, or at such other address as such
Optionee or his or her permitted transferee (upon the transfer of the Shares)
may hereafter designate in writing to the Company. Any such notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, registered or certified, and deposited, postage and
registry or certification fee prepaid, in a post office or branch post office
regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and each permitted transferee holding Shares
purchased upon exercise of an Option to provide the Secretary of the Company, by
letter mailed as provided herein, with written notice of his or her direct
mailing address.
SECTION 26. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Employee, or to be consideration for or a condition of the
employment or service of any Employee. Nothing contained in this Plan shall be
deemed to give any Employee the right to be retained in the employ or service of
the Company, its Parent, any Subsidiary or a successor corporation, or to
interfere with the right of the Company or any such corporation to discharge or
retire any Employee thereof at any time. No Employee shall have any right to or
interest in Options authorized hereunder prior to the Award thereof to such
Employee, and upon such Award he shall have only such rights and interests as
are expressly provided herein, subject, however, to all applicable provisions of
the Company's Certificate of Incorporation, as the same may be amended from time
to time.
SECTION 27. INFORMATION TO OPTIONEES.
The Company, upon request, shall provide without charge to each
Optionee copies of such annual and periodic reports as are provided by the
Company to its stockholders generally.
SECTION 28. AVAILABILITY OF PLAN.
A copy of this Plan shall be delivered to the Secretary of the Company
and shall be shown by him to any eligible person making reasonable inquiry
concerning it.
17.
<PAGE>
SECTION 29. INVALID PROVISIONS.
In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein as invalid or unenforceable, and all such other provisions
shall be given full force and effect to the same extent as though the invalid or
unenforceable provision was not contained herein.
SECTION 30. APPLICABLE LAW.
This Plan shall be governed by and construed in accordance with the
laws of the State of Delaware.
SECTION 31. BOARD ACTION.
Notwithstanding anything to the contrary set forth in this Plan, any
and all actions of the Board or Committee, as the case may be, taken under or in
connection with this Plan and any agreements, instruments, documents,
certificates or other writings entered into, executed, granted, issued and/or
delivered pursuant to the terms hereof, shall be subject to and limited by any
and all votes, consents, approvals, waivers or other actions of all or certain
stockholders of the Company or other persons required pursuant to (i) the
Company's Certificate of Incorporation (as the same may be amended and/or
restated from time to time), (ii) the Company's Bylaws (as the same may be
amended and/or restated from time to time), and (iii) any agreement, instrument,
document or writing now or hereafter existing, between or among the Company and
its stockholders or other persons (as the same may be amended from time to
time).
ADOPTION AND APPROVAL OF PLAN
<TABLE>
<CAPTION>
<S> <C>
Date Plan adopted by Board: October 12, 1994
Date Plan approved by Stockholders: December 20, 1994
Effective Date of Plan: October 12, 1994
</TABLE>
AMENDMENTS TO PLAN
<TABLE>
<CAPTION>
<S> <C>
Date of approval by Board of Amendment to Plan
increasing the Pool to Eight Hundred Thousand
(800,000) Shares: December 15, 1994
Date of approval by Board of Amendment to Plan
increasing the Pool to One Million Forty Thousand
1,040,000) Shares: January 27, 1995
</TABLE>
18.
<PAGE>
Date of approval by Stockholders of Amendment to
Plan increasing the Pool to One Million Forty
Thousand (1,040,000) Shares: March 7, 1995
Date of approval by Board of Amendment to Plan
increasing the Pool to One Million One Hundred
Forty Thousand (1,140,000) Shares: November 22, 1995
Date of approval by Board of Amendment to Plan
increasing the Pool to One Million Seven Hundred
Ninety Thousand (1,790,000) Shares: March 28, 1996
Date of approval by Board of Amendment to Plan
increasing the Pool to Three Million Two Hundred
Ninety Thousand (3,290,000) Shares: May 2, 1996
Date of approval by Stockholders of Amendment to
Plan increasing the Pool to Three Million Two
Hundred Ninety Thousand (3,290,000) shares: May 6, 1996
Date of approval by Board of Amendment to Plan
increasing the Pool to Three Million Three Hundred
Ninety Thousand (3,390,000) Shares: May 16, 1996
Date of approval by Stockholders of Amendment to
Plan increasing the Pool to Three Million Three
Hundred Ninety Thousand (3,390,000) Shares: July 15, 1996
Date of approval by Board of modification of the
definition of "cause" in Section 7(h): August 14, 1996
Date of approval by Board of Amendment to Plan [MINUTES NOT PROVIDED TO
increasing the Pool to Eight Million Three Hundred PH&S BOARD --PLEASE CHECK
Ninety Thousand (8,390,000) Shares: MINUTES TO CONFIRM DATE]
Date of approval by Stockholders of Amendment to [THE WRITTEN CONSENT WAS
Plan increasing the Pool to Eight Million Three FORWARDED TO COOLEY,
Hundred Ninety Thousand (8,390,000) Shares: GODWARD, BUT HAD NOT BEEN
DATED PENDING RECEIPT OF
SIGNATURES OF CERTAIN
PREFERRED
Date of approval by Board of Amendment and
Restatement of the Plan December 13, 1999
19.
<PAGE>
See Restrictive Legends Set Forth On The Last Page Hereof
Diversa Corporation
Incentive Stock Option Agreement
Diversa Corporation, a Delaware corporation (the "Company"), hereby grants
to _____________________________ (the "Optionee") an option to purchase a total
of ________________________________ (_____________) shares of Common Stock (the
"Shares") of the Company, at the price and on the terms set forth herein, and in
all respects subject to the terms and provisions of the Company's 1994 Employee
Incentive and Non-Qualified Stock Option Plan (the "Plan") applicable to
Incentive Stock options, which terms and provisions are hereby incorporated by
reference herein. Unless the context herein otherwise requires, the terms
defined in the Plan shall have the same meanings herein.
1. Nature of the Option. This Option is intended to be an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Date of Grant; Term of Option. This Option is granted this ___________
day of ___________________, 19_____, and it may not be exercised later than
____________________________________________.
3. Option Exercise Price. The Option exercise price is __________________
($_____________) per Share.
4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) Right to Exercise. This Option shall vest and be exercisable
cumulatively, as follows: ______________________________________________________
(b) Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the purchase price and an
executed Stock Purchase Agreement in the form attached hereto. Payment
1.
<PAGE>
of the purchase price shall be by check or such consideration and method of
payment authorized by the Board pursuant to the Plan. The certificate or
certificates for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall be legended as required under
the Plan, the Stock Purchase Agreement, and/or applicable law.
(c) Restrictions on Exercise. This Option may not be exercised if the
issuance of the Shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other laws or regulations. As a
condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulation.
5. Investment Representations. Unless the Shares have been registered
under the Securities Act of 1933, in connection with the acquisition of this
Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of this
Option, he will be acquiring the Shares for investment for his own account, not
as a nominee or agent, and not with a view to, or for resale in connection with,
any distribution thereof.
(b) The Optionee has a preexisting business or personal relationship
with the Company or one of its directors, officers or controlling persons and by
reason of his business or financial experience, has, and could be reasonably
assumed to have, the capacity to protect his interests in connection with the
acquisition of this Option and the Shares.
6. Termination of Status as an Employee. Subject to the provisions of
Section 7 hereof, if the Optionee ceases to serve as an employee of the Company
or its Subsidiaries for any reason other than death or Disability and thereby
terminates his status as an Employee, the Optionee shall have the right to
exercise this Option at any time within the three (3) month period after the
date of such termination to the extent that the Optionee was entitled to
exercise the Option at the date of such termination. If the Optionee ceases to
serve as an employee due to death or Disability, this Option may be exercised at
any time within one (1) year after the date of death or termination of
employment due to Disability, in the case of death, by the Optionee's estate or
by a person who acquired the right to exercise this Option by bequest or
inheritance, or, in the case of Disability, by the Optionee or his legal
guardian or representative, but in any case only to the extent the Optionee was
entitled to exercise this Option at the date of such termination; provided,
however, that if such disabled Optionee shall commence any employment or
engagement during such one (1) year period with or by a competitor of the
Company (including, but not limited to, full or part-time employment or
independent
2.
<PAGE>
consulting work), as determined solely in the judgment of the Board, this Option
shall terminate immediately upon the commencement thereof. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or to the extent the Option is not exercised within the time specified herein,
this Option shall terminate. Notwithstanding the foregoing, this Option shall
not be exercisable after the expiration of the term set forth in Section 2
hereof.
7. Forfeiture of Option. Notwithstanding any other provision of this
Option, if the Optionee's employment is terminated for "cause" (as such term is
defined in the Optionee's employment agreement or invention and non-disclosure
agreement, but, if the Optionee is not a party to either such agreement, then,
as such term is defined in the Stock Purchase Agreement) or if the Board of
Directors makes a determination that the Optionee (i) has engaged in any type of
disloyalty to the Company, including without limitation, fraud, embezzlement,
theft, or dishonesty in the course of his employment, or (ii) has been convicted
of a felony, or (iii) has disclosed trade secrets or confidential information of
the Company, or has breached a non-competition agreement with the Company, all
unexercised Options shall terminate on the earlier of the date of termination
for "cause" or the date of such determination. In the event of such a
determination, in addition to immediate termination of all unexercised Options,
the Optionee shall forfeit all Option shares for which the Company has not yet
delivered share certificates to the Optionee and the Company shall refund to the
Optionee the Option price paid to it. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of share certificates pending the
resolution of any inquiry that could lead to a determination resulting in
forfeiture.
8. Nontransferability of Option. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law, other than by will or by the
laws of descent or distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Subject to the foregoing and the terms of the
Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. Continuation of Employment. Neither the Plan nor this Option shall
confer upon any Optionee any right to continue in the employment of the Company
or any of its Subsidiaries or limit in any respect the right of the Company to
discharge the Optionee at any time, with or without cause and with or without
notice.
10. Withholding. The Company reserves the right to withhold, in accordance
with any applicable laws, from any consideration payable to Optionee any taxes
required to be withheld by federal, state or local law as a result of the grant
or exercise of this Option or the sale or other disposition of the Shares issued
upon exercise of this Option.
3.
<PAGE>
If the amount of any consideration payable to the Optionee is insufficient to
pay such taxes or if no consideration is payable to the Optionee, upon the
request of the Company, the Optionee (or such other person entitled to exercise
the Option pursuant to Section 6 hereof) shall pay to the Company an amount
sufficient for the Company to satisfy any federal, state or local tax
withholding requirements it may incur, as a result of the grant or exercise of
this Option or the sale or other disposition of the Shares issued upon the
exercise of this Option.
11. The Plan. This Option is subject to, and the Company and the Optionee
agree to be bound by, all of the terms and conditions of the Plan as such Plan
may be amended from time to time in accordance with the terms thereof, provided
that no such amendment shall deprive the Optionee, without his consent, of this
Option or any rights hereunder. Pursuant to the Plan, the Board of Directors of
the Company is authorized to adopt rules and regulations not inconsistent with
the Plan as it shall deem appropriate and proper. A copy of the Plan in its
present form is available for inspection during business hours by the Optionee
or the persons entitled to exercise this Option at the Company's principal
office.
12. Conversion to a Non-Qualified Option. Notwithstanding anything to the
contrary set forth herein, this Option is being granted subject to the condition
that in the event the Plan is not approved by the stockholders of the Company
within 365 days of the date that the Plan was adopted by the Board of Directors
of the Company, this Option shall automatically be converted into a non-
qualified stock option.
13. Early Disposition of Stock. Subject to the fulfillment by Optionee of
any conditions upon the disposition of Shares received under this Option,
Optionee hereby agrees that if he disposes of any Shares received under this
Option within one (1) year after such Shares were transferred to him, he will
notify the Company in writing within thirty (30) days after the date of such
disposition.
14. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
15. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California.
16. Amendment. Subject to the provisions of the Plan, this Agreement may
only be amended by a writing signed by each of the parties hereto.
[Execution and acknowledgment are set forth on next page]
4.
<PAGE>
[Option Agreement execution and acknowledgment]
Date:______________________ Diversa Corporation
By:__________________________________
Title:_______________________________
Acknowledgment
The Optionee acknowledges receipt of a copy of the Plan and the form of Stock
Purchase Agreement (including attachments), all of which have been delivered
with this Option, and represents that he has read and is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
or the Committee upon any questions arising under the Plan.
Date:__________________________ ___________________________________
Signature of Optionee
___________________________________
Address
___________________________________
City, State, Zip
THIS OPTION AND THE SECURITIES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS
OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR A SATISFACTORY OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES WHICH MAY BE PURCHASED UPON EXERCISE OF THIS OPTION MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A STOCK PURCHASE AGREEMENT TO
BE ENTERED INTO BETWEEN THE HOLDER OF THIS OPTION AND THE COMPANY UPON EXERCISE
OF THIS OPTION, A COPY OF WHICH AGREEMENT IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
5.
<PAGE>
See Restrictive Legends Set Forth On The Last Page Hereof
Diversa Corporation
Non-Qualified Stock Option Agreement
Diversa Corporation, a Delaware corporation (the "Company"), hereby grants
to _____________________________ (the "Optionee") an option to purchase a total
of ________________________________ (_____________) shares of Common Stock (the
"Shares") of the Company, at the price and on the terms set forth herein, and in
all respects subject to the terms and provisions of the Company's 1994 Employee
Incentive and Non-Qualified Stock Option Plan (the "Plan") applicable to non-
qualified stock options, which terms and provisions are hereby incorporated by
reference herein. Unless the context herein otherwise requires, the terms
defined in the Plan shall have the same meanings herein.
1. Nature of the Option. This Option is intended to be a nonstatutory
stock option and is not intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify for any special tax benefits to the Optionee.
2. Date of Grant; Term of Option. This Option is granted this ________
day of ___________________, 19_____, and it may not be exercised later than
____________________________________________.
3. Option Exercise Price. The Option exercise price is _________________
($_____________) per Share.
4. Exercise of Option. This Option shall be exercisable during its term
only in accordance with the terms and provisions of the Plan and this Option as
follows:
(a) Right to Exercise. This Option shall vest and be exercisable
cumulatively, as follows: ___________________________________________________
(b) Method of Exercise. This Option shall be exercisable by written
notice which shall state the election to exercise this Option, the number of
Shares in respect to which this Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such Shares as may be required by the Company hereunder or pursuant
to the provisions of the Plan. Such written notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company or such other person as may be designated by the Company. The
written notice shall be accompanied by payment of the purchase
1.
<PAGE>
price and an executed Stock Purchase Agreement in the form attached hereto.
Payment of the purchase price shall be by check or such consideration and method
of payment authorized by the Board pursuant to the Plan. The certificate or
certificates for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall be legended as required under
the Plan, the Stock Purchase Agreement, and/or applicable law.
(c) Restrictions on Exercise. This Option may not be exercised if
the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be required by any
applicable law or regulations.
5. Investment Representations. Unless the Shares have been registered
under the Securities Act of 1933, in connection with the acquisition of this
Option, the Optionee represents and warrants as follows:
(a) The Optionee is acquiring this Option, and upon exercise of this
Option, he will be acquiring the Shares for investment for his own account, not
as a nominee or agent, and not with a view to, or for resale in connection with,
any distribution thereof.
(b) The Optionee has a preexisting business or personal relationship
with the Company or one of its directors, officers or controlling persons and by
reason of his business or financial experience, has, and could be reasonably
assumed to have, the capacity to protect his interests in connection with the
acquisition of this Option and the Shares.
6. Termination of Relationship with the Company. Subject to the
provisions of Section 7 hereof, if the Optionee ceases to serve the Company or
its Subsidiaries for any reason other than death or Disability and thereby
terminates his status as an Employee, the Optionee shall have the right to
exercise this Option at any time within the three (3) month period after the
date of such termination to the extent that the Optionee was entitled to
exercise the Option at the date of such termination. If the Optionee ceases to
serve the Company due to death or Disability, this Option may be exercised at
any time within one (1) year after the date of death or termination of
employment due to Disability, in the case of death, by the Optionee's estate or
by a person who acquired the right to exercise this Option by bequest or
inheritance, or, in the case of Disability, by the Optionee or his legal
guardian or representative, but in any case only to the extent the Optionee was
entitled to exercise this Option at the date of such termination; provided,
however, that if such disabled Optionee shall commence any employment or
engagement during such one (1) year period with or by a competitor of
2.
<PAGE>
the Company (including, but not limited to, full or part-time employment or
independent consulting work), as determined solely in the judgment of the Board,
this Option shall terminate immediately upon the commencement thereof. To the
extent that the Optionee was not entitled to exercise the Option at the date of
termination, or to the extent the Option is not exercised within the time
specified herein, this Option shall terminate. Notwithstanding the foregoing,
this Option shall not be exercisable after the expiration of the term set forth
in Section 2 hereof.
7. Forfeiture of Option. Notwithstanding any other provision of this
Option, if the Optionee's employment or engagement is terminated for "cause" (as
such term is defined in the Optionee's employment agreement or invention and
non-disclosure agreement, but, if the Optionee is not a party to either such
agreement, then, as such term is defined in the Stock Purchase Agreement) or if
the Board of Directors makes a determination that the Optionee (i) has engaged
in any type of disloyalty to the Company, including without limitation, fraud,
embezzlement, theft, or dishonesty in the course of his employment, or (ii) has
been convicted of a felony or, (iii) has disclosed trade secrets or confidential
information of the Company, or has breached a non-competition agreement with the
Company, all unexercised Options shall terminate on the earlier of the date of
termination for "cause" or the date of such determination. In the event of such
a determination, in addition to immediate termination of all unexercised
Options, the Optionee shall forfeit all Option shares for which the Company has
not yet delivered share certificates to the Optionee and the Company shall
refund to the Optionee the Option price paid to it. Notwithstanding anything
herein to the contrary, the Company may withhold delivery of share certificates
pending the resolution of any inquiry that could lead to a determination
resulting in forfeiture.
8. Nontransferability of Option. This Option may not be sold, pledged,
assigned, hypothecated, gifted, transferred or disposed of in any manner either
voluntarily or involuntarily by operation of law, other than by will or by the
laws of descent or distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Subject to the foregoing and the terms of the
Plan, the terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. Continuation of Employment or Engagement. Neither the Plan nor this
Option shall confer upon any Optionee any right to continue in the service of
the Company or any of its Subsidiaries or limit, in any respect, the right of
the Company to discharge the Optionee at any time, with or without cause and
with or without notice.
10. Withholding. The Company reserves the right to withhold, in
accordance with any applicable laws, from any consideration payable to Optionee
any taxes required to be withheld by federal, state or local law as a result of
the grant or exercise of this
3.
<PAGE>
Option or the sale or other disposition of the Shares issued upon exercise of
this Option. If the amount of any consideration payable to the Optionee is
insufficient to pay such taxes or if no consideration is payable to the
Optionee, upon the request of the Company, the Optionee (or such other person
entitled to exercise the Option pursuant to Section 6 hereof) shall pay to the
Company an amount sufficient for the Company to satisfy any federal, state or
local tax withholding requirements it may incur, as a result of the grant or
exercise of this Option or the sale or other disposition of the Shares issued
upon the exercise of this Option.
11. The Plan. This Option is subject to, and the Company and the Optionee
agree to be bound by, all of the terms and conditions of the Plan as such Plan
may be amended from time to time in accordance with the terms thereof, provided
that no such amendment shall deprive the Optionee, without his consent, of this
Option or any rights hereunder. Pursuant to the Plan, the Board of Directors of
the Company is authorized to adopt rules and regulations not inconsistent with
the Plan as it shall deem appropriate and proper. A copy of the Plan in its
present form is available for inspection during business hours by the Optionee
or the persons entitled to exercise this Option at the Company's principal
office.
12. Entire Agreement. This Agreement, together with the Plan and the
other exhibits attached thereto or hereto, represents the entire agreement
between the parties.
13. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California.
14. Amendment. Subject to the provisions of the Plan, this Agreement may
only be amended by a writing signed by each of the parties hereto.
[Execution and acknowledgment are set forth on the next page]
4.
<PAGE>
[Option Agreement execution and acknowledgment]
Date:__________________________ Diversa Corporation
By:________________________________
Title:_____________________________
Acknowledgment
The Optionee acknowledges receipt of a copy of the Plan and the form of Stock
Purchase Agreement (including attachments), all of which have been delivered
with this Option, and represents that he has read and is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
or the Committee upon any questions arising under the Plan.
Date:__________________________ ___________________________________
Signature of Optionee
___________________________________
Address
___________________________________
City, State, Zip
This option and the securities which may be purchased upon exercise of this
option have not been registered under the Securities Act of 1933, as amended,
and have been acquired for investment and not with a view to, or in connection
with, the sale, transfer or distribution thereof. No such sale, transfer or
distribution may be effected without an effective registration statement
relating thereto or a satisfactory opinion of counsel satisfactory to the
Company that such registration is not required.
The shares which may be purchased upon exercise of this option may be
transferred only in accordance with the terms of a stock purchase agreement to
be entered into between the holder of this option and the Company upon exercise
of this option, a copy of which agreement is on file with the Secretary of the
Company.
5.
<PAGE>
EXHIBIT 10.4
DIVERSA CORPORATION
1997 EQUITY INCENTIVE PLAN
Adopted August 28, 1997
Approved by Shareholders October 15, 1997
Amended on June 25, 1998 to Increase Number of Shares Under Plan to 8,112,531
Approved by Stockholders on July 30, 1998
Amended on November ___, 1999
Approved by Stockholders on November ___, 1999
Amended and Restated on December ___, 1999
Approved by Stockholders on December __, 1999
1. Purposes.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
1.
<PAGE>
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Company" means Diversa Corporation, a Delaware corporation.
(f) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "Continuous Status as an Employee, Director or Consultant" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board may determine, in its
sole discretion, whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board or the chief executive officer of the Company,
including sick leave, military leave, or any other personal leave; or (ii)
transfers between the Company, Affiliates or their successors.
(h) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(i) "Director" means a member of the Board.
(j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.
<PAGE>
(l) "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows (and in each case prior to the
Listing Date, in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations).
(i) If the common stock is listed on any established stock exchange
or traded on the Nasdaq National Market or The Nasdaq SmallCap Market, the Fair
Market Value of a share of common stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Company's common stock) on the last market trading day prior to
the day of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable.
(ii) In the absence of such markets for the common stock, the Fair
Market Value shall be determined in good faith by the Board.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(o) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(p) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(q) "Officer" means (i) prior to the Listing Date, any person designated
by the Company as an officer and (ii) from and after the Listing Date, a person
who is an officer
3.
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of the Company within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(t) "Optionee" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
(u) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "Plan" means this 1997 Equity Incentive Plan.
(w) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(x) "Securities Act" means the Securities Act of 1933, as amended.
(y) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(z) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. Administration.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
4.
<PAGE>
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 13.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of two (2) or more members (the "Committee"), all of the
members of which Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the Listing Date, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to a committee of one or more members of the
Board and the term "Committee" shall apply to any person or persons to whom such
authority has been delegated. In addition, notwithstanding anything in this
Section 3 to the contrary, the Board or the Committee may delegate to a
committee of one or more members of the Board the authority to grant Stock
Awards to eligible persons who (x) are not then subject to Section 16 of the
5.
<PAGE>
Exchange Act and/or (y) are either (i) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income resulting
from such Stock Award, or (ii) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code.
(d) Limitation of Liability. Notwithstanding anything herein to the
contrary, no member of the Board or the Committee shall be liable for any good
faith determination, act or failure to act in connection with the Plan or any
Option granted hereunder.
4. Shares Subject To The Plan.
(a) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate Seventeen Million Two Hundred Thirty-Three Thousand
Five Hundred Seventy-Five (17,233,575) shares of the Company's common stock. If
any Stock Award shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full, the stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. Eligibility.
(a) Incentive Stock Options may be granted only to Employees. Stock Awards
other than Incentive Stock Options may be granted only to Employees, Directors
or Consultants.
(b) Prior to the Listing Date, no person shall be eligible for the grant
of an Option or an award to purchase restricted stock if, at the time of grant,
such person owns (or is deemed to own pursuant to Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any of its Affiliates unless the
exercise price of such Option is at least one hundred ten percent (110%) of the
Fair Market Value of such stock at the date of grant and the Option is not
exercisable after the expiration of five (5) years from the date of grant, or in
the case of a restricted stock purchase award, the purchase price is at least
one hundred percent (100%) of the Fair Market Value of such stock at the date of
grant. From and after the Listing Date this provision shall apply only to
Incentive Stock Options.
(c) Subject to the provisions of Section 12 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than Two Million (2,000,000) shares of the Company's common stock in any
calendar year.
6.
<PAGE>
This subsection 5(c) shall not apply prior to the Listing Date and, following
the Listing Date, shall not apply until (i) the earliest of: (A) the first
material modification of the Plan (including any increase to the number of
shares reserved for issuance under the Plan in accordance with Section 4); (B)
the issuance of all of the shares of common stock reserved for issuance under
the Plan; (C) the expiration of the Plan; or (D) the first meeting of
shareholders at which directors are to be elected that occurs after the close of
the third calendar year following the calendar year in which occurred the first
registration of an equity security under section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Incentive Stock Option on the date of grant; the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Nonstatutory Stock
Option on the date of grant. Notwithstanding the foregoing, an Option (whether
an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment arrangement or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board. In the case of
any deferred payment arrangement, interest shall be compounded at least annually
and shall be charged at the minimum rate of interest necessary to avoid the
treatment as
7.
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interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement. In
addition, to the extent required by law, the "par value" of the stock (if any)
will be paid in cash at the time the Option is exercised.
(d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person. Prior to the Listing Date, a Nonstatutory Stock Option shall not
be transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person. From and after the Listing Date, a Nonstatutory
Stock Option may be transferable to the extent provided in the Option Agreement;
provided, however, that if the Option Agreement does not specifically provide
for transferability, then such Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. Prior to the Listing Date,
the vesting provisions of individual Options may vary but in each case will
provide for vesting of at least twenty percent (20%) per year of the total
number of shares subject to the Option. Notwithstanding the foregoing, an Option
granted to an Officer, Director or Consultant may become fully exercisable,
subject to reasonable conditions such as continued employment, at any time or
during any period established by the Company or of any of its Affiliates. The
provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(f) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise the Option (to the extent that the Optionee was entitled
to exercise it as of the date of termination) but only within such period of
time ending on the earlier of (i) the
8.
<PAGE>
date three (3) months following the termination of the Optionee's Continuous
Status as an Employee, Director or Consultant (or such longer or shorter period,
which shall in no event be less than thirty (30) days, specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement; provided, however, if the Optionee is terminated for cause,
then the Option shall terminate on the date Optionee's Continuous Status as an
Employee, Director or Consultant ceases. If, at the date of termination, the
Optionee is not entitled to exercise the entire Option, the shares covered by
the unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after termination, the Optionee does
not exercise the Option within the time specified in the Option Agreement, the
Option shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the first paragraph of this
subsection 6(f), or (ii) the expiration of a period of three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation of
such registration requirements.
(g) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise the Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which prior
to the Listing Date shall not be less than six (6) months, specified in the
Option Agreement), or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, at the date of termination, the Optionee is not
entitled to exercise the entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise the Option
within the time specified herein, the Option shall
9.
<PAGE>
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
as of the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period, which
prior to the Listing Date shall not be less than six (6) months, specified in
the Option Agreement), or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise the entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(i) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate. Prior to the Listing
Date, however, any unvested shares so purchased shall be subject to a repurchase
right in favor of the Company, with the repurchase price to be equal to the
original purchase price of the stock, or to any other restriction the Board
determines to be appropriate; provided, however, that (i) the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Option was
granted, and (ii) such right shall be exercisable only within (A) the ninety
(90)-day period following the termination of employment or the relationship as a
Director or Consultant, or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")), and (iii) such right shall be exercisable only for cash or
cancellation of purchase money indebtedness for the shares. Notwithstanding the
foregoing, shares received on exercise of an Option by an Officer, Director or
Consultant may be subject to additional or greater restrictions.
(j) Right of Repurchase. The Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to repurchase all or
any part of
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the vested shares exercised pursuant to the Option; provided, however, that (i)
such repurchase right shall be exercisable only within (A) the ninety (90)-day
period following the termination of employment or the relationship as a Director
or Consultant (or in the case of a post-termination exercise of the Option, the
ninety (90)-day period following such post-termination exercise), or (B) such
longer period as may be agreed to by the Company and the Optionee (for example,
for purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), (ii) such repurchase right shall
be exercisable for less than all of the vested shares only with the Optionee's
consent, and (iii) such right shall be exercisable only for cash or cancellation
of purchase money indebtedness for the shares at a repurchase price equal to the
stock's Fair Market Value at the time of such termination. Notwithstanding the
foregoing, shares received on exercise of an Option by an Officer, Director or
Consultant may be subject to additional or greater restrictions specified in the
Option Agreement.
(k) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Such right of first refusal shall be exercised by the Company no more
than thirty (30) days following receipt of notice of the Optionee's intent to
transfer shares and must be exercised as to all the shares the Optionee intends
to transfer unless the Optionee consents to exercise for less than all the
shares offered. The purchase of the shares following exercise shall be completed
within sixty (60) days of the Company's receipt of notice of the Optionee's
intent to transfer shares, or such longer period of time as has been offered by
the person to whom the Optionee intends to transfer the shares, or as may be
agreed to by the Company and the Optionee (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock").
7. Terms Of Stock Bonuses And Purchases Of Restricted Stock.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such Stock Award Agreement, but in no event shall the
purchase price be less than eighty-five percent (85%) of the stock's Fair Market
Value on the date such Stock Award
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is made. Notwithstanding the foregoing, the Board or the Committee may determine
that eligible participants in the Plan may be awarded stock pursuant to a stock
bonus agreement in consideration for past services actually rendered to the
Company or for its benefit.
(b) Transferability. Rights under a stock bonus or restricted stock
purchase agreement shall be transferable only by will or the laws of descent and
distribution, so long as stock awarded under such Stock Award Agreement remains
subject to the terms of the agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment arrangement or other arrangement with the person to whom the
stock is sold; or (iii) in any other form of legal consideration that may be
acceptable to the Board or the Committee in its discretion. In addition, to the
extent required by law, the "par value" of the stock (if any) will be paid in
cash at the time the Option is exercised. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee. Prior to
the Listing Date, the applicable agreement shall provide (i) that the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Stock Award
was granted (except that a Stock Award granted to an Officer, Director or
Consultant may become fully vested, subject to reasonable conditions such as
continued employment, at any time or during any period established by the
Company or of any of its Affiliates), and (ii) such right shall be exercisable
only (A) within the ninety (90)-day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the holder of the Stock Award (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), and (iii) such right
shall be exercisable only for cash or cancellation of purchase money
indebtedness for the shares.
(e) Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire,
subject to the limitations described in subsection 7(d), any or all of the
shares of stock held by that
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person which have not vested as of the date of termination under the terms of
the stock bonus or restricted stock purchase agreement between the Company and
such person.
8. Cancellation And Re-Grant Of Options.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock
Option) or, in the case of a 10% shareholder (as described in subsection 5(b))
receiving a new grant of an Incentive Stock Option (any Option if the
cancellation or repricing takes place prior to the Listing Date), not less than
one hundred ten percent (110%) of the Fair Market Value) per share of stock on
the new grant date. Notwithstanding the foregoing, the Board or the Committee
may grant an Option with an exercise price lower than that set forth above if
such Option is granted as part of a transaction to which section 424(a) of the
Code applies.
(b) Shares subject to an Option canceled under this Section 8 shall
continue to be counted against the maximum award of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The repricing of an Option
under this Section 8, resulting in a reduction of the exercise price, shall be
deemed to be a cancellation of the original Option and the grant of a substitute
Option; in the event of such repricing, both the original and the substituted
Options shall be counted against the maximum awards of Options permitted to be
granted pursuant to subsection 5(c) of the Plan. The provisions of this
subsection 8(b) shall be applicable only to the extent required by Section
162(m) of the Code.
9. Covenants Of The Company.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for
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the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
10. Use Of Proceeds From Stock.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. Miscellaneous.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Throughout the term of any Stock Award, the Company shall deliver to
the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This subsection shall not
apply (i) after the Listing Date, or (ii) when issuance is limited to key
employees whose duties in connection with the Company assure them access to
equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue serving as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause, the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director as provided in the
Company's Bylaws and the provisions of the applicable laws of the Company's
state of incorporation, or the right to terminate the relationship of any
Consultant subject to the terms of such Consultant's agreement with the Company
or any Affiliate.
(e) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the
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first time by any Optionee during any calendar year under the Plan and all other
stock plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(f) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(b), as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(g) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of Company common
stock.
12. Adjustments Upon Changes In Stock.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company),
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the Plan will be appropriately adjusted in the type(s) and maximum number of
securities subject to the Plan pursuant to subsection 4(a) and the maximum
number of securities subject to award to any person during any calendar year
pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the type(s) and number of securities and price per
share of stock subject to such outstanding Stock Awards. Such adjustments shall
be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of a Change in Control (as defined herein): (i) any
surviving corporation or acquiring corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar stock awards (including
an award to acquire the same consideration paid to the shareholders in a Change
in Control) for those outstanding under the Plan, or (ii) in the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, (A) with respect to Stock Awards held by persons then performing services
as Employees, Directors or Consultants, the vesting (and, if applicable, the
exercisability) of such Stock Awards shall be accelerated prior to such event
and the Stock Awards terminated if not exercised at or prior to such event, and
(B) with respect to any other Stock Awards outstanding under the Plan, such
Stock Awards shall be terminated if not exercised prior to such event.
(c) For purposes of the Plan, a "Change in Control" shall mean: (1) a
dissolution, liquidation or sale of all or substantially all of the assets of
the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
from and after the Listing Date, the acquisition by any person, entity or group
within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors (excluding any financing transactions,
including an initial public offering entered into by the Company).
"(d) Special Provisions.
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(i) Acceleration Provisions. Notwithstanding any other provisions of this
Plan to the contrary, if (i) a Change in Control (as such term is defined in
Section 12(c) above) occurs and (ii) within one (1) month prior to the date of
such Change in Control or thirteen (13) months after the date of such Change in
Control the Continuous Service of a Participant terminates due to an involuntary
termination (not including death or Disability) without Cause or due to a
Constructive Termination, then the vesting and exercisability of all Stock
Awards held by such Participant shall be accelerated and any reacquisition or
repurchase rights held by the Company with respect to a Stock Award shall lapse
in full; provided, however, that if such potential acceleration of the vesting
and exercisability of Stock Awards (or lapse of reacquisition or repurchase
rights held by the Company with respect to Stock Awards) would cause a
contemplated Change in Control transaction that would otherwise be eligible to
be accounted for as a "pooling-of-interests" transaction to become ineligible
for such accounting treatment under generally accepted accounting principles as
determined by the Company's independent certified public accountants (the
"Accountants") prior to the Change in Control, such acceleration shall not
occur.
"Cause" means the occurrence of any of the following (and only the
following): (i) conviction of the terminated Participant of any felony involving
fraud or act of dishonesty against the Company or its Affiliates; (ii) conduct
by the terminated Participant which, based upon good faith and reasonable
factual investigation and determination of the Company (or, if the terminated
Participant is an Officer, of the Board), demonstrates gross unfitness to serve;
or (iii) intentional, material violation by the terminated Participant of any
statutory or fiduciary duty of the terminated Participant to the Company or its
Affiliates. In addition, if the terminated Participant is not an Officer, Cause
also shall include poor performance of the terminated Participant's services for
the Company or its Affiliates as determined by the Company following (A) written
notice to the Participant describing the nature of such deficiency and (b) the
Participant's failure to cure such deficiency within thirty (30) days following
receipt of the such written notice.
"Constructive Termination" means the occurrence of any of the
following events or conditions: (i) (A) a change in the Participant's status,
title, position or responsibilities (including reporting responsibilities) which
represents an adverse change from the Participant's status, title, position or
responsibilities as in effect at any time within ninety (90) days preceding the
date of a Change in Control (as defined in subsection 12(c)) or at any time
thereafter; (B) the assignment to the Participant of any duties or
responsibilities which are inconsistent with the Participant's status, title,
position or responsibilities as in effect at any time within ninety (90) days
preceding the date of a Change in Control or at any time thereafter; or (C) any
removal of the Participant from or failure to reappoint or reelect the
Participant to any of such offices or positions, except in connection with the
termination of the Participant's Continuous Service for Cause, as a result of
the Participant's Disability or death or by the Participant other than as a
result of Constructive Termination; (ii) a reduction in the Participant's annual
base compensation or any failure to pay the Participant any compensation or
benefits to which the Participant is entitled within five (5) days of the date
due; (iii) the Company's requiring the
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Participant to relocate to any place outside a forty (40) mile radius of the
Participant's current work site, except for reasonably required travel on the
business of the Company or its Affiliates which is not materially greater than
such travel requirements prior to the Change in Control; (iv) the failure by the
Company to (A) continue in effect (without reduction in benefit level and/or
reward opportunities) any material compensation or employee benefit plan in
which the Participant was participating at any time within ninety (90) days
preceding the date of a Change in Control or at any time thereafter, unless such
plan is replaced with a plan that provides substantially equivalent compensation
or benefits to the Participant, or (B) provide the Participant with compensation
and benefits, in the aggregate, at least equal (in terms of benefit levels
and/or reward opportunities) to those provided for under each other employee
benefit plan, program and practice in which the Participant was participating at
any time within ninety (90) days preceding the date of a Change in Control or at
any time thereafter; (v) any material breach by the Company of any provision of
an agreement between the Company and the Participant, whether pursuant to this
Plan or otherwise, other than a breach which is cured by the Company within
fifteen (15) days following notice by the Participant of such breach; or (vi)
the failure of the Company to obtain an agreement, satisfactory to the
Participant, from any successors and assigns to assume and agree to perform the
obligations created under this Plan.
(ii) Parachute Payments. In the event that the acceleration of the vesting
and exercisability of the Stock Awards and/or the lapse of reacquisition or
repurchase rights with respect to Stock Awards provided for in subsection
12(d)(i) and benefits otherwise payable to a Participant (i) constitute
"parachute payments" within the meaning of Section 280G of the Code, or any
comparable successor provisions, and (ii) but for this subsection would be
subject to the excise tax imposed by Section 4999 of the Code, or any comparable
successor provisions (the "Excise Tax"), then such Participant's benefits
hereunder shall be either
(A) provided to such Participant in full, or
(B) provided to such Participant as to such lesser extent which
would result in no portion of such benefits being subject to
the Excise Tax,
whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, and any
other applicable taxes, results in the receipt by such Participant, on an after-
tax basis, of the greatest amount of benefits, notwithstanding that all or some
portion of such benefits may be taxable under the Excise Tax. Unless the Company
and such Participant otherwise agree in writing, any determination required
under this subsection shall be made in writing in good faith by the Accountants.
In the event of a reduction of benefits hereunder, the Participant shall be
given the choice of which benefits to reduce. For purposes of making the
calculations required by this subsection, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of the Code,
and other
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applicable legal authority. The Company and the Participant shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this subsection. The Company
shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this subsection.
If, notwithstanding any reduction described in this subsection, the
IRS determines that the Participant is liable for the Excise Tax as a result of
the receipt of the payment of benefits as described above, then the Participant
shall be obligated to pay back to the Company, within thirty (30) days after a
final IRS determination or in the event that the Participant challenges the
final IRS determination, a final judicial determination, a portion of the
payment equal to the "Repayment Amount." The Repayment Amount with respect to
the payment of benefits shall be the smallest such amount, if any, as shall be
required to be paid to the Company so that the Participant's net after-tax
proceeds with respect to any payment of benefits (after taking into account the
payment of the Excise Tax and all other applicable taxes imposed on such
payment) shall be maximized. The Repayment Amount with respect to the payment of
benefits shall be zero if a Repayment Amount of more than zero would not result
in the Participant's net after-tax proceeds with respect to the payment of such
benefits being maximized. If the Excise Tax is not eliminated pursuant to this
paragraph, the Participant shall pay the Excise Tax.
Notwithstanding any other provision of this subsection 12(d)(ii), if
(i) there is a reduction in the payment of benefits as described in this
subsection, (ii) the IRS later determines that the Participant is liable for the
Excise Tax, the payment of which would result in the maximization of the
Participant's net after-tax proceeds (calculated as if the Participant's
benefits had not previously been reduced), and (iii) the Participant pays the
Excise Tax, then the Company shall pay to the Participant those benefits which
were reduced pursuant to this subsection contemporaneously or as soon as
administratively possible after the Participant pays the Excise Tax so that the
Participant's net after-tax proceeds with respect to the payment of benefits is
maximized.
If the Participant either (i) brings any action to enforce rights
pursuant to this subsection 12(d)(ii), or (ii) defend any legal challenge to his
or her rights hereunder, the Participant shall be entitled to recover attorneys'
fees and costs incurred in connection with such action, regardless of the
outcome of such action; provided, however, that in the event such action is
commenced by the Participant, the court finds the claim was brought in good
faith.
13. Amendment Of The Plan and Stock Awards.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company to
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the extent shareholder approval is necessary for the Plan to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 under the Exchange Act or
any Nasdaq or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for shareholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. Termination Or Suspension Of The Plan.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on August 27, 2007, which is the day prior
to the tenth anniversary of the date the Plan was adopted by the Board or
approved by the shareholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Stock Award was granted.
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15. Effective Date Of Plan.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, the Stock Awards have been qualified or exempted from
qualification under the laws of the State of California.
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STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of (i) Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act") and (ii)
Section 25102(o) of the California Corporations Code. Defined terms not
explicitly defined in this Stock Option Agreement but defined in the Plan shall
have the same definitions as in the Plan.
The details of your option are as follows:
1. Vesting. Subject to the limitations contained herein, your option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Status as an Employee, Director or Consultant.
2. Number of Shares and Exercise Price. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. Exercise prior to Vesting ("Early Exercise"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement; and
(c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred.
4. ISO Exercise Limitation.
(a) The aggregate Fair Market Value of the shares of Common Stock
with respect to which you may exercise your option for the first time during any
calendar year, when added to the aggregate Fair Market Value of the shares of
Common Stock subject to any other
1.
<PAGE>
options designated as Incentive Stock Options and granted to you under any stock
option plan of the Company or an Affiliate prior to the Date of Grant with
respect to which such options are exercisable for the first time during the same
calendar year, shall not exceed $100,000 (the "ISO Exercise Limitation") unless
applicable law requires that your option be exercisable sooner./1/
(b) Notwithstanding the provisions of paragraph 4(a), if the ISO
Exercise Limitation would prevent you from exercising your option as to vested
shares, then the ISO Exercise Limitation shall terminate as to such vested
shares as such shares vest, and you may exercise your option as to such vested
shares. Upon such termination of the ISO Exercise Limitation, your option shall
be deemed a Nonstatutory Stock Option to the extent of the number of vested
shares of Common Stock subject to your option that would otherwise exceed the
ISO Exercise Limitation.
(c) The ISO Exercise Limitation shall terminate, and you may fully
exercise your option, as to all shares of Common Stock subject to your option
for which your option would have been exercisable in the absence of the ISO
Exercise Limitation upon the earlier of the following events:
(i) the date of termination of your Continuous Service,
(ii) the day immediately prior to the effective date of a Change
in Control (as defined in the Plan) in which your option is not assumed or
substituted for as provided in the Plan, or
(iii) the day that is ten (10) days prior to the Expiration Date
of your option.
Upon such termination of the ISO Exercise Limitation, your option shall be
deemed a Nonstatutory Stock Option to the extent of the number of shares of
Common Stock subject to your option that would otherwise then exceed the ISO
Exercise Limitation.
5. Method Of Payment.
(a) Payment Options. Payment of the exercise price by cash or check
is due in full upon exercise of all or any part of your option, provided that
you may elect, to the extent permitted by applicable law and the Grant Notice,
to make payment of the exercise price under one of the following alternatives:
(i) Pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which, prior to the issuance of Common
Stock, results in either the receipt of cash (or check) by the Company or the
receipt of irrevocable instructions to pay the aggregate exercise price to the
Company from the sales proceeds;
____________________
/1/ For purposes of this provision, your options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted to
you, and the Fair Market Value of shares of Common Stock shall be determined as
of the time the option with respect to such shares of Common Stock is granted.
If Section 422 of the Code is amended to provide for a different limitation from
that set forth in this provision, the ISO Exercise Limitation shall be deemed
amended effective as of the date required or permitted by such amendment to the
Code.
2.
<PAGE>
(ii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street Journal, by
delivery of already-owned shares of Common Stock, held for the period required
to avoid a charge to the Company's reported earnings, and owned free and clear
of any liens, claims, encumbrances or security interests, which Common Stock
shall be valued at its fair market value on the date of exercise; or
(iii) By a combination of the above methods.
6. Whole Shares. Your option may only be exercised for whole shares.
7. Securities Law Compliance. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
8. Term. The term of your option commences on the Date of Grant and
expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) the tenth (10th) anniversary of the Date of Grant;
(iii) twelve (12) months after either (x) your death or (y) the
termination of your Continuous Status as Employee, Director or Consultant as a
result of disability;
(iv) termination of your Continuous Status as Employee, Director or
Consultant for cause; or
(v) three (3) months after the termination of your Continuous Status
as an Employee, Director or Consultant for any other reason, provided that if
during any part of such three (3)-month period the option is not exercisable
solely because of the condition set forth in paragraph 7 (Securities Law
Compliance), in which event the option shall not expire until the earlier of the
Expiration Date or until it shall have been exercisable for an aggregate period
of three (3) months after the termination of Continuous Status as an Employee,
Director or Consultant.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
grant date of the option and ending on the day three (3) months before the date
of the option's exercise, you must be an employee of the Company, except in the
event of your death or permanent and total disability. The Company cannot
guarantee that your option will be treated as an "incentive stock option" if you
exercise your option more than three (3) months after the date your employment
with the Company terminates.
3.
<PAGE>
9. Exercise.
(a) You may exercise the vested portion of your option during its
term by delivering a Notice of Exercise (in the form attached to your Grant
Notice) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the Company
may require you to enter an arrangement providing for the payment by you to the
Company of any tax withholding obligation of the Company arising by reason of
(1) the exercise of your option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3) the
disposition of shares acquired upon such exercise;
(ii) prior to the effective date of the first registration
statement registering securities of the Company filed under the Act, as a
condition to any exercise of your option, you shall execute and deliver a voting
Agreement in the form attached to your Stock Option Grant Notice as it may be
modified by the Company;
(iii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of an incentive stock option that occurs within two (2)
years after the Date of Grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option; and
(iv) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act as may be requested by the Company or the representative of the
underwriters. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
10. Transferability. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
11. Right of First Refusal.
(a) Subject to subparagraphs 11(e) and 11(f) below, if you intend to
sell or transfer any Common Stock, you shall give written notice (the "Notice"),
delivered or mailed as provided in paragraph 13, to the Company stating that you
intend to make such a sale or transfer, identifying the party who made the offer
to purchase the Common Stock (the "Proposed Transferee"), specifying the number
of shares of Common Stock proposed to be purchased or
4.
<PAGE>
acquired pursuant to the offer (the "First Refusal Shares"), specifying the per
share purchase price which the Proposed Transferee has offered to pay for the
First Refusal Shares (the "Sale Price"), and any other material facts relating
to the proposed sale or transfer, and certifying the bona fide nature of the
proposed sale or transfer.
(b) Upon receipt of the Notice, the Company shall have the
irrevocable and exclusive option to buy all (to the extent permitted by
applicable law) of the First Refusal Shares at the Sale Price (the "First
Refusal Right") on the same terms and conditions as offered by the Proposed
Transferee. Within thirty (30) calendar days of the Company's receipt of the
Notice, the Company shall deliver or mail, as provided in paragraph 13, to you a
written notice stating whether the Company elects to exercise its First Refusal
Right under this paragraph 11, and such notice shall constitute an irrevocable
commitment to purchase such First Refusal Shares. The Company shall complete the
purchase of the First Refusal Shares which it has agreed to purchase within
sixty (60) days of the Company's receipt of the Notice or such longer period of
time as has been offered by the Proposed Transferee, or as may be agreed to by
you and the Company for example, for purposes of satisfying the requirements of
Section 1202(c) of the Internal Revenue Code of 1986, as amended.
(c) If the Company elects to purchase the First Refusal Shares
hereunder, the sale of the First Refusal Shares to the Company shall be made at
the offices of the Company on the thirtieth (30th) day following the expiration
of the Company's 30-day period after the Notice is made (or if such thirtieth
(30th) day is not a business day, then on the next succeeding business day).
Such sale shall be effected by your delivery to the Company of a certificate or
certificates evidencing the First Refusal Shares to be purchased by it, duly
endorsed for transfer to the Company, which First Refusal Shares shall be
delivered free and clear of all liens, charges, claims and encumbrances of any
nature whatsoever, against payment to you of the purchase price therefor by the
Company. Payment for the First Refusal Shares shall be made as provided in the
Notice or by wire transfer or certified check, or by any other means acceptable
to you and the Company.
(d) If the First Refusal Shares are not purchased by the Company
pursuant to this paragraph 11, then you shall be free for a period of ninety
(90) calendar days from the date of the Company's receipt of the Notice to sell
the First Refusal Shares to the Proposed Transferee, at a price equal to or
greater than the Sale Price and on the other terms and conditions originally
offered by the Proposed Transferee. The Company shall be entitled to obtain such
evidence as it may reasonably request in order to confirm that any such sale to
the Proposed Transferee complies with this subparagraph 11(d).
(e) The First Refusal Right set forth in this paragraph 11 shall not
apply to any transfer to your executor, conservator, or personal representative
--
in the event of your death, disability or incapacity. Any transfer under this
subparagraph 11(e), however, shall not cause to lapse or bar the Company's
enforcement of the Company's First Refusal Right. The Company may condition the
completion of any transfer under this subparagraph 11(e) on the transferee
executing such document or documents as the Company may require in its
discretion or on the advice of the Company's outside counsel to preserve the
Company's rights under this Stock Option Agreement.
5.
<PAGE>
(f) This First Refusal Right shall terminate on the effective date of
the first registration statement registering securities of the Company filed
under the Act.
12. Option Not a Service Contract. Your option is not an employment
contract and nothing in your option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in your option shall obligate the Company, its shareholders, board of
directors, officers or employees to continue any relationship which you might
have as a Director or Consultant for the Company.
13. Notices. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
14. Governing Plan Document. Your option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of your option,
including without limitation the provisions of the Plan relating to option
provisions, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
6.
<PAGE>
EXHIBIT 10.5
Diversa Corporation
STOCK OPTION GRANT NOTICE
(1997 Equity Incentive Plan)
Diversa Corporation (the "Company"), pursuant to its 1997 Equity Incentive Plan
(the "Plan"), hereby grants to Optionee an option to purchase the number of
shares of the Company's common stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in Attachments I, II and
III, which are incorporated herein in their entirety.
Optionee: ______________________________________
Date of Grant: ______________________________________
Vesting Commencement Date: ______________________________________
Shares Subject to Option: ______________________________________
Exercise Price Per Share: ______________________________________
Expiration Date: ______________________________________
____ Incentive Stock Option ____ Nonstatutory Stock Option
Exercise/Vesting Schedule: [25%] vested [12] months from Vesting
Commencement Date; [1/16th of the total
shares subject to the Option vests on the
end of quarterly period thereafter].
Payment: Any or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as provided in the Stock Option Agreement or
(iii) delivering shares of previously-owned common stock, as provided in the
Stock Option Agreement.
Additional Terms/Acknowledgments: The undersigned Optionee acknowledges receipt
of, and understands and agrees to, this Grant Notice, the Stock Option Agreement
and the Plan. Optionee further acknowledges that as of the Date of Grant, this
Grant Notice, the Stock Option Agreement, the Voting Agreement and the Plan set
forth the entire understanding between Optionee and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionee under the Plan, and (ii) the following agreements
only:
Other Agreements: [None.]
--------------------------------------------
____________________________________________
____________________________________________
Diversa Corporation Optionee:
By:_______________________________ ________________________________________
Signature
Title:____________________________
Date:_____________________________ Date:___________________________________
Attachment I: Stock Option Agreement
Attachment II: 1997 Equity Incentive Plan
Attachment III: Notice of Exercise
Attachment IV: Voting Agreement
1.
<PAGE>
Diversa Corporation Diversa Corporation
Stock Option Grant Notice ID: 22-3297375
1997 Equity Incentive Plan 10665 Sorrento Valley Road
San Diego, CA 92121-1623
Option Number:
Plan:
ID:
Effective ________________, the Date of Grant, you have been granted an
Incentive Stock Option to buy ________________ shares of Diversa Corporation
(the Company) Common Stock at ________________ per share, subject to the
provisions of the Stock Option Agreement and the 1997 Equity Incentive Plan (the
Plan), which are attached hereto. The Stock Option will expire on the date
shown below.
The total Stock Option exercise price of the shares granted is ________________.
Exercise/Vesting Schedule: 25% of the shares covered by the Stock Option will
be vested on the Vest Date and 1/16 of the total shares subject to the Stock
Option will vest quarterly thereafter, and will be fully vested on the date as
shown in the table below.
<TABLE>
<CAPTION>
Shares Vest Type Full Vest Expiration
<S> <C> <C> <C>
________________ ________________ ________________ ________________
________________ ________________ ________________ ________________
</TABLE>
Payment: Any one or a combination of the following: (i) by cash or check, (ii)
pursuant to a Regulation T program, as provided in the Stock Option Agreement or
(iii) delivering shares of previously-owned common stock, as provided in the
Stock Option Agreement.
By your signature and the Company's signature below, you and the Company agree
that this Stock Option is granted under and governed by the terms and conditions
of this Grant Notice and the Company's 1997 Equity Incentive Plan (Attachment I)
and the Stock Option Agreement (Attachment II), Notice of Exercise (Attachment
III), and the Voting Agreement (Attachment IV), all of which are incorporated
herein by reference. By your signature below you acknowledge receipt of all
such attachments. In addition, by your signature below you further acknowledge
that as of the Date of Grant, this Grant Notice, the Stock Option Agreement, the
Voting Agreement and the Plan set forth the entire and sole understanding
between you and the Company regarding the Stock Option set forth above and
supercedes all written or oral agreements relating thereto.
__________________________________ ____________________________________
Diversa Corporation Date
__________________________________ ____________________________________
Date
1.
<PAGE>
EXHIBIT 10.6
DIVERSA CORPORATION
1999 Non-Employee Directors' Stock Option Plan
Adopted on December 13, 1999
Approved By Stockholders _______________, _____
Effective Date: _______________, 1999
Termination Date: None
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) Available Options. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Annual Grant" means an Option granted annually to all Non-Employee
Directors who meet the criteria specified in subsection 6(b) of the Plan.
(c) "Annual Meeting" means the annual meeting of the stockholders of the
Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Diversa Corporation, a Delaware corporation.
(h) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for
1.
<PAGE>
such services or (ii) who is a member of the Board of Directors of an Affiliate.
However, the term "Consultant" shall not include either Directors of the Company
who are not compensated by the Company for their services as Directors or
Directors of the Company who are merely paid a director's fee by the Company for
their services as Directors.
(i) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "Initial Grant" means an Option granted to a Non-Employee Director who
meets the criteria specified in subsection 6(a) of the Plan.
2.
<PAGE>
(p) "IPO Date" means the effective date of the initial public offering of
the Common Stock.
(q) "Non-Employee Director" means a Director who is not an Employee.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(s) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Plan" means this Diversa Corporation 1999 Non-Employee Directors'
Stock Option Plan.
(x) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(y) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan. The Board
may not delegate administration of the Plan to a committee.
(b) Powers of Board. The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
3.
<PAGE>
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.
(c) Effect of Board's Decision. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate Two Hundred
Thousand (200,000) shares of Common Stock (determined after the stock split
approved by the Board on December 13, 1999).
(b) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the shares of Common Stock not acquired under such Option
shall revert to and again become available for issuance under the Plan.
(c) Source of Shares. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
The Options as set forth in section 6 automatically shall be granted under
the Plan to all Non-Employee Directors.
6. Non-Discretionary Grants.
(a) Initial Grants. Without any further action of the Board, a Non-
Employee Director shall be granted an Initial Grant as follows:
(i) On the IPO Date, each person who is then a Non-Employee Director
and who has not received an option to purchase shares of the Company's Common
Stock at any time during the twelve (12) month period prior to the IPO Date
automatically shall be granted an Initial Grant to purchase Twenty Thousand
(20,000) shares of Common Stock (determined after the stock split approved by
the Board on December 13, 1999) on the terms and conditions set forth herein.
(ii) After the IPO Date, each person who is elected or appointed for
the first time to be a Non-Employee Director automatically shall, upon the date
of his or her initial election or appointment to be a Non-Employee Director by
the Board or stockholders of the Company, be granted an Initial Grant to
purchase Twenty Thousand (20,000) shares of Common Stock (determined after the
stock split approved by the Board on December 13, 1999) on the terms and
conditions set forth herein.
4.
<PAGE>
(b) Annual Grants. Without any further action of the Board, a Non-Employee
Director shall be granted an Annual Grant as follows: On the day following each
Annual Meeting commencing with the Annual Meeting in 2001, each person who is
then a Non-Employee Director automatically shall be granted an Annual Grant to
purchase Five Thousand (5,000) shares of Common Stock (determined after the
stock split approved by the Board on December 13, 1999) on the terms and
conditions set forth herein; provided, however, that if the person has not been
serving as a Non-Employee Director for the entire period since the preceding
Annual Meeting, then the number of shares subject to the Annual Grant shall be
reduced pro rata for each full quarter prior to the date of grant during which
such person did not serve as a Non-Employee Director.
7. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Exercise Price. The exercise price of each Option shall be one hundred
percent (100%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of the following methods:
(i) By cash or check.
(ii) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that the Optionholder has held for
the period required to avoid a charge to the Company's reported earnings
(generally six months) or that the Optionholder did not acquire, directly or
indirectly from the Company, that are owned free and clear of any liens, claims,
encumbrances or security interests, and that are valued at Fair Market Value on
the date of exercise. "Delivery" for these purposes shall include delivery to
the Company of the Optionholder's attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the foregoing,
the Optionholder may not exercise the Option by tender to the Company of Common
Stock to the extent such tender would violate the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
5.
<PAGE>
(iii) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.
(iv) Pursuant to the following deferred payment provisions:
(1) One hundred percent (100%) of the aggregate exercise price,
plus accrued interest, shall be due four (4) years from date of exercise or upon
termination of your Continuous Service.
(2) Interest shall be compounded annually and shall be charged
at the minimum rate of interest necessary to avoid the treatment as interest,
under any applicable provisions of the Code, of any portion of any amounts other
than amounts stated to be interest under the deferred payment arrangement.
(3) At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall be made in cash and not by deferred payment.
(4) The Optionholder must, as a part of his or her written
notice of exercise, give notice of the election of this payment alternative and
must tender to the Company a promissory note and a security agreement covering
the purchased shares of Common Stock, both in form and substance satisfactory to
the Company, or such other or additional documentation as the Company may
request.
(d) Transferability. An Option is transferable by will or by the laws of
descent and distribution. An Option also is transferable (i) by instrument to
an inter vivos or testamentary trust, in a form accepted by the Company, in
which the Option is to be passed to beneficiaries upon the death of the trustor
(settlor) and (ii) by gift, in a form accepted by the Company, to a member of
the "immediate family" of the Optionholder as that term is defined in 17 C.F.R.
240.16a-1(e). An Option shall be exercisable during the lifetime of the
Optionholder only by the Optionholder and a permitted transferee as provided
herein. However, the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(e) Exercise Schedule. The Option shall be immediately exercisable in full
as of the Date of Grant of the Option.
(f) Vesting Schedule. Options shall vest as follows:
(i) Initial Grants shall provide for vesting of 1/36/th/ of the
shares of Common Stock subject to the Option each month after the date of the
grant of the Option.
6.
<PAGE>
(ii) Annual Grants shall provide for vesting of 1/36/th/ of the shares
of Common Stock subject to the Option each month after the date of the grant of
the Option.
(g) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
(h) Extension of Termination Date. If the exercise of the Option following
the termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 7(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(i) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(j) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
7.
<PAGE>
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. Miscellaneous.
(a) Stockholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(b) No Service Rights. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable
8.
<PAGE>
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(d) Withholding Obligations. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject both to the Plan pursuant to
subsection 4(a) and to the nondiscretionary Options specified in Section 5, and
the outstanding Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to such outstanding
Options. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
any Options outstanding under the Plan or shall substitute similar Options
(including an option to acquire the same consideration paid to the stockholders
in the transaction described in this subsection 11(c) for those outstanding
under the Plan). In the event any surviving corporation or acquiring corporation
refuses to assume such Options or to substitute similar Options for those
outstanding under the Plan, then
9.
<PAGE>
with respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options (and the time during which such Options
may be exercised) shall be accelerated in full, and the Options shall terminate
if not exercised at or prior to such event. With respect to any other Options
outstanding under the Plan, such Options shall terminate if not exercised prior
to such event.
12. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) Amendment of Options. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time. No
Options may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. Effective Date of Plan.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
15. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
10.
<PAGE>
EXHIBIT 10.7
DIVERSA CORPORATION
NONSTATUTORY STOCK OPTION
(1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN)
____________ [Name], Optionee:
Diversa Corporation (the "Company"), pursuant to its 1999 Non-Employee
Directors' Stock Option Plan (the "Plan") has on ___________, 1999 granted to
you, the optionee named above, an option to purchase shares of the common stock
of the Company ("Common Stock"). This option is not intended to qualify and
will not be treated as an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's Non-
Employee Directors (as defined in the Plan).
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
__________ (______). Subject to the limitations contained herein, this option
shall be exercisable in accordance with the Plan.
2. The exercise price of this option is _________ ($____) per share, being
the Fair Market Value (as defined in the Plan) of the Common Stock on the date
of grant of this option.
3. (a) This option may be exercised, to the extent specified in the Plan,
by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to paragraph 6 of the Plan. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
(b) By exercising this option you agree that the Company may require
you to enter an arrangement providing for the cash payment by you to the Company
of any tax withholding obligation of the Company arising by reason of the
exercise of this option or the lapse of any substantial risk of forfeiture to
which the shares are subject at the time of exercise.
4. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed
1.
<PAGE>
to you at the address specified below or at such other address as you hereafter
designate by written notice to the Company.
5. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of Section 7 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the _______ day of ________, 1999.
Very truly yours,
Diversa Corporation
By:________________________________
Duly authorized on behalf
of the Board of Directors
Attachments:
1999 Non-Employee Directors' Stock Option Plan
2.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan;
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock options plans of the Company, and (ii) the following agreements
only:
None___________________________________
(Initial)
Other__________________________________
__________________________________
__________________________________
__________________________________
Optionee
__________________________________
Address
__________________________________
__________________________________
3.
<PAGE>
EXHIBIT 10.8
DIVERSA CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors on December 13, 1999
Approved by the Stockholders on _________, 1999
Adjusted for _____ for _____ stock split approved by the
Board of Directors on December 13, 1999
Effective Date ___________, 1999
1. Purpose.
(a) The purpose of this Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Diversa Corporation, a Delaware
corporation (the "Company"), and its Affiliates, as defined in subparagraph
1(b), which are designated as provided in subparagraph 2(b), may be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. Administration.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which need
not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
1.
<PAGE>
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be treated
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of one (1) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(d) Any interpretation of the Plan by the Board of any decision made by
it under the Plan shall be final and binding on all persons.
3. Shares Subject to the Plan.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate Three Hundred Thousand
(300,000) shares (determined after the stock split approved by the Board on
December 13, 1999) of the Company's common stock (the "Common Stock") plus an
annual increase to be added on the day of each Annual Stockholders Meeting
beginning with the Annual Stockholders Meeting in 2000, equal to the least of
(i) three-fourths of one percent (.75%) of the Company's outstanding shares on
each such date (rounded to the nearest whole share and calculated on a fully
diluted basis, that is assuming the exercise of all outstanding stock options
and warrants to purchase common stock), (ii) two hundred fifty thousand
(250,000) shares (determined after the stock split approved by the Board on
December 13, 1999) and (iii) an amount determined by the Board. If any right
granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. Grant of Rights; Offering.
(a) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or
2.
<PAGE>
the Committee shall deem appropriate, which shall comply with the requirements
of Section 423(b)(5) of the Code that all employees granted rights to purchase
stock under the Plan shall have the same rights and privileges. The terms and
conditions of an Offering shall be incorporated by reference into the Plan and
treated as part of the Plan. The provisions of separate Offerings need not be
identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the document comprising the Offering or
otherwise) the period during which the Offering shall be effective, which period
shall not exceed twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one (1) right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices delivered
hereunder, a right with a lower exercise price (or an earlier-granted right if
two (2) rights have identical exercise prices), will be exercised to the fullest
possible extent before a right with a higher exercise price (or a later-granted
right if two (2) rights have identical exercise prices) will be exercised.
5. Eligibility.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
3.
<PAGE>
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of
this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty five thousand dollars
($25,000) of fair market value of such stock (determined at the time such rights
are granted) for each calendar year in which such rights are outstanding at any
time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan; provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. Rights; Purchase Price.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding fifteen percent (15%) of such
employee's Earnings (as defined in subparagraph 7(a)) during the period which
begins on the Offering Date (or such later date as the Board or the Committee
determines for a particular Offering) and ends on the date stated in the
Offering, which date shall be no later than the end of the Offering. The Board
or the Committee shall establish one (1) or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one (1) Purchase Date, the Board or
the Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
4.
<PAGE>
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. Participation; Withdrawal; Termination.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering an enrollment agreement to the Company within the time
specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company that
is intended to comply with Section 125, Section 401(k), Section 402(e)(3),
Section 402(h) or section 403(b) of the Code, and also including any deferrals
under a non-qualified deferred compensation plan or arrangement established by
the Company), and also, if determined by the Board or the Committee and set
forth in the terms of the Offering, may include any or all of the following: (i)
overtime pay, (ii) commissions, (iii) bonuses, incentive pay, profit sharing and
other remuneration paid directly to the employee, and/or (iv) other items of
remuneration not specifically excluded pursuant to the Plan. Earnings shall not
include the cost of employee benefits paid for by the Company or an Affiliate,
education or tuition reimbursements, imputed income arising under any group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company or an Affiliate under any employee benefit plan, and similar
items of compensation, as determined by the Board or the Committee.
Notwithstanding the foregoing, the Board or Committee may modify the definition
of "Earnings" with respect to one or more Offerings as the Board or Committee
determines appropriate. The payroll deductions made for each participant shall
be credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an eligible
employee may begin such payroll deductions, after the beginning of any Offering
only as provided for in the Offering. A participant may make additional
payments into his or her account only if specifically provided for in the
Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Such withdrawal may be elected at any time prior to the end of the Offering
except as provided by the Board or the Committee in the Offering. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the
5.
<PAGE>
Offering, without interest, and such participant's interest in that Offering
shall be automatically terminated. A participant's withdrawal from an Offering
will have no effect upon such participant's eligibility to participate in any
other Offerings under the Plan but such participant will be required to deliver
a new enrollment agreement in order to participate in subsequent Offerings under
the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. Exercise.
(a) On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of Common Stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase one or more whole shares of
Common Stock on the final Purchase Date of an Offering shall be distributed in
full to the participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
6.
<PAGE>
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. Covenants of the Company.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. Rights as a Stockholder.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company (or
its transfer agent).
12. Adjustments upon Changes in Stock.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company; (2)
a sale of all or substantially all of the assets of the Company; (3) a merger or
consolidation in which the Company is not the surviving corporation; (4) a
reverse merger in which the Company is the surviving corporation but the shares
of the Company's Common Stock outstanding immediately
7.
<PAGE>
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; (5) the acquisition by any
person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or any Affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors; or (6) the individuals who, as of the date
of the adoption of this Plan, are members of the Board (the "Incumbent Board";
(if the election, or nomination for election by the Company's stockholders, of a
new director was approved by a vote of at least fifty percent (50%) of the
members of the Board then comprising the Incumbent Board, such new director
shall upon his or her election be considered a member of the Incumbent Board)
cease for any reason to constitute at least fifty percent (50%) of the Board;
then the Board in its sole discretion may take any action or arrange for the
taking of any action among the following: (i) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for those
under the Plan, (ii) such rights may continue in full force and effect, or (iii)
all participants' accumulated payroll deductions may be used to purchase Common
Stock immediately prior to or within a reasonable period of time following the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. Amendment of the Plan or Offerings.
(a) The Board at any time, and from time to time, may amend the Plan or
the terms of one or more Offerings. However, except as provided in paragraph 12
relating to adjustments upon changes in stock, no amendment shall be effective
unless approved by the stockholders of the Company within twelve (12) months
before or after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan or an Offering (to the extent such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act, or any comparable successor rule ("Rule 16b-
3"); or
(iii) Modify the Plan or an Offering in any other way if such
modification requires stockholder approval in order for the Plan to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan or an Offering in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under an Offering
into compliance therewith.
8.
<PAGE>
(b) The Board may, in its sole discretion, submit any amendment to the
Plan or an Offering for stockholder approval.
(c) Rights and obligations under any rights granted before amendment of
the Plan or Offering shall not be impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under an Offering comply
with the requirements of Section 423 of the Code.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if applicable, from the participant's account
under the Plan in the event of such participant's death subsequent to the end of
an Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living (or if an entity, is otherwise in
existence) at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares and/or cash to the spouse or to any one (1) or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may determine.
15. Termination or Suspension of the Plan.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. The Plan shall automatically terminate if all the shares subject to the
Plan pursuant to subparagraph 3(a) are issued. No rights may be granted under
the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under an Offering comply with the requirements of Section 423 of
the Code.
16. Effective Date of Plan.
The Plan shall become effective on the same day on which the Company's
registration statement under the Securities Act with respect to the initial
public offering of shares of the Company's Common Stock becomes effective (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan had been approved by the stockholders
9.
<PAGE>
of the Company within twelve (12) months before or after the date the Plan is
adopted by the Board or the Committee, which date may be prior to the Effective
Date.
17. Choice of Law.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
10.
<PAGE>
EXHIBIT 10.9
Amended and Restated
Stockholders' Agreement
Dated as of January 25, 1999
by and among
DIVERSA CORPORATION
and
the Stockholders named herein
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions............................................ 1
2. Representations and Certain Covenants.................. 10
2.1 By the Company................................. 10
2.2 By the Stockholders............................ 10
2.3 By the Series A Preferred Stockholders......... 10
2.4 Covenants of the Stockholders.................. 11
3. Legend on Shares and Notice of Transfer................ 11
3.1 Restrictive Legends............................ 11
3.2 Notice of Transfer............................. 12
3.3 Prohibited Transfers........................... 13
3.4 Right of First Refusal; Tag-Along Rights....... 13
4. Rights to Purchase Additional Stock.................... 16
5. Board of Directors..................................... 17
5.1 Number of Directors............................. 17
5.2 Agreement to Vote for Directors................. 17
5.3 Default of Agreement to Vote.................... 18
5.4 Board Observation Rights........................ 18
6. Affirmative Covenants of the Company................... 18
6.1 Use of Proceeds................................. 19
6.2 Consent as to Issuance of Common Stock.......... 19
6.3 Financial Information........................... 19
6.4 Other Reports and Inspection.................... 20
6.5 Corporate Existence............................. 21
6.6 Insurance....................................... 21
6.7 Maintenance of Properties....................... 21
6.8 Compliance with Obligations..................... 21
6.9 Taxes........................................... 21
6.10 Compliance with Law............................. 21
6.11 Environmental Matters........................... 22
6.12 Accounting System............................... 22
</TABLE>
i.
<PAGE>
Table of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
6.13 Reservation of Common Stock................................... 22
6.14 Confidentiality Agreements with Employees and Consultants..... 22
6.15 Board of Directors Meetings................................... 22
6.16 Publicity..................................................... 22
6.17 Registration Rights........................................... 22
6.18 Key Man Life Insurance........................................ 23
6.19 Voting Agreement with Common Stockholders..................... 23
6.20 Option Exercises.............................................. 23
6.21 Proprietary Rights............................................ 23
6.22 Approval of Budget............................................ 23
6.23 Repayment of Loan Agreement and Release of Encumbrances....... 23
7. Negative Covenants of the Company.................................... 23
7.1 Indebtedness; Commitments..................................... 24
7.2 Restriction on Dividends...................................... 24
7.3 Restriction on Issuances of Shares............................ 24
7.4 Protective Provisions......................................... 24
7.5 Business...................................................... 24
7.6 Guarantees.................................................... 24
7.7 Conflicting Agreements........................................ 24
7.8 No Acquisitions............................................... 24
7.9 No Dispositions............................................... 24
7.10 Employee Stock and Stock Options.............................. 25
8. Confidentiality...................................................... 25
9. Events of Noncompliance.............................................. 26
9.1 Occurrence of Event of Noncompliance.......................... 26
9.2 Remedies...................................................... 27
10. Filing of Reports Under the Exchange Act............................. 27
11. Registration Rights.................................................. 28
11.1 Demand Registration Rights..................................... 28
</TABLE>
ii.
<PAGE>
Table of Contents
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
11.2 Registration Requested by Holders......................... 30
11.3 "Piggyback" Registrations................................. 31
11.4 Registrations on S-3...................................... 33
11.5 Company's Obligations in Registration..................... 33
11.6 Payment of Registration Expenses.......................... 35
11.7 Information from Holders of Registrable Securities........ 36
11.8 Indemnification........................................... 36
12. Small Business Matters............................................ 38
12.1 Generally: Certain SBIC Covenants......................... 38
12.2 Regulatory Compliance Cooperation......................... 39
12.3 Information Rights and Related Covenants.................. 40
12.4 Remedies.................................................. 40
13. Duration of Agreement.............................................. 41
14. Additional Remedies................................................ 41
15. Successors and Assigns; Limitation on Assignment................... 41
16. Entire Agreement................................................... 42
17. Notices............................................................ 42
18. Changes............................................................ 43
19. Counterparts....................................................... 43
20. Headings........................................................... 43
21. Nouns and Pronouns................................................. 43
22. Severability....................................................... 43
23. Governing Law; Jurisdiction........................................ 43
24. New York Life Insurance Company Compliance Obligations............. 43
</TABLE>
iv.
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
This Amended and Restated Stockholders' Agreement dated as of January 25, 1999
by and among Diversa Corporation, a Delaware corporation (the "Company"), and
those stockholders of the Company whose names appear on the signature pages
hereof.
R E C I T A L S
Whereas, the Company and the holders of the Series A Preferred Stock have
previously entered into a Stockholders' Agreement dated as of December 21, 1994
by and among the Company (formerly known as Industrial Genome Sciences, Inc.)
and those stockholders whose names appear on the signature pages thereof, as
amended by Amendment No. 1 thereto (the "Original Stockholders' Agreement");
Whereas, the Company and the holders of the Series A, Series B, Series C
and Series D Preferred Stock have previously entered into a Stockholders'
Agreement dated as of May 13, 1996, as amended on July 14, 1997 and October 22,
1997, by and among the Company and those stockholders whose names appear on the
signature pages thereof (the "Prior Stockholders' Agreement"), which superceded
and replaced in its entirety the Original Stockholders' Agreement;
Whereas, the Company is entering, or will enter into, a Stock Purchase
Agreement with the Series E Investors pursuant to which the Company will sell
shares of its Series E Preferred Stock to the Series E Investors;
Whereas, in connection with the sale of the Series E Preferred Stock to the
Series E Investors, the Company and the Stockholders desire to (i) amend and
restate the Prior Stockholders' Agreement to make certain covenants with the
Series E Investors and to grant the Series E Investors certain rights and (ii)
terminate the Prior Stockholders' Agreement in its entirety with such Prior
Stockholders' Agreement being superseded and replaced in its entirety with this
Agreement;
Now, Therefore, in consideration of the foregoing and of the respective
covenants and undertakings hereunder, the parties hereto do hereby agree as
follows:
1. Definitions.
As used in this Agreement, the following terms shall have the following
respective meanings:
"1997 Plan" shall mean the Company's 1997 Equity Incentive Plan.
"Affiliate" shall mean, with respect to any Person, (i) a director, officer
or stockholder of such Person, (ii) a spouse, parent, sibling or descendant of
such Person (or spouse, parent, sibling or descendant of any director or
executive officer of such Person), and (iii) any other Person that,
1.
<PAGE>
directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such Person.
"Applicable Environmental Law" shall mean CERCLA, RCRA, the Federal Waste
Pollution Control Act, 33 U.S.C. (S) (S) 1261 et seq., the Clean Air Act, 42
U.S.C. (S) (S) 7401 et seq., any similar provisions of state or local law in the
countries and jurisdictions where the properties of the Company are located and
where the Company conducts its business and the regulations thereunder and any
other local, state and/or federal laws or regulations, whether currently in
existence or hereafter enacted, that govern:
(a) the existence, cleanup and/or remediation of contamination on
property;
(b) the protection of the environment from spilled, deposited or
otherwise emplaced contamination;
(c) the control of hazardous wastes; or
(d) the use, generation, transport, handling, treatment, storage,
disposal, removal or recovery of Hazardous Materials, including building
materials.
"Board of Directors" shall mean the Board of Directors of the Company.
"Budget" shall have the meaning set forth in Section 6.3(d).
"Business" shall have the meaning set forth in Section 12.1.
"Business and Condition" shall mean the business, operations, properties,
assets, prospects or condition (financial or otherwise) of the Company.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks located in the City of New York are authorized or required to be
closed.
"By-laws" shall mean the By-laws of the Company, as amended.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. (S)(S) 6901 et seq.
"Capital Stock" shall mean any (i) shares of Common Stock, Preferred Stock
or any other equity security of the Company, (ii) debt securities convertible
into or exchangeable for any equity security of the Company, (iii) any debt
security or capitalized lease with any equity feature with respect to the
Company, or (iv) options, warrants or other rights to subscribe for, purchase or
otherwise acquire any such equity security or debt security of the Company.
"Charter" shall mean the Seventh Restated Certificate of Incorporation of
the Company, as filed on December 30, 1998 with the Secretary of State of
Delaware, as the same may be restated and amended from time to time.
"CIT/VC" shall mean The CIT Group/Venture Capital, Inc. and any successor
thereto.
2
<PAGE>
"CIT/VC Group" shall mean any entity or Person now existing or hereafter
formed which is affiliated with The CIT Group/Venture Capital, Inc. and any
successors or assigns of any of the foregoing Persons.
"Commission" shall mean the Securities and Exchange Commission or any other
Federal agency administering the Securities Act at the applicable time.
"Commitment" shall mean all obligations of the Company and its Subsidiaries
pursuant to long-term leases or similar agreements relating to the use of
personal property.
"Common Shares" shall mean the issued and outstanding shares of the
Company's Common Stock, $.001 par value per share, at the applicable time.
"Common Stock" shall mean the Company's authorized Common Stock, $.001 par
value per share.
"Common Stockholder" shall mean each Person who has purchased Common Stock
from the Company or who acquires Common Stock upon the conversion of preferred
stock, by Transfer or otherwise and who becomes a party to this Agreement.
"Control" shall mean, with respect to any Person, the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Covenant Preferred Shares" shall mean the issued and outstanding shares of
the Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, and, for purposes of Section 6
only with respect to Sections 6.1, 6.2, 6.3(a) and (b), 6.4 and 6.13, the Series
E Preferred Stock.
"Covenant Preferred Stockholders" shall mean any holder of Covenant
Preferred Shares and any person to whom Covenant Preferred Shares (or the Common
Stock issued upon conversion thereof) are Transferred.
"Equity Stock" shall have the meaning set forth in Rule 3a11-l under the
Exchange Act.
"Event of Noncompliance" shall have the meaning set forth in Section 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any successor statute and the rules and regulations thereunder, as shall be
in effect from time to time.
"Excluded Stock" shall mean (a) the Preferred Shares, (b) the Option
Shares, (c) Common Stock issuable upon conversion of the Preferred Shares, (d)
securities issued pursuant to the acquisition of another corporation,
partnership, joint venture, trust or other entity by the Company by merger,
consolidation, stock acquisition, reorganization, or otherwise, (e) Common Stock
issuable upon exercise of options granted pursuant to the Restricted Stock
Option Agreements, (f) Common Stock issuable as a result of stock dividends,
stock splits, stock combinations or other similar transactions by the Company
and (g) securities issued in connection with bank credit facilities, equipment
financing transactions, other leasing lines of
3.
<PAGE>
credit or collaborative arrangements not primarily intended to provide equity
financing to the Company.
"GAAP" shall mean generally accepted accounting principles of the United
States.
"Governmental Body" shall mean any United States or state government body,
any agency, commission or authority thereof, or any quasi-governmental or
private body exercising any regulatory or taxing authority thereunder.
"Group" shall mean as to (a) a Preferred Stockholder that is a limited
partnership, any and all of the venture capital limited partnerships now
existing or hereafter arising that are "affiliates" (as defined by Rule 405
promulgated under the Securities Act), in whole or in part, of one or more
general partners or of one or more general partners of a general partner of such
Stockholder and any predecessor or successor partnership and any limited and
general partners of any such partnership; (b) a Preferred Stockholder that is a
trust, any of the beneficiaries, settlors or grantors now existing or hereafter
arising of, or any Person under common control with, such trust; (c) in the case
of HCV I, HCV II, HCV III and HCV IV, the HCV Group; (d) in the case of Everest
Trust, any grantor or beneficiary thereof, or any other trust, corporate entity
or partnership under common control with Everest Trust for which Rho Management
Company, Inc. acts as investment adviser; (e) in the case of APA Excelsior IV,
L.P., APA Excelsior IV/Offshore, L.P., The P/A Fund, L.P., and the Patricof
Private Investment Club, L.P., the Patricof Group; (f) in the case of the Series
E Investors, any affiliates, in whole or in part, of such Series E Investor; and
(g) any Preferred Stockholder, any other Preferred Stockholder.
"Hazardous Materials" shall mean any substance which as of the date of this
Agreement shall be identified as "hazardous" or "toxic" or otherwise regulated
under CERCLA or RCRA or which has been or shall be determined at any time by any
agency or court to be a hazardous or toxic substance under Applicable
Environmental Law. The term "Hazardous Material" shall also include, without
limitation, raw materials, building components (including asbestos), the
products of any manufacturing or other activities on the properties, wastes,
petroleum, and source, special nuclear or by-product material as defined by the
Atomic Energy Act of 1954, as amended (42 U.S.C. (S)(S) 3011 et seq., as
amended.)
"HCV Group" shall mean, collectively, (i) HCV I, (ii) HCV II, (iii) HCV
III, (iv) HCV IV, (v) any venture capital limited partnership now existing or
hereafter formed which is affiliated with or under common control with one or
more general partners of any general partner of HCV I, HCV II, HCV III and HCV
IV (an "HCV Fund") (including, without limitation, the other HCV Funds); (vi)
any limited partners or affiliates of HCV I, HCV II, HCV III, HCV IV or any
other HCV Fund; and (vii) any successors or assigns of any of the foregoing
persons.
"HCV I" shall mean HealthCare Ventures I, L.P., a Delaware limited
partnership, including any successor thereto.
"HCV II" shall mean HealthCare Ventures II, L.P., a Delaware limited
partnership, including any successor thereto.
"HCV III" shall mean HealthCare Ventures III, L.P., a Delaware limited
partnership, including any successor thereto.
4.
<PAGE>
"HCV IV" shall mean HealthCare Ventures IV, L.P., a Delaware limited
partnership, including any successor thereto.
"Initial Public Offering" shall mean the Company's initial distribution of
Common Stock in an underwritten Public Offering to the general public pursuant
to a registration statement filed with and declared effective by the Commission
pursuant to the Securities Act at a price per share which is not less than 300%
of the Conversion Price (as defined in the Charter) of the Series B Preferred
Stock in effect at the time of such public offering and resulting in gross
proceeds (before underwriting commissions and offering expenses) to the Company
of not less than $15 million.
"Indebtedness" shall mean all liabilities for money borrowed, or for the
deferred portion of the purchase price, payable by the Company or its
Subsidiaries.
"Key Man Life Insurance" shall have the meaning set forth in Section 6.19.
"Non-Scientific Founders" shall mean Dr. Peter Korn and Gary Friedman.
"Offer" shall have the meaning set forth in Section 4(b) hereof.
"Offered Shares" shall have the meaning set forth in Section 4(a) hereof.
"Option Shares" shall mean up to 11,275,624 shares of Common Stock issued,
available for issuance or subject to options, warrants, awards or rights granted
or authorized to be granted to employees, consultants and others who provide
services to the Company pursuant to any Stock Plan.
"Patricof Group" shall mean, collectively, (i) APA Excelsior IV, L.P., (ii)
APA Excelsior IV/Offshore, L.P., (iii) The P/A Fund, L.P., (iv) the Patricof
Private Investment Club, L.P., (v) any venture capital limited partnership or
entity (a "Patricof Fund") now existing or hereafter formed which is affiliated
with or under common control with (x) one or more general partners of any
general partner of APA Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P., The
P/A Fund, L.P., or the Patricof Private Investment Club, L.P., or (y) managed
or advised by Patricof & Co. Ventures, Inc. or any affiliate thereof (including,
without limitation, the other Patricof Funds); (vi) any limited partners or
affiliates of APA Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P., The P/A
Fund, L.P., or the Patricof Private Investment Club, L.P., or any other Patricof
Fund; and (vii) any successors or assigns of any of the foregoing persons. Any
reference to APA Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P., The P/A
Fund, L.P., and the Patricof Private Investment Club, L.P., shall mean such
entity and any successor to such entity.
"Person" shall mean any individual, corporation, partnership, a limited
liability company, joint venture, trust, association, unincorporated
organization, other entity, or Governmental Body.
"Preferred Shares" shall mean the issued and outstanding shares of the
Company's Series A Preferred Stock, $.001 par value per share, Series B
Peferred Stock, $.001 par value
5
<PAGE>
per share, Series C Preferred Stock, $.001 par value per share, Series D
Preferred Stock, $.001 par value per share, and Series E Preferred Stock, $.001
par value per share.
"Preferred Stockholder" shall mean any holder of Preferred Shares and any
Person to whom Preferred Shares (or the Common Stock issued upon conversion
thereof) are Transferred.
"Pro Rata Fraction" shall have the meaning set forth in Section 3.4(b).
"Public Offering" shall mean a distribution of Common Stock in an
underwritten public offering to the general public pursuant to a registration
statement filed with and declared effective by the Commission pursuant to the
Securities Act.
"RCRA" shall mean Resource Conservation and Recovery Act, 42 U.S.C. (S)(S)
6901 et seq.
"Registrable Securities" shall mean the aggregate of Series A Registrable
Securities, the Series B Registrable Securities, the Series C Registrable
Securities, the Series D Registrable Securities and the Series E Registrable
Securities.
"Regulated Holder" shall mean any holder of the Company's Securities that
is (or that is a subsidiary of a bank holding company that is) subject to the
various provisions of Regulation Y of the Board of Governors of the Federal
Reserve Systems, 12 C.F.R., Part 225 (or any successor to Regulation Y).
"Regulatory Problem" shall mean (i) any set of facts or circumstances
wherein it has been asserted by any governmental regulatory agency (or CIT/VC
reasonably believes that there is a significant risk of such assertion) that
such Person (or any bank holding company that controls such Person) is not
entitled to hold, or exercise any material right with respect to, all or any
portion of the Securities of the Company which such Person holds or (ii) when
such Person and its Affiliates would own, control or have power (including
voting rights) over a greater quantity of Securities of the Company than is
permitted under any law or regulation or any requirement of any governmental
authority applicable to a Person or to which such Person is subject.
"Restricted Securities" shall mean the aggregate of Series A Restricted
Securities, the Series B Restricted Securities, the Series C Restricted
Securities, the Series D Restricted Securities and the Series E Restricted
Securities.
"Restricted Stock Option Agreements" shall mean the Restricted Stock Option
Agreements dated December 21, 1994 between the Company and each of the
Scientific Founders and the Non-Scientific Founders (except Barry Marrs) and the
Restricted Stock Option Agreement dated December 19, 1994 between the Company
and Barry Marrs.
"SBA" shall have the meaning set forth in Section 12.1.
"SBIA" shall have the meaning set forth in Section 12.1.
"SBIC" shall have the meaning set forth in Section 12.1.
6
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"Scientific Founders" shall mean Dr. Melvin Simon, Dr. Jeffrey H. Miller,
Dr. Barry Marrs and Dr. Karl Stetter.
"Securities" shall mean, with respect to any Person, such Person's capital
stock or any options, warrants or other Securities which are directly or
indirectly convertible into, or exercisable or exchangeable for, such Person's
capital stock (whether or not such derivative Securities are issued by the
Company). Whenever a reference herein to Securities refers to any derivative
Securities, such reference shall apply to such derivative Securities and all
underlying Securities directly or indirectly issuable upon conversion, exchange
or exercise of such derivative Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
successor statute and the rules and regulations of the Commission thereunder, as
shall be in effect at the applicable time.
"Series A Preferred Stock" shall mean the Series A Preferred Stock, $.001
par value per share, of the Company.
"Series A Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series A Restricted Securities,
or constituting a portion of the Series A Restricted Securities.
"Series A Restricted Securities" shall mean the Series A Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series A
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series A Preferred Stock (other
than Series B Preferred Stock) which are convertible into or exercisable or
exchangeable for shares of Common Stock (including, without limitation, other
classes or series of preferred stock, warrants, options or other rights to
purchase Common Stock or convertible debentures or other convertible debt
securities) and any Common Stock (howsoever acquired) by any holder of Series A
Preferred Stock or any Common Stock which has been issued on conversion of
Series A Preferred Stock, which have not been sold (a) in connection with an
effective registration statement filed pursuant to the Securities Act, or (b)
pursuant to Rule 144 or Rule 144A promulgated by the Commission under the
Securities Act.
"Series A Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of December 21, 1994 by and among the Company and the
parties thereto, as amended by the Stock Purchase Agreement and Amendment to
Stock Purchase Agreement, dated March 15, 1995 by and among the Company and the
parties thereto, as amended by the Stock Purchase Agreement and Amendment to
Stock Purchase Agreement dated July 28, 1995 by and among the Company and the
parties thereto, as amended by Amendment No. 3 to the Stock Purchase Agreement
dated May 13, 1996 by and among the Company and the parties thereto.
"Series B Preferred Stock" shall mean the Series B Preferred Stock, $.001
par value per share, of the Company.
"Series B Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series B Restricted Securities,
or constituting a portion of the Series B Restricted Securities.
7.
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"Series B Restricted Securities" shall mean the Series B Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series B
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series B Preferred Stock (other
than Series A Preferred Stock) which are convertible into or exercisable or
exchangeable for shares of Common Stock (including, without limitation, other
classes or series of preferred stock, warrants, options or other rights to
purchase Common Stock or convertible debentures or other convertible debt
securities) and any Common Stock (howsoever acquired) by any holder of Series B
Preferred Stock or any Common Stock which has been issued on conversion of
Series B Preferred Stock, which have not been sold (a) in connection with an
effective registration statement filed pursuant to the Securities Act, or (b)
pursuant to Rule 144 or Rule 144A promulgated by the Commission under the
Securities Act.
"Series B Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of May 13, 1996, by and among the Company and the purchasers
of the Series B Preferred Stock named as Investors therein.
"Series C Preferred Stock" shall mean the Series C Preferred Stock, $.001
par value per share, of the Company.
"Series C Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series C Restricted Securities,
or constituting a portion of the Series C Restricted Securities.
"Series C Restricted Securities" shall mean the Series C Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series C
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series C Preferred Stock which
are convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of preferred stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities) and any Common Stock (howsoever
acquired) by any holder of Series C Preferred Stock or any Common Stock which
has been issued on conversion of Series C Preferred Stock, which have not been
sold (a) in connection with an effective registration statement filed pursuant
to the Securities Act, or (b) pursuant to Rule 144 or Rule 144A promulgated by
the Commission under the Securities Act.
"Series C Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of July 14, 1997 by and among the Company and the parties
thereto.
"Series D Preferred Stock" shall mean the Series D Preferred Stock, $.001
par value per share, of the Company.
"Series D Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series D Restricted Securities,
or constituting a portion of the Series D Restricted Securities.
"Series D Restricted Securities" shall mean the Series D Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series D
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the
8.
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holders of the Series D Preferred Stock which are convertible into or
exercisable or exchangeable for shares of Common Stock (including, without
limitation, other classes or series of preferred stock, warrants, options or
other rights to purchase Common Stock or convertible debentures or other
convertible debt securities) and any Common Stock (howsoever acquired) by any
holder of Series D Preferred Stock or any Common Stock which has been issued on
conversion of Series D Preferred Stock, which have not been sold (a) in
connection with an effective registration statement filed pursuant to the
Securities Act, or (b) pursuant to Rule 144 or Rule 144A promulgated by the
Commission under the Securities Act.
"Series D Stock Purchase Agreement" shall mean the Stock Purchase Agreement
and Agreement and Plan or Reorganization, dated as of October 22, 1997 by and
among the Company and the parties thereto.
"Series E Investors" shall mean the investor(s) listed on the Schedule of
Series E Investors attached hereto.
"Series E Preferred Stock" shall mean the Series E Preferred Stock, $.001
par value per share, of the Company.
"Series E Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series E Restricted Securities,
or constituting a portion of the Series E Restricted Securities.
"Series E Restricted Securities" shall mean the Series E Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series E
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series E Preferred Stock which
are convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of preferred stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities) and any Common Stock (howsoever
acquired) by any holder of Series E Preferred Stock or any Common Stock which
has been issued on conversion of Series E Preferred Stock, which have not been
sold (a) in connection with an effective registration statement filed pursuant
to the Securities Act, or (b) pursuant to Rule 144 or Rule 144A promulgated by
the Commission under the Securities Act.
"Series E Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of January 25, 1999, or any additional stock purchase
agreement for the purchase and sale of Series E Preferred Stock, by and among
the Company and the parties thereto.
"Shares" shall mean and include all shares of voting capital stock of the
Company now owned or hereafter acquired by any Stockholder or transferee of such
Stockholder.
"Stockholder" shall mean each Person who has purchased Shares from the
Company or who acquires Shares upon conversion of the Preferred Shares, the
exercise of options, Transfer or otherwise and who is a party to this Agreement.
"Stock Plan" shall mean any stock award or option plan, agreement or
arrangement for officers, directors, consultants, employees and others who
render services to the Company.
9.
<PAGE>
"Subsidiary" shall mean, with respect to any Person, any corporation of
which securities having the power to elect a majority of that corporation's
Board of Directors (other than securities having that power only upon the
happening of a contingency that has not occurred) are held by such Person or one
or more of its Subsidiaries.
"Taxes" shall mean all taxes, duties, charges, fees, levies, interest,
penalties, additions to tax or other assessments, including, but not limited to,
foreign, federal, state and local income, excise, employment, property, sales,
use, occupation, value added and franchise taxes and customs duties, imposed by
any Governmental Body and any payments with respect thereto required under any
tax-sharing agreement.
"Transfer" shall include any sale, assignment, transfer, pledge,
encumbrance, or other disposition of, or the subjecting to a security interest
of, any Restricted Securities, or any disposition of any Restricted Securities
or of any interest therein which would constitute a sale thereof within the
meaning of the Securities Act.
"Voting Agreement" shall mean the Amended and Restated Voting Agreement
dated as of even date herewith, by and among the Company, the Preferred
Stockholders and certain Common Stockholders, as the same may be amended from
time to time.
2. Representations and Certain Covenants.
2.1 By the Company. The Company represents to each Stockholder that:
(a) The execution, delivery and performance by the Company of this
Agreement and each other agreement to be entered into by the Company in
connection with this Agreement have been duly authorized by all action required
by law, its Charter, its By-laws or otherwise.
(b) This Agreement and such other agreements have been duly executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company enforceable against it in accordance with their
terms.
2.2 By the Stockholders. Each Stockholder, as to itself or himself,
represents to the Company and the other Stockholders that:
(a) The execution, delivery and performance by such Stockholder of
this Agreement and each other agreement to be entered into by such Stockholder
in connection with this Agreement have been duly authorized by all action
required by law, and by the certificate of incorporation and by-laws,
partnership agreement or other governing instrument of such Stockholder.
(b) This Agreement and such other agreements have been duly executed
and delivered by such Stockholder and constitutes the legal, valid and binding
obligations of such Stockholder enforceable against it or him in accordance with
their terms.
2.3 By the Series A Preferred Stockholders. Each holder of the Series A
Preferred Stock agrees to waive any prior breach of the Series A Preferred Stock
Purchase Agreement and
10.
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each other agreement between the Company and the holders of Series A Preferred
Stock. The right of the holders of Series A Preferred Stock are as set forth in
this Agreement, the Series A Stock Purchase Agreement and the Charter; for the
avoidance of doubt, the Series A Stockholders shall not be deemed to have waived
any rights available to them in the future under either of said agreements or
the Charter.
2.4 Covenants of the Stockholders. Each of the Stockholders hereby waives
any default or Event of Noncompliance that may have occurred prior to the date
hereof with respect to the late reporting or presentation of financial materials
and/or budgets pursuant to Sections 6.3 and 6.22 herein.
3. Legend on Shares and Notice of Transfer.
3.1 Restrictive Legends.
(a) Each certificate evidencing Shares, and each certificate
evidencing Shares held by subsequent transferees of any such certificate, shall
(unless otherwise permitted by the provisions of Section 3.2 hereof) be stamped
or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY NOT
BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR ANY EXEMPTION THEREFROM UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
(b) Each certificate evidencing Shares, and each certificate
evidencing Shares held by subsequent transferees of any such certificate, shall
also be stamped or otherwise imprinted with a legend in substantially the
following form:
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
TERMS AND CONDITIONS OF AN AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT, BY AND AMONG DIVERSA CORPORATION, THE HOLDER OF RECORD
OF THIS CERTIFICATE AND CERTAIN OTHER SIGNATORIES THERETO, AND NO
TRANSFER OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE EXCEPT IN
ACCORDANCE WITH SUCH AGREEMENT AND UNTIL SUCH TERMS AND
CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD
11.
<PAGE>
OF THIS CERTIFICATE TO THE SECRETARY OF DIVERSA CORPORATION.
3.2 Notice of Transfer.
(a) Each of the Stockholders, and any other holder of any Shares by
acceptance thereof, agrees that, prior to any Transfer of any Shares, such
holder will give written notice to the Company of such holder's intention to
effect such Transfer and to comply in all other respects with the provisions of
this Section 3.2 and all of the provisions of Section 3.4 hereof. Each such
notice shall contain (i) a statement setting forth the intention of said
holder's prospective transferee with respect to its retention or disposition of
said Shares, and (ii) unless waived by the Company, an opinion of counsel
(reasonably satisfactory to the Company and its counsel) for said holder (who
may be the inside or staff counsel employed by said holder), as to the necessity
or non-necessity for registration under the Securities Act and applicable state
securities laws in connection with such Transfer and stating the factual and
statutory bases relied upon by counsel. The following provisions shall then
apply:
(i) If the proposed Transfer of Shares may be effected without
registration or qualification under the Securities Act and any applicable state
securities laws, then the registered holder of such Shares shall be entitled to
Transfer such Shares in accordance with Section 3.3 and the intended method of
disposition specified in the statement delivered by said holder to the Company.
(ii) If the proposed Transfer of such Shares may not be effected
without registration under the Securities Act or registration or qualification
under any applicable state securities laws, the registered holder of such Shares
shall not be entitled to Transfer such Shares until the requisite registration
or qualification is effective.
(b) Notwithstanding the provisions of Section 3.2, (i) in the case of
a Transfer by a holder to a member of such holder's Group, no such opinion of
counsel shall be necessary, provided that the transferee agrees in writing to be
subject to Section 3 hereof to the same extent as if such transferee were
originally a signatory to this Agreement, and (ii) in the case of any holder of
Restricted Securities that is a partnership, no such opinion of counsel shall be
necessary for a Transfer by such holder to a partner of such holder, or a
retired partner of such holder who retires after the date hereof, or the estate
of any holder who retires after the date hereof, or the estate of any such
partner or retired partner if, with respect to such Transfer by a partnership,
such Transfer is made in accordance with the partnership agreement of such
partnership, and the transferee agrees in writing to be subject to the terms of
Section 3 hereof to the same extent as if such transferee were originally a
signatory to this Agreement. Transfers pursuant to this Section 3.3(b) are not
subject to the provisions of Section 3.4.
(c) Each certificate evidencing the Shares issued upon such Transfer
(and each certificate evidencing any untransferred balance of such Shares) shall
bear the legends set forth in Section 3.1 hereof unless the Shares are no longer
subject to this Stockholders' Agreement and (i) in the opinion of counsel
(reasonably acceptable to the Company) addressed to the Company the registration
of future Transfers is not required by the applicable provisions of the
Securities Act or applicable state securities laws; (ii) the Company shall have
waived the
12.
<PAGE>
requirement of such legend; or (iii) in the reasonable opinion of counsel to the
Company, such Transfer shall have been made in connection with an effective
registration statement filed pursuant to the Securities Act or in compliance
with the requirements of Rule 144 or Rule 144A (or any similar or successor
rule) promulgated under the Securities Act, and in compliance with applicable
state securities laws, to a person who is not an affiliate (as such term is
defined in the Securities Act) of the Company.
3.3 Prohibited Transfers.
(a) Each Stockholder agrees that it or he shall not Transfer any of
its or his Shares without the prior written consent of the holders of at least
75% in interest of the Preferred Shares, voting together as a class (without
counting the Shares held by such transferring Stockholder) except as provided
for in Section 3.
(b) Notwithstanding anything to the contrary contained herein, a
Stockholder may Transfer all or any of its Shares to a member of its Group and,
in the case of any stockholder which is a partnership, to a partner of such
holder, or a retired partner of such holder who retires after the date hereof,
or the estate of any holder who retires after the date hereof, or the estate of
any such partner or retired partner if, with respect to such Transfer by a
partnership, such Transfer is made in accordance with the partnership agreement
of such partnership provided that any such transferee shall agree in writing
with the Company, prior to and as a condition precedent to such transfer, to be
bound by all of the provisions of this Agreement.
(c) If requested in writing by the managing underwriters, if any, of
any Public Offering, each Stockholder agrees not to offer, sell, contract to
sell or otherwise dispose of any Shares except as part of such Public Offering
within thirty (30) days before or one hundred and eighty (180) days after the
effective date of the registration statement filed with respect to said
offering, and the Company hereby also so agrees; provided, however, that this
restriction will not apply to transfers permitted under Section 3.3(b).
(d) Each Transfer of Shares which is permitted by Section 3 of this
Stockholders' Agreement shall be by written agreement (the "Transfer
Agreement"), in a form reasonably satisfactory to the Company and its counsel,
pursuant to which the transferee (other than a Stockholder who is already a
party to this Stockholders' Agreement) agrees to execute a counterpart copy of
this Stockholders' Agreement, and to abide by, and hold the transferred Shares
subject to, the terms of this Agreement that are applicable to the transferring
Stockholder as of the time of the Transfer and that would have been applicable
to such transferring Stockholder had the transferring Stockholder retained such
transferred Shares.
3.4 Right of First Refusal; Tag-Along Rights.
(a) If a Stockholder (for purposes of this Section, the "Selling
Stockholder") desires to sell all or any part of his Shares pursuant to a bona
fide, arm's-length offer from a creditworthy third party (the "Proposed
Transferee"), the Selling Stockholder shall submit a written offer (the "Offer")
to sell such Shares (the "Offered Shares") to the other Stockholders and the
Company, on terms and conditions, including price, not less favorable to the
other Stockholders and the Company than those on which the Selling Stockholder
proposes to sell the
13.
<PAGE>
Offered Shares to the Proposed Transferee. The Offer shall disclose the identity
of the Proposed Transferee, the number of Offered Shares proposed to be sold,
the total number of Shares owned by the Selling Stockholder, the terms and
conditions, including price, of the proposed sale, the address of the Selling
Stockholder and any other material facts relating to the proposed sale.
(b) Subject to and in accordance with the priorities of rights
established in subsection (c) below, each Stockholder shall have the right (the
"Right of First Refusal") to purchase that number of Offered Shares as shall be
equal to the number of Offered Shares multiplied by a fraction, the numerator of
which shall be the number of Shares then owned by such Stockholder and the
denominator of which shall be the aggregate number of Shares then owned by all
of the Stockholders less those owned by the Selling Stockholder (the "Pro Rata
Fraction"). For the purpose of calculating the Pro Rata Fraction, each Preferred
Share shall be deemed to represent the number of Common Shares into which the
Preferred Share is then convertible.
(c) Stockholders shall have a right of oversubscription such that if
any Stockholder fails to accept the Offer as to its or his full Pro Rata
Fraction, the other Stockholders, among them, shall have the right to purchase
up to the balance of the Offered Shares not so purchased. Such right of
oversubscription may be exercised by a Stockholder by accepting the Offer as to
more than its or his Pro Rata Fraction. If, as a result thereof, such
oversubscriptions exceed the total number of Offered Shares available in respect
of such oversubscription privilege, the oversubscribing Stockholders shall be
cut back with respect to their oversubscriptions so as to sell the Offered
Shares as nearly as possible in accordance with their respective Pro Rata
Fractions or as they may otherwise agree among themselves.
(d) If a Stockholder desires to purchase all or any part of the
Offered Shares, such Stockholder (a "Purchasing Stockholder") shall communicate
in writing its or his election to purchase (an "Acceptance") to the Selling
Stockholder, which Acceptance shall state the number of Offered Shares the
Purchasing Stockholder desires to purchase and shall be delivered in person or
mailed to the Selling Stockholder at the address set forth in the Offer, with a
copy to the Company and the other Stockholders, within twenty (20) days of the
date the Offer was made.
(e) If the other Stockholders do not accept the Offer for all of the
Offered Shares, the Company shall have the right to purchase all of the
remaining Offered Shares (including any Tag-Along Shares being offered pursuant
to paragraph (j) below). If the Company desires to purchase all of the remaining
Offered Shares it shall seek the approval of the holders of at least 75% in
interest of the Preferred Shares (excluding those Preferred Shares owned or held
by the Selling Stockholder and any Tag-Along Stockholder pursuant to paragraph
(j) below), voting together as a class. Upon obtaining the requisite approval
from the Preferred Stockholders, the Company shall communicate in writing its
acceptance to the Selling Stockholder and the other Stockholders, which
Acceptance shall be delivered in person or mailed to the Selling Stockholder and
the other Stockholders within thirty (30) days of the date the Offer was made.
(f) Sale of the Offered Shares pursuant to this Section 3.4 shall be
made at the offices of the Company no later than the thirtieth (30) day
following the expiration of the 30-day
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<PAGE>
period after the Offer is made (or if such thirtieth (30) day is not a Business
Day, then on the next succeeding Business Day). Such sales shall be effected by
the Selling Stockholder's delivery to each Purchasing Stockholder or the
Company, as the case may be, of a certificate or certificates evidencing the
Offered Shares to be purchased by it or him, duly endorsed for transfer to the
Purchasing Stockholder or the Company, as the case may be, which Offered Shares
shall be delivered free and clear of all liens, charges, claims and encumbrances
of any nature whatsoever, against payment to the Selling Stockholder of the
purchase price therefor by the Purchasing Stockholder or Company, as the case
may be. Payment for the Offered Shares shall be made as provided in the Offer or
by wire transfer or certified check.
(g) If the Purchasing Stockholders and the Company do not agree to
purchase all of the Offered Shares, then the Offered Shares may be sold by the
Selling Stockholder at any time within 120 days after the date the Offer was
made. Any such sale shall be to the Proposed Transferee, at not less than the
price and upon other terms and conditions, if any, not more favorable to the
Proposed Transferee than those specified in the Offer. Any Offered Shares not
sold within such 120-day period shall continue to be subject to the requirements
of a prior offer pursuant to this Section 3.4.
(h) If any Selling Stockholder becomes obligated to sell any Shares
(a "Defaulting Stockholder") to the Company or any Purchasing Stockholder under
this Agreement and fails to deliver such Shares in accordance with the terms of
this Agreement, the Company or the Purchasing Stockholder, as the case may be,
may, at its or his option, in addition to all other remedies it or he may have,
send to the Defaulting Stockholder the purchase price for such Shares as is
herein specified. Thereupon, the Company, upon written notice to the Defaulting
Stockholder, if applicable, shall (x) cancel on its books the certificate or
certificates representing the Shares to be sold and (y) issue, in lieu thereof,
in the name of the Purchasing Stockholder, a new certificate or certificates
representing such Shares, and thereupon all of the Defaulting Stockholder's
rights in and to such Shares shall terminate, except for the right to receive
payment of the purchase price therefor.
(i) Notwithstanding anything herein to the contrary, the Selling
Stockholder shall not be obligated to sell any Shares to the Company or the
other Stockholders, and will be free to sell all of the Shares to the Proposed
Transferee, if the Company and the Stockholders do not elect to buy all of the
Shares specified in the Offer.
(j) In lieu of exercising the Right of First Refusal, each of the
other Stockholders (for the purposes of this paragraph, the "Tag-Along
Stockholder") shall have the irrevocable right (the "Tag-Along Right") to
require the Selling Stockholder to cause the Proposed Transferee to purchase
from such Tag-Along Stockholder that number of Shares held by such Tag-Along
Stockholder as is equal to the product of the Offered Shares, multiplied by a
fraction, the numerator of which is the number of Shares held by such Tag-Along
Stockholder and the denominator of which is the number of Shares owned by such
Tag-Along Stockholder plus the sum of the number of Shares owned by the Selling
Stockholder and all other Tag-Along Stockholders who are exercising their Tag-
Along Rights (the "Tag-Along Shares"). The sale of the Offered Shares (as
reduced by the Tag-Along Shares, the "Remaining Offered Shares") and the Tag-
Along Shares shall be for the same consideration and otherwise on the same terms
and conditions for all holders. The Tag-Along Right shall be exercised by a Tag-
Along Stockholder
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by notifying the Selling Stockholder and the Company in writing (the "Tag-Along
Notice") within twenty (20) calendar days of receiving the Offer of his
intention to sell his Tag-Along Shares. Failure by any Stockholder to deliver a
Tag-Along Notice during such twenty (20) calendar day period shall be deemed to
constitute the election of such Stockholder not to exercise his Tag-Along
Rights. If the Proposed Transferee does not consummate the purchase of all of
the Remaining Offered Shares and the Tag-Along Shares within 120 calendar days
from the receipt by the Selling Stockholder of a Tag-Along Notice from each of
the other Stockholders, the Offered Shares and Tag-Along Shares shall again
become subject to the terms of this Section 3.
4. Rights to Purchase Additional Stock.
(a) Except for Excluded Stock, the Covenant Preferred Stockholders
shall have the right to subscribe to any and all issuances of Capital Stock of
the Company ("Company Offered Shares"). Each Covenant Preferred Stockholder
shall have the right to purchase that number of Company Offered Shares as shall
be equal to the number of Company Offered Shares multiplied by a fraction, the
numerator of which shall be the number of Shares then owned by such Covenant
Preferred Stockholder and the denominator of which shall be the aggregate number
of Shares then owned by all of the Covenant Preferred Stockholders (the
"Fraction"). For purposes of calculating the Fraction, all issued and
outstanding securities held by the Covenant Preferred Stockholders that are
convertible into or exercisable or exchangeable for shares of Common Stock
(including any issued and issuable Covenant Preferred Shares) or for any such
convertible, exercisable or exchangeable securities, shall be treated as having
been so converted, exercised or exchanged.
(b) In the event the Company shall propose to issue Capital Stock
except for Excluded Stock, the Company shall give written notice (the "Offer of
Shares") to each Covenant Preferred Stockholder, which shall set forth the
number and kind or class of shares of Capital Stock proposed to be issued, the
terms and conditions thereof and the price therefor. Such notice shall be given
at least twenty (20) days prior to the issuance of such Capital Stock.
(c) The Offer of Shares by its terms shall remain open and
irrevocable for a period of twenty (20) days from the date of its delivery to
such Covenant Preferred Stockholder ("20-Day Period").
(d) Each Covenant Preferred Stockholder shall evidence its acceptance
of the Offer of Shares by delivering a written notice ("Notice of Acceptance"),
signed by the Covenant Preferred Stockholder, setting forth the number of
Company Offered Shares which the Covenant Preferred Stockholder elects to
purchase. The Notice of Acceptance must be delivered to the Company prior to the
end of the 20-Day Period.
(e) If the Covenant Preferred Stockholders do not tender Notices of
Acceptance for all of the Company Offered Shares, the Company shall have ninety
(90) days from the expiration of the 20-Day Period to sell all or any part of
the Company Offered Shares refused by the Covenant Preferred Stockholders to any
Person(s), but only upon terms and conditions which are in all material respects
no more favorable to such other Person(s) than those set forth in the Offer of
Shares.
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(f) Upon the closing of the sale of Company Offered Shares to any
third party (which shall include full payment of the purchase price to the
Company), each Covenant Preferred Stockholder shall (i) purchase from the
Company, and the Company shall issue and sell to such Covenant Preferred
Stockholder, any Company Offered Shares for which such Covenant Preferred
Stockholder tendered a Notice of Acceptance upon the terms specified in the
Offer of Shares and (ii) execute and deliver an agreement restricting transfer
of such Company Offered Shares substantially as set forth in Section 3 of this
Agreement.
(g) In each case, any Company Offered Shares not purchased either by
the Covenant Preferred Stockholders or by any other Person in accordance with
this Section 4 may not be sold or otherwise disposed of until they are again
offered to the Covenant Preferred Stockholder under the procedures specified in
this Section 4.
(h) If the Capital Stock to be issued by the Company is to be issued
pursuant to a Public Offering (i) notwithstanding the time periods set forth
above, the Company may require that the Covenant Preferred Stockholders make an
election to either (A) commit to purchase shares of Capital Stock from the
Company at a price no higher than the public offering price at the closing of
the Public Offering or (B) waive their rights to subscribe for additional shares
of Common Stock to be issued in the Public Offering, (ii) the subscription right
shall not be applicable to shares issuable if the underwriters exercise their
over-allotment option; and (iii) the amount to be purchased pursuant to this
Section 4(h) may be reduced if in the written opinion of the managing
underwriters of the Public Offering, the purchase of such number of shares by
the Covenant Preferred Stockholders would adversely impact the Public Offering.
Such election shall be made sufficiently in advance of the filing of the
registration statement relating to the Public Offering as shall be reasonably
requested by the Company.
(i) The rights provided by this Section 4 may be assigned by any
Covenant Preferred Stockholder which is a limited partnership or a trust to any
and all members of its Group, provided, that all such rights of any assignee to
purchase Company Offered Shares will be subject to receipt of appropriate
representations from such assignee as reasonably requested by the Company to
ensure compliance with all applicable securities laws.
5. Board of Directors.
5.1 Number of Directors. In accordance with Section A.6(b)(i) of the
Charter of the Company, the holders of a majority in voting power of the
Covenant Preferred Shares, voting together as a separate class, have been
granted the exclusive right to elect to the Board of Directors that number of
the directors which shall equal a majority of the total number of directors on
the Board of Directors. The Company and each of the other parties hereto hereby
agree to take such actions as are necessary, so that the whole Board of
Directors consists of nine members.
5.2 Agreement to Vote for Directors. The Company hereby agrees to take
such actions as are necessary, and each of the other parties hereto agrees to
vote his, her or its Covenant Preferred Shares (and any other shares of the
Capital Stock of the Company over which he, she or it exercises voting control),
and take such other actions as are necessary, so as to elect and thereafter
continue in office as Directors of the Company (i) two nominees of the
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holders of the Series A Preferred Stock, (ii) one nominee of the holders of the
Series B Preferred Stock, (iii) one nominee of APA Excelsior IV, L.P., and (iv)
one nominee mutually agreed upon by the holders of at least 75% in interest of
the Covenant Preferred Shares, voting together as a class. Each nominating
Stockholder may replace any nominee designated by such nominating Stockholder
who has been elected to the Board of Directors with a new nominee upon notice to
the Board of Directors and to the other stockholders of the Company. If there is
any increase in size of the Board of Directors, such that there shall be more
than five Preferred Directors (as such term is defined in the Charter of the
Company), then, with respect to such additional directors ("Additional Preferred
Directors"), the Company hereby agrees to take such actions as are necessary,
and each of the other parties hereto agrees to vote his, her or its Covenant
Preferred Shares (and any other shares of the Capital Stock of the Company over
which he, she or it exercises voting control), and take such other actions as
are necessary, so as to elect and thereafter continue in office as Directors of
the Company (i) the nominee(s) of the holders of the Series A Preferred Stock
with respect to one-half of the Additional Preferred Directors, (ii) the
nominee(s) of the holders of the Series B Preferred Stock with respect to one-
half of the Additional Preferred Directors, and (iii) if there is an odd number
of Additional Preferred Directors, a nominee mutually agreed upon by the holders
at least 75% in interest of the Covenant Preferred Shares, voting together as a
class.
5.3 Default of Agreement to Vote. In case any of the covenants set forth
in this Section 5 shall have been breached by any party hereto, the party or
parties entitled to the benefit of such covenants or agreements may proceed to
protect and enforce their rights either by proceeding in equity and/or by action
at law, including, but not limited to, an action for damages as a result of any
such breach and/or an action for specific performance of any such covenant or
agreement contained in this Section 5 and/or a temporary or permanent
injunction, in any case without showing any actual damage and without
establishing, in the case of an equitable proceeding, that the remedy at law is
inadequate.
5.4 Board Observation Rights. For so long as CIT/VC or any member of the
CIT/VC Group is a holder of Shares, CIT/VC shall have the right to appoint a
designee as an observer to the Board of Directors. For so long as Benefit
Capital Management Corporation is a holder of Shares, Benefit Capital Management
Corporation shall have the right to appoint a designee as an observer to the
Board of Directors. For so long as New York Life Insurance Company is a holder
of Shares, New York Life Insurance Company shall have the right to appoint a
designee as an observer to the Board of Directors. For so long as they hold
observation rights under this Section 5.4, each of CIT/VC, Benefit Capital
Management and New York Life Insurance Company shall be given notice of all such
meetings at the same time and in the same manner as Directors of the Company are
informed.
6. Affirmative Covenants of the Company.
Subject to Sections 13 and 15, the Company covenants and agrees that, so
long as any Covenant Preferred Shares are outstanding, except to the extent the
Company receives the approval of the holders at least 75% in interest of the
Covenant Preferred Shares, voting together as a class:
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6.1 Use of Proceeds. The proceeds of the sale of the Preferred Stock sold
in connection with this Agreement and the Original Stockholders' Agreement shall
be used by the Company to continue the identification and commercialization of
products and processes by genomic analysis of diverse microbes and for working
capital purposes related thereto.
6.2 Consent as to Issuance of Common Stock. The Company will use its best
efforts to obtain any authorization, consent, approval or other action by and
make any filing with any court or Governmental Body that may be required under
applicable state securities laws in connection with the issuance of any shares
of Common Stock upon conversion of the holder of Covenant Preferred Shares.
6.3 Financial Information. The Company, except as otherwise indicated,
will deliver to each Covenant Preferred Stockholder:
(a) As soon as practicable and in any event within 90 calendar days
after the close of each fiscal year of the Company, copies of (i) the balance
sheet of the Company as of the end of such fiscal year, (ii) statements of
operations of the Company for such fiscal year, and (iii) statements of changes
in cash flows of the Company for such fiscal year, setting forth in each case in
comparative form the corresponding figures of the previous annual period and the
most recent Budget (as defined in clause (d) below), all in reasonable detail,
prepared in accordance with GAAP consistently applied throughout the periods
involved and certified (except for the comparison to the most recent Budget),
without qualification, by Coopers & Lybrand, LLP or another firm of independent
certified public accountants of recognized national standing.
(b) As soon as practicable, and in any event within 45 calendar days
after the end of each of the first three fiscal quarters of the Company, an
unaudited balance sheet of the Company as at the end of each such fiscal quarter
and unaudited statements of operations, and changes in cash flows for such
fiscal quarter, setting forth in each case in comparative form corresponding
figures for the preceding year's respective fiscal quarter and for the Budget,
all in reasonable detail, prepared in accordance with GAAP consistently applied
throughout the period involved and certified as being correct and complete and
fairly presenting the results of operations of the Company for the quarter
indicated, subject to year-end audit adjustment, by the principal financial
officer of the Company. In addition, as soon as practicable, and in any event
within 20 calendar days after the end of each fiscal quarter of the Company, the
principal financial officer of the Company will complete and sign a quarterly
financial summary in the form attached hereto as Exhibit A.
(c) For each calendar month, as soon as practicable and in any event
within 20 calendar days after the close of each month, copies of (i) the balance
sheet of the Company as of the end of such month, (ii) statements of operations
of the Company for such month, and (iii) statements of changes in cash flows of
the Company for such month setting forth in each case in comparative form the
corresponding figures for the preceding month and for the Budget, for the year
to date and for the comparable periods in the preceding year, all in reasonable
detail, prepared in accordance with GAAP consistently applied throughout the
periods involved and certified as being correct and complete and fairly
presenting the results of operations of the
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Company for the month indicated, subject to year-end audit adjustment, by the
principal financial officer of the Company.
(d) As soon as practicable and in any event no later than the end of
each fiscal year of the Company (or by January 30, 1999 for fiscal year 1999), a
proposed annual operating budget for the Company for the succeeding fiscal year,
containing forecasts of profit and loss and cash flow with monthly and quarterly
breakdowns and management's reasonably estimated projections of Indebtedness and
Commitments for the succeeding fiscal year (the "Budget"). The portions of the
Budget relating to Indebtedness, Commitments, acquisitions and dispositions
shall be approved by at least 75% of the Board of Directors. If less than 75% of
the Board of Directors vote to approve the portions of the Budget relating to
Indebtedness, Commitments, acquisitions and dispositions, then those portions of
the Budget shall be adopted if approved by the vote of (i) more than 50% of the
Board of Directors, and (ii) the holders of at least 75% in interest of the
Covenant Preferred Shares, voting as a class. Furthermore, any acquisition
described in Section 7.8 and any disposition described in Section 7.9 shall
require approval in accordance with those Sections.
(e) Simultaneously with the delivery of the monthly statements
required by clause (c), copies of a certificate of the principal financial
officer of the Company giving a narrative analysis of operations and trends in
the business of the Company during such month.
(f) Promptly upon, and in any event within 10 calendar days after,
their becoming available, a copy of (i) all reports, proxy statements, financial
statements and other materials delivered or sent by the Company to its
stockholders, (ii) all minutes of the proceedings of the Board of Directors of
the Company and all committees thereof and all written consents signed by
directors in lieu of meetings of the Board of Directors and committees thereof,
and (iii) all management letters reviewing the Company's accounting and control
procedures that the Company receives from its independent certified public
accountants.
(g) Concurrently with the furnishing of the reports pursuant to
Section 6.3(a) and (b) hereof, an Officer's Certificate stating that the Company
is not in default under, and has not breached, any material agreements or
obligations, including, without limitation, this Agreement, or if any such
default or breach exists, specifying the nature thereof and what actions the
Company has taken and proposes to take with respect thereto.
If for any period the Company shall have any Subsidiary or Subsidiaries
whose accounts are consolidated with those of the Company, then the financial
statements delivered for such period pursuant to the foregoing clauses (a), (b)
and (c) of this Section 6.3 shall be the consolidated and consolidating
financial statements of the Company and all such consolidated Subsidiaries and
if the financial statements of such Subsidiary or Subsidiaries are not
consolidated with those of the Company, separate financial statements for such
Subsidiary or Subsidiaries shall be provided.
6.4 Other Reports and Inspection. The Company, upon reasonable prior
notice, will make available to each Covenant Preferred Stockholder or its
representatives or designees during normal business hours (a) all assets,
properties and business records of the Company for inspection and copying and
(b) the directors, officers, employees and public accountant (and by
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this provision the Company hereby authorizes and instructs said accountants to
discuss with such holder and such designees its affairs, finances and accounts
and the responses of attorneys representing the Company to inquiries made by the
Company on behalf of said accountants in connection with their audit of the
financial affairs of the Company) of the Company for interviews concerning the
business, affairs and finances of the Company.
6.5 Corporate Existence. The Company will, and will cause each of its
Subsidiaries to, maintain preserve and renew its corporate existence and all
material licenses, authorizations and permits necessary to the conduct of its
business.
6.6 Insurance. The Company will maintain policies of insurance, including
but not limited to, fire, liability, worker's compensation, directors' &
officers' and company reimbursement, business interruption, and product
liability, in such amounts and covering such risks as are customarily carried by
businesses comparable to the business conducted by the Company. The Company has
developed and implemented a risk assessment and insurance program appropriate
for its business; and in connection therewith, to the extent that the insurance
referred to in the forgoing sentence is either not currently maintained or not
maintained in appropriate amounts, the Company will obtain such insurance.
6.7 Maintenance of Properties. The Company will, and will cause each of
its Subsidiaries to, maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly and
advantageously conducted at all times.
6.8 Compliance with Obligations. The Company will, and will cause each of
its Subsidiaries to, comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due to the extent to which the failure to so
comply would reasonably be expected to have a material adverse effect upon the
Business and Condition of the Company and its Subsidiaries taken as a whole,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance with
GAAP consistently applied) have been established on its books with respect
thereto.
6.9 Taxes. The Company will, and will cause each of its Subsidiaries to,
pay when due (i) all Taxes imposed upon it or any of its properties or income,
other than Taxes which are being contested in good faith and which Taxes in the
aggregate do not involve material amounts, and (ii) all claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like persons
which, if unpaid, might result in the creation of a lien upon any of its
properties other than claims or demands which are being contested in good faith.
6.10 Compliance with Law. The Company will, and will cause each of its
Subsidiaries to, comply, in all material respects, with all applicable statutes,
rules, regulations and orders of all Governmental Bodies, with respect to the
conduct of its business and the ownership of its properties, provided that the
Company shall not be deemed to be in violation of this Section 6.10 as a result
of any failure to comply with any provisions of such statutes, rules,
regulations and orders, the noncompliance with which would not result in fines,
penalties, injunctive relief or other civil or criminal liabilities which, in
the aggregate, would materially and
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adversely affect the Business and Condition of the Company and its Subsidiaries
taken as a whole.
6.11 Environmental Matters. The Company shall promptly advise each
Covenant Preferred Stockholder in writing of any pending or threatened claim,
demand or action by any governmental authority or third party relating to any
Hazardous Materials affecting any properties owned or leased by the Company of
which it has knowledge. The Company shall not discharge, place, release, spill
or dispose of any Hazardous Materials or any other pollutants or effluents upon
any properties owned or leased by the Company or elsewhere (including, but not
limited to, underground injection of such substances) other than in compliance
with the Applicable Environmental Laws and the Company shall not discharge into
the air any emission which would require a permit under the Clean Air Act or its
state counterparts or any other Environmental Laws unless any and all such
permit(s) are obtained prior to any discharge. The stockholders of the Company
shall have no control over, or authority with respect to, the waste disposal
operations of the Company.
6.12 Accounting System. The Company will maintain a system of accounting
and proper books of record and account, in accordance with GAAP, and will set
aside on its books reserves for depreciation, depletion, obsolescence,
amortization, pending and threatened litigation and otherwise as may be
appropriate in conformance with procedures and recommendations of the Company's
independent public accountants.
6.13 Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued Common Stock the number of shares
of Common Stock required for issuance upon the conversion of all of the
Preferred Stock (including any additional shares of Common Stock which may
become so issuable by reason of the operation of anti-dilution provisions of the
Preferred Stock).
6.14 Confidentiality Agreements with Employees and Consultants. The
Company will enter into confidentiality agreements approved by a majority of the
Board of Directors with employees and consultants of the Company retained after
the date hereof who should have or are proposed to have access to confidential
or proprietary information.
6.15 Board of Directors Meetings. The Company shall call, and use its best
efforts to have, regular meetings of the Board of Directors on a quarterly
basis. The Company shall pay all reasonable travel expenses and other out-of-
pocket expenses incurred by Directors who are not employed by the Company in
connection with attending meetings of the Board or any committee thereof or in
connection with attendance at meetings related to the business of the Company.
6.16 Publicity. The Company shall not identify any of the Covenant
Preferred Stockholders as a stockholder or affiliate of the Company in any
advertising or promotional material without the prior written consent of such
Covenant Preferred Stockholder.
6.17 Registration Rights. The Company shall not hereafter grant to any
persons any rights to register or qualify stock of the Company under Federal or
state securities laws, unless it shall have first obtained the written consent
of the holders of at least 75% in interest of the Covenant Preferred Shares,
voting as a class.
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6.18 Key Man Life Insurance. The Company has obtained and will maintain
"key man" life insurance policies (the "Key-Man Life Insurance") covering the
lives of such officers of the Company as are designated by the holders of at
least 75% in interest of the Covenant Preferred Shares, voting as a class, in
the amount of $1,000,000, the sole beneficiary of which shall be the Company.
6.19 Voting Agreement with Common Stockholders.
(a) Upon the exercise of any outstanding option or warrant of the
Company (including, without limitation, any options currently outstanding under
the Company's Restated 1994 Employee Incentive and Non-Qualified Stock Option
Plan (the "1994 Plan")), the Company will request that such exercising optionee
or warrant holder become a signatory to the Voting Agreement with respect to the
Common Stock exercisable thereof.
(b) The Company shall not hereafter issue any Common Stock or other
voting security (excluding Common Stock issuable upon the exercise of currently
outstanding options granted pursuant to the 1994 Plan) or any security
(including any options under any Stock Plan of the Company) which is convertible
into or exercisable for Common Stock or any other voting security unless, as a
condition precedent to such issuance, the holder of such security agrees to
become a signatory to the Voting Agreement.
6.20 Option Exercises. Upon the exercise of any option issued under the
1994 Plan, the optionee shall execute a Stock Purchase and Restriction Agreement
in substantially the form of Exhibit B, as amended, to the 1994 Plan.
6.21 Proprietary Rights. The Company has developed and implemented a
policy, satisfactory to the holders of at least 75% in interest of the Covenant
Preferred Shares, voting together as a class, with regard to noncompetition,
nonsolicitation of employees, suppliers and customers of the Company by current
and future employees of, or consultants to, the Company. It is contemplated that
current and future employees of, or consultants to, the Company will be required
to execute appropriate forms of agreement implementing the foregoing policy.
6.22 Approval of Budget. The Company shall obtain the approval required by
Section 6.3(d) of the portions of the Budget relating to Indebtedness,
Commitments, acquisitions and dispositions prior to the beginning of each fiscal
year beginning with fiscal year 1998.
6.23 Repayment of Loan Agreement and Release of Encumbrances. The Company
shall repay all amounts outstanding under the Loan Agreement prior to May 15,
1996 and in connection therewith shall obtain and promptly file such forms
including, without limitation, UCC-3 termination statements as would be required
to release any liens or encumbrances granted by the Company pursuant to the Loan
Agreement.
7. Negative Covenants of the Company.
Subject to Section 13 hereof, the Company covenants and agrees with the
Covenant Preferred Stockholders and their transferees that, without the approval
of the holders of at least 75% in interest of the Covenant Preferred Shares,
voting together as a class:
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7.1 Indebtedness; Commitments. The Company shall not incur any
Indebtedness or Commitments at any time which exceeds by 10% or more of the
amount of Indebtedness or Commitments included in a Budget approved by the Board
of Directors (and the Covenant Preferred Stockholders, if required) in
accordance with Section 6.3(d) hereof. If the Company determines to incur
Indebtedness or Commitments in an amount which exceeds by 10% or more the amount
of Indebtedness or Commitments included in an approved Budget, then the Company
must seek an additional approval in accordance with Section 6.3(d) hereof.
7.2 Restriction on Dividends. The Company shall not declare or make any
dividend payment or other distribution of assets, properties, cash rights,
obligations or securities on account or in respect of any of its shares of
Common Stock or any shares of preferred stock other than those which are both
(x) required by the Charter, and (y) relate to the Preferred Shares of the
Company.
7.3 Restriction on Issuances of Shares. The Company shall not issue any
shares of Capital Stock; provided, however, that the Company may issue shares of
Capital Stock pursuant to the options, warrants and rights listed on Schedule
7.3 hereof.
7.4 Protective Provisions. The Company shall not engage in any of the
actions specified in Sections A.6(c), B.6(c), C.6(c) or D.6(c) of Article III of
its Charter without the written consent in lieu of a meeting, or the affirmative
vote at a meeting called for such purpose, of the holders of Preferred Stock, as
provided in such Sections.
7.5 Business. The Company will only engage in the businesses of the
identification and commercialization of products and processes by genomic
analysis of diverse microbes and other living materials.
7.6 Guarantees. The Company will not incur any guarantee or similar
contingent obligation in respect of the indebtedness of others, whether or not
classified on the Company's balance sheet as a liability (a "Guarantee").
7.7 Conflicting Agreements. The Company will not enter into any agreement
which by its terms might restrict the performance of the Company's obligations
pursuant to the terms of this Agreement or the provisions relating to the
Preferred Stock included in the Charter, including but not limited to
registration rights, and the payment of dividends on, the redemption, voting or
conversion of, the Preferred Stock.
7.8 No Acquisitions. The Company shall not, nor shall it permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
without the approval of the holders of at least 75% in interest of the Covenant
Preferred Shares, voting together as a class.
7.9 No Dispositions. Other than in the ordinary course of business and
other than dispositions of obsolete assets, the Company will not, nor shall it
permit any of its Subsidiaries to, sell, lease, encumber or otherwise dispose of
or agree to sell, lease, encumber or otherwise dispose of, in any transaction or
series of related transactions, any substantial assets of the
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Company without the approval of the holders of at least 75% in interest of the
Covenant Preferred Shares, voting together as a class.
7.10 Employee Stock and Stock Options. Other than options to purchase up
to 11,275,624 shares of Common Stock which may be issued under the 1994 Plan or
the 1997 Plan, the Company will not issue Common Stock or stock options to its
officers, directors, employees or others who render services to the Company (the
"Employees") unless such Common Stock or options, as the case may be, are issued
pursuant to a stock option plan approved by holders of at least 75% in interest
of the Covenant Preferred Shares, voting as a class, and an agreement in form
and substance satisfactory to holders of at least 75% in interest of the
Covenant Preferred Shares, voting as a class, except for immaterial changes
thereto as shall be approved from time to time by officers of the Company.
8. Confidentiality.
The Preferred Stockholders agree to keep the information heretofore or
hereafter furnished to the Preferred Stockholders by the Company or on the
Company's behalf (the "Confidential Material") confidential. Notwithstanding
the foregoing, the term Confidential Material does not include information that
(i) is or becomes publicly available other than through breach of this Agreement
by the Preferred Stockholders; (ii) is already known to the Preferred
Stockholders at the time of disclosure; (iii) is received by the Preferred
Stockholders from a third party not under an obligation of confidentiality to
the Company or (iv) is independently developed by the Preferred Stockholders
without reference to the Confidential Material. The Preferred Stockholders
agree to take reasonable precautions to safeguard the Confidential Material from
disclosure to anyone other than appropriate employees, officers, directors,
partners and representatives, including auditors and attorneys, of the Preferred
Stockholders, which persons shall be advised of the confidential nature of such
information. In the event that any Preferred Stockholder or any of such
Preferred Stockholder's representatives receive a request or demand to disclose
all or any part of the Confidential Material under the terms of a subpoena or
order issued by a court of competent jurisdiction or otherwise, the Preferred
Stockholders shall (i) promptly notify the Company of the existence, terms and
circumstances surrounding such request or demand so that the Company may seek a
protective order or other appropriate relief or remedy or waive compliance with
the terms hereof, (ii) consult with the Company on the advisability of taking
legally advisable steps to resist or narrow such request or demand, and (iii) if
disclosure of such Confidential Material is required, disclose such Confidential
Material and, subject to reimbursement by the Company of Preferred Stockholder's
reasonable expenses, including legal fees, cooperate with the Company in its
efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to such portion of the disclosed Confidential
Material which the Company may so designate. If, in the opinion of Preferred
Stockholder's counsel, disclosure by the Preferred Stockholders of all or any
part of the Confidential Material is required by law, the Preferred Stockholders
shall (i) promptly notify the Company of the proposed disclosure, (ii) disclose
only such Confidential Material which is required by law, in the reasonable
opinion of the Preferred Stockholders' counsel, to be disclosed and (iii)
subject to reimbursement by the Company of the Preferred Stockholders'
reasonable expenses, including legal fees, take all legally advisable steps to
obtain an order or other reliable assurance that confidential treatment will be
accorded to the disclosed Confidential Material to the maximum extent possible
or to obtain such other protection under law of the confidential
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nature of such Confidential Material to the maximum extent possible. Any
Preferred Stockholder who is entitled to receive information concerning the
Company pursuant to Sections 6.3 and 6.4, shall as a condition to receipt of
such confidential information, agree to be bound by this Section 8.
9. Events of Noncompliance.
9.1 Occurrence of Event of Noncompliance. An event of noncompliance (an
"Event of Noncompliance") hereunder shall occur if:
(a) the Company fails in any material respect to perform or observe
any of the covenants contained in the Company fails in any material respect to
perform or observe any of the covenants contained in this Stockholders'
Agreement, the Series A Stock Purchase Agreement, the Series B Stock Purchase
Agreement, the Series C Stock Purchase Agreement or the Series D Stock Purchase
Agreement, or fails in any material respect to comply with any of the provisions
of this Stockholders' Agreement, the Series A Stock Purchase Agreement, the
Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement, the
Series D Stock Purchase Agreement or of its Charter applicable to the Covenant
Preferred Shares or the Registrable Securities (other than the Series E
Registrable Securities);
(b) the Company's representations and warranties contained in this
Stockholders' Agreement, the Series A Stock Purchase Agreement (including the
Schedules and Exhibits attached thereto), the Series B Stock Purchase Agreement
(including the Schedules and Exhibits attached thereto), the Series C Stock
Purchase Agreement (including the Schedules and Exhibits attached thereto) or
the Series D Stock Purchase Agreement (including the Schedules and Exhibits
attached thereto) shall be untrue or misleading in any material respect as of
the time when made or as of the closings of such agreements;
(c) the Company shall become insolvent, make an assignment for the
benefit of its creditors, call a meeting of its creditors to obtain any general
financial accommodation or suspend business; any material obligation of the
Company shall be accelerated or shall not be paid when due; any judicial
judgment or settlement shall be outstanding, or a case under any provision of
Title 11 of the United States Code, 11 U.S.C. (S) 101 et seq. (the "Bankruptcy
Code"), or any comparable law of any jurisdiction, including provisions for
receivership or reorganization, shall be commenced by or against the Company
which, in the case of an action being commenced against the Company under the
Bankruptcy Code, shall remain unstayed or undismissed for a period of sixty (60)
days;
(d) the Company fails to complete, within five years from the date of
the Series B Stock Purchase Agreement either: (i) an Initial Public Offering,
(ii) a sale, liquidation or dissolution of the Company, or (iii) a sale,
transfer or disposition of substantially all of the assets of the Company;
(e) the Company (x) incurs Indebtedness or Commitments in violation
of Section 7.1 hereto, (y) pays dividends in violation of Section 7.2 hereto,
and/or (z) issues shares of Capital Stock in violation of Section 7.3 hereto;
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(f) a default or an event of default shall occur or exist with
respect to any debt or indebtedness of the Company; or
(g) a default or an event of default shall occur or exist with
respect to any material contract of the Company, which default could give rise
to a material claim by a third party against the Company or the Company's
assets.
9.2 Remedies. In the event of the occurrence and continuation of an Event
of Noncompliance, the holders of at least 75% in interest of the Covenant
Preferred Shares, voting as a class, may:
(a) demand, and be entitled to, in accordance with the provision of
Sections A.8, B.8, C.8 and D.8 of Article III of the Charter of the Company, an
immediate (i) redemption of all of the Covenant Preferred Shares held by them
(or a portion of such shares pro rata), and (ii) immediate payment of all
accrued but unpaid dividends and all declared but unpaid dividends;
(b) declare an Event of Noncompliance and elect all members of the
Board of Directors, which Board may sell, dispose of, or liquidate the assets
and/or business of the Company in whatever manner it believes will maximize the
return to the Preferred Stockholders, or cause the Company to issue additional
securities in a private placement or Public Offering.
If the holders of at least 75% in interest of the Covenant Preferred
Shares, voting as a class, declare that an Event of Noncompliance exists, the
Company may, for a period of 30 days after receipt of such declaration of an
Event of Noncompliance, pay the entire redemption amount (including immediate
payment of all accrued but unpaid dividends and all declared but unpaid
dividends), in cash, of the Preferred Stock. The holders of the Preferred Stock
shall, upon receipt of the full payment of the redemption amount (including
immediate payment of all accrued but unpaid dividends and all declared but
unpaid dividends), transfer and surrender all of their Preferred Stock to the
Company, as instructed, and they shall thereafter no longer have any rights as
stockholders of the Company.
If the holders of at least 75% in interest of the Covenant Preferred
Shares, voting together as a class, shall send written notice of their
redemption request to the Company, the Company shall promptly give each of the
other holders of Covenant Preferred Shares written notice of the redemption (the
"Redemption Notice").
The exercise of the foregoing contractual remedies shall be in addition to
all other legal and equitable remedies available to the Preferred Stockholders.
10. Filing of Reports Under the Exchange Act.
(a) The Company shall give prompt notice to the Preferred
Stockholders of (i) the filing of any registration statement (an "Exchange Act
Registration Statement") pursuant to the Exchange Act, relating to any class of
equity securities of the Company, (ii) the effectiveness of such Exchange Act
Registration Statement, and (iii) the number of shares of such class of equity
securities outstanding as reported in such Exchange Act Registration Statement,
in order to enable the Preferred Stockholders to comply with any reporting
requirements under the
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Exchange Act or the Securities Act. Upon the written request of a majority in
interest of the holders of Preferred Shares, the Company shall, at any time
after the Company has registered any shares of Common Stock under the Securities
Act, file an Exchange Act Registration Statement relating to any class of equity
securities of the Company then held by the holders of Preferred Shares or
issuable upon conversion or exercise of any class of debt or equity securities
or warrants or options of the Company then held by the holders of Preferred
Shares, whether or not the class of equity securities with respect to which such
request is made shall be held by the number of persons which would require the
filing of a registration statement under Section 12(g)(1) of the Exchange Act.
(b) If the Company shall have filed an Exchange Act Registration
Statement or a registration statement (including an offering circular under
Regulation A promulgated under the Securities Act) pursuant to the requirements
of the Securities Act, which shall have become effective (and in any event, at
all times following the initial public offering of any of the securities of the
Company), then the Company shall comply with all the reporting requirements of
the Exchange Act (whether or not it shall be required to do so) and shall comply
with all other public information reporting requirements of the Commission as a
condition to the availability of an exemption from the Securities Act for the
sale of any of the Restricted Securities by any holder of Restricted Securities
(including any such exemption pursuant to Rule 144 or Rule 144A thereof, as
amended from time to time, or any successor rule thereto or otherwise). The
Company shall cooperate with each holder of Restricted Securities in supplying
such information as may be necessary for such holder of Restricted Securities to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act (under Rule 144 or Rule 144A thereunder or otherwise)
for the sale of any of the Restricted Securities by any holder of Restricted
Securities.
11. Registration Rights.
11.1 Demand Registration Rights.
(a) Upon written request at any time by holders of Series A
Registrable Securities representing in the aggregate at least 50% of the total
number of Series A Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series A Registrable Securities, as requested by the
holders of Series A Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series A Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series A Registrable Securities
pursuant to this Section 11.1(a). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(a). A request by a holder of Series A Registrable
Securities to have the Company effect the registration of Series A Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the registration of the Series A Registrable Securities shall
become effective, unless and until the Series A Registrable Securities are sold
pursuant to the registration statement. The registration rights provided for in
this Section 11.1(a) are in addition to those provided for in Section 11.1(e).
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(b) Upon written request at any time by holders of Series B
Registrable Securities representing in the aggregate at least 50% of the total
number of Series B Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series B Registrable Securities, as requested by the
holders of Series B Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series B Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series B Registrable Securities
pursuant to this Section 11.1(b). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(b). A request by a holder of Series B Registrable
Securities to have the Company effect the registration of Series B Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the registration of the Series B Registrable Securities shall
become effective, unless and until the Series B Registrable Securities are sold
pursuant to the registration statement. The registration rights provided for in
this Section 11.1(b) are in addition to those provided for in Section 11.1(e).
(c) Upon written request at any time by holders of Series C
Registrable Securities representing in the aggregate at least 50% of the total
number of Series C Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series C Registrable Securities, as requested by the
holders of Series C Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series C Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series C Registrable Securities
pursuant to this Section 11.1(c). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(c). A request by a holder of Series C Registrable
Securities to have the Company effect the registration of Series C Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the registration of the Series C Registrable Securities shall
become effective, unless and until the Series C Registrable Securities are sold
pursuant to the registration statement. The registration rights provided for in
this Section 11.1(c) are in addition to those provided for in Section 11.1(e).
(d) Upon written request at any time by holders of Series D
Registrable Securities representing in the aggregate at least 50% of the total
number of Series D Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series D Registrable Securities, as requested by the
holders of Series D Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series D Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series D Registrable Securities
pursuant to this Section 11.1(d). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(d). A request by a holder of Series D Registrable
Securities to have the Company effect the registration of Series D Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the
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registration of the Series D Registrable Securities shall become effective,
unless and until the Series D Registrable Securities are sold pursuant to the
registration statement. The registration rights provided for in this Section
11.1(d) are in addition to those provided for in Section 11.1(e)
(e) Upon written request at any time by holders of Registrable
Securities representing in the aggregate at least 50% of the total number of
Registrable Securities at the time of such request, the Company shall use its
best efforts to effect the registration under the Securities Act and
registration or qualification under all applicable state securities laws of the
Registrable Securities, as requested by the holders of Registrable Securities,
all as provided in the following provisions of this Section 11. Holders of
Registrable Securities may require the Company to effect no more than two
registrations under the Securities Act, in the aggregate, upon the request of
the holders of Registrable Securities pursuant to this Section 11.1(e). Any
registration which is not declared effective pursuant to the Securities Act and
which does not remain effective as required by Section 11.5(a) below shall not
constitute one of the two registrations which the Company is obligated to effect
pursuant to this Section 11.1(e). A request by a holder of Shares to have the
Company effect the registration of Registrable Securities shall not obligate the
holder of Shares to convert them into Common Stock, whether or not the
registration of the Registrable Securities shall become effective, unless and
until the Registrable Securities are sold pursuant to the registration
statement. The registration rights provided for in this Section 11.1(e) are in
addition to those provided for in Sections 11.1(a), (b), (c) and (d).
11.2 Registration Requested by Holders. Whenever the Company shall be
requested, pursuant to Section 11.1 hereof, to effect the registration of any of
the Registrable Securities under the Securities Act (a "Request for
Registration"), the Company shall promptly give notice of such proposed
registration to all holders of Registrable Securities and thereupon shall, as
expeditiously as possible, use its best efforts to effect the registration under
the Securities Act and under all applicable state securities laws of:
(a) all Registrable Securities which the Company has been requested
to register pursuant to the Request for Registration; and
(b) all other Registrable Securities which holders of Registrable
Securities have, within thirty (30) days after the Company has given such
notice, requested the Company to register;
(c) all to the extent requisite to permit the sale or other
disposition by the holders of the Registrable Securities so to be registered. If
the holders of Registrable Securities who requested the registration of
Registrable Securities engage one or more underwriters to distribute such
Registrable Securities, the Company shall permit the managing underwriter(s) and
counsel to the underwriter(s) at the Company's expense to visit and inspect any
of the properties of the Company, examine its books, take copies and extracts
therefrom and discuss the affairs, finances and accounts of the Company with its
officers, employees and public accountants (and by this provision the Company
hereby authorizes said accountants to discuss with such underwriter(s) and such
counsel its affairs, finances and accounts), at reasonable times and upon
reasonable notice, with or without a representative of the Company being
present. The Company shall have the right to include in any registration of
Registrable Securities required
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pursuant to this Section 11.2 additional shares of its Common Stock to be issued
by the Company ("Company Securities") or shares of Common Stock ("Third Party
Registrable Securities") that have the benefit of duly exercised registration
rights contractually binding on the Company, provided that if any Registrable
Securities to be so registered for sale are to be distributed by or through
underwriters, then all Registrable Securities to be so registered for sale and
Company Securities and Third Party Registrable Securities, if any, shall be
included in such underwriting on the same terms and provided, however, that if,
in the written opinion of the managing underwriter(s), the total amount of such
securities to be registered will exceed the maximum amount of the Company's
securities which can be marketed (i) at a price reasonably related to their then
current market value, or (ii) without otherwise materially and adversely
affecting the entire offering, then the Company shall exclude from such
underwriting (x) first, the maximum number of Company Securities and Third Party
Registrable Securities as is necessary in the opinion of the managing
underwriter(s) to reduce the size of the offering and (y) then, the minimum
number of Registrable Securities, pro rata to the extent practicable, on the
basis of the number of Registrable Securities requested to be registered among
the participating holders of Registrable Securities, as is necessary to reduce
the size of the offering. A registration that covers both Registrable
Securities, Company Securities and Third Party Registrable Securities shall be
deemed to have been requested pursuant to a Request for Registration pursuant to
the applicable subsection Section 11.1 if the Registrable Securities of the type
covered by such subsection constitute at least 50% of the total offering on the
effective date of the registration statement but shall not be deemed to be one
of the registrations referred to in the applicable subsection of Section 11.1
hereof if Registrable Securities of the type covered by such subsection
constitute less than 50% of the total offering on the effective date of the
registration statement.
11.3 "Piggyback" Registrations.
(a) If the Company at any time proposes other than in accordance with
a Request for Registration to register any of its securities under the
Securities Act on Form S-1, S-2 or S-3 or on any other form upon which the
Registrable Securities may be registered for sale to the general public, whether
for its own account or for the account of others, the Company will at each such
time give notice to all holders of Registrable Securities of such proposal at
least thirty (30) days before the Company files a registration statement. Upon
the request of any holder of Registrable Securities given within twenty (20)
days after the Company has given such notice, the Company will cause the
Registrable Securities which the Company has been requested to register by such
holder of Registrable Securities to be registered under the Securities Act, all
to the extent requisite to permit the sale or other disposition by such holder
of Registrable Securities of the Registrable Securities so registered.
(b) If securities are to be registered for sale under a registration
not initiated by a Request for Registration and are to be distributed by or
through a firm of underwriters, then any Registrable Securities which the
Company has been requested to register pursuant to clause (a) of this Section
11.3 shall also be included in such underwriting on the same terms as other
securities of the same class as the Registrable Securities included in such
underwriting, provided that if, in the written opinion of the managing
underwriter(s), the total amount of such securities to be so registered, when
added to the Registrable Securities and the securities held by holders of
securities other than the Registrable Securities, if any, will exceed the
maximum amount of the
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Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise materially and
adversely affecting the entire offering, then (subject to clause (d) of this
Section 11.3) the Company shall exclude from such underwriting (x) first, the
maximum number of securities, if any, other than Registrable Securities, being
sold for the account of persons other than the Company as is necessary to reduce
the size of the offering and (y) second, the minimum number of Registrable
Securities, if any, as is necessary in the opinion of the managing
underwriter(s) to reduce the size of the offering (any such reduction in
Registrable Securities to be made pro rata to the extent practicable on the
basis of the number of Registrable Securities requested to be registered among
the participating holders of Registrable Securities).
(c) If securities are to be registered for sale under a registration
not initiated by a Request for Registration and are to be distributed for the
account of holders of Third Party Registrable Securities or holders (other than
the Company) of other securities of the Company other than Registrable
Securities by or through a firm of underwriters of recognized standing under
underwriting terms appropriate for such transaction, then any Registrable
Securities which the Company has been requested to register pursuant to clause
(a) of this Section 11.3 shall also be included in such underwriting on the same
terms as other securities included in such underwriting, provided that if, in
the written opinion of the managing underwriter or underwriters, the total
amount of such securities to be so registered, when added to such Registrable
Securities, will exceed the maximum amount of the Company's securities which can
be marketed (i) at a price reasonably related to their then current market
value, or (ii) without otherwise materially and adversely affecting the entire
offering, then the Company shall exclude from such underwriting the number of
Registrable Securities and other securities, pro rata to the extent practicable,
on the basis of the number of securities requested to be registered, as is
necessary in the opinion of the managing underwriter(s) to reduce the size of
the offering.
(d) Notwithstanding Section 11.3 (a) and (b), the Company shall not
exclude more Registrable Securities from registration than is necessary to
reduce the number of Registrable Securities to be registered to one-fifth of the
total number of securities to be registered, provided, however, that the Company
may exclude all Registrable Securities from registration in connection with the
Company's Initial Public Offering in its sole discretion, whether or not such
exclusion is required in the opinion of the managing underwriter(s).
(e) Notwithstanding anything to the contrary contained herein, the
provisions of clause (y) of Section 11.3(b) and the provisions of Section
11.3(d) limiting the amount of the Registrable Securities requested to be
registered that may be excluded from such registration may be waived by the
affirmative vote of holders of 50% of the Registrable Securities requested to be
registered. If, by reason of the provisions of Section 11.3(b) or Section
11.3(d), in any public offering other than the Company's Initial Public
Offering, more than 10% of the Registrable Securities requested to be registered
are excluded from such registration statement, then, in each such case, the
holders of the Registrable Securities shall be entitled to an additional demand
registration pursuant to Section 11.1(e) and shall be entitled to an additional
registration pursuant to Section 11.1 at the Company's expense, without
reimbursement, in accordance with Section 11.6.
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11.4 Registrations on S-3. At such time as the Company shall have qualified
for the use of Form S-3 (or any successor form promulgated under the Securities
Act), each holder of Registrable Securities shall have the right to request in
writing an unlimited number of registrations on Form S-3 (except that the
holders of Series E Registrable Securities shall only have the right to request
in writing three (3) registrations on Form S-3), provided that the Registrable
Securities proposed to be included in each such registration statement have a
proposed aggregate offering price of at least $500,000 and that no holder shall
have a right to request that Registrable Securities be registered on Form S-3
during any calendar year if Registrable Securities of such holder were included
in a registration statement on Form S-3 pursuant to a request made by such
holder during such calendar year. Each such request by a holder shall: (a)
specify the number of Registrable Securities which the holder intends to sell or
dispose of, and (b) state the intended method by which the holder intends to
sell or dispose of such Registrable Securities. Upon receipt of a request
pursuant to this Section 11.4, the Company shall use its best efforts to effect
such registration or registrations on Form S-3.
11.5 Company's Obligations in Registration. Whenever the Company is
obligated to effect the registration of any Registrable Securities under the
Securities Act, as expeditiously as possible the Company will use its best
efforts to:
(a) prepare and file with the Commission, a registration statement
with respect to such Registrable Securities and cause such registration
statement to become and remain effective, provided, that the Company shall not
be required to keep such registration statement effective, or to prepare and
file any amendments or supplements thereto, after the later of (i) the last
business day of the ninth month following the date on which such registration
statement becomes effective under the Securities Act or such longer period
during which the holders of the Registrable Securities registered thereunder
shall pay all expenses reasonably incurred to keep such registration statement
effective with respect to any of the Registrable Securities so registered or
(ii) the date on which all of the Registrable Securities registered pursuant to
such registration statement have been sold; provided further that in the event
the Commission shall have declared any other registration statement with respect
to an offering of securities of the Company to be effective within four months
prior to the Company's receiving a Request for Registration, the Company may
delay the effective date of the registration statement filed in response to the
Request for Registration until six months after the effective date of the
previous registration statement;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by such registration statement whenever
the holders of Registrable Securities covered by such registration statement
shall desire to dispose of the same;
(c) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered such number of
copies of a printed prospectus, including a preliminary prospectus and any
amendments or supplements thereto, in conformity with the requirements of the
Securities Act, and such other documents as such holders of
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Registrable Securities may reasonably request in order to facilitate the
disposition of such Registrable Securities;
(d) notify each holder of Registrable Securities, at any time when a
prospectus relating to the Registrable Securities covered by such registration
statement is required to be delivered under the Securities Act, of the Company's
becoming aware that the prospectus in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and at the request of any holder of Registrable
Securities, prepare and furnish to such holder any reasonable number of copies
of any supplement to or amendment of such prospectus necessary so that, as
thereafter delivered to any purchaser of the Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(e) register or qualify the Registrable Securities covered by such
registration statement under such securities or blue sky laws of such
jurisdictions as the holders of Registrable Securities for whom such Registrable
Securities are registered or are to be registered shall reasonably request, and
do any and all other reasonable acts and things which may be necessary or
advisable to enable such holders of Registrable Securities to consummate the
disposition in such jurisdictions of such Registrable Securities; provided,
however, that the Company shall not be required to consent to general service of
process for all purposes in any jurisdiction where it is not then subject to
process, qualify to do business as a foreign corporation where it would not be
otherwise required to qualify or submit to liability for state or local taxes
where it is not otherwise liable for such taxes;
(f) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered an agreement
satisfactory in form and substance to them by the Company and each of its
officers, directors and holders of 5% or more of any class of capital stock,
that during the thirty (30) days before and the 180 days after the effective
date of any underwritten public offering, the Company and such officers,
directors and 5% security holders shall not offer, sell, contract to sell or
otherwise dispose of any shares of capital stock or securities convertible into
capital stock, except as part of such underwritten public offering and except
that gifts may be made to relatives or their legal representatives upon the
condition that the donees agree in writing to be bound by the restrictions
contained in this clause (f) of Section 11.5;
(g) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered at the closing of
the sale of such Registrable Securities by such holders of Registrable
Securities a signed copy of (i) an opinion or opinions of counsel for the
Company acceptable to such holders of Registrable Securities in form and
substance as is customarily given to underwriters in public offerings, and (ii)
a "cold comfort" letter from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accounts to underwriters in an underwritten public offering, to the
extent that such "cold comfort" letters are then available to selling
stockholders;
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(h) otherwise use its efforts to comply with all applicable rules and
regulations of the Commission, and, if required, make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than eighteen months, beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(i) use its best efforts to cause all Registrable Securities covered
by such registration statement to be listed on the principal securities exchange
on which similar equity securities issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or, if similar equity securities are not listed, to include the
Registrable Securities on the National Association of Securities Dealers
Automated Quotation System;
(j) in connection with any underwritten offering, enter into an
underwriting agreement with the underwriter(s) of such offering in the form
customary for such underwriter(s) for similar offerings, including such
representations and warranties by the Company, provisions regarding the delivery
of opinions of counsel for the Company and accountants' letters, provisions
regarding indemnification and contribution, and such other terms and conditions
as are at the time customarily contained in such underwriter's underwriting
agreements for similar offerings (and, at the request of any holder of
Registrable Securities that are to be distributed by such underwriter(s), any or
all (as requested by such holder) of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriter(s) shall also be made to and for the benefit of such holder); and
(k) permit any holder of Registrable Securities who, in the sole
judgment, exercised in good faith, of such holder, might be deemed to be a
controlling person of the Company, to participate in the preparation of such
registration statement and to require the insertion therein of material,
furnished to the Company in writing, that in the judgment of such holder, as
aforesaid, should be included, except to the extent that the Company shall
reasonably object to the inclusion of such material.
11.6 Payment of Registration Expenses. The costs and expenses of all
registrations and qualifications under the Securities Act, and of all other
actions which the Company is required to take or effect pursuant to this Section
11, shall be paid by the Company or holders of Third Party Registrable
Securities or other securities of the Company other than Registrable Securities,
if any (including, without limitation, all registration and filing fees,
printing expenses, expenses incident to filings with the National Association of
Securities Dealers, Inc., auditing costs and expenses, and the reasonable fees
and disbursements of counsel for the Company and one special counsel for the
holders of Registrable Securities) and the holders of Registrable Securities
shall pay only the underwriting discounts and commissions and transfer taxes, if
any, relating to the Registrable Securities sold by them; provided that the
Company shall pay without reimbursement such costs and expenses of (i) no more
than two registrations which become effective under the Securities Act as a
result of Requests for Registration pursuant to Section 11.1 and (ii) no more
than three registrations which become effective under the Securities Act as a
result of registrations on Form S-3 pursuant to the request of the holders of
Series E Registrable Securities under Section 11.4, and provided, further, that
in the event more
35.
<PAGE>
than two registrations as described in clause (i) above or three registrations
as described in clause (ii) above, as applicable, become effective under the
Securities Act, the holders of Registrable Securities and other securities, if
any, included in such registrations shall reimburse the Company pro rata for all
registration and filing fees, reasonable printing expenses, reasonable auditing
costs and expenses (excluding costs and expenses of the Company's annual audit)
and the reasonable fees and expenses of counsel for the Company and the selling
stockholders and such reimbursement shall be made to the Company within five (5)
business days after the effective date of such a registration statement.
11.7 Information from Holders of Registrable Securities. Notices and
requests delivered by holders of Registrable Securities to the Company pursuant
to this Section 11 shall contain such information regarding the Registrable
Securities to be so registered and the intended method of disposition thereof as
shall reasonably be required in connection with the action to be taken. Each
holder of Registrable Securities hereby agrees to provide the Company, or its
agents or designees, with all information reasonably required in connection with
the registration under the Securities Act or any applicable state securities law
of any Registrable Securities.
11.8 Indemnification. In the event of any registration under the
Securities Act of any Registrable Securities pursuant to this Section 11, the
Company shall indemnify and hold harmless each holder of Registrable Securities
disposing of such Registrable Securities and each other person, if any, which
controls (within the meaning of the Securities Act) such holder of Registrable
Securities and each other person (including underwriters) who participates in
the offering of such Registrable Securities, against any losses, claims, damages
or liabilities, joint or several, to which such holder of Registrable Securities
or controlling person or participating person may become subject under the
Securities Act or otherwise, to the extent that such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which such
Registrable Securities were registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein, or in any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) or necessary to make the statements therein not
misleading, and will reimburse such holder of Registrable Securities and each
such controlling person or participating person for any legal or any other
expenses reasonably incurred by such holder of Registrable Securities or such
controlling person or participating person in connection with investigating or
defending any such loss, claim, damage, liability or proceeding, provided, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary or final prospectus or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such holder of Registrable
Securities or such controlling or participating person, as the case may be,
specifically for use in the preparation thereof. Each such holder of Registrable
Securities will, if requested by the Company prior to the initial filing of any
such registration statement, agree in writing, severally but not jointly, to
indemnify and hold harmless the Company and each person which controls (within
the meaning of the Securities Act) the Company and each other person (including
underwriters) who participates in the offering of such
36.
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Registrable Securities against all losses, claims, damages and liabilities to
which the Company or such controlling person or participating person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement of
any material fact contained, on the effective date thereof, in any registration
statement under which such Registrable Securities were registered under the
Securities Act, or in any preliminary prospectus or final prospectus contained
therein, or in any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
a prospectus, in the light of the circumstances under which they were made) not
misleading, to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such statement or omission made in such registration
statement, preliminary or final prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such holder of Registrable Securities
and specifically stated to be for use in the preparation thereof. Each
indemnified party shall cooperate with each indemnifying party in defending any
loss, claim, damage, liability or proceeding.
(a) Indemnification similar to that specified in the preceding clause of
this Section 11.8 (with appropriate modifications) shall be given by the Company
and, at the Company's request, each holder of Registrable Securities with
respect to any registration or other qualification of securities under any state
securities and "blue sky" laws.
(b) If the indemnification provided for in clauses (a) and (b) of this
Section 11.8 is unavailable or insufficient to hold harmless an indemnified
party, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party referred to in clauses (a) and (b) of this
Section 11.8 in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and the indemnified party on the other
hand in connection with statements or omissions which resulted in losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omissions. The parties agree that
it would not be just and equitable if contributions pursuant to this clause were
to be determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this clause. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this clause shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any loss, claim, damage, liability or proceeding which is the
subject of this clause. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(c) Each indemnified party shall notify the indemnifying party in writing
within ten (10) days after its receipt of notice of the commencement of any
action against it in respect of which indemnity may be sought from the
indemnifying party pursuant to this
37.
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Section 11.8. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party, the indemnifying party will be
entitled to participate in the defense with counsel satisfactory to such
indemnified party. Each indemnified party shall cooperate with each indemnifying
party in defending any loss, claim, damage, liability or proceeding.
(d) Notwithstanding clauses (a) through (c) of this Section 11.8, the
aggregate amount which may be recovered by the Company, controlling persons of
the Company or underwriters from each holder of Registrable Securities pursuant
to the indemnification and contribution provided for in this Section 11.8 shall
be limited to the total net proceeds for which the Registrable Securities were
sold by such holder of Registrable Securities.
(e) Notwithstanding any of the foregoing, if, in connection with an
underwritten public offering of Registrable Securities, the Company, the selling
stockholders and the underwriter(s) enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 11.8 shall be deemed inoperative for
purposes of such offering.
12. Small Business Matters.
12.1 Generally: Certain SBIC Covenants. CIT/VC is a Small Business
Investment Company ("SBIC") licensed by the United States Small Business
Administration ("SBA"). In order for CIT/VC to acquire and hold the Series B
Preferred Stock, it obtained from the Company certain representations and rights
as set forth below. As a material inducement to CIT/VC to purchase the Series B
Preferred Stock pursuant to the Series B Stock Purchase Agreement, the Company
made, and hereby makes the following representations and warranties and agrees
to comply with the following covenants:
(a) Assuming that CIT/VC's investment in the Company satisfies the
requirements of 13 C.F.R. (S)107.865(d), and has complied with the requirements
of 13 C.F.R. (S)107.865(e), the Company, together with its "affiliates" (as that
term is defined in 13 C.F.R. (S)121.103), is a "small business concern" within
the meaning of the Small Business Investment Act of 1958, as amended ("SBIA"),
and the regulations thereunder, including Title 13, Code of Federal Regulations,
(S)121.301(c). The information set forth in the SBA Forms 480, 652 and Part A of
Form 1031 regarding the Company and its affiliates, when it was delivered to
CIT/VC at the closing of the sale of the Series B Preferred Stock under the
Series B Stock Purchase Agreement, was accurate and complete.
(b) The proceeds from the sale of the Series B Preferred Stock were
or will be used by the Company to (1) finance working capital and other
corporate needs and (2) pay expenses related to the transactions contemplated by
the Series B Stock Purchase Agreement. No portion of such proceeds (i) were or
will be used to provide capital to a corporation licensed under the SBIA, (ii)
were or will be used to acquire farm land, (iii) were or will be used to fund
production of a single item or defined limited number of items, generally over a
defined production period, and such production constituted or will constitute
the majority of the activities of the Company and its Subsidiaries (examples
include motion pictures and electric generating
38.
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plants), or (iv) were or will be used for any purpose contrary to the public
interest (including, but not limited to, activities which are in violation of
law) or inconsistent with free competitive enterprise, in each case, within the
meaning of 13 C.F.R. (S)107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary
business activity involves, directly or indirectly, providing funds to others,
the purchase or discounting of debt obligations, factoring or long-term leasing
of equipment with no provision for maintenance or repair, and neither the
Company nor any of its Subsidiaries is classified under Major Group 65 (Real
Estate) of the SIC Manual. The assets of the business of the Company and its
Subsidiaries (the "Business") will not be reduced or consumed, generally without
replacement, as the life of the Business progresses, and the nature of the
business does not require that a stream of cash payments be made to the
Business' financing sources, on a basis associated with the continuing sale of
assets (examples of such businesses would include real estate development
projects and oil and gas wells). (See 13 C.F.R. 107.720)
(d) The proceeds from the sale of the Series B Preferred Stock were
not or will not be used substantially for a foreign operation. This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States.
12.2 Regulatory Compliance Cooperation.
(a) CIT/VC agrees to use commercially reasonable best efforts to
avoid the occurrence of a Regulatory Problem. In the event that CIT/VC
determines that it has a Regulatory Problem, the Company agrees to use
commercially reasonable efforts to take all such actions as are reasonably
requested by CIT/VC in order (A) to effectuate and facilitate any transfer by
CIT/VC of any Securities of the Company then held by CIT/VC to any Person
designated by CIT/VC (subject, however, to compliance with Section 3 of this
Agreement), (B) to permit CIT/VC (or any Affiliate of CIT/VC) to exchange all or
any portion of the voting Securities of the Company then held by such Person on
a share-for-share basis for shares of a class of non-voting Securities of the
Company, which non-voting Securities shall be identical in all respects to such
voting Securities, except that such new Securities shall be non-voting and shall
be convertible into voting Securities on such terms as are requested by CIT/VC
in light of regulatory considerations then prevailing, and (C) to continue and
preserve the respective allocation of the voting interests with respect to the
Company arising out of CIT/VC's ownership of voting Securities of the Company
and/or provided for in this Agreement before the transfers and amendments
referred to above (including entering into such additional agreements as are
requested by CIT/VC to permit any Person(s) designated by CIT/VC to exercise any
voting power which is relinquished by CIT/VC upon any exchange of voting
Securities for nonvoting Securities of the Company); and the Company shall enter
into such additional agreements, adopt such amendments to this Agreement, the
Company's Charter and the Company's By-laws and other relevant agreements and
taking such additional actions, in each case as are reasonably requested by
CIT/VC in order to effectuate the intent of the foregoing. If CIT/VC elects to
transfer Securities of the Company to a Regulated Holder in order to avoid a
Regulatory Problem, the Company shall enter into such agreements with such
Regulated Holder as it may reasonably request in order to assist such Regulated
Holder in complying with applicable laws, and regulations to which it is
subject. Such agreements may include restrictions on the
39.
<PAGE>
redemption, repurchase or retirement of Securities of the Company that would
result or be reasonably expected to result in such Regulated Holder holding more
voting securities or total securities (equity and debt) than it is permitted to
hold under such laws and regulations.
(b) In the event CIT/VC has the right to acquire any of the Company's
Securities from the Company or any other Person (as the result of Sections 3 or
4 of this Agreement or otherwise), at CIT/VC's request the Company will offer to
sell to CIT/VC non-voting Securities (or, if the Company is not the proposed
seller, will arrange for the exchange of any voting securities for non-voting
securities immediately prior to or simultaneous with such sale) on the same
terms as would have existed had CIT/VC acquired the Securities so offered and
immediately requested their exchange for non-voting Securities pursuant to
Section 12.1(a) above.
(c) In the event that any Subsidiary of the Company ever offers to
sell any of its Securities to CIT/VC, then the Company will cause such
Subsidiary to enter into agreements with CIT/VC on substantially similar terms
as this Section 12.
12.3 Information Rights and Related Covenants.
(a) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall provide to CIT/VC a
written assessment, in form and substance satisfactory to CIT/VC, of the
economic impact of CIT/VC's financing under the Series B Stock Purchase
Agreement, specifying the full-time equivalent jobs created or retained, the
impact of the financing on the consolidated revenues and profits of the Business
and on taxes paid by the Business and its employees (See 13 C.F.R. 107.630(e)).
(b) Upon the request of CIT/VC (or any Affiliate of CIT/VC to whom
CIT/VC has Transferred any Securities of the Company), the Company will (A)
provide to such Person such financial statements and other information as such
Person may from time to time reasonably request for the purpose of assessing the
Company's financial condition and (B) furnish to such Person all information
reasonably requested by it in order for it to prepare and file SBA Form 468 and
any other information reasonably requested or required by the SBA or any
successor entity thereto.
(c) The Company will at all times comply with the non-discrimination
requirements of 13 C.F.R., Parts 112, 113 and 117.
12.4 Remedies. The Company understands that its violation of this Agreement
may result in CIT/VC being required by the SBA to sell the Series B Preferred
Stock, and such sale may be at depressed prices due to the circumstances and
timing of the sale. Therefore, in addition to all other remedies available to
CIT/VC for the Company's violation of this Agreement, the Company agrees that
CIT/VC shall be entitled to seek specific enforcement or other equitable relief
to prevent a violation by the Company of the terms of this Agreement, and the
Company waives any requirement that CIT/VC posts any bond as a condition to
seeking or obtaining equitable relief. CIT/VC acknowledges and agrees that the
remedies available to CIT/VC for the Company's violation of this Agreement shall
be limited to whatever equitable relief may be available (such as specific
performance, injunctive relief and rescission), damages
40.
<PAGE>
resulting from CIT/VC being required to divest the Series B Preferred Stock and
costs of enforcement. CIT/VC expressly waives any claims for damages resulting
from any loss of, or restrictions imposed upon the use of, its SBIC license as a
result of the Company's breach of Section 12 of this Agreement.
13. Duration of Agreement. The rights and obligations of each Stockholder,
except the rights and obligations contained in Sections 3.1, 3.2, 3.3(c), 10, 11
and 12 hereof, and the covenants hereunder to that Stockholder shall terminate
as to each Stockholder upon the closing of the Initial Public Offering by the
Company. The obligations contained in Sections 8, 11 and 12 shall survive
indefinitely until, by their respective terms, they are no longer applicable.
14. Additional Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement, the Series A Stock Purchase Agreement,
the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement,
the Series D Stock Purchase Agreement and/or the Series E Stock Purchase
Agreement shall have been breached by any party hereto, the party or parties
entitled to the benefit of such covenants or agreements may proceed to protect
and enforce their rights either by proceeding in equity and/or by action at law,
including, but not limited to, an action for damages as a result of any such
breach; and/or an action for specific performance of any such covenant or
agreement contained in this Agreement, the Series A Stock Purchase Agreement,
the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement,
the Series D Stock Purchase Agreement and/or the Series E Stock Purchase
Agreement and/or a temporary or permanent injunction, in any case without
showing any actual damage and without establishing, in the case of an equitable
proceeding, that the remedy at law is inadequate. The rights, powers and
remedies of the parties under this Agreement are cumulative and not exclusive of
any other right, power or remedy which such parties may have under any other
agreement or law. No single or partial assertion or exercise of any right, power
or remedy of a party hereunder shall preclude any other or further assertion or
exercise thereof. Any purported Transfer in violation of the provisions of this
Agreement shall be void ab initio.
15. Successors and Assigns; Limitation on Assignment. Except as otherwise
expressly provided herein, this Agreement shall bind and inure to the benefit of
the Company, each of the Stockholders and the respective successors or heirs and
personal representatives and permitted assigns of the Company and each of the
Stockholders. Each Stockholder agrees further that, it shall not sell any Shares
to any Person not a party to this Agreement unless such Person contemporaneously
with such sale executes and delivers to the Company an agreement to be bound by
the Stockholders' obligations hereunder, whereupon such Person shall have the
same obligations as the Preferred Stockholders under this Agreement. The terms,
representations, warranties and covenants contained in Sections 6 and 7 hereof
shall be binding upon and shall inure to the benefit of and be enforceable by,
the Preferred Stockholders and their respective successors, transferees and
assignees, provided, that the rights granted to the Preferred Stockholders by
Sections 6.3 and 6.4 may not be transferred or assigned to, and shall not inure
to the benefit of, a successor, transferee or assignee of the Preferred
Stockholders which is engaged in any business which directly competes with the
Company in any line of business engaged in, or planned to be engaged in, by the
Company. It is understood and agreed among the parties hereto that this
Agreement and the representations, warranties, and covenants made herein are
made expressly and solely for the benefit of the other party or parties hereto
(or their respective
41.
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successors or permitted assigns), and that no other person shall be entitled or
be deemed to be a third-party beneficiary of any party's rights under this
Agreement.
16. Entire Agreement. This Agreement, the Series A Stock Purchase Agreement,
the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement,
the Series D Stock Purchase Agreement, the Series E Stock Purchase Agreement,
the Charter and the By-Laws of the Company and each of the other documents
delivered in connection with the sale by the Company of its Series E Preferred
Stock pursuant to the Series E Stock Purchase Agreement contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior stockholders' agreements, including the Prior Stockholders'
Agreement and the Original Stockholders' Agreement, and all other prior and
contemporaneous arrangements or understandings with respect thereto. The parties
hereto, including the Company and the holders of at least 75% in interest of the
outstanding shares of Series A, B, C and D Preferred Stock, voting together as a
class, hereby agree that all rights granted and covenants made under the Prior
Stockholders' Agreement are hereby waived, released and terminated in their
entirety and shall have no further force or effect whatsoever. The rights and
covenants provided herein set forth the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
17. Notices. All notices, requests, consents and other communications hereunder
to any party shall be deemed to be sufficient if contained in a written
instrument delivered in person, duly sent by first class registered or certified
mail, postage prepaid, or telecopied or telexed, addressed or telecopied to such
party at the address or telecopier number set forth below, or such other address
or telecopier number as may hereafter be designated in writing by the addressee
in a notice complying as to delivery with the terms of this Section 17;
provided, however, that if the Stockholder is foreign, notice shall be sent by
both air courier, and telecopied or telexed to such Stockholder:
If to the Company:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Attention: Chief Executive Officer
Telecopier No.: (619) 623-5180
with a copy to:
Cooley Godward LLP
4365 Executive Drive,
Suite 1100
San Diego, CA 92121
Telecopier: (619) 453-3555
Attention: M. Wainwright Fishburn, Esq.
If to any other party to this Stockholders' Agreement, to the address
listed for such party on Schedule 17 hereto, or for persons who become party to
this Stockholders' Agreement after
42.
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its initial execution, to the address listed for such person on the signature
page to this Stockholders' Agreement.
All such notices, requests, consents and communications shall be deemed to
have been given (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of telex or telecopier transmission, on the date on
which the sender receives machine confirmation of such transmission, and (c) in
the case of mailing, on the fifth business day following the date of such
mailing.
18. Changes. The terms and provisions of Sections 5, 6 and 7 of this Agreement
may not be modified or amended, or any of the provisions thereof waived,
temporarily or permanently, except pursuant to the written consent of (a) the
Company, and (b) the holders of at least 75% in interest of the Covenant
Preferred Shares, voting together as a class. Except as expressly set forth in
the preceding sentence and Section 11.3(e), the terms and provisions of this
Agreement may not be modified or amended, or any of the provisions hereof
waived, temporarily or permanently, except pursuant to the written consent of
(i) the Company, and (ii) the holders of at least 75% in interest of the
Preferred Shares, voting together as a class.
19. Counterparts. This Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
20. Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
21. Nouns and Pronouns. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of names and pronouns shall include the plural and vice-versa.
22. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability. Such prohibition or
unenforceability in any one jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
23. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly therein.
24. New York Life Insurance Company Compliance Obligations. Nothing in this
Agreement shall diminish the continuing obligations of New York Life Insurance
Company to comply with applicable requirements of law that it maintain
responsibility for the disposition of, and control over its admitted assets,
investments and property, including (without limiting the generality of the
foregoing) the provisions of Section 1411(b) of the New York Insurance Law, as
amended, and as hereinafter from time to time in effect.
43.
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In Witness Whereof, the parties hereto have executed this Agreement on the
date first above written, in the case of corporations by their respective
officers thereunto duly authorized.
Diversa Corporation
By: /s/ Terrance J. Bruggeman
-----------------------------
Name: Terrance J. Bruggeman
---------------------------
Title: Chief Executive Officer
--------------------------
Stockholders:
HealthCare Ventures III, L.P.
By: HealthCare Partners III, L.P.
its: General Partner
By: /s/ Jeffrey Steinberg
-----------------------------
Name: Jeffrey Steinberg
---------------------------
Title: General Partner
--------------------------
HealthCare Ventures IV, L.P.
By: HealthCare Partners IV, L.P.
its: General Partner
By: /s/ Jeffrey Steinberg
-----------------------------
Name: Jeffrey Steinberg
---------------------------
Title: General Partner
--------------------------
HealthCare Ventures V, L.P.
By: HealthCare Partners V, L.P.
its: General Partner
By: /s/ Jeffrey Steinberg
-----------------------------
Name: Jeffrey Steinberg
---------------------------
Title: General Partner
--------------------------
44.
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APA Excelsior IV/Offshore, L.P.
By: Patricof & Co. Ventures, Inc.
its: Investment Advisor
By: /s/ Patricia M. Cloherty
-----------------------------
Name: Patricia M. Cloherty
---------------------------
Title: Co. Chairman
--------------------------
APA Excelsior IV, L.P.
By: APA Excelsior IV Partners, L.P.
its: General Partner
By: Patricof & Co. Managers, Inc.
its: General Partner
By: /s/ Patricia M. Cloherty
-----------------------------
Name: Patricia M. Cloherty
---------------------------
Title: President
--------------------------
The P/A Fund, L.P.
By: APA Pennsylvania Partners II, L.P.
its: General Partner
By: /s/ Patricia M. Cloherty
-----------------------------
Name: Patricia M. Cloherty
---------------------------
Title: General Partner
--------------------------
Patricof Private Investment Club, L.P.
By: Patricof & Co. Managers, Inc.
its: General Partner
By: /s/ Patricia M. Cloherty
-----------------------------
Name: Patricia M. Cloherty
---------------------------
Title: President
--------------------------
45.
<PAGE>
Larry Abrams
/s/ Jeffrey Steinberg
----------------------------------
Aetna Life Insurance Company
By: /s/ [ILLEGIBLE]
-------------------------------
Name:_____________________________
Title: Vice President
----------------------------
Axiom Venture Partners, L.P.
By:_______________________________
Name:_____________________________
Title:____________________________
William Baum
/s/ William Baum
----------------------------------
Benefit Capital Management
Corporation
By: /s/ Sue Decarlo
-------------------------------
Name: Sue Decarlo
-----------------------------
Title: Senior Vice President & CFO
----------------------------
Terrance J. Bruggeman
/s/ Terrance J. Bruggeman
----------------------------------
Lee S. Casty
/s/ Lee S. Casty
----------------------------------
46.
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The Cit Group/Venture Capital, Inc.
By: /s/ [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
-----------------------------
Title: [ILLEGIBLE]
----------------------------
CSK Venture Capital Co., Ltd
By:_______________________________
Name:_____________________________
Title:____________________________
The Donald D. Johnston Trust
By: /s/ Donald D. Johnston
-------------------------------
Donald D. Johnston, Trustee
Finfeeds International Limited
By:_______________________________
Name:_____________________________
Title:____________________________
Donald C. Garaventi
/s/ Donald C. Garaventi
---------------------------------
GC&H Investments
By: /s/ John L. Cardoza
------------------------------
Name: John L. Cardoza
----------------------------
Title: Executive Partner
---------------------------
Barry Glickman
/s/ Barry Glickman
---------------------------------
47.
<PAGE>
Hudson Trust
By: Scott M. Ciccor
------------------------------
Name: Scott M. Ciccor
----------------------------
Title: Trustee
---------------------------
Frank Landsberger
/s/ Frank Landsberger
----------------------------------
Kenneth F. Logue
/s/ Kenneth F. Logue
----------------------------------
Mentus Money Purchase Plan
By: /s/ Guy J. Ionnuzzi
-------------------------------
Name: Guy J. Ionnuzzi
-----------------------------
Title: President
----------------------------
For: New York Life Insurance
By: /s/ Richard F. Drake
-------------------------------
Name: Richard F. Drake
-----------------------------
Title: Director, Venture Capital
----------------------------
Novartis Agribusiness
Biotechnology Research, Inc.
By: /s/ Stephen V. Evola
-------------------------------
Name: Stephen V. Evola
-----------------------------
Title: Co - President
----------------------------
48.
<PAGE>
Rho Management Trust II
By: /s/ Peter Klakanis
------------------------------
Name: Peter Klakanis
----------------------------
Title: C.F.O.
---------------------------
Raymond D. Rice
/s/ Raymond D. Rice
---------------------------------
Jay M. Short
/s/ Jay M. Short
---------------------------------
R. Patrick Simms
/s/ R. Patrick Simms
---------------------------------
Melvin I. Simon
/s/ Melvin I. Simon
---------------------------------
State of Michigan
By:______________________________
Name:____________________________
Title:___________________________
Kathleen H. Van Sleen
/s/ Kathleen H. Van Sleen
---------------------------------
49.
<PAGE>
SCHEDULE 17
NOTICES
If to HealthCare Ventures III, L.P., HealthCare Ventures IV, L.P. and HealthCare
Ventures, V, L.P.:
Twin Towers at Metro Park
379 Thornall Street
Edison, New Jersey 08837
Fax No.: (908) 906-1450
Attention: Jeffrey Steinberg
with a copy to:
Pepper, Hamilton & Scheetz LLP
1235 Westlakes Drive, Suite 400
Berwyn, Pennsylvania 19312-2401
Fax No.: (610) 640-7835
Attention: Chris Miller
If to APA Excelsior IV, L.P.; APA Excelsior IV/Offshore, L.P.; The P/A Fund,
L.P.; or Patricof Private Investment Club, L.P.:
Patricof & Co. Ventures, Inc.
445 Park Avenue
11th Floor
New York, New York 10022
Fax No.: (212) 319-6155
Attention: Patricia M. Cloherty
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
20th Floor
New York, NY 10022
Fax No.: (212) 758-9526
Attention: Robert M. Friedman, Esq.
If to Mr. Larry Abrams:
24 Central Park South
New York, New York 10019
Fax No.: (212) 758-2976
<PAGE>
If to Aetna Life Insurance Company:
Aetna Life Insurance Company
151 Farmington Avenue, - RC21
Hartford, CT 06156-9000
Fax No.: (860) 273-8650
Attention: David M. Clarke
If to Axiom Venture Partners, L.P.:
Axiom Venture Partners, L.P.
City Place II, 17/th/ Floor
185 Asylum Street
Hartford, Connecticut 06103
Attention: Samuel F. McKay
Fax No.: (203) 548-7797
If to William Baum:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Benefit Capital Management Corporation:
39 Old Ridgebury Road
Danbury, CT 06817
Fax No.: (203) 794-2693
Attention: Susan DeCarlo
If to Terrance J. Bruggeman:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Mr. Lee S. Casty:
c/o French-American Securities, Inc.
200 West Adams Street
Suite No. 1500
Chicago, IL 60606
Fax No.: (312) 407-5746
<PAGE>
If to The CIT Group/Venture Capital, Inc.:
The CIT Group/Venture Capital, Inc.
650 CIT Drive
Livingston, NJ 07039
Fax No.: (201) 740-5555
Attention: Bruce Schackman
If to CSK Venture Capital Co., Ltd.:
Kenchiku Kaikan 7/th/ Floor
5-26-20 Shiba
Minatoku, Tokyo 108
Japan
Fax No.: 81.03.3457.7070
Attention: Fumio Takahashi
If to The Donald D. Johnston Trust:
The Donald D. Johnston Trust
18 Oyster Shell Lane
Hilton Head Island, SC 29926
Fax No.: (803) 681-6493
Attention: Donald P. Johnston, Trustee
If to Finnfeeds International Limited:
Finnfeeds International Limited
P.O. Box 777
Marlborough, Wiltshire, UK
Fax No.: 44(0)1672517778
Attention: Richard Cooper
with a copy to:
Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005
Fax No.: (212) 732-3232
Attention: Kirstin T. Knight, Esq.
If to Donald C. Garaventi:
330 Indian Harbor Boulevard
Vero Beach, FL 32963
Fax No.: (561) 234-2374
<PAGE>
If to GC&H Investments:
c/o Cooley Godward llp
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Fax No.: (619) 453-3555
Attention: Wain Fishburn, Esq.
If to Barry Glickman:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Hudson Trust:
c/o Summit Asset Management Company, Inc.
666 Plainsboro Road
Suite 445, The Office Center
Plainsboro, NJ 08536
Fax No.: (609) 275-1892
Attention: Irene S. March
If to Frank Landsberger:
Mojave Therpeutic, Inc.
715 Olde Saw Mill River Road
Terrytown, NY 10591
Fax No.: (914) 347-0292
If to Kenneth F. Logue:
Logue and Rice
8000 Towers Crescent Drive
Suite 650
Vienna, VA 22182-2700
Fax No.: (703) 761-4248
If to Mentus Money Purchase Plan:
Aventine
8910 University Center Lane
Suite 750
San Diego, CA 92122-1085
Fax No.: (619) 455-6872
Attention: Guy Iannuzzi
<PAGE>
If to New York Life Insurance:
51 Madison Avenue
New York, NY 10010
Fax No.: (212) 447-4122
Attention: Himi Kittner
If to Novartis Agribusiness Biotechnology Research, Inc.:
Novartis Agribusiness Biotechnology
Research, Inc.
3054 Cornwallis Road
Research Triangle Park, NC 27709
Fax No.: (919) 541-8585
Attention: Dr. Juanjo Estruch
with a copy to:
Novartis Seeds, Inc.
7240 Holsclaw Road
Gilroy, CA 95020-8027
Fax No.: (408) 848-8129
Attention: Allen E. Norris, Esq.
If to Rho Management Trust II:
Rho Management Trust II
767 Fifth Avenue
43rd Floor
New York, New York 10153
Fax No.: (212) 751-3613
Attention: Joshua Ruch
with a copy to:
Gregory F.W. Todd, Esq.
888 Seventh Avenue, Suite 4500
New York, NY 10019
Fax No.: (212) 246-5151
If to Raymond D. Rice:
Logue and Rice
8000 Towers Crescent Drive
Suite 650
Vienna, VA 22182-2700
Fax No.: (703) 761-4248
<PAGE>
If to Jay M. Short:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to R. Patrick Simms:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Melvin I. Simon
1075 Old Mill Road
Pasadena, CA 91108
Fax No.: (818) 577-9266
If to State of Michigan:
Acting Administrator
State of Michigan
Department of Treasury
Treasury Building
430 West Allegan
Lansing, MI 48922
Fax No.: (517) 335-3668
Attention: Garry Neal
If to Kathleen H. Van Sleen:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
<PAGE>
LIST OF SCHEDULES
Schedule of Series E Investors
Schedule 7.3 - Outstanding Options, Warrants and Rights
Schedule 17 - Notices
LIST OF EXHIBITS
Exhibit A - Quarterly Financial Summary
iv.
<PAGE>
SCHEDULE OF SERIES E INVESTORS
<TABLE>
<CAPTION>
Name and Address No. of Shares
<S> <C>
Novartis Agribusiness 5,555,556
Biotechnology Research, Inc.
3054 Cornwallis Road
Research Triangle Park, NC 27709
____________
Total 5,555,556
</TABLE>
<PAGE>
SCHEDULE 7.3
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
<PAGE>
SCHEDULE 4.2 - CAPITALIZATION
DIVERSA CORPORATION
CAPITALIZATION TABLE
Projected After Series E Closing
FOOTNOTE:
- ---------
(a) [*]
(b) [*]
(c) [*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
Exhibit A
FORM OF QUARTERLY FINANCIAL SUMMARY
<PAGE>
Request to CFO's for Quarterly Financial Information
Company:_______________________________________________________
Submitted By:_______________ Period Ending:______________
Qtly. Payroll Taxes Paid Yes [ ] No [ ]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Report ($000)
- ------------------------------------------------------------------------------------------------------------------------------
Current Financial YTD Financial
- ------------------------------------------------------------------------------------------------------------------------------
Actual Budget Actual YTD Budget YTD
- ------------------------------------------------------------------------------------------------------------------------------
Current Prior Year Current Prior Year.
Qtr. Qtr. Qtr. Qtr. Current Prior Year Current Prior Year
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
- ------------------------------------------------------------------------------------------------------------------------------
Net Income (loss)
- ------------------------------------------------------------------------------------------------------------------------------
Gross Margin $
- ------------------------------------------------------------------------------------------------------------------------------
Gross Margin %
- ------------------------------------------------------------------------------------------------------------------------------
EBITDA
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flow from Operations
- ------------------------------------------------------------------------------------------------------------------------------
Current Qtr. Prior Year Qtr. Previous Qtr.
- ------------------------------------------------------------------------------------------------------------------------------
Cash & Cash Equivalents
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Long Term Debt
- ------------------------------------------------------------------------------------------------------------------------------
Backlog
- ------------------------------------------------------------------------------------------------------------------------------
# of Employees/Stores
- ------------------------------------------------------------------------------------------------------------------------------
Cash Used (Burn Rate)
- ------------------------------------------------------------------------------------------------------------------------------
(**If you've attached your cap table, you
don't need to complete this section Current Qtr. Prior Year Qtr. Previous Qtr.
Capitalization
- ------------------------------------------------------------------------------------------------------------------------------
Common Shares Outstanding
- ------------------------------------------------------------------------------------------------------------------------------
Common equivalent after conversion
- ------------------------------------------------------------------------------------------------------------------------------
Common equivalent of Warrants & Options
- ------------------------------------------------------------------------------------------------------------------------------
Total shares fully diluted
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
By: (CFO): __________________________
<PAGE>
EXHIBIT 10.10
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
INDUSTRIAL BIOCATALYSIS, INC.
Dated as of ________________ (the "Effective Date")
WHEREAS, Industrial BioCatalysis, Inc., a Delaware corporation (the
"Company") has entered into a Master Lease Agreement dated as of
_____________________ (the "Leases") with ____________, a Delaware corporation
(the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, _________ fully paid and non-
assessable shares of the Company's Series A Preferred Stock ("Preferred Stock"
at a purchase price of $_______ per share (the "Exercise Price"). The number
and purchase price of such shares are subject to adjustment as provided in
Section 8 hereof.
In the event Warrantholder fails to make available any or all of the Phase
II financing as set forth in the Leases, then the number of shares of the
Company's Preferred Stock, which the Warrantholder shall be entitled to purchase
hereunder shall be reduced by _________.
Prior to the exercise of the right to purchase Preferred Stock set forth in
this Section 1, in the event of an automatic conversion of the Preferred Stock
into the Company's Common Stock or in the event that there are no shares of
Preferred Stock outstanding (each, a "Conversion Event"), the right to subscribe
to and purchase Preferred Stock hereunder shall automatically and without any
other action be converted into the right to subscribe to and purchase such
number of shares of the Company's Common Stock as the holder of this Warrant
Agreement would be
1.
<PAGE>
entitled to receive if the Preferred Stock purchasable hereunder had been
converted into the Company's Common Stock immediately prior to the occurrence of
such Conversion Event.
Notwithstanding anything to the contrary set forth herein, upon the
happening of a Conversion Event, the provisions of Sections 8(d), 8(g) and 8 h
hereof shall apply to Common Stock in lieu of Preferred Stock.
2. TERM OF THE WARRANT AGREEMENT.
------------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
--------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering has
been declared effective by the
2.
<PAGE>
SEC, then the initial "Price to Public" specified in the final prospectus
with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
3.
<PAGE>
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person in combination with the distribution of the proceeds of such sale to
stockholders of the Company (hereinafter referred to as a "Merger Event"), then,
as a part of such Merger Event, lawful provision shall be made so that the
Warrantholder shall thereafter be entitled to receive, upon exercise of the
warrant, the number of shares of preferred stock or other securities of the
successor corporation resulting from such Merger Event, equivalent in value to
that which would have been issuable if Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to
the rights and interest of the Warrantholder after the Merger Event to the end
that the provisions of this Warrant Agreement (including adjustments of the
Exercise Price and number of shares of Preferred Stock purchasable) shall be
applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
4.
<PAGE>
If all of the issued and outstanding Preferred Stock other than the
Preferred Stock purchasable hereunder, is converted into the Company's Common
Stock, then the Preferred Stock purchasable hereunder shall automatically
convert into the Company's Common Stock.
(c) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of the
Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of shares of
Preferred stock (calculated to the nearest whole share) obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Preferred Stock issuable upon the exercise hereof immediately prior
to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's Total
----------------------------------
Financing Amount pursuant to the Leases exceeds $_____________, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $__________ by ______%, and (ii) dividing the
product thereof by the Exercise Price per share referenced above.
If, the Warrantholder's total cost of equipment leased pursuant to the
Phase II portion of Equipment schedule VL-1 to the Lease exceeds $500,000.00,
Warrantholder shall have the right to purchase from the Company, at the Exercise
Price (adjusted as set forth herein), an additional number of shares, which
number shall be determined by (i) multiplying the amount by which the
Warrantholder's total equipment cost exceeds $___________ by _____%, and (ii)
dividing the product thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information as necessary
for Warrantholder to determine if a dilutive event has occurred.
5.
<PAGE>
In the event the antidilution rights applicable to the Preferred Stock are
waived with respect to all issued and outstanding Preferred Stock, other than
the Preferred Stock purchasable hereunder, such antidilution rights shall be
deemed to be waived with respect to the Preferred Stock purchasable hereunder.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its preferred stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of its Preferred Stock; (iii) there shall be any Merger Event; or (iv)
there shall be any voluntary or involuntary dissolution, liquidation or winding
up of the Company; then, in connection with each such event, the Company shall
send to the Warrantholder: (A) at least twenty (20) days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution, subscription rights (specifying the date
on which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (a) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions an transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended, and minutes of all Board of
Directors (including all committees of the Board of Directors, if any) and
Shareholder meetings from ____________, 19__ through _________, 19__. The
issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect
6.
<PAGE>
thereof, or other cost incurred by the Company in connection with such exercise
and the related issuance of shares of Preferred Stock. The Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
and the issuance and delivery of any certificate in a name other than that of
the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and Section 4G of the Illinois Corporate Securities Law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A)
_____________ shares of Common Stock, of which _____________ shares are issued
and outstanding, and (B) ________________ shares of preferred stock, of which
____________ shares are issued and outstanding and are convertible into
_____________ shares of Common Stock at $_____ per share.
(ii) The Company has reserved ______ shares of Common Stock for
issuance under its 1994 Incentive and Nonqualified Stock Option Plan, under
which options are outstanding for the purchase of ______ shares of Common Stock
at an average price of $______ per share. Except for a Warrant exercisable for
the purchase of ______ shares of Common Stock at $______ per share being issued
as of the date hereof, there are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock or
other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
7.
<PAGE>
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in
----------------------------------------
this Warrant Agreement and the Stockholders Agreement by and among the Company
and the holders of the issued and outstanding Preferred Stock, the Company is
not, pursuant to the terms of any other agreement currently in existence, under
any obligation to register under the 1933 Act any of its presently outstanding
securities or any of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the Illinois Corporate
Securities Law, in reliance upon Section 4G thereof.
(h) Compliance with Rule 144. Upon and after such time as the Company
------------------------
has a class of equity securities registered under the Securities Exchange Act of
1934, as amended, at the written request of the Warrantholder, who proposes to
sell Preferred Stock issuable upon the exercise of the Warrant in compliance
with Rule 144 promulgated by the Securities and Exchange Commission, the Company
shall furnish to the Warrantholder, within ten days after receipt of such
request, a written statement confirming the Company's compliance with the
current public information filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed
8.
<PAGE>
disposition, and (ii) if requested by the Company, it shall have furnished the
Company with an opinion of counsel (which counsel may either be inside or
outside counsel to the Warrantholder) satisfactory to the Company and its
counsel to the effect that (A) appropriate action necessary for compliance with
the 1933 Act has been taken, or (B) an exemption from the registration
requirements of the 1933 Act is available. Notwithstanding the foregoing, the
restrictions imposed upon the transferability of any of its rights to acquire
Preferred Stock or Preferred Stock issuable on the exercise of such rights do
not apply to transfers from the beneficial owner of any of the aforementioned
securities to its nominee or from such nominee to its beneficial owner, and
shall terminate as to any particular share of Preferred Stock when (1) such
security shall have been effectively registered under the 1933 Act and sold by
the holder thereof in accordance with such registration or (2) such security
shall have been sold without registration in compliance with Rule 144 under the
1933 Act, or (3) a letter shall have been issued to the Warrantholder at its
request by the staff of the Securities and Exchange Commission or a ruling shall
have been issued to the Warrantholder at its request by such Commission stating
that no action shall be recommended by such staff or taken by such Commission,
as the case may be, if such security is transferred without registration under
the 1933 Act in accordance with the conditions set forth in such letter or
ruling and such letter or ruling specifies that no subsequent restrictions on
transfer are required. Whenever the restrictions imposed hereunder shall
terminate, as hereinabove provided, the Warrantholder or holder of a share of
Preferred Stock then outstanding as to which such restrictions have terminated
shall be entitled to receive from the Company, without expense to such holder,
one or more new certificates for the Warrant or for such shares of Preferred
Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15 (d) of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
---------
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
9.
<PAGE>
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
-------
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at ____________________________________________________________, (and/or, if by
facsimile, (____) _________ and (ii) to the Company at _____________________,
and/or if by facsimile, (____) _________ or at such other address as any such
party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. Except for the automatic conversion of the
-----------------------
right to acquire Preferred Stock into the right to acquire Common Stock, as set
forth in the third paragraph of Section 1, hereof, the Company will not, by
amendment of its Charter or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
10.
<PAGE>
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: INDUSTRIAL BIOCATALYSIS, INC.
By:____________________________________
Title:_________________________________
Warrantholder: COMDISCO, INC.
By:____________________________________
Title:_________________________________
11.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:
(1) The undersigned Warrantholder hereby elects to purchase ______ shares of
the Preferred Stock of ______________, pursuant to the terms of the Warrant
Agreement dated the _______ day of _________________, 19___ (the "Warrant
Agreement") between ____________________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
_________________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in Section
10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
________________________________
(Name)
________________________________
(Address)
Warrantholder: ________________
By:_____________________________
Title:__________________________
Date:___________________________
12.
<PAGE>
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ______________________________, hereby acknowledge receipt
of the "Notice of Exercise" from Comdisco, Inc., to purchase _______ shares of
the Preferred Stock of _____________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that __________ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company:
By:________________________________
Title:_____________________________
Date:______________________________
13.
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to _______________________
(Please Print)
whose address is _______________________________________________________________
________________________________________________________________________________
Dated:_______________________________________
Holder's Signature:__________________________
Holder's Address:____________________________
_____________________________________________
Signature Guaranteed::__________________________________________________________
NOTE: The signature to this Transfer Notice must correspond
with the name as it appears on the face of the
Warrant Agreement, without alteration or enlargement
or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative
capacity should file proper evidence of authority to
assign the foregoing Warrant Agreement.
14.
<PAGE>
Schedule of Warrant Holders
(Series A Preferred Stock)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Registered Owner Number of Shares Date Issued
- --------------------------------------------------------------------------------
<S> <C> <C>
Comdisco, Inc. 501,000 March 13, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. _____ Number of Shares: _______
(subject to adjustment)
Date of Issuance: ___________
INDUSTRIAL BIOCATALYSIS, INC.
Common Stock Purchase Warrant
-----------------------------
(Void after ______________)
Industrial BioCatalysis, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies and agrees that ____________________ or its
registered assigns (the "Registered Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company, at any time or from time to time
on or after the date of issuance and on or before the later to occur of (i)
____________ (at no later than 5:00 p.m. Eastern Standard Time) or (ii) the
fifth anniversary of the date of the consummation of the Company's first public
offering of securities registered under the Securities Act of 1933, as amended,
________ shares of Common Stock, $_____ par value per share, of the Company, at
a purchase price of $_____ per share. The shares purchasable upon exercise of
this Warrant, and the purchase price per share, each as adjusted from time to
time pursuant to the provisions of this Warrant, are hereinafter referred to as
the "Warrant Shares" and the "Exercise Price," respectively. The term "Warrant"
as used herein shall include this Warrant and any other warrants delivered in
substitution or exchange therefor, as provided herein.
1. Exercise.
---------
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the Notice of Exercise form
appended hereto duly executed by such Registered Holder or by such Registered
Holder's duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment
in full, in lawful money of the United States, of the Exercise Price payable in
respect of the number of shares of Warrant Shares purchased upon such exercise.
1.
<PAGE>
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in subsection 1(a) above.
(d) Notwithstanding anything to the contrary contained in the first
paragraph of this Warrant, Section 1(a) or this Section l(d), the Registered
Holder shall have the right to exercise this Warrant to receive shares of Common
Stock equal to the value (as determined below) of this Warrant by surrender of
this Warrant at the Company's office, together with the Notice of Exercise in
substantially the form attached hereto (the "Notice of Exercise"), without any
payment by wire transfer, cash, check or cancellation of indebtedness, in which
event the Company shall issue to the Registered Holder a number of shares of
Common Stock computed using the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Registered Holder.
Y = the number of shares of Common Stock under this Warrant.
A = the fair market value of one share of Common Stock.
B = Exercise Price.
As used herein, the fair market value of the Common Stock shall mean, with
respect to each share of Common Stock, the average of the closing prices of the
Company's Common Stock sold on all securities exchanges on which the Common
Stock may at the time be listed (including, for this purpose, the Nasdaq
National Market), or, if at any time the Common Stock
2.
<PAGE>
is not so listed, the average of the representative bid and asked prices quoted
in the Nasdaq System as of 4:00 p.m., New York City time, or, if at any time the
Common Stock is not quoted in the Nasdaq System, the average of the highest bid
and lowest asked price in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case on the day on which the Notice of Exercise is
received or if no sales of the Common Stock have occurred on such date, on the
next preceding date on which there were such sales. If at any time the Common
Stock is not listed on any securities exchange or quoted in the Nasdaq System or
the over-the-counter market, the fair market value of the Common Stock shall be
the highest price per share which the Company could obtain from a willing buyer
(who is not a current employee or director) for shares of Common Stock sold by
the Company, from authorized but unissued shares, as determined in good faith by
the Board of Directors of the Company, unless (i) the Company shall become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the fair market value of the
Common Stock shall be deemed to be the value received by the holders of the
Company's Common Stock for each share of Common Stock pursuant to the Company's
acquisition; or (ii) the Registered Holder shall purchase such shares in
conjunction with the initial underwritten public offering of the Company's
Common Stock pursuant to a registration statement filed under the Securities Act
of 1933, in which case, the fair market value of the shares of Common Stock
subject to this Warrant shall be the price at which all registered shares of
Common Stock are sold to the public in such offering.
2. Adjustments. The Exercise Price and the number of shares purchasable
------------
hereunder are subject to adjustment from time to time as follows:
(a) Stock Dividend, Split or subdivision of Shares. If the number of
-----------------------------------------------
shares of Common Stock outstanding at any time after the date hereof is
increased or deemed increased by a stock dividend payable in shares of Common
Stock or other securities convertible into or exchangeable for shares of Common
Stock ("Equivalents") or by a subdivision or split-up of shares of Common Stock
or Equivalents (other than a change in par value, from par value to no par value
or from no par value to par value), then, following the effective date fixed for
the determination of holders of Common Stock or Equivalents entitled to receive
such stock dividend, subdivision or split-up, the Exercise Price shall be
appropriately decreased (but in no event shall the Exercise Price be decreased
below the par value of the Common Stock issuable upon exercise of this Warrant)
and the number of shares of Common Stock issuable on exercise of each Warrant
shall be increased in proportion to such increase in outstanding shares (on a
fully diluted basis).
(b) Combination of Shares. If, at any time after the date hereof,
----------------------
the number of shares of Common Stock outstanding is decreased by a combination
of the outstanding shares of Common Stock (other than a change in par value,
from par value to no par value or from no par value to par value), then,
following the effective date for such combination, the Exercise Price shall be
appropriately increased and the number of shares of Common Stock issuable on
exercise of each Warrant shall be decreased in proportion to such decrease in
outstanding shares.
(c) Issuance of Rights or Warrants. In cases the Company shall fix a
-------------------------------
record date for the issuance of rights or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common
3.
<PAGE>
Stock) at a price (the "Subscription Price") (or having a conversion price per
share) less than the Exercise Price on such record date the Exercise Price shall
be adjusted so that the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of issuance by a
fraction, the numerator of which shall be the sum of the number of shares
outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at the Exercise Price in
effect immediately prior to the date of such issuance, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding on
the record date mentioned below and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(d) Reorganizations, Consolidations, etc. In the event, at any time
-------------------------------------
after the date hereof, of any capital reorganization, or any reclassification of
the capital stock of the Company (other than a change in par value or from par
value to no par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), or the
consolidation or merger of the Company with or into another person (other than
consolidation or merger in which the Company is the continuing corporation and
which does not result in any change in the powers, designations, preferences and
rights, or the qualifications, limitations or restrictions, if any, of the
capital stock of the Company as amended from time to time) or of the sale or
other disposition of all or substantially all the properties and assets of the
Company in its entirety to any other person (any such transaction, an
"Extraordinary Transaction") then this Warrant shall be exercisable for the kind
and number of shares of stock or other securities or property of the Company, or
of the corporation resulting from or surviving such extraordinary Transaction,
that a holder of the number of shares of Common Stock deliverable (immediately
prior to the effectiveness of the Extraordinary Transaction) upon exercise of
this Warrant would have been entitled to receive upon such Extraordinary
Transaction. The provisions of this Section 2(c) shall similarly apply to
successive Extraordinary Transactions.
(e) Other Situations. If a state of facts shall occur that, without
-----------------
being specifically controlled by the provisions of this Section 2, would not
fairly protect the exercise rights of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
of the Company shall make an adjustment in the application of such provisions,
in accordance with such essential intent and principles, so as to protect such
exercise rights.
(f) Subsequent Sale of Stock. If the Company shall, at any time or
-------------------------
from time to time after the date of issuance of this Warrant, issue any shares
of Common Stock or other
4.
<PAGE>
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock, in each case other than Excluded Stock (as defined in the Restated
Certificate of Incorporation of the Company as amended from time to time) for a
consideration per share less than the applicable Exercise Price in effect
immediately prior to the issuance of such Common Stock, or other securities, the
Exercise Price in effect immediately prior to each such issuance shall
automatically (except as otherwise provided in this Section 2(e)) be lowered to
a price equal to the consideration per share received by the Company upon such
issuance. This Warrant shall thereafter be exercisable for that number of shares
of Common Stock which shall be computed by multiplying the number of shares of
Common Stock previously issuable under this Warrant by the quotient of the
Exercise Price in effect immediately prior to such sale divided by the Exercise
Price, as adjusted hereby. For the purposes of any adjustment of the Exercise
Price pursuant to this Section 2(e), the calculation of the consideration
received by the Company shall be as provided in Section 2(h) below.
(g) Calculations. All calculations under this Section shall be made
-------------
to the nearest one-hundredth of a cent ($.0001) or to the nearest one-hundredth
of a share, as the case may be.
(h) Certificate as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment pursuant to this Section 2, the Company at its own
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Registered Holder a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon
the written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
(i) Calculating Consideration Received for New Stock.
-------------------------------------------------
(i) In the case of the issuance of Common Stock in whole or in
part for cash, the consideration shall be deemed to be the amount of cash paid
therefor after deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof, plus the value of any property
other than cash received by the Company, determined as provided in paragraph
(ii) below.
(ii) In the case of the issuance of Common Stock for a
consideration in whole or in part in property other than cash, the value of the
such property or consideration other than cash shall be deemed to be the fair
market value of such property as determined in good faith by the Board of
Directors of the Company, irrespective of any accounting treatment.
(iii) in the case of the issuance of Common Stock for
consideration in whole or in part other than cash or property, the value of such
consideration shall be deemed to be the aggregate par value of such Common Stock
(or the aggregate stated value if such Common Stock has no par value), less the
value of any other consideration received by the Company, determined as provided
in paragraphs (i) and (ii) above.
5.
<PAGE>
(iv) In the case of the issuance of options or other rights to
purchase or subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or other rights to
subscribe for such convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in paragraphs (i), (ii) and (iii) above), if
any, received by the Company upon the issuance of such options or rights plus
the minimum purchase price provided in such options or rights for the Common
Stock covered thereby (the consideration in each case to be determined in the
manner provided in paragraphs (i), (ii) and (iii) above);
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of, or in exchange for, any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
paragraphs (i), (ii) and (iii) above;
(C) if there is any change in the exercise price of, or
number of shares deliverable upon exercise of, any such options or rights or
upon the conversion or exchange of any such convertible or exchangeable
securities (other than a change resulting from the antidilution provisions
thereof), then the Exercise Price shall automatically be readjusted in
proportion to such change; and
(D) upon the expiration of any such options or rights or
the termination of any such rights to convert or exchange such convertible or
exchangeable securities, the Exercise Price shall be automatically readjusted to
the Exercise Price that would have obtained had such options, rights or
convertible or exchangeable securities not been issued.
3. Fractional Shares. The Company shall not be required upon the
------------------
exercise of this warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the fair market value for each share
of the Company's Common Stock, determined in accordance with Section l(d)
hereof.
4. Requirements for Transfer.
--------------------------
(a) Warrant Register. The Company will maintain a register (the
-----------------
"Warrant Register") containing the names and addresses of the Registered Holder
or Registered Holders. Any Holder of this Warrant or any portion thereof may
change its address as shown on the
6.
<PAGE>
Warrant Register by written notice to the Company requesting such change, and
the Company shall promptly make such change. Until this Warrant is transferred
on the Warrant Register of the Company, the Company may treat the Holder as
shown on the Warrant Register as the absolute owner of this Warrant for all
purposes, notwithstanding any notice to the contrary. This Warrant shall be
transferable, including as to a Preferred Stockholder as such term is defined in
the Stockholders' Agreement, dated as of December 21, 1994, by and among the
Company and the other signatories thereto, as amended (the "Stockholders'
Agreement"), among members of such Preferred Stockholders' Group (as defined in
Section 1 of the Stockholders' Agreement), subject to the provisions of Section
3 of the Stockholders' Agreement; provided, however, that the notice described
in Section 3.2 of the Stockholders' Agreement may also be accompanied by, and a
Transfer (as defined in the Stockholders' Agreement) of this Warrant may be
effected in the event that the Registered Holder delivers to the Company (unless
waived by the Company), a representation letter of the Registered Holder, in
lieu of an opinion of counsel, reasonably satisfactory to the Company setting
forth facts which establish the basis to conclude that the sale or transfer is
exempt from the registration requirements of the Act (a "Representation
Letter"); and provided further that no such Representation Letter shall be
required in the event of a Transfer described in Section 3.2(b) of the
Stockholders' Agreement.
(b) Warrant Agent. The Company may, by written notice to the
--------------
Registered Holder, appoint an agent (with its principal place of business in
Philadelphia, Pennsylvania or New York, New York) for the purpose of maintaining
the Warrant Register referred to in Section 4(a) above, issuing the Common Stock
or other securities then issuable upon the exercise of this Warrant, exchanging
this Warrant, replacing this Warrant or any or all of the foregoing.
Thereafter, any such registration, issuance, exchange, or replacement, as the
case may be, may be made at the office of such agent.
(c) Restrictions on Transfer. The Registered Holder of this Warrant
-------------------------
by acceptance hereof agrees that the transfer of this Warrant and the Warrant
Shares are subject to the provisions of Section 3 of the Stockholders' Agreement
which include restrictions on transfer of the Warrant Shares solely for the
purpose of compliance with securities laws, and any transferee hereof shall, by
acceptance of this Warrant or the shares of Common Stock issued pursuant to this
Warrant, agree to by bound by Section 3 of the Stockholders' Agreement. Subject
to the provisions of Section 3 of the Stockholders' Agreement and this Section
4, this Warrant and all rights hereunder are transferable, in whole or in part,
upon the surrender of this Warrant with a properly executed assignment (in
substantially the form attached hereto) at the principal office of the Company.
(d) Exchange of Warrant Upon a Transfer. On surrender of this
------------------------------------
Warrant for exchange, properly endorsed on the Assignment attached hereto and
subject to the provisions of this Warrant and Section 3 of the Stockholders'
Agreement and with the limitations on assignments and transfers as contained in
this Section 4, the Company at its expense shall issue to or on the order of the
Registered Holder a new warrant or warrants of like tenor, in the name of the
Registered Holder or as the Holder (on payment by the Holder of any applicable
transfer taxes) may direct, for the number of shares issuable upon exercise
hereof.
5. No Impairment. The Company will not, by amendment of its charter or
--------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action,
7.
<PAGE>
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times carry out all such terms and take all such action
as may be reasonably necessary or appropriate in order to protect the rights of
the holder of this Warrant against impairment.
6. Liquidation Dividends. If the Company pays a dividend or makes a
----------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
----------------------------
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will mail or
cause to be mailed to the Registered Holder of this Warrant a notice specifying,
as the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such other
stock or securities at the time deliverable upon the exercise of this Warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least twenty (20)
days prior to the record date or effective date for the event specified in such
notice.
8. Reservation of Stock. The Company will at all times reserve and keep
---------------------
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
8.
<PAGE>
9. Replacement of Warrants. Upon receipt of evidence reasonably
------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement reasonably satisfactory to the Company, or (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
issue, in lieu thereof, a new Warrant of like tenor.
10. Mailing of Notices, etc. All notices and other communications from
------------------------
the Company to the Registered Holder of this Warrant shall be mailed by first-
class certified or registered mail, postage prepaid, to the address furnished to
the Company in writing by the last Registered Holder of this Warrant who shall
have furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
11. No Rights as Stockholder. Until the exercise of this Warrant, the
-------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
12. Change or Waiver. Any term of this warrant may be changed or waived
-----------------
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
13. Headings. The headings in this Warrant are for purposes of reference
---------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
14. Governing Law. This Warrant will be governed by and construed in
--------------
accordance with the laws of the Commonwealth of Pennsylvania without regard to
conflicts of laws principles of any jurisdiction.
15. Certificate. Upon request by the Registered Holder of this Warrant,
------------
the Company shall promptly deliver to such holder a certificate executed by its
President or Chief Financial Officer setting forth the total number of
outstanding shares of capital stock, convertible debt instruments and options,
rights, warrants or other agreements relating to the purchase of such capital
stock or convertible debt instruments, together with its calculation of the
number of shares remaining available for issuance upon exercise of this Warrant,
and a certificate of the accuracy of the statements set forth therein.
9.
<PAGE>
16. Injunctive Relief. The parties agree that any breach of this Warrant
------------------
by the Company is likely to cause the Registered Holder irreparable damage and,
therefore, in the event of any such breach, the Company agrees that the
Registered Holder shall be entitled, in addition to such other remedies which
may be available, to specific performance and other injunctive relief.
INDUSTRIAL BIOCATALYSIS, INC.
By:__________________________________
Chief Executive Officer
(Corporate Seal]
ATTEST:
______________________
Secretary
10.
<PAGE>
NOTICE OF EXERCISE FORM
-----------------------
To:___________________________ Dated:_____________________________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ), hereby irrevocably elects to purchase _________ shares of the
Common Stock covered by such Warrant and herewith makes payment of
$______________, representing the full purchase price for such shares at the
price per share provided for in such Warrant.
Signature:_________________________________
Address:___________________________________
11.
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant (No.
___) with respect to the number of shares of Common Stock covered thereby set
forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:____________________________ Signature:_________________________
Dated:____________________________ Witness:___________________________
12.
<PAGE>
Schedule of Warrant Holders
(Common Stock)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Registered Owner Number of Shares Date Issued
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Healthcare Ventures IV, L.P. 17,460 March 7, 1995
- ------------------------------------------------------------------------------------------------
Healthcare Ventures III, L.P. 59,490 March 7, 1995
- ------------------------------------------------------------------------------------------------
Lee Casty 240 March 7, 1995
- ------------------------------------------------------------------------------------------------
Axiom Venture Partners, L.P. 4,400 March 7, 1995
- ------------------------------------------------------------------------------------------------
Everest Trust 15,690 July 21, 1995
- ------------------------------------------------------------------------------------------------
Hudson Trust 2,720 July 21, 1995
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.12
Void after ________________, on ________________
Warrant to Purchase ________________ Shares of Common Stock or such
additional shares as this Warrant may entitle the holder
to purchase pursuant to provisions of this Warrant.
WARRANT TO PURCHASE COMMON STOCK
OF
RECOMBINANT BIOCATALYSIS, INC.
This is to Certify That, FOR VALUE RECEIVED, ________________ or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Recombinant BioCatalysis, Inc., a Delaware corporation (the "Company"),
________________ fully paid, validly issued and nonassessable shares of Common
Stock, par value $_____ per share, of the Company ("Common Stock") at a price of
________________ per share at any time or from time to time during the period
from ________________, but not later than ________________. The number of shares
of Common Stock to be received upon the exercise of this Warrant and the price
to be paid for each share of Common Stock may be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price". This Warrant is being issued in connection
with the issuance by the Company of Warrants to purchase up to ________________
shares of Common Stock and promissory notes in the aggregate principal amount of
up to ________________ (the "Notes"), pursuant to a loan agreement dated as of
________________ (the "Agreement").
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time
or from time to time on or after ________________ and until
________________ (the "Exercise Period"); provided, however, that if
either such day is a day on which banking institutions in the
________________ are authorized by law to close, then on the next
succeeding day which shall not be such a day. This Warrant may be
exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if
any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant
Shares specified in such form. As soon as practicable after each such
exercise of the warrants, but not later than seven (7) days from the
date of such exercise, the Company shall issue and deliver to the
Holder a certificate or certificates for the Warrant Shares issuable
upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder
thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office,
or by the
1.
<PAGE>
stock transfer agent of the Company at its office, in proper
form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at
its option, exchange this Warrant, in whole or in part (a "Warrant
Exchange"), into the number of Warrant Shares determined in accordance
with this Section (a)(2), by surrendering this Warrant at the
principal office of the Company or at the office of its stock transfer
agent, accompanied by a notice stating such Holder's intent to effect
such exchange, the number of Warrant Shares to be exchanged and the
date on which the Holder requests that such Warrant Exchange occur
(the "Notice of Exchange"). The Warrant Exchange shall take place on
the date specified in the Notice of Exchange or, if later, the date
the Notice of Exchange is received by the Company (the "Exchange
Date"). Certificates for the shares issuable upon such Warrant
Exchange and, if applicable, a new warrant of like tenor evidencing
the balance of the shares remaining subject to this Warrant, shall be
issued as of the Exchange Date and delivered to the Holder within
seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe
for and acquire the number of Warrant Shares (rounded to the next
highest integer) equal to (i) the number of Warrant Shares specified
by the Holder in its Notice of Exchange (the "Total Number") less (ii)
the number of Warrant Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the existing Exercise
Price by (B) the Fair Market Value. "Fair Market Value" shall mean:
(1) if the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for
trading on the NASDAQ system, the Fair Market Value shall be the
average of the last reported sale prices of the Common Stock on such
exchange or system for the twenty (20) business days ending on the
last business day prior to the date for which the determination is
being made; or (2) if the Common Stock is not so listed or admitted to
unlisted trading privileges, the Fair Market Value shall be the
average of the means of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. for the twenty (20)
business days ending on the last business day prior to the date for
which the determination is being made; or (3) if the Common Stock is
not so listed or admitted to unlisted trading privileges and bid and
asked prices are not so reported, the Fair Market Value shall be an
amount, not less than book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the Exchange Date,
determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
2.
<PAGE>
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Fair Market Value of a share.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. (i) This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other warrants of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. Subject to the restrictions set forth in
subparagraph (ii) below, upon surrender of this Warrant to the Company at its
principal office or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(ii) This Warrant and the shares of Common Stock issuable upon
exercise hereof have not been registered under the Securities Act of 1933, as
amended, or state securities laws by reason of an exemption therefrom. This
Warrant and the shares of Common Stock issuable upon exercise of this Warrant
are not transferable except as provided in the Agreement and the Stockholders'
Agreement dated as of December 21, 1994, as amended from time to time
("Stockholders' Agreement"). Shares of Common Stock issuable upon exercise of
this Warrant will bear an appropriate legend to this effect. The restrictions
contained herein shall be binding on any transferee of this Warrant and the
Company may require any such transferee to execute an instrument agreeing in
writing to be bound by these restrictions as a condition to transfer.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
3.
<PAGE>
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(2) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (the
"Subscription Price") (or having a conversion price per share) less
than the Exercise Price on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect
immediately prior to the date of issuance by a fraction, the numerator
of which shall be the sum of the number of shares outstanding on the
record date mentioned below and the number of additional shares of
Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price
of the convertible securities so offered) would purchase at the
Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so
offered are convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become effective
immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the
extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration
of such rights or warrants the Exercise Price shall be readjusted to
the Exercise Price which would then be in effect had the adjustments
made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or
securities convertible into Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the holders
of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions
referred to in Subsection (1) above) or subscription rights or
warrants (excluding those referred to in Subsection (2) above), then
in each such case the Exercise Price in effect thereafter shall be
determined by multiplying the Exercise Price in effect immediately
prior thereto
4.
<PAGE>
by a fraction, the numerator of which shall be the total number of
shares of Common Stock outstanding multiplied by the Fair Market Value
per share of Common Stock, less the fair market value (as determined
by the Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common
Stock outstanding multiplied by the Fair Market Value per share of
Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after
the record date for the determination of shareholders entitled to
receive such distribution.
(4) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsections (1), (2) or (3) above, the
number of Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the number of Shares
initially issuable upon exercise of this Warrant by the Exercise Price
in effect on the date hereof and dividing the product so obtained by
the Exercise Price, as adjusted.
(5) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least 5%
in such price; provided, however, that any adjustments which by reason
of this Subsection (5) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required
to be made hereunder. All calculations under this Section (f) shall be
made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be. Anything in this Section (f) to the contrary
notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution
in shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not
result in any Federal Income tax liability to the holders of Common
Stock or securities convertible into Common Stock (including
Warrants).
(6) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly but no later than 10 days after any request
for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Shares issuable upon
exercise of each Warrant, and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to the
Holders at their last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
5.
<PAGE>
(7) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (1) to (6), inclusive above.
(8) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to the Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the
6.
<PAGE>
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock of
the class issuable upon exercise of this Warrant) or in case of any sale, lease
or conveyance to another corporation of the property of the Company as an
entirety, the Company shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration of the
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization and
other change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock which might have been purchased upon exercise
of this Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Subsection (1) of Section (F) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933. Pursuant to the
Stockholders' Agreement, the Warrant Shares are deemed to be Registrable
Securities for purposes of Section 6 of the Stockholders' Agreement which grants
certain registration rights to Holders (as defined in the Stockholders'
Agreement) of Registrable Securities.
RECOMBINANT BIOCATALYSIS, INC.
By:_______________________________
[SEAL]
Dated: ________________
Attest:
_______________________________
Secretary
7.
<PAGE>
PURCHASE FORM
Dated ____________, 19___
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _________ shares of Common Stock and hereby makes
payment of _____________ in payment of the actual exercise price thereof.
____________
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name______________________________________
(Please typewrite or print in block letters)
Address____________________________________
Signature__________________________________
____________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________ hereby sells, assigns and
transfers unto
Name_______________________________________
(Please typewrite or print in block letters)
Address______________________
the right to purchase Common Stock represented by this Warrant to the extent of
________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _____________ Attorney, to transfer the same
on the books of the Company with full power of substitution in the premises.
Date_____________, 19___
Signature______________________
1.
<PAGE>
Schedule of Warrant Holders
(Common Stock)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Registered Owner Number of Shares Date Issued
- -----------------------------------------------------------------------------
<S> <C> <C>
Hudson Trust 7,645 January 12, 1996
- -----------------------------------------------------------------------------
Healthcare Ventures III, L.P. 167,089 January 12, 1996
- -----------------------------------------------------------------------------
Everest Trust 44,100 January 12, 1996
- -----------------------------------------------------------------------------
Lee Casty 703 January 12, 1996
- -----------------------------------------------------------------------------
Healthcare Ventures IV, L.P. 49,057 January 12, 1996
- -----------------------------------------------------------------------------
Axiom Venture Partners, L.P. 30,000 January 12, 1996
- -----------------------------------------------------------------------------
Hudson Trust 1,911 February 22, 1996
- -----------------------------------------------------------------------------
Healthcare Ventures IV, L.P. 12,264 February 22, 1996
- -----------------------------------------------------------------------------
Healthcare Ventures III, L.P. 41,772 February 22, 1996
- -----------------------------------------------------------------------------
Everest Trust 11,025 February 22, 1996
- -----------------------------------------------------------------------------
Lee Casty 176 February 22, 1996
- -----------------------------------------------------------------------------
Axiom Venture Partners, L.P. 7,500 February 22, 1996
- -----------------------------------------------------------------------------
Hudson Trust 1,911 April 4, 1996
- -----------------------------------------------------------------------------
Healthcare Ventures IV, L.P. 12,264 April 4, 1996
- -----------------------------------------------------------------------------
Healthcare Ventures III L.P. 41,772 April 4, 1996
- -----------------------------------------------------------------------------
Everest Trust 11,025 April 4, 1996
- -----------------------------------------------------------------------------
Lee Casty 176 April 4, 1996
- -----------------------------------------------------------------------------
Axiom Venture Partners, L.P. 7,500 April 4, 1996
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.13
MULTI-TENANT OFFICE R & D BUILDING LEASE - MODIFIED GROSS
This Lease between Sycamore/San Diego Investors, an Illinois Limited Partnership
("Landlord"), and Recombinant BioCatalysis, Inc., a Delaware Corporation
("Tenant"), is dated September 24, 1996.
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown by diagonal lines on the floor plan attached hereto as Exhibit
"A," and further described at Section 21. The Premises are located within the
Building and Project described in Section 2m. Tenant shall have the non-
exclusive right (unless otherwise provided herein) in common with Landlord,
other tenants, subtenants and invitees, to use of the Common Areas (as defined
at Section 2e).
2. DEFINITIONS.
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent: $501,984.00 (five hundred one thousand nine hundred eighty-four
Dollars & no/00), per year.
b. Base Year: The calendar year of 1997.
c. Broker(s) and Sales Agent(s): Business Real Estate/Bill Cavanaugh &
Thomas M. Crowley.
d. Commencement Date: February 1, 1997.
e. Common Areas: the building lobbies, common corridors and hallways,
restrooms, garage and parking areas, stairways, elevators and other
generally understood public or common areas. Landlord shall have the right
to regulate the use of the Common Areas for the mutual benefit and safety of
all tenants, but without material restriction on Tenant's rights.
Expense Stop: (fill in if applicable): $ N/A.
f. Expiration Date: January 31, 2002, unless otherwise sooner terminated in
accordance with the provisions of this Lease.
g. Index (Section 5.2): United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index for All Urban Consumers, N/A.
h. Landlord's Mailing Address: c/o Shell Properties Corp., 10665 Sorrento
Valley Road, #101, San Diego, CA 92121.
i. Tenant's Mailing Address: Pre-Occupancy to: Elmwood Court 2, 512 Elmwood
Ave, Sharon Hill, PA. 19079-1005.
Post-Occupancy to: 10665 Sorrento Valley Road #100, San Diego, CA 92121.
j. Monthly Installments of Base Rent: $41,832.00 (forty-one thousand eight
hundred thirty-two dollars & no/00) per month.
k. Parking: Tenant shall have the right to park 3.2/1000SF cars on a non-
exclusive basis in the area(s) designated by Landlord for parking. Tenant
shall abide by reasonable parking regulations and rules established from
time to time by Landlord or Landlord's parking operator applicable equally
to all tenants and without imposing material restrictions.
l. Premises: that portion of the Building containing approximately 24,900
square feet of Rentable Area, shown by Diagonal lines on Exhibit "A,"
located on the 1st & 2nd floors of the Building and known as Suite 100 at
10665 Sorrento Valley Road. (Bldg 2) (See Addendum also)
m. Project: the building of which the Premises are a part (the "Building") and
any other buildings or improvements on the real property (the "Property")
located at 10655-65-75 Sorrento Valley Road, San Diego, CA and further
described at Exhibit "B." The Project is known as Sycamore Creek R&D and
Office Park.
n. Rentable Area: as to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the Project, respectively, as determined by
Landlord using BOMA as the method of measurement and applied on a consistent
basis throughout the Project.
(1)
<PAGE>
o. Security Deposit (Article 7): $41,832 (Forty One Thousand Eight Hundred
Thirty-Two Dollars & no/00.
p. State: the State of California.
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus 12 months.
r. Tenant's Proportionate Share: 31.62%. Such share is a fraction, the
numerator of which is the Rentable Area of the Premises, and the denominator
of which is the Rentable Area of the Project, as determined by Landlord from
time to time. The Project consists of 3 building(s) containing a total
Rentable Area of 78,756 square feet.
s. Tenant's Use Clause (Article 8): Biomedical R&D, Manufacturing Warehousing
and Office uses.
________________________________________________________________________________
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" -- Floor Plan showing the Premises.
b. Exhibit "B" -- Site Plan of the Project.
c. Exhibit "C" -- Tenant Improvements - Plans & Specifications.
d. Addenda: 1 thru 14
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
4. DELIVERY OF POSSESSION
SEE ADDENDUM.
5. RENT.
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis.
5.2 Adjusted Base Rent.
SEE ADDENDUM.
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this
Section 5.3b.
(2)
<PAGE>
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b). (See Addendum also)
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including but not limited to (i) real property taxes or
assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, and (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, including
any (1) general or special, ad valorem or specific, excise, capital levy or
other tax, assessment, levy or charge directly on the Rent received under
this Lease or on the rent received under any other lease of space in the
Building or Project, or (2) any license fee, excise or franchise tax,
assessment, levy or charge measured or based, in whole or in part, upon
such rent, or (3) any transfer, transaction, or similar tax, assessment,
levy or charge based directly or indirectly upon the transaction
represented by this Lease or such other leases, or (4) any occupancy, use,
per capita or other tax, assessment, levy or charge based directly or
indirectly upon the occupancy or use of the Premises or other premises
within the Building or Project, but excluding any net income, franchise,
capital stock, estate or inheritance taxes imposed by any local, state or
federal governmental entity.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following actual
costs of (1) utilities; (2) supplies; (3) insurance (including public
liability, property damage, earthquake, and fire and extended coverage
insurance for the full replacement cost of the Building and Project as
required by Landlord or its lenders for the Project; (4) services of
independent contractors; (5) compensation (including employment taxes and
fringe benefits) of all persons who perform duties connected with the
operation, maintenance, repair or overhaul of the Building or Project, and
equipment, improvements and facilities located within the Project,
including without limitation engineers, janitors, painters, floor waxers,
window washers, security and parking personnel and gardeners (but excluding
persons performing services not uniformly available to or performed for
substantially all Building or Project tenants) to the extent of such
services (6) operation and maintenance of a room for delivery and
distribution of mail to tenants of the Building or Project as required by
the U.S. Postal Service (including, without limitation, an amount equal to
the fair market rental value of the mail room premises); (7) management of
the Building or Project, whether managed by Landlord or an independent
contractor (including, without limitation, an amount equal to the fair
market value of any on-site manager's officer) not to exceed 4% of Annual
Gross Rents in any calendar year (8) rental expenses for (or a reasonable
depreciation allowance on) personal property used in the maintenance,
operation or repair of the Building or Project; (9) costs, expenditures or
charges (whether capitalized or not) required by any governmental or quasi-
governmental authority; (12) amortization of capital expenses (including
financing costs) (i) required by a governmental entity for energy
conservation or life safety purposes, or (ii) made by Landlord to reduce
Project Operating Costs; and (13) any other costs or expenses incurred by
Landlord under this Lease and not otherwise reimbursed by tenants of the
Project, but excluding any Landlord mark-ups, lease commissions; lease
enforcement costs; tenant improvement costs; costs to repair any damages
where caused by Landlord or its agents, or recovered by insurance; legal
fees except as incurred by Landlord with regard to any of the above said
Operating Costs.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which, after adjustment for the
change in the CPI over the period exceeds the total amount of Project
Operating Costs payable by Landlord for the Base Year. This excess is
referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as estimated by Landlord on or before each
April 1 following Base Year. Such payments shall be made in monthly
installments, commencing on the first day of the month following the month
in which Landlord notifies Tenant of the amount it is to pay hereunder and
continuing until the first day of the month following the month in which
Landlord gives Tenant a new notice of estimated Excess Expenses. It is the
intention hereunder to estimate the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
an adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year, provided that estimated Project Oper.
Costs for any comparison year shall not exceed 106% of actual Proj. Oper.
Costs in preceding comparison year.
(c) On or before April 1 of each Comparison Year after the first Comparison
Year (or as soon thereafter as is practical), Landlord shall deliver to
Tenant a statement setting forth Tenant's Proportionate Share of the Excess
Expenses for the preceding Comparison Year. If Tenant's Proportionate Share
of the actual Excess Expenses for the previous Comparison Year exceeds the
total of the estimated monthly payments made by Tenant for such year,
Tenant shall pay Landlord the amount of the deficiency within ten (10) days
of the receipt of the statement. If such total exceeds Tenant's Propor-
(3)
<PAGE>
tionate Share of the actual Excess Expenses for such Comparison Year, then
Landlord shall credit against Tenant's next ensuing monthly installment(s)
of additional rent an amount equal to the difference until the credit is
exhausted. If a credit is due from Landlord on the Expiration Date,
Landlord shall pay Tenant the amount of the credit plus one-half of any
credit in excess of 102% of the Operating Costs. The obligations of Tenant
and Landlord to make payments required under this Section 5.3 shall survive
the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay the cost
of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than two percent (2%).
(f) If this Lease sets forth an Expense Stop at Section 2f, then during the
Term Tenant shall be liable for Tenant's Proportionate Share of any actual
Project Operating Costs which exceed the amount of the Expense Stop. Tenant
shall make current payments of such excess costs during the Term in the
same manner as is provided for payment of Excess Expenses under the
applicable provisions of Section 5.3b(2)(b) and (c) above.
4. Definition of Rent. All costs and expenses which Tenant assumes or agrees to
pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and _________________ in lawful money of the United States of America.
5. Rent Control. If the amount of Rent or any other payment due under this Lease
violates the terms of any governmental restrictions on such Rent or payment,
then the Rent or payment due during the period of such restrictions shall be the
maximum amount allowable under those restrictions. Upon termination of the
restrictions, Landlord shall, to the extent it is legally permitted, recover
from Tenant the difference between the amounts received during the period of the
restrictions and the amounts Landlord would have received had there been no
restrictions.
6. INTEREST AND LATE CHARGES.
Tenant fails to pay when due any Rent or other amounts or charges which Tenant
is obligated to pay under the terms of this Lease, the unpaid amounts shall bear
interest at the maximum rate then allowed by law. Tenant acknowledges that the
late payment of any Monthly Installment of Base Rent will cause Landlord to lose
the use of that money and incur costs and expenses not contemplated under this
Lease, including without limitation, administrative and collection costs and
processing and accounting expenses, the exact amount of which is extremely
difficult to ascertain. Therefore, in addition to interest, if any such
installment is not received by Landlord within ten (10) days from the date it is
due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of such
installment. Landlord and Tenant agree that this late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered from such nonpayment by Tenant. Acceptance of any
interest or late charge shall not constitute a waiver of Tenant's default with
respect to such nonpayment by Tenant nor prevent Landlord from exercising any
other rights or remedies available to Landlord under this Lease.
7. SECURITY DEPOSIT.
a. Tenant agrees to deposit with Landlord the Security Deposit set forth at
Section 20 upon execution of this Lease, security for Tenant's faithful
performance of its obligations under this Lease. Landlord and Tenant agree that
the Security Deposit may be commingled with funds of Landlord and Landlord shall
have no obligation or liability payment of interest on such deposit. Tenant
shall not mortgage, assign, transfer or encumber the Security Deposit without
the prior written consent of Landlord and any attempt by Tenant to do so shall
be void, without _________________ or effect and shall not be binding upon
Landlord.
b. If Tenant fails to pay any Rent or other amount when due and payable under
this Lease, or fails to perform any of the terms hereof, Landlord may
appropriate and apply or use all or any portion of the Security Deposit for Rent
payments or any other amount then due and unpaid, for payment of any amount for
which Landlord has become negated as a result of Tenant's default or breach, and
for any loss or damage sustained by Landlord as a result of Tenant's default or
breach, and Landlord may so apply or use this deposit without prejudice to any
other remedy Landlord may have by reason of Tenant's default or breach. If
Landlord so uses any of the Security Deposit,
(4)
<PAGE>
Tenant shall, within ten (10) days after written demand therefor, restore the
Security Deposit to the full amount originally deposited; Tenant's failure to do
so shall constitute an act of default hereunder and Landlord shall have the
right to exercise any remedy provided for at Article 27 hereof. Within fifteen
(15) days after the Term (or any extension thereof) has expired or Tenant has
vacated the Premises, whichever shall last occur, and provided Tenant is not
then in default on any of its obligations hereunder, Landlord shall return the
Security Deposit to Tenant, or, if Tenant has assigned its interest under this
Lease, to the last assignee of Tenant. If Landlord sells its interest in the
Premises, Landlord may deliver this deposit to the purchaser of Landlord's
interest and thereupon be relieved of any further liability or obligation with
respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
a. Tenant shall use the Premises solely for the purposes set forth in Tenant's
Use Clause. Tenant shall not use or occupy the Premises in violation of law or
the certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules of any governmental
agencies or authorities having jurisdiction which shall, by reason of the nature
of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to the Premises or its use or occupation provided Landlord
is solely responsible for laws and rules relating to Premises without regard to
lease to Tenant. A judgment of any court of competent jurisdiction or the
admission by Tenant in any action or proceeding against Tenant that Tenant has
violated any such laws, ordinances, regulations, rules in the use of the
Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not knowingly do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or other insurance policy covering the Building or Project and/or
property located therein, and shall comply with all reasonable rules, orders,
regulations, requirements and recommendations of the Insurance Services Office
or any other organization performing a similar function. Tenant shall promptly
upon demand reimburse Landlord for any additional premium charged for such
policy by reason of Tenant's failure to comply with the provisions of this
Article. Tenant shall not do or permit anything to be done in or about the
Premises which will unreasonably interfere with the rights of other tenants or
occupants of the Building or Project or use or all the Premises to be used for
any immoral, unlawful purpose in, on or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
a. Landlord shall furnish (i) separate electric metering to the Premises and
shall distribute sufficient electric, natural gas and water & sewer capacity to
the Premises for the intended use and occupancy and per Exhibit "C"; (ii)
lightbulb replacement for Building Standard (ie Landlord installed) light
fixtures within the Premises; (iii) five (5) day janitorial service; (iv)
monthly elevator maintenance service; (v) bi-monthly HVAC equipment filter
maintenance service; and (vi) semi-annual exterior window cleaning service.
Landlord shall also furnish and maintain RO/DI, vaccuum, compressed air, steam,
standby electric and UPS, service and systems.
b. Landlord shall not be in default hereunder or be liable for any damages
directly or indirectly resulting from, nor shall rent be abated by reason of (i)
the installation, use or interruption of use of any equipment in connection with
the furnishing of any of the foregoing services or utilities, (ii) failure to
furnish or delay in furnishing any such services or utilities where such failure
or delay is caused by accident or any condition or event beyond the reasonable
control of Landlord, or by the making of necessary repairs or improvements to
the Premises, Building or Project, or (iii) the limitation, curtailment or
rationing of; or restrictions on, use of water, electricity, gas or any other
form of energy serving the Premises, Building or Project provided Landlord uses
its best efforts to limit or avoid such failure or interruption or delay, and
unless directly attributable to Landlord's wrongful or negligent acts, for the
loss or damage to Tenant's property or business, through or in connection with
or incidental to failure to furnish or delay in the furnishing of any of the
foregoing services or utilities.
c. Tenant shall arrange for the initiation of service for any separately
metered utilities to the Premises not to be provided by Landlord herein,
including telephone service, directly with the appropriate utility vendor or
supplier, and all billing invoices, security deposits, and any other charges
relating to the initiation and continued provision of such separately metered
utilities and telephone service shall be the responsibility of and in the name
of Tenant
(5)
<PAGE>
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for defects not reasonably discoverable by Tenant
and, such matters as to which Tenant gave Landlord notice on or before the
Commencement Date. No promise of Landlord to alter, remodel, repair or improve
the Premises, the Building or the Project and no representation, express or
implied, respecting any matter or thing relating to the Premises, Building,
Project or this Lease (including, without limitation, the condition of the
Premises, the Building or the Project) have been made to Tenant by Landlord or
its Broker or Sales Agent, other than as may be contained herein or in a
separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform Landlord's Work to the
Premises as described in Exhibit "C." Landlord shall maintain in good order,
condition and repair the Building and all other portions of the Premises not
the express obligation of Tenant.
b. Tenant's Obligations.
(1) Tenant shall perform Tenant's Work to the Premises as described in
Exhibit "C."
(2) Tenant shall be responsible for all repairs, maintenance and
alterations in and to the Premises, Building and Project and the
facilities and systems thereof, the need for which arises out of (i)
Tenant's use or occupancy of the Premises and other than through normal
obsolesence and wasting away, (ii) the installation, removal, use or
operation of Tenant's Property (as defined in Article 13) in the
Premises, (iii) the moving of Tenant's Property into or out of the
Building, or (iv) subject to Article 23 hereof, the misuse or
negligence of Tenant, its agents, contractors, employees or invitees.
(3) If Tenant fails to maintain the Premises as required above.
Landlord shall give Tenant notice to do such acts as are reasonably
required to so maintain the Premises. If Tenant fails to promptly
commence such work and diligently prosecute it to completion, then
Landlord shall have the right to do such acts and expend such funds at
the expense of Tenant as are reasonably required to perform such work.
Any amount so expended by Landlord shall be paid by Tenant promptly
after demand with interest at the prime commercial rate then being
charged by Bank of America NT & Series A plus two percent (2%) per
annum, from the date of such work, but not to exceed the maximum rate
then allowed by law. Landlord shall have no liability to Tenant for any
damage, inconvenience, or interference with the use of the Premises by
Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts required
to comply with all applicable laws, ordinances, and rules of any public
authority relating to their respective maintenance obligations as set forth
herein.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor
of the Premises which exceeds 3000LB/SF on first floor, 70LB/SF on second
floor and 32LB/SF on roof.
f. Except as otherwise expressly provided in this Lease, Landlord shall have
no liability to Tenant nor shall Tenant's obligations under this Lease be
reduced or abated in any manner whatsoever by reason or any inconvenience,
annoyance, interruption or injury to business arising from Landlord's making
any repairs or changes which Landlord is required or permitted by this Lease
or by any other tenant's lease or required by law to make in or to any
portion of the Project, Building or the Premises provided and on the
condition that Landlord shall use its best efforts to minimize any
interference with Tenant's business in the Premises and the Building.
g. Tenant shall give Landlord prompt notice of any material damage to or
defective condition in any part or appurtenance of the Building's
mechanical, electrical, plumbing, HVAC or other systems serving, located in,
or passing through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord per Article 18 hereof. Any damage to the
Premises, including any structural damage, resulting from Tenant's use or
from the removal of Tenant's fixtures, furnishings and equipment pursuant to
Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Except for work reasonably construed as refurbishment or redecoration,
Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed. Landlord's consent may be
conditioned on Tenant's removing any such additions, alterations or
improvements upon the expiration of the Term and restoring the Premises to
the same condition as on the date Tenant took possession. All work with
respect to any addition, alteration or improvement shall be done in a good
and workmanlike manner by properly qualified and licensed personnel, and
such work shall be diligently prosecuted to completion. Landlord may, at
Landlord's option, require that Landlord's contractor supervise that portion
of any such alteration or additions involving the Building's roof, exterior
metal siding and/or stucco surfaces, windows and/or window frames,
waterproofing elements associated with any of the above underground work,
landscaping, building entry doors and/or building security system, common
area equipment or improvements, and/or any item or element within the
Premises, building or project subject to a warranty to Landlord.
(6)
<PAGE>
b. Tenant shall pay the costs of any work done by Tenant on the Premises
pursuant to Section 12a, and shall keep the Premises, Building and
Project free and clear of liens of any kind. Tenant shall indemnify, defend
against and keep Landlord free and harmless from all liability, loss,
damage, costs, attorneys' fees and any other expense incurred on account of
claims by any person performing work or furnishing materials or supplies for
Tenant or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgment liens. Before the actual
commencement of any work for which a claim or lien may be filed, Tenant
shall give Landlord notice of the intended commencement date a sufficient
time before that date to enable Landlord to post notices of non-
responsibility or any other notices which Landlord deems necessary for the
proper protection of Landlord's interest in the Premises, Building or the
Project, and Landlord shall have the right to enter the Premises and post
such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount equal
to at least the total estimated cost of any additions, alterations or
improvements to be made in or to the Premises exceeding $25,000.00 to
protect Landlord against any liability for mechanic's and materialmen's
liens and to insure timely completion of the work. Nothing contained in this
Section 12c shall relieve Tenant of its obligation under Section 12b to keep
the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in Section 12a,
all permanent additions, alterations and improvements made to the Premises
shall become the property of Landlord and be surrendered with the Premises
upon the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures shall remain the property of Tenant and may be
removed, subject to the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All permanent fixtures, equipment, improvements and appurtenances
attached to or built into the Premises at the commencement of or during the
Term, whether or not by or at the expense of Tenant ("Leasehold
Improvements"), shall be and remain a part of the Premises, shall be the
property of Landlord and shall not be removed by Tenant, except as expressly
provided in Section 13b.
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building or
for which Tenant repairs any such damage caused by their removal, and all
furniture, furnishings and other articles of movable personal property owned
by Tenant and located in the Premises (collectively "Tenant's Property")
shall be and shall remain the property of Tenant and may be removed by
Tenant at any time during the Term; provided that if any of Tenant's
Property is removed, Tenant shall promptly repair any damage to the Premises
or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and additions thereto as
Landlord may from time to time make which are not inconsistent with the terms
hereof and do not materially increase Tenant's duties or restrict its rights.
Landlord shall not be responsible for any violation of said rules and
regulations by other tenants or occupants of the Building or Project; provided
that Landlord uses its good faith efforts to enforce such rules.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights:
a. To name the Building and Project and to change the name or street
address of the Building or Project one time during the lease term;
b. To install and maintain all signs on the exterior and governmentally
mandated, if any, on the interior of the Building and Project;
c. Subject to Tenant's reasonable security requirements, to have pass keys
to the Premises and all doors within the Premises, excluding Tenant's vaults
and safes;
d. Subject to Tenant's reasonable security requirements, at reasonable
times during the Term, and on reasonable prior notice to Tenant, to inspect
the Premises, and to show the Premises to any prospective purchaser or
mortgagee of the Project, or to any assignee of any mortgage on the Project,
or to others having an interest in the Project or Landlord, and during the
last six months of the Term, to show the Premises to prospective tenants
thereof; and
e. Subject to Tenant's reasonable security requirements, to enter the
Premises for the purpose of making inspections, repairs, alterations,
additions or improvements to the Premises or the Building (including,
without limitation, checking, calibrating, adjusting or balancing controls
and other parts of the HVAC system), and to take all steps as may be
necessary or desirable for the safety, protection, maintenance or
preservation of the Premises or the Building or Landlord's interest
therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with Tenant's
business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease.
(7)
<PAGE>
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and if an assignment, then also financial
condition of such proposed assignee or subtenant as Landlord may reasonably
request. Landlord shall have the option, exercisable by notice given to
Tenant within twenty (20) days after Tenant's notice is given, in the case
of an assignment, to terminate this Lease. If Landlord does not exercise
such option, Tenant may assign the Lease or sublet such space to such
proposed assignee or subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably delayed or withheld;
(2) The assignment or sublease shall be on the same terms set forth in
the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) any real estate brokerage commissions or
fees payable in connection with such assignment or subletting, shall be
paid to Landlord as additional rent under this Lease without affecting
or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Section 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary ability of Tenant to pay the Rent and
to perform all other obligations to be performed by Tenant hereunder. The
acceptance of Rent by Landlord from any other person shall not be deemed to
be a waiver by Landlord of any provision hereof. Consent to one assignment
or subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by an assignee or subtenant of Tenant
or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of
exhausting remedies against such assignee, subtenant or successor. Landlord
may consent to subsequent assignments of the Lease or sublettings or
amendments or modifications to the Lease with assignees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or
their consent thereto and any such actions shall not relieve Tenant of
liability under this Lease.
e. If Tenant requests the consent of Landlord to any assignment or
subletting or if Tenant requests the consent of Landlord for any act that
Tenant proposes to do, then Tenant shall, upon demand, pay Landlord any
attorneys' fees reasonably incurred by Landlord in connection with such act
or request.
17. HOLDING OVER.
If after expiration of the Term, Tenant remains in possession of the Premises
with Landlord's permission (express or implied), Tenant shall become a tenant
from month to month only, upon all the provisions of this Lease (except as to
term and Base Rent), but the "Monthly Installments of Base Rent" payable by
Tenant shall be increased to one hundred fifty percent (150%) of the Monthly
Installments of Base Rent payable by Tenant at the expiration of the Term. Such
monthly rent shall be payable in advance on or before the first day of each
month. If either party desires to terminate such month to month tenancy, it
shall give the other party not less than thirty (30) days advance written notice
of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation, and (iv) other
damage or loss not caused by Tenant's misconduct or subject to Article 23
hereof - negligence. Tenant shall, on Landlord's request remove Tenant's
Property on or before the Expiration Date and promptly repair all damage to
the Premises or Building caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall
pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all or any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements or other
casualty, Landlord shall, subject to the provisions of this Article
(8)
<PAGE>
repair the damage as soon as commercially practicable if such repairs can,
in Landlord's opinion, be completed within one hundred eighty (180) days.
If Landlord determines that repairs can be completed within one hundred
eighty (180) days, this Lease shall remain in full force and effect, except
that if such damage is not the result of the negligence or willful
misconduct of Tenant or Tenant's agents, employees, contractors, licensees
or invitees, the Base Rent shall be abated to the extent Tenant's use of
the Premises is impaired, commencing with the date of damage and continuing
until completion of the repairs required of Landlord under Section 19d.
b. If in Landlord's good faith opinion, such repairs to the Premises or
portion of the Building necessary for Tenant's occupancy cannot be
completed within one hundred eighty (180) days, either party may elect,
upon notice to the other given within thirty (30) days after the date of
such fire or other casualty, to terminate this Lease as of the date of such
fire or other casualty; otherwise Landlord shall repair and restore the
Premises and the Building as soon as commercially practicable.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any
repair or restoration of any portion of the Premises, Building or
Project as a result of any damage from fire or other casualty.
e. This Lease shall be considered an express agreement governing any case
of damage to or destruction of the Premises, Building or Project by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN.
a. If the whole or any substantial portion of the Project or of the
Building is lawfully taken by condemnation or in any other manner for any
public or quasi-public purpose, this Lease shall terminate as of the date
of such taking, and Rent shall be prorated to such date. If less than the
whole or any substantial portion of the Project or of the Building is so
taken, this Lease shall be unaffected by such taking, provided that (i)
Tenant shall have the right to terminate this Lease by notice to Landlord
given within ninety (90) days after the date of such taking if any of the
Premises is taken, and (ii) Landlord shall have the right to terminate this
Lease by notice to Tenant given within ninety (90) days after the date of
such taking. If either Landlord or Tenant so elects to terminate this
Lease, the Lease shall terminate on the thirtieth (30th) day after either
such notice. The Rent shall be prorated to the date of termination. If this
Lease continues in force upon such partial taking, the Base Rent and
Tenant's Proportionate Share shall be equitably adjusted according to the
remaining Rentable Area of the Premises and Project.
b. In the event of any taking, partial or whole, Tenant, shall have the
right, to claim from the condemning authority (but not from Landlord) such
compensation as may be recoverable by Tenant in its own right for
relocation expenses and damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior to
the condemnation or taking, but only to the extent of Building Standard
Work. Tenant shall be responsible at its sole cost and expense for the
repair, restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Except for the negligence or willful misconduct of Landlord as to which
Landlord shall indemnify and hold Tenant harmless, Tenant shall indemnify
and hold Landlord harmless against and from liability and claims of any
kind for loss or damage to property of Tenant or any other person, or for
any injury to or death of any person, arising out of: (1) Tenant's use and
occupancy of the Premises, or any work, activity or other things allowed or
suffered by Tenant to be done in, on or about the Premises; (2) any breach
or default by Tenant of any of Tenant's obligations under this Lease; or
(3) any negligent or otherwise tortious act or omission of Tenant, its
agents, employees, invitees or contractors. Tenant shall, at Tenant's
expense, defend Landlord in any action or proceeding arising from any such
claim and shall indemnify Landlord against all costs, attorneys' fees,
expert witness fees and any other expenses incurred in such action or
proceeding. Except for the negligence or willful misconduct of Landlord as
to which Landlord shall indemnify and hold Tenant harmless, as a material
part of the consideration for Landlord's execution of this Lease, Tenant
hereby assumes all risk of damage or injury to any person or property in,
on or about the Premises from any cause.
b. Except for the negligence or willful misconduct of Landlord as to which
Landlord shall indemnify and hold Tenant harmless, Landlord shall not be
liable for injury or damage which may be sustained by the person or
property of Tenant, its employees, invitees or customers, or any other
person in or about the Premises, caused by or resulting from fire, steam,
electricity, gas, water or rain which may leak or flow from or into any
part of the Premises, or from the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning
or lighting fixtures, whether such damage or injury results from conditions
arising upon the Premises or upon other portions of the Building or Project
or from other sources. Landlord shall not be liable for any damages arising
from any act or omission of any other tenant of the Building or Project.
(9)
<PAGE>
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies qualified to do business in the
State and rated in "Best's Key Rating Guide" @ A:XII or better. Each policy
shall name Landlord, and at Landlord's request any mortgagee of Landlord,
as an additional insured, as their respective interests may appear. Each
policy shall contain to the extent commercially obtainable (i) a cross-
liability endorsement, (ii) a provision that such policy and the coverage
evidenced thereby shall be primary and non-contributing with respect to any
policies carried by Landlord and that any coverage carried by Landlord
shall be excess insurance, and (iii) a waiver by the insurer of any right
of subrogation against Landlord, its agents, employees and representatives,
which arises or might arise by reason of any payment under such policy or
by reason of any act or omission of Landlord, its agents, employees or
representatives. A copy of each paid up policy (authenticated by the
insurer) or certificate of the insurer evidencing the existence and amount
of each insurance policy required hereunder shall be delivered to Landlord
before the date Tenant is first given the right of possession of the
Premises, and thereafter within thirty (30) days after any demand by
Landlord therefor. Landlord may, at any time and from time to time, inspect
and/or copy any insurance policies required to be maintained by Tenant
hereunder. No such policy shall be cancellable except after twenty (20)
days written notice to Landlord and Landlord's lender. Tenant shall furnish
Landlord with renewals or "binders" or any such policy prior to the
expiration thereof. Tenant agrees that if Tenant does not take out and
maintain such insurance, Landlord may (but shall not be required to)
procure said insurance on Tenant's behalf and charge the Tenant the
premiums, payable upon demand. Tenant shall have the right to provide such
insurance coverage pursuant to blanket policies obtained by the Tenant,
provided such blanket policies expressly afford coverage to the Premises,
Landlord, Landlord's mortgagee and Tenant as required by this Lease.
b. Beginning on the date Tenant is given full access to the Premises and
continuing until expiration of the Term, Tenant shall procure, pay for and
maintain in effect to the extent commercially obtainable policies of
casualty insurance covering (i) all Leasehold Improvements (including any
alterations, additions or improvements as may be made by Tenant pursuant to
the provisions of Article 12 hereof), and (ii) trade fixtures, merchandise
and other personal property from time to time in, on or about the Premises,
in an amount not less than one hundred percent (100%) of their actual
replacement cost from time to time with a reasonable deductible, providing
protection against any peril included with the classification "Fire and
Extended Coverage" together with insurance against sprinkler damage,
vandalism and malicious mischief. The proceeds of such insurance shall be
used for the repair or replacement of the property so insured. Upon
termination of this Lease following a casualty as set forth herein, the
proceeds under (i) shall be paid to Landlord, and the proceeds under (ii)
above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property
damage coverage for not less than Two Million Dollars ($2,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and
Tenant shall mutually agree to increases in all of Tenant's insurance
policy limits for all insurance to be carried by Tenant as set forth in
this Article. In the event Landlord and Tenant cannot mutually agree upon
the amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the
cost of living in the same manner as is set forth in Section 5.2 hereof
for the adjustment of the Base Rent.
23. WAIVER OF SUBROGRATION.
Landlord and Tenant each hereby waive all rights of recovery against the
other and against the officers, employees, agents and representatives of
the other, on account of loss by or damage to the waiving party or its
property or the property of others under its control, to the extent that
such loss or damage is insured against under any fire and extended coverage
insurance policy which either may have in force at the time of the loss or
damage. Tenant shall, upon obtaining the policies of insurance required
under this Lease, give notice to its insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease; provided
that such waiver does not result in the cancellation or commercial
unobtainability of such policies.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of
trust beneficiary of Landlord, or ground lessor of Landlord, Tenant shall,
in writing, subordinate its rights under this Lease to the lien of any
first mortgage or first deed of trust, or to the interest of any lease in
which Landlord is lessee, and to all advances made or hereafter to be made
thereunder. However, before signing any subordination agreement, Tenant
shall have the right to obtain from any lender or lessor of Landlord
requesting such subordination, a non-disturbance agreement in writing
providing that, as long as Tenant is not in default hereunder, this Lease
shall remain in effect for the full Term. The holder of any security
interest may, upon written notice to Tenant, elect to have this Lease prior
to its security interest regardless of the time of the granting or
recording of such security interest. Prior to the Commencement Date
Landlord shall obtain from existing Lender a NonDisturbance Agreement in
favor of Tenant. In the event of any foreclosure sale, transfer in lieu of
foreclosure or termination of the lease in which Landlord is lessee, Tenant
shall attorn to the purchaser, transferee or lessor as the case may be, and
recognize that party as Landlord under this Lease, provided such party
acquires and accepts the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall execute
and deliver to Landlord or Landlord's designee, a written statement certifying
(a) that this Lease is unmodified and in full force and effect, or is in full
force and effect as modified and stating the modifications; (b) the amount of
Base Rent and the date to which Base Rent and additional rent have been paid in
advance; (c) the amount of any security deposited with Landlord; and (d) that
Landlord to Tenant's knowledge is not in default hereunder or, if Landlord is
claimed to be in default, stating the nature of any claimed default. Any such
statement may be relied upon by a purchaser, assignee or lender. Tenant's
failure to
(10)
<PAGE>
execute and deliver such statement with thirty (30) days of Landlord's request
be a default under this Lease and shall also be conclusive upon Tenant
that: (1) this Lease is in full force and effect and has not been modified
except as represented by Landlord; (2) there are no uncured defaults in
Landlord's performance and that Tenant has no right of offset, counter-claim or
deduction against Rent; and (3) not more than one month's Rent has been paid in
advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant, Landlord
may transfer the security deposit or prepaid Rent to Landlord's successor and
upon such transfer, Landlord shall be relieved of any and all further liability
with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be
paid by Tenant under this Lease and such failure continues for five (5)
days after written notice from Landlord that such payment is due and
payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues
for thirty (30) days after written notice thereof from Landlord to Tenant;
or
d. If a writ of attachment or execution is levied on this Lease or on any
of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
f. If Tenant files a voluntary petition for relief or if a petition
against Tenant in a proceeding under the federal bankruptcy laws or other
insolvency laws is filed and not withdrawn or dismissed within forty-five
(45) days thereafter, or if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or control
remains in force unrelinquished, unstayed or unterminated for a period of
forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises
or Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs (d)
through (g) above.
27.2 Remedies. In the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall
have no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for
the account of Tenant, and collect any unpaid Rent or other charges which
have or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession
of the Premises.
If Landlord reenters the Premises under the provisions of subparagraphs (b) or
(c) above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first, to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord; second, to the payment of
any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent received from the
reletting.
Should Landlord elect to terminate this lease under the provisions of
subparagraph (a) or (c) above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent
which had been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount
by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided; plus
(11)
<PAGE>
3. Rent After Award. The worth at the time of the award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of the rental loss that Tenant proves could
be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including, but
not limited to, any costs or expenses (including attorneys' fees),
incurred by Landlord in (a) retaking possession of the Premises, (b)
maintaining the Premises after Tenant's default, (c) preparing the
Premises for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises, including brokers'
commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition
or agreement contained in this Lease within fifteen (15) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within fifteen (15) days, if Landlord fails to use its best
efforts to cure such default as soon as possible, then Landlord shall be liable
to Tenant for any damages sustained by Tenant as a result of Landlord's breach;
provided, however, it is expressly understood and agreed that if Tenant obtains
a money judgment against Landlord resulting from any default or other claim
arising under this Lease, that judgment shall be satisfied only out of the
rents, issues, profits, and other income actually received on account of
Landlord's right, title and interest in the Premises, Building or Project, and
no other real, personal or mixed property of Landlord (or of any of the partners
which comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or any
first mortgagee or first deed of trust beneficiary of Landlord) fails to cure
the default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense. However, Tenant shall not have the right to
withhold, reduce or offset any amount against any payments of Rent or other
charges due and payable under this Lease except for judgements or arbitration
awards against Landlord in favor of Tenant.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except Broker and
Sales Agent. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent retained by and representing Tenant in connection with this Lease or
its negotiation by reason of any act of Tenant.
29. NOTICES.
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of mandatory federal, state or local government
controls, rules, regulations, or restrictions on the use or consumption of
energy or other utilities during the Term, both Landlord and Tenant shall be
bound thereby. In the event of a difference in interpretation by Landlord and
Tenant of any such controls, the interpretation of Landlord shall prevail, and
Landlord shall have the right to enforce compliance therewith, including the
right of entry into the Premises to effect compliance; provided that Tenant
shall have the right to contest with the regulating agency in its own name any
such controls or such Landlord's interpretations.
31. RELOCATION OF PREMISES.
(12)
<PAGE>
reduced proportionately.
a. The parties hereto shall immediately execute an amendment to this Lease
setting forth the relocation of the Premises and the reduction of Base Rent,
if any.
32. QUIET ENJOYMENT.
Tenant, subject to the Subordination Agreement/NonDisturbance Agreement exchange
with Landlord's existing Lender, and upon paying the Rent and performing all
of its obligations under this Lease, shall peaceably and quietly enjoy the
Premises, subject to the terms of this Lease.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated.
The judgment of any court of competent jurisdiction or the admission of Tenant
in any action against Tenant, whether Landlord is a party thereto or not, that
Tenant has violated any law, statute, ordinance or governmental rule, regulation
or requirement, shall be conclusive of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the control of the party obligated to perform hereunder, despite its best
efforts to perform, shall excuse performance of the work by that party for a
period equal to the duration of that prevention, delay or stoppage. Nothing in
this Article 34 shall excuse or delay Tenant's obligation to pay Rent or other
charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account and at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a bill
therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any exterior part of the Premises,
Building or Project, including without limitation, the inside or outside of
windows or doors, without the written consent of Landlord. Landlord shall have
the right to remove any signs or other matter, installed without Landlord's
permission, without being liable to Tenant by reason of such removal, and to
charge the cost of removal to Tenant as additional rent hereunder, payable
within ten (10) days of written demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to changes or amendments to this Lease requested by the
lender on Landlord's interest, so long as these changes do not alter the basic
business terms of this Lease or otherwise materially diminish any rights or
materially increase any obligations of the party from whom consent to such
change or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance with
the laws of the State.
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents
(13)
<PAGE>
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of the corporation, and that this Lease is binding on Tenant in
accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of a resolution of its board of directors authorizing such
execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all of
which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any time interval, pending Landlord's
Lender's approval of this Lease and Landlord's execution and delivery of this
Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. Tenant agrees
that it shall promptly furnish Landlord, for Landlord's and Landlord's lender's
use only upon Landlord's written request but not more than twice yearly with
financial statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects. Landlord agrees to provide written confidentiality
acknowledgements as may be priorly and reasonably requested by Tenant.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant on Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall execute and
acknowledge a "short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy or be
construed as a waiver of such default.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease as of the date set forth on page 1.
Sycamore/San Diego Investors Recombinant BioCatalysis, Inc.
an Illinois Limited Partnership a Delaware Corporation
________________________________________ ________________________________
By: Shell Properties Corporation, Agent
________________________________________ ________________________________
/s/ Jeffrey P. Server /s/ Terrance J. Bruggeman
- ---------------------------------------- --------------------------------
By: Jeffrey P. Server, President By: Terrance J. Bruggeman, CEO
Date: October 28, 1996 Date: October 23, 1996
________________________________________ ________________________________
Landlord Tenant
- --------------------------------------------------------------------------------
SEE YOUR ATTORNEY
----------------
This lease should be given to your attorney for review before you sign it.
Landlord and Landlord's agent make no representation or recommendation
concerning the tax or legal effects or the legal sufficiency of this lease.
These are questions for legal counsel.
- --------------------------------------------------------------------------------
(14)
<PAGE>
FIRST ADDENDUM TO LEASE BY AND BETWEEN
SYCAMORE/SAN DIEGO INVESTORS AS LANDLORD
AND RECOMBINANT BIOCATALYSIS, INC. AS
TENANT DATED SEPTEMBER 24, 1996.
1. DELIVERY OF POSSESSION.
----------------------
The Premises shall be deemed to be suitable for possession and delivery to
Tenant on the date Landlord completes Landlord's portion of any
improvements to the Premises. If, through no fault of Tenant, Landlord
shall not have completed its portion of such improvements as of the
Commencement Date set forth in Article 2(d), the validity of this Lease
shall not be impaired, but the Commencement Date of the Lease and Tenant's
obligation to pay rent or other sums thereunder shall be delayed until
possession of the Premises is delivered to Tenant and Tenant shall receive
an additional rental credit equal to one day of rent for each day that the
date the Premises have been completed by Landlord is more than 15 days
subsequent to the stated Commencement Date. However, if Landlord does not
deliver possession of the Premises to Tenant within 30 Days after the
stated Commencement Date, Tenant may elect to cancel this Lease by giving
written notice to Landlord at any time thereafter. If Tenant gives such
notice to Landlord, this Lease shall be terminated and any refundable
deposit shall be returned to Tenant. If Tenant does not give such notice to
Landlord, then the Lease Term shall commence on the date that the Premises
have been completed by Landlord. If delivery of possession of the Premises
to Tenant shall occur other than upon the stated Commencement Date, then
the date the Premises are completed by the Landlord shall become the
Commencement Date of this Lease and Landlord and Tenant shall within ten
(10) days of such date execute a Lease amendment to amend said Article 2(d)
accordingly.
If, owing to work change orders requested by Tenant or Tenant caused work
delays or extensions, Landlord does not deliver possession of the Premises
to Tenant on the stated Commencement Date, then the stated Commencement
Date (but not Tenant's obligation to pay rent or other sums due) shall be
advanced by the same number of days, if any, that such work change orders
or Tenant delays delayed Landlord's delivery of possession of the Premises
to Tenant.
2. Article 5 Paragraph 2 ADJUSTED BASE RENT
----------------------------------------
The amount of Base Rent Per Year set forth in Article 2(a) hereof (and the
corresponding Monthly Installments of Base Rent set forth in Article 2(j)
hereof) shall be adjusted as of each anniversary date of this Lease,
commencing with Tenant's First Adjustment Date set forth in Article 2(q)
hereof, at the fixed rate of 3% per annum. If the Commencement Date is
other than the first day of a calendar month, then the first such
adjustment shall occur twelve (12) months after the first day of the
calendar month next succeeding the Commencement Date.
<PAGE>
3. EXPANSION PREMISES
------------------
Not later than the first anniversary date of the lease term, or earlier
with Tenant's acceptance, Landlord shall deliver to Tenant for
incorporation within the Premises that portion of the first floor of the
Building containing approximately 850 square feet of rentable area
currently known as Suite 101 and as shown on Exhibit "A" hereto. Tenant's
occupancy of said expansion premises shall be subject to all of the same
prevailing lease terms and conditions including base rent at the same
prevailing per square foot rate for the initial Premises and Tenant
Improvements.
4. TENANT IMPROVEMENTS
-------------------
As of the commencement dates for the Premises and Expansion Premises
Landlord, at Landlord's sole cost and expense, shall have improved each
according to the plans and specifications set forth in Exhibit "C" hereto.
5. LIMIT ON PROJECT OPERATING COST PASS-THRUS
------------------------------------------
For the purposes of Article 5.3, (i) for any period during the term in
which the Project is not fully occupied, Landlord may adjust the "occupancy
costs" component of Project Operating Costs (i.e. those costs of
operations which vary directly with the occupancy level of the Project
including, but not limited to, janitorial expenses) to reasonably
approximate the occupancy costs which would have been incurred had the
Project been fully occupied, and (ii) in no event shall Project Operating
Costs be increased by more than Six (6%) Percent in any year after Tenant's
Base Year.
6. TENANT'S SIGNAGE RIGHT
----------------------
Tenant shall have the entirety of the signage entitlement relative to
Building 2 at 10665 Sorrento Valley Road. Prior to the installation of
Tenant's signage, Tenant shall submit to Landlord for Landlord's review and
approval, not unreasonably withheld or delayed, plans and specifications
for such signage to include dimensions, materials, coloration, means and
method of installation and, if required under the Sign Ordinance of the
City of San Diego, copy of a completed sign permit application. After
acquiring Landlord's approval and any required permit, Tenant shall, at
Tenant's sole cost and expense, construct and install said signage in
accordance with the permit and the plans and specifications approved by
Landlord. Tenant shall care for, maintain and promptly repair when damaged
said signage. Prior to the expiration of the Lease Term, Tenant shall, At
Tenant's sole cost and expense, remove said signage and repair any damage
to the signage area or to the Building occasioned by the installation, use
and removal of said signage.
7. OPTION TO EXTEND LEASE EXPIRATION DATE
--------------------------------------
Tenant shall have the option (provided that Tenant shall not at the time of
exercisement of the option or at any subsequent time through the
commencement date of the option term be in default hereunder) to extend the
Lease Expiration Date (Article 2(g) and Article 4) by a term of sixty (60)
months. Tenant's occupancy during the extended term shall be subject to all
of the same prevailing lease terms and conditions except initial Annual
Base Rent (Article 2(a)) and Monthly Installments of Base Rent (Article 2
(j)) which shall be at the lesser of (i) 95% of the then prevailing market
rate for such premises assuming the further improvements to the Premises
set forth herein below and (ii) the original initial Annual Base Rent and
Monthly Installment of Base Rent as adjusted pursuant to Article 2
hereinabove through to the commencement date of the extended term. Tenant
shall exercise said option with written notice to Landlord not later than
180 days prior to the Expiration Date. In consideration of such extended
term, and reasonably upon its commencement, Landlord shall recarpet and
repaint those carpeted and painted areas of the Premises.
<PAGE>
8. RIGHT OF FIRST REFUSAL.
----------------------
Throughout the term of this lease, but provided that Tenant shall not at
the time be in default, Tenant shall have the right of first refusal to
lease any available space within the Building or Project under the same
terms and conditions acceptable to Landlord from a third party offeror.
Landlord shall provide Tenant with written notice and copies of all such
acceptable third party offers, and Tenant shall have five (5) business days
following Tenant's receipt of each within which to notify Landlord of its
election to lease the subject space under the same terms and conditions of
the acceptable third party offer. If Tenant so elects, Landlord shall
promptly prepare and Tenant and Landlord shall promptly execute a lease for
the subject space containing the same terms and conditions of the
acceptable third party offer.
9. INDEMNIFICATION
---------------
The Landlord warrants that the Premises, including parking lots, walkways,
entrances, hallways, restrooms, elevators and other public spaces serving
the Premises shall conform to all enforced requirements of the Americans
with Disabilities Act and all regulations issued by the U.S. Attorney
General or other authorized agencies under the authorization of the
Americans with Disabilities Act. The Landlord promises to reimburse and
indemnify and defend the Tenant for any expenses incurred because of the
failure of the leased premises and adjacently owned property to conform
with the above cited law and regulations, including the costs of making any
alterations, renovations, or accommodations required by the Americans with
Disabilities Act, or any governmental enforcement agency, or any court, any
and all fines civil penalties, and damages awarded against the Tenant
resulting from a violation or violations of the above cited law and
regulations by Landlord, to include all reasonable legal expenses incurred
in defending claims made under the above cited law and regulations.
10. HAZARDOUS MATERIALS
-------------------
Landlord represents and warrants to Tenant that, except for conditions
caused by Tenant, Landlord, at Landlord's sole cost and expense, will cause
Tenant's Premises, the Building and parking facilities to be in full
compliance with any governmental laws, ordinances, regulations or orders
relating to environmental conditions on, under or about Tenant's Premises,
the Building or parking facilities ("Regulations"), including, but not
limited to, asbestos, soil and ground water conditions and Hazardous
Materials (defined below), and Landlord shall defend, indemnify and hold
Tenant harmless from and against any and all losses, costs (including
reasonable attorneys' fees), liabilities and claims arising from the
violating of any of the Regulations that may affect Tenant's Premises, the
Building or parking facilities and shall assume full responsibility and
cost to remedy such violations, provided that the violations are not caused
by Tenant. Hazardous Materials shall include, but shall not be limited to,
substances defined as "hazardous substances" or "toxic substances" in the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C.A. Section 1802; the Resources Conservation
Recovery Act, 42 U.S.C.A. Section 6901, et.seq; or those substances
defined as "hazardous wastes" in applicable codes in the State of
California and in the regulations adopted and publications promulgated to
such codes. Tenant shall have
<PAGE>
absolute responsibility to cause, and shall cause all such materials and
substances which are transported to or from, used, stored or handled at, or
disposed of at or from the Premises during the term of this Lease
Agreement, to be so transported, used, stored, handled and disposed of in
compliance with all Regulations. The covenant's contained in this paragraph
shall expressly survive the expiration or earlier termination of this Lease
pending Landlord's receipt of Tenant's Exit Assessment and Tenant's
performance of remedial measures, if any, recommended therein. Further,
Tenant shall indemnify and hold Landlord and the Premises harmless from any
claim, liability, damages, costs and expenses, including attorney fees,
arising out of or related to any Tenant's breach of the covenants of this
Article.
11. TENANT'S EXIT ASSESSMENT & DECOMMISSIONING
------------------------------------------
Promptly upon vacating the Premises, Tenant agrees to perform an Exit
Assessment of the premises and to provide Landlord with written report of
same. Said report shall set forth (1) the results of an initial inspection
for hazardous chemical, biological and radioactive agents and/or materials
resulting from Tenant's operations ("Tenant Waste"); (2) recommended
decommissioning procedures and actions for the Tenant Waste; (3)
documentation of the completion of said procedures and actions; and (4) the
results of a final inspection following the performance of said procedures
and actions. Said Exit Assessment shall be performed by such specialist as
may be recommended by Tenant and found reasonably acceptable to Landlord.
The cost of said Exit Assessment Report and the cost of any remedial
procedures and actions shall be borne by Tenant, and such assessment and
remedial activities shall be subject to the provision of Article 11(b)(3).
Notwithstanding anything to the contrary within this Lease, Tenant's
Possession of the Premises and obligation to pay Rent shall continue until
Landlord's receipt of said Exit Assessment Report.
12. ARBITRATION OF DISPUTES.
-----------------------
All claims and controversies arising under this Lease shall, at the option
of either party, be subject to arbitration in San Diego, California
pursuant to the commercial arbitration rules of the American Arbitration
Association. Each party shall pay for its own costs of any arbitration, and
the cost of the arbitrator(s) shall be shared equally by the parties unless
awarded as part of the arbitration award. All arbitration awards shall be
final and may be entered in any court of competent jurisdiction.
Notwithstanding the foregoing, any action for specific performance or
injunctive relief may be commenced and maintained in any court of competent
jurisdiction.
13. LIMITATION ON LANDLORD'S LIABILITY.
----------------------------------
Notwithstanding anything contained in this Lease to the contrary, the
obligations of Landlord under this Lease (including any actual or alleged
breach or default by Landlord) do not constitute personal obligations of
the individual partners, directors, officers or shareholders of Landlord or
Landlord's partners, and Tenant shall not seek recourse against the
individual partners, directors, officers or shareholders of Landlord or
Landlord's partners, or any of their personal assets for satisfaction of
any liability with respect to this Lease other than their interest in and
to the Project. In addition, in consideration of the benefits accruing
hereunder to Tenant and notwithstanding anything contained in this Lease to
the contrary, Tenant hereby covenants and agrees for itself and all of its
successors and assigns that the liability of Landlord for its obligations
under this Lease (including any liability as a result of any actual or
alleged failure, breach or default hereunder by Landlord), shall be limited
solely to (and Tenant's and its successors' and assigns' sole and exclusive
remedy shall be against) Landlord's interest in the project and proceeds
therefrom, and as to no other assets of Landlord.
<PAGE>
14. Additional Security Deposit. In addition to the Security Deposit
---------------------------
established in Article 2(o) of the Lease, Tenant agrees to deliver to
Landlord, on or prior to the Commencement Date, a letter of credit issued
by any National or State Chartered Bank for the benefit of Landlord
("Letter of Credit"). The Letter of Credit shall serve as additional
Security Deposit subject to the terms of Article 7 of the Lease and may be
drawn upon by the Landlord, prior to its expiration, in the event of
application of the Security Deposit by Landlord to the extent that the
original Security Deposit is not sufficient to pay such costs, all as
provided in Article 7. The Letter of Credit shall have a term of two years
commencing on the Commencement Date, and be in the face amount of $150,000,
automatically reducing by its terms by $10,000 per calendar month in which
Tenant paid all it's rent under this lease; provided that the Letter of
Credit shall automatically terminate in the event that Tenant becomes a
public company as defined in the Securities Act of 1934.
<PAGE>
EXHIBIT "A"
----------
Floor Plan Showing Premises & Ste 101
-------------------------------------
[FIRST AND SECOND FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "B"
Site Plan
-------------
SYCAMORE CREEK OFFICE R&D PARK
10655 10665 10675 Sorrento Valley Road.
San Diego, CA
I 805
[SITE PLAN]
SORRENTO VALLEY ROAD
<PAGE>
EXHIBIT "C"
TENANT IMPROVEMENTS - PLANS AND SPECIFICATIONS
BUILDING STANDARD WORK.
Landlord shall furnish, at its sole cost and expense, the Building Standard Work
depicted and described herein, including all architectural, mechanical and
electrical plans required for the performance of such work.
Landlord's Building Standard Work shall be installed in Tenant's Premises or
within the Building prior to the commencement of the Term of the Lease. Certain
materials and or items of Building Standard Work may already be in place in the
premises or in the building before the commencement of construction, and are a
part of the Building Standard Work.
(a) Demising/Fire Separation Walls 3-1/2" steel studs from floor to structure
------------------------------
above with 5/8" drywall each side, texture finish.
(b) Interior Walls 3-1/2" steel studs with 1/2" drywall each side to ceiling,
--------------
light texture finish/washable surface.
(c) Ceilings 2'0" x 4'0" white suspended t-bar grid with 3/4" Armstrong Class
--------
(A) fissured tiles at 9'0" above finished floor. Vinyl coated at labs.
(d) Flooring 30 oz. Anso IV nylon carpet, loop or cut pile, glue direct; or
--------
Armstrong Standard "Excelon" vinyl composition floor tile; either with Mercer 4"
Rubberlyte top set base. Epoxy flooring in glass-wash room, sheet vinyl in Haz
Mat room.
(e) Paint Frazee "Velvin" flat or semi gloss acrylic vinyl wall paint; Frazee
-----
"Aeroplate" lacquer door and frame paint.
(f) Window Coverings Levolor or equivalent 3" white PVC vertical miniblinds.
----------------
(g) Heating and Air Conditioning Roof top Carrier package heat pump units, to
----------------------------
include make-up air as required for up to 4 (8') fume hoods.
(h) Lighting Fixtures 2'0" x 4'0" recessed fluorescent light fixtures,
-----------------
3-lamp, energy saving ballasts, acrylic prismatic lenses.
(i) Doors and Frames 3'0" x 8'10" solid core birch veneer, black lacquer
----------------
finish with Schlage mortise or equivalent lockset in pre-fit Timely metal frame
in office areas; 3'0" x 6'8" solid core birch veneer, black lacquer finish with
Schlage lockset assembly in pre-fit Timely metal frame in lab areas. NOTE: one
door to each lab to be 4'0" x 6'8" to accommodate equipment movement.
(j) Interior Glass 3/8" tempered in pre-fit steel Timely frames.
--------------
(k) Cabinetry Clear finished, birch veneer with acid resistant, self-edged
---------
formica tops in labs; Mills Pride "Bianco" line with coved formica tops at
coffee bar and employee lounge; wood grain laminate on MDF core in library;
Edsal or equivalent heavy guage (725pps) steel shelving in mail/receiving room.
Lab bench shelving to be minimum 2 adjustable shelves per.
(l) Safety Equipment As required, Dicon or equivalent electronic smoke
----------------
detectors, Kidde or equivalent fire extinguishers, Bradley 2P332 combination
emergency drench showers and eyewashes.
1 of 4
<PAGE>
Exhibit "C"
Tenant Improvements - Plans and Specifications
Page 2
(m) Equipment Package 50 KVA Olympian diesel fired generator with 5 KVA Deltec
-----------------
UPS; Fulton 10hp, 80 psig steam generator; 500 gpd RO/DI high purity water
system with 16.7 megohms or higher resistivity; duplex 1-1/2 hp vacuum, 22 acfm
at 24", 120 gal. tank; duplex 1-1/2 hp air compressor, 5 acfm at 100 psig, 120
gal.; Schlage SE902 card access control and alarm monitoring system.
Tenant may select upgraded finish materials/treatments to include ceilings,
lighting, floor coverings, painting and/or wall coverings, cabinetry and
millwork in place of Building Standard Work materials set forth hereinabove,
provided that notice of such selections are furnished to Landlord in time for
inclusion within the final construction permit drawings and provided the cost of
such selections shall not exceed the Landlord's Building Standard Work by an
amount greater than $20,000.00.
Subject to the reasonable approval of Landlord, Tenant may require work
different from or in addition to the Landlord's Building Standard Work and/or in
excess of the above upgrade allowance. In such event, modifications or additions
to the final construction permit drawings shall be prepared by Landlord's
architect and engineers but at Tenant's sole cost and expense. Tenant shall pay
such cost and expense promptly upon being billed therefor.
2 of 4
<PAGE>
Exhibit "C"
Tenant Improvements - Plans and Specifications
Page 3
[FIRST FLOOR PLAN APPEARS HERE]
3 of 4
<PAGE>
Exhibit "C"
Tenant Improvements - Plans and Specifications
Page 4
[SECOND FLOOR PLAN APPEARS HERE]
4 of 4
<PAGE>
TABLE OF CONTENTS
MULTI-TENANT OFFICE R & D BUILDING LEASE - MODIFIED GROSS
<TABLE>
<CAPTION>
LANDLORD: Sycamore/San Diego Investors
TENANT : Recombinant BioCatalysis, Inc.
PREMISES: 10665 Sorrento Valley Rd., SD, CA 24, 900SF
TERM : 60 Mos 2/97 - 1/02 PAGE
<S> <C>
Article 1 LEASE OF PREMISES............................................. 1
Article 2 DEFINITIONS................................................... 1
Article 3 EXHIBITS AND ADDENDA.......................................... 2
Article 4 DELIVERY OF POSSESSION........................................ 2
Article 5 RENT.......................................................... 2
Article 6 INTEREST AND LATE CHARGES..................................... 4
Article 7 SECURITY DEPOSIT.............................................. 4
Article 8 TENANT'S USE OF THE PREMISES.................................. 5
Article 9 SERVICES AND UTILITIES........................................ 5
Article 10 CONDITION OF THE PREMISES..................................... 6
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE......................... 6
Article 12 ALTERATIONS AND ADDITIONS..................................... 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY..................... 7
Article 14 RULES AND REGULATIONS......................................... 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD........................... 7
Article 16 ASSIGNMENT AND SUBLETTING..................................... 7
Article 17 HOLDING OVER.................................................. 8
Article 18 SURRENDER OF PREMISES......................................... 8
Article 19 DESTRUCTION OR DAMAGE......................................... 8
Article 20 EMINENT DOMAIN................................................ 9
Article 21 INDEMNIFICATION............................................... 9
Article 22 TENANT'S INSURANCE............................................ 10
Article 23 WAIVER OF SUBROGATION......................................... 10
Article 24 SUBORDINATION AND ATTORNMENT.................................. 10
Article 25 TENANT ESTOPPEL CERTIFICATES.................................. 10
Article 26 TRANSFER OF LANDLORD'S INTEREST............................... 11
Article 27 DEFAULT....................................................... 11
Article 28 BROKERAGE FEES................................................ 12
Article 29 NOTICES....................................................... 12
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS......................... 12
Article 31 RELOCATION OF PREMISES........................................ 12
Article 32 QUIET ENJOYMENT............................................... 13
Article 33 OBSERVATION OF LAW............................................ 13
Article 34 FORCE MAJEURE................................................. 13
Article 35 CURING TENANT'S DEFAULTS...................................... 13
Article 36 SIGN CONTROL.................................................. 13
Article 37 MISCELLANEOUS................................................. 13
</TABLE>
Addendum 1. Delivery of Possession; 2. Adjusted Base Rent; 3. Expansion
Premises; 4. Tenant Improvements; 5. Limit on Operating Cost Pass-
Thrus; 6. Tenant's Signage Rights; 7. Option To Exten Term; 8. First
Right of Refusal; 9. Indemnification; 10. Hazardous Materials; 11.
Tenant's Exit Assessment; 12. Arbitration; 13. Limit on Landlord's
Liability; 14. Additional Security Deposit
<PAGE>
EXHIBIT 10.14
April 13, 1999
Mr. Thomas A. Christenson
Director, Finance
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Dear Thomas:
Transamerica Business Credit Corporation - Technology Finance Division ("TBCC")
is pleased to offer to extend the duration of those certain Commitment Letters
dated March 31, 1997 and April 7, 1998 (the "Commitments") as provided below.
Except as modified hereby, the Commitments and all documents in connection with
the Commitments and Master Lease Agreement between TBCC and Diversa Corporation
("Lessee"), are hereby ratified and confirmed in all respects and shall continue
in full force and effect.
1. The paragraph entitled "Lease Term Commencement" is hereby deleted in its
entirety and the following is inserted in lieu thereof:
Lease Term
Commencement: Upon delivery and acceptance of the Equipment or upon each
completion of deliveries and acceptances of items of Equipment with aggregate
cost of not less than $100,000, but no later than December 31, 1999.
Should you have any questions, please call me. If you wish to accept this
offer, please so indicate by signing and returning the enclosed duplicate copy
of this letter to me by April 20, 1999.
Yours truly,
TRANSAMERICA BUSINESS CREDIT
CORPORATION-TECHNOLOGY FINANCE
DIVISION
By: /s/ Gary P. Moro
------------------
Gary P. Moro
Vice President
Accepted this 15 day of April, 1999
DIVERSA CORPORATION
By: /s/ Thomas A. Christenson
-------------------------
Thomas A. Christenson
Director, Finance
<PAGE>
Amended and Restated
MASTER LEASE AGREEMENT
Lessor: TRANSAMERICA BUSINESS CREDIT CORPORATION
Riverway II
West Office Tower
9399 West Higgins Road
Rosemont, Illinois 60018
Lessee: DIVERSA CORPORATION (f/k/a Recombinant Biocatalysis, Inc.)
10655 Sorrento Valley Road
San Diego, California 92121
The lessor pursuant to this Master Lease Agreement ("Agreement") dated as of
April 4, 1997, as amended on April 29, 1998, is Transamerica Business Credit
Corporation ("Lessor"). All equipment, together with all present and future
additions, parts, accessories, attachments, substitutions, repairs, improvements
and replacements thereof or thereto, which are the subject of a Lease (as
defined in the next sentence) shall be referred to as "Equipment."
Simultaneous with the execution and delivery of this Agreement, the parties are
entering into one or more Lease Schedules (each, a "Schedule") which refer to
and incorporate by reference this Agreement, each of which constitutes a lease
(each, a "Lease") for the Equipment specified therein. Additional details
pertaining to each Lease are specified in the applicable Schedule. Each Schedule
that the parties hereafter enter into shall constitute a Lease. Except as
provided in the Commitment Letters dated as of March 31, 1997 and April 7, 1998,
Lessor has no obligation to enter into any additional leases with, or extend any
future financing to, Lessee.
1. LEASE. Subject to and upon all of the terms and conditions of this Agreement
and each Schedule, Lessor hereby agrees to lease to Lessee and Lessee hereby
agrees to lease from Lessor the Equipment for the Term (as defined in Paragraph
2 below) thereof. Lessor's obligations to enter into Leases hereunder are
limited as set forth in Commitment Letters executed by Lessor and Lessee and
dated as of March 31, 1997 and April 7, 1998 (attached hereto as Exhibits A and
B), and any subsequent Commitment Letters executed by Lessor and Lessee which
specifically provide that the commitments therein are to be governed by this
Agreement (which shall be attached as Exhibits hereto). All leases entered into
pursuant to the Commitment Letters dated as of March 31, 1997 and April 7, 1998
shall be governed by this Master Lease Agreement.
2. TERM. Each Lease shall be effective and the term of each Lease ("Term") shall
commence on the commencement date which shall be upon delivery, acceptance and
funding and shall be specified in the applicable Schedule and, unless sooner
terminated (as hereinafter provided), shall expire at the end of the term
specified in such Schedule; provided however, that obligations due to be
performed by Lessee during the Term shall continue until they have been
performed in full. Schedules will only be executed after the delivery of the
Equipment to Lessee or upon completion of deliveries of items of such Equipment
with aggregate cost of not less than $100,000.
3. RENT. Lessee shall pay as rent to Lessor, for use of the Equipment during,
the Term, rental payments equal to the sum of all rental payments including,
without limitation, security deposits, advance rents and interim rents payable
in the amounts and on the dates specified in the applicable Schedule ("Rent").
If any Rent or other amount payable by Lessee is not paid within
1.
<PAGE>
five days after the day on which it becomes payable, Lessee will pay on demand,
as a late charge, an amount equal to 2.5% of such unpaid Rent or other amount
but only to the extent permitted by applicable law. All payments provided for
herein shall be payable to Lessor at its address specified above, or at any
other place designated by Lessor. Any Commitment Fees previously paid by Lessee
shall be applied pro rata toward the second month's Rent under each Lease after
deducting expenses under Section 22.
4. LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE. No Lease may be canceled
or terminated except as expressly provided herein. Lessee's obligation pay all
Rent due or to become due hereunder shall be absolute and unconditional and
shall not be subject to any delay, reduction, set-off, defense, counterclaim or
recoupment for any reason whatsoever, including any failure of the Equipment or
any representations by the manufacturer or the vendor thereof. If the Equipment
is unsatisfactory for any reason, Lessee shall make any claim solely against the
manufacturer or the vendor thereof and shall, nevertheless, pay Lessor all Rent
payable hereunder.
5. SELECTION AND USE OF EQUIPMENT. Lessee agrees that it shall be responsible
for the selection, use of, and results obtained from, the Equipment and any
other associated equipment or services.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR
CONDITION OF THE EQUIPMENT OR ITS MERCHANTABILITY, SUITABILITY, QUALITY OR
FITNESS FOR A PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ANY SUCH WARRANTY. LESSEE
SPECIFICALLY WAIVES ALL RIGHTS TO MAKE A CLAIM AGAINST LESSOR FOR BREACH OF ANY
WARRANTY WHATSOEVER. LESSEE LEASES THE EQUIPMENT "AS IS." IN NO EVENT SHALL
LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY AGAINST LESSOR
FOR, ANY LIABILITY, CLAIM, LOSS, DAMAGE OR EXPENSE CAUSED DIRECTLY OR INDIRECTLY
BY THE EQUIPMENT OR ANY DEFICIENCY OR DEFECT THEREOF OR THE OPERATION,
MAINTENANCE OR REPAIR THEREOF OR ANY CONSEQUENTIAL DAMAGES AS THAT TERM IS USED
IN SECTION 2-719(3) OF THE MODEL UNIFORM COMMERCIAL CODE, AS AMENDED FROM TIME
TO TIME ("UCC"). Lessor grants to Lessee, for the sole purpose of prosecuting a
claim or receiving benefits under the warranty, the benefits of any and all
warranties made available by the manufacturer or the vendor of the Equipment to
the extent assignable.
7. DELIVERY. Lessor hereby appoints Lessee as Lessor's agent for the sole and
limited purpose of accepting delivery of the Equipment from each vendor thereof.
Lessee shall pay any and all delivery and installation charges. Lessor shall not
be liable to Lessee for any delay in, or failure of, delivery of the Equipment.
8. PURCHASE OBLIGATION. Subject to Paragraph 21, Lessee shall, purchase all, but
not less than all, the Equipment covered by the applicable Lease on the date
specified therefor in the applicable Schedule ("Purchase Date"). The fair market
value of all Equipment leased pursuant to the Commitment Letters dated as of
March 31, 1997 and April 7, 1998 shall be 10% of the Equipment Cost as set forth
on the applicable Schedule. In any other case, unless the applicable Schedule
provides otherwise, the purchase price for such Equipment shall be its fair
market
2.
<PAGE>
value as set forth in the applicable Schedule determined on an "In-place, In-
use" basis, as mutually agreed by Lessor and Lessee, or, if they cannot agree,
as determined by an independent appraiser selected by Lessor and approved by
Lessee, which approval will not be unreasonably delayed or withheld, or as
otherwise determined in the manner specified in the applicable Schedule. Lessor
and Lessee shall equally share the cost of any such appraisal. On the Purchase
Date, Lessee shall pay to Lessor the purchase price, together with all sales and
other taxes applicable to the transfer of the Equipment and any other amount
payable and arising hereunder, in immediately available funds, whereupon Lessor
shall transfer to Lessee, without recourse or warranty of any kind, express or
implied, all of Lessor's right, title and interest in and to such Equipment on
an "As Is, Where Is" basis and file a UCC-3 termination statement.
9. OWNERSHIP; INSPECTION; MARKING; FINANCING STATEMENTS. Lessee shall affix to
the Equipment any labels supplied by Lessor indicating ownership of such
Equipment. The Equipment is and shall be the sole property of Lessor. Lessee
shall have no right, title or interest therein, except as lessee under a Lease.
The Equipment is and shall at all times be and remain personal property and
shall not become a fixture. Lessee shall obtain and record such instruments and
take such steps as may be necessary to prevent any person from acquiring any
rights in the Equipment by reason of the Equipment being claimed or deemed to be
real property. Upon request by Lessor, Lessee shall obtain and deliver to Lessor
valid and effective waivers, in recordable form, by the owners, landlords and
mortgagees of the real property upon which the Equipment is located or
certificates of Lessee that it is the owner of such real property or that such
real property is neither leased nor mortgaged. Lessee shall make the Equipment
and its maintenance records available for inspection by Lessor at reasonable
times and upon reasonable notice. Lessee shall execute and deliver to Lessor for
filing any UCC financing statements or similar documents Lessor may reasonably
request.
10. EQUIPMENT USE. Lessee agrees that the Equipment will be operated by
competent, qualified personnel in connection with Lessee's business for the
purpose for which the Equipment was designed and in accordance with applicable
operating instructions, laws and government regulations, and that Lessee shall
use all reasonable precautions to prevent loss or damage to the Equipment from
fire and other hazards. Lessee shall procure and maintain in effect all orders,
licenses, certificates, permits, approvals and consents required by federal,
state or local laws or by any governmental body, agency or authority in
connection with the delivery, installation, use and operation of the Equipment.
11. MAINTENANCE. Lessee, at its sole cost and expense, shall keep the Equipment
in a suitable environment as specified by the manufacturer's guidelines or the
equivalent and meet all recertification requirements, and shall maintain the
Equipment in its original condition and working order, ordinary wear and tear
excepted. At the reasonable request of Lessor, Lessee shall furnish all proof of
maintenance.
12. ALTERATION; MODIFICATIONS; PARTS. Lessee may alter or modify the Equipment
only with the prior written consent of Lessor. Any alteration shall be removed
and the Equipment restored to its normal, unaltered condition at Lessee's
expense (without damaging the Equipment's originally intended function or its
value) prior to its return to Lessor. Any part installed in connection with
warranty or maintenance service or which cannot be removed in accordance with
the preceding sentence shall be the property of Lessor.
3.
<PAGE>
13. RETURN OF EQUIPMENT. Except for Equipment that has suffered a Casualty Loss
(as defined in Paragraph 14 below) and is not required to be repaired pursuant
to Paragraph 14 below or Equipment purchased by Lessee pursuant to Paragraph 8
above, upon demand by Lessor pursuant to Paragraph 21 below, Lessee shall
contact Lessor for shipping instructions and, at Lessee's own risk, immediately
return the Equipment, freight prepaid, to a location in the continental United
States specified by Lessor. At the time of such return to Lessor, the Equipment
shall be in the operating order, repair and condition as required by or
specified in the original specifications and warranties of each manufacturer and
vendor thereof, ordinary wear and tear excepted, and meet all recertification
requirements. At any time with prior notice upon the occurrence and continuance
of an Event of Default, the right of access to the premises on which the
Equipment is located to inspect the Equipment, and Lessee shall cooperate as
reasonably requested with Lessor's remarketing of the Equipment. The provisions
of this Paragraph 13 are of the essence of the Lease, and upon application to
any court of equity having jurisdiction in the premises, Lessor shall be
entitled to a decree against Lessee requiring specific performance of the
covenants of Lessee set forth in this Paragraph 13. If Lessee fails to return
the Equipment when required, the terms and conditions of the Lease shall
continue to be applicable and Lessee shall continue to pay Rent until the
Equipment is received by Lessor.
14. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessee will maintain, at its own
expense, liability and property damage insurance relating to the Equipment,
insuring against such risks as are customarily insured against on the type of
equipment leased hereunder by businesses in which Lessee is engaged in such
amounts, in such form, and with insurers satisfactory to Lessor; provided,
however, that the amount of insurance against damage or loss shall not be less
than the greater of (a) the replacement value of the Equipment and (b) the
stipulated loss value of the Equipment specified in the applicable Schedule
("Stipulated Loss Value"). Each liability insurance policy shall provide
coverage (including, without limitation, personal injury coverage) of not less
than $1,000,000 for each occurrence, and shall name Lessor as an additional
insured; and each property damage policy shall name Lessor as sole loss payee
and all policies shall contain a clause requiring the insurer to give Lessor at
least thirty days prior written notice of any alteration in the terms or
cancellation of the policy. Lessee shall furnish upon request a copy of each
insurance policy (with endorsements) or other evidence satisfactory to Lessor
that the required insurance coverage is in effect; provided however, Lessor
shall have no duty to ascertain the existence of or to examine the insurance
policies to advise Lessee if the insurance coverage does not comply with the
requirements of this Paragraph. If Lessee fails to insure the Equipment as
required, Lessor shall have the right but not the obligation to obtain such
insurance, and the cost of the insurance shall be for the account of Lessee due
as part of the next due Rent. Lessee consents to Lessor's release, upon its
failure to obtain appropriate insurance coverage, of any and all information
necessary to obtain insurance with respect to the Equipment or Lessor's interest
therein.
Until the Equipment is returned to and received by Lessor as provided in
Paragraph 13 above, Lessee shall bear the entire risk of theft or destruction
of, or damage to, the Equipment including, without limitation, any condemnation,
seizure or requisition of title or use ("Casualty Loss"). No Casualty Loss shall
relieve Lessee from its obligations to pay Rent except as provided in clause (b)
below. When any Casualty Loss occurs, Lessee shall immediately notify Lessor
and, at the option of Lessor, shall promptly (a) place such Equipment in good
repair and working order; or (b) pay Lessor an amount equal to the Stipulated
Loss Value of such Equipment and all other amounts (excluding Rent) payable by
Lessee hereunder, together with a late charge on such amounts at a rate per
annum equal to the rate imputed in the Rent payments hereunder (as
4.
<PAGE>
reasonably determined by Lessor) from the date of the Casualty Loss through the
date of payment of such amounts, whereupon Lessor shall transfer to Lessee,
without recourse or warranty (express or implied), all of Lessees interest, if
any, in and to such Equipment on an "AS IS, WHERE IS" basis. The proceeds of any
insurance payable with respect to the Equipment shall be applied, at the option
of Lessee, either towards (i) repair of the Equipment or (ii) payment of any of
Lessee's obligations hereunder. Lessee hereby appoints Lessor as Lessee's
attorney-in-fact to make claim for, receive payment of, and execute and endorse
all documents, checks or drafts issued with respect to any Casualty Loss under
any insurance policy relating to the Equipment.
15. TAXES. Lessee shall pay when due (subject to Lessee's right to contest in
good faith), and indemnify and hold Lessor harmless from, all sales, use, excise
and other taxes, charges, and fees (including, without limitation, income,
franchise, business and occupation, gross receipts, licensing, registration,
titling, personal property, stamp and interest equalization taxes, levies,
imposts, duties, charges or withholdings of any nature), and if resulting from
an act of Lessee any fines, penalties or interest thereon, imposed or levied by
any governmental body, agency or tax authority upon or in connection with the
Equipment, its purchase, ownership, delivery, leasing, possession, use or
relocation of the Equipment or otherwise in connection with the transactions
contemplated by each Lease or the Rent thereunder, excluding taxes on or
measured by the net income of Lessor. Upon request, Lessee will provide proof
of payment. Unless Lessor elects otherwise, Lessor will pay all property taxes
on the Equipment for which Lessee shall reimburse Lessor promptly upon request
and proof of payment. Lessee shall timely prepare and rile all reports and
returns which are required to be made with respect to any obligation of Lessee
under this Paragraph 15. Lessee shall, to the extent permitted by law, cause all
billings of such fees, taxes, levies, imposts, duties, withholdings and
governmental charges to be made to Lessor in care of Lessee. Upon request,
Lessee will provide Lessor with copies of all such billings.
16. LESSOR'S PAYMENT. If Lessee fails to perform its obligations under Paragraph
14 or 15 above, or Paragraph 22 below, Lessor shall have the right to substitute
performance, in which case, Lessee shall immediately reimburse Lessor therefor.
17. GENERAL INDEMNITY. Each Lease is a net lease. Therefore, Lessee shall
indemnify Lessor and its successors and assigns against, and hold Lessor and its
successors and assigns harmless from, any and all claims, actions, damages,
obligations, liabilities and all costs and expenses, including, without
limitation, reasonable legal fees, incurred by Lessor or its successors and
assigns arising out of each Lease including, without limitation, the purchase,
ownership, delivery, lease, possession, maintenance, condition, use or return of
the Equipment, or arising by operation of law, except that Lessee shall not be
liable for any claims, actions, damages, obligations and costs and expenses
determined to have occurred as a result of the gross negligence or willful
misconduct of Lessor or its successors and assigns. Lessee agrees that upon
written notice by Lessor of the assertion of any claim, action, damage,
obligation, liability or lien, Lessee shall assume full responsibility for the
defense thereof, provided that Lessor's failure to give such notice shall not
limit or otherwise affect its rights hereunder, except to the extent Lessee
incurs a loss as a direct result of such failure. Any payment pursuant to this
Paragraph (except for any payment of Rent) shall be of such amount as shall be
necessary so that, after payment of any taxes required to be paid thereon by
Lessor, including taxes on or measured by the net income of Lessor, the balance
will equal the amount due hereunder. The provisions of this Paragraph with
regard to matters arising during a Lease shall survive the expiration or
termination of such Lease.
5.
<PAGE>
18. ASSIGNMENT BY LESSEE. Lessee shall not, without the prior written consent of
Lessor, (a) assign, transfer, pledge or otherwise dispose of any Lease or
Equipment, or any interest therein; (b) sublease or lend any Equipment or permit
it to be used by anyone other than Lessee and its employees, agents,
consultants, contractors and other authorized persons; or (c) move any Equipment
from the location specified for it in the applicable Schedule, except that
Lessee may move Equipment to another location within the United States provided
that Lessee has delivered to Lessor (A) prior written notice thereof and (B)
duly executed financing statements and other agreements and instruments (all in
form and substance satisfactory to Lessor) necessary or, in the opinion of the
Lessor, desirable to protect Lessor's interest in such Equipment. A change of
the Lessee's name shall not constitute an assignment for purposes of this
Paragraph 18. Notwithstanding anything to the contrary in the immediately
preceding sentence, Lessee may keep any Equipment consisting of motor vehicles
or rolling stock at any location in the United States.
19. ASSIGNMENT BY LESSOR. Lessor may assign its interest or grant a security
interest in any Lease and the Equipment individually or together, in whole or in
part. If Lessee is given written notice of any such assignment, it shall
thereafter make all payments of Rent and other amounts hereunder directly to
such assignee. Each such assignee shall have all of the rights of Lessor under
each Lease assigned to it. Lessee shall not assert against any such assignee any
set-off, defense or counterclaim that Lessee may have against Lessor or any
other person. Notwithstanding any assignment by Lessor, Lessor shall not be
relieved of its obligations under any Lease, but in no event shall Lessor be
liable for any act or omission of its assignee.
20. DEFAULT; NO WAIVER. Lessee or any guarantor of any or all of the
obligations of Lessee hereunder (together with Lessee, the "Lease Parties")
shall be in default under each Lease upon the occurrence of any of the following
events (each, an "Event of Default"): (a) Lessee fails to pay within five days
of when due any amount required to be paid by Lessee under or in connection with
any Lease; (b) any of the Lease Parties fails to perform in any material respect
any other provision under or in connection with a Lease or violates in any
material respect any of the covenants or agreements of such Lease Party under or
in connection with a Lease; (c) any representation made or financial information
delivered or furnished by any of the Lease Parties under or in connection with a
Lease shall prove to have been inaccurate in any material respect when made; (d)
any of the Lease Parties makes an assignment for the benefit of creditors,
whether voluntary or involuntary, or consents to the appointment of a trustee or
receiver, or if either shall be appointed for any of the Lease Parties or for a
substantial part of its property without its consent and, in the case of any
such involuntary proceeding, such proceeding remains undismissed or unstayed for
forty-five days following the commencement thereof, (e) any petition or
proceeding is filed by or against any of the Lease Parties under any Federal or
State bankruptcy or insolvency code or similar law and, in the case of any such
involuntary petition or proceeding, such petition or proceeding remains
undismissed or unstayed for forty-five days following the filing or commencement
thereof, or any of the Lease Parties takes any action authorizing any such
petition or proceeding; (f) any of the Lease Parties fails to pay when due any
indebtedness for borrowed money or under conditional sales or installment sales
contracts or similar agreements, leases or obligations evidenced by bonds,
debentures, notes or other similar agreements or instruments to any creditor
(including Lessor under any other agreement) after any and all applicable cure
periods therefor shall have elapsed if the unpaid amount involved exceeds
$250,000 in the aggregate, subject to Lessee's right to contest in good faith
any such obligations; (g) any judgment shall be rendered against any of the
Lease Parties which shall remain unpaid or
6.
<PAGE>
unstayed for a period of sixty days; (h) any of the Lease Parties shall
dissolve, liquidate, wind up or cease its business, sell or otherwise dispose of
all or substantially all of its assets or make any material change in its lines
of business; (i) any of the Lease Parties shall amend or modify its name, unless
such Lease Party delivers to Lessor thirty days prior to any such proposed
amendment or modification written notice of such amendment or modification and
within ten days before such amendment or modification delivers executed
financing statements (in form and substance satisfactory to the Lessor) provided
that Lessee shall have 10 business days to cure any default under this clause
(i);(j) any of the Lease Parties shall merge or consolidate with any other
entity or make any material adverse change in its capital structure, in each
case without Lessor's prior written consent, which shall not be unreasonably
withheld; (k) any of the Lease Parties shall suffer any loss or suspension of
any material license, permit or other right or asset which has a material
adverse effect on Lessee's business, fail generally to pay its debts as they
mature, or call a meeting for purposes of compromising its debts; (1) any of the
Lease Parties shall deny or disaffirm its obligations hereunder or under any of
the documents delivered in connection herewith; or (m) there is a change in more
than 35% of the ownership of any equity interests of any of the Lease Parties on
the date hereof or more than 35% of such interests become subject to any
contractual, judicial or statutory lien, charge, security interest or
encumbrance.
21. REMEDIES. Upon the occurrence and continuation of an Event of Default for
ten days after notice of a payment Event of Default and for thirty days after
notice for all other Events of Default except for an Event of Default described
in Paragraph 20(e), Lessor shall have the right, in its sole discretion, to
exercise any one or more of the following remedies: (a) terminate each Lease;
(b) declare any and all Rent and other amounts then due and any and all Rent and
other amounts to become due under each Lease (collectively, the "Lease
Obligations") immediately due and payable; (c) take possession of any or all
items of Equipment, wherever located, without demand, notice, court order or
other process of law, and without liability for entry to Lessee's premises, for
damage to Lessee's property or otherwise; (d) demand that Lessee immediately
return any or all Equipment to Lessor in accordance with Paragraph 13 above,
and, for each day that Lessee shall fail to return any item of Equipment, Lessor
may demand an amount equal to the Rent payable for such Equipment in accordance
with Paragraph 13 above; (e) lease, sell or otherwise dispose of the Equipment
in a commercially reasonable manner, with or without notice and on public or
private bid; (f) recover the following amounts from the Lessee (as damages,
including reimbursement of costs and expenses, liquidated for all purposes and
not as a penalty): (i) all costs and expenses of Lessor reimbursable to it
hereunder, including, without limitation, expenses of disposition of the
Equipment, legal fees and all other amounts specified in Paragraph 22 below;
(ii) an amount equal to the sum of (A) any accrued and unpaid Rent through the
later of (1) the date of the applicable default or (2) the date that Lessor has
obtained possession of the Equipment or such other date as Lessee has made an
effective tender of possession of the Equipment to Lessor (the "Default Date")
and (B) if Lessor resells or re-lets the Equipment, Rent at the periodic rate
provided for in each Lease for the additional period that it takes Lessor to
resell or re-let all of the Equipment; (iii) the present value of all future
Rent reserved in the Leases and contracted to be paid over the unexpired Term of
the Leases discounted at seven percent compounded interest; (iv) the
reversionary value of the Equipment as of the expiration of the Term of the
applicable Lease as set forth on the applicable Schedule discounted at seven
percent compounded interest; and (v) any indebtedness for Lessee's indemnity
under Paragraph 17 above, plus a late charge at the rate specified in Paragraph
3 above, less the amount received by Lessor, if any, upon sale or re-let of the
Equipment; and (g) exercise any other right or remedy to recover damages or
enforce the terms of the Leases. Upon the occurrence and
7.
<PAGE>
continuance of an Event of Default or an event which with the giving of notice
or the passage of time, or both, would result in an Event of Default, Lessor
shall have the right, whether or not Lessor has made any demand or the
obligations of Lessee hereunder have matured, to appropriate and apply to the
payment of the obligations of Lessee hereunder all security deposits and other
deposits (general or special, time or demand, provisional or final) now or
hereafter held by and other indebtedness or property now or hereafter owing by
Lessor to Lessee. Lessor may pursue any other rights or remedies available at
law or in equity, including, without limitation, rights or remedies seeking
damages, specific performance and injunctive relief. Any failure of Lessor to
require strict performance by Lessee, or any waiver by Lessor of any provision
hereunder or under any Schedule, shall not be construed as a consent or waiver
of any other breach of the same or of any other provision. Any amendment or
waiver of any provision hereof or under any Schedule or consent to any departure
by Lessee here from or therefrom shall be in writing and signed by Lessor.
No right or remedy is exclusive of any other provided herein or permitted by law
or equity. All such rights and remedies shall be cumulative and may be enforced
concurrently or individually from time to time.
22. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all its reasonable
expenses (including reasonable legal fees and expenses) incurred in connection
with the preparation, execution and delivery of this Agreement and any other
agreement and transaction contemplated hereby, which expenses shall not exceed
$6,000 without the written consent of Lessee, and all costs and expenses in
protecting and enforcing Lessor's rights and interests in each Lease and the
Equipment upon an Event of Default, including, without limitation, legal,
collection and remarketing fees and expenses incurred by Lessor in enforcing the
terms, conditions or provisions of each Lease or, upon the occurrence and
continuation of an Event of Default.
23. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee hereby
waives any and all rights and remedies conferred upon a lessee by Sections 2A-
508 through 2A-522 of the UCC, provided, however, that Lessee shall have the
right to recover damages from Lessor for any breach by Lessor of its obligations
under this Agreement. To the extent permitted by applicable law, Lessee also
hereby waives any rights now or hereafter conferred by statute or otherwise
which may require Lessor to sell, lease or otherwise use any Equipment in
mitigation of Lessor's damages as set forth in Paragraph 21 above or which may
otherwise limit or modify any of Lessor's rights or remedies under Paragraph 21,
except that Lessee shall have the right to require Lessor to convey to Lessee,
without representation, warranty or recourse, all of Lessor's rights, title and
interest in and to the Equipment upon Lessor's receipt, following an Event of
Default and the exercise of Lessor's remedies, of the amounts specified in
Paragraph 21(f).
24. NOTICES; ADMINISTRATION. Except as otherwise provided herein, all notices,
approvals, consents, correspondence or other communications required or desired
to be given hereunder shall be given in writing and shall be delivered by
overnight courier, hand delivery or certified or registered mail, postage
prepaid, if to Lessor, then to Technology Finance Division, 76 Batterson Park
Road, Farmington, Connecticut 06032, Attention: Assistant Vice President, Lease
Administration, with a copy to Lessor at Riverway II, West Office Tower, 9399
West Higgins Road, Rosemont, Illinois 60018, Attention: Legal Department, if to
Lessee, then to Diversa Corporation, 10665 Sorrento Valley Road, San Diego,
California 92121, Attention: Vice President and Chief Financial Officer or such
other address as shall be designated by Lessee or Lessor to the other party. All
such notices and correspondence shall be effective when received.
8.
<PAGE>
25. REPRESENTATIONS. Lessee represents and warrants to Lessor that (a) Lessee is
duly organized, validly existing and in good standing under the laws of the
State of its incorporation; (b) the execution, delivery and performance by
Lessee of this Agreement are within Lessee's powers, have been duly authorized
by all necessary action, and do not and will not contravene (i) Lessee's
organizational documents or (ii) any law or contractual restriction binding on
or affecting Lessee; (c) no authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by Lessee of this
Agreement; (d) each Lease constitutes the legal, valid and binding obligations
of Lessee enforceable against Lessee in accordance with its terms; (e) to the
knowledge of the Lessee, the cost of each item of Equipment does not exceed the
fair and usual price for such type of equipment purchased in like quantity and
reflects all discounts, rebates, and allowances for the Equipment (including,
without limitation, discounts for advertising, prompt payment, testing or other
services) given to the Lessee by the manufacturer, supplier or any other person;
and (f) all information supplied by Lessee to Lessor in connection herewith is
correct and does not omit any material statement necessary to insure that the
information supplied is not misleading.
26. FURTHER ASSURANCES. Lessee, upon the request of Lessor, will execute,
acknowledge, record or file, as the case may be, such further documents and do
such further acts as may be reasonably necessary, desirable or proper to carry
out more effectively the purposes of this Agreement. Lessee hereby appoints
Lessor as its attorney-in-fact to execute on behalf of Lessee and authorizes
Lessor to file without Lessee's signature any UCC financing statements and
amendments Lessor deems reasonably necessary.
27. FINANCIAL STATEMENTS. Lessee shall deliver to Lessor: (a) as soon as
available, but not later than 120 days after the end of each fiscal year of
Lessee and its consolidated subsidiaries, the consolidated balance sheet, income
statement and statements of cash flows and shareholders equity for Lessee and
its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification, and (b) as soon as available, but not later than 60 days after
the end of each of the first three fiscal quarters in any fiscal year of Lessee
and its consolidated subsidiaries, the Financial Statements for such fiscal
quarter, together with a certification duly executed by a responsible officer of
Lessee that such Financial Statements have been prepared in accordance with
generally accepted accounting principles and are fairly stated in all material
respects (subject to normal year-end audit adjustments). Lessee shall also
deliver to Lessor as soon as available copies of all press releases and other
similar communications issued by Lessee.
28. CONSENT TO JURISDICTION. Lessee irrevocably submits to the jurisdiction of
any Illinois state or federal court sitting in Illinois for any action or
proceeding arising out of or relating, to this Agreement or the transactions
contemplated hereby, and Lessee irrevocably agrees that all claims in respect of
any such action or proceeding may be heard and determined in such Illinois state
or federal court.
29. WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
9.
<PAGE>
30. FINANCE LEASE. Lessee and Lessor agree that each Lease is a "Finance Lease"
as defined by Section 2A-103(g) of the UCC. Lessee acknowledges that Lessee has
reviewed and approved each written Supply Contract (as defined by UCC 2A-103(y))
covering Equipment purchased from each "Supplier" (as defined by UCC 2A-103(x))
thereof.
31. NO AGENCY. Lessee acknowledges and agrees that neither the manufacturer or
supplier, nor any salesman, representative or other agent of the manufacturer or
supplier, is an agent of Lessor. No salesman, representative or agent of the
manufacturer or supplier is authorized to waive or alter any term or condition
of this Agreement or any Schedule and no representation as to the Equipment or
any other matter by the manufacturer or supplier shall in any way affect
Lessee's duty to pay Rent and perform its other obligations as set forth in this
Agreement or any Schedule.
32. SPECIAL TAX INDEMNIFICATION. Lessee acknowledges that Lessor, in determining
the Rent due hereunder, has assumed that certain tax benefits as are provided to
an owner of property under the Internal Revenue Code of 1986, as amended (the
"Code"), and under applicable state tax law, including, without limitation,
depreciation deductions under Section 168(b) of the Code, and deductions under
Section 163 of the Code in an amount at least equal to the amount of interest
paid or accrued by Lessor with respect to any indebtedness incurred by Lessor in
financing its purchase of the Equipment, are available to Lessor as a result of
the lease of the Equipment. In the event Lessor is unable to obtain such tax
benefits as a result of an act or omission of Lessee of which Lessee has prior
written notice and opportunity to comply, is required to include in income any
amount other than the Rent or is required to recognize income in respect of the
Rent earlier than anticipated pursuant to this Agreement, Lessee shall pay
Lessor additional rent ("Additional Rent") in a lump sum in an amount needed to
provide Lessor with the same after-tax yield and after-tax cash flow as would
have been realized by Lessor had Lessor (i) been able to obtain such tax
benefits and (ii) not been required to recognize income in respect of the Rent
earlier than anticipated pursuant to this Agreement. The Additional Rent shall
be computed by Lessor, which computation shall be binding on Lessee unless
disputed in good faith by Lessee. The Additional Rent shall be due immediately
upon written notice by Lessor to Lessee of Lessor's inability to obtain tax
benefits, the inclusion of any amount in income other than the Rent or the
recognition of income in respect of the Rent earlier than anticipated pursuant
to this Agreement. The provisions of this Paragraph 32 shall survive the
termination of this Agreement.
33. GOVERNING LAW; SEVERABILITY. EACH LEASE SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF. IF ANY PROVISION SHALL BE HELD TO BE INVALID OR UNENFORCEABLE, THE
VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS SHALL NOT IN ANY WAY BE
AFFECTED OR IMPAIRED.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND THE SCHEDULE HERETO,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS. FURTHER,
LESSEE AND LESSOR AGREE THAT THIS AGREEMENT, THE SCHEDULES DELIVERED AND SIGNED
BY LESSEE AND LESSOR IN CONNECTION HEREWITH FROM TIME TO TIME AND LESSOR'S
WRITTEN COMMITMENT TO LESSEE IN EFFECT FROM TIME TO TIME, INCLUDING, WITHOUT
LIMITATION, THE COMMITMENT LETTERS DATED MARCH 31, 1997 AND APRIL 7,1998, ARE
THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT
10.
<PAGE>
BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR
WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE
SUBJECT MATTER HEREOF.
IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to
be duly executed by their duly authorized officers as of this 29th day of April,
1988.
DIVERSA CORPORATION
By: /s/ Kathy Van Sleen
---------------
Name:
Title:
Federal Identification Number 22-3297375
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Gary P. Moro
----------------
Name: Gary P. Moro
Title: Vice President
11.
<PAGE>
Exhibit A
March 31, 1997
Ms. Kathy Van Sleen
Vice President & Chief Financial Officer
Recombitant BioCatalysis, Inc.
10665 Sorrento Valley Road
San Diego, CA 92121
Dear Kathy:
Transamerica Business Credit Corporation - Technology Finance Division
("Lessor") is pleased to lease the Equipment described below to Recombitant
BioCatalysis, Inc. ("Lessee"). This Commitment supersedes all prior
correspondence, proposals, and oral or other communications relating to leasing
arrangements between Lessee and Lessor. The outline of this offer is as
follows:
Lessee: Recombitant BioCatalysis, Inc.
Lessor: Transamerica Business Credit Corporation - Technology Finance Division
and/or its affiliates, successors and assigns.
Guarantor: Not Applicable.
Equipment: Research and Development and other Equipment now owned or hereafter
acquired by Lessee, (all equipment subject to Lessor's approval prior to
funding), including, without limitation, all additions, improvements,
replacements, repairs, appurtenances, substitutions, and attachments thereto and
all proceeds (including insurance proceeds) thereof (the "Equipment").
Equipment Cost: Total not to exceed R2,500,000 including "soft costs" not to
exceed $375,000.00
Equipment Location: 10665 Sorrento Valley Road, San Diego, California 92121.
Anticipated Delivery: Through December 31, 1997.
Termination of Commitment: This commitment will terminate if the first delivery
of Equipment is not completed and funded on or before June 15, 1997. The final
delivery of Equipment shall not be later than March 31, 1998.
Lease Term Commencement: Upon delivery, acceptance and funding of the Equipment
or upon each completion of deliveries of items of Equipment with aggregate cost
of not less than $100,000, but in no event, shall any Equipment be delivered
later than March 31, 1998.
Term: From each Lease Term Commencement until 60 months from the first day of
the month next following or on the same date as the Lease Term Commencement if
that date is the first date of the month.
1.
<PAGE>
Lease Repayment Terms: Monthly Rent equal to 2.2595% of Equipment Cost shall be
payable monthly in advance, plus applicable sales and other taxes. The first and
last months rent shall be payable in advance. As of the date of each Lease Term
Commencement, the Monthly Rent Payments shall be fixed for the term.
The Lessor reserves the right to increase the Monthly Rent Payments as of the
date of each Lease Term Commencement commensurate to the increase in the weekly
average of the interest rates of five-year U.S. Treasury Securities from the
week ending February 7, 1997 to the week preceding the date of each Lease Term
Commencement, as published in the Wall Street Journal.
Interim Rent Payments: In the event that the Lease Term Commencement is not on
the first day of the month, Interim Rent Payments shall accrue from each Lease
Term Commencement until the next following first day of a month and shall be
payable at the end of that month. Interim Rent Payments shall be calculated at
the daily equivalent of the currently adjusted Monthly Payment.
Purchase Obligation: The Lessee shall purchase all (but not less than all) the
Equipment at the expiration of the term of each lease schedule for the then
current Fair Market Value of the Equipment, plus applicable sales and other
taxes.
It shall be agreed that the Fair Market Value will be 10% of Equipment Cost.
Documentation: The documentation relating to this transaction shall implement
the transaction contemplated by this commitment letter to the satisfaction of
Lessor and its counsel and Lessee and its counsel, shall be fully acceptable to
Lessor and its counsel and Lessee and its counsel, and shall contain conditions
precedent, representations, warranties and covenants by Lessee and shall provide
for events of defaults and remedies, all as required by Lessor for transactions
of this type and acceptable to Lessee. The documentation shall include, but not
be limited to, the terms and conditions described in this commitment letter.
Insurance: Prior to any delivery of Equipment, the Lessee shall furnish a
certificate of insurance acceptable to the Lessor in amount, type, and term
covering the Equipment including primary, all risk, physical damage, property
damage and bodily injury with appropriate loss payee and additional insured
endorsements in favor of the Lessor.
Taxes: Sales or use taxes would be added to the Equipment Cost or collected on
the gross rentals, as appropriate.
Representations and Additional Covenants: There shall be no actual or
threatened conflict with, or violation of, any regulatory statute, standard or
rule relating to the Lessee, its present or future operations, or the Equipment.
All material information supplied by the Lessee shall be correct and shall not
omit any statement necessary to make the information supplied not be misleading.
There shall be no material breach of the representations and warranties of the
Lessee in the Lease. The representations shall include that the Equipment Cost
of each item of the Equipment does not exceed the fair and usual price for such
type of Equipment purchased in like quantity purchased by Lessee of such item
and reflects all discounts, rebates and allowances for the Equipment given to
Lessee by the
2.
<PAGE>
EXHIBIT 10.17
LICENSE AGREEMENT
This License Agreement is made the 1st day of December, 1998, between
Diversa Corporation, a Delaware corporation, having offices at 10665 Sorrento
Valley Road, San Diego, California 92121 U.S.A.; and Finnfeeds International
Limited, an English company, having an address at P.O. Box 777, Marlborough,
Wiltshire, United Kingdom SN8 1XN.
Witnesseth:
Whereas, Diversa and FFI previously entered in a Collaboration Agreement
dated January 2, 1997 (the "Collaboration Agreement") for the purpose of
discovering, developing and commercializing enzyme technology for use in the
[*****], which Collaboration Agreement superseded an earlier "Phytase Developed
Agreement" between the parties dated May 17, 1996;
Whereas, Diversa has identified a certain gene and the phytase enzyme it
expresses, and owns and/or controls intellectual property rights relating
thereto;
Whereas, FFI desires to commercialize such technology, and Diversa desires
FFI to commercialize this technology, under terms and conditions established by
the Collaboration Agreement, as modified by a "Letter Agreement" between the
parties (dated December 1, 1998) amending the Collaboration Agreement (the
"Letter Agreement"),
Whereas, in accordance with this desire to commercialize, FFI wishes to
acquire from Diversa, and Diversa has agreed to grant to FFI, the within license
and rights with respect to the use of the Diversa intellectual property rights
for manufacture of phytase enzyme, and the use and/or sale of the so-
manufactured phytase enzyme and animal health and nutrition products containing
the same, as defined below, in accordance with the terms and conditions of this
Agreement.
Now, Therefore, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 The following terms whenever used in this Agreement shall have the
meanings set forth below except when otherwise expressly stated:
(a) "Effective Date" shall mean the date set forth at the top hereof.
(b) "Affiliate" shall mean any individual, partnership, corporation,
group or trust that directly or indirectly controls, is controlled by or is
under common control with a party to this Agreement, with "control" being the
power to direct or cause the direction of management and policies, whether
through ownership or voting of securities, by contract or otherwise. [*****].
1. *Confidential Treatment Requested
<PAGE>
(c) "Phytase" shall mean [*****] and which is manufactured under the
licenses granted by this License Agreement.
(d) "[*****] Field" shall mean a field of activities relating to
products which [*****] and which [*****] in the United States.
(e) "[*****] Field" shall mean a field of activities relating to
products which [*****] and which [*****] in the United States.
(f) "Products" shall mean products containing Phytase.
(g) "DIVERSA Know-How" shall mean all information and data, whether
patentable or not, owned or controlled by DIVERSA as of the Effective Date,
relating to the manufacture of Phytase, the use and sale of Phytase for the
manufacture of Products for the [*****] Field and [*****] Field, and the
manufacture, use and sale of Products for the [*****] Field and [*****] Field.
(h) "DIVERSA Patent Rights" shall mean all patents and applications
for patents covering DIVERSA Know-How, including but not limited to those
identified in Appendix A of this Agreement (attached hereto and made a part
hereof), including any [*****] or the [*****] and any [*****] and [*****] of the
foregoing, that are owned or controlled by Diversa and which DIVERSA has the
right to grant licenses hereunder.
(i) "DIVERSA Technology" shall mean DIVERSA Patent Rights and DIVERSA
Know-how.
(j) "Net Sales Price" of a Product shall mean the [*****] of such
Product to the first person or entity purchasing such Product, [*****];
provided, however, that if such first person or entity is an Affiliate of FFI,
the Net Sales Price shall be deemed to be [*****] or the [*****].
(k) "Profit" for a Product sold or distributed shall mean the [*****]
less (1) [*****]; (2) [*****]; (3) [*****]; and (4) the [*****]. In the event
that Profit cannot reasonably be calculated because a Product contains [*****]
which add a significant contribution to the Net Sales Price of the Product apart
from the [*****], the parties shall in good faith negotiate the applicable
[*****] by [*****]
2. *Confidential Treatment Requested
<PAGE>
compared to the [*****].
(l) Terms used but not otherwise defined or referenced herein shall
have the respective meanings set forth in the Collaboration Agreement.
ARTICLE 2
GRANTS
2.1 DIVERSA hereby grants to FFI an exclusive, worldwide license to use
the DIVERSA Technology for all activities relating to:
(a) [*****]
(b) [*****] and
(c) [*****]
2.2 [*****]
2.3 [*****]
ARTICLE 3
MANUFACTURE OF PHYTASE,
TRANSMISSION OF KNOW-HOW
AND TECHNICAL ASSISTANCE
3.1 Notwithstanding paragraph 2.2 above, and in accordance with the Letter
Agreement, DIVERSA and FFI agree that FFI shall only have the right to [*****]
the DIVERSA Technology to [*****] for activities in connection with the [*****],
and then only in connection with a [*****] will [*****] to FFI at a cost [*****]
of no more than [*****] per [*****] which drops to no more than [*****] at
[*****] which further drops to [*****] at [*****] which still further drops to
[*****] at [*****] which finally drops to [*****] for [*****]. Notwithstanding,
[*****].
3. *Confidential Treatment Requested
<PAGE>
3.2 Within a reasonable time subsequent to entry of the parties into this
License Agreement [*****], DIVERSA will (to the extent such has not already
occurred) disclose to FFI the DIVERSA Technology reasonably required for FFI to
exploit the license granted hereunder. To the extent feasible, the DIVERSA
Technology shall be disclosed in written or other tangible form.
3.3 In addition to paragraph 3.2, DIVERSA shall promptly provide to FFI
the DIVERSA Technology reasonably required for [*****], for the purpose of
[*****] [*****] for the purpose of [*****].
3.4 DIVERSA agrees to provide reasonable assistance to FFI (and FFI's
sublicensees) to facilitate the understanding of the DIVERSA Technology. During
the term of this License Agreement, the first [*****] of assistance shall be
[*****] FFI agrees to compensate DIVERSA for any assistance [*****] above this
amount at a reasonable manpower rate to be agreed upon by the parties, but in no
event shall such rate be [*****].
3.5 Notwithstanding other provisions herein to the contrary, nothing in
this Agreement shall obligate DIVERSA to provide to FFI or its sublicensees
information related to DIVERSA's [*****].
ARTICLE 4
ROYALTY AND PAYMENT
4.1 In consideration for this License Agreement and the licenses granted
under Article 2 of this License Agreement, FFI shall pay to DIVERSA for each
Product sold and/or distributed by FFI or any Affiliate or sublicensee of FFI
during the term of this License Agreement, a [*****] royalty of [*****] for such
Product.
4.2 FFI shall pay royalties to DIVERSA [*****] within [*****] after each
[*****] for Profits accruing in respect of each such [*****] (each, a "Royalty
Payment Date"). FFI shall furnish to DIVERSA, [*****], on each Royalty Payment
Date, written reports showing in reasonably specific detail, the [*****] [*****]
to DIVERSA in respect of each such [*****]. FFI shall keep complete and accurate
records in sufficient detail to properly enable the royalties payable hereunder
to be determined.
4. *Confidential Treatment Requested
<PAGE>
4.3 (a) Upon the written request of DIVERSA and not more than [*****] FFI
shall permit an independent certified public accounting firm of nationally
recognized standing, selected by DIVERSA and reasonably acceptable to FFI, at
DIVERSA's expense, to have access during normal business hours to such records
of FFI as may reasonably be necessary to verify the accuracy of the royalty
reports hereunder for [*****] prior to the date of such request.
(b) If such accounting firm concludes that additional royalties were
owed during such period, FFI shall pay the additional royalties within [*****]
of the date DIVERSA delivers to FFI such accounting firm's written report so
concluding, except in the case of manifest calculation error, in which event,
the accounting firm shall recalculate the applicable royalty amount. The fees
charged by such accounting firm shall be paid by DIVERSA provided however, if
the audit (subject to recalculation, as aforesaid) discloses that the royalties
payable to DIVERSA for such period have been underpaid by [*****] then FFI shall
pay the reasonable fees and expenses charged by such accounting firm.
4.4 All amounts due to DIVERSA hereunder shall be paid in USA funds at a
bank to be designated by DIVERSA. All accounting hereunder is to be done in
accordance with United States Generally Accepted Accounting Principles.
ARTICLE 5
DURATION
5.1 This term of this License Agreement shall commence [*****] and shall
continue [*****].
5.2 FFI may terminate the term of this License Agreement at any time upon
[*****] written notice to DIVERSA.
5.3 DIVERSA may terminate the term of this License Agreement upon
occurrence of one or more of the following:
(a) in the event that:
(i) FFI becomes bankrupt or insolvent or goes into any form of
liquidation (other than for the purposes of amalgamation or reconstruction) or
suffers a receiver or trustee to be appointed of any of its assets; or
(ii) any governmental authority seizes, expropriates,
nationalizes or confiscates all or substantially all of the assets of FFI
whether with or without compensation, or assumes control over all or
substantially all of the business of FFI; or
(b) if FFI shall materially breach any of the covenants, promises,
obligations or undertakings herein contained, provided that FFI has not remedied
any such material breach within [*****] after receipt of written notice from
DIVERSA.
5.4 Upon the termination of this License Agreement under paragraphs 5.2 or
5.3, the license granted hereunder shall terminate and FFI shall cease to use
the [*****] except that FFI shall be entitled to complete any outstanding orders
for deliveries within a time limit of [*****] from the date of termination
subject to payment of royalties thereon.
5. *Confidential Treatment Requested
<PAGE>
5.5 [*****].
5.6 Royalty obligations under this License Agreement shall commence with
the [*****] and end on the [*****] and (b) [*****].
ARTICLE 6
WARRANTIES, INDEMNIFICATION AND INFRINGEMENT
6.1 Each party represents and warrants (a) that it has the corporate
authorization to enter into and make the commitments on its behalf necessary to
satisfy the obligations of this License Agreement; and (b) that there are no
third party contractual restrictions on its ability to enter into and make the
commitments on its behalf necessary to satisfy the obligations of this License
Agreement except as may be disclosed in writing to the other party prior to the
Effective Date.
6.2 DIVERSA further represents and warrants:
(a) [*****];
6. *Confidential Treatment Requested
<PAGE>
(b) [*****]; and
(c) [*****].
6.3 FFI represents that it shall, and shall cause its Affiliates and
sublicensees, as applicable, to, comply with all laws and regulations applicable
with its operation under the license granted hereunder.
6.4 THE FOREGOING REPRESENTATIONS AND WARRANTIES ARE IN LIEU OF, AND THE
PARTIES HEREBY DISCLAIM AND NEGATE, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR ANY PARTICULAR, PURPOSE.
6.5 Each party shall be solely responsible for damages to its own property
and injury or death of the officers, employees or agents of such party sustained
in the performance and as a result of this License Agreement, and shall
indemnify and hold the other parties harmless from and against all claims,
causes of action, loss and liability arising out of or in connection with such
responsibility.
6.6 [*****] agrees to [*****]:
(a) any [*****]; and
(b) any [*****].
6.7 FFI agrees to indemnify DIVERSA, its directors, officers and employees
and to hold such parties harmless from any action, claim, or liability,
including without limitation liability for death, personal injury, and/or
property damage (except as provided in paragraph 6.5), arising out of (i) the
manufacture, use, sale, or other disposition of Products by FFI or Affiliates or
sublicensees of FFI, or (ii) the use of the [*****] pursuant to this License
Agreement; [*****].
6.8 It shall be a condition of [*****] hereunder that the [*****]. The
[*****] shall have the right to [*****].
6.9 Notwithstanding any provision to the contrary, (i) each party shall be
responsible and liable to the other party for any failure in the performance of
its obligations hereunder; and (ii) nothing in this Agreement shall operate or
be construed so as to limit or exclude a party from liability to the extent that
such liability results from any negligent or willful act or omission of such
party.
6.10 IN NO EVENT WILL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR
ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR
OTHERWISE, ARISING OUT OF THIS AGREEMENT.
6.11 FFI shall forthwith inform DIVERSA upon its becoming aware of
(a) any infringement by any third party of any DIVERSA Patent Rights,
or any misappropriation by any third party of DIVERSA Know-How; and
(b) [*****] in such way as [*****].
ARTICLE 7
CONFIDENTIALITY
7.1 Each party shall keep confidential any and all information (other than
as set forth in paragraph 7.3 hereof) revealed to it (the "Recipient") by the
other party hereto (the "Disclosing Party) during the term of this License
Agreement, or otherwise which relates to the subject matter hereof and was
previously disclosed during the term of the Collaboration Agreement or the
Phytase Development Agreement. This provision shall apply regardless of the
method of disclosure (whether written, oral or otherwise), and includes but is
not limited to information
7. *Confidential Treatment Requested
<PAGE>
relating to the technology and intellectual property
licensed under this Licensed Agreement, developed under this License Agreement
or the previous Collaboration Agreement or Phytase Development Agreement, and
information relating to the Disclosing Party's existing or proposed business or
products; marketing and distribution data, methods, plans and efforts; and any
other materials which have not been made available by the Disclosing Party to
the general public ("Information"). Failure to mark any of Information as
confidential or proprietary shall not affect its status as Information under the
terms of this License Agreement.
7.2 Recipient shall maintain the confidential nature of Information and
shall, at a minimum, take those precautions that it utilizes to protect its own
confidential information. Recipient shall use Information only as necessary in
the performance of Recipient's duties, or in the exercise of the rights granted
to Recipient, hereunder.
7.3 The restrictions imposed by this Article VII shall not apply to
Information that: (i) at the time of Disclosure by the Disclosing Party is in,
or after disclosure by the Disclosing Party becomes part of, the public domain
through no improper act on the part of Recipient or on the part of any of
Recipient's employees or consultants; (ii) was in Recipient's possession at the
time of disclosure by the Disclosing Party, as shown by written evidence, and
was not acquired, directly or indirectly, from the Disclosing Party; (iii)
Recipient receives from a third party, provided that such Information was not
obtained by such third party, directly or indirectly, from the Disclosing Party;
and (iv) Recipient independently develops without the benefit of any Information
by the Disclosing Party.
7.4 Disclosure of Information by Recipient that is required in a judicial,
administrative or governmental proceeding shall not constitute a breach of this
License Agreement, provided that, if the Recipient is required by legal process
to so disclose any such Information, Recipient shall timely notify the
Disclosing Party of such requirement so that the Disclosing Party is afforded an
opportunity to seek an appropriate protective order.
ARTICLE 8
MISCELLANEOUS
8.1 This License Agreement embodies the entire understanding between the
parties with respect to the subject matter hereof, and supersedes all prior
agreements and understandings relating thereto, other than the Collaboration
Agreement and the Letter Agreement to the extent they do not conflict with the
terms of this License Agreement.
8.2 This License Agreement and the rights and obligations of the parties
hereto shall be governed by the laws of the State of [*****] without regard to
the principles of conflicts of laws of [*****] or any other jurisdiction.
8.3 This License Agreement may be executed simultaneously in counterparts,
each of which shall be deemed an original, but which together shall constitute
one and the same instrument.
8.4 All amounts referred to in this License Agreement are stated in United
States dollars.
8.5 This License Agreement and any term or provision thereof may at any
time or from time to time be modified, amended or waived, or additional or
substituted terms or provisions incorporated herein, upon the unanimous written
consent of the parties.
8. *Confidential Treatment Requested
<PAGE>
8.6 (a) The parties hereby expressly agree that any dispute, controversy
or claim arising out of, or relating to this License Agreement or the
relationship of the parties with respect to the subject matter hereof,
including, but not limited to, any question regarding the existence, validity or
termination of this License Agreement, shall be finally resolved by arbitration
under rules of the American Arbitration Association ("AAA") then in effect.
(b) Any such arbitration shall take place in [*****] and the language
of the arbitration shall be English. The number of arbitrators shall be three.
FFI and DIVERSA shall each appoint one arbitrator, and the two so appointed
shall appoint the third. The arbitrators shall all be fluent in the English
language and be familiar with law of the State of [*****] The arbitrators are
not authorized to decide any dispute, controversy or claim ex aequo et bono, but
shall strictly apply the governing law chosen by the parties. Arbitrators shall
have the authority to determine whether the issue submitted to them is
arbitrable.
(c) The arbitral tribunal shall make a written record of the basis of
its award. The arbitral tribunal shall be authorized to award costs and
attorneys' fees to the prevailing party as part of its award. Any award of the
tribunal shall be binding and enforceable against the parties in any court of
competent jurisdiction, and the parties hereby waive any right to appeal such an
award on the merits or to challenge the award except on the grounds expressly
provided for in Article V of the United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards.
(d) Notwithstanding the provisions set forth above, nothing therein
shall be deemed to prohibit either party from seeking immediate injunctive
relief from any court or other forum to prevent or restrain a breach of any of
the provisions of this Agreement.
(e) Pending resolution of any dispute hereunder, each party shall use
its best efforts to minimize adverse economic consequences to the other party
which would result from non-operation, sub-capacity operation or failure to meet
payment terms under loan agreements.
8.7 Any captions in this License Agreement are for the purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
8.8 Whenever the context may require, any pronoun used in this License
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
8.9 Any failure or delay on the part of any party in exercising any power
or right hereunder shall not operate as a waiver thereof, nor shall any single
or partial exercise of such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder or
otherwise available in law or equity.
8.10 The respective rights and obligations of the parties hereunder shall
not, except as set forth herein, without prior written consent of the other
party which shall not unreasonably be withheld, provided that no consent is
required in connection with:
(a) [*****]; or
(b) [*****].
9. *Confidential Treatment Requested
<PAGE>
This License Agreement shall bind and inure to the benefit of Diversa and
IFI and their permitted successors and assigns.
8.11 In the event that performance of obligations hereunder by any party
hereto is legally excusable because of force majeure, the following terms shall
apply :
(a) Any party which believes that its performance is excused by force
majeure shall give written notice to the other as soon as possible with
sufficient detail to permit the other to minimize inconvenience and expense.
(b) The parties shall continue to operate to the maximum extent
possible.
(c) The party not affected shall have the right to terminate this
License Agreement if the event of force majeure results in a material breach of
this Agreement for more than [*****]
(d) Force majeure shall include the following: any event outside of
the control or influence of any party which results in the party's inability to
perform or meet its obligations under this License Agreement. Such events shall
include (but not be limited to) natural disasters, wars, acts of government
(including refusal to grant authorizations required to effectuate performance),
power failures or interruptions, unanticipated breakdown of equipment,
extraordinary market or supply conditions beyond the party's control, legal
restrictions on performance, and work stoppages.
8.12 Except as required to comply with law or regulation, [*****]
8.13 (a) The relationship between the parties shall be that of independent
contractors and not partners, joint venturers or otherwise. No party has the
right to bind the other party or incur obligations or liabilities on the other
party's behalf.
(b) It is the intention of the parties that no partnership be formed
for United States federal income tax purposes. However, if a partnership between
the parties is deemed to exist by the U.S. Internal Revenue Service, then
[*****] shall be designated tax matters partner.
In Witness Whereof, the parties have caused their duly authorized
representatives to execute this Agreement on the day and year first above
written.
Finfeed International Limit
By: /s/ Richard Cooper
__________________
Name: Richard Cooper
__________________
Title: Managing Director
_____________________
Diversa Corporation
By: /s/ Terrance J. Bruggeman
_________________________
Name: Terrance J. Bruggeman
_________________________
Title: Chief Executive Officer
___________________________
10. *Confidential Treatment Requested
<PAGE>
Appendix A
PATENTS
Appln. Filing Patent Grant Expiration
Country Number Date Number Date Date
[*****] [*****] [*****]
[*****] [*****]
[*****]
Appendix A-1.
*Confidential Treatment Requested
<PAGE>
EXHIBIT 10.18
Addendum to the "COLLABORATION AGREEMENT" between Novartis Agribusiness
Biotechnology Research, Inc. and Diversa Corporation.
This addendum dated and effective as of the date last below written (the
"Effective Date") is between Diversa Corporation ("Diversa"), a Delaware
corporation, and Novartis Agribusiness Biotechnology Research, Inc.
("Novartis"), a corporation organized under the laws of Delaware, (collectively,
the "Parties").
WHEREAS, Diversa has isolated and characterized a [*****];
WHEREAS, Novartis would like to receive such [*****] for [*****] against a
[*****];
NOW, THEREFORE, in consideration of the mutual covenants set forth in this
addendum, the Parties hereby agree as follows:
(1) Diversa will [*****]. to Novartis, which are Diversa [*****]. Novartis
will [*****] to [*****] The cost associated with the transfer of such
[*****] is set at [*****].
(2) If and when [*****] are [*****] as [*****] (as defined in clause 1 of the
Collaboration Agreement) by the Research Committee, [*****] will be
conducted under the terms set forth in the Collaboration Agreement.
(3) The scope of a [*****] license will be the use in [*****], applying to
Crops the definition set forth in Collaboration Agreement.
(4) This addendum, when fully executed, will be made an integral part of the
Collaboration Agreement.
Accepted and Agreed to:
NOVARTIS AGRIBUSINESS DIVERSA CORPORATION
BIOTECHNOLOGY RESEARCH, Inc.
/s/ Stephen V. Evola /s/ Jay M. Short
- ---------------------------- --------------------------
By: Dr. Stephen V. Evola By: Dr. Jay M. Short
Co-President Chief Executive Officer
*Confidential Treatment Requested
<PAGE>
COLLABORATION AGREEMENT
between
NOVARTIS AGRIBUSINESS BIOTECHNOLOGY RESEARCH, INC.
and
DIVERSA CORPORATION
<PAGE>
COLLABORATION AGREEMENT
This Collaboration Agreement, dated and effective as of January 25, 1999
(the "Effective Date"), is between Diversa Corporation ("Diversa"), a Delaware
corporation, and Novartis Agribusiness Biotechnology Research, Inc.,
("Novartis"), a corporation organized under the laws of Delaware (collectively,
the "Parties").
R E C I T A L S
WHEREAS, Diversa has discovered and developed [*****] (as defined below),
as well as proprietary technologies for the [*****] and is in the possession of
Diversa Technology (as defined below) relating to said [*****] and technologies;
WHEREAS, Novartis discovers, develops, and commercializes products useful
in [*****] including [*****] as well as applied products which confer similar
benefits;
WHEREAS, Novartis and Diversa desire to collaborate to apply the [*****]
and Diversa Technology to produce [*****]
NOW, THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, the parties hereby agree as follows:
1. Definitions.
"ADR" shall have the meaning set forth in Section 11.3.
"Advanced Field Trials" shall mean advanced testing trials of a [*****]
after successful testing in [*****] in a manner representative of [*****]
including determining the [*****] of a [*****] in [*****] under [*****]
"Affiliate" shall mean any entity that directly or indirectly Owns, is
Owned by or is under common Ownership, with Novartis, NADI or Diversa, as the
case may be, where "Owns" or "Ownership" means direct or indirect possession of
[*****] of the outstanding voting securities of a corporation or a comparable
equity interest in any other type of entity.
"Agreement" shall mean this Collaboration Agreement.
"Alternate" shall have the meaning set forth in Section 3.4.
1. *Confidential Treatment Requested
<PAGE>
"Audited Party" shall have the meaning set forth in Section 6.9.
"Auditing Party" shall have the meaning set forth in Section 6.9.
"[*****] Project" shall have the meaning set forth in Section 2.1.4.
"Biomolecule(s)" shall mean [*****] regardless of whether they [*****]
including [*****]
"[*****] Project" shall have the meaning set forth in Section 2.1.
"Change of Control" shall mean any of the following [*****] [*****] (a) a
merger or consolidation of Diversa which results in the voting securities of
Diversa outstanding immediately prior thereto ceasing to represent at least
[*****] of the combined voting power of the surviving entity immediately after
such merger or consolidation; (b) the sale of all or substantially all of the
assets of Diversa; or (c) any one person (other than Diversa, any trustee or
other fiduciary holding securities under an employee benefit plan of Diversa, or
any corporation owned directly or indirectly by the stockholders of Diversa, in
substantially the same proportion as their ownership of stock of Diversa),
together with any of such person's "affiliates" or "associates", as such terms
are used in the Securities Exchange Act of 1934, as amended, becoming the
beneficial owner of [*****] of the combined voting power of the outstanding
securities of Diversa or by contract or otherwise having the right to control
the Board of Directors or equivalent governing body of Diversa or the ability to
cause the direction of management of Diversa.
"Committee Member" shall have the meaning set forth in Section 3.
"Confidential Information" shall have the meaning set forth in Section 7.1.
"Crop" shall mean any [*****]
"[*****]" shall mean all [*****] that are derived from Licensed [*****]
through [*****] and all [*****] through [*****] to any Licensed [*****] and any
[*****] of such [*****]
"[*****]" shall mean all [*****] that are [*****] through [*****] and all
[*****] that are [*****] through [*****] to any Novartis [*****] and any [*****]
of such [*****]
2. *Confidential Treatment Requested
<PAGE>
"[*****] Biomolecule" shall mean any [*****] or [*****] which exhibits
[*****] in the [*****] Field and which the [*****] has elected to [*****].
"[*****] Net Sales" shall mean the [*****] and [*****] determined in
accordance with the definition of Net Sales [*****] as established by competent
written records, with the intent of determining the [*****].
"Disclosing Party" shall mean that Party disclosing Confidential
Information to the other Party under Section 7.
"Dispute" shall have the meaning set forth in Section 11.3.
"Diversa Biomolecules" shall mean all [*****] which are provided by Diversa
to Novartis under the Collaboration Agreement and [*****].
"Diversa Inventions" shall mean those Inventions over which Diversa has
exclusive ownership and control as provided in Sections 5.1 and 5.2.3.
"Diversa Know-How" shall mean all know-how, trade secrets, inventions,
data, processes, procedures, devices, methods, formulas, media and/or all lines,
reagents, protocols and marketing and other information, including improvements
thereon, whether or not patentable, which are not covered by the Diversa Patent
Rights, but which are necessary or useful for the commercial exploitation of the
Diversa Patent Rights or the conduct of the Projects or otherwise relate to
[*****] or Royalty-Bearing Products, and which are owned by or licensed to
Diversa, with the right to license, as of the Effective Date or otherwise during
the Research Period.
"Diversa Patent Rights" shall mean all patent and provisional patent
applications, issued and subsisting patents and substitutions, divisionals,
continuations, continuations-in-part, reissues, reexaminations, extensions and
supplementary protection certificates thereof, including foreign counterparts of
the foregoing owned by or licensed to Diversa, with the right to license,
[*****] [*****]. Without limiting the generality of the foregoing, [*****] under
Sections 5.1.1, 5.1.3 and 5.1.4, or [*****] under Section 5.2.3.
"[*****]" will document the research phase to be performed by [*****]
including [*****].
3. *Confidential Treatment Requested
<PAGE>
"Diversa Technology" shall mean the Diversa Know-How and the Diversa Patent
Rights.
"[*****]" shall mean [*****].
"[*****]" shall mean [*****].
"Indemnitees" shall have the meaning set forth in Section 9.1.
"Indemnitor" shall have the meaning set forth in Section 9.1.
"Initial Projects" shall mean the [*****] Project, the [*****] Project, the
[*****] Project and the [*****] Project.
"Inventions" shall have the meaning set forth in Section 5.1.
"[*****] Project" shall have the meaning set forth in Section 2.3.
"License" shall have the meaning set forth in Section 4.1.
"License Agreement" shall have the meaning set forth in Section 4.4.
"Licensed Biomolecule" shall mean each [*****] subject to a License granted
[*****] of the [*****] (a) [*****] of which [*****] is within the [*****] or (b)
which [*****] is [*****].
"License Fees" shall have the meaning set forth in Section 6.4.
"[*****] Activity Level" shall mean, with respect to each Project, [*****].
"[*****] Project" shall have the meaning set forth in Section 2.1.2.
"[*****]" shall mean [*****].
4.
<PAGE>
"Net Sales" shall mean the [*****] less [*****]. For each Royalty-Bearing
Product, the gross invoice price shall [*****] including, without limitation,
[*****].
With respect to sales by Novartis [*****] Affiliates [*****] of any product
which incorporates both (i) [*****] and (ii) [*****], Net Sales shall be
calculated by [*****] by the [*****] as used herein, shall mean a [*****] and
the [*****] The [*****] of such components shall be equal to the [*****]
provided, however, that, in the event that the [*****].
"[*****] Project" shall mean a [*****], undertaken pursuant to the terms of
this Agreement.
"Novartis Biomolecules" shall mean all [*****] which are provided by
Novartis to Diversa under the Collaboration Agreement.
"[*****] Field" shall mean, with [*****] the [*****]. The [*****] Field for
[*****] is set forth in this Agreement. The [*****] Field for each [*****] is as
set forth in the [*****].
"Novartis Inventions" shall mean those Inventions over which Novartis has
exclusive ownership and control as provided in Section 5.1 and 5.2.3.
"Novartis Patent Rights" shall mean all patent and provisional patent
applications, issued and subsisting patents and substitutions, divisionals,
continuations, continuations-in-part, reissues, reexaminations, extensions and
supplementary protection certificates thereof, including foreign counterparts of
the foregoing owned by
5. *Confidential Treatment Requested
<PAGE>
or licensed to Novartis, with the right to license, as of the Effective Date or
[*****] claiming inventions owned (or in-licensed) and controlled by Novartis
which are necessary or useful for the [*****] or [*****] Royalty-Bearing
Products. Without limiting the generality of the foregoing, Novartis Patent
Rights include any patents and patent applications claiming Inventions owned by
Novartis under Sections 5.1.2, 5.1.3 and 5.1.4, or transferred to Novartis under
Section 5.2.3.
"Novartis [*****]" shall mean a [*****]. Such documentation will include
the [*****] Any Novartis [*****] submitted with respect to any [*****] will also
include the [*****] Field and the [*****] for [*****] under such [*****] The
[*****].
"Option" shall have the meaning set forth in Section 4.1.
"Option Effective Date" shall have the meaning set forth in Section 4.1.
"Option Exercise Date" shall have the meaning set forth in Section 4.3.
"Option Period" shall have the meaning set forth in Section 4.2.
"Party" means Diversa or Novartis.
"[*****]" shall mean, with respect to each [*****] [*****] may include
[*****].
"Projects" shall mean [*****] and [*****], collectively.
"Project Plans" shall mean [*****] and [*****], collectively.
"Receiving Party" shall mean that Party receiving Confidential Information
under Section 7.1.
"Research Committee" shall have the meaning set forth in Section 3.
6. *Confidential Treatment Requested
<PAGE>
"Research Period" shall mean the period beginning on the [*****] and ending
[*****].
"Royalty-Bearing Product" shall mean a commercial product containing any
Licensed [*****], provided that a Licensed [*****] alone shall not be a [*****]
"Royalty Period" shall mean, with respect to each Royalty-Bearing Product
in any country, [*****] of such Royalty-Bearing Product in such country and
ending upon the later to occur of (a) [*****] or (b) [*****] or (c) [*****].
"Senior Executives" shall have the meaning set forth in Section 11.3.
"[*****]" shall mean [*****].
"Sublicensee" shall mean any third party (other than an Affiliate of
Novartis, NADI or an Affiliate of NADI or an Affiliate of Diversa) licensed by
Novartis or NADI or their respective Affiliates to make, use (except where the
implied right to use accompanies the sale to the third party of any Royalty-
Bearing Product by Novartis, NADI or their respective Affiliates or
Sublicensees), sell, import, export, advertise, promote and otherwise
commercialize any Royalty-Bearing Product.
"Use" shall mean each use or application for which any Licensed [*****] is
[*****] or any Royalty-Bearing Product [*****]. In the event of [*****] each
[*****] will represent a [*****].
"Valid Claim" shall mean a claim included in any pending patent application
or any issued patent included within the [*****] which, if with respect to any
pending claim, has not been irrevocably abandoned or held to be unpatentable by
a court or other authority of competent jurisdiction in a proceeding which is
not reversed, not appealable and not appealed, or, with respect to any issued
claim, has not been held invalid by a decision of a court or other authority of
competent jurisdiction which is not reversed, not appealable and not appealed.
The above definitions are intended to encompass the defined terms in both the
singular and plural tenses.
7. *Confidential Treatment Requested
<PAGE>
2. Collaboration.
2.1 Projects. The scope of the collaboration between Novartis and
Diversa during [*****] will be the areas of [*****] with the following [*****]
Projects being defined in more detail in the [*****] Projects which are attached
hereto as Exhibit A:
2.1.1 [*****]
2.1.2 [*****]
2.1.3 [*****] and
2.1.4 [*****]
It is further understood that the Parties will, through the auspices of the
Research Committee, also [*****] define additional projects (each a "[*****]
Project").
The Parties contemplate that either Party may have certain of the work to
be performed by such Party in support of a Project performed by an Affiliate of
such Party (and, in the case of Novartis, by NADI or its Affiliates). Each
Party shall remain primarily responsible for the work to be performed by such
Party in support of Projects under this Agreement.
2.2 [*****] Use of [*****]. Novartis agrees that it will use [*****]
pursuant to [*****] only for [*****] such [*****] in connection with [*****]
Project against [*****] and will not [*****] for any [*****]. Novartis may not
[*****] such [*****] to [*****]; provided that Novartis may [*****] such [*****]
to [*****] subject to the [*****] set forth herein and only to the [*****] to
effect the [*****]. Novartis will inform the Research Committee in writing of
the [*****] such [*****] prior to commencing such [*****]. Novartis will provide
Diversa with regular written reports (no less frequently than once per quarter)
identifying the [*****] used in such [*****] and the [*****]. Novartis will
employ a [*****] and to ensure that such [*****] are [*****] from any other
[*****] used by [*****] if applicable) and will provide Diversa with a detailed
description of such system prior to the delivery of any [*****] by Diversa to
Novartis under the Project Plans.
8. *Confidential Treatment Requested
<PAGE>
2.3 [*****] Provided by Diversa. Diversa shall be responsible for
ensuring that all [*****] made available for the [*****] are done so in
compliance with [*****] related thereto.
3. Research Committee.
Novartis and Diversa shall establish a research committee (the "Research
Committee") comprised of [*****] (each, a "Committee Member"), [*****] of whom
shall be appointed by Novartis and [*****] of whom shall be appointed by
Diversa. The Research Committee may invite other representatives of the Parties
to participate in meetings of the Research Committee, as appropriate, provided
that such representatives shall not have the right to vote as a Committee
Member.
3.1 Responsibilities. The purpose of the Research Committee shall be to
plan, coordinate, and direct the research efforts related to the Projects. Such
responsibilities include, but are not limited to, the following:
3.1.1 Approval of [*****] Projects. The Research Committee must
approve all [*****] Projects to be performed under the terms of this Agreement.
Such approval will be based on, but not limited to, [*****] especially with
respect to [*****].
3.1.2 Approval of Project Plans. The Research Committee must
approve all Project Plans for all Projects undertaken pursuant to this
Agreement. At that time, the Research Committee will also designate reporting
milestones for Diversa and Novartis to report progress on the Project to the
Research Committee (see Section 3.1.3 below). All amendments to the Project
Plans shall also be approved by the Research Committee and incorporated by
reference into the Agreement. Resources, including but not limited to [*****]
may be [*****] and the Research Committee may [*****]. Project Plans for the
[*****] Projects are attached as Exhibit A.
3.1.3 Review of Reports. At certain reporting milestones defined
by the Research Committee for each Project, Diversa and Novartis shall deliver
to the Research Committee reports disclosing a [*****] including [*****], as
appropriate. The Research Committee will review such data to determine progress
made on the Projects. Reports to the Research Committee shall be subject to the
confidentiality provisions contained herein.
9. *Confidential Treatment Requested
<PAGE>
3.1.4 [*****] of [*****] Field and License Fee [*****] Based on
the research and development efforts undertaken pursuant to this Agreement,
Novartis [*****] to the [*****] for [*****] Such [*****] shall be [*****] a
[*****] Plan with respect to such [*****] and an indication by Diversa [*****]
Based on the information received, the [*****] shall [*****] as a [*****] In the
event the [*****] designates a [*****] as the result of a [*****] Project, the
[*****] will also [*****] the [*****] Field for that [*****] in relation to the
[*****] Project (see Section 4.4.) and will [*****] the License Fee [*****] (see
Section 6.4.3.).
3.1.5 Miscellaneous Matters. The Research Committee will discuss
and propose solutions concerning any and all issues related to Inventions,
intellectual property and contractual matters not clearly addressed in this
Collaboration Agreement.
3.2 Meetings of the Research Committee. The Research Committee shall
meet at least [*****] alternating the sites of the meetings between Diversa's
facilities in San Diego, California and Novartis' facilities in Research
Triangle Park, North Carolina, or at such other times and locations as the
Research Committee determines. Within [*****] following each meeting of the
Research Committee, the Research Committee shall prepare and deliver to both
Parties a written report describing the decisions made, conclusions and actions
agreed upon. Subsequent to written approval by both parties, such report shall
be incorporated as part of this Agreement by reference. The members of the
Research Committee shall have the right to invite any person to attend its
meetings, as mutually agreed.
3.3 Requirements for Action. All actions and decisions of the Research
Committee will require the [*****] of all of its voting members. The Committee
Members or Alternates of Novartis shall collectively have [*****] on the
Research Committee, and the Committee Members or Alternates of Diversa shall
collectively have [*****] on the Research Committee.
3.4 Members. The initial Committee Members of the Research Committee
shall be as follows:
Diversa Representatives Novartis Representatives
[*****] [*****]
[*****] [*****]
A Party may change one or more of its Committee Members, provided, however,
that such person is technically qualified as reasonably demonstrated by that
Party. All appointments and withdrawals of appointment shall be made by written
notice to the other Party.
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Each Party may designate in writing an alternate Committee Member
("Alternate") if the designated Committee Member cannot attend a meeting,
provided, however, that such Alternate is technically qualified as reasonably
demonstrated by that Party. Any action taken with approval of an Alternate
shall be as valid as if taken with the approval of the designated Committee
Member.
3.5 Visits to Facilities. Committee Members shall have reasonable
opportunity to visit the facilities of each Party (and such Party's Affiliates
and, with respect to Novartis, NADI and its Affiliates, if applicable) where
activities under this Agreement are in progress, but no more frequently than
once per quarter and only during normal business hours and with reasonable prior
notice. Each Party shall bear its own expenses in connection with such site
visits, unless such visits are deemed by the Research Committee to be part of
the Project, in which case the costs will be included as part of the applicable
Project Plan. Committee Members shall have the right at any time during the
visit to ask questions of and receive answers from any personnel regarding their
activities and findings hereunder.
3.6 Information Sharing. Each Party shall provide to the Research
Committee information that is relevant to make decisions regarding research and
commercialization efforts related to the Projects. Without limiting the
generality of the foregoing, Novartis will provide Diversa with the opportunity
to review data from the [*****] and the [*****] to determine the status of the
Projects.
3.7 Dispute Resolution. If the Research Committee fails to reach
agreement upon any matter, the dispute will be resolved in accordance with the
procedures set forth in Section 11.3.
4. Grant of Rights.
4.1 Option to License. Subject to the terms and conditions of this
Agreement, with respect to each [*****] Diversa grants to Novartis an exclusive
option (the "Option") to receive an exclusive, worldwide, royalty-bearing
license (the "License") under Section 4.4 so long as Diversa has not previously
granted rights to such [*****] to a third party; provided that, at Novartis'
sole election, such License shall be non-exclusive rather than exclusive, in
which case the Parties agree that the [*****] shall be determined by mutual
agreement of the Parties taking into account a non-exclusive License. Any such
[*****] shall be [*****] to an [*****] of [*****] or to [*****] or any of
[*****].
4.2 Option Period. The Option will be effective ("Option Effective
Date") upon (a) the [*****] of a Biomolecule as a [*****] and (b) payment by
Novartis to Diversa of amounts due under Section 6.3.1 and 6.3.2, as applicable,
and will continue in force for the period (the "Option Period") ending on the
earliest to occur of:
11.
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(a) the Option Exercise Date, or
(b) the date Novartis notifies Diversa that Novartis does not
intend to proceed with further development of the [*****] in accordance with the
applicable [*****] Plan, or
(c) [*****] after the projected date for achievement of any
technical milestone included in the applicable [*****] Plan, as approved by the
[*****] in the event the results of such milestone have not been made known to
Diversa or in the event that achievement of such milestone requires Novartis to
make a milestone payment to Diversa and such payment has not been made to
Diversa; provided that Novartis shall have [*****] after written notice from
Diversa to comply with this provision, or
(d) the [*****] determines that the results of any technical
milestone included in the applicable [*****] Plan, as approved by the [*****]
demonstrate that the applicable [*****] was [*****] in accordance with such
[*****] Plan; provided that the [*****] will meet within [*****] following the
[*****] for achievement of such [*****] to make such [*****] and, if the [*****]
does not meet within such [*****] period, the applicable [*****] will [*****]
provided further that in the event such technical milestone [*****] in
accordance with such [*****] Plan, the [*****] may [*****] in which to achieve
such [*****] if it determines that such [*****] is achievable within a [*****]
consistent with the previously defined [*****] of such [*****] Plan; or
(e) the date that Novartis notifies Diversa in writing that it
waives its right to the Option, or
(f) the date that this Agreement is terminated pursuant to Section
10.2.
4.3 Exercise of Option. Novartis, or its transferee or assignee with
respect to the Option, may exercise the Option with respect to a given
Development Biomolecule by providing Diversa written notice of the exercise of
such Option at any time during the Option Period (the "Option Exercise Date").
If Novartis does not exercise the Option during the Option Period, the Option
shall expire, and Novartis shall have no further rights thereunder and shall
return or destroy all forms of Confidential Information provided to Novartis
under this Agreement relating to the [*****] subject to such Option within
[*****] after such expiration; provided, however, that Novartis may retain one
copy of such Confidential Information for the sole purposes of use in any
litigation resulting from this Agreement or the activities undertaken pursuant
to this Agreement.
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4.4 Licenses. In the event that Novartis exercises the Option prior to
the end of the Option Period, Diversa will grant to Novartis a License under the
Diversa Technology to use the [*****] to the extent necessary to make, have
made, use, sell, offer for sale and import Royalty-Bearing Products in the
[*****] Field. For clarification, (a) if the [*****] includes [*****] the
[*****] will entitle [*****] to [*****] the [*****] the [*****] in [*****] and,
to the extent necessary, to [*****] such [*****] in such [*****] to [*****] or
[*****] such [*****] solely in order to [*****] such [*****]; and (b) if the
[*****] includes [*****] the [*****] will entitle [*****] to [*****] the [*****]
in [*****] and to [*****] such [*****]. The terms of each License, including the
Novartis Field and the [*****] for [*****] will be defined in a definitive
license agreement ("License Agreement"), to be agreed upon by both Parties by
the date the Option is exercised. The License for the [*****] will become
effective upon [*****] will continue until [*****] unless the License Agreement
is terminated in accordance with its terms.
4.5 Scope of License.
The Parties hereby agree that the [*****] Field related to the [*****] is
as follows:
4.5.1 [*****] Project. Use in [*****].
4.5.2 [*****] Project. Use in [*****].
4.5.3 [*****] Project. Use in [*****].
4.5.2 [*****] Project. Use in [*****].
For [*****] related to [*****] Projects, the [*****] Field will be [*****]
at the [*****] of such [*****] by the [*****]. It is the intent of the Parties
that the [*****] Field will include the definition of the [*****] or [*****] on
or in which [*****] will be used.
4.6 Rights to Sublicense. Under each License that is exclusive,
Novartis shall have the right to grant sublicenses to Affiliates, NADI and its
Affiliates and third parties, and under each License that is non-exclusive,
Novartis shall have the right to grant sublicenses to Affiliates, and to NADI
and its Affiliates; provided that any such
13. *Confidential Treatment Requested
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sublicense shall expressly provide that the Sublicensee shall be subject in all
respects to the royalty obligations, reports and other provisions in this
Agreement with respect to Royalty-Bearing Products and shall otherwise have
terms consistent with the terms of this Agreement. Novartis shall provide
Diversa with prompt written notice of each sublicense agreement after it is
granted.
4.7 Commercialization of [*****]. Novartis shall have the sole and
absolute discretion to make all decisions relating to marketing and other
commercialization activities in the [*****] Field with respect to any [*****] or
any Royalty-Bearing Product containing such [*****]. However, each License
Agreement shall include certain minimum performance requirements with respect to
the development and commercialization of the applicable [*****] and Royalty-
Bearing Product containing such [*****] as agreed upon by the Parties, and
reversion of rights with respect to such [*****] and Royalty-Bearing Product to
Diversa if Novartis does not satisfy such performance requirements.
5. Intellectual Property Rights.
5.1 Intellectual Property Ownership. Ownership of all inventions,
discoveries, developments and improvements conceived of in the course of work
performed on any Project (the "Inventions") shall be determined in accordance
with this Section 5.1.
5.1.1 Diversa shall have [*****] and [*****] over all [*****]
relating to any [*****] and any [*****] made pursuant to this Agreement
(including but not limited to [*****] and [*****] whether or not any such
[*****] are [*****] including, without limitation, any such [*****] [*****] any
such [*****] (other than [*****]), [*****] of [*****] such [*****] and [*****]
of [*****] such [*****] Diversa will not use any [*****] in the applicable
[*****] except pursuant to the [*****] and will not provide or grant any [*****]
to any [*****] to use any [*****] in the applicable [*****]; provided that
Diversa may use any [*****] in any [*****] outside of the [*****] and may
provide or grant any rights to any [*****] to use any [*****] in any [*****]
outside of the [*****] if the [*****] of such [*****] in the applicable [*****]
was [*****] without use of any information or materials provided to Diversa by
Novartis [*****]. In addition, Diversa will not use, or provide or grant any
rights to any [*****] to [*****], any [*****] for the same or similar use as any
[*****]. Nothing herein is intended to limit Diversa's rights (including the
right to grant licenses to third parties) to any [*****], except [*****]
Biomolecules subject to an Option under Section 4.1, [*****] Biomolecules
subject to a License under a License Agreement, [*****] to the extent their
[*****] is [*****] by this Section 5.1.1 and [*****] Biomolecules to the extent
their [*****] is [*****] by this Section 5.1.1; except that no license, either
express or implied, is granted by [*****] to
14. *Confidential Treatment Requested
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[*****] under any [*****], nor under any other intellectual property rights held
by [*****] or its Affiliates, or by [*****] and its Affiliates, whether or not
such rights arise from the performance of this agreement.
5.1.2 Novartis shall have [*****] and [*****] over all [*****]
relating to any [*****] including, without limitation, such [*****] [*****] of
[*****] such [*****] and [*****] of [*****] such [*****] subject to payment by
Novartis to Diversa of compensation for Royalty-Bearing Products commercialized
[*****] as agreed upon by the Parties prior to any such commercialization.
5.1.3 With respect to all Inventions relating to [*****] in the
course of the Project, (a) [*****] shall have exclusive ownership and control
over all such [*****] having solely [*****] inventors; (b) [*****] shall have
[*****] and [*****] over all such [*****] having [*****] and [*****] inventors;
provided that, except as contemplated by the [*****], Diversa will not [*****],
and will not [*****] or [*****] any [*****] to any [*****] to [*****], any
[*****] that [*****] or was [*****] and/or [*****] using any information or
materials provided to [*****] by [*****]; and (c) [*****] shall have [*****] and
[*****] over all such [*****] having solely [*****] inventors. Diversa hereby
grants a non-exclusive, non-transferable license to Novartis, its Affiliates,
and to NADI and its Affiliates, to any such Inventions described in subsection
(b) solely for Novartis' internal research purposes.
5.1.4 The provisions of Sections 5.1.1, 5.1.2, and 5.1.3 shall
not apply to ownership of any patent applications and patents transferred from
one Party to the other Party under the provisions of Section 5.2.3.
5.1.5 Inventorship of Inventions shall be determined in
accordance with United States patent law.
5.1.6 Each Party will (and will cause any of its Affiliates and,
in the case of Novartis, NADI and any of its Affiliates to) make such
assignments and take such other actions as may be necessary or appropriate to
effect the ownership of Rights in accordance with this Sections 5.1 and 5.2.3.
5.2 Filing, Prosecution and Maintenance of Patents.
5.2.1 Novartis Patent Rights. Novartis shall have the sole right,
at its own expense, to control the filing, prosecution and maintenance of all
Novartis Patent Rights.
5.2.2 Diversa Patent Rights. Diversa shall have the sole right,
at its own expense, to control the filing, prosecution and maintenance of all
Diversa Patent Rights.
5.2.3 Transfer of Patent Rights. If a Party with respect to
Patent Rights claiming any Invention over which it has exclusive ownership and
control that relates to any [*****] or Royalty-Bearing Product decides to
abandon or not to pursue
15. *Confidential Treatment Requested
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prosecution of any such Patent Rights which claim such Invention, it shall
inform and permit the other Party, at the other Party's option and expense, to
undertake such efforts. The Party relinquishing such efforts shall fully
cooperate with the other Party and shall provide to the other Party whatever
assignments and any other documents that may be needed in connection with
prosecution and/or maintenance of such Patent Rights. The Party assuming
prosecution and/or maintenance of Patent Rights from the other Party under the
provisions of this Section 5.2.3, shall have exclusive ownership and control of
any and all Patent Rights transferred, notwithstanding the provisions of
Section 5.1.
5.3 Cooperation of the Parties. Each Party agrees (and will cause any
--------------------------
of its Affiliates and, in the case of Novartis, NADI and any of its Affiliates)
to cooperate fully in the preparation, filing, prosecution and maintenance of
any patent rights arising under this Agreement. Such cooperation includes, but
is not limited to:
(a) executing all papers and instruments, or using reasonable
efforts to cause its employees or agents, to execute such papers and
instruments, so as to effectuate the ownership of intellectual property rights
set forth in Section 5.1 above and to enable the other Party to file and to
prosecute patent applications and to maintain patents in any country;
(b) promptly informing the other Party of any matters coming to
such Party's attention that may affect the preparation, filing, or prosecution
of any such patent applications or the maintenance of any such patents; and
(c) undertaking no actions that are potentially deleterious to the
preparation, filing, or prosecution of such patent applications or to the
maintenance of such patents.
5.4 Infringement by Third Parties.
5.4.1 Notice. Diversa and Novartis shall promptly notify the other
in writing of any alleged or threatened infringement of any patent or patent
application included in the Diversa Patent Rights or Novartis Patent Rights of
which they become aware. Both Parties shall use reasonable efforts in
cooperating with each other to terminate such infringement without litigation.
5.4.2 [*****] Actions. Novartis shall have the first right to
bring and control, by counsel of its own choice, any action or proceeding with
respect to infringement of any [*****], as well as any [*****],[*****] to
[*****] or [*****] at the time of commencement of such action or proceeding.
[*****] shall have the right, at its own expense, to participate in any such
action regarding the [*****] by counsel of its own choice. Upon written notice
to [*****], [*****] may require [*****] to participate in such action as a
necessary party to such action, at [*****] expense. If [*****] fails to bring an
action or proceeding with respect to any such [*****] within (a) [*****]
following the notice of alleged infringement or (b) [*****] before the time
limit, if
16. *Confidential Treatment Requested
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any, set forth in the appropriate laws and regulations for the filing of such
actions, whichever comes first, [*****] shall have the right to bring and
control any such action, at its own expense and by counsel of its own choice,
and [*****] shall have the right, at its own expense, to be represented in any
such action by counsel of its own choice.
5.4.3 [*****] Actions. [*****] shall have the right to bring and
control, by counsel of its own choice, any action or proceeding with respect to
infringement of any [*****] which are not [*****] to [*****] or a [*****] at the
time of commencement of such action or proceeding.
5.4.4 Cooperation; Awards. In the event a Party brings an
infringement action, the other Party shall (and will cause any of its Affiliates
and, in the case of [*****] to) cooperate fully, including if required to bring
such action, the furnishing of a power of attorney. Neither Party shall have the
right to settle any patent infringement litigation under this Section 5.4 in a
manner that diminishes the rights or interests of the other Party without the
prior written consent of such other Party. Except as otherwise agreed to by the
Parties as part of a cost sharing arrangement, any recovery realized as a result
of such litigation, after reimbursement of any litigation costs of Diversa and
Novartis, shall belong to the Party who brought the action.
5.5 Claimed Infringement by Third Parties. Diversa and Novartis shall
promptly notify the other in writing of any allegation by a third party that the
exercise of the rights granted to Novartis under this Agreement or the
activities conducted by either Party under this Agreement infringes or may
infringe the intellectual property rights of such third party. Each Party will
use reasonable efforts (and will cause any of its Affiliates and, in the case of
Novartis, NADI and any of its Affiliates) to cooperate with the other Party to
resolve or defend against such claims. Neither Party shall have the right to
settle any patent infringement litigation under this Section 5.5 in a manner
that diminishes the rights or interests of the other Party without the prior
written consent of such other Party.
6. Payments, Reports, and Records.
6.1 Equity. Simultaneous with the execution of this Agreement, Novartis
shall purchase [*****] of Diversa preferred stock in exchange for a Transaction
Amount of [*****] pursuant to a Stock Purchase Agreement which is attached as
Exhibit B.
6.2 Research Funding. With respect to research performed [*****],
Novartis will reimburse Diversa on a monthly basis at a rate of [*****] per full
time equivalent based on actual work performed by Diversa under the applicable
Project Plan.
6.3 Milestone Payments. For each Use of each [*****] developed pursuant
to this Agreement, Novartis shall pay to Diversa the following amounts upon
achievement of each of the milestones under each Project.
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6.3.1 [*****] upon the [*****] by the [*****] of a [*****].
6.3.2 [*****] upon the [*****] of [*****] as provided for in the
[*****] and approved by the [*****].
6.3.3 [*****] upon the [*****] of [*****] as provided for in the
[*****] and approved by the [*****].
Such milestone payments in Section 6.3 shall be [*****] and shall [*****]
to Diversa under this Agreement. Novartis shall promptly notify Diversa of each
occurrence of any of the foregoing milestone events.
6.4 License Fee Payments. In consideration of each License granted to
Novartis by Diversa under Section 4.2 herein, Novartis shall pay Diversa the
following license fees ("License Fees") for each [*****] payable [*****] as
follows:
6.4.1 First, upon the [*****] of the [*****] with respect to a
[*****], [*****] for [*****] associated with [*****] will be agreed to for such
[*****] in accordance with Section [*****]; provided that, in no event shall the
[*****] under this Section 6.4.1 be [*****].
6.4.2 Second, upon the [*****] of [*****] containing [*****] in
an amount to be agreed to at the time the [*****] for such [*****] in accordance
with Section [*****].
The License Fees will be determined by [*****] of the [*****]. Such
License Fees in Section 6.4 shall be [*****] and shall [*****] to Diversa under
this Agreement.
6.5 Royalties. In consideration of the Licenses granted to Novartis by
Diversa hereunder, for all sales by Novartis, its Affiliates and Sublicensees of
Royalty-Bearing Products in the applicable Novartis Field, Novartis shall pay to
Diversa a royalty of either (a) [*****] and [*****], or (b) [*****] and [*****],
provided that such percentages in (b) [*****] The [*****] in either case will
be determined by [*****] of the [*****] in the [*****] applicable to such
[*****] based upon the factors described in Section 6.6.
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6.5.1 Sales to Affiliates and Sublicensees. [*****] royalty shall
accrue on sales among Novartis, its Affiliates and Sublicensees, unless Novartis
or such Affiliate or Sublicensee is the end user of a Royalty-Bearing Product.
Royalties shall be payable [*****] for [*****] of Royalty-Bearing Product sold.
6.5.2 [*****] Royalties. [*****] may [*****] with [*****] over
time under the [*****] to the extent such [*****] are [*****] of the [*****] of
[*****] and would make it [*****] for [*****] to [*****] with the terms of the
Agreement:
6.5.2.1 [*****] pays [*****] for a [*****] resulting in [*****]
to [*****];
6.5.2.2 A [*****] does not provide the [*****] to [*****] the
[*****] of the [*****] of [*****] hereunder; a [*****] will be based upon the
[*****] of the [*****]; or
6.5.2.3 The [*****] attributed to a [*****] in [*****] over
[*****] or [*****] to be [*****], although not [*****] from a [*****].
In the event such a [*****] the Parties agree to [*****] in [*****] provided
that any [*****] in the [*****] shall [*****] the [*****] of the [*****].
6.6 [*****] License Fees and Royalties. The [*****] License Fees under
Section 6.4 and the royalty rates under Section 6.5 will be [*****] by [*****]
of the [*****] based on [*****] such as [*****] the [*****] is [*****].
6.7 Reports and Payments. Within [*****] after the conclusion of each
Royalty Period, Novartis shall pay to Diversa the estimated royalty payment due
for such Royalty Period based on the royalty rates applicable to units of
Royalty-Bearing Products shipped during such Royalty Period less estimated
returns, and shall deliver to Diversa a report containing the following
information:
(a) Estimated gross sales and returns of Royalty-Bearing Products
by Novartis, its Affiliates and Sublicensees during the applicable Royalty
Period in each country of sale;
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(b) Adjustments and calculation of Net Sales for the applicable
Royalty Period in each country of sale; and
(c) Calculation of royalty.
Any corrections to the estimated [*****] royalty payment will be established at
the [*****] and factored into the corresponding royalty payment for such
[*****]. All amounts payable under this Section will first be calculated in the
currency of sale and then converted into U.S. dollars. The buying rates
involved for the currency of the United States into which the currencies
involved are being exchanged shall be the one quoted by The Wall Street Journal
at the close of business on the last business day of the applicable Royalty
Period. Such amounts shall be paid without deduction, except as required by
law, of any withholding taxes, value-added taxes, or other charges applicable to
such payments.
6.8 Payments in U.S. Dollars. All payments due under this Agreement
shall be payable in United States dollars.
6.9 Records. Novartis and its Affiliates shall maintain complete and
accurate records of Royalty Bearing Products made, used or sold by them or
their Sublicensees under this Agreement, and any amounts payable to Diversa in
relation to Royalty Bearing Products, which records shall contain sufficient
information to Diversa to confirm the accuracy of any reports delivered to them
in accordance with Section 6.7. Novartis and its Affiliates shall retain such
records relating to a given Royalty Period for at least three (3) years after
the conclusion of that Royalty Period. Diversa (acting as the "Auditing
Party") shall have the right, at its own expense, to cause an independent
certified public accountant reasonably acceptable to Novartis, to inspect such
records of Novartis or its Affiliates (the "Audited Party") during normal
business hours for the sole purpose of verifying any reports and payments
delivered under this Agreement. Such accountant shall not disclose to the
Auditing Party any information other than information relating to accuracy of
reports and payments delivered under this Agreement and shall provide the
Audited Party with a copy of any report given to the Auditing Party. The
Parties shall reconcile any underpayment or overpayment within [*****] after the
accountant delivers the results of the audit. The Auditing Party shall bear the
full cost of the audit unless, the audit performed under this Section reveals an
underpayment in excess of [*****] in any Royalty Period, in which case the
Audited Party shall bear the full cost of such audit. Diversa may exercise its
rights under this Section only once every year and only with reasonable prior
notice to Novartis. Novartis shall use commercially reasonable efforts to
ensure that the other Party will have access to records of Royalty-Bearing
Products sold by its Affiliates.
6.10 Late Payments. In the event that any payment, including royalty
payments, due hereunder is not made when due, the payment shall accrue interest
from that date due at the rate of [*****]; provided however, that in no event
shall such rate exceed the maximum legal annual interest rate. The payment of
such interest shall not limit Diversa from exercising any other rights it may
have as a consequence of the lateness of any payment.
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7. Confidential Information.
7.1 Definition of Confidential Information. Confidential Information
shall mean any technical or business information, whether orally or in writing,
furnished by the Disclosing Party to the Receiving Party in connection with this
Agreement. Such Confidential Information shall include, without limitation, the
existence and terms of this Agreement, the identity of a [*****], the [*****],
any [*****], if relevant, the use of a [*****], Diversa Technology, Novartis
Technology, trade secrets, know-how, inventions, technical data or
specifications, testing methods, business or financial information, research and
development activities, product and marketing plans, and customer and supplier
information, including, but not limited to, such items that become known to a
Party during visits to the facilities of the other Party.
7.2 Obligations. The Receiving Party agrees that it shall:
(a) Maintain all Confidential Information in strict confidence,
except that the Receiving Party may disclose or permit the disclosure of any
Confidential Information to its Affiliates, directors, officers, employees,
consultants and advisors (or, in the case of Novartis, also to NADI and its
Affiliates, directors, officers, employees, consultants and advisors) who are
obligated to maintain the confidential nature of such Confidential Information
and who need to know such Confidential Information for the purposes set forth in
this Agreement;
(b) Use all Confidential Information solely for the purposes set
forth in, or as permitted by, this Agreement; and
(c) Allow its Affiliates, directors, officers, employees,
consultants and advisors (or, in the case of Novartis, also NADI and its
Affiliates, directors, officers, employees, consultants and advisors) to
reproduce the Confidential Information only to the extent necessary to effect
the purposes set forth in this Agreement, with all such reproductions being
considered Confidential Information.
Each Party shall be responsible for any breaches of this Section 7.2. by any of
its Affiliates, directors, officers, employees, consultants and advisors.
7.3 Exceptions. The obligations of the Receiving Party under Section
7.2. above shall not apply to any specific Confidential Information to the
extent that the Receiving Party can demonstrate that such Confidential
Information:
(a) Was in the public domain prior to the time of its disclosure
under this Agreement;
(b) Entered the public domain after the time of its disclosure
under this Agreement through means other than an unauthorized disclosure
resulting from an act
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or omission by the Receiving Party or its Affiliates, directors, officers,
employees, consultants, advisors or agents;
(c) Was or is independently developed or discovered by the
Receiving Party without use of the Confidential Information, and which can be
demonstrated by written record;
(d) Is or was disclosed to the Receiving Party at any time, whether
prior to or after the time of its disclosure under this Agreement, by a third
party having no fiduciary relationship with the Disclosing Party and having no
obligation of confidentiality to the Disclosing Party with respect to such
Confidential Information; or
(e) Is required to be disclosed to comply with applicable laws or
regulations (such as disclosure to the SEC, the EPA, the FDA, or the United
States Patent and Trademark Office or to their foreign equivalents), or to
comply with a court or administrative order, provided that the Disclosing Party
receives prior written notice of such disclosure and that the Receiving Party
takes all reasonable and lawful actions to obtain confidential treatment for
such disclosure and, if possible, to minimize the extent of such disclosure.
7.4 Survival of Obligations. The obligations set forth in Sections
[*****] and [*****] shall remain in effect after termination or expiration of
this Agreement for a period of [*****].
7.5 Public Announcement. The Parties shall issue a joint press release
regarding this Agreement, the text of which shall be subject to mutual agreement
of the Parties. Except for the information disclosed in the joint press
release, neither party shall use the name of the other party or reveal the
existence of or terms of this Agreement in any publicity or advertising without
the prior written approval of the other party, except that (i) either party may
use the text of a written statement approved in advance by both parties without
further approval, and (ii) either party shall have the right to identify the
other party and to disclose the terms of this Agreement as required by
applicable securities laws or other applicable law or regulation, provided that
the receiving party takes reasonable and lawful actions to minimize the degree
of such disclosure.
7.6 Publication. The Parties shall cooperate in appropriate publication
of the results of research and development work performed pursuant to the
Projects, but subject to the predominating interest to obtain patent protection
for any patentable subject matter. To this end, prior to any public disclosure
of such results, the Party proposing disclosure shall send the other Party a
copy of the information to be disclosed, and shall allow the other party [*****]
from the date of receipt in which to determine whether the information to be
disclosed contains subject matter for which patent protection should be sought
prior to disclosure, or otherwise contains Confidential Information of the
reviewing Party. The Party proposing disclosure shall be free to proceed with
the disclosure unless prior to the expiration of such [*****] period the
reviewing Party notifies the Party proposing disclosure that the disclosure
contains
22. *Confidential Treatment Requested
<PAGE>
subject matter for which patent protection should be sought or Confidential
Information of the reviewing Party, and the Party proposing publication shall
then delay public disclosure of the information for an additional period to be
mutually agreed upon to permit the preparation and filing of a patent
application on the subject matter to be disclosed or for the Parties to
determine a mutually acceptable modification to such publication to protect the
Confidential Information of the reviewing Party adequately. The Party proposing
disclosure shall thereafter be free to publish or disclose the information. The
determination of authorship for any paper shall be in accordance with accepted
scientific practice.
8. Representations and Warranties.
8.1 Authorization. Each Party represents and warrants to the other that
it has the legal right and power to enter into this Agreement, to extend the
rights and licenses granted to the other in this Agreement, and to fully perform
its obligations hereunder, and that the performance of such obligations will not
conflict with its charter documents or any agreements, contracts, or other
arrangements to which it is a party.
8.2 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATION AND EXTENDS NO WARRANTY OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
8.3 Limitation of Liability. IN NO EVENT WILL EITHER PARTY, ITS
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER
PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES,
WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT
LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT.
9. Indemnification.
9.1 Indemnification. [*****] (the "Indemnitor") shall indemnify, defend,
and hold harmless [*****] and its Affiliates and their directors, officers,
employees, and agents and their respective successors, heirs and assigns (the
"Indemnitees"), against any liability, damage, loss, or expense incurred by or
imposed upon the Indemnitees or any one of them in connection with any claims,
settlements, suits, actions, demands, or judgments arising out of any [*****]
concerning any [*****] that is [*****] by the [*****] or its [*****] or [*****]
pursuant to any [*****] under [*****]; provided, however, that such
indemnification right shall not apply to any liability, damage, loss, or expense
to the extent directly attributable to the negligence, reckless misconduct, or
intentional misconduct of the Indemnitees. An Indemnitee shall not be entitled
to indemnification for the settlement of any claim pursuant to this Agreement
unless it obtains the prior written consent of the Indemnitor to such
settlement.
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9.2 Procedures. Any Indemnitee that intends to claim indemnification
under Section 9.1 shall promptly notify the Indemnitor of any claim in respect
of which the intends to claim such indemnification, and the Indemnitor shall
assume the defense thereof with counsel mutually satisfactory to the Parties;
provided, however, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses of no more than the law firm representing
all Indemnitees in the proceeding or related proceeding, to be paid by the
Indemnitor, if representation of such Indemnitee by the counsel retained by the
Indemnitor would be inappropriate due to actual or potential differing interests
between such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in Section 9.1. shall not apply to amounts
paid in settlement of any loss, claim, liability or action if such settlement is
effected without the consent of the Indemnitor. The failure to deliver notice to
the Indemnitor within a reasonable time after the commencement of any such
action, shall not relieve the Indemnitor of any liability to the Indemnitee
under Section 9.1, except to the extent the Indemnitor has been prejudiced by
such failure to give notice. Each Party and its Affiliates and their employees
and agents shall cooperate fully with the other Party and its legal
representatives in the investigation of any action, claim or liability covered
by this indemnification.
10. Term; Termination.
10.1 Term. The term of this Agreement will commence as of the Effective
Date of this Agreement and, unless sooner terminated as provided hereunder, will
expire upon the later of (i) the [*****], or (ii) the [*****].
10.2 Termination.
10.2.1 Change of Control. [*****] shall have the right to terminate
this Agreement upon the occurrence of a Change of Control during the Research
Period by providing written notice of termination to Diversa within [*****]
following receipt of written notice of the occurrence of such Change of Control.
In the event that [*****] does not terminate this Agreement under this Section
10.2.1, this Agreement will be binding upon [*****] and [*****], or any
successor to [*****] in such Change of Control.
10.2.2 Mutual Consent. This Agreement may be terminated at any time
by mutual written agreement of the Parties.
10.2.3 Material Breach. In the event that a Party commits a material
breach of any of its obligations under this Agreement (other than as provided in
Section 10.4) and such Party fails (i) to remedy that breach within [*****]
after receiving written notice thereof from the other Party or (ii) to commence
dispute resolution pursuant to Section 10.3, within [*****] after receiving
written notice of that breach from the other Party, the other Party may
immediately terminate this Agreement upon written notice to the breaching Party.
24. *Confidential Treatment Requested
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10.2.4 Breach of Payment Obligations. In the event that Novartis
fails to make timely payment of any amounts due under this Agreement within
[*****] after demand therefor, Diversa may terminate this Agreement upon [*****]
prior written notice, unless the Novartis cures such breach by paying all past-
due amounts within such [*****] notice period, provided that Novartis shall be
entitled to use such cure provision no more than once in any [*****].
10.3 Disposition of Confidential Information. In the event of termination
or expiration of this Agreement, the Parties shall return or destroy all forms
of Confidential Information provided to them under this Agreement, within
[*****] after such termination or expiration, provided, however, that each Party
may retain one copy of such Confidential Information for the sole purpose of use
in any litigation resulting from this Agreement or the activities undertaken
pursuant to this Agreement and further provided, that if Diversa is the
breaching Party, Novartis may retain Development [*****], if any, pursuant to
the Licenses granted pursuant to Section 4.
10.4 Effect of Termination or Expiration. Termination or expiration of
this Agreement shall not relieve the parties of any obligation accruing prior to
such termination or expiration and shall not terminate any License granted or
License Agreement entered into prior to such termination or expiration. The
provisions of Sections [*****] shall survive the expiration or termination of
this Agreement, and the provisions of Sections [*****] shall survive the
termination of this Agreement with respect to [*****]. Termination of this
Agreement pursuant to Section 10.2 shall not limit any other rights and remedies
of the terminating party.
11. Miscellaneous.
11.1 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the parties. No party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
11.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of [*****] other than those provisions
governing conflicts of law.
25. *Confidential Treatment Requested
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11.3 Dispute Resolution Procedures.
(a) The parties hereby agree that they will attempt in good faith to
resolve any controversy, claim or dispute ("Dispute") arising out of or relating
to this Agreement promptly by negotiations. Any such Dispute which is not
settled by the parties within [*****] after notice of such Dispute is given by
one party to the other in writing shall be referred to the Chief Executive
Officer of Diversa and the appropriate Senior Executive of Novartis who are
authorized to settle such Disputes on behalf of their respective companies
("Senior Executives"). The Senior Executives will meet for negotiations within
[*****] of such notice of Dispute, at a time and place mutually acceptable to
both Senior Executives. If the Dispute has not been resolved within [*****]
after the end of the [*****] negotiation period referred to above (which period
may be extended by mutual agreement), unless otherwise specifically provided for
herein, any Dispute will be settled first by non-binding mediation and
thereafter by arbitration as described in subsections (b) and (c) below.
(b) Any Dispute which is not resolved by the parties within the time
period described in subsection (a) shall be submitted to an alternative dispute
resolution process ("ADR"). Within [*****] after the expiration of the [*****]
period set forth in subsection (a), each party shall select for itself a
representative with the authority to bind such party and shall notify the other
party in writing of the name and title of such representative. Within [*****]
after the date of delivery of such notice, the representatives shall schedule a
date for engaging in non-binding ADR with a neutral mediator or dispute
resolution firm mutually acceptable to both representatives. Any such mediation
shall be held in [*****] if brought by [*****] and [*****],[*****] if brought by
[*****]. Thereafter, the representatives of the parties shall engage in good
faith in an ADR process under the auspices of such individual or firm. If the
representatives of the parties have not been able to resolve the Dispute within
[*****] after the conclusion of the ADR process, or if the representatives of
the parties fail to schedule a date for engaging in non-binding ADR within the
[*****] set forth above, the Dispute shall be settled by binding arbitration as
set forth in subsection (c) below. If the representatives of the parties resolve
the dispute within the [*****] set forth above, then such resolution shall be
binding upon the parties. If either party fails to abide by such resolution, the
other party can immediately refer the matter to arbitration under Section
11.3(c).
(c) If the parties have not been able to resolve the Dispute as
provided in subsections (a) and (b) above, the Dispute shall be finally settled
by binding arbitration. Any arbitration hereunder shall be conducted under rules
of conciliation and arbitration of the International Chamber of Commerce by
three arbitrators chosen according to the following procedure: each of the
parties shall appoint one arbitrator and the two so nominated shall choose the
third; provided that in the case of a dispute as to decisions of the Research
Committee each party shall designate one (1) neutral having the following
minimum scientific qualifications: a Ph.D. degree in chemistry or life sciences
and/or an M.D. degree plus at least [*****] of relevant business or scientific
research experience. These [*****] shall select a third neutral having
26. *Confidential Treatment Requested
<PAGE>
the same minimum scientific qualifications within [*****] of the appointment of
the first [*****]. None of the neutrals shall be an employee, director or
shareholder of either Party or any of their Affiliates or NADI or its Affiliates
or otherwise have a materially conflicting interest in the outcome of such
proceeding. If the arbitrators chosen by the Parties cannot agree on the choice
of the third arbitrator within a period of [*****] after their appointment, then
the third arbitrator with such requisite qualifications shall be appointed by
the Court of Arbitration of the International Chamber of Commerce. Any such
arbitration shall be held in [*****] if brought by [*****] and [*****] if
brought by [*****], or such other location as the arbitrators may agree, and
shall be conducted in English. The arbitral award (i) shall be final and binding
upon the parties; and (ii) may be entered in any court of competent
jurisdiction.
(d) Nothing contained in this Section or any other provisions of
this Agreement shall be construed to limit or preclude a party from bringing any
action in any court of competent jurisdiction for injunctive or other
provisional relief to compel the other party to comply with its obligations
hereunder before or during the pendency of mediation or arbitration proceedings.
The parties hereby irrevocably consent to submit to the jurisdiction of the
federal courts located within the [*****] and agree that venue is proper in any
such court and will not seek to alter or contest such venue.
11.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
11.5 Headings. All headings in this Agreement are for convenience only
and shall not affect the meaning of any provision hereof.
11.6 Binding Effect. This Agreement and all rights and obligations
hereunder shall inure to the benefit of and be binding upon the Parties, their
Affiliates, and their respective lawful successors and assigns (including,
without limitation, any successor to Diversa upon a Change of Control).
11.7 Assignment. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder will be assignable in part or in whole by
any Party without the prior written consent of the other Party; provided,
however, that either Party may assign this Agreement to any of its Affiliates
(or in the case of Novartis, also to ([*****]) or to any successor by merger or
sale of substantially all of its business to which this Agreement relates
(provided that, in the event of such merger or sale, no intellectual property of
any acquiring corporation that is not a Party shall be included in the
technology licensed hereunder). This Agreement will be binding upon the
successors and permitted assigns of the Parties. Any assignment which is not in
accordance with this Section will be void.
11.8 Notices. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand,
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recognized international overnight courier, confirmed facsimile transmission, or
registered or certified mail, return receipt requested, postage prepaid to the
following addresses or facsimile numbers:
If to Novartis: If to Diversa:
NOVARTIS AGRIBUSINESS
[*****] Diversa Corporation
[*****] 10665 Sorrento Valley Road
[*****] San Diego, California 92121
[*****] Attention: Carolyn Erickson
[*****] Tel: (619) 453-7020
[*****] Fax: (619) 453-7032
[*****]
with a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 9221
Attention: M. Wainwright Fishburn, Esq.
Tel: 619-550-6018
Fax: 619-453-3555
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.
11.9 Amendment and Waiver. This Agreement may be amended, supplemented,
or otherwise modified only by means of a written instrument signed by both
parties. Any waiver of any rights or failure to act in a specific instance shall
relate only to such instance and shall not be construed as an agreement to waive
any rights or fail to act in any other instance, whether or not similar.
11.10 Severability. In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and the parties shall negotiate in good faith to modify the Agreement to
preserve (to the extent possible) their original intent.
11.11 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings between the parties relating to the subject
matter hereof.
11.12 Regulatory Filings. Novartis shall have sole responsibility for
making all regulatory filings worldwide, including, without limitation, all
filings required by the Biodiversity Convention and other legislation related to
the ownership or use of
28. *Confidential Treatment Requested
<PAGE>
biological resources, and obtaining the necessary approvals to market Royalty-
Bearing Products. Diversa will cooperate to provide information required to make
and maintain such filings, as appropriate.
11.13 Force Majeure. Neither party shall be held liable or responsible to
the other party, nor be deemed to be in breach of this Agreement, for failure or
delay in fulfilling or performing any provisions of this Agreement (other than
payment obligations) when such failure or delay is caused by or results from any
cause whatsoever outside the reasonable control of the party concerned
including, but not limited to, fire, explosion, breakdown of plant, damage to
plant material by pests or otherwise, strike, lock-out, labor disputes, casualty
or accident, lack or failure of transportation facilities, flood, lack or
failure of sources of supply or of labor, raw materials or energy, civil
commotion, embargo, any law, regulation, decision, demand or requirement of any
national or local government or authority. The party claiming relief shall,
without delay, notify the other party by registered airmail or by telefax of the
interruption and cessation thereof and shall use its best efforts to remedy the
effects of such hindrance with all reasonable dispatch. The onus of proving that
any such Force Majeure event exists shall rest upon the party so asserting.
During the period that one party is prevented from performing its obligations
under this Agreement due to a Force Majeure event, the other party may, in its
sole discretion, suspend any obligations that relate thereto. Upon cessation of
such Force Majeure event the parties hereto shall use their best efforts to make
up for any suspended obligations. If such Force Majeure event is anticipated to
continue, or has existed for [*****], this Agreement may be forthwith terminated
by either party by registered airmail or by telefax. In case of such termination
the terminating party will not be required to pay to the other party any
indemnity whatsoever.
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IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.
NOVARTIS AGRIBUSINESS
BIOTECHNOLOGY RESEARCH, INC. DIVERSA CORPORATION
/s/ Steven V. Evola /s/ Terrance J. Bruggeman
- ----------------------------- ------------------------------
By: Steven V. Evola Terrance J. Bruggeman
Co-President Chief Executive Officer
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EXHIBIT A
Project Plans
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<PAGE>
Flowchart:
[*****]
6. *Confidential Treatment Requested
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PARTNERSHIP PROJECT
R&D PLAN
Title: [*****]
Partner: [*****]
Date: December 4, 1998
Project Description:
[*****]
Project Assumptions:
1. [*****]
2. [*****]
3. [*****]
4. [*****]
5. [*****]
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6. [*****]
7. [*****]
8. [*****]
9. [*****]
Delivery:
1. [*****]
2. [*****]
Effort:
[*****]
Flowchart:
[*****]
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Delivery:
1. [*****]
2. [*****]
3. [*****]
4. [*****]
Effort:
[*****]
FLOWCHART:
[*****]
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Exhibit B
Stock Purchase Agreement
*Confidential Treatment Requested
<PAGE>
STOCK PURCHASE AGREEMENT
Dated as of January 25, 1999
by and between
DIVERSA CORPORATION
and
NOVARTIS AGRIBUSINESS
BIOTECHNOLOGY RESEARCH, INC.
<PAGE>
Stock Purchase Agreement
Stock Purchase Agreement dated as of January 25, 1999 (this
"Agreement"), by and between Novartis Agribusiness Biotechnology Research, Inc.,
a Delaware corporation (the "Investor"), and Diversa Corporation, a Delaware
corporation (the "Company").
R E C I T A L S
Whereas, the Company and the Investor are parties to that certain
Collaboration Agreement dated as of even date herewith (the "Collaboration
Agreement") pursuant to which the Company and the Investor will collaborate on
the projects described therein; and
Whereas, in connection with such collaboration, the Company wishes to
issue and sell to the Investor, and the Investor wishes to purchase from the
Company, shares of the Company's capital stock, subject to and upon the terms
and conditions hereinafter set forth.
Now, Therefore, in consideration of the foregoing and of the
respective covenants and undertakings hereunder and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms have the meanings specified
or referred to in this Section 1.
"Board of Directors" shall mean the Board of Directors of the Company.
"Business" shall mean the business, operations and assets of the Company.
"By-Laws" shall mean the by-laws of the Company.
"Certificate of Incorporation" shall mean the Seventh Restated Certificate
of Incorporation in substantially the form attached hereto as Exhibit A.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall mean the date and time of the Closing.
"Collaboration Agreement" shall have the meaning set forth in the recitals
to this Agreement.
"Common Stock" shall mean the common stock, $.001 par value, of the
Company.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Company Closing Documents" shall mean all the documents, instruments and
writings required by this Agreement to be delivered by the Company at the
Closing.
1.
<PAGE>
"Contemplated Transactions" shall mean the transactions contemplated by
this Agreement.
"Encumbrance" shall mean any security interest, mortgage, lien, charge,
adverse claim or restriction of any kind, except for transfer restrictions
imposed by the Securities Act or the Exchange Act and state securities laws.
"Equity Stock" shall have the meaning set forth in Rule 3a11-1 under the
Exchange Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean generally accepted accounting principles of the United
States.
"Governmental Body" shall mean any United States or state government body,
any agency, commission or authority thereof, or any quasi-governmental or
private body exercising any regulatory or taxing authority thereunder.
"Investor" shall have the meaning set forth in the first paragraph of this
Agreement.
"IPO" and "IPO Shares" shall have the meanings set forth in Section 2.3.
"IPO Closing" and "IPO Closing Date" shall have the meanings set forth in
Section 3.4.
"Non-Scientific Founders" shall mean Gary Friedman and Dr. Peter Korn.
"Person" shall mean any individual, corporation, partnership, a limited
liability company, joint venture, trust, association, unincorporated
organization, other entity, or Governmental Body.
"Proprietary Rights" shall mean all patents, patent applications, patent
licenses, trademarks, tradenames, trade secrets, service marks, brand marks,
brand names, copyrights, copyright applications, inventions, technologies, know-
how, formulae, processes, names and likeness owned or licensed by the Company.
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Restated Stockholders' Agreement" shall mean the Amended and Restated
Stockholders' Agreement, amending and restating the Stockholders' Agreement in
substantially the form attached hereto as Exhibit B, to be entered into by and
among the Company and certain holders of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock of the Company as of the Closing Date.
"Restated Voting Agreement" shall mean the Amended and Restated Voting
Agreement, amending and restating the Voting Agreement in substantially the form
attached hereto as Exhibit C, to be entered into by and among the Company,
certain holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock
2.
<PAGE>
and Series E Preferred Stock and certain of the holders of Common Stock of the
Company as of the Closing Date.
"Restricted Stock Agreements" shall mean the Restricted Stock Agreements
dated December 21, 1994 between the Company and each of the Scientific Founders
and the Non-Scientific Founders and the Restricted Stock Agreement dated
December 15, 1994 between the Company and Barry Marrs.
"Restricted Stock Option Agreements" shall mean the Restricted Stock Option
Agreements dated December 21, 1994 between the Company and each of the
Scientific Founders and the Non-Scientific Founders and the Restricted Stock
Option Agreement dated December 19, 1994 between the Company and Barry Marrs.
"Scientific Founders" shall mean Dr. Melvin Simon, Dr. Jeffrey H. Miller,
Dr. Karl Stetter and William A. Haseltine.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series C Preferred Stock" shall mean the Series C Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series D Preferred Stock" shall mean the Series D Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series E Preferred Stock" shall mean the Series E Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series E Shares" shall have the meaning set forth in Section 2.2.
"Stockholders' Agreement" shall mean the Stockholders' Agreement dated as
of May 13, 1996, as amended on July 14, 1997 and October 22, 1997, by and among
the Company and certain holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock of the Company.
"Voting Agreement" shall mean the Voting Agreement dated as of May 13,
1996, as amended on July 14, 1997 and October 22, 1997, by and among the
Company, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock and certain of the holders
of Common Stock of the Company.
3.
<PAGE>
2. Purchase and Sale of Shares.
2.1 Authorization of the Series E Preferred Stock. On or before the
Closing, the Company shall adopt and file with the Secretary of State of the
State of Delaware the Certificate of Incorporation. The Series E Preferred Stock
shall have the voting powers, dividend rights, liquidation rights, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof, set forth in the
Certificate of Incorporation, the terms of which are incorporated herein by
reference as though set forth herein in full.
2.2 Purchase and Sale of the Series E Shares. Subject to the terms and
conditions of this Agreement, at the Closing to be held as provided in Section
3, the Company shall issue, sell and deliver to the Investor, and the Investor
shall purchase from the Company, 5,555,556 shares of Series E Preferred Stock
(the "Series E Shares"), free and clear of all Encumbrances, for the purchase
price of $12,500,001 (the "Purchase Price"). The Purchase Price shall be paid by
the Investor to the Company at the Closing in immediately available funds by
wire transfer or by delivery of bank cashier's checks or certified checks or by
such other form as approved by the Company.
2.3 Purchase and Sale of the IPO Shares. Subject to the terms and
conditions hereof, at the time that the Company completes an initial
underwritten public offering of its Common Stock (an "IPO") in which the Company
realizes aggregate net proceeds of at least $10,000,000, the Investor shall have
the right to purchase from the Company that number of shares of the Company's
Common Stock having an aggregate value of up to 10% of the aggregate gross
proceeds of the IPO (the "IPO Shares"), to be issued and sold in a private
placement to close simultaneously with the completion of the IPO, at the price
per share to the public in the IPO. The Company shall provide prompt written
notice to the Investor of the proposed IPO and the Investor shall have 20 days
following the date of such notice from the Company to exercise its right to
purchase the IPO shares by providing written notice to the Company, which notice
shall specify the anticipated number of IPO shares to be purchased (subject to
adjustment based on the actual gross proceeds of the IPO and the actual price
per share to the public in the IPO). If the Investor does not provide written
notice to the Company within such 20-day period or provides written notice to
the Company within such 20-day period that it does not wish to purchase the IPO
shares, then the Investor shall have no further right to purchase shares from
the Company, unless the Company does not complete the proposed IPO within nine
months of the date of the Company's notice of such proposed IPO, in which case
the Investor will again have the right set forth in this Section 2.3. If the
Investor provides written notice to the Company of its election to purchase the
IPO Shares within such 20-day period, then the Investor shall purchase from the
Company, and the Company shall issue and sell to the Investor, the IPO Shares in
a private placement to close simultaneously with the closing of the IPO.
3. Closing.
3.1 Place and Time. The closing of the sale and purchase of the Series E
Shares pursuant to Section 2.2 (the "Closing") shall take place at the offices
of Cooley Godward llp, 4365 Executive Drive, Suite 1100, San Diego, California,
at 10:00 a.m. (San Diego time) on
4.
<PAGE>
January 4, 1999 following the satisfaction of the conditions set forth in
Sections 8 and 9, or at such other place, date and time as the parties may agree
in writing.
3.2 Deliveries by the Company. At the Closing, the Company shall deliver
the following to the Investor:
(a) A certificate representing the Series E Shares delivered pursuant
to Section 2.2, duly registered in the name of the Investor.
(b) The documents set forth in Section 8.
(c) The Restated Stockholders' Agreement.
(d) The Restated Voting Agreement.
(e) All other documents, instruments and writings required by this
Agreement to be delivered by the Company at the Closing.
3.3 Deliveries by the Investor. At the Closing, the Investor shall
deliver the following to the Company:
(a) A wire transfer of immediately available US dollar funds in the
amount of the Purchase Price to an account designated by the Company not less
than two (2) days prior to the Closing.
(b) The documents set forth in Section 9.
(c) An executed signature page to the Restated Stockholders'
Agreement.
(d) An executed signature page to the Restated Voting Agreement.
(e) All other documents, instruments and writings required by this
Agreement to be delivered by the Investor at the Closing.
3.4 IPO Closing. Subject to the terms of Sections 8 and 9, the closing of
the sale and purchase of the IPO Shares under this Agreement (the "IPO Closing")
shall be held at the time and date of the completion of the IPO (the "IPO
Closing Date") at the offices of Cooley Godward, 4365 Executive Drive, Suite
1100, San Diego, California, or at such time and place as the Company and the
Investor may agree. At the IPO Closing, subject to the terms and conditions
hereof, the Company shall deliver to the Investor a stock certificate registered
in the name of Investor representing the IPO Shares, dated as of the IPO Closing
Date, against payment of the purchase price therefor by wire transfer of
immediately available US dollar funds to an account designated by the Company
not less than two (2) days prior to the IPO Closing.
5.
<PAGE>
4. Representations and Warranties of the Company.
The Company represents and warrants to the Investor as follows:
4.1 Organization of the Company; Authorization.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full corporate
power and authority to enter into this Agreement, the Restated Stockholders'
Agreement and the Restated Voting Agreement and to perform all of its
obligations hereunder and thereunder, and to own or lease its properties and to
engage in its business as presently conducted. The Company is duly qualified and
in good standing as a foreign corporation under the laws of each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. The Company has no subsidiaries, nor does it own any
equity interest in, or control directly or indirectly, any other entity.
(b) The execution, delivery and performance of this Agreement, the
Restated Stockholders' Agreement and the Restated Voting Agreement by the
Company have been authorized by all necessary action and constitute valid and
binding obligations of the Company, enforceable against it in accordance with
their terms.
4.2 Capitalization.
(a) As of the Closing, the authorized Equity Stock of the Company
will consist of (i) 82,472,584 shares of Common Stock, of which 5,347,322 shares
are issued and outstanding, (ii) 10,501,000 shares of Series A Preferred Stock,
of which 10,000,000 shares are issued and outstanding, (iii) 24,566,184 shares
of Series B Preferred Stock, all of which are issued and outstanding, (iv)
844,444 shares of Series C Preferred Stock, all of which are issued and
outstanding, (v) 24,809,555 shares of Series D Preferred Stock, all of which are
issued and outstanding, and (vi) 5,555,556 shares of Series E Preferred Stock,
none of which are issued and outstanding (excluding the Series E Shares). All of
such issued and outstanding shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(b) A true and complete list of the holders of record of all issued
and outstanding Equity Stock of the Company on the date hereof and reflecting
the issuance of the Series E Shares on the Closing Date, including the number of
shares of Equity Stock owned by each such holder, and the number of shares of
Equity Stock reserved by the Company for each specified purpose is set forth on
Schedule 4.2 hereto.
(C) The issuance of the Series E Shares to be issued to the Investor
hereunder simultaneously with the Closing and the shares of Common Stock
issuable upon conversion of the Series E Shares have been or will be on or prior
to the Closing duly authorized. The Company has or will on or prior to the
Closing duly reserve for issuance the shares of Common Stock issuable upon
conversion of the Series E Shares. No further approval or authorization of the
stockholders or the directors of the Company, of any Governmental Body or
foreign governmental body or of any other Person is required for the issuance
and sale of the Series E Shares or the shares of Common Stock issuable on
conversion thereof. When paid for by, and issued to, the Investor, the Series E
Shares will be validly issued, fully paid and non-assessable,
6.
<PAGE>
and, except as set forth in this Agreement, the Restated Stockholders'
Agreement, the Restated Voting Agreement or the Certificate of Incorporation or
under applicable law, will not be subject to any restriction on use, voting or
transfer. The Series E Preferred Stock will have the designations, preferences
and relative participating, optional and other special rights as set forth in
the Certificate of Incorporation. The shares of Common Stock issuable to the
Investor upon conversion of the Series E Shares will, upon conversion of the
Series E Shares in accordance with the Certificate of Incorporation, be validly
issued, fully paid and non-assessable, and, except as set forth in this
Agreement, the Restated Stockholders' Agreement, the Restated Voting Agreement
or the Certificate of Incorporation or under applicable law, will not be subject
to any restriction on use, voting or transfer. Assuming the truth of the
Investor's representations and warranties contained in Section 5, the offer,
sale and issuance of the Series E Shares (and any shares of Common Stock
issuable on conversion thereof) are exempt from the registration requirements of
the Securities Act and applicable state securities laws.
(d) Except as set forth in Schedule 4.2 hereto, there are no
outstanding options, rights, conversion rights, agreements or commitments of any
kind relating to the issuance, sale, purchase, redemption, voting or transfer by
the Company of any Equity Stock or other securities of the Company or any rights
outstanding which permit or allow the holder thereof to cause the Company to
file a registration statement or which permit or allow the holder thereof to
include securities of the Company in a registration statement filed by the
Company, other than the rights granted pursuant to the Restricted Stock
Agreements, Restricted Stock Option Agreements, the Restated Stockholders'
Agreement and the Restated Voting Agreement. There are no preemptive or other
similar rights with respect to any Equity Stock of the Company except rights
granted under the Stockholders' Agreement. None of the outstanding Equity Stock
or other securities of the Company was issued in violation of the Securities
Act, or the securities or blue sky laws of any state. The Company has delivered
to the Investor copies of the certificate of incorporation and by-laws (or other
governing instrument) of the Company, as currently in effect.
(e) In the event of the IPO, the Company will update the
capitalization information set forth in subsections (a) through (d) above to the
IPO Closing Date.
4.3 No Conflict as to the Company. Neither the execution and delivery of
this Agreement, the Restated Stockholders' Agreement or the Restated Voting
Agreement, nor the issuance of the Series E Shares or the Common Stock issuable
on conversion thereof will (a) violate any provision of the Certificate of
Incorporation or By-Laws of the Company or (b) violate, or be in conflict with,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or excuse performance by any Person of
any of its obligations under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, or result in the creation or imposition of any
material Encumbrance upon any property or assets of the Company under, any
material agreement to which the Company is a party or by which the Company or
any of its property is bound, or (c) violate any statute or law or any judgment,
decree, order, regulation or rule of any court or other Governmental Body
applicable to the Company.
7.
<PAGE>
4.4 Financial Statements; Financial Position; Absence of Undisclosed
Liabilities.
(a) The Company has delivered to the Investor a copy of the Company's
audited financial statements as of December 31, 1997 and for the fiscal year
then ended, together with the notes thereto (the "Annual Financial Statements"),
and a balance sheet of the Company as of October 31, 1998 (such balance sheet
shall hereafter be referred to as the "Current Balance Sheet") and the related
income statement for the fiscal quarter then ended (the "Current Financial
Statements"; the Current Financial Statements together with the Annual Financial
Statements are collectively referred to herein as the "Financial Statements").
Except as set forth on Schedule 4.4 hereto, the Financial Statements (i) present
fairly the financial condition of the Company as of their respective dates and
the results of operations for their respective periods (subject to, in the case
of the Current Financial Statements, year-end and audit adjustments), (ii) were
prepared in accordance with the books and records of the Company, (iii) are true
and correct and complete and (iv) present fairly the financial position and
related results of operations of the Company as of the times and for the periods
referred to therein, in accordance with GAAP consistently applied throughout the
period involved and prior periods. Furthermore, except as set forth in Schedule
4.4 hereto, the Company hereby confirms that there have been no changes during
the periods covered in the Financial Statements in the Company's accounting
principles and practices.
(b) As of the date hereof, except as set forth on Schedule 4.4
hereto, (i) the Company has no indebtedness or liabilities of any nature
(matured or unmatured, fixed or contingent, direct or indirect, as guarantor or
in any other capacity) which are not set forth on the Current Balance Sheet, and
(ii) all reserves established by the Company and set forth on the Current
Balance Sheet are adequate for the purposes for which they were established.
(c) Except as described elsewhere in this Agreement or as set forth
on Schedule 4.4 hereto, since the date of the Current Balance Sheet:
(i) the Company has not entered into any transaction which was
not in the ordinary course of its business;
(ii) there has been no material adverse change in the Business
of the Company;
(iii) there has been no damage to, or destruction or loss of,
physical property (whether or not covered by insurance) which may have a
material adverse effect on the Business of the Company;
(iv) the Company has not declared or paid any cash dividend or
made any distribution on its securities, or redeemed, purchased, or otherwise
acquired any of its securities;
(v) the Company has not received any notice that there has
been a loss of, or cancellation of a material order by, any customer of the
Company;
8.
<PAGE>
(vii) there has been no borrowing or agreement to borrow by the
Company or change in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty, or otherwise or grant of a mortgage
or security interest in any properties of the Company;
(viii) there has not been any payment of any obligation or
liability other than current liabilities paid in the ordinary course of
business; and
(ix) there has been no sale, assignment, transfer or
encumbrance of any tangible asset of the Company except in the ordinary course
of business and no sale, assignment, transfer or encumbrance of any Proprietary
Right or other intangible asset of the Company or, to the knowledge of the
Company, any unauthorized disclosure of any proprietary confidential information
of the Company.
4.5 Litigation. Except as set forth in Schedule 4.5 hereto, there is no
litigation arbitration, claim, action, suit, governmental or other proceeding
(formal or informal) or investigation pending with respect to the Company or any
of its businesses, properties or assets, or, to the Company's knowledge, any of
its directors, officers or employees to the extent such proceeding relates to
the business of the Company. Except as set forth in Schedule 4.5 hereto, the
Company is not subject to any judgment, order or decree.
4.6 Proprietary Rights. To the Company's current actual knowledge, (a)
the Company has sufficient ownership or rights to all patents, patent
applications, trademarks, copyrights, trade secrets and other proprietary rights
necessary for its business as currently conducted and (b) the Company has
received no claims or charges that the Company's business as currently conducted
infringes any patents, patent applications, trademarks, copyrights, trade
secrets or other propriety rights of third parties.
4.7 Compliance with Law. Except as set forth on Schedule 4.7 hereto,
the operations of the Company have been conducted in all material respects in
accordance with all applicable laws, regulations and other requirements of all
Governmental Bodies having jurisdiction over the Company. The Company has not
received any notification of any asserted present or past failure by the Company
to comply with any such laws, rules or regulations.
4.8 No Brokers, Finders or Investment Bankers. Except as set forth in
Schedule 4.8 hereto, neither the Company nor any of its officers or directors
has employed any broker, or investment banker or incurred any liability which
remains unsatisfied for any brokerage or finder's fees or commissions or similar
payments in connection with this Agreement or the Contemplated Transactions.
4.9 Disclosure. No representations or warranties by the Company in this
Agreement and no statement contained in any document (including, without
limitation, the financial statements, certificates, or other writing furnished
or to be furnished to the Investor or any of its representatives pursuant to the
provisions hereof or in connection with the Contemplated Transactions) contains
any untrue statement of material fact or omits to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading. Documents delivered or to
be delivered to the Investor
9.
<PAGE>
pursuant to this Agreement are true and complete copies of what they purport to
be. Any projections or budgets with respect to the Company furnished to the
Investor or any of its representatives pursuant to the provisions hereof or in
connection with the Contemplated Transactions, have been prepared with
reasonable care, are based on good faith estimates and assumptions, and
represent good faith projections of results of operations to be achieved for the
periods covered by such projections or budgets. The Company does not warrant
that the projections can or will be achieved.
5. Representations and Warranties of the Investor.
The Investor represents and warrants to the Company as follows:
5.1 Authorization. The Investor has the full power and authority to
enter into this Agreement, the Restated Stockholders' Agreement and the Restated
Voting Agreement and to perform all of its obligations hereunder and thereunder.
The execution, delivery and performance of this Agreement, the Restated
Stockholders' Agreement and the Restated Voting Agreement by it have been duly
authorized by all necessary action and constitute valid and binding obligations
of the Investor, enforceable against it in accordance with their terms. The
execution, delivery and performance of this Agreement, the Restated
Stockholders' Agreement and the Restated Voting Agreement by the Investor does
not violate any provision of the governing instrument of the Investor, conflict
with or constitute a default under any material agreement, indenture or
instrument to which the Investor is a party or by which it or its property is
bound or violate any statute or law or any judgment, decree, order, regulation
or rule of any court or other Governmental Body applicable to the Investor.
5.2 Investment Representations. The Investor has knowledge and
experience in financial and business matters sufficient to enable it to evaluate
the merits and risks of an investment in the Series E Shares and the IPO Shares.
The Investor has assets sufficient to enable it to bear the economic risk of its
investment in the Series E Shares and the IPO Shares and has assets in excess of
Five Million Dollars ($5,000,000). The Investor is acquiring the Series E Shares
and the IPO Shares for its own account and not with a present view to, or for
sale in connection with, any distribution thereof. The Investor understands
that: the Series E Shares (and the Common Stock issuable upon conversion
thereof) have not been, and the IPO Shares will not be, registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to the exemption
provided in Section 4(2) thereof; the Series E Shares (and the Common Stock
issuable upon conversion thereof) have not been, and the IPO Shares will not be,
registered under applicable state securities laws by reason of their issuance in
a transaction exempt from such registration requirements; and the Series E
Shares (and the Common Stock issuable upon conversion thereof) and the IPO
Shares may not be sold or otherwise disposed of unless registered under the
Securities Act and applicable state securities laws (the Company being under no
obligation so to register such Series E Shares, the Common Stock issuable on
conversion thereof or the IPO Shares) or exempted from registration. The
Investor further understands that the exemption from registration afforded by
Rule 144 promulgated under the Securities Act is not presently available with
respect to the Series E Shares, the Common Stock issuable upon conversion
thereof and the IPO Shares.
10.
<PAGE>
5.3 Investor's Acknowledgment as to Information. The Investor or its
representatives have received from the Company such information as they
requested with respect to the Company as the Investor has deemed necessary and
relevant in connection with the Contemplated Transactions, and the Investor has
had the opportunity, directly or through such representatives, to ask questions
of and receive answers from persons acting on behalf of the Company necessary to
verify the information so obtained.
5.4 No Brokers, Finders or Investment Bankers. Neither the Investor nor
any of its officers or directors has employed any broker, finder or investment
banker or incurred any liability which remains unsatisfied for any brokerage or
finder's fees or commissions or similar payments in connection with this
Agreement or the Contemplated Transactions.
6. Covenants of Investor.
6.1 Standstill Provision. From and after the date of this Agreement,
the Investor shall not, and shall cause its affiliates not to, in any manner,
singly or as part of a partnership, limited partnership, syndicate or other
"Group" (within the meaning of Section 13(d)(3) of the Exchange Act), directly
or indirectly, acquire, or offer or agree to acquire, record ownership or
beneficial ownership in the aggregate greater than 9.9% of the shares of capital
stock of the Company, including but not limited to any securities convertible
into or exchangeable for capital stock or any other right to acquire capital
stock from the Company or any other person (i.e., on a fully-diluted basis),
without the prior written consent of the Company; provided, however, that this
clause shall not apply to (a) any securities obtained or purchased by Investor
pursuant to rights set forth in this Agreement, including but not limited to the
Series E Shares, the Common Stock issuable upon conversion thereof and the IPO
Shares, and (b) any securities issued with respect to the Series E Shares or the
IPO Shares pursuant to a stock split, stock dividend, recapitalization or
reclassification approved by the Company's Board of Directors; and provided,
further, that this clause shall not apply to any securities of the Company held
indirectly by the Investor through one or more investments in any of the
Stockholders listed, as of the date hereof, on the Restated Stockholders'
Agreement, so long as neither Investor, nor any of its affiliates, exercises
"control" (within the meaning of Rule 12b-2 promulgated under the Exchange Act)
with regard to such Stockholder.
6.2 Agreement Not to Sell. The Investor hereby covenants and agrees
that it will not, nor will it permit any of its affiliates (including parents,
subsidiaries or other related entities) to, directly or indirectly sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose or any of the Series E
Shares, the Common Stock issuable upon conversion thereof or the IPO Shares
without the prior written consent of the Company during the period from the
Closing Date or the IPO Closing Date, as applicable, through the later of (a)
completion of the work conducted under all Project Plans under the Collaboration
Agreement; or (b) the earlier of (i) the fifth anniversary of the date of this
Agreement or (ii) the second anniversary of the IPO Closing Date. In order to
enforce the provisions of this Section 6.2, the Company may impose stop-transfer
instructions with respect to the securities held by the Investor and its
affiliates that are subject to the foregoing restriction until the end of such
period.
11.
<PAGE>
6.3 Market Stand-Off Provision. The Investor agrees that, during the
period of duration specified by the Company and an underwriter of Common Stock
or other securities of the Company following the effective date of a
registration statement of the Company filed under the Securities Act (which
period shall not exceed 180 days), the Investor shall not, to the extent
requested by the Company, directly or indirectly sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of any securities of the Company held by the
Investor at any time during such period. In order to enforce the provisions of
this Section 6.3, the Company may impose stop-transfer instructions with respect
to the securities held by the Investor and its affiliates that are subject to
the foregoing restriction until the end of such period.
7. Confidentiality.
All information heretofore or hereafter furnished to the Investor by the
Company or on the Company's behalf under this Agreement or in connection with
the Contemplated Transactions shall be deemed Confidential Information, as
defined in Section 7.1 of the Collaboration Agreement, and the provisions of
Section 7 of the Collaboration Agreement (which are hereby incorporated herein
by reference) shall apply to all such Confidential Information.
8. Conditions to the Investor's Obligations.
The obligations of the Investor to effect the Closing or the IPO Closing,
as applicable, shall be subject to the satisfaction at or prior to the Closing
or the IPO Closing, as applicable, of the following conditions, any one or more
of which may be waived by the Investor:
8.1 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prohibits or delays
consummation of any or all of the Contemplated Transactions.
8.2 Representations, Warranties and Agreements. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date or the IPO Closing Date, as applicable, with the same force and effect as
though made at such time; provided, however, that the representations and
warrants shall be modified as required to reflect changes occurring between the
date of this Agreement and the Closing Date or the IPO Closing Date, as
applicable. The Company shall have performed and complied in all material
respects with all agreements, covenants and conditions contained in this
Agreement required to be performed and complied with by it at or prior to the
Closing Date or the IPO Closing Date, as applicable. The Investor shall have
received a certificate as to the foregoing signed by the Chief Executive Officer
of the Company.
8.3 Regulatory Approvals. All licenses, authorizations, consents,
orders and regulatory approvals of Governmental Bodies necessary in the good
faith judgment of the Investor for the consummation of any or all of the
Contemplated Transactions to be effected at the Closing and the IPO Closing,
respectively, shall have been obtained and shall be in full force.
12.
<PAGE>
8.4 Other Consents. Consents or waivers from parties other than
Governmental Bodies that are required in connection with the consummation of any
or all of the Contemplated Transactions shall have been obtained and shall be in
full force.
8.5 Secretary of State Certificates. The Investor shall have received
(i) a copy of the Certificate of Incorporation certified as of a recent date by
the Secretary of State of Delaware, and (ii) Certificates of the Secretary of
State of the State of Delaware with respect to the Company, and of each state in
which the Company is qualified to do business as a foreign corporation, as of a
recent date showing the Company to be validly existing or qualified as a foreign
corporation in its states of existence and qualification, as the case may be,
and in good standing.
8.6 Secretary's Certificate of the Company. The Investor shall have
received a Certificate of the Secretary of the Company, certifying (i) that no
document has been filed relating to or affecting the Certificate of
Incorporation of the Company after the date of the Certificate of the Secretary
of State of Delaware furnished pursuant to Section 8.5, (ii) that attached to
the Certificate is a true and complete copy of By-Laws of the Company, as in
full force and effect, and (iii) the names and true signatures of each officer
of the Company who has been authorized to execute and deliver this Agreement,
the Restated Stockholders' Agreement, the Restated Voting Agreement and any
other document required hereunder or thereunder to be executed and delivered by
or on behalf of the Company.
8.7 Resolutions. The Investor shall have received certified copies of
resolutions duly adopted by the Company's Board of Directors (and stockholders,
if necessary) authorizing the execution and delivery of this Agreement, the
Restated Stockholders' Agreement, the Restated Voting Agreement and each of the
other Company Closing Documents, the amendment and restatement of the
certificate of incorporation of the Company to authorize the Series E Shares,
the issuance and sale of the Series E Shares, the issuance and sale of the IPO
Shares, the reservation of the shares of Common Stock issuable upon conversion
of the Series E Shares and the performance of the Contemplated Transactions and
certifying that such resolutions were duly adopted, are in full force and effect
and have not been rescinded or amended.
8.8 Compliance Evidence. The Investor shall have received such
certificates, documents and information as it may reasonably request in order to
establish satisfaction of the conditions set forth in this Section 8.
9. Conditions to the Company's Obligations.
The obligations of the Company to effect the Closing or the IPO Closing, as
applicable, shall be subject to the satisfaction at or prior to the Closing or
the IPO Closing, as applicable, of the following conditions, any one or more of
which may be waived by the Company.
9.1 No Injunction. There shall not be in effect any injunction, order
or decree of a court of competent jurisdiction that prohibits or delays
consummation of any or all of the Contemplated Transactions.
9.2 Representations, Warranties and Agreements. The representations and
warranties of the Investor set forth in this Agreement shall be true and correct
in all material
13.
<PAGE>
respects as of the date of this Agreement and as of the Closing Date or the IPO
Closing Date, as applicable, with the same force and effect as though made at
such time. The Investor shall have performed and complied in all material
respects with the agreements contained in this Agreement required to be
performed and complied with by it prior to the Closing Date or the IPO Closing
Date. The Company shall have received a certificate as to the foregoing signed
by an officer of the Investor.
9.3 Regulatory Approvals. All licenses, authorizations, consents,
orders and regulatory approvals of Governmental Bodies necessary in the good
faith judgment of the Investor for the consummation of any or all of the
Contemplated Transactions to be effected at the Closing and the IPO Closing,
respectively, shall have been obtained and shall be in full force and effect.
9.4 Other Consents. Consents or waivers from parties other than
Governmental Bodies that are required in connection with the consummation of any
or all of the Contemplated Transactions shall have been obtained and shall be in
full force.
9.5 Secretary's Certificate of the Investor. The Company shall have
received a Certificate of the Secretary of the Investor, certifying the names
and true signatures of each officer of the Investor who has been authorized to
execute and deliver this Agreement, the Restated Stockholders' Agreement, the
Restated Voting Agreement and any other document required hereunder or
thereunder to be executed and delivered by or on behalf of the Investor.
9.6 Resolutions. The Company shall have received certified copies of
resolutions duly adopted by the Investor's Board of Directors (and stockholders,
if necessary) authorizing the execution and delivery of this Agreement, the
Restated Stockholders' Agreement, the Restated Voting Agreement and each of the
other documents to be delivered by the Investor hereunder and certifying that
such resolutions were duly adopted, are in full force and effect and have not
been rescinded or amended.
9.7 Compliance Evidence. The Company shall have received such
certificates, documents and information as it may reasonably request in order to
establish satisfaction of the conditions set forth in this Section 9.
9.8 Payment of Purchase Price. At the Closing, Investor shall have
tendered delivery of the Purchase Price as specified in Section 2.2 herein. At
the IPO Closing, the Investor shall have tendered delivery of the purchase price
for the IPO Shares as specified in Section 2.3.
10. Miscellaneous.
10.1 Notices. All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telex or telecopier (with receipt confirmed),
provided that a copy is mailed by certified mail, return receipt requested, or
(c) when received by the addressee, if sent by Express Mail, Federal Express or
other express delivery service (receipt requested), in each case to the
appropriate addresses, telex numbers and telecopier numbers set forth below (or
to such other
14.
<PAGE>
addresses, telex numbers and telecopier numbers as a party may designate as to
itself by notice to the other parties complying as to delivery with this Section
10.1):
If to the Company:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
Attention: Chief Executive Officer
with a copy to:
Cooley Godward llp
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Fax No.: (619) 453-3555
Attention: M. Wainwright Fishburn, Jr., Esq.
If to the Investor:
Novartis Agribusiness Biotechnology Research, Inc.
3054 Cornwallis Road
Research Triangle Park, NC 27709
Fax No.: (919) 541-8585
Attention: Dr. Juanjo Estruch
with a copy to:
Novartis Seeds, Inc.
7240 Holsclaw Road
Gilroy, CA 95020-8027
Fax No.: (408) 848-8129
Attention: Allen E. Norris, Esq.
10.2 Service of Process. Process in any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
against any of the parties, may be served on any party anywhere in the world,
whether within or without the State of California and may also be served upon
any party in the manner provided for giving of notices to it in Section 10.1.
10.3 Expenses. Each party shall bear its own expenses incident to the
preparation, negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder.
10.4 Payment. A wire transfer or delivery of a check shall not operate
to discharge any obligation of payment under this Agreement and is accepted
subject to collection.
15.
<PAGE>
10.5 Captions. The captions in this Agreement are for convenience of
reference only and shall not be given any effect in the interpretation of this
Agreement.
10.6 Attorneys' Fees. In any action or proceeding brought by a party to
enforce any provision of this Agreement, the prevailing party shall be entitled
to recover the reasonable costs and expenses incurred by it in connection with
that action or proceeding (including, but not limited to, attorneys' fees).
10.7 No Waiver. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
10.8 Exclusive Agreement; Amendment. This Agreement supersedes all prior
agreements among the parties with respect to its subject matter, is intended
(with the documents referred to herein) as a complete and exclusive statement of
the terms of the agreement among the parties with respect thereto and cannot be
changed or terminated except by a written instrument executed by the party or
parties against whom enforcement thereof is sought.
10.9 Severability. If any term, covenant or condition of this Agreement
or the application thereof to any party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (a) the remainder of this Agreement,
or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (b) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the parties that the basic purposes of this Agreement are to be effectuated.
10.10 Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party; provided that, after the
Closing, the Investor may upon ten (10) days prior written notice to the
Company, assign this Agreement to any of its affiliates (as defined by Rule 405
promulgated under the Securities Act) without the prior written consent of the
Company.
10.11 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective permitted
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
for in this Agreement.
10.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
16.
<PAGE>
10.13 Governing Law. This Agreement and (unless otherwise provided) all
amendments hereof and waivers and consents hereunder shall be governed by the
internal laws of the State of California, without regard to the conflicts of law
principles thereof.
10.14 Memorandum Regarding Purchase Price. A memorandum setting forth
certain agreements by Diversa and the Investor with regard to the Purchase Price
is attached hereto as Exhibit D.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17.
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement on the
date first above written, in the case of corporations by their respective
officers thereunto duly authorized.
Diversa Corporation
Dated:_________________________ By:______________________________
Name:____________________________
Title:___________________________
Novartis Agribusiness
Biotechnology Research, Inc.
Dated:_________________________ By:______________________________
Name:____________________________
Title:___________________________
18.
<PAGE>
<TABLE>
<CAPTION>
Table Of Contents
Page
<S> <C>
1. Definitions................................................................. 1
2. Purchase and Sale of Shares................................................. 4
2.1 Authorization of the Series E Preferred Stock...................... 4
2.2 Purchase and Sale of the Series E Shares........................... 4
2.3 Purchase and Sale of the IPO Shares................................ 4
3. Closing..................................................................... 4
3.1 Place and Time..................................................... 4
3.2 Deliveries by the Company.......................................... 5
3.3 Deliveries by the Investor......................................... 5
3.4 IPO Closing........................................................ 5
4. Representations and Warranties of the Company............................... 6
4.1 Organization of the Company; Authorization......................... 6
4.2 Capitalization..................................................... 6
4.5 Litigation......................................................... 9
4.6 Proprietary Rights................................................. 9
4.7 Compliance with Law................................................ 9
4.8 No Brokers, Finders or Investment Bankers.......................... 9
4.9 Disclosure......................................................... 9
5. Representations and Warranties of the Investor.............................. 10
5.1 Authorization...................................................... 10
5.2 Investment Representations......................................... 10
5.3 Investor's Acknowledgment as to Information........................ 11
5.4 No Brokers, Finders or Investment Bankers.......................... 11
6. Covenants of Investor....................................................... 11
6.1 Standstill Provision............................................... 11
6.2 Agreement Not to Sell.............................................. 11
6.3 Market Stand-Off Provision......................................... 12
7. Confidentiality............................................................. 12
8. Conditions to the Investor's Obligations.................................... 12
8.1 No Injunction...................................................... 12
</TABLE>
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
8.2 Representations, Warranties and Agreements......................... 12
8.3 Regulatory Approvals............................................... 12
8.4 Other Consents..................................................... 13
8.5 Secretary of State Certificates.................................... 13
8.6 Secretary's Certificate of the Company............................. 13
8.7 Resolutions........................................................ 13
8.8 Compliance Evidence................................................ 13
9. Conditions to the Company's Obligations..................................... 13
9.1 No Injunction...................................................... 13
9.2 Representations, Warranties and Agreements......................... 13
9.3 Regulatory Approvals............................................... 14
9.4 Other Consents..................................................... 14
9.5 Secretary's Certificate of the Investor............................ 14
9.6 Resolutions........................................................ 14
9.7 Compliance Evidence................................................ 14
9.8 Payment of Purchase Price.......................................... 14
10. Miscellaneous............................................................... 14
10.1 Notices............................................................ 14
10.2 Service of Process................................................. 15
10.3 Expenses........................................................... 15
10.4 Payment............................................................ 15
10.5 Captions........................................................... 16
10.6 Attorneys' Fees.................................................... 16
10.7 No Waiver.......................................................... 16
10.8 Exclusive Agreement; Amendment..................................... 16
10.9 Severability....................................................... 16
10.10 Assignment......................................................... 16
10.11 Successors and Assigns............................................. 16
10.12 Counterparts....................................................... 16
10.13 Governing Law...................................................... 17
</TABLE>
ii.
<PAGE>
Table Of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
10.14 Memorandum Regarding Purchase Price................................ 17
</TABLE>
iii.
<PAGE>
List of Schedules
Schedule No. Title
- ------------ -----
Schedule 4.2 Capitalization
Schedule 4.4 Undisclosed Liabilities
Schedule 4.5 Litigation
Schedule 4.7 Compliance with Law
Schedule 4.8 Brokers, Finders or Investment Bankers
iv.
<PAGE>
List of Exhibits
Exhibit Title
- ------- -----
Exhibit A Seventh Restated Certificate of Incorporation
Exhibit B Amended and Restated Stockholders' Agreement
Exhibit C Amended and Restated Voting Agreement
Exhibit D Memorandum Regarding Stock Purchase Agreement
v.
<PAGE>
SCHEDULES TO STOCK PURCHASE AGREEMENT
[SEE ATTACHED]
<PAGE>
Exhibit A
SEVENTH RESTATED CERTIFICATE OF INCORPORATION
<PAGE>
Exhibit B
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
<PAGE>
Exhibit C
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
Exhibit D
MEMORANDUM REGARDING STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
Dated as of January 25, 1999
by and between
DIVERSA CORPORATION
and
NOVARTIS AGRIBUSINESS
BIOTECHNOLOGY RESEARCH, INC.
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions.......................................................... 1
2. Purchase and Sale of Shares.......................................... 4
2.1 Authorization of the Series E Preferred Stock................... 4
2.2 Purchase and Sale of the Series E Shares........................ 4
2.3 Purchase and Sale of the IPO Shares............................. 4
3. Closing.............................................................. 4
3.1 Place and Time.................................................. 4
3.2 Deliveries by the Company....................................... 5
3.3 Deliveries by the Investor...................................... 5
3.4 IPO Closing..................................................... 5
4. Representations and Warranties of the Company........................ 6
4.1 Organization of the Company; Authorization...................... 6
4.2 Capitalization.................................................. 6
4.5 Litigation...................................................... 9
4.6 Proprietary Rights.............................................. 9
4.7 Compliance with Law............................................. 9
4.8 No Brokers, Finders or Investment Bankers....................... 9
4.9 Disclosure...................................................... 9
5. Representations and Warranties of the Investor....................... 10
5.1 Authorization................................................... 10
5.2 Investment Representations...................................... 10
5.3 Investor's Acknowledgment as to Information..................... 11
5.4 No Brokers, Finders or Investment Bankers....................... 11
6. Covenants of Investor................................................ 11
6.1 Standstill Provision............................................ 11
6.2 Agreement Not to Sell........................................... 11
6.3 Market Stand-Off Provision...................................... 12
7. Confidentiality...................................................... 12
8. Conditions to the Investor's Obligations............................. 12
8.1 No Injunction................................................... 12
</TABLE>
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
8.2 Representations, Warranties and Agreements..................... 12
8.3 Regulatory Approvals........................................... 12
8.4 Other Consents................................................. 13
8.5 Secretary of State Certificates................................ 13
8.6 Secretary's Certificate of the Company......................... 13
8.7 Resolutions.................................................... 13
8.8 Compliance Evidence............................................ 13
9. Conditions to the Company's Obligations.............................. 13
9.1 No Injunction.................................................. 13
9.2 Representations, Warranties and Agreements..................... 13
9.3 Regulatory Approvals........................................... 14
9.4 Other Consents................................................. 14
9.5 Secretary's Certificate of the Investor........................ 14
9.6 Resolutions.................................................... 14
9.7 Compliance Evidence............................................ 14
9.8 Payment of Purchase Price...................................... 14
10. Miscellaneous........................................................ 14
10.1 Notices........................................................ 14
10.2 Service of Process............................................. 15
10.3 Expenses....................................................... 15
10.4 Payment........................................................ 15
10.5 Captions....................................................... 16
10.6 Attorneys' Fees................................................ 16
10.7 No Waiver...................................................... 16
10.8 Exclusive Agreement; Amendment................................. 16
10.9 Severability................................................... 16
10.10 Assignment..................................................... 16
10.11 Successors and Assigns......................................... 16
10.12 Counterparts................................................... 16
10.13 Governing Law.................................................. 17
</TABLE>
ii.
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
10.14 Memorandum Regarding Purchase Price............................ 17
</TABLE>
iii.
<PAGE>
Stock Purchase Agreement
Stock Purchase Agreement dated as of January 25, 1999 (this "Agreement"),
by and between Novartis Agribusiness Biotechnology Research, Inc., a Delaware
corporation (the "Investor"), and Diversa Corporation, a Delaware corporation
(the "Company").
R E C I T A L S
Whereas, the Company and the Investor are parties to that certain
Collaboration Agreement dated as of even date herewith (the "Collaboration
Agreement") pursuant to which the Company and the Investor will collaborate on
the projects described therein; and
Whereas, in connection with such collaboration, the Company wishes to issue
and sell to the Investor, and the Investor wishes to purchase from the Company,
shares of the Company's capital stock, subject to and upon the terms and
conditions hereinafter set forth.
Now, Therefore, in consideration of the foregoing and of the respective
covenants and undertakings hereunder and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms have the meanings specified
or referred to in this Section 1.
"Board of Directors" shall mean the Board of Directors of the Company.
"Business" shall mean the business, operations and assets of the Company.
"By-Laws" shall mean the by-laws of the Company.
"Certificate of Incorporation" shall mean the Seventh Restated Certificate
of Incorporation in substantially the form attached hereto as Exhibit A.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall mean the date and time of the Closing.
"Collaboration Agreement" shall have the meaning set forth in the recitals
to this Agreement.
"Common Stock" shall mean the common stock, $.001 par value, of the
Company.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Company Closing Documents" shall mean all the documents, instruments and
writings required by this Agreement to be delivered by the Company at the
Closing.
1.
<PAGE>
"Contemplated Transactions" shall mean the transactions contemplated by
this Agreement.
"Encumbrance" shall mean any security interest, mortgage, lien, charge,
adverse claim or restriction of any kind, except for transfer restrictions
imposed by the Securities Act or the Exchange Act and state securities laws.
"Equity Stock" shall have the meaning set forth in Rule 3a11-1 under the
Exchange Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" shall mean generally accepted accounting principles of the United
States.
"Governmental Body" shall mean any United States or state government body,
any agency, commission or authority thereof, or any quasi-governmental or
private body exercising any regulatory or taxing authority thereunder.
"Investor" shall have the meaning set forth in the first paragraph of this
Agreement.
"IPO" and "IPO Shares" shall have the meanings set forth in Section 2.3.
"IPO Closing" and "IPO Closing Date" shall have the meanings set forth in
Section 3.4.
"Non-Scientific Founders" shall mean Gary Friedman and Dr. Peter Korn.
"Person" shall mean any individual, corporation, partnership, a limited
liability company, joint venture, trust, association, unincorporated
organization, other entity, or Governmental Body.
"Proprietary Rights" shall mean all patents, patent applications, patent
licenses, trademarks, tradenames, trade secrets, service marks, brand marks,
brand names, copyrights, copyright applications, inventions, technologies, know-
how, formulae, processes, names and likeness owned or licensed by the Company.
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Restated Stockholders' Agreement" shall mean the Amended and Restated
Stockholders' Agreement, amending and restating the Stockholders' Agreement in
substantially the form attached hereto as Exhibit B, to be entered into by and
among the Company and certain holders of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock of the Company as of the Closing Date.
"Restated Voting Agreement" shall mean the Amended and Restated Voting
Agreement, amending and restating the Voting Agreement in substantially the form
attached hereto as Exhibit C, to be entered into by and among the Company,
certain holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock
2.
<PAGE>
and Series E Preferred Stock and certain of the holders of Common Stock of the
Company as of the Closing Date.
"Restricted Stock Agreements" shall mean the Restricted Stock Agreements
dated December 21, 1994 between the Company and each of the Scientific Founders
and the Non-Scientific Founders and the Restricted Stock Agreement dated
December 15, 1994 between the Company and Barry Marrs.
"Restricted Stock Option Agreements" shall mean the Restricted Stock Option
Agreements dated December 21, 1994 between the Company and each of the
Scientific Founders and the Non-Scientific Founders and the Restricted Stock
Option Agreement dated December 19, 1994 between the Company and Barry Marrs.
"Scientific Founders" shall mean Dr. Melvin Simon, Dr. Jeffrey H. Miller,
Dr. Karl Stetter and William A. Haseltine.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series C Preferred Stock" shall mean the Series C Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series D Preferred Stock" shall mean the Series D Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series E Preferred Stock" shall mean the Series E Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series E Shares" shall have the meaning set forth in Section 2.2.
"Stockholders' Agreement" shall mean the Stockholders' Agreement dated as
of May 13, 1996, as amended on July 14, 1997 and October 22, 1997, by and among
the Company and certain holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock of the Company.
"Voting Agreement" shall mean the Voting Agreement dated as of May 13,
1996, as amended on July 14, 1997 and October 22, 1997, by and among the
Company, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock and certain of the holders
of Common Stock of the Company.
3.
<PAGE>
2. Purchase and Sale of Shares.
2.1 Authorization of the Series E Preferred Stock. On or before the
Closing, the Company shall adopt and file with the Secretary of State of the
State of Delaware the Certificate of Incorporation. The Series E Preferred Stock
shall have the voting powers, dividend rights, liquidation rights, designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof, set forth in the
Certificate of Incorporation, the terms of which are incorporated herein by
reference as though set forth herein in full.
2.2 Purchase and Sale of the Series E Shares. Subject to the terms and
conditions of this Agreement, at the Closing to be held as provided in Section
3, the Company shall issue, sell and deliver to the Investor, and the Investor
shall purchase from the Company, 5,555,556 shares of Series E Preferred Stock
(the "Series E Shares"), free and clear of all Encumbrances, for the purchase
price of $12,500,001 (the "Purchase Price"). The Purchase Price shall be paid by
the Investor to the Company at the Closing in immediately available funds by
wire transfer or by delivery of bank cashier's checks or certified checks or by
such other form as approved by the Company.
2.3 Purchase and Sale of the IPO Shares. Subject to the terms and
conditions hereof, at the time that the Company completes an initial
underwritten public offering of its Common Stock (an "IPO") in which the Company
realizes aggregate net proceeds of at least $10,000,000, the Investor shall have
the right to purchase from the Company that number of shares of the Company's
Common Stock having an aggregate value of up to 10% of the aggregate gross
proceeds of the IPO (the "IPO Shares"), to be issued and sold in a private
placement to close simultaneously with the completion of the IPO, at the price
per share to the public in the IPO. The Company shall provide prompt written
notice to the Investor of the proposed IPO and the Investor shall have 20 days
following the date of such notice from the Company to exercise its right to
purchase the IPO shares by providing written notice to the Company, which notice
shall specify the anticipated number of IPO shares to be purchased (subject to
adjustment based on the actual gross proceeds of the IPO and the actual price
per share to the public in the IPO). If the Investor does not provide written
notice to the Company within such 20-day period or provides written notice to
the Company within such 20-day period that it does not wish to purchase the IPO
shares, then the Investor shall have no further right to purchase shares from
the Company, unless the Company does not complete the proposed IPO within nine
months of the date of the Company's notice of such proposed IPO, in which case
the Investor will again have the right set forth in this Section 2.3. If the
Investor provides written notice to the Company of its election to purchase the
IPO Shares within such 20-day period, then the Investor shall purchase from the
Company, and the Company shall issue and sell to the Investor, the IPO Shares in
a private placement to close simultaneously with the closing of the IPO.
3. Closing.
3.1 Place and Time. The closing of the sale and purchase of the Series E
Shares pursuant to Section 2.2 (the "Closing") shall take place at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California,
at 10:00 a.m. (San Diego time) on
4.
<PAGE>
January 4, 1999 following the satisfaction of the conditions set forth in
Sections 8 and 9, or at such other place, date and time as the parties may agree
in writing.
3.2 Deliveries by the Company. At the Closing, the Company shall deliver
the following to the Investor:
(a) A certificate representing the Series E Shares delivered pursuant
to Section 2.2, duly registered in the name of the Investor.
(b) The documents set forth in Section 8.
(c) The Restated Stockholders' Agreement.
(d) The Restated Voting Agreement.
(e) All other documents, instruments and writings required by this
Agreement to be delivered by the Company at the Closing.
3.3 Deliveries by the Investor. At the Closing, the Investor shall
deliver the following to the Company:
(a) A wire transfer of immediately available US dollar funds in the
amount of the Purchase Price to an account designated by the Company not less
than two (2) days prior to the Closing.
(b) The documents set forth in Section 9.
(c) An executed signature page to the Restated Stockholders'
Agreement.
(d) An executed signature page to the Restated Voting Agreement.
(e) All other documents, instruments and writings required by this
Agreement to be delivered by the Investor at the Closing.
3.4 IPO Closing. Subject to the terms of Sections 8 and 9, the closing of
the sale and purchase of the IPO Shares under this Agreement (the "IPO Closing")
shall be held at the time and date of the completion of the IPO (the "IPO
Closing Date") at the offices of Cooley Godward, 4365 Executive Drive, Suite
1100, San Diego, California, or at such time and place as the Company and the
Investor may agree. At the IPO Closing, subject to the terms and conditions
hereof, the Company shall deliver to the Investor a stock certificate registered
in the name of Investor representing the IPO Shares, dated as of the IPO Closing
Date, against payment of the purchase price therefor by wire transfer of
immediately available US dollar funds to an account designated by the Company
not less than two (2) days prior to the IPO Closing.
5.
<PAGE>
4. Representations and Warranties of the Company.
The Company represents and warrants to the Investor as follows:
4.1 Organization of the Company; Authorization.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full corporate
power and authority to enter into this Agreement, the Restated Stockholders'
Agreement and the Restated Voting Agreement and to perform all of its
obligations hereunder and thereunder, and to own or lease its properties and to
engage in its business as presently conducted. The Company is duly qualified and
in good standing as a foreign corporation under the laws of each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties. The Company has no subsidiaries, nor does it own any
equity interest in, or control directly or indirectly, any other entity.
(b) The execution, delivery and performance of this Agreement, the
Restated Stockholders' Agreement and the Restated Voting Agreement by the
Company have been authorized by all necessary action and constitute valid and
binding obligations of the Company, enforceable against it in accordance with
their terms.
4.2 Capitalization.
(a) As of the Closing, the authorized Equity Stock of the Company
will consist of (i) 82,472,584 shares of Common Stock, of which 5,347,322 shares
are issued and outstanding, (ii) 10,501,000 shares of Series A Preferred Stock,
of which 10,000,000 shares are issued and outstanding, (iii) 24,566,184 shares
of Series B Preferred Stock, all of which are issued and outstanding, (iv)
844,444 shares of Series C Preferred Stock, all of which are issued and
outstanding, (v) 24,809,555 shares of Series D Preferred Stock, all of which are
issued and outstanding, and (vi) 5,555,556 shares of Series E Preferred Stock,
none of which are issued and outstanding (excluding the Series E Shares). All of
such issued and outstanding shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(b) A true and complete list of the holders of record of all issued
and outstanding Equity Stock of the Company on the date hereof and reflecting
the issuance of the Series E Shares on the Closing Date, including the number of
shares of Equity Stock owned by each such holder, and the number of shares of
Equity Stock reserved by the Company for each specified purpose is set forth on
Schedule 4.2 hereto.
(c) The issuance of the Series E Shares to be issued to the Investor
hereunder simultaneously with the Closing and the shares of Common Stock
issuable upon conversion of the Series E Shares have been or will be on or prior
to the Closing duly authorized. The Company has or will on or prior to the
Closing duly reserve for issuance the shares of Common Stock issuable upon
conversion of the Series E Shares. No further approval or authorization of the
stockholders or the directors of the Company, of any Governmental Body or
foreign governmental body or of any other Person is required for the issuance
and sale of the Series E Shares or the shares of Common Stock issuable on
conversion thereof. When paid for by, and issued to, the Investor, the Series E
Shares will be validly issued, fully paid and non-assessable,
6.
<PAGE>
and, except as set forth in this Agreement, the Restated Stockholders'
Agreement, the Restated Voting Agreement or the Certificate of Incorporation or
under applicable law, will not be subject to any restriction on use, voting or
transfer. The Series E Preferred Stock will have the designations, preferences
and relative participating, optional and other special rights as set forth in
the Certificate of Incorporation. The shares of Common Stock issuable to the
Investor upon conversion of the Series E Shares will, upon conversion of the
Series E Shares in accordance with the Certificate of Incorporation, be validly
issued, fully paid and non-assessable, and, except as set forth in this
Agreement, the Restated Stockholders' Agreement, the Restated Voting Agreement
or the Certificate of Incorporation or under applicable law, will not be subject
to any restriction on use, voting or transfer. Assuming the truth of the
Investor's representations and warranties contained in Section 5, the offer,
sale and issuance of the Series E Shares (and any shares of Common Stock
issuable on conversion thereof) are exempt from the registration requirements of
the Securities Act and applicable state securities laws.
(d) Except as set forth in Schedule 4.2 hereto, there are no
outstanding options, rights, conversion rights, agreements or commitments of any
kind relating to the issuance, sale, purchase, redemption, voting or transfer by
the Company of any Equity Stock or other securities of the Company or any rights
outstanding which permit or allow the holder thereof to cause the Company to
file a registration statement or which permit or allow the holder thereof to
include securities of the Company in a registration statement filed by the
Company, other than the rights granted pursuant to the Restricted Stock
Agreements, Restricted Stock Option Agreements, the Restated Stockholders'
Agreement and the Restated Voting Agreement. There are no preemptive or other
similar rights with respect to any Equity Stock of the Company except rights
granted under the Stockholders' Agreement. None of the outstanding Equity Stock
or other securities of the Company was issued in violation of the Securities
Act, or the securities or blue sky laws of any state. The Company has delivered
to the Investor copies of the certificate of incorporation and by-laws (or other
governing instrument) of the Company, as currently in effect.
(e) In the event of the IPO, the Company will update the
capitalization information set forth in subsections (a) through (d) above to the
IPO Closing Date.
4.3 No Conflict as to the Company. Neither the execution and delivery of
this Agreement, the Restated Stockholders' Agreement or the Restated Voting
Agreement, nor the issuance of the Series E Shares or the Common Stock issuable
on conversion thereof will (a) violate any provision of the Certificate of
Incorporation or By-Laws of the Company or (b) violate, or be in conflict with,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or excuse performance by any Person of
any of its obligations under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, or result in the creation or imposition of any
material Encumbrance upon any property or assets of the Company under, any
material agreement to which the Company is a party or by which the Company or
any of its property is bound, or (c) violate any statute or law or any judgment,
decree, order, regulation or rule of any court or other Governmental Body
applicable to the Company.
7.
<PAGE>
4.4 Financial Statements; Financial Position; Absence of Undisclosed
Liabilities.
(a) The Company has delivered to the Investor a copy of the Company's
audited financial statements as of December 31, 1997 and for the fiscal year
then ended, together with the notes thereto (the "Annual Financial Statements"),
and a balance sheet of the Company as of October 31, 1998 (such balance sheet
shall hereafter be referred to as the "Current Balance Sheet") and the related
income statement for the fiscal quarter then ended (the "Current Financial
Statements"; the Current Financial Statements together with the Annual Financial
Statements are collectively referred to herein as the "Financial Statements").
Except as set forth on Schedule 4.4 hereto, the Financial Statements (i) present
fairly the financial condition of the Company as of their respective dates and
the results of operations for their respective periods (subject to, in the case
of the Current Financial Statements, year-end and audit adjustments), (ii) were
prepared in accordance with the books and records of the Company, (iii) are true
and correct and complete and (iv) present fairly the financial position and
related results of operations of the Company as of the times and for the periods
referred to therein, in accordance with GAAP consistently applied throughout the
period involved and prior periods. Furthermore, except as set forth in Schedule
4.4 hereto, the Company hereby confirms that there have been no changes during
the periods covered in the Financial Statements in the Company's accounting
principles and practices.
(b) As of the date hereof, except as set forth on Schedule 4.4
hereto, (i) the Company has no indebtedness or liabilities of any nature
(matured or unmatured, fixed or contingent, direct or indirect, as guarantor or
in any other capacity) which are not set forth on the Current Balance Sheet, and
(ii) all reserves established by the Company and set forth on the Current
Balance Sheet are adequate for the purposes for which they were established.
(c) Except as described elsewhere in this Agreement or as set forth
on Schedule 4.4 hereto, since the date of the Current Balance Sheet:
(i) the Company has not entered into any transaction which was
not in the ordinary course of its business;
(ii) there has been no material adverse change in the Business
of the Company;
(iii) there has been no damage to, or destruction or loss of,
physical property (whether or not covered by insurance) which may have a
material adverse effect on the Business of the Company;
(iv) the Company has not declared or paid any cash dividend or
made any distribution on its securities, or redeemed, purchased, or otherwise
acquired any of its securities;
(v) the Company has not received any notice that there has been
a loss of, or cancellation of a material order by, any customer of the Company;
(vi) there has been no resignation or termination of employment
of any key employee of the Company;
8.
<PAGE>
(vii) there has been no borrowing or agreement to borrow by the
Company or change in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty, or otherwise or grant of a mortgage
or security interest in any properties of the Company;
(viii) there has not been any payment of any obligation or
liability other than current liabilities paid in the ordinary course of
business; and
(ix) there has been no sale, assignment, transfer or
encumbrance of any tangible asset of the Company except in the ordinary course
of business and no sale, assignment, transfer or encumbrance of any Proprietary
Right or other intangible asset of the Company or, to the knowledge of the
Company, any unauthorized disclosure of any proprietary confidential information
of the Company.
4.5 Litigation. Except as set forth in Schedule 4.5 hereto, there is no
litigation arbitration, claim, action, suit, governmental or other proceeding
(formal or informal) or investigation pending with respect to the Company or any
of its businesses, properties or assets, or, to the Company's knowledge, any of
its directors, officers or employees to the extent such proceeding relates to
the business of the Company. Except as set forth in Schedule 4.5 hereto, the
Company is not subject to any judgment, order or decree.
4.6 Proprietary Rights. To the Company's current actual knowledge, (a)
the Company has sufficient ownership or rights to all patents, patent
applications, trademarks, copyrights, trade secrets and other proprietary rights
necessary for its business as currently conducted and (b) the Company has
received no claims or charges that the Company's business as currently conducted
infringes any patents, patent applications, trademarks, copyrights, trade
secrets or other propriety rights of third parties.
4.7 Compliance with Law. Except as set forth on Schedule 4.7 hereto, the
operations of the Company have been conducted in all material respects in
accordance with all applicable laws, regulations and other requirements of all
Governmental Bodies having jurisdiction over the Company. The Company has not
received any notification of any asserted present or past failure by the Company
to comply with any such laws, rules or regulations.
4.8 No Brokers, Finders or Investment Bankers. Except as set forth in
Schedule 4.8 hereto, neither the Company nor any of its officers or directors
has employed any broker, or investment banker or incurred any liability which
remains unsatisfied for any brokerage or finder's fees or commissions or similar
payments in connection with this Agreement or the Contemplated Transactions.
4.9 Disclosure. No representations or warranties by the Company in this
Agreement and no statement contained in any document (including, without
limitation, the financial statements, certificates, or other writing furnished
or to be furnished to the Investor or any of its representatives pursuant to the
provisions hereof or in connection with the Contemplated Transactions) contains
any untrue statement of material fact or omits to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading. Documents delivered or to
be delivered to the Investor
9.
<PAGE>
pursuant to this Agreement are true and complete copies of what they purport to
be. Any projections or budgets with respect to the Company furnished to the
Investor or any of its representatives pursuant to the provisions hereof or in
connection with the Contemplated Transactions, have been prepared with
reasonable care, are based on good faith estimates and assumptions, and
represent good faith projections of results of operations to be achieved for the
periods covered by such projections or budgets. The Company does not warrant
that the projections can or will be achieved.
5. Representations and Warranties of the Investor.
The Investor represents and warrants to the Company as follows:
5.1 Authorization. The Investor has the full power and authority to enter
into this Agreement, the Restated Stockholders' Agreement and the Restated
Voting Agreement and to perform all of its obligations hereunder and thereunder.
The execution, delivery and performance of this Agreement, the Restated
Stockholders' Agreement and the Restated Voting Agreement by it have been duly
authorized by all necessary action and constitute valid and binding obligations
of the Investor, enforceable against it in accordance with their terms. The
execution, delivery and performance of this Agreement, the Restated
Stockholders' Agreement and the Restated Voting Agreement by the Investor does
not violate any provision of the governing instrument of the Investor, conflict
with or constitute a default under any material agreement, indenture or
instrument to which the Investor is a party or by which it or its property is
bound or violate any statute or law or any judgment, decree, order, regulation
or rule of any court or other Governmental Body applicable to the Investor.
5.2 Investment Representations. The Investor has knowledge and experience
in financial and business matters sufficient to enable it to evaluate the merits
and risks of an investment in the Series E Shares and the IPO Shares. The
Investor has assets sufficient to enable it to bear the economic risk of its
investment in the Series E Shares and the IPO Shares and has assets in excess of
Five Million Dollars ($5,000,000). The Investor is acquiring the Series E Shares
and the IPO Shares for its own account and not with a present view to, or for
sale in connection with, any distribution thereof. The Investor understands
that: the Series E Shares (and the Common Stock issuable upon conversion
thereof) have not been, and the IPO Shares will not be, registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to the exemption
provided in Section 4(2) thereof; the Series E Shares (and the Common Stock
issuable upon conversion thereof) have not been, and the IPO Shares will not be,
registered under applicable state securities laws by reason of their issuance in
a transaction exempt from such registration requirements; and the Series E
Shares (and the Common Stock issuable upon conversion thereof) and the IPO
Shares may not be sold or otherwise disposed of unless registered under the
Securities Act and applicable state securities laws (the Company being under no
obligation so to register such Series E Shares, the Common Stock issuable on
conversion thereof or the IPO Shares) or exempted from registration. The
Investor further understands that the exemption from registration afforded by
Rule 144 promulgated under the Securities Act is not presently available with
respect to the Series E Shares, the Common Stock issuable upon conversion
thereof and the IPO Shares.
10.
<PAGE>
5.3 Investor's Acknowledgment as to Information. The Investor or its
representatives have received from the Company such information as they
requested with respect to the Company as the Investor has deemed necessary and
relevant in connection with the Contemplated Transactions, and the Investor has
had the opportunity, directly or through such representatives, to ask questions
of and receive answers from persons acting on behalf of the Company necessary to
verify the information so obtained.
5.4 No Brokers, Finders or Investment Bankers. Neither the Investor nor
any of its officers or directors has employed any broker, finder or investment
banker or incurred any liability which remains unsatisfied for any brokerage or
finder's fees or commissions or similar payments in connection with this
Agreement or the Contemplated Transactions.
6. Covenants of Investor.
6.1 Standstill Provision. From and after the date of this Agreement, the
Investor shall not, and shall cause its affiliates not to, in any manner, singly
or as part of a partnership, limited partnership, syndicate or other "Group"
(within the meaning of Section 13(d)(3) of the Exchange Act), directly or
indirectly, acquire, or offer or agree to acquire, record ownership or
beneficial ownership in the aggregate greater than 9.9% of the shares of capital
stock of the Company, including but not limited to any securities convertible
into or exchangeable for capital stock or any other right to acquire capital
stock from the Company or any other person (i.e., on a fully-diluted basis),
without the prior written consent of the Company; provided, however, that this
clause shall not apply to (a) any securities obtained or purchased by Investor
pursuant to rights set forth in this Agreement, including but not limited to the
Series E Shares, the Common Stock issuable upon conversion thereof and the IPO
Shares, and (b) any securities issued with respect to the Series E Shares or the
IPO Shares pursuant to a stock split, stock dividend, recapitalization or
reclassification approved by the Company's Board of Directors; and provided,
further, that this clause shall not apply to any securities of the Company held
indirectly by the Investor through one or more investments in any of the
Stockholders listed, as of the date hereof, on the Restated Stockholders'
Agreement, so long as neither Investor, nor any of its affiliates, exercises
"control" (within the meaning of Rule 12b-2 promulgated under the Exchange Act)
with regard to such Stockholder.
6.2 Agreement Not to Sell. The Investor hereby covenants and agrees that
it will not, nor will it permit any of its affiliates (including parents,
subsidiaries or other related entities) to, directly or indirectly sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose or any of the Series E
Shares, the Common Stock issuable upon conversion thereof or the IPO Shares
without the prior written consent of the Company during the period from the
Closing Date or the IPO Closing Date, as applicable, through the later of (a)
completion of the work conducted under all Project Plans under the Collaboration
Agreement; or (b) the earlier of (i) the fifth anniversary of the date of this
Agreement or (ii) the second anniversary of the IPO Closing Date. In order to
enforce the provisions of this Section 6.2, the Company may impose stop-transfer
instructions with respect to the securities held by the Investor and its
affiliates that are subject to the foregoing restriction until the end of such
period.
11.
<PAGE>
6.3 Market Stand-Off Provision. The Investor agrees that, during the
period of duration specified by the Company and an underwriter of Common Stock
or other securities of the Company following the effective date of a
registration statement of the Company filed under the Securities Act (which
period shall not exceed 180 days), the Investor shall not, to the extent
requested by the Company, directly or indirectly sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of any securities of the Company held by the
Investor at any time during such period. In order to enforce the provisions of
this Section 6.3, the Company may impose stop-transfer instructions with respect
to the securities held by the Investor and its affiliates that are subject to
the foregoing restriction until the end of such period.
7. Confidentiality.
All information heretofore or hereafter furnished to the Investor by the
Company or on the Company's behalf under this Agreement or in connection with
the Contemplated Transactions shall be deemed Confidential Information, as
defined in Section 7.1 of the Collaboration Agreement, and the provisions of
Section 7 of the Collaboration Agreement (which are hereby incorporated herein
by reference) shall apply to all such Confidential Information.
8. Conditions to the Investor's Obligations.
The obligations of the Investor to effect the Closing or the IPO Closing,
as applicable, shall be subject to the satisfaction at or prior to the Closing
or the IPO Closing, as applicable, of the following conditions, any one or more
of which may be waived by the Investor:
8.1 No Injunction. There shall not be in effect any injunction, order or
decree of a court of competent jurisdiction that prohibits or delays
consummation of any or all of the Contemplated Transactions.
8.2 Representations, Warranties and Agreements. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date or the IPO Closing Date, as applicable, with the same force and effect as
though made at such time; provided, however, that the representations and
warrants shall be modified as required to reflect changes occurring between the
date of this Agreement and the Closing Date or the IPO Closing Date, as
applicable. The Company shall have performed and complied in all material
respects with all agreements, covenants and conditions contained in this
Agreement required to be performed and complied with by it at or prior to the
Closing Date or the IPO Closing Date, as applicable. The Investor shall have
received a certificate as to the foregoing signed by the Chief Executive Officer
of the Company.
8.3 Regulatory Approvals. All licenses, authorizations, consents, orders
and regulatory approvals of Governmental Bodies necessary in the good faith
judgment of the Investor for the consummation of any or all of the Contemplated
Transactions to be effected at the Closing and the IPO Closing, respectively,
shall have been obtained and shall be in full force.
12.
<PAGE>
8.4 Other Consents. Consents or waivers from parties other than
Governmental Bodies that are required in connection with the consummation of any
or all of the Contemplated Transactions shall have been obtained and shall be in
full force.
8.5 Secretary of State Certificates. The Investor shall have received (i)
a copy of the Certificate of Incorporation certified as of a recent date by the
Secretary of State of Delaware, and (ii) Certificates of the Secretary of State
of the State of Delaware with respect to the Company, and of each state in which
the Company is qualified to do business as a foreign corporation, as of a recent
date showing the Company to be validly existing or qualified as a foreign
corporation in its states of existence and qualification, as the case may be,
and in good standing.
8.6 Secretary's Certificate of the Company. The Investor shall have
received a Certificate of the Secretary of the Company, certifying (i) that no
document has been filed relating to or affecting the Certificate of
Incorporation of the Company after the date of the Certificate of the Secretary
of State of Delaware furnished pursuant to Section 8.5, (ii) that attached to
the Certificate is a true and complete copy of By-Laws of the Company, as in
full force and effect, and (iii) the names and true signatures of each officer
of the Company who has been authorized to execute and deliver this Agreement,
the Restated Stockholders' Agreement, the Restated Voting Agreement and any
other document required hereunder or thereunder to be executed and delivered by
or on behalf of the Company.
8.7 Resolutions. The Investor shall have received certified copies of
resolutions duly adopted by the Company's Board of Directors (and stockholders,
if necessary) authorizing the execution and delivery of this Agreement, the
Restated Stockholders' Agreement, the Restated Voting Agreement and each of the
other Company Closing Documents, the amendment and restatement of the
certificate of incorporation of the Company to authorize the Series E Shares,
the issuance and sale of the Series E Shares, the issuance and sale of the IPO
Shares, the reservation of the shares of Common Stock issuable upon conversion
of the Series E Shares and the performance of the Contemplated Transactions and
certifying that such resolutions were duly adopted, are in full force and effect
and have not been rescinded or amended.
8.8 Compliance Evidence. The Investor shall have received such
certificates, documents and information as it may reasonably request in order to
establish satisfaction of the conditions set forth in this Section 8.
9. Conditions to the Company's Obligations.
The obligations of the Company to effect the Closing or the IPO Closing, as
applicable, shall be subject to the satisfaction at or prior to the Closing or
the IPO Closing, as applicable, of the following conditions, any one or more of
which may be waived by the Company.
9.1 No Injunction. There shall not be in effect any injunction, order or
decree of a court of competent jurisdiction that prohibits or delays
consummation of any or all of the Contemplated Transactions.
9.2 Representations, Warranties and Agreements. The representations and
warranties of the Investor set forth in this Agreement shall be true and correct
in all material
13.
<PAGE>
respects as of the date of this Agreement and as of the Closing Date or the IPO
Closing Date, as applicable, with the same force and effect as though made at
such time. The Investor shall have performed and complied in all material
respects with the agreements contained in this Agreement required to be
performed and complied with by it prior to the Closing Date or the IPO Closing
Date. The Company shall have received a certificate as to the foregoing signed
by an officer of the Investor.
9.3 Regulatory Approvals. All licenses, authorizations, consents, orders
and regulatory approvals of Governmental Bodies necessary in the good faith
judgment of the Investor for the consummation of any or all of the Contemplated
Transactions to be effected at the Closing and the IPO Closing, respectively,
shall have been obtained and shall be in full force and effect.
9.4 Other Consents. Consents or waivers from parties other than
Governmental Bodies that are required in connection with the consummation of any
or all of the Contemplated Transactions shall have been obtained and shall be in
full force.
9.5 Secretary's Certificate of the Investor. The Company shall have
received a Certificate of the Secretary of the Investor, certifying the names
and true signatures of each officer of the Investor who has been authorized to
execute and deliver this Agreement, the Restated Stockholders' Agreement, the
Restated Voting Agreement and any other document required hereunder or
thereunder to be executed and delivered by or on behalf of the Investor.
9.6 Resolutions. The Company shall have received certified copies of
resolutions duly adopted by the Investor's Board of Directors (and stockholders,
if necessary) authorizing the execution and delivery of this Agreement, the
Restated Stockholders' Agreement, the Restated Voting Agreement and each of the
other documents to be delivered by the Investor hereunder and certifying that
such resolutions were duly adopted, are in full force and effect and have not
been rescinded or amended.
9.7 Compliance Evidence. The Company shall have received such
certificates, documents and information as it may reasonably request in order to
establish satisfaction of the conditions set forth in this Section 9.
9.8 Payment of Purchase Price. At the Closing, Investor shall have
tendered delivery of the Purchase Price as specified in Section 2.2 herein. At
the IPO Closing, the Investor shall have tendered delivery of the purchase price
for the IPO Shares as specified in Section 2.3.
10. Miscellaneous.
10.1 Notices. All notices, consents and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telex or telecopier (with receipt confirmed),
provided that a copy is mailed by certified mail, return receipt requested, or
(c) when received by the addressee, if sent by Express Mail, Federal Express or
other express delivery service (receipt requested), in each case to the
appropriate addresses, telex numbers and telecopier numbers set forth below (or
to such other
14.
<PAGE>
addresses, telex numbers and telecopier numbers as a party may designate as to
itself by notice to the other parties complying as to delivery with this Section
10.1):
If to the Company:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
Attention: Chief Executive Officer
with a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121
Fax No.: (619) 453-3555
Attention: M. Wainwright Fishburn, Jr., Esq.
If to the Investor:
Novartis Agribusiness Biotechnology Research, Inc.
3054 Cornwallis Road
Research Triangle Park, NC 27709
Fax No.: (919) 541-8585
Attention: Dr. Juanjo Estruch
with a copy to:
Novartis Seeds, Inc.
7240 Holsclaw Road
Gilroy, CA 95020-8027
Fax No.: (408) 848-8129
Attention: Allen E. Norris, Esq.
10.2 Service of Process. Process in any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
against any of the parties, may be served on any party anywhere in the world,
whether within or without the State of California and may also be served upon
any party in the manner provided for giving of notices to it in Section 10.1.
10.3 Expenses. Each party shall bear its own expenses incident to the
preparation, negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder.
10.4 Payment. A wire transfer or delivery of a check shall not operate to
discharge any obligation of payment under this Agreement and is accepted subject
to collection.
15.
<PAGE>
10.5 Captions. The captions in this Agreement are for convenience of
reference only and shall not be given any effect in the interpretation of this
Agreement.
10.6 Attorneys' Fees. In any action or proceeding brought by a party to
enforce any provision of this Agreement, the prevailing party shall be entitled
to recover the reasonable costs and expenses incurred by it in connection with
that action or proceeding (including, but not limited to, attorneys' fees).
10.7 No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
10.8 Exclusive Agreement; Amendment. This Agreement supersedes all prior
agreements among the parties with respect to its subject matter, is intended
(with the documents referred to herein) as a complete and exclusive statement of
the terms of the agreement among the parties with respect thereto and cannot be
changed or terminated except by a written instrument executed by the party or
parties against whom enforcement thereof is sought.
10.9 Severability. If any term, covenant or condition of this Agreement
or the application thereof to any party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (a) the remainder of this Agreement,
or the application of such term, covenant or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (b) the parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the parties that the basic purposes of this Agreement are to be effectuated.
10.10 Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party; provided that, after the
Closing, the Investor may upon ten (10) days prior written notice to the
Company, assign this Agreement to any of its affiliates (as defined by Rule 405
promulgated under the Securities Act) without the prior written consent of the
Company.
10.11 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective permitted
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
for in this Agreement.
10.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
16.
<PAGE>
10.13 Governing Law. This Agreement and (unless otherwise provided) all
amendments hereof and waivers and consents hereunder shall be governed by the
internal laws of the State of California, without regard to the conflicts of law
principles thereof.
10.14 Memorandum Regarding Purchase Price. A memorandum setting forth
certain agreements by Diversa and the Investor with regard to the Purchase Price
is attached hereto as Exhibit D.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17.
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement on the
date first above written, in the case of corporations by their respective
officers thereunto duly authorized.
Diversa Corporation
Dated:____________________________ By:____________________________
Name:__________________________
Title:_________________________
Novartis Agribusiness
Biotechnology Research, Inc.
Dated:____________________________ By:____________________________
Name:__________________________
Title:_________________________
18.
<PAGE>
List of Schedules
Schedule No. Title
- ------------ --------------------------------------------------
Schedule 4.2 Capitalization
Schedule 4.4 Undisclosed Liabilities
Schedule 4.5 Litigation
Schedule 4.7 Compliance with Law
Schedule 4.8 Brokers, Finders or Investment Bankers
iv.
<PAGE>
List of Exhibits
Exhibit Title
- ------------ --------------------------------------------------
Exhibit A Seventh Restated Certificate of Incorporation
Exhibit B Amended and Restated Stockholders' Agreement
Exhibit C Amended and Restated Voting Agreement
Exhibit D Memorandum Regarding Stock Purchase Agreement
v.
<PAGE>
SCHEDULES TO STOCK PURCHASE AGREEMENT
[SEE ATTACHED]
<PAGE>
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions, dated as of the Closing Date, is made and
given pursuant to Section 4 of the Stock Purchase Agreement by and between
Diversa Corporation (the "Company") and Novartis Agribusiness Biotechnology
Research, Inc. (the "Investor"), dated as of January 25, 1999 (the "Agreement").
The section numbers in this Schedule of Exceptions correspond to the
section numbers in the Agreement; however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number under the Agreement where such disclosure would be
appropriate. Any terms defined in the Agreement shall have the same meaning
when used in this Schedule of Exceptions as when used in the Agreement unless
the context otherwise requires. In addition, any summaries or descriptions of
agreements that may be contained herein are intended to serve as identifying
aids to such agreements and are not meant to be complete descriptions of all of
the material terms to such agreements. All information set forth in the
Schedules and Exhibits to the Agreement are deemed incorporated by reference
into this Schedule of Exceptions.
<PAGE>
SCHEDULE 4.4(a) FINANCIAL STATEMENTS; FINANCIAL POSITION; ABSENCE
OF UNDISCLOSED LIABILITIES.
Effective with the 1995 fiscal year end, the Company changed its fiscal
year end from a calendar year end method to a fiscal year ending on the closest
Saturday to December 31 (also commonly called a 52/53 week fiscal year end
method). Effective with the 1997 fiscal year end, the Company changed its fiscal
year end from the 52/53 week fiscal year end method to the calendar year end
method. These changes in accounting method caused no material change in the
financial results that would have been reported for such periods.
<PAGE>
SCHEDULE 4.2 - CAPITALIZATION
DIVERSA CORPORATION
CAPITAILIZATION TABLE
Actual Prior To Series E Closing
[*]
FOOTNOTES:
- ----------
(a) [*]
(b) [*]
(c) [*]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE 4.2 - CAPITALIZATION
DIVERSA CORPORATION
CAPITALIZATION TABLE
Projected After Series E Closing
* CONFIDENTIAL TREATMENT REQUESTED
FOOTNOTES:
- ---------
(a) [*]
(b) [*]
(c) [*]
<PAGE>
SCHEDULE 4.4(b) FINANCIAL STATEMENTS; FINANCIAL POSITION; ABSENCE
OF UNDISCLOSED LIABILITIES.
None
<PAGE>
SCHEDULE 4.4(c) FINANCIAL STATEMENTS; FINANCIAL POSITION; ABSENCE
OF UNDISCLOSED LIABILITIES.
None
<PAGE>
SCHEDULE 4.5 LITIGATION.
On August 4, 1997, the Company announced it had changed its name to Diversa
Corporation. On August 7, 1997 the Company received a letter from Diversa
Chemical Technologies, Inc. ("DCT") threatening legal action if the Company
continued to use the name Diversa. The Company, through its legal counsel, has
responded in writing to such correspondence, but has not received any further
communications from DCT or its counsel. The date of the Company's trademark
applications with the U.S. Patent and Trademark Office for the Diversa mark
predate those of DCT, and the Company believes it has the right to use the name
Diversa and has continued to do so.
On November 13, 1996, the Company received a letter from counsel to Dr.
Peter Lucchesi regarding a disputed amount of $18,750 allegedly owed under a
consulting agreement between the Company and Dr. Lucchesi. To date, the Company
has not received any further communications from Dr. Lucchesi or his counsel,
and the Company has taken no further actions with regard to this matter.
<PAGE>
SCHEDULE 4.7 COMPLIANCE WITH LAW.
In connection with U.S. Department of Labor Inspection Number 102944774 of
the Sharon Hill, Pennsylvania facility, the Company received a Citation and
Notice of Penalty (the "Citation") for apparent violations of OSHA Regulations.
The Company was fined $700 and has taken remedial action to correct the
conditions identified in the Citation. The Company no longer occupies this
facility.
In connection with a County of San Diego Department of Environmental Health
(the "DEH") inspection of the La Jolla, California facility, conducted on
January 31, 1996, the Company received a Notice of Violation for apparent
violations of the California Code of Regulations. The Company took remedial
action and was notified by the DEH in a letter dated March 4, 1996 that the
Notice of Violation had been closed out. The Company no longer occupies this
facility.
In connection with a DEH inspection of the La Jolla, California facility,
conducted on May 6, 1996, the Company was notified of two violations. The
Company has taken remedial action to correct the violations. The Company no
longer occupies this facility.
In connection with a DEH inspection of the San Diego, California facility
conducted on May 1, 1997, the Company was notified of three minor violations.
The Company has taken remedial action to correct these violations. No penalty
was assessed for these minor violations.
In connection with a DEH inspection of the San Diego, California facility
conducted on July 13, 1998, the Company was notified of five minor violations.
The Company has taken remedial action to correct these violations. No penalty
was assessed for these minor violations.
<PAGE>
SCHEDULE 4.8 NO BROKERS, FINDERS OR INVESTMENT BANKERS.
None.
<PAGE>
Exhibit A
SEVENTH RESTATED CERTIFICATE OF INCORPORATION
<PAGE>
Seventh
Restated Certificate of Incorporation
of
Diversa Corporation
Diversa Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
First: The name of the Corporation is Diversa Corporation. A Certificate
of Incorporation of the Corporation originally was filed by the Corporation with
the Secretary of State of Delaware on December 21, 1992. The Corporation was
originally incorporated under the name Industrial Genome Sciences, Inc. A
Restated Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on April 20, 1994. A Second Restated Certificate
of Incorporation of the Corporation was filed with the Secretary of State of
Delaware on December 20, 1994. A Certificate of Amendment of the Second Restated
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on March 7, 1995. A Certification of Designation of the
Corporation was filed with the Secretary of State of Delaware on March 7, 1995.
A Certificate of Amendment of the Second Restated Certificate of Incorporation
of the Corporation was filed with the Secretary of State of Delaware on July 24,
1995. A Certificate of Amendment of the Second Restated Certificate of
Incorporation of the Corporation was filed with the Secretary of State of
Delaware on January 11, 1996. A Third Restated Certificate of Incorporation was
filed with the Secretary of State of Delaware on May 7, 1996. A Certificate of
Amendment of the Third Restated Certificate of Incorporation was filed with the
Secretary of State of Delaware on August 22, 1996. A Second Certificate of
Amendment of the Third Restated Certificate of Incorporation was filed with the
Secretary of State of Delaware on August 22, 1996. A Third Certificate of
Amendment was filed with the Secretary of State of Delaware on December 3, 1996.
A Fourth Certificate of Amendment was filed with the Secretary of State of
Delaware on June 9, 1997. A Fourth Restated Certificate of Incorporation was
filed with the Secretary of State of Delaware on July 10, 1997. A Certificate of
Amendment of the Fourth Restated Certificate of Incorporation was filed on
August 14, 1997, changing the name of the Corporation from Recombinant
BioCatalysis, Inc. to Diversa Corporation. A Fifth Restated Certificate of
Incorporation was filed with the Secretary of State of Delaware on October 17,
1997. A Sixth Restated Certificate of Incorporation was filed with the Secretary
of State of Delaware on August 24, 1998.
Second: This Seventh Restated Certificate of Incorporation which restates,
amends and supersedes the Certificate of Incorporation of the Corporation as
originally filed and thereafter amended and restated as described in First
above, was duly adopted in accordance with the provisions of Sections 242 and
245 of the General Corporation Law, and was approved by written consent of the
stockholders of the Corporation given in accordance with the provisions of
Section 228 of the General Corporation Law (prompt notice of such action having
been given to those stockholders who did not consent in writing).
1.
<PAGE>
Third: The text of the Certificate of Incorporation of the Corporation
is hereby restated, amended and superseded to read in its entirety as follows:
ARTICLE I.
Name
The name of the corporation is Diversa Corporation
ARTICLE II.
Purpose
The Corporation is organized to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law.
ARTICLE III.
Capital Stock
1. Authorization, Designation and Amount. The total number of shares of
all classes of stock which the Corporation shall have authority to issue is
148,749,323 consisting of 66,276,739 shares of Preferred Stock, par value $.001
per share (the "Preferred Stock"), of which 10,501,000 shares shall be
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock"), 24,566,184 shall be designated "Series B Convertible Preferred Stock"
(the "Series B Preferred Stock"), 844,444 shall be designated "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock"), 24,809,555 shall
be designated "Series D Convertible Preferred Stock" (the "Series D Preferred
Stock") and 5,555,556 shall be designated "Series E Convertible Preferred Stock"
(the "Series E Preferred Stock"), and 82,472,584 shares of Common Stock, par
value $.001 per share (the "Common Stock"). The number of shares, powers, terms,
conditions, designations, preferences and privileges, relative, participating,
optional and other special rights, and qualifications, limitations and
restrictions, of the Preferred Stock, and the Common Stock shall be as set forth
in this Article III, or with respect to any shares as to which the powers,
terms, conditions, designations, preferences and privileges, relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions have not been set forth in this Article III, the
Board of Directors of the Corporation is expressly authorized to the fullest
extent permitted by law, at any time and from time to time; to divide the
authorized and unissued shares into classes or series, or both, and to provide
for the powers, terms, conditions, designations, preferences and privileges,
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions of the shares of the class or series. The number of
authorized shares of Common Stock may be increased or decreased (but not below
the combined number of shares thereof then outstanding, plus that number of
shares reserved for purposes of effecting the conversion of the Series Preferred
Stock into Common Stock) by the affirmative vote of the holders of 75% of (i)
the issued and outstanding Common Stock (voting together with the holders of
Series Preferred Stock in accordance with Sections A.6(a), B.6(a), C.6(a),
D.6(a) and E.6(a) hereof), (ii) the issued and outstanding Series Preferred
Stock and (iii) any other class
2.
<PAGE>
or series of capital stock entitled to vote, irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law.
PART A. Series A Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series A Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series A Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series B and Series D Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section A.4 hereof and with respect to
redemption, only to the extent provided in Section A.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A, Series B and Series D Preferred Stock, as otherwise approved by
the affirmative vote or consent of the holders of 75% of the issued and
outstanding shares of Series A, Series B and Series D Preferred Stock voting
together. The Series A Preferred Stock shall have the following designations,
powers, preferences, relative, participating, optional or other special rights,
qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series A Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series A Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series A
Preferred Stock and each outstanding share of Series B and Series D Preferred
Stock, so that all outstanding shares of Series A, Series B and Series D
Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series A Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series A Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series A Preferred Stock and (B) any cumulative dividends in accordance
with Section A.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series A Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
3.
<PAGE>
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series A Preferred
Stock, so that all outstanding shares of Series A Preferred Stock will
participate ratably with the shares of Common Stock and the shares of each other
class or series of stock ranking pari passu with or junior to the Series A
Preferred Stock in such dividend or distribution. For purposes of determining
its proportional share of the dividend or distribution, each share of the Series
A Preferred Stock and any other applicable class or series of convertible
securities shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series A Preferred Stock will be entitled, pari passu with the
Series B and Series D Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series A Preferred Original Purchase Price (or such
greater amount of dividends as such Series A Preferred Stock would be entitled
to if such Series A Preferred Stock were converted into Common Stock), as
adjusted for any combinations or divisions or similar recapitalizations
affecting the Series A Preferred Stock after the Series A Preferred Original
Issuance Date, payable on the first day of January, April, July and October (and
any dividends payable to holders of Series A Preferred Stock which are not paid
shall be cumulative). Upon conversion of any Series A Preferred Stock, all
accrued but unpaid cumulative dividends and any declared but unpaid dividends
shall be paid in cash, or in additional shares of Common Stock at the Series A
Preferred Conversion Price then in effect in the discretion of the Board of
Directors. Nothing in this Section A.3(d) shall be deemed to limit the rights of
the Series A Preferred Stock under Sections A.3(b) and A.3(c) hereof.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series A
Preferred Stock shall rank (x) pari passu with the Series B and Series D
Preferred Stock, (y) senior and prior to the Series C Preferred Stock and Series
E Preferred Stock (but only to the extent provided in this Section A.4) and (z)
senior and prior to the Common Stock and to all other classes or series of stock
issued by the Corporation, except in the case of a change in the relative
ranking upon Liquidation of the Series A, Series B and Series D Preferred Stock,
as otherwise approved by the affirmative vote or consent of the holders of 75%
of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series A Preferred Stock, the holders of Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series B and Series D Preferred Stockholders, an amount
per share equal to the Series A Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
4.
<PAGE>
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series A Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section A.4(b) hereof and to pay to the Series B and Series
D Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections B.4(b) and D.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have
been made to (i) the Series A, Series B and Series D Preferred Stockholders of
the full amount to which they shall be entitled pursuant to Sections A.4(b),
B.4(b) and D.4(b) hereof, respectively, and (ii) the Series C and Series E
Preferred Stockholders of the full amount to which they shall be entitled
pursuant to Section C.4(b) and E.4(b) hereof, respectively, with respect to each
other class or series of capital stock (other than the Series C Preferred Stock,
Series E Preferred Stock and the Common Stock) ranking on Liquidation junior to
such Series A Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class, shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding and among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series D
Preferred Stockholders and each class or series of capital stock (other than the
Series C Preferred Stock, Series E Preferred Stock and the Common Stock) junior
to the Series A Preferred Stock the full amounts to which they shall be entitled
pursuant to the immediately preceding sentence, the Series A, Series B and
Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series A
Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof), and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
e. In the event of any Liquidation, after payment shall have
been made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking senior to the Common Stock, the Series A, Series B and Series D
Preferred Stockholders shall be entitled to share ratably (calculated with
respect to such Series A, Series B and Series D Preferred Stock as provided in
the next sentence) with the holders of Common Stock in all
5.
<PAGE>
remaining assets of the Corporation available for distribution to its
stockholders. For purposes of calculating the amount of any payment to be paid
pursuant to this Section A.4(e) upon any such Liquidation, each share of Series
A, Series B and Series D Preferred Stock shall be deemed to be that number of
shares of Common Stock into which such share is then convertible, rounded to the
nearest one-tenth of a share.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, the Series A Preferred Stockholders shall be entitled to vote,
together with the Series B Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series A
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series A Preferred Stock shall entitle the holder thereof to one
vote per
6.
<PAGE>
share for each share of Common Stock (including fractional shares) into which
each share of Series A Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections
A.6(a), B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting
power of the Series A, Series B, Series C and Series D Preferred Stock, voting
together as a separate class or in such other manner as the holders of the
Series A, Series B, Series C and Series D Preferred Stock shall agree among
themselves in the Stockholders' Agreement, shall have the exclusive right to
elect to the Board of Directors of the Corporation that number of directors
which shall be equal to a majority of the total number of directors on the Board
of Directors at any given time. In any election of Preferred Directors pursuant
to this Section A.6(b) and Sections B.6(b), C.6(b) and D.6(b), each share of
issued and outstanding Series A, Series B, Series C and Series D Preferred Stock
shall entitle the holder thereof to the number of votes per share that equals
the number of shares of Common Stock (including fractional shares) into which
each such share is then convertible, rounded up to the nearest one-tenth of a
share. The voting rights of the Series A, Series B, Series C and Series D
Preferred Stockholders contained in this Section A.6(b) and Sections B.6(b),
C.6(b) and D.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
A.6(b) and Sections B.6(b), C.6(b) and D.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. Protective Provisions. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to
7.
<PAGE>
receive any capital stock, or any security convertible into or exchangeable for
capital stock or any capitalized lease with any equity feature with respect to
the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in
any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose of
all or substantially all of the properties or assets of the Corporation or any
of its subsidiaries;
(v) declare or pay any dividend (other than as required by
Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any
8.
<PAGE>
mandatory purchase or other analogous fund for the redemption, purchase or
acquisition of, any shares of Common Stock, except (a) pursuant to Sections A.8,
B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement approved by the Board
of Directors with an officer, director, employee or consultant providing for the
repurchase of any capital stock of the Corporation owned by such officer,
director, employee or consultant at the option of the Corporation, which is
either (A) set forth on Schedule 4.10 of the Series B Stock Purchase Agreement,
or (B) issued pursuant to the Option Plan, as amended, the 1997 Equity Incentive
Plan, or any other stock option plan of the Corporation or one or more
amendments to the Option Plan, from and after May 13, 1996, approved by the
Board of Directors and by the holders of 75% of the then issued and outstanding
Series Preferred Stock, voting together as a separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
A.6(c) and Sections B.6(c), C.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series A Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series A Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series A
Preferred Stock so converted equal to the quotient of the Series A Preferred
Original Purchase Price divided by the Series A Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series A Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series A Preferred Stock with
respect to Series A Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section A.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section A.7(a)(ii)(c) hereof, shall cease and the shares of Series A Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series A Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
9.
<PAGE>
(c) Holders of Series A Preferred Stock converted into
shares of Common Stock pursuant to this Section A.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series A Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
b. Mechanics of Conversion.
(i) Any Series A Preferred Stockholder that exercises its
right to convert its shares of Series A Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
A.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series A Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to
be issued shall be deemed to have become a stockholder of record of Common Stock
on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
A Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series A Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series A Preferred Stock from the Preferred Certificate
so surrendered.
c. Issuance of Common Stock on Conversion.
(i) If a Series A Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered.
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(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series A Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. Conversion Price; Adjustment. The "Series A Preferred
Conversion Price" with respect to the Series A Preferred Stock shall initially
be equal to the Series A Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to
time after the Series A Preferred Original Issuance Date, make a Dilutive
Issuance, the Series A Preferred Conversion Price in effect immediately prior to
each such Dilutive Issuance shall automatically be lowered to a price
(calculated to the nearest cent) determined by multiplying the Series A
Preferred 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
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation in such Dilutive
Issuance so issued would purchase at the Series A Preferred Conversion Price;
and (B) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of such
additional shares of Common Stock so issued in such Dilutive Issuance; provided
that, for the purpose of this Section A.7(d)(i), all shares of Common Stock
issuable upon exercise or conversion of options or convertible securities
outstanding immediately prior to such issuance (other than any additional shares
of Common Stock issuable with respect to shares of Series Preferred Stock,
convertible securities, or outstanding options, warrants or other rights for the
purchase of shares of Common Stock or convertible securities, solely as a result
of either (x) the Dilutive Issuance or (y) the adjustment of the Series A
Preferred Conversion Price (or other conversion ratios applicable to other
Series Preferred Stock and otherwise) resulting from the Dilutive Issuance)
shall be deemed to be outstanding.
For the purposes of any adjustment of the Series A Preferred Conversion Price
pursuant to this Section A.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in
whole or in part for cash, the consideration shall be deemed to be the amount of
cash paid therefor, plus the value of any property other than cash received by
the Corporation as provided in Section A.7(d)(i)(b) hereof, less any discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than cash,
the value of such property or consideration other than cash shall be deemed to
be the fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
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(c) In the case of the issuance of (I) options to
purchase or rights to subscribe for Common Stock, (II) securities convertible
into or exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections A.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase, or rights to subscribe for, such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (determined in the manner provided in Sections A.7(d)(i)(a) and (b)
hereof);
(3) if there is any decrease in the conversion or
exercise price of, or any increase in the number of shares to be received upon
exercise, conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series A Preferred Conversion Price shall be
automatically lowered to reflect such change; and
(4) on the expiration of any right or option
referred to in Sections A.7(d)(i)(c)(1) or (2) hereof or on the termination of
any right to convert or exchange any convertible or exchangeable securities
referred to in Section A.7(d)(i)(c)(2) hereof, the Series A Preferred Conversion
Price then in effect shall thereupon be readjusted to the Series A Preferred
Conversion Price as would have been in effect had the adjustment made upon the
granting or issuance of such rights or options or convertible or exchangeable
securities been made upon the basis of the issuance or sale of only the number
of shares of Common Stock actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such convertible or exchangeable
securities.
(ii) If the Corporation shall at any time after the Series A
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series A Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common
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Stock issuable on conversion of each share of the Series A Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series A Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series A Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series A Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series A
Preferred Conversion Price with respect to the Series A Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series A Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series A Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section A.7(d)(iv)
shall similarly apply to successive Extraordinary Transactions.
(v) All calculations under this Section A.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(vi) In any case in which the provisions of this Section
A.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series A Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section A.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series A Preferred Conversion Price
shall be adjusted as provided in Section A.7(d) hereof, the Corporation shall
file, at its principal office, at the office of the transfer agent for the
Series A Preferred Stock, if any, or at such other place as may be designated by
the Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series A
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt
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requested, postage prepaid, to each Series A Preferred Stockholder at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section A.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
A.7(d) hereof, the Corporation shall give notice to each Series A Preferred
Stockholder, in the manner set forth in Section A.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series A Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series A Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section A.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series A Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
A Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series A Preferred
Stock.
h. Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date
or at any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then
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outstanding, voting together as a single class, made, from time to time, at any
date on or after the Series B Preferred Fifth Anniversary Date or upon the
declaration of an Event of Noncompliance, the Corporation shall redeem (unless
otherwise prevented by law) all of the shares of Series A, Series B and Series D
Preferred Stock, at a redemption price per share for each such series of Series
Preferred Stock equal to (i) the Series A Preferred Original Purchase Price, the
Series B Preferred Original Purchase Price or the Series D Preferred Original
Purchase Price, as applicable, plus (ii) an amount equal to any accrued but
unpaid cumulative dividends thereon and any declared but unpaid dividends
thereof, and, then, all of the shares of Series C Preferred Stock, at a
redemption price per share for such Series C Preferred Stock equal to (i) the
Series C Preferred Original Purchase Price plus (ii) an amount equal to any
accrued but unpaid dividends thereon and any declared but unpaid dividends
thereon. For purposes of determining whether the requisite 75% of the holders of
Series A, Series B, Series C and Series D Preferred Stock are participating in
the Redemption Notice, each share of issued and outstanding Series A, Series B,
Series C and Series D Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series A, Series B, Series C and Series D Preferred Stock is
then convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any Series A
Preferred Stockholder with respect to the shares of Series A Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series A Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section A.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series A, Series B and
Series D Preferred Stock entitled to redemption for any reason, the redemption
of the Series A, Series B and Series D Preferred Stock shall be pro rata based
upon the total amount that would be paid by the Corporation to each Series A,
Series B and Series D Preferred Stockholder if all of the shares of Series A,
Series B and Series D Preferred Stock were fully redeemed pursuant to Sections
15.
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A.8(a), B.8(a) and D.8(a) hereof. At any time on or after the Redemption Date,
the holders of the Series A Preferred Stock shall be entitled to receive the
Redemption Payment for each of the shares of Series A Preferred Stock held by
such holder which are to be redeemed by the Corporation upon actual delivery to
the Corporation or its transfer agent of the certificate(s) representing the
shares to be redeemed. Upon redemption of only a portion of the number of shares
covered by a Series A Preferred Stock certificate, the Corporation shall issue
and deliver to or upon the written order of the holder of such Series A
Preferred Stock certificate, at the expense of the Corporation, a new
certificate covering the number of shares of Series A Preferred Stock being
redeemed representing the unredeemed portion of the Series A Preferred Stock
certificate, which new certificate shall entitle the holder thereof to all the
rights, powers and privileges of a holder of such shares.
d. Notwithstanding anything to the contrary contained in this
Section A.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
9. Miscellaneous.
a. Shares of Series A Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series A Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
c. The shares of the Series A Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART B. Series B Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series B Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series B Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series A and Series D Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section B.4 hereof and with respect to
redemption, only to the extent provided in Section B.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A, Series B and Series D Preferred
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Stock, as otherwise approved by the affirmative vote or consent of the holders
of 75% of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together. The Series B Preferred Stock shall have the
following designations, powers, preferences, relative, participating, optional
or other special rights, qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series B Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series B Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series B
Preferred Stock and each outstanding share of the Series A and Series D
Preferred Stock, so that all outstanding shares of Series A, Series B and Series
D Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series B Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series B Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series B Preferred Stock and (B) any cumulative dividends in accordance
with Section B.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series B Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series B Preferred
Stock, so that all outstanding shares of Series B Preferred Stock will
participate ratably with the shares of Common Stock and the shares of each other
class or series of stock ranking pari passu with or junior to the Series B
Preferred Stock in such dividend or distribution. For purposes of determining
its proportional share of the dividend or distribution, each share of the Series
B Preferred Stock and any other applicable class or series of convertible
securities shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series B Preferred Stock will be entitled, pari passu with the
Series A and Series D Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series B Preferred Original Purchase Price (or such
greater amount of dividends as such Series B Preferred Stock would be entitled
to if such Series B Preferred Stock were converted into Common Stock), as
adjusted for any combinations or
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divisions or similar recapitalizations affecting the Series B Preferred Stock
after the Series B Preferred Original Issuance Date, payable on the first day of
January, April, July and October (and any dividends payable to holders of Series
B Preferred Stock which are not paid shall be cumulative). Upon conversion of
any Series B Preferred Stock, all accrued but unpaid cumulative dividends and
any declared but unpaid dividends shall be paid in cash, or in additional shares
of Common Stock at the Series B Preferred Conversion Price then in effect in the
discretion of the Board of Directors. Nothing in this Section B.3(d) shall be
deemed to limit the rights of the Series B Preferred Stock under Sections B.3(b)
and B.3(c) hereof.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series B
Preferred Stock shall rank (x) pari passu with the Series A and Series D
Preferred Stock, (y) senior and prior to the Series C Preferred Stock and Series
E Preferred Stock (but only to the extent provided in this Section B.4) and (z)
senior and prior to the Common Stock and to all other classes or series of stock
issued by the Corporation, except in the case of a change in the relative
ranking upon Liquidation of the Series A, Series B and Series D Preferred Stock,
as otherwise approved by the affirmative vote or consent of the holders of 75%
of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series B Preferred Stock, the holders of Series B
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series A and Series D Preferred Stockholders, an amount
per share equal to the Series B Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series B Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section B.4(b) hereof and to pay to the Series A and Series
D Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections A.4(b) and D.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have
been made to (i) the Series A, Series B and Series D Preferred Stockholders of
the full amount to which they shall be entitled pursuant to Sections A.4(b),
B.4(b) and D.4(b) hereof, respectively, and (ii) the Series C and Series E
Preferred Stockholders of the full amount to which they shall be entitled
pursuant to Section C.4(b) and E.4(b) hereof, respectively, with respect to each
other
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class or series of capital stock (other than the Series C Preferred Stock,
Series E Preferred Stock and the Common Stock) ranking on Liquidation junior to
such Series B Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding, among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, Series B Preferred Stockholders, the Series D Preferred
Stockholders, and each class or series of capital stock (other than the Series C
Preferred Stock, Series E Preferred Stock and the Common Stock) junior to the
Series B Preferred Stock the full amounts to which they shall be entitled
pursuant to the immediately preceding sentence, the Series A, Series B and
Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series A
Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof) and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
e. In the event of any Liquidation, after payment shall have
been made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking senior to the Common Stock, the Series A, Series B and Series D
Preferred Stockholders shall be entitled to share ratably (calculated with
respect to such Series A, Series B and Series D Preferred Stock as provided in
the next sentence) with the holders of Common Stock in all remaining assets of
the Corporation available for distribution to its stockholders. For purposes of
calculating the amount of any payment to be paid pursuant to this Section B.4(e)
upon any such Liquidation, each share of Series A, Series B and Series D
Preferred Stock shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a
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majority of the voting securities of the surviving corporation immediately
thereafter), then the Corporation shall give written notice to each Series
Preferred Stockholder no less than 20 days prior to the closing of any such
transaction notifying the Series Preferred Stockholders of the terms and timing
of the closing of such transaction and of the rights of the Series Preferred
Stockholders under Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, the Series B Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series B
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series B Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series B Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections
A.6(a), B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting
power of the Series A, Series B, Series C and Series D Preferred Stock, voting
together as a separate class or in such other manner as the holders of the
Series A, Series B, Series C and Series D Preferred Stock shall agree among
themselves in the Stockholders' Agreement, shall have the exclusive right to
elect to the Board of Directors of the Corporation that number of directors
which shall be equal to a majority of the total number of directors on the Board
of Directors at any given time. In any election of Preferred Directors pursuant
to this Section B.6(b) and Sections A.6(b), C.6(b) and D.6(b), each share of
issued and outstanding Series A, Series B, Series C and Series D Preferred Stock
shall entitle the holder thereof to the number of votes per share that equals
the number of shares of Common Stock (including fractional shares) into which
each such share is then
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convertible, rounded up to the nearest one-tenth of a share. The voting rights
of the Series A, Series B, Series C and Series D Preferred Stockholders
contained in this Section B.6(b) and Sections A.6(b), C.6(b) and D.6(b) may be
exercised at a special meeting of the Series Preferred Stockholders called as
provided in accordance with the By-laws of the Corporation, at any annual or
special meeting of the Stockholders of the Corporation, or by written consent of
the holders of Series Preferred Stock in lieu of a meeting. The Preferred
Directors elected pursuant to this Section B.6(b) and Sections A.6(b), C.6(b)
and D.6(b) shall serve from the date of their election and qualification until
their successors have been duly elected and qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. Protective Provisions. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or agree
to authorize or issue any shares of capital stock of the Corporation, any right,
warrant, or option to receive any capital stock, or any security convertible
into or exchangeable for capital stock or any capitalized lease with any equity
feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in
any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of the Corporation or
any of its subsidiaries;
(v) declare or pay any dividend (other than as required by
Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in
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respect of the Series B Preferred Stock and by Section D.3(d) hereof in respect
of the Series D Preferred Stock) or make any distribution (whether in cash,
shares of capital stock of the Corporation, or other property) on shares of its
capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended,
the 1997 Equity Incentive Plan, or any other stock option plan of the
Corporation or one or more amendments to the Option Plan, from and after May 13,
1996, approved by the Board of Directors and by the holders of 75% of the then
issued and outstanding Series Preferred Stock, voting together as a separate
class.
In any vote or written consent in lieu of a meeting pursuant to this Section
B.6(c) and Sections A.6(c), C.6(c), D.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
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7. Conversion.
a. Right to Convert.
(i) Any Series B Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series B Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series B
Preferred Stock so converted equal to the quotient of the Series B Preferred
Original Purchase Price divided by the Series B Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series B Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series B Preferred Stock with
respect to Series B Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section B.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section B.7(a)(ii)(c) hereof, shall cease and the shares of Series B Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series B Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
(c) Holders of Series B Preferred Stock converted into
shares of Common Stock pursuant to this Section B.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series B Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
b. Mechanics of Conversion.
(i) Any Series B Preferred Stockholder that exercises its
right to convert its shares of Series B Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
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(iii) As promptly as practicable thereafter, the Corporation
shall issue and deliver to or upon the written order of such holder, at the
place designated by such holder, the Common Certificate(s) for the number of
full shares of Common Stock to which such holder is entitled and a cash payment
for any fractional interest in a share of Common Stock, as provided in Section
B.7(c) hereof, and for any accrued but unpaid cumulative dividends and any
declared but unpaid dividends, payable with respect to the converted shares of
Series B Preferred Stock, up to and including the Conversion Date or the Closing
Date, as the case may be.
(iv) The person in whose name each Common Certificate is to
be issued shall be deemed to have become a stockholder of record of Common Stock
on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
B Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series B Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series B Preferred Stock from the Preferred Certificate
so surrendered.
c. Issuance of Common Stock on Conversion.
(i) If a Series B Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B Preferred
Stock so surrendered.
(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series B Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. Conversion Price; Adjustment. The "Series B Preferred
Conversion Price" with respect to the Series B Preferred Stock shall initially
be equal to the Series B Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to
time after the Series B Preferred Original Issuance Date, make a Dilutive
Issuance, the Series B Preferred Conversion Price in effect immediately prior to
each such Dilutive Issuance shall automatically be lowered to a price
(calculated to the nearest cent) determined by multiplying the Series B
Preferred 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
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation in such Dilutive
Issuance so issued would purchase at the Series B Preferred
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Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance plus the number
of such additional shares of Common Stock so issued in such Dilutive Issuance;
provided that, for the purpose of this Section B.7(d)(i), all shares of Common
Stock issuable upon exercise or conversion of options or convertible securities
outstanding immediately prior to such issuance (other than any additional shares
of Common Stock issuable with respect to shares of Series Preferred Stock,
convertible securities, or outstanding options, warrants or other rights for the
purchase of shares of Common Stock or convertible securities, solely as a result
of either (x) the Dilutive Issuance or (y) the adjustment of the Series B
Preferred Conversion Price (or other conversion ratios applicable to other
Series Preferred Stock and otherwise) resulting from the Dilutive Issuance)
shall be deemed to be outstanding.
For the purposes of any adjustment of the Series B Preferred Conversion Price
pursuant to this Section B.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in
whole or in part for cash, the consideration shall be deemed to be the amount of
cash paid therefor, plus the value of any property other than cash received by
the Corporation as provided in Section B.7(d)(i)(b) hereof, less any discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than cash,
the value of such property or consideration other than cash shall be deemed to
be the fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
(c) In the case of the issuance of (I) options to
purchase or rights to subscribe for Common Stock, (II) securities convertible
into or exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections B.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase, or rights to subscribe for, such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall
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be deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the consideration
received by the Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such securities or the exercise
of any related options or rights (determined in the manner provided in Sections
B.7(d)(i)(a) and (b) hereof);
3. if there is any decrease in the conversion or
exercise price of, or any increase in the number of shares to be received upon
exercise, conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series B Preferred Conversion Price shall be
automatically lowered to reflect such change; and
4. on the expiration of any right or option
referred to in Sections B.7(d)(i)(c)(1) or (2) hereof or on the termination of
any right to convert or exchange any convertible or exchangeable securities
referred to in Section B.7(d)(i)(c)(2) hereof, the Series B Preferred Conversion
Price then in effect shall thereupon be readjusted to the Series B Preferred
Conversion Price as would have been in effect had the adjustment made upon the
granting or issuance of such rights or options or convertible or exchangeable
securities been made upon the basis of the issuance or sale of only the number
of shares of Common Stock actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such convertible or exchangeable
securities.
(ii) If the Corporation shall at any time after the Series B
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series B Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series B Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series B Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series B Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series B Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series B Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series B
Preferred Conversion Price with respect to the Series B Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series B Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the
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number of shares of Common Stock deliverable (immediately prior to the
effectiveness of the Extraordinary Transaction) upon conversion of such Series B
Preferred Stock would have been entitled to receive upon such Extraordinary
Transaction. The provisions of this Section B.7(d)(iv) shall similarly apply to
successive Extraordinary Transactions.
(v) All calculations under this Section B.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(vi) In any case in which the provisions of this Section
B.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series B Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section B.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series B Preferred Conversion Price shall
be adjusted as provided in Section B.7(d) hereof, the Corporation shall file, at
its principal office, at the office of the transfer agent for the Series B
Preferred Stock, if any, or at such other place as may be designated by the
Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series B
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series B
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section B.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
B.7(d) hereof, the Corporation shall give notice to each Series B Preferred
Stockholder, in the manner set forth in Section B.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series B Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series B Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under
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this Section B.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series B Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
B Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series B Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series B Preferred
Stock.
h. Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date
or at any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then outstanding, voting
together as a single class, made, from time to time, at any date on or after the
Series B Preferred Fifth Anniversary Date or upon the declaration of an Event of
Noncompliance, the Corporation shall redeem (unless otherwise prevented by law)
all of the shares of Series A, Series B and Series D Preferred Stock, at a
redemption price per share for each such series of Series Preferred Stock equal
to (i) the Series A Preferred Original Purchase Price, Series B Preferred
Original Purchase Price or Series D Preferred Original Purchase Price, as
applicable, plus (ii) an amount equal to any accrued but unpaid cumulative
dividends thereon and any declared but unpaid dividends thereof, and, then, all
of the shares of Series C Preferred Stock, at a redemption price per share for
such Series C Preferred Stock equal to (i) the Series C Preferred Original
Purchase Price plus (ii) an amount equal to any accrued but unpaid dividends
thereon and any declared but unpaid dividends thereon. For purposes of
determining whether the requisite 75% of the holders of Series A, Series B,
Series C and Series D Preferred Stock are participating in the Redemption
Notice, each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to one vote per share
for each share of Common Stock (including fractional shares) into which each
share of Series A, Series B, Series C and Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
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b. On and after the Redemption Date, all rights of any Series B
Preferred Stockholder with respect to the shares of Series B Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series B Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section B.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series A, Series B and
Series D Preferred Stock entitled to redemption for any reason, the redemption
of the Series A, Series B and Series D Preferred Stock shall be pro rata based
upon the total amount that would be paid by the Corporation to each Series A,
Series B and Series C Preferred Stockholder if all of the Series A, Series B and
Series C Preferred Stock were fully redeemed pursuant to Sections A.8(a), B.8(a)
and D.8(a) hereof. At any time on or after the Redemption Date, the holders of
the Series B Preferred Stock shall be entitled to receive the Redemption Payment
for each of the shares of Series B Preferred Stock held by such holder which are
to be redeemed by the Corporation upon actual delivery to the Corporation or its
transfer agent of the certificate(s) representing the shares to be redeemed.
Upon redemption of only a portion of the number of shares covered by a Series B
Preferred Stock certificate, the Corporation shall issue and deliver to or upon
the written order of the holder of such Series B Preferred Stock certificate, at
the expense of the Corporation, a new certificate covering the number of shares
of Series B Preferred Stock being redeemed representing the unredeemed portion
of the Series B Preferred Stock certificate, which new certificate shall entitle
the holder thereof to all the rights, powers and privileges of a holder of such
shares.
d. Notwithstanding anything to the contrary contained in this
Section B.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal
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source of funds with which to pay the Redemption Payment and shall acquire such
shares as soon as permitted by applicable laws, statutes, rules, regulations,
policies and guidelines.
9. Miscellaneous.
a. Shares of Series B Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series B Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
c. The shares of the Series B Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART C. Series C Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series C Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series C Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) junior to the Series A,
Series B and Series D Preferred Stock (but, with respect to Liquidation, only to
the extent provided in Sections A.4, B.4, C.4, D.4 and E.4 hereof and with
respect to redemption, only to the extent provided in Sections A.8, B.8, C.8 and
D.8 hereof), (y) pari passu with the Series E Preferred Stock and (z) senior and
prior to the Common Stock and to all other classes or series of stock issued by
the Corporation. The Series C Preferred Stock shall have the following
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series C Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series C Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series C
and each outstanding share of Series E Preferred Stock, so that all outstanding
shares of Series C and Series E Preferred Stock will participate equally with
each other ratably per share.
b. So long as any Series C Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series C Preferred Stock, unless prior thereto or
simultaneously therewith all dividends and distributions previously
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declared on the Series C Preferred Stock shall have been paid or the Corporation
shall have irrevocably deposited or set aside cash or United States Obligations
sufficient for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than (i) on Liquidation, (ii) on the Series A Preferred
Stock pursuant to Section A.3(d) hereof, (iii) on the Series B Preferred Stock
pursuant to Section B.3(d) hereof, or (iv) on the Series D Preferred Stock
pursuant to Section D.3(d) hereof) on the Common Stock or any other class or
series of stock ranking pari passu with or junior to the Series C Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series C Preferred
Stock, so that all outstanding shares of Series C Preferred Stock will
participate ratably with the Common Stock and each other class or series of
stock ranking pari passu with or junior to the Series C Preferred Stock in such
dividend or distribution. For purposes of determining its proportional share of
the dividend or distribution, each share of the Series C Preferred Stock and any
other applicable class or series of convertible securities shall be deemed to be
that number of shares of Common Stock into which such share is then convertible,
rounded to the nearest one-tenth of a share.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series C
Preferred Stock shall rank (x) junior to the Series A, Series B and Series D
Preferred Stock (but only to the extent provided in this Section C.4), (y) pari
passu with the Series E Preferred Stock and (z) senior and prior to the Common
Stock and to all other classes or series of stock issued by the Corporation.
b. Subject to the holders of Series A Preferred Stock set forth
in Section A.4 hereof, the holders of Series B Preferred Stock set forth in
Section B.4 hereof and the holders of Series D Preferred Stock set forth in
Section D.4 hereof, in the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Common Stockholders or any other class or series of stock ranking
on Liquidation junior to the Series C Preferred Stock, the holders of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series E Stockholders, an amount per share equal to the
Series C Preferred Liquidation Preference divided by the number of outstanding
shares of Series C Preferred Stock whether from capital, surplus or earnings,
plus an amount equal to any accrued but unpaid cumulative dividends thereon and
any declared but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series C Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section C.4(b) hereof and to pay the Series E Preferred
Stockholders the full amount to which each of them shall be entitled pursuant to
Section E.4(b) hereof, then the Series C and Series E Preferred Stockholders
shall share ratably in any distribution of assets according to the respective
amounts which would be
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payable to them in respect of the shares of Series C or Series E Preferred
Stock, as the case may be, held upon such distribution if all amounts payable on
or with respect to such shares were paid in full pursuant to Sections C.4(b) and
E.4(b) hereof.
d. In the event of any Liquidation, the Series C Preferred
Stock shall not be entitled to receive any payment of cash or distribution of
property other than as expressly provided in this Section C.4.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, the Series C Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series D Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series C
Preferred Stockholders voting together as a
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separate class or with the other holders of Series Preferred Stock as a separate
class, each share of issued and outstanding Series C Preferred Stock shall
entitle the holder thereof to one vote per share for each share of Common Stock
(including fractional shares) into which each share of Series C Preferred Stock
is then convertible, rounded to the nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections A.6(a),
B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting power of
the Series A, Series B, Series C and Series D Preferred Stock, voting together
as a separate class or in such other manner as the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall agree among themselves in
the Stockholders' Agreement, shall have the exclusive right to elect to the
Board of Directors of the Corporation that number of directors which shall be
equal to a majority of the total number of directors on the Board of Directors
at any given time. In any election of Preferred Directors pursuant to this
Section C.6(b) and Sections A.6(b), B.6(b) and D.6(b), each share of issued and
outstanding Series A, Series B, Series C and Series D Preferred Stock shall
entitle the holder thereof to the number of votes per share that equals the
number of shares of Common Stock (including fractional shares) into which each
such share is then convertible, rounded up to the nearest one-tenth of a share.
The voting rights of the Series A, Series B, Series C and Series D Preferred
Stockholders contained in this Section C.6(b) and Sections A.6(b), B.6(b) and
D.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
C.6(b) and Sections A.6(b), B.6(b) and D.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. Protective Provisions. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
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(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to receive any capital stock, or any security
convertible into or exchangeable for capital stock or any capitalized lease with
any equity feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in
any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of the Corporation or
any of its subsidiaries;
(v) declare or pay any dividend (other than as required
by Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
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(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this
Section C.6(c) and Sections A.6(c), B.6(c), D.6(c) and E.6(c) hereof, each share
of issued and outstanding Series Preferred Stock shall entitle the holder
thereof to the number of votes per share that equals the number of shares of
Common Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series C Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series C Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series C
Preferred Stock so converted equal to the quotient of the Series C Preferred
Original Purchase Price divided by the Series C Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series C Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series C Preferred Stock with
respect to Series C Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section C.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section C.7(a)(ii)(c) hereof, shall cease and the shares of Series C Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-class
mail, postage prepaid, to each Series C Preferred Stockholder at such holder's
address appearing on the Corporation's records a copy of (i) each registration
statement filed by the Corporation under the Securities Act and each amendment
thereof and each exhibit and schedule thereto and (ii) each order of the
Securities and Exchange Commission declaring any such registration statement to
be effective.
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(c) Holders of Series C Preferred Stock converted into
shares of Common Stock pursuant to this Section C.7 shall be entitled to payment
of any accrued but unpaid cumulative dividend and any declared but unpaid
dividends payable with respect to such shares of Series C Preferred Stock, up to
and including the Conversion Date or the Closing Date, as the case may be.
b. Mechanics of Conversion.
(i) Any Series C Preferred Stockholder that exercises its
right to convert its shares of Series C Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such holder,
at the place designated by such holder, the Common Certificate(s) for the number
of full shares of Common Stock to which such holder is entitled and a cash
payment for any fractional interest in a share of Common Stock, as provided in
Section C.7(c) hereof, and for any accrued but unpaid cumulative dividends and
any declared but unpaid dividends, payable with respect to the converted shares
of Series C Preferred Stock, up to and including the Conversion Date or the
Closing Date, as the case may be.
(iv) The person in whose name each Common Certificate is
to be issued shall be deemed to have become a stockholder of record of Common
Stock on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
C Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series C Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series C Preferred Stock from the Preferred Certificate
so surrendered.
c. Issuance of Common Stock on Conversion.
(i) If a Series C Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series C Preferred
Stock so surrendered.
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(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series C Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
(d) Conversion Price; Adjustment. The "Series C Preferred
Conversion Price" with respect to the Series C Preferred Stock shall initially
be equal to the Series C Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall at any time after the Series
C Preferred Original Issuance Date fix a record date for the subdivision, split-
up or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series C Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of the Series C Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time after the Series C Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series C Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iii) If, at any time after the Series C Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series C
Preferred Conversion Price with respect to the Series C Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series C Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series C Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section C.7(d)(iii)
shall similarly apply to successive Extraordinary Transactions.
(iv) All calculations under this Section C.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(v) In any case in which the provisions of this Section
C.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series C Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
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the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section C.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series C Preferred Conversion Price
shall be adjusted as provided in Section C.7(d) hereof, the Corporation shall
file, at its principal office, at the office of the transfer agent for the
Series C Preferred Stock, if any, or at such other place as may be designated by
the Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series C
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt requested, postage prepaid, to each Series C
Preferred Stockholder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the provisions of
Section C.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii) or (iii) of Section
C.7(d) hereof, the Corporation shall give notice to each Series C Preferred
Stockholder, in the manner set forth in Section C.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series C Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series C Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section C.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series C Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
C Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common
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Stock, solely for the purpose of effecting the conversion of the shares of
Series C Preferred Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series C Preferred Stock.
h. Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date
or at any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then outstanding, voting
together as a single class, made, from time to time, at any date on or after the
Series B Preferred Fifth Anniversary Date or upon the declaration of an Event of
Noncompliance, the Corporation shall redeem (unless otherwise prevented by law)
all of the shares of Series A, Series B and Series D Preferred Stock, at a
redemption price per share for each such series of Series Preferred Stock equal
to (i) the Series A Preferred Original Purchase Price, Series B Preferred
Original Purchase Price or the Series D Preferred Original Purchase Price, as
applicable, plus (ii) an amount equal to any accrued but unpaid cumulative
dividends thereon and any declared but unpaid dividends thereof, and, then, all
of the shares of Series C Preferred Stock, at a redemption price per share for
such Series C Preferred Stock equal to (i) the Series C Preferred Original
Purchase Price plus (ii) an amount equal to any accrued but unpaid dividends
thereon and any declared but unpaid dividends thereon. For purposes of
determining whether the requisite 75% of the holders of Series A, Series B,
Series C and Series D Preferred Stock are participating in the Redemption
Notice, each share of issued and outstanding Series A, Series B, Series C and
Series D Preferred Stock shall entitle the holder thereof to one vote per share
for each share of Common Stock (including fractional shares) into which each
share of Series A, Series B, Series C and Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any Series C
Preferred Stockholder with respect to the shares of Series C Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series C Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section C.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the
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Corporation. The Corporation shall fix a date for redemption which shall not be
more than 60 days after the receipt of Redemption Notices from the Requesting
Holders. Not less than 45 days prior to the Redemption Date, written notice
shall be mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Series A, Series B, Series C and Series D Preferred Stock, at the
address last shown on the records of the Corporation for such holder or given by
the holder to the Corporation for the purpose of notice, notifying such holder
of the redemption to be effected, the Redemption Date fixed, the Redemption
Payment, the place at which payment may be obtained and the date on which such
holder's conversion rights as to such shares terminate and calling upon such
holder to surrender to the Corporation, in the manner and at the place
designated, such holder's certificate or certificates representing the shares to
be redeemed. In the event of only a partial redemption of the outstanding shares
of the Series C Preferred Stock entitled to redemption for any reason, the
redemption of the Series C Preferred Stock shall be pro rata based upon the
total amount that would be paid by the Corporation to each Series C Preferred
Stockholder if all of the shares of the Series C Preferred Stock were fully
redeemed pursuant to Section C.8(a) hereof. At any time on or after the
Redemption Date, the holders of the Series C Preferred Stock shall be entitled
to receive the Redemption Payment for each of the shares of Series C Preferred
Stock held by such holder which are to be redeemed by the Corporation upon
actual delivery to the Corporation or its transfer agent of the certificate(s)
representing the shares to be redeemed. Upon redemption of only a portion of the
number of shares covered by a Series C Preferred Stock certificate, the
Corporation shall issue and deliver to or upon the written order of the holder
of such Series C Preferred Stock certificate, at the expense of the Corporation,
a new certificate covering the number of shares of Series C Preferred Stock
being redeemed representing the unredeemed portion of the Series C Preferred
Stock certificate, which new certificate shall entitle the holder thereof to all
the rights, powers and privileges of a holder of such shares.
d. Notwithstanding anything to the contrary contained in this
Section C.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
9. Miscellaneous.
a. Shares of Series C Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series C Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
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c. The shares of the Series C Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
D. Series D Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series D Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series D Preferred Stock shall rank,
as to dividends and upon redemption and Liquidation, (x) pari passu with the
Series A and Series B Preferred Stock, (y) senior and prior to the Series C
Preferred Stock and Series E Preferred Stock (but, with respect to Liquidation,
only to the extent provided in Section D.4 hereof and with respect to
redemption, only to the extent provided in Section D.8 hereof), and (z) senior
and prior to the Common Stock and to all other classes or series of stock issued
by the Corporation, except in the case of a change in the relative ranking of
the Series A Preferred Stock, the Series B Preferred Stock and the Series D
Preferred Stock, as otherwise approved by the affirmative vote or consent of the
holders of 75% of the issued and outstanding shares of Series A, Series B and
Series D Preferred Stock voting together. The Series D Preferred Stock shall
have the following designations, powers, preferences, relative, participating,
optional or other special rights, qualifications, limitations and restrictions:
3. Dividends.
a. Dividends are payable on the Series D Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series D Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series D
Preferred Stock and each outstanding share of Series A and Series B Preferred
Stock, so that all outstanding shares of Series A, Series B and Series D
Preferred Stock will participate equally with each other ratably per share.
b. So long as any Series D Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series D Preferred Stock, unless prior thereto or
simultaneously therewith (A) all dividends and distributions previously declared
on the Series D Preferred Stock and (B) any cumulative dividends in accordance
with Section D.3(d) hereof shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than on Liquidation) on the Common Stock or any other class
or series of stock ranking pari passu with or junior to the Series D Preferred
Stock in cash, property or securities
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excluding Common Stock) of the Corporation (or subscription or other rights to
purchase or acquire securities (excluding Common Stock) of the Corporation), the
Board of Directors shall simultaneously declare a dividend or distribution on
the same terms, at the same or equivalent rate, and in the same form on each
share of Series D Preferred Stock, so that all outstanding shares of Series D
Preferred Stock will participate ratably with the shares of Common Stock and the
shares of each other class or series of stock ranking pari passu with or junior
to the Series D Preferred Stock in such dividend or distribution. For purposes
of determining its proportional share of the dividend or distribution, each
share of the Series D Preferred Stock and any other applicable class or series
of convertible securities shall be deemed to be that number of shares of Common
Stock into which such share is then convertible, rounded to the nearest one-
tenth of a share.
d. From and after the Series A Preferred Fifth Anniversary Date
and until the date of the consummation of the Corporation's first Public
Offering, the Series D Preferred Stock will be entitled, pari passu with the
Series A and Series B Preferred Stock, to dividends, to be paid quarterly, in
cash or in kind at the discretion of the Board of Directors, at an annual rate
of five percent (5%) of the Series D Preferred Original Purchase Price (or such
greater amount of dividends as such Series D Preferred Stock would be entitled
to if such Series D Preferred Stock were converted into Common Stock), as
adjusted for any combinations or divisions or similar recapitalizations
affecting the Series D Preferred Stock after the Series D Preferred Original
Issuance Date, payable on the first day of January, April, July and October (and
any dividends payable to holders of Series D Preferred Stock which are not paid
shall be cumulative). Upon conversion of any Series D Preferred Stock, all
accrued but unpaid cumulative dividends and any declared but unpaid dividends
shall be paid in cash, or in additional shares of Common Stock at the Series D
Preferred Conversion Price then in effect in the discretion of the Board of
Directors. Nothing in this Section D.3(d) shall be deemed to limit the rights of
the Series D Preferred Stock under Sections D.3(b) and D.3(c) hereof.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series D
Preferred Stock shall rank (x) pari passu with the Series A and Series B
Preferred Stock, (y) senior and prior to the Series C Preferred Stock and Series
E Preferred Stock (but only to the extent provided in this Section D.4) and (z)
senior and prior to the Common Stock and to all other classes or series of stock
issued by the Corporation, except in the case of a change in the relative
ranking upon Liquidation of the Series A, Series B and Series D Preferred Stock,
as otherwise approved by the affirmative vote or consent of the holders of 75%
of the issued and outstanding shares of Series A, Series B and Series D
Preferred Stock voting together.
b. In the event of any Liquidation, whether voluntary or
involuntary, before any payment of cash or distribution of other property shall
be made to the Series C Preferred Stockholders, Series E Preferred Stockholders
or the Common Stockholders or any other class or series of stock ranking on
Liquidation junior to the Series D Preferred Stock, the holders of Series D
Preferred Stock shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, pari passu
with the rights of the Series A and Series B Preferred Stockholders, an amount
per share equal to the Series D Preferred Original Purchase Price whether from
capital, surplus or earnings, plus an amount
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equal to any accrued but unpaid cumulative dividends thereon and any declared
but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series D Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section D.4(b) hereof and to pay to the Series A and Series
B Preferred Stockholders the full amount to which each of them shall be entitled
pursuant to Sections A.4(b) and B.4(b) hereof, then the Series A, Series B and
Series D Preferred Stockholders shall share ratably in any distribution of
assets according to the respective amounts which would be payable to them in
respect of the shares of Series A, Series B or Series D Preferred Stock, as the
case may be, held upon such distribution if all amounts payable on or with
respect to such shares were paid in full pursuant to Sections A.4(b), B.4(b) and
D.4(b) hereof.
d. In the event of any Liquidation, after payment shall have
been made to (i) the Series A, Series B and Series D Preferred Stockholders of
the full amount to which they shall be entitled pursuant to Sections A.4(b),
B.4(b) and D.4(b) hereof, respectively, and (ii) the Series C and Series E
Preferred Stockholders of the full amount to which they shall be entitled
pursuant to Section C.4(b) and E.4(b) hereof, respectively, with respect to each
other class or series of capital stock (other than the Series C Preferred Stock,
Series E Preferred Stock and the Common Stock) ranking on Liquidation junior to
such Series D Preferred Stock (in descending order of seniority), the Series A,
Series B and Series D Preferred Stockholders, as a class, shall be entitled to
receive an amount equal (and in like kind) to the aggregate preferential amount
fixed for each such junior class or series of capital stock, which amount shall
be distributed ratably among the Series A Preferred Stockholders in an equal
amount per share of the Series A Preferred Stock then outstanding and among the
Series B Preferred Stockholders in an equal amount per share of the Series B
Preferred Stock then outstanding and among the Series D Preferred Stockholders
in an equal amount per share of the Series D Preferred Stock then outstanding.
If, upon any Liquidation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series D
Preferred Stockholders and each class or series of capital stock (other than the
Series C Preferred Stock, and Series E Preferred Stock and the Common Stock)
junior to the Series D Preferred Stock the full amounts to which they shall be
entitled pursuant to the immediately preceding sentence, the Series A, Series B
and Series D Preferred Stockholders shall be entitled to share ratably with each
such other class or series of capital stock in any distribution of assets
according to the respective preferential amounts fixed for the Series A
Preferred Stock (pursuant to Section A.4(b) hereof), the Series B Preferred
Stock (pursuant to Section B.4(b) hereof) and the Series D Preferred Stock
(pursuant to Section D.4(b) hereof), and each such junior class or series of
capital stock (pursuant to the applicable terms thereof), which would be payable
in respect of the shares held by them upon such distribution if all such
preferential amounts payable on or with respect to such shares were paid in
full.
e. In the event of any Liquidation, after payment shall have been
made to the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, Series D Preferred
Stockholders and the Series E Preferred Stockholders of the full amount to which
they shall be entitled as aforesaid, and after payment shall have made of the
respective preferential amounts of all other classes and series of capital stock
ranking
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senior to the Common Stock, the Series A, Series B and Series D Preferred
Stockholders shall be entitled to share ratably (calculated with respect to such
Series A, Series B and Series D Preferred Stock as provided in the next
sentence) with the holders of Common Stock in all remaining assets of the
Corporation available for distribution to its stockholders. For purposes of
calculating the amount of any payment to be paid pursuant to this Section D.4(e)
upon any such Liquidation, each share of Series A, Series B and Series D
Preferred Stock shall be deemed to be that number of shares of Common Stock into
which such share is then convertible, rounded to the nearest one-tenth of a
share.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, the Series D Preferred Stockholders shall be entitled to vote,
together with the Series A Preferred Stockholders, the Series B Preferred
Stockholders, the Series C Preferred Stockholders, the Series E Preferred
Stockholders and the Common Stockholders and any other class or series of stock
then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote
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or action of the Series D Preferred Stockholders voting together as a separate
class or with the other holders of Series Preferred Stock as a separate class,
each share of issued and outstanding Series D Preferred Stock shall entitle the
holder thereof to one vote per share for each share of Common Stock (including
fractional shares) into which each share of Series D Preferred Stock is then
convertible, rounded to the nearest one-tenth of a share.
b. Election of Board of Directors.
(i) In addition to the rights specified in Sections
A.6(a), B.6(a), C.6(a) and D.6(a) hereof, the holders of a majority in voting
power of the Series A, Series B, Series C and Series D Preferred Stock, voting
together as a separate class or in such other manner as the holders of the
Series A, Series B, Series C and Series D Preferred Stock shall agree among
themselves in the Stockholders' Agreement, shall have the exclusive right to
elect to the Board of Directors of the Corporation that number of directors
which shall be equal to a majority of the total number of directors on the Board
of Directors at any given time. In any election of Preferred Directors pursuant
to this Section D.6(b) and Sections A.6(b), B.6(b) and C.6(b), each share of
issued and outstanding Series A, Series B, Series C and Series D Preferred Stock
shall entitle the holder thereof to the number of votes per share that equals
the number of shares of Common Stock (including fractional shares) into which
each such share is then convertible, rounded up to the nearest one-tenth of a
share. The voting rights of the Series A, Series B, Series C and Series D
Preferred Stockholders contained in this Section D.6(b) and Sections A.6(b),
B.6(b) and C.6(b) may be exercised at a special meeting of the Series Preferred
Stockholders called as provided in accordance with the By-laws of the
Corporation, at any annual or special meeting of the Stockholders of the
Corporation, or by written consent of the holders of Series Preferred Stock in
lieu of a meeting. The Preferred Directors elected pursuant to this Section
D.6(b) and Sections A.6(b), B.6(b) and C.6(b) shall serve from the date of their
election and qualification until their successors have been duly elected and
qualified.
(ii) Notwithstanding anything to the contrary contained in
Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and D.6(b)(i) hereof, if an Event of
Noncompliance is declared in accordance with the Stockholders' Agreement, the
Series A, Series B, Series C and Series D Preferred Stockholders, voting
together as a separate class, shall have the right to elect all of the members
of the Board of Directors of the Corporation.
(iii) A vacancy in the directorships to be elected pursuant
to Sections A.6(b)(i)-(ii), B.6(b)(i)-(ii), C.6(b)(i)-(ii) and D.6(b)(i)-(ii)
hereof (including any vacancy created on account of an increase in the number of
directors on the Board of Directors) may be filled only by vote at a meeting
called in accordance with the By-laws of the Corporation or written consent in
lieu of a meeting in accordance with Sections A.6(b)(i), B.6(b)(i), C.6(b)(i)
and D.6(b)(i) hereof or, with respect to a Preferred Director, as provided for
in the Stockholders' Agreement.
c. Protective Provisions. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
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(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to receive any capital stock, or any security
convertible into or exchangeable for capital stock or any capitalized lease with
any equity feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in
any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of the Corporation or
any of its subsidiaries;
(v) declare or pay any dividend (other than as required
by Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
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(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this Section
D.6(c) and Sections A.6(c), B.6(c), C.6(c) and E.6(c) hereof, each share of
issued and outstanding Series Preferred Stock shall entitle the holder thereof
to the number of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share is then
convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series D Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series D Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series D
Preferred Stock so converted equal to the quotient of the Series D Preferred
Original Purchase Price divided by the Series D Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series D Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series D Preferred Stock with
respect to Series D Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section D.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section D.7(a)(ii)(c) hereof, shall cease and the shares of Series D Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-
class mail, postage prepaid, to each Series D Preferred Stockholder at such
holder's address appearing on the Corporation's records a copy of (i) each
registration statement filed by the Corporation under the Securities Act and
each amendment thereof and each exhibit and schedule thereto and (ii) each order
of the Securities and Exchange Commission declaring any such registration
statement to be effective.
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(c) Holders of Series D Preferred Stock converted
into shares of Common Stock pursuant to this Section D.7 shall be entitled to
payment of any accrued but unpaid cumulative dividend and any declared but
unpaid dividends payable with respect to such shares of Series D Preferred
Stock, up to and including the Conversion Date or the Closing Date, as the case
may be.
b. Mechanics of Conversion.
(i) Any Series D Preferred Stockholder that exercises its
right to convert its shares of Series D Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with address) in which the Common Certificate(s) are
to be issued. Such conversion shall be deemed to have been effected on the date
when the aforesaid delivery is made.
(iii) As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such holder,
at the place designated by such holder, the Common Certificate(s) for the number
of full shares of Common Stock to which such holder is entitled and a cash
payment for any fractional interest in a share of Common Stock, as provided in
Section D.7(c) hereof, and for any accrued but unpaid cumulative dividends and
any declared but unpaid dividends, payable with respect to the converted shares
of Series D Preferred Stock, up to and including the Conversion Date or the
Closing Date, as the case may be.
(iv) The person in whose name each Common Certificate is
to be issued shall be deemed to have become a stockholder of record of Common
Stock on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
D Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series D Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series D Preferred Stock from the Preferred Certificate
so surrendered.
c. Issuance of Common Stock on Conversion.
(i) If a Series D Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series D Preferred
Stock so surrendered.
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(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series D Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. Conversion Price; Adjustment. The "Series D Preferred
Conversion Price" with respect to the Series D Preferred Stock shall initially
be equal to the Series D Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to
time after the Series D Preferred Original Issuance Date, make a Dilutive
Issuance, the Series D Preferred Conversion Price in effect immediately prior to
each such Dilutive Issuance shall automatically be lowered to a price
(calculated to the nearest cent) determined by multiplying the Series D
Preferred 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
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation in such Dilutive
Issuance so issued would purchase at the Series D Preferred Conversion Price;
and (B) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of such
additional shares of Common Stock so issued in such Dilutive Issuance; provided
that, for the purpose of this Section D.7(d)(i), all shares of Common Stock
issuable upon exercise or conversion of options or convertible securities
outstanding immediately prior to such issuance (other than any additional shares
of Common Stock issuable with respect to shares of Series Preferred Stock,
convertible securities, or outstanding options, warrants or other rights for the
purchase of shares of Common Stock or convertible securities, solely as a result
of either (x) the Dilutive Issuance or (y) the adjustment of the Series D
Preferred Conversion Price (or other conversion ratios applicable to other
Series Preferred Stock and otherwise) resulting from the Dilutive Issuance)
shall be deemed to be outstanding.
For the purposes of any adjustment of the Series D Preferred Conversion Price
pursuant to this Section D.7(d)(i), the following provisions shall be
applicable:
(a) In the case of the issuance of Common Stock in
whole or in part for cash, the consideration shall be deemed to be the amount of
cash paid therefor, plus the value of any property other than cash received by
the Corporation as provided in Section D.7(d)(i)(b) hereof, less any discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
(b) In the case of the issuance of Common Stock for
consideration in whole or in part in property or consideration other than cash,
the value of such property or consideration other than cash shall be deemed to
be the fair market value thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting treatment;
provided, however, that such fair market value shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued, less any cash
consideration paid for such shares.
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(c) In the case of the issuance of (I) options to
purchase or rights to subscribe for Common Stock, (II) securities convertible
into or exchangeable for Common Stock or (III) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase, or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Sections D.7(d)(i)(a) and (b) hereof, if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in exchange for, any such
convertible or exchangeable securities or upon the exercise of options to
purchase, or rights to subscribe for, such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (determined in the manner provided in Sections D.7(d)(i)(a) and (b)
hereof);
(3) if there is any decrease in the conversion or
exercise price of, or any increase in the number of shares to be received upon
exercise, conversion or exchange of any such options, rights or convertible or
exchangeable securities (other than a change resulting from the antidilution
provisions thereof), the Series D Preferred Conversion Price shall be
automatically lowered to reflect such change; and
(4) on the expiration of any right or option
referred to in Sections D.7(d)(i)(c)(1) or (2) hereof or on the termination of
any right to convert or exchange any convertible or exchangeable securities
referred to in Section D.7(d)(i)(c)(2) hereof, the Series D Preferred Conversion
Price then in effect shall thereupon be readjusted to the Series D Preferred
Conversion Price as would have been in effect had the adjustment made upon the
granting or issuance of such rights or options or convertible or exchangeable
securities been made upon the basis of the issuance or sale of only the number
of shares of Common Stock actually issued upon the exercise of such options or
rights or upon the conversion or exchange of such convertible or exchangeable
securities.
(ii) If the Corporation shall at any time after the Series D
Preferred Original Issuance Date fix a record date for the subdivision, split-up
or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series D Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common
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Stock issuable on conversion of each share of the Series A Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(iii) If, at any time after the Series D Preferred
Original Issuance Date, the number of shares of Common Stock outstanding is
decreased by a combination of the outstanding shares of Common Stock, then,
following the record date fixed for such combination (or the date of such
combination, if no record date is fixed), the Series D Preferred Conversion
Price shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of Series D Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(iv) If, at any time after the Series D Preferred
Original Issuance Date, an Extraordinary Transaction is consummated, the Series
D Preferred Conversion Price with respect to the Series D Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series D Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series D Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section D.7(d)(iv)
shall similarly apply to successive Extraordinary Transactions.
(v) All calculations under this Section D.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(vi) In any case in which the provisions of this Section
D.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series D Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section D.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series D Preferred Conversion Price
shall be adjusted as provided in Section D.7(d) hereof, the Corporation shall
file, at its principal office, at the office of the transfer agent for the
Series D Preferred Stock, if any, or at such other place as may be designated by
the Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series D
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt
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requested, postage prepaid, to each Series D Preferred Stockholder at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section D.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii), (iii) or (iv) of Section
D.7(d) hereof, the Corporation shall give notice to each Series D Preferred
Stockholder, in the manner set forth in Section D.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series D Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series D Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section D.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series D Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
D Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series D Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series D Preferred
Stock.
h. Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Redemption.
a. On and after the Series B Preferred Fifth Anniversary Date
or at any time if an Event of Noncompliance is declared in accordance with the
Stockholders' Agreement, at the written request of the holders of shares
representing not less than 75% of the combined voting power of the Series A,
Series B, Series C and Series D Preferred Stock then
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outstanding, voting together as a single class, made, from time to time, at any
date on or after the Series B Preferred Fifth Anniversary Date or upon the
declaration of an Event of Noncompliance, the Corporation shall redeem (unless
otherwise prevented by law) all of the shares of Series A, Series B and Series D
Preferred Stock, at a redemption price per share for each such series of Series
Preferred Stock equal to (i) the Series A Preferred Original Purchase Price, the
Series B Preferred Original Purchase Price or the Series D Preferred Original
Purchase Price, as applicable, plus (ii) an amount equal to any accrued but
unpaid cumulative dividends thereon and any declared but unpaid dividends
thereof, and, then, all of the shares of Series C Preferred Stock, at a
redemption price per share for such Series C Preferred Stock equal to (i) the
Series C Preferred Original Purchase Price plus (ii) an amount equal to any
accrued but unpaid dividends thereon and any declared but unpaid dividends
thereon. For purposes of determining whether the requisite 75% of the holders of
Series A, Series B, Series C and Series D Preferred Stock are participating in
the Redemption Notice, each share of issued and outstanding Series A, Series B,
Series C and Series D Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series A, Series B, Series C and Series D Preferred Stock is
then convertible, rounded to the nearest one-tenth of a share.
b. On and after the Redemption Date, all rights of any Series D
Preferred Stockholder with respect to the shares of Series D Preferred Stock
redeemed on that Redemption Date, except the right to receive the Redemption
Payment as provided herein, shall cease, and such shares shall no longer be
deemed to be outstanding, whether or not the Corporation has received the
certificates representing such shares, on the condition that the Corporation
pays the Redemption Payment, or irrevocably deposits or sets aside cash in an
amount equal to the Redemption Payment; provided, however, that if the
Corporation defaults in the payment of the Redemption Payment, the rights of the
holder with respect to such shares of Series D Preferred Stock shall continue
until the Corporation cures such default.
c. The Requesting Holders shall send their Redemption Notice
pursuant to this Section D.8 by first-class, certified mail, return receipt
requested, postage prepaid, to the Corporation at its principal place of
business or to any transfer agent of the Corporation. The Corporation shall fix
a date for redemption which shall not be more than 60 days after the receipt of
Redemption Notices from the Requesting Holders. Not less than 45 days prior to
the Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business day
next preceding the day on which notice is given) of the Series A, Series B,
Series C and Series D Preferred Stock, at the address last shown on the records
of the Corporation for such holder or given by the holder to the Corporation for
the purpose of notice, notifying such holder of the redemption to be effected,
the Redemption Date fixed, the Redemption Payment, the place at which payment
may be obtained and the date on which such holder's conversion rights as to such
shares terminate and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed. In the event of only a
partial redemption of the outstanding shares of the Series A, Series B and
Series D Preferred Stock entitled to redemption for any reason, the redemption
of the Series A, Series B and Series D Preferred Stock shall be pro rata based
upon the total amount that would be paid by the Corporation to each Series A,
Series B and Series D Preferred Stockholder if all of the shares of Series A,
Series B and Series D Preferred Stock were fully redeemed pursuant to Sections
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A.8(a), B.8(a) and D.8(a) hereof. At any time on or after the Redemption Date,
the holders of the Series D Preferred Stock shall be entitled to receive the
Redemption Payment for each of the shares of Series D Preferred Stock held by
such holder which are to be redeemed by the Corporation upon actual delivery to
the Corporation or its transfer agent of the certificate(s) representing the
shares to be redeemed. Upon redemption of only a portion of the number of shares
covered by a Series D Preferred Stock certificate, the Corporation shall issue
and deliver to or upon the written order of the holder of such Series D
Preferred Stock certificate, at the expense of the Corporation, a new
certificate covering the number of shares of Series D Preferred Stock being
redeemed representing the unredeemed portion of the Series D Preferred Stock
certificate, which new certificate shall entitle the holder thereof to all the
rights, powers and privileges of a holder of such shares.
d. Notwithstanding anything to the contrary contained in this
Section D.8, the Corporation shall not be obligated to acquire any shares on any
Redemption Date to the extent that the acquisition thereof would violate any
law, statute, rule, regulation, policy or guideline promulgated by any federal,
state, local or foreign governmental authority applicable to the Corporation,
provided that the Corporation shall use all legally permissible methods in the
reduction of capital and revaluation of assets, including appraisal, in order to
obtain a legal source of funds with which to pay the Redemption Payment and
shall acquire such shares as soon as permitted by applicable laws, statutes,
rules, regulations, policies and guidelines.
9. Miscellaneous.
a. Shares of Series D Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
b. Redeemed shares of Series D Preferred Stock shall not be
reissued but shall be retired. Upon the retirement of redeemed shares the
capital of the Corporation shall be reduced.
c. The shares of the Series D Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART E. Series E Convertible Preferred Stock.
1. Terms. The number of shares, powers, terms, conditions,
designations, preferences and privileges, relative, participating, optional and
other special rights, and qualifications, limitations and restrictions, if any,
of the Series E Preferred Stock shall be as set forth herein.
2. Ranking. The Corporation's Series E Preferred Stock shall rank,
as to dividends and upon Liquidation, (x) junior to the Series A, Series B and
Series D Preferred Stock (but, with respect to Liquidation, only to the extent
provided in Sections A.4, B.4, C.4, D.4 and E.4 hereof), (y) pari passu with the
Series C Preferred Stock and (z) senior and prior to the Common Stock and to all
other classes or series of stock issued by the Corporation. The Series E
Preferred Stock shall have the following designations, powers, preferences,
relative, participating, optional or other special rights, qualifications,
limitations and restrictions:
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3. Dividends.
a. Dividends are payable on the Series E Preferred Stock, when,
as and if declared by the Board of Directors. Whenever any dividend or other
distribution is declared on any shares of Series E Preferred Stock, the Board of
Directors shall simultaneously declare a dividend or distribution at the same
percentage rate and in the same form on each other outstanding share of Series E
and each outstanding share of Series C Preferred Stock, so that all outstanding
shares of Series E and Series C Preferred Stock will participate equally with
each other ratably per share.
b. So long as any Series E Preferred Stock is outstanding the
Corporation shall not declare or pay any dividend or make any distribution
(whether in cash, shares of capital stock of the Corporation or other property)
on shares of its Common Stock or any other class or series of stock ranking pari
passu with or junior to the Series E Preferred Stock, unless prior thereto or
simultaneously therewith all dividends and distributions previously declared on
the Series E Preferred Stock shall have been paid or the Corporation shall have
irrevocably deposited or set aside cash or United States Obligations sufficient
for the payment thereof.
c. If the Board of Directors declares dividends or other
distributions (other than (i) on Liquidation, (ii) on the Series A Preferred
Stock pursuant to Section A.3(d) hereof, (iii) on the Series B Preferred Stock
pursuant to Section B.3(d) hereof, or (iv) on the Series D Preferred Stock
pursuant to Section D.3(d) hereof) on the Common Stock or any other class or
series of stock ranking pari passu with or junior to the Series E Preferred
Stock in cash, property or securities (excluding Common Stock) of the
Corporation (or subscription or other rights to purchase or acquire securities
(excluding Common Stock) of the Corporation), the Board of Directors shall
simultaneously declare a dividend or distribution on the same terms, at the same
or equivalent rate, and in the same form on each share of Series E Preferred
Stock, so that all outstanding shares of Series E Preferred Stock will
participate ratably with the Common Stock and each other class or series of
stock ranking pari passu with or junior to the Series E Preferred Stock in such
dividend or distribution. For purposes of determining its proportional share of
the dividend or distribution, each share of the Series E Preferred Stock and any
other applicable class or series of convertible securities shall be deemed to be
that number of shares of Common Stock into which such share is then convertible,
rounded to the nearest one-tenth of a share.
4. Rights on Liquidation, Dissolution, Winding-Up.
a. With respect to rights on Liquidation, the Series E
Preferred Stock shall rank (x) junior to the Series A, Series B and Series D
Preferred Stock (but only to the extent provided in this Section E.4), (y) pari
passu with the Series C Preferred Stock and (z) senior and prior to the Common
Stock and to all other classes or series of stock issued by the Corporation.
b. Subject to the rights of the holders of Series A Preferred
Stock set forth in Section A.4 hereof, the holders of Series B Preferred Stock
set forth in Section B.4 hereof, the holders of Series C Preferred Stock set
forth in Section C.4 hereof and the holders of Series D Preferred Stock set
forth in Section D.4 hereof, in the event of any Liquidation, whether
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voluntary or involuntary, before any payment of cash or distribution of other
property shall be made to the Common Stockholders or any other class or series
of stock ranking on Liquidation junior to the Series E Preferred Stock, the
holders of Series E Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution to its
stockholders, pari passu with the rights of the Series C Stockholders, an amount
per share equal to the Series E Preferred Liquidation Preference whether from
capital, surplus or earnings, plus an amount equal to any accrued but unpaid
cumulative dividends thereon and any declared but unpaid dividends thereon.
c. If, upon any Liquidation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
Series E Preferred Stockholders the full amounts to which each of them shall be
entitled pursuant to Section E.4(b) hereof and to pay the Series C Preferred
Stockholders the full amount to which each of them shall be entitled pursuant to
Section C.4(b) hereof, then the Series E and Series C Preferred Stockholders
shall share ratably in any distribution of assets according to the respective
amounts which would be payable to them in respect of the shares of Series E or
Series C Preferred Stock, as the case may be, held upon such distribution if all
amounts payable on or with respect to such shares were paid in full pursuant to
Sections E.4(b) and C.4(b) hereof.
d. In the event of any Liquidation, the Series E Preferred
Stock shall not be entitled to receive any payment of cash or distribution of
property other than as expressly provided in this Section E.4.
5. Merger, Consolidation, etc.
a. In the event the Corporation intends to sell, lease or
otherwise dispose of all or substantially all of the assets of the Corporation,
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred (other than in connection
with a Public Offering), or merge or consolidate with or into any other
corporation, corporations or other entity or entities (other than a merger or
consolidation in which the Series Preferred Stockholders receive securities of
the surviving corporation having substantially similar rights to the Series
Preferred Stock and in which the stockholders of the Corporation immediately
prior to such a transaction are holders of at least a majority of the voting
securities of the surviving corporation immediately thereafter), then the
Corporation shall give written notice to each Series Preferred Stockholder no
less than 20 days prior to the closing of any such transaction notifying the
Series Preferred Stockholders of the terms and timing of the closing of such
transaction and of the rights of the Series Preferred Stockholders under
Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof.
b. Upon the affirmative vote of the holders of not less than
75% in voting power of all of the shares of Series Preferred Stock then
outstanding, voting together as a separate class, made prior to the consummation
of such transaction, the proceeds of or any property deliverable from such
transaction shall be distributed among the holders of the Series Preferred Stock
and the Common Stock according to the provisions of Sections A.4, B.4, C.4, D.4
and E.4 hereof as if such transaction were a Liquidation.
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c. The voting rights of the holders of Series Preferred Stock
contained in Sections A.5(b), B.5(b), C.5(b), D.5(b) and E.5(b) hereof may be
exercised at a special meeting of the holders of Series Preferred Stockholders
called as provided in accordance with the By-laws of the Corporation or by
written consent of the holders of Series Preferred Stock in lieu of a meeting.
6. Voting.
a. General. In addition to the rights otherwise provided for
herein or by law, except as provided in Section E.6(b) hereof, the Series E
Preferred Stockholders shall be entitled to vote, together with the Series A
Preferred Stockholders, the Series B Preferred Stockholders, the Series C
Preferred Stockholders, the Series D Preferred Stockholders, the Series E
Preferred Stockholders and the Common Stockholders and any other class or series
of stock then entitled to vote, as one class on all matters as to which Common
Stockholders shall be entitled to vote, in the same manner and with the same
effect as the Common Stockholders, except as otherwise required by the General
Corporation Law. In any such vote, and in any vote or action of the Series E
Preferred Stockholders voting together as a separate class or with the other
holders of Series Preferred Stock as a separate class, each share of issued and
outstanding Series E Preferred Stock shall entitle the holder thereof to one
vote per share for each share of Common Stock (including fractional shares) into
which each share of Series E Preferred Stock is then convertible, rounded to the
nearest one-tenth of a share.
b. Election of Board of Directors. The Series E Preferred
Stockholders shall not have any right to vote for the election of members to the
Board of Directors of the Corporation.
c. Protective Provisions. So long as any Series Preferred Stock
is outstanding, the Corporation shall not, without the written consent in lieu
of a meeting, or the affirmative vote at a meeting called for such purpose, of
the holders of shares representing at least 75% of the combined voting power of
the issued and outstanding Series A, Series B, Series C, Series D and Series E
Preferred Stock, voting together as a single class:
(i) except for "Excluded Stock", authorize, issue or
agree to authorize or issue any shares of capital stock of the Corporation, any
right, warrant, or option to receive any capital stock, or any security
convertible into or exchangeable for capital stock or any capitalized lease with
any equity feature with respect to the capital stock of the Corporation;
(ii) change as a whole, by subdivision or combination in
any manner, the number of shares of the Common Stock then outstanding into a
different number of shares, with or without par value, without making the
identical change as a whole in the number of shares of Series Preferred Stock
then outstanding;
(iii) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series
Preferred Stock;
(iv) sell, abandon, transfer, lease or otherwise dispose
of all or substantially all of the properties or assets of the Corporation or
any of its subsidiaries;
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(v) declare or pay any dividend (other than as required
by Section A.3(d) hereof in respect of the Series A Preferred Stock, by Section
B.3(d) hereof in respect of the Series B Preferred Stock and by Section D.3(d)
hereof in respect of the Series D Preferred Stock) or make any distribution
(whether in cash, shares of capital stock of the Corporation, or other property)
on shares of its capital stock other than the Series Preferred Stock;
(vi) merge or consolidate with or into, or permit any
subsidiary of the Corporation to merge or consolidate with or into, any other
corporation, corporations or other entity or entities, or effect any transaction
or series of related transactions in which more than 50% of the voting power of
the Corporation is transferred (other than in connection with a Public
Offering);
(vii) voluntarily dissolve, liquidate or wind-up or carry
out any partial Liquidation or distribution or transaction in the nature of a
partial Liquidation or distribution;
(viii) increase the number of shares of any series of
Preferred Stock of the Corporation authorized to be issued;
(ix) reclassify any shares of the Corporation's capital
stock as shares ranking senior to or on parity with the Series Preferred Stock
with respect to rights on Liquidation, redemption or for the payment of any
dividend or distribution other than in Liquidation;
(x) amend, alter or repeal any provision of the
Certificate of Incorporation of the Corporation;
(xi) amend, alter or repeal any provisions of the By-laws
of the Corporation so as to adversely affect the rights of the holders of the
Series Preferred Stock; or
(xii) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock, except (a) pursuant to
Sections A.8, B.8, C.8 and D.8 hereof, and (b) pursuant to any agreement
approved by the Board of Directors with an officer, director, employee or
consultant providing for the repurchase of any capital stock of the Corporation
owned by such officer, director, employee or consultant at the option of the
Corporation, which is either (A) set forth on Schedule 4.10 of the Series B
Stock Purchase Agreement, or (B) issued pursuant to the Option Plan, as amended
prior to May 13, 1996, the 1997 Equity Incentive Plan, or any other stock option
plan of the Corporation or one or more amendments to the Option Plan, from and
after May 13, 1996, approved by the Board of Directors and by the holders of 75%
of the then issued and outstanding Series Preferred Stock, voting together as a
separate class.
In any vote or written consent in lieu of a meeting pursuant to this
Section E.6(c) and Sections A.6(c), B.6(c), C.6(c) and D.6(c) hereof, each share
of issued and outstanding Series Preferred Stock shall entitle the holder
thereof to the number of votes per share that equals the number of
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shares of Common Stock (including fractional shares) into which each such share
is then convertible, rounded to the nearest one-tenth of a share.
7. Conversion.
a. Right to Convert.
(i) Any Series E Preferred Stockholder shall have the
right, at any time or from time to time, prior to the Closing Date to convert
any or all of its shares of Series E Preferred Stock into that number of fully
paid and nonassessable shares of Common Stock for each share of Series E
Preferred Stock so converted equal to the quotient of the Series E Preferred
Original Purchase Price divided by the Series E Preferred Conversion Price (as
last adjusted and then in effect) rounded to the nearest one-tenth of a share.
(ii) (a) Any Series E Preferred Stock that remains
unconverted on the Closing Date shall be automatically converted without notice
and without any action on the part of the holder thereof into shares of Common
Stock on the Closing Date in accordance with the preceding sentence. After the
Closing Date all rights of holders of shares of Series E Preferred Stock with
respect to Series E Preferred Stock, except the right to receive shares of
Common Stock in accordance with this Section E.7(a)(ii)(a) and any accrued but
unpaid dividends and any declared but unpaid dividends as in accordance with
Section E.7(a)(ii)(c) hereof, shall cease and the shares of Series E Preferred
Stock shall no longer be deemed to be outstanding, whether or not the
Corporation has received the certificates representing such shares.
(b) The Corporation shall promptly send by first-
class mail, postage prepaid, to each Series E Preferred Stockholder at such
holder's address appearing on the Corporation's records a copy of (i) each
registration statement filed by the Corporation under the Securities Act and
each amendment thereof and each exhibit and schedule thereto and (ii) each order
of the Securities and Exchange Commission declaring any such registration
statement to be effective.
(c) Holders of Series E Preferred Stock converted
into shares of Common Stock pursuant to this Section E.7 shall be entitled to
payment of any accrued but unpaid cumulative dividend and any declared but
unpaid dividends payable with respect to such shares of Series E Preferred
Stock, up to and including the Conversion Date or the Closing Date, as the case
may be.
b. Mechanics of Conversion.
(i) Any Series E Preferred Stockholder that exercises its
right to convert its shares of Series E Preferred Stock into Common Stock shall
deliver the Preferred Certificate, duly endorsed or assigned in blank to the
Corporation, during regular business hours, at the office of the transfer agent
of the Corporation, if any, at the principal place of business of the
Corporation or at such other place as may be designated by the Corporation.
(ii) Each Preferred Certificate shall be accompanied by
written notice stating that such holder elects to convert such shares and
stating the name or names (with
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address) in which the Common Certificate(s) are to be issued. Such conversion
shall be deemed to have been effected on the date when the aforesaid delivery is
made.
(iii) As promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of such holder,
at the place designated by such holder, the Common Certificate(s) for the number
of full shares of Common Stock to which such holder is entitled and a cash
payment for any fractional interest in a share of Common Stock, as provided in
Section E.7(c) hereof, and for any accrued but unpaid cumulative dividends and
any declared but unpaid dividends, payable with respect to the converted shares
of Series E Preferred Stock, up to and including the Conversion Date or the
Closing Date, as the case may be.
(iv) The person in whose name each Common Certificate is
to be issued shall be deemed to have become a stockholder of record of Common
Stock on the Conversion Date or the Closing Date, as the case may be, unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open; provided, that the Series
E Preferred Conversion Price shall be that in effect on the Conversion Date or
the Closing Date, as the case may be.
(v) Upon conversion of only a portion of the shares of
Series E Preferred Stock covered by a Preferred Certificate, the Corporation, at
its own expense, shall issue and deliver to or upon the written order of the
holder of such Preferred Certificate, a new certificate representing the number
of unconverted shares of Series E Preferred Stock from the Preferred Certificate
so surrendered.
c. Issuance of Common Stock on Conversion.
(i) If a Series E Preferred Stockholder shall surrender
more than one Preferred Certificate for conversion at any one time, the number
of such shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series E Preferred
Stock so surrendered.
(ii) No fractional shares of Common Stock shall be issued
upon conversion of shares of Series E Preferred Stock. The Corporation shall pay
a cash adjustment for such fractional interest in an amount equal to the then
Current Market Price of a share of Common Stock multiplied by such fractional
interest.
d. Conversion Price; Adjustment. The "Series E Preferred
Conversion Price" with respect to the Series E Preferred Stock shall initially
be equal to the Series E Preferred Original Purchase Price and shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall at any time after the Series
E Preferred Original Issuance Date fix a record date for the subdivision, split-
up or stock dividend of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to receive such
subdivision, split-up or dividend (or the date of such subdivision, split-up or
dividend, if no record date is fixed), the Series E Preferred Conversion Price
shall be appropriately decreased so that the number of shares of Common
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Stock issuable on conversion of each share of the Series E Preferred Stock shall
be increased in proportion to such increase in outstanding shares.
(ii) If, at any time after the Series E Preferred Original
Issuance Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination (or the date of such combination, if no
record date is fixed), the Series E Preferred Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series E Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(iii) If, at any time after the Series E Preferred Original
Issuance Date, an Extraordinary Transaction is consummated, the Series E
Preferred Conversion Price with respect to the Series E Preferred Stock
outstanding after the Extraordinary Transaction shall be adjusted to provide
that the shares of Series E Preferred Stock outstanding immediately prior to the
effectiveness of the Extraordinary Transaction shall be convertible into the
kind and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from or surviving such Extraordinary
Transaction which the holder of the number of shares of Common Stock deliverable
(immediately prior to the effectiveness of the Extraordinary Transaction) upon
conversion of such Series E Preferred Stock would have been entitled to receive
upon such Extraordinary Transaction. The provisions of this Section E.7(d)(iii)
shall similarly apply to successive Extraordinary Transactions.
(iv) All calculations under this Section E.7(d) shall be
made to the nearest one-tenth of a cent ($.001) or to the nearest one-tenth of a
share, as the case may be.
(v) In any case in which the provisions of this Section
E.7(d) shall require that an adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence of
that event (A) issuing to the holder of any share of Series E Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion by reason of
the adjustment required by such event over and above the shares of capital stock
issuable upon such conversion before giving effect to such adjustment and (B)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section E.7(c) hereof; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares, in
such case, upon the occurrence of the event requiring such adjustment.
e. Notice of Adjustments.
(i) Whenever the Series E Preferred Conversion Price
shall be adjusted as provided in Section E.7(d) hereof, the Corporation shall
file, at its principal office, at the office of the transfer agent for the
Series E Preferred Stock, if any, or at such other place as may be designated by
the Corporation, a statement, signed by its President and by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series E
Preferred Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by first-class,
certified mail, return receipt
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requested, postage prepaid, to each Series E Preferred Stockholder at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under the provisions of Section E.7(e)(ii) hereof.
(ii) In the event the Corporation shall propose to file a
registration statement under the Securities Act for a Public Offering or to take
any action of the types described in clauses (i), (ii) or (iii) of Section
E.7(d) hereof, the Corporation shall give notice to each Series E Preferred
Stockholder, in the manner set forth in Section E.7(e)(i) hereof, which shall
specify the record date, if any, with respect to any such action and the date on
which such action is to take place. The notice shall also set forth such facts
as are reasonably necessary to indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Series E Preferred
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Series E Preferred Stock. In
the case of any action which would require the fixing of a record date, such
notice shall be given at least ten (10) days prior to the date so fixed, and in
case of all other action, such notice shall be given at least fifteen (15) days
prior to the taking of such proposed action. Failure to give notice under this
Section E.7(e)(ii), or any defect therein, shall not affect the legality or
validity of any such action.
f. Transfer Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes (excluding income taxes) attributable to the
issuance or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series E Preferred Stock; provided, however, that
the Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
E Preferred Stock in respect of which such shares are being issued.
g. Reservation of Common Stock. The Corporation shall at all
times reserve, free from preemptive rights, out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series E Preferred Stock, sufficient shares of Common Stock to
provide for the conversion of all outstanding shares of Series E Preferred
Stock.
h. Status of Common Stock. All shares of Common Stock which may
be issued in connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes, liens or
charges with respect thereto created or imposed by the Corporation.
8. Miscellaneous.
a. Shares of Series E Preferred Stock are not entitled to a
right of redemption by the Company.
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b. Shares of Series E Preferred Stock are not subject to or
entitled to the benefit of a sinking fund.
c. The shares of the Series E Preferred Stock shall not have
any preferences, voting powers or relative, participating, optional, preemptive
or other special rights except as set forth above in this Seventh Restated
Certificate of Incorporation of the Corporation.
PART F. Common Stock.
1. Common Stock.
a. Voting. Each holder of Common Stock shall be entitled to one
vote for each share of Common Stock held of record on all matters as to which
holders of Common Stock shall be entitled to vote, which voting rights shall not
be cumulative. In any election of directors, no holder of Common Stock shall be
entitled to more than one (1) vote per share.
b. Other Rights. Each share of Common Stock issued and
outstanding shall be identical in all respects with each other such share, and
no dividends shall be paid on any shares of Common Stock unless the same
dividend is paid on all shares of Common Stock outstanding at the time of such
payment. Except for and subject to those rights expressly granted to the holders
of any class or series of capital stock having a preference over the Common
Stock and except as may be provided by the laws of the State of Delaware, the
holders of Common Stock shall have all other rights of stockholders, including,
without limitation, (a) the right to receive dividends, when and as declared by
the Board of Directors, out of assets lawfully available therefor, and (b) in
the event of any distribution of assets upon a Liquidation, the right to receive
ratably and equally along with the holders of the Series A Preferred Stock in
accordance with Section A.4 hereof, the holders of the Series B Preferred Stock
in accordance with Section B.4 hereof, the holders of the Series D Preferred
Stock in accordance with Section D.4 hereof, and the holders of any other
capital stock then entitled to participate, all the assets and funds of the
Corporation remaining after the payment of all claims and obligations of the
Corporation, as provided by the General Corporation Law.
PART G. Definitions.
1. As used in Article III of this Seventh Restated Certificate of
Incorporation, the following terms shall have the meanings provided therefor
below or elsewhere in this Seventh Restated Certificate of Incorporation as
referred to below:
"Closing Date" shall mean the date of the closing of the Corporation's
first Public Offering.
"Common Certificate" shall mean the certificate(s) for the shares of
Common Stock issued upon the conversion of Series Preferred Stock.
"Common Stock" shall have the meaning set forth Section 1 of this
Article III.
"Common Stockholders" shall mean the holders of Common Stock.
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"Conversion Date" shall mean the date on which any Series Preferred
Stockholder delivers a Preferred Certificate for conversion into Common Stock in
accordance with Sections A.7(b)(ii), B.7(b)(ii), C.7(b)(ii), D.7(b)(ii) or
E.7(b)(ii) hereof.
"Current Market Price" of one share of Common Stock at any date shall
be deemed to be the average of the daily closing prices for the thirty (30)
consecutive business days ending on the fifth (5th) business day before the day
in question (as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such thirty (30) business day period)
as follows:
a. If the Common Stock is listed or admitted for trading on a
national securities exchange, the closing price for each day shall be the last
reported sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices regular way,
in either case, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading.
b. If the Common Stock is not at the time listed or admitted
for trading on any such exchange, then such price as shall be equal to the last
reported sale price, or, if there is no such sale price, the average of the last
reported bid and asked prices, as reported by the Nasdaq on such day.
c. If, on any day in question, the security shall not be listed
or admitted to trading on a national securities exchange or quoted on the
Nasdaq, then such price shall be equal to the last reported bid and asked prices
on such day as reported by the National Quotation Bureau, Inc. or any similar
reputable quotation and reporting service, if such quotation is not reported by
the National Quotation Bureau, Inc.
d. If the Common Stock is not traded in such manner that the
quotations referred to in this definition are available for the period required
hereunder, the Current Market Price shall be determined by the Board of
Directors of the Corporation.
"Dilutive Issuance" shall mean an issuance of any shares of Common
Stock (which term, for purposes of this definition, shall be deemed to include
all other securities convertible into, or exchangeable or exercisable for,
shares of Common Stock (including, but not limited to, Series Preferred Stock)
or options to purchase or other rights to subscribe for such convertible or
exchangeable securities), other than Excluded Stock, for a consideration per
share less than the applicable Series A Preferred Conversion Price, Series B
Preferred Conversion Price or Series D Preferred Conversion Price in effect
immediately prior to the issuance of such Common Stock or other securities.
"Event of Noncompliance" shall be as defined in the Stockholders'
Agreement.
"Excluded Stock" shall mean:
a. Common Stock issued upon conversion of any shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock;
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b. Securities issued pursuant to the acquisition of another
corporation, partnership, joint venture, trust or other entity by the
Corporation by merger, consolidation, stock acquisition, reorganization, or
otherwise whereby the Corporation, or its shareholders of record immediately
prior to the effectiveness of such transaction, directly or indirectly own at
least the majority of the voting power of such other entity or the resulting or
surviving corporation immediately after such transaction;
c. Common Stock issued to employees, consultants or others who
provide services to the Corporation, pursuant to any options to purchase or
rights to subscribe for such Common Stock granted pursuant to an option or
rights plan, agreement or arrangement approved by the Corporation's Board of
Directors, but not to exceed 11,275,624 shares of Common Stock, giving effect to
appropriate adjustment to prevent dilution thereof;
d. Common Stock issued upon exercise of options granted
pursuant to the Restricted Stock Option Agreements (as defined in the
Stockholders' Agreement);
e. Common Stock issued in transactions described in Sections
A.7(d)(ii)-(iii), B.7(d)(ii)-(iii), C.7(d)(i)-(ii), D.7(d)(ii)-(iii) or
E.7(d)(ii)-(iii) hereof;
f. (i) The warrant issued to Comdisco, Inc. to initially
acquire up to 501,000 shares of Series A Preferred Stock, (ii) up to 501,000
shares of Series A Preferred Stock issuable in connection with the exercise of
the warrant, and (iii) the Common Stock into which such Series A Preferred Stock
is convertible;
g. The warrants issued to the holders of Series I Preferred
Stock previously issued by the Corporation, in connection with the issuance of
Series I Preferred Stock, to acquire 100,000 shares of Common Stock and the
issuance of the shares of Common Stock in connection with the exercise of the
warrants;
h. The warrants issued to the parties to the Loan Agreement
with the Corporation dated January 12, 1996 to acquire up to 450,000 shares of
Common Stock and the issuance of Common Stock in connection with the exercise of
the warrants;
i. (a) Up to 18,939,394 shares of Series B Preferred Stock
issued pursuant to the Series B Stock Purchase Agreement, (b) up to 5,818,184
shares of Series B Preferred Stock issued pursuant to options therein, and (c)
the Common Stock into which such Series B Preferred Stock is convertible; and
j. (a) Up to 24,809,555 shares of Series D Preferred Stock
issued pursuant to the Series D Stock Purchase Agreement and (b) the Common
Stock into which such Series D Preferred Stock is convertible.
k (a) Up to 5,555,556 shares of Series E Preferred Stock
issued pursuant to the Series E Stock Purchase Agreement and (b) the Common
Stock into which such Series E Preferred Stock is convertible.
l. Common Stock issued to Novartis Agribusiness Biotechnology
Research, Inc. or its assigns upon the occurrence of an underwritten initial
public offering of the
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Corporation pursuant to that certain Stock Purchase Agreement between the
Corporation and Novartis Agribusiness Biotechnology Research, Inc. dated as of
the Series E Preferred Original Issuance Date.
"Extraordinary Transaction" shall mean any capital reorganization, or
any reclassification of the capital stock of the Corporation (other than a
change in par value or from par value to no par value or from no par value to
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the Corporation with
or into another corporation (other than a consolidation or merger which has been
treated as a Liquidation under Sections A.5, B.5, C.5, D.5 and E.5 hereof or in
which the Corporation is the continuing corporation and which does not result in
any change in the powers, designations, preferences and rights (or the
qualifications, limitations or restrictions, if any) of the Series Preferred
Stock).
"Liquidation" shall mean any liquidation, dissolution or winding-up of
the affairs of the Corporation.
"Nasdaq" shall mean the National Association of Securities Dealers
Automated Quotations System.
"1997 Equity Incentive Plan" shall mean the Corporation's 1997 Equity
Incentive Plan, as the same may be amended from time to time.
"Option Plan" shall mean the Corporation's Restated 1994 Employee
Incentive and Non-Qualified Stock Option Plan, as amended.
"Preferred Stock" shall have the meaning set forth Section 1 of this
Article III.
"Preferred Certificate" shall mean the certificate(s) of Series
Preferred Stock delivered for conversion into Common Stock pursuant to Sections
A.7(b)(i), B.7(b)(i), C.7(b)(i), D.7(b)(i) or E.7(b)(i) hereof.
"Preferred Directors" shall mean the directors of the Corporation
which the Series A, Series B, Series C and Series D Preferred Stockholders have
the right to elect pursuant to Sections A.6(b)(i), B.6(b)(i), C.6(b)(i) and
D.6(b)(i) hereof.
"Proportional Adjustment" shall mean an adjustment made to the price
of the Series Preferred Stock upon the occurrence of a stock split, reverse
stock split, stock dividend, stock combination, reclassification or other
similar change with respect to such security, such that the price of one share
of the Series Preferred Stock before the occurrence of any such change shall
equal the aggregate price of the share (or shares or fractional share) of such
security (or any other security) received by the holder of the Series Preferred
Stock with respect thereto upon the effectiveness of such change.
"Public Offering" shall mean an Underwritten Offering by the
Corporation of authorized but unissued shares of Common Stock at a price per
share of not less than $3.00 (adjusted to reflect subsequent stock dividends,
stock splits or recapitalizations) resulting in
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gross proceeds to the Corporation (before deducting underwriting commissions and
expenses of the offering) of not less than $25,000,000.
"Redemption Date" shall mean the date fixed for any redemption
pursuant to Sections A.8(c), B.8(c), C.8(c) or D.8(c) hereof.
"Redemption Notice" shall mean a request for redemption of the Series
Preferred Stockholders pursuant to Sections A.8(a), B.8(a), C.8(a) or D.8(a)
hereof.
"Redemption Payment" shall mean the redemption payment to which a
Series A Preferred Stockholder is entitled pursuant to Section A.8 hereof, a
Series B Preferred Stockholder is entitled pursuant to Section B.8 hereof, a
Series C Preferred Stockholder is entitled pursuant to Section C.8 hereof or a
Series D Preferred Stockholder is entitled pursuant to Section D.8 hereof.
"Requesting Holders" shall mean the Series Preferred Stockholders
making a request for redemption pursuant to Sections A.8(a), B.8(a), C.8(a) or
D.8(a) hereof.
"Securities Act" shall mean the Securities Act of 1993, as amended,
and the rules and regulations promulgated thereunder.
"Series A Preferred Conversion Price" shall have the meaning set forth
in Section A.7(d) hereof.
"Series A Preferred Fifth Anniversary Date" shall mean the fifth (5th)
anniversary of the Series A Preferred Original Issuance Date.
"Series A Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series A Preferred Stock.
"Series A Preferred Original Purchase Price" shall mean $1.00 per
share, subject to Proportional Adjustment.
"Series A Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series A Preferred Stockholders" shall mean the holders of the
outstanding shares of Series A Preferred Stock.
"Series B Preferred Conversion Price" shall have the meaning set forth
in Section B.7(d) hereof.
"Series B Preferred Fifth Anniversary Date" shall mean the fifth (5th)
anniversary of the Series B Preferred Original Issuance Date.
"Series B Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series B Preferred Stock.
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"Series B Preferred Original Purchase Price" shall mean $0.66 per
share, subject to Proportional Adjustment.
"Series B Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series B Preferred Stockholders" shall mean the holders of the
outstanding shares of Series B Preferred Stock.
"Series B Stock Purchase Agreement" shall mean the Stock Purchase
Agreement for the sale of Series B Preferred Stock dated as of May 13, 1996, as
amended by the Amendment to Stock Purchase Agreement dated as of May 13, 1996.
"Series C Preferred Liquidation Preference" shall mean the fair value,
as determined by the Board of Directors of the Corporation in its reasonable
discretion, of the Corporation's intellectual property rights in the genes and
gene sequences developed by the Corporation pursuant to the Collaboration
Agreement dated as of January 2, 1997, as amended between the Corporation and
Finnfeeds International Limited.
"Series C Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series C Preferred Stock.
"Series C Preferred Original Purchase Price" shall mean $2.25 per
share, subject to Proportional Adjustment.
"Series C Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series C Preferred Stockholders" shall mean the holders of the
outstanding shares of Series C Preferred Stock.
"Series D Preferred Conversion Price" shall have the meaning set forth
in Section D.7(d) hereof.
"Series D Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series D Preferred Stock.
"Series D Preferred Original Purchase Price" shall mean $0.85 per
share, subject to Proportional Adjustment.
"Series D Preferred Stock" shall have the meaning set forth Section 1
of this Article III.
"Series D Preferred Stockholders" shall mean the holders of the
outstanding shares of Series D Preferred Stock.
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"Series D Stock Purchase Agreement" shall mean the Stock Purchase
Agreement and Agreement and Plan of Reorganization for the sale of Series D
Preferred Stock dated as of October 22, 1997.
"Series E Preferred Liquidation Preference" shall mean an amount equal
to the Series D Preferred Original Purchase Price.
"Series E Preferred Original Issuance Date" shall mean the date of
first issuance by the Corporation of a share of Series E Preferred Stock.
"Series E Preferred Original Purchase Price" shall mean $2.25 per
share, subject to Proportional Adjustment.
"Series E Preferred Stock" shall have the meaning set forth in Section
1 of this Article III.
"Series E Preferred Stockholders" shall mean the holders of the
outstanding shares of Series E Preferred Stock.
"Series Preferred Stock" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock, collectively.
"Series Preferred Stockholders" shall mean the Series A Preferred
Stockholders, the Series B Preferred Stockholders, the Series C Preferred
Stockholders, the Series D Preferred Stockholders and the Series E Preferred
Stockholders, collectively.
"Stockholders' Agreement" shall mean the Amended and Restated
Stockholders' Agreement among the Corporation and certain Series Preferred
Stockholders of the Corporation dated as of the Series E Preferred Original
Issuance Date, as may be amended from time to time.
"Underwritten Offering" shall mean a firm commitment offering by one
or more underwriters in an offering registered on Form S-1 under the Securities
Act.
"United States Obligations" shall mean any obligations, the payment of
which is backed by the full faith and credit of the United States.
ARTICLE IV.
Registered Agent
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of the registered agent of the Corporation at
such address is The Corporation Trust Company.
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ARTICLE V.
Board of Directors
The number of directors of the Corporation shall be such number as from
time to time shall be fixed by, or in the manner provided in, the By-laws of the
Corporation. Unless and except to the extent that the By-laws of the Corporation
otherwise require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VI.
By-laws
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized to adopt,
amend or repeal the By-laws of the Corporation.
ARTICLE VII.
Perpetual Existence
The Corporation is to have perpetual existence.
ARTICLE VIII.
Amendments and Repeal
Except as otherwise specifically provided in this Seventh Restated
Certificate of Incorporation, the Corporation reserves the right at any time,
and from time to time, to amend, alter, change or repeal any provision contained
in this Seventh Restated Certificate of Incorporation, and to add or insert
other provisions authorized at such time by the laws of the State of Delaware,
in the manner now or hereafter prescribed by law; and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Seventh Restated
Certificate of Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this Article VIII.
ARTICLE IX.
Compromises and Arrangements
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the 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 the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of the
General Corporation Law or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under Section 279 of the
General Corporation Law, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders
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of the Corporation, as the case may be, to be summoned in such manner as such
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 the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, then such compromise or arrangement and such
reorganization shall, if sanctioned by the court to which such application has
been made, be binding on all the creditors or class of creditors, and/or on all
of the stockholders or class of stockholders of the Corporation, as the case may
be, and also on the Corporation.
ARTICLE X.
Limitation of Liability
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of his or her fiduciary duty as
director; provided, however, that nothing contained in this Article X shall
eliminate or limit the liability of a director:
a. for any breach of the director's duty of loyalty to the
Corporation or its stockholders;
b. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law;
c. under Section 174 of the General Corporation Law; or
d. for any transaction from which the director derived improper
personal benefit.
No amendment to or repeal of this Article X 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 or repeal.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
71.
<PAGE>
In Witness Whereof, the undersigned has caused this Seventh Restated
Certificate of Incorporation to be duly executed on behalf of the Corporation on
December __, 1998.
Diversa Corporation
By: ______________________________
Terrance J. Bruggeman
Chief Executive Officer
Attest:
____________________________
Kathleen H. Van Sleen
Secretary
72.
<PAGE>
Exhibit B
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
<PAGE>
Amended and Restated
Stockholders' Agreement
Dated as of January 25, 1999
by and among
DIVERSA CORPORATION
and
the Stockholders named herein
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions...................................................... 1
2. Representations and Certain Covenants............................ 10
2.1 By the Company............................................. 10
2.2 By the Stockholders........................................ 10
2.3 By the Series A Preferred Stockholders..................... 10
2.4 Covenants of the Stockholders.............................. 11
3. Legend on Shares and Notice of Transfer.......................... 11
3.1 Restrictive Legends........................................ 11
3.2 Notice of Transfer......................................... 12
3.3 Prohibited Transfers....................................... 13
3.4 Right of First Refusal; Tag-Along Rights................... 13
4. Rights to Purchase Additional Stock.............................. 16
5. Board of Directors............................................... 17
5.1 Number of Directors........................................ 17
5.2 Agreement to Vote for Directors............................ 17
5.3 Default of Agreement to Vote............................... 18
5.4 Board Observation Rights................................... 18
6. Affirmative Covenants of the Company............................. 18
6.1 Use of Proceeds............................................. 19
6.2 Consent as to Issuance of Common Stock...................... 19
6.3 Financial Information....................................... 19
6.4 Other Reports and Inspection................................ 20
6.5 Corporate Existence......................................... 21
6.6 Insurance................................................... 21
6.7 Maintenance of Properties................................... 21
6.8 Compliance with Obligations................................. 21
6.9 Taxes....................................................... 21
6.10 Compliance with Law......................................... 21
6.11 Environmental Matters....................................... 22
6.12 Accounting System........................................... 22
</TABLE>
i.
<PAGE>
Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
6.13 Reservation of Common Stock................................. 22
6.14 Confidentiality Agreements with Employees and Consultants... 22
6.15 Board of Directors Meetings................................. 22
6.16 Publicity................................................... 22
6.17 Registration Rights......................................... 22
6.18 Key Man Life Insurance...................................... 23
6.19 Voting Agreement with Common Stockholders................... 23
6.20 Option Exercises............................................ 23
6.21 Proprietary Rights.......................................... 23
6.22 Approval of Budget.......................................... 23
6.23 Repayment of Loan Agreement and Release of Encumbrances..... 23
7. Negative Covenants of the Company................................. 23
7.1 Indebtedness; Commitments................................... 24
7.2 Restriction on Dividends.................................... 24
7.3 Restriction on Issuances of Shares.......................... 24
7.4 Protective Provisions....................................... 24
7.5 Business.................................................... 24
7.6 Guarantees.................................................. 24
7.7 Conflicting Agreements...................................... 24
7.8 No Acquisitions............................................. 24
7.9 No Dispositions............................................. 24
7.10 Employee Stock and Stock Options............................ 25
8. Confidentiality................................................... 25
9. Events of Noncompliance........................................... 26
9.1 Occurrence of Event of Noncompliance........................ 26
9.2 Remedies.................................................... 27
10. Filing of Reports Under the Exchange Act.......................... 27
11. Registration Rights............................................... 28
11.1 Demand Registration Rights.................................. 28
</TABLE>
ii.
<PAGE>
Table of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
11.2 Registration Requested by Holders......................... 30
11.3 "Piggyback" Registrations................................. 31
11.4 Registrations on S-3...................................... 33
11.5 Company's Obligations in Registration..................... 33
11.6 Payment of Registration Expenses.......................... 35
11.7 Information from Holders of Registrable Securities........ 36
11.8 Indemnification........................................... 36
12. Small Business Matters.......................................... 38
12.1 Generally: Certain SBIC Covenants......................... 38
12.2 Regulatory Compliance Cooperation......................... 39
12.3 Information Rights and Related Covenants.................. 40
12.4 Remedies.................................................. 40
13. Duration of Agreement........................................... 41
14. Additional Remedies............................................. 41
15. Successors and Assigns; Limitation on Assignment................ 41
16. Entire Agreement................................................ 42
17. Notices......................................................... 42
18. Changes......................................................... 43
19. Counterparts.................................................... 43
20. Headings........................................................ 43
21. Nouns and Pronouns.............................................. 43
22. Severability.................................................... 43
23. Governing Law; Jurisdiction..................................... 43
24. New York Life Insurance Company Compliance Obligations.......... 43
</TABLE>
iii.
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
This Amended and Restated Stockholders' Agreement dated as of January 25, 1999
by and among Diversa Corporation, a Delaware corporation (the "Company"), and
those stockholders of the Company whose names appear on the signature pages
hereof.
R E C I T A L S
Whereas, the Company and the holders of the Series A Preferred Stock have
previously entered into a Stockholders' Agreement dated as of December 21, 1994
by and among the Company (formerly known as Industrial Genome Sciences, Inc.)
and those stockholders whose names appear on the signature pages thereof, as
amended by Amendment No. 1 thereto (the "Original Stockholders' Agreement");
Whereas, the Company and the holders of the Series A, Series B, Series C
and Series D Preferred Stock have previously entered into a Stockholders'
Agreement dated as of May 13, 1996, as amended on July 14, 1997 and
October 22, 1997, by and among the Company and those stockholders whose names
appear on the signature pages thereof (the "Prior Stockholders' Agreement"),
which superceded and replaced in its entirety the Original Stockholders'
Agreement;
Whereas, the Company is entering, or will enter into, a Stock Purchase
Agreement with the Series E Investors pursuant to which the Company will sell
shares of its Series E Preferred Stock to the Series E Investors;
Whereas, in connection with the sale of the Series E Preferred Stock to the
Series E Investors, the Company and the Stockholders desire to (i) amend and
restate the Prior Stockholders' Agreement to make certain covenants with the
Series E Investors and to grant the Series E Investors certain rights and (ii)
terminate the Prior Stockholders' Agreement in its entirety with such Prior
Stockholders' Agreement being superseded and replaced in its entirety with this
Agreement;
Now, Therefore, in consideration of the foregoing and of the respective
covenants and undertakings hereunder, the parties hereto do hereby agree as
follows:
1. Definitions.
As used in this Agreement, the following terms shall have the following
respective meanings:
"1997 Plan" shall mean the Company's 1997 Equity Incentive Plan.
"Affiliate" shall mean, with respect to any Person, (i) a director, officer
or stockholder of such Person, (ii) a spouse, parent, sibling or descendant of
such Person (or spouse, parent, sibling or descendant of any director or
executive officer of such Person), and (iii) any other Person that,
1.
<PAGE>
directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such Person.
"Applicable Environmental Law" shall mean CERCLA, RCRA, the Federal Waste
Pollution Control Act, 33 U.S.C. (S)(S) 1261 et seq., the Clean Air Act, 42
U.S.C. (S)(S) 7401 et seq., any similar provisions of state or local law in the
countries and jurisdictions where the properties of the Company are located and
where the Company conducts its business and the regulations thereunder and any
other local, state and/or federal laws or regulations, whether currently in
existence or hereafter enacted, that govern:
(a) the existence, cleanup and/or remediation of contamination on
property;
(b) the protection of the environment from spilled, deposited or
otherwise emplaced contamination;
(c) the control of hazardous wastes; or
(d) the use, generation, transport, handling, treatment, storage,
disposal, removal or recovery of Hazardous Materials, including building
materials.
"Board of Directors" shall mean the Board of Directors of the
Company.
"Budget" shall have the meaning set forth in Section 6.3(d).
"Business" shall have the meaning set forth in Section 12.1.
"Business and Condition" shall mean the business, operations, properties,
assets, prospects or condition (financial or otherwise) of the Company.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks located in the City of New York are authorized or required to be
closed.
"By-laws" shall mean the By-laws of the Company, as amended.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. (S)(S) 6901 et seq.
"Capital Stock" shall mean any (i) shares of Common Stock, Preferred Stock
or any other equity security of the Company, (ii) debt securities convertible
into or exchangeable for any equity security of the Company, (iii) any debt
security or capitalized lease with any equity feature with respect to the
Company, or (iv) options, warrants or other rights to subscribe for, purchase or
otherwise acquire any such equity security or debt security of the Company.
"Charter" shall mean the Seventh Restated Certificate of Incorporation of
the Company, as filed on December 30, 1998 with the Secretary of State of
Delaware, as the same may be restated and amended from time to time.
"CIT/VC" shall mean The CIT Group/Venture Capital, Inc. and any successor
thereto.
2.
<PAGE>
"CIT/VC Group" shall mean any entity or Person now existing or hereafter
formed which is affiliated with The CIT Group/Venture Capital, Inc. and any
successors or assigns of any of the foregoing Persons.
"Commission" shall mean the Securities and Exchange Commission or any other
Federal agency administering the Securities Act at the applicable time.
"Commitment" shall mean all obligations of the Company and its Subsidiaries
pursuant to long-term leases or similar agreements relating to the use of
personal property.
"Common Shares" shall mean the issued and outstanding shares of the
Company's Common Stock, $.001 par value per share, at the applicable time.
"Common Stock" shall mean the Company's authorized Common Stock, $.001 par
value per share.
"Common Stockholder" shall mean each Person who has purchased Common Stock
from the Company or who acquires Common Stock upon the conversion of preferred
stock, by Transfer or otherwise and who becomes a party to this Agreement.
"Control" shall mean, with respect to any Person, the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Covenant Preferred Shares" shall mean the issued and outstanding shares of
the Company's Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, and, for purposes of Section 6
only with respect to Sections 6.1, 6.2, 6.3(a) and (b), 6.4 and 6.13, the
Series E Preferred Stock.
"Covenant Preferred Stockholders" shall mean any holder of Covenant
Preferred Shares and any person to whom Covenant Preferred Shares (or the Common
Stock issued upon conversion thereof) are Transferred.
"Equity Stock" shall have the meaning set forth in Rule 3a11-l under the
Exchange Act.
"Event of Noncompliance" shall have the meaning set forth in Section 9.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and any successor statute and the rules and regulations thereunder, as shall be
in effect from time to time.
"Excluded Stock" shall mean (a) the Preferred Shares, (b) the Option
Shares, (c) Common Stock issuable upon conversion of the Preferred Shares, (d)
securities issued pursuant to the acquisition of another corporation,
partnership, joint venture, trust or other entity by the Company by merger,
consolidation, stock acquisition, reorganization, or otherwise, (e) Common Stock
issuable upon exercise of options granted pursuant to the Restricted Stock
Option Agreements, (f) Common Stock issuable as a result of stock dividends,
stock splits, stock combinations or other similar transactions by the Company
and (g) securities issued in connection with bank credit facilities, equipment
financing transactions, other leasing lines of
3.
<PAGE>
credit or collaborative arrangements not primarily intended to provide equity
financing to the Company.
"GAAP" shall mean generally accepted accounting principles of the United
States.
"Governmental Body" shall mean any United States or state government body,
any agency, commission or authority thereof, or any quasi-governmental or
private body exercising any regulatory or taxing authority thereunder.
"Group" shall mean as to (a) a Preferred Stockholder that is a limited
partnership, any and all of the venture capital limited partnerships now
existing or hereafter arising that are "affiliates" (as defined by Rule 405
promulgated under the Securities Act), in whole or in part, of one or more
general partners or of one or more general partners of a general partner of such
Stockholder and any predecessor or successor partnership and any limited and
general partners of any such partnership; (b) a Preferred Stockholder that is a
trust, any of the beneficiaries, settlors or grantors now existing or hereafter
arising of, or any Person under common control with, such trust; (c) in the case
of HCV I, HCV II, HCV III and HCV IV, the HCV Group; (d) in the case of Everest
Trust, any grantor or beneficiary thereof, or any other trust, corporate entity
or partnership under common control with Everest Trust for which Rho Management
Company, Inc. acts as investment adviser; (e) in the case of APA Excelsior IV,
L.P., APA Excelsior IV/Offshore, L.P., The P/A Fund, L.P., and the Patricof
Private Investment Club, L.P., the Patricof Group; (f) in the case of the Series
E Investors, any affiliates, in whole or in part, of such Series E Investor; and
(g) any Preferred Stockholder, any other Preferred Stockholder.
"Hazardous Materials" shall mean any substance which as of the date of this
Agreement shall be identified as "hazardous" or "toxic" or otherwise regulated
under CERCLA or RCRA or which has been or shall be determined at any time by any
agency or court to be a hazardous or toxic substance under Applicable
Environmental Law. The term "Hazardous Material" shall also include, without
limitation, raw materials, building components (including asbestos), the
products of any manufacturing or other activities on the properties, wastes,
petroleum, and source, special nuclear or by-product material as defined by the
Atomic Energy Act of 1954, as amended (42 U.S.C. (S)(S) 3011 et seq., as
amended.)
"HCV Group" shall mean, collectively, (i) HCV I, (ii) HCV II, (iii) HCV
III, (iv) HCV IV, (v) any venture capital limited partnership now existing or
hereafter formed which is affiliated with or under common control with one or
more general partners of any general partner of HCV I, HCV II, HCV III and HCV
IV (an "HCV Fund") (including, without limitation, the other HCV Funds); (vi)
any limited partners or affiliates of HCV I, HCV II, HCV III, HCV IV or any
other HCV Fund; and (vii) any successors or assigns of any of the foregoing
persons.
"HCV I" shall mean HealthCare Ventures I, L.P., a Delaware limited
partnership, including any successor thereto.
"HCV II" shall mean HealthCare Ventures II, L.P., a Delaware limited
partnership, including any successor thereto.
"HCV III" shall mean HealthCare Ventures III, L.P., a Delaware limited
partnership, including any successor thereto.
4.
<PAGE>
"HCV IV" shall mean HealthCare Ventures IV, L.P., a Delaware limited
partnership, including any successor thereto.
"Initial Public Offering" shall mean the Company's initial distribution of
Common Stock in an underwritten Public Offering to the general public pursuant
to a registration statement filed with and declared effective by the Commission
pursuant to the Securities Act at a price per share which is not less than 300%
of the Conversion Price (as defined in the Charter) of the Series B Preferred
Stock in effect at the time of such public offering and resulting in gross
proceeds (before underwriting commissions and offering expenses) to the Company
of not less than $15 million.
"Indebtedness" shall mean all liabilities for money borrowed, or for the
deferred portion of the purchase price, payable by the Company or its
Subsidiaries.
"Key Man Life Insurance" shall have the meaning set forth in Section 6.19.
"Non-Scientific Founders" shall mean Dr. Peter Korn and Gary Friedman.
"Offer" shall have the meaning set forth in Section 4(b) hereof.
"Offered Shares" shall have the meaning set forth in Section 4(a) hereof.
"Option Shares" shall mean up to 11,275,624 shares of Common Stock issued,
available for issuance or subject to options, warrants, awards or rights granted
or authorized to be granted to employees, consultants and others who provide
services to the Company pursuant to any Stock Plan.
"Patricof Group" shall mean, collectively, (i) APA Excelsior IV, L.P., (ii)
APA Excelsior IV/Offshore, L.P., (iii) The P/A Fund, L.P., (iv) the Patricof
Private Investment Club, L.P., (v) any venture capital limited partnership or
entity (a "Patricof Fund") now existing or hereafter formed which is affiliated
with or under common control with (x) one or more general partners of any
general partner of APA Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P., The
P/A Fund, L.P., or the Patricof Private Investment Club, L.P., or (y) managed or
advised by Patricof & Co. Ventures, Inc. or any affiliate thereof (including,
without limitation, the other Patricof Funds); (vi) any limited partners or
affiliates of APA Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P., The P/A
Fund, L.P., or the Patricof Private Investment Club, L.P., or any other Patricof
Fund; and (vii) any successors or assigns of any of the foregoing persons. Any
reference to APA Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P., The P/A
Fund, L.P., and the Patricof Private Investment Club, L.P., shall mean such
entity and any successor to such entity.
"Person" shall mean any individual, corporation, partnership, a limited
liability company, joint venture, trust, association, unincorporated
organization, other entity, or Governmental Body.
"Preferred Shares" shall mean the issued and outstanding shares of the
Company's Series A Preferred Stock, $.001 par value per share, Series B
Preferred Stock, $.001 par value
5.
<PAGE>
per share, Series C Preferred Stock, $.001 par value per share, Series D
Preferred Stock, $.001 par value per share, and Series E Preferred Stock, $.001
par value per share.
"Preferred Stockholder" shall mean any holder of Preferred Shares and any
Person to whom Preferred Shares (or the Common Stock issued upon conversion
thereof) are Transferred.
"Pro Rata Fraction" shall have the meaning set forth in Section 3.4(b).
"Public Offering" shall mean a distribution of Common Stock in an
underwritten public offering to the general public pursuant to a registration
statement filed with and declared effective by the Commission pursuant to the
Securities Act.
"RCRA" shall mean Resource Conservation and Recovery Act, 42 U.S.C. (S)(S)
6901 et seq.
"Registrable Securities" shall mean the aggregate of Series A Registrable
Securities, the Series B Registrable Securities, the Series C Registrable
Securities, the Series D Registrable Securities and the Series E Registrable
Securities.
"Regulated Holder" shall mean any holder of the Company's Securities that
is (or that is a subsidiary of a bank holding company that is) subject to the
various provisions of Regulation Y of the Board of Governors of the Federal
Reserve Systems, 12 C.F.R., Part 225 (or any successor to Regulation Y).
"Regulatory Problem" shall mean (i) any set of facts or circumstances
wherein it has been asserted by any governmental regulatory agency (or CIT/VC
reasonably believes that there is a significant risk of such assertion) that
such Person (or any bank holding company that controls such Person) is not
entitled to hold, or exercise any material right with respect to, all or any
portion of the Securities of the Company which such Person holds or (ii) when
such Person and its Affiliates would own, control or have power (including
voting rights) over a greater quantity of Securities of the Company than is
permitted under any law or regulation or any requirement of any governmental
authority applicable to a Person or to which such Person is subject.
"Restricted Securities" shall mean the aggregate of Series A Restricted
Securities, the Series B Restricted Securities, the Series C Restricted
Securities, the Series D Restricted Securities and the Series E Restricted
Securities.
"Restricted Stock Option Agreements" shall mean the Restricted Stock Option
Agreements dated December 21, 1994 between the Company and each of the
Scientific Founders and the Non-Scientific Founders (except Barry Marrs) and the
Restricted Stock Option Agreement dated December 19, 1994 between the Company
and Barry Marrs.
"SBA" shall have the meaning set forth in Section 12.1.
"SBIA" shall have the meaning set forth in Section 12.1.
"SBIC" shall have the meaning set forth in Section 12.1.
6.
<PAGE>
"Scientific Founders" shall mean Dr. Melvin Simon, Dr. Jeffrey H. Miller,
Dr. Barry Marrs and Dr. Karl Stetter.
"Securities" shall mean, with respect to any Person, such Person's capital
stock or any options, warrants or other Securities which are directly or
indirectly convertible into, or exercisable or exchangeable for, such Person's
capital stock (whether or not such derivative Securities are issued by the
Company). Whenever a reference herein to Securities refers to any derivative
Securities, such reference shall apply to such derivative Securities and all
underlying Securities directly or indirectly issuable upon conversion, exchange
or exercise of such derivative Securities.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
successor statute and the rules and regulations of the Commission thereunder, as
shall be in effect at the applicable time.
"Series A Preferred Stock" shall mean the Series A Preferred Stock, $.001
par value per share, of the Company.
"Series A Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series A Restricted Securities,
or constituting a portion of the Series A Restricted Securities.
"Series A Restricted Securities" shall mean the Series A Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series A
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series A Preferred Stock (other
than Series B Preferred Stock) which are convertible into or exercisable or
exchangeable for shares of Common Stock (including, without limitation, other
classes or series of preferred stock, warrants, options or other rights to
purchase Common Stock or convertible debentures or other convertible debt
securities) and any Common Stock (howsoever acquired) by any holder of Series A
Preferred Stock or any Common Stock which has been issued on conversion of
Series A Preferred Stock, which have not been sold (a) in connection with an
effective registration statement filed pursuant to the Securities Act, or (b)
pursuant to Rule 144 or Rule 144A promulgated by the Commission under the
Securities Act.
"Series A Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of December 21, 1994 by and among the Company and the
parties thereto, as amended by the Stock Purchase Agreement and Amendment to
Stock Purchase Agreement, dated March 15, 1995 by and among the Company and the
parties thereto, as amended by the Stock Purchase Agreement and Amendment to
Stock Purchase Agreement dated July 28, 1995 by and among the Company and the
parties thereto, as amended by Amendment No. 3 to the Stock Purchase Agreement
dated May 13, 1996 by and among the Company and the parties thereto.
"Series B Preferred Stock" shall mean the Series B Preferred Stock, $.001
par value per share, of the Company.
"Series B Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series B Restricted Securities,
or constituting a portion of the Series B Restricted Securities.
7.
<PAGE>
"Series B Restricted Securities" shall mean the Series B Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series B
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series B Preferred Stock (other
than Series A Preferred Stock) which are convertible into or exercisable or
exchangeable for shares of Common Stock (including, without limitation, other
classes or series of preferred stock, warrants, options or other rights to
purchase Common Stock or convertible debentures or other convertible debt
securities) and any Common Stock (howsoever acquired) by any holder of Series B
Preferred Stock or any Common Stock which has been issued on conversion of
Series B Preferred Stock, which have not been sold (a) in connection with an
effective registration statement filed pursuant to the Securities Act, or (b)
pursuant to Rule 144 or Rule 144A promulgated by the Commission under the
Securities Act.
"Series B Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of May 13, 1996, by and among the Company and the purchasers
of the Series B Preferred Stock named as Investors therein.
"Series C Preferred Stock" shall mean the Series C Preferred Stock, $.001
par value per share, of the Company.
"Series C Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series C Restricted Securities,
or constituting a portion of the Series C Restricted Securities.
"Series C Restricted Securities" shall mean the Series C Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series C
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series C Preferred Stock which
are convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of preferred stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities) and any Common Stock (howsoever
acquired) by any holder of Series C Preferred Stock or any Common Stock which
has been issued on conversion of Series C Preferred Stock, which have not been
sold (a) in connection with an effective registration statement filed pursuant
to the Securities Act, or (b) pursuant to Rule 144 or Rule 144A promulgated by
the Commission under the Securities Act.
"Series C Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of July 14, 1997 by and among the Company and the parties
thereto.
"Series D Preferred Stock" shall mean the Series D Preferred Stock, $.001
par value per share, of the Company.
"Series D Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series D Restricted Securities,
or constituting a portion of the Series D Restricted Securities.
"Series D Restricted Securities" shall mean the Series D Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series D
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the
8.
<PAGE>
holders of the Series D Preferred Stock which are convertible into or
exercisable or exchangeable for shares of Common Stock (including, without
limitation, other classes or series of preferred stock, warrants, options or
other rights to purchase Common Stock or convertible debentures or other
convertible debt securities) and any Common Stock (howsoever acquired) by any
holder of Series D Preferred Stock or any Common Stock which has been issued on
conversion of Series D Preferred Stock, which have not been sold (a) in
connection with an effective registration statement filed pursuant to the
Securities Act, or (b) pursuant to Rule 144 or Rule 144A promulgated by the
Commission under the Securities Act.
"Series D Stock Purchase Agreement" shall mean the Stock Purchase Agreement
and Agreement and Plan or Reorganization, dated as of October 22, 1997 by and
among the Company and the parties thereto.
"Series E Investors" shall mean the investor(s) listed on the Schedule of
Series E Investors attached hereto.
"Series E Preferred Stock" shall mean the Series E Preferred Stock, $.001
par value per share, of the Company.
"Series E Registrable Securities" shall mean the shares of Common Stock
issued or issuable on conversion or exercise of Series E Restricted Securities,
or constituting a portion of the Series E Restricted Securities.
"Series E Restricted Securities" shall mean the Series E Preferred Stock
and the Common Stock issued or issuable upon the conversion of the Series E
Preferred Stock, and any other securities of the Company which may be heretofore
or hereafter issued to any of the holders of the Series E Preferred Stock which
are convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of preferred stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities) and any Common Stock (howsoever
acquired) by any holder of Series E Preferred Stock or any Common Stock which
has been issued on conversion of Series E Preferred Stock, which have not been
sold (a) in connection with an effective registration statement filed pursuant
to the Securities Act, or (b) pursuant to Rule 144 or Rule 144A promulgated by
the Commission under the Securities Act.
"Series E Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of January 25, 1999, or any additional stock purchase
agreement for the purchase and sale of Series E Preferred Stock, by and among
the Company and the parties thereto.
"Shares" shall mean and include all shares of voting capital stock of the
Company now owned or hereafter acquired by any Stockholder or transferee of such
Stockholder.
"Stockholder" shall mean each Person who has purchased Shares from the
Company or who acquires Shares upon conversion of the Preferred Shares, the
exercise of options, Transfer or otherwise and who is a party to this Agreement.
"Stock Plan" shall mean any stock award or option plan, agreement or
arrangement for officers, directors, consultants, employees and others who
render services to the Company.
9.
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"Subsidiary" shall mean, with respect to any Person, any corporation of
which securities having the power to elect a majority of that corporation's
Board of Directors (other than securities having that power only upon the
happening of a contingency that has not occurred) are held by such Person or one
or more of its Subsidiaries.
"Taxes" shall mean all taxes, duties, charges, fees, levies, interest,
penalties, additions to tax or other assessments, including, but not limited to,
foreign, federal, state and local income, excise, employment, property, sales,
use, occupation, value added and franchise taxes and customs duties, imposed by
any Governmental Body and any payments with respect thereto required under any
tax-sharing agreement.
"Transfer" shall include any sale, assignment, transfer, pledge,
encumbrance, or other disposition of, or the subjecting to a security interest
of, any Restricted Securities, or any disposition of any Restricted Securities
or of any interest therein which would constitute a sale thereof within the
meaning of the Securities Act.
"Voting Agreement" shall mean the Amended and Restated Voting Agreement
dated as of even date herewith, by and among the Company, the Preferred
Stockholders and certain Common Stockholders, as the same may be amended from
time to time.
2. Representations and Certain Covenants.
2.1 By the Company. The Company represents to each Stockholder that:
(a) The execution, delivery and performance by the Company of this
Agreement and each other agreement to be entered into by the Company in
connection with this Agreement have been duly authorized by all action required
by law, its Charter, its By-laws or otherwise.
(b) This Agreement and such other agreements have been duly executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company enforceable against it in accordance with their
terms.
2.2 By the Stockholders. Each Stockholder, as to itself or himself,
represents to the Company and the other Stockholders that:
(a) The execution, delivery and performance by such Stockholder of
this Agreement and each other agreement to be entered into by such Stockholder
in connection with this Agreement have been duly authorized by all action
required by law, and by the certificate of incorporation and by-laws,
partnership agreement or other governing instrument of such Stockholder.
(b) This Agreement and such other agreements have been duly executed
and delivered by such Stockholder and constitutes the legal, valid and binding
obligations of such Stockholder enforceable against it or him in accordance with
their terms.
2.3 By the Series A Preferred Stockholders. Each holder of the Series A
Preferred Stock agrees to waive any prior breach of the Series A Preferred Stock
Purchase Agreement and
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each other agreement between the Company and the holders of Series A Preferred
Stock. The right of the holders of Series A Preferred Stock are as set forth in
this Agreement, the Series A Stock Purchase Agreement and the Charter; for the
avoidance of doubt, the Series A Stockholders shall not be deemed to have waived
any rights available to them in the future under either of said agreements or
the Charter.
2.4 Covenants of the Stockholders. Each of the Stockholders hereby waives
any default or Event of Noncompliance that may have occurred prior to the date
hereof with respect to the late reporting or presentation of financial materials
and/or budgets pursuant to Sections 6.3 and 6.22 herein.
3. Legend on Shares and Notice of Transfer.
3.1 Restrictive Legends.
(a) Each certificate evidencing Shares, and each certificate
evidencing Shares held by subsequent transferees of any such certificate, shall
(unless otherwise permitted by the provisions of Section 3.2 hereof) be stamped
or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY
NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW.
(b) Each certificate evidencing Shares, and each certificate
evidencing Shares held by subsequent transferees of any such certificate, shall
also be stamped or otherwise imprinted with a legend in substantially the
following form:
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE TERMS AND CONDITIONS OF AN AMENDED
AND RESTATED STOCKHOLDERS' AGREEMENT, BY AND AMONG
DIVERSA CORPORATION, THE HOLDER OF RECORD OF THIS
CERTIFICATE AND CERTAIN OTHER SIGNATORIES THERETO,
AND NO TRANSFER OF SUCH SECURITIES SHALL BE VALID
OR EFFECTIVE EXCEPT IN ACCORDANCE WITH SUCH
AGREEMENT AND UNTIL SUCH TERMS AND CONDITIONS HAVE
BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD
11.
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OF THIS CERTIFICATE TO THE SECRETARY OF DIVERSA CORPORATION.
3.2 Notice of Transfer.
(a) Each of the Stockholders, and any other holder of any Shares by
acceptance thereof, agrees that, prior to any Transfer of any Shares, such
holder will give written notice to the Company of such holder's intention to
effect such Transfer and to comply in all other respects with the provisions of
this Section 3.2 and all of the provisions of Section 3.4 hereof. Each such
notice shall contain (i) a statement setting forth the intention of said
holder's prospective transferee with respect to its retention or disposition of
said Shares, and (ii) unless waived by the Company, an opinion of counsel
(reasonably satisfactory to the Company and its counsel) for said holder (who
may be the inside or staff counsel employed by said holder), as to the necessity
or non-necessity for registration under the Securities Act and applicable state
securities laws in connection with such Transfer and stating the factual and
statutory bases relied upon by counsel. The following provisions shall then
apply:
(i) If the proposed Transfer of Shares may be effected without
registration or qualification under the Securities Act and any applicable state
securities laws, then the registered holder of such Shares shall be entitled to
Transfer such Shares in accordance with Section 3.3 and the intended method of
disposition specified in the statement delivered by said holder to the Company.
(ii) If the proposed Transfer of such Shares may not be effected
without registration under the Securities Act or registration or qualification
under any applicable state securities laws, the registered holder of such Shares
shall not be entitled to Transfer such Shares until the requisite registration
or qualification is effective.
(b) Notwithstanding the provisions of Section 3.2, (i) in the case of
a Transfer by a holder to a member of such holder's Group, no such opinion of
counsel shall be necessary, provided that the transferee agrees in writing to be
subject to Section 3 hereof to the same extent as if such transferee were
originally a signatory to this Agreement, and (ii) in the case of any holder of
Restricted Securities that is a partnership, no such opinion of counsel shall be
necessary for a Transfer by such holder to a partner of such holder, or a
retired partner of such holder who retires after the date hereof, or the estate
of any holder who retires after the date hereof, or the estate of any such
partner or retired partner if, with respect to such Transfer by a partnership,
such Transfer is made in accordance with the partnership agreement of such
partnership, and the transferee agrees in writing to be subject to the terms of
Section 3 hereof to the same extent as if such transferee were originally a
signatory to this Agreement. Transfers pursuant to this Section 3.3(b) are not
subject to the provisions of Section 3.4.
(c) Each certificate evidencing the Shares issued upon such Transfer
(and each certificate evidencing any untransferred balance of such Shares) shall
bear the legends set forth in Section 3.1 hereof unless the Shares are no longer
subject to this Stockholders' Agreement and (i) in the opinion of counsel
(reasonably acceptable to the Company) addressed to the Company the registration
of future Transfers is not required by the applicable provisions of the
Securities Act or applicable state securities laws; (ii) the Company shall have
waived the
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requirement of such legend; or (iii) in the reasonable opinion of counsel to the
Company, such Transfer shall have been made in connection with an effective
registration statement filed pursuant to the Securities Act or in compliance
with the requirements of Rule 144 or Rule 144A (or any similar or successor
rule) promulgated under the Securities Act, and in compliance with applicable
state securities laws, to a person who is not an affiliate (as such term is
defined in the Securities Act) of the Company.
3.3 Prohibited Transfers.
(a) Each Stockholder agrees that it or he shall not Transfer any
of its or his Shares without the prior written consent of the holders of at
least 75% in interest of the Preferred Shares, voting together as a class
(without counting the Shares held by such transferring Stockholder) except as
provided for in Section 3.
(b) Notwithstanding anything to the contrary contained herein, a
Stockholder may Transfer all or any of its Shares to a member of its Group and,
in the case of any stockholder which is a partnership, to a partner of such
holder, or a retired partner of such holder who retires after the date hereof,
or the estate of any holder who retires after the date hereof, or the estate of
any such partner or retired partner if, with respect to such Transfer by a
partnership, such Transfer is made in accordance with the partnership agreement
of such partnership provided that any such transferee shall agree in writing
with the Company, prior to and as a condition precedent to such transfer, to be
bound by all of the provisions of this Agreement.
(c) If requested in writing by the managing underwriters, if any, of
any Public Offering, each Stockholder agrees not to offer, sell, contract to
sell or otherwise dispose of any Shares except as part of such Public Offering
within thirty (30) days before or one hundred and eighty (180) days after the
effective date of the registration statement filed with respect to said
offering, and the Company hereby also so agrees; provided, however, that this
restriction will not apply to transfers permitted under Section 3.3(b).
(d) Each Transfer of Shares which is permitted by Section 3 of this
Stockholders' Agreement shall be by written agreement (the "Transfer
Agreement"), in a form reasonably satisfactory to the Company and its counsel,
pursuant to which the transferee (other than a Stockholder who is already a
party to this Stockholders' Agreement) agrees to execute a counterpart copy of
this Stockholders' Agreement, and to abide by, and hold the transferred Shares
subject to, the terms of this Agreement that are applicable to the transferring
Stockholder as of the time of the Transfer and that would have been applicable
to such transferring Stockholder had the transferring Stockholder retained such
transferred Shares.
3.4 Right of First Refusal; Tag-Along Rights.
(a) If a Stockholder (for purposes of this Section, the "Selling
Stockholder") desires to sell all or any part of his Shares pursuant to a bona
fide, arm's-length offer from a creditworthy third party (the "Proposed
Transferee"), the Selling Stockholder shall submit a written offer (the "Offer")
to sell such Shares (the "Offered Shares") to the other Stockholders and the
Company, on terms and conditions, including price, not less favorable to the
other Stockholders and the Company than those on which the Selling Stockholder
proposes to sell the
13.
<PAGE>
Offered Shares to the Proposed Transferee. The Offer shall disclose the identity
of the Proposed Transferee, the number of Offered Shares proposed to be sold,
the total number of Shares owned by the Selling Stockholder, the terms and
conditions, including price, of the proposed sale, the address of the Selling
Stockholder and any other material facts relating to the proposed sale.
(b) Subject to and in accordance with the priorities of rights
established in subsection (c) below, each Stockholder shall have the right (the
"Right of First Refusal") to purchase that number of Offered Shares as shall be
equal to the number of Offered Shares multiplied by a fraction, the numerator of
which shall be the number of Shares then owned by such Stockholder and the
denominator of which shall be the aggregate number of Shares then owned by all
of the Stockholders less those owned by the Selling Stockholder (the "Pro Rata
Fraction"). For the purpose of calculating the Pro Rata Fraction, each Preferred
Share shall be deemed to represent the number of Common Shares into which the
Preferred Share is then convertible.
(c) Stockholders shall have a right of oversubscription such that if
any Stockholder fails to accept the Offer as to its or his full Pro Rata
Fraction, the other Stockholders, among them, shall have the right to purchase
up to the balance of the Offered Shares not so purchased. Such right of
oversubscription may be exercised by a Stockholder by accepting the Offer as to
more than its or his Pro Rata Fraction. If, as a result thereof, such
oversubscriptions exceed the total number of Offered Shares available in respect
of such oversubscription privilege, the oversubscribing Stockholders shall be
cut back with respect to their oversubscriptions so as to sell the Offered
Shares as nearly as possible in accordance with their respective Pro Rata
Fractions or as they may otherwise agree among themselves.
(d) If a Stockholder desires to purchase all or any part of the
Offered Shares, such Stockholder (a "Purchasing Stockholder") shall communicate
in writing its or his election to purchase (an "Acceptance") to the Selling
Stockholder, which Acceptance shall state the number of Offered Shares the
Purchasing Stockholder desires to purchase and shall be delivered in person or
mailed to the Selling Stockholder at the address set forth in the Offer, with a
copy to the Company and the other Stockholders, within twenty (20) days of the
date the Offer was made.
(e) If the other Stockholders do not accept the Offer for all of the
Offered Shares, the Company shall have the right to purchase all of the
remaining Offered Shares (including any Tag-Along Shares being offered pursuant
to paragraph (j) below). If the Company desires to purchase all of the remaining
Offered Shares it shall seek the approval of the holders of at least 75% in
interest of the Preferred Shares (excluding those Preferred Shares owned or held
by the Selling Stockholder and any Tag-Along Stockholder pursuant to paragraph
(j) below), voting together as a class. Upon obtaining the requisite approval
from the Preferred Stockholders, the Company shall communicate in writing its
acceptance to the Selling Stockholder and the other Stockholders, which
Acceptance shall be delivered in person or mailed to the Selling Stockholder and
the other Stockholders within thirty (30) days of the date the Offer was made.
(f) Sale of the Offered Shares pursuant to this Section 3.4 shall be
made at the offices of the Company no later than the thirtieth (30) day
following the expiration of the 30-day
14.
<PAGE>
period after the Offer is made (or if such thirtieth (30) day is not a Business
Day, then on the next succeeding Business Day). Such sales shall be effected by
the Selling Stockholder's delivery to each Purchasing Stockholder or the
Company, as the case may be, of a certificate or certificates evidencing the
Offered Shares to be purchased by it or him, duly endorsed for transfer to the
Purchasing Stockholder or the Company, as the case may be, which Offered Shares
shall be delivered free and clear of all liens, charges, claims and encumbrances
of any nature whatsoever, against payment to the Selling Stockholder of the
purchase price therefor by the Purchasing Stockholder or Company, as the case
may be. Payment for the Offered Shares shall be made as provided in the Offer or
by wire transfer or certified check.
(g) If the Purchasing Stockholders and the Company do not agree to
purchase all of the Offered Shares, then the Offered Shares may be sold by the
Selling Stockholder at any time within 120 days after the date the Offer was
made. Any such sale shall be to the Proposed Transferee, at not less than the
price and upon other terms and conditions, if any, not more favorable to the
Proposed Transferee than those specified in the Offer. Any Offered Shares not
sold within such 120-day period shall continue to be subject to the requirements
of a prior offer pursuant to this Section 3.4.
(h) If any Selling Stockholder becomes obligated to sell any Shares
(a "Defaulting Stockholder") to the Company or any Purchasing Stockholder under
this Agreement and fails to deliver such Shares in accordance with the terms of
this Agreement, the Company or the Purchasing Stockholder, as the case may be,
may, at its or his option, in addition to all other remedies it or he may have,
send to the Defaulting Stockholder the purchase price for such Shares as is
herein specified. Thereupon, the Company, upon written notice to the Defaulting
Stockholder, if applicable, shall (x) cancel on its books the certificate or
certificates representing the Shares to be sold and (y) issue, in lieu thereof,
in the name of the Purchasing Stockholder, a new certificate or certificates
representing such Shares, and thereupon all of the Defaulting Stockholder's
rights in and to such Shares shall terminate, except for the right to receive
payment of the purchase price therefor.
(i) Notwithstanding anything herein to the contrary, the Selling
Stockholder shall not be obligated to sell any Shares to the Company or the
other Stockholders, and will be free to sell all of the Shares to the Proposed
Transferee, if the Company and the Stockholders do not elect to buy all of the
Shares specified in the Offer.
(j) In lieu of exercising the Right of First Refusal, each of the
other Stockholders (for the purposes of this paragraph, the "Tag-Along
Stockholder") shall have the irrevocable right (the "Tag-Along Right") to
require the Selling Stockholder to cause the Proposed Transferee to purchase
from such Tag-Along Stockholder that number of Shares held by such Tag-Along
Stockholder as is equal to the product of the Offered Shares, multiplied by a
fraction, the numerator of which is the number of Shares held by such Tag-Along
Stockholder and the denominator of which is the number of Shares owned by such
Tag-Along Stockholder plus the sum of the number of Shares owned by the Selling
Stockholder and all other Tag-Along Stockholders who are exercising their Tag-
Along Rights (the "Tag-Along Shares"). The sale of the Offered Shares (as
reduced by the Tag-Along Shares, the "Remaining Offered Shares") and the Tag-
Along Shares shall be for the same consideration and otherwise on the same terms
and conditions for all holders. The Tag-Along Right shall be exercised by a Tag-
Along Stockholder
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by notifying the Selling Stockholder and the Company in writing (the "Tag-Along
Notice") within twenty (20) calendar days of receiving the Offer of his
intention to sell his Tag-Along Shares. Failure by any Stockholder to deliver a
Tag-Along Notice during such twenty (20) calendar day period shall be deemed to
constitute the election of such Stockholder not to exercise his Tag-Along
Rights. If the Proposed Transferee does not consummate the purchase of all of
the Remaining Offered Shares and the Tag-Along Shares within 120 calendar days
from the receipt by the Selling Stockholder of a Tag-Along Notice from each of
the other Stockholders, the Offered Shares and Tag-Along Shares shall again
become subject to the terms of this Section 3.
4. Rights to Purchase Additional Stock.
(a) Except for Excluded Stock, the Covenant Preferred Stockholders
shall have the right to subscribe to any and all issuances of Capital Stock of
the Company ("Company Offered Shares"). Each Covenant Preferred Stockholder
shall have the right to purchase that number of Company Offered Shares as shall
be equal to the number of Company Offered Shares multiplied by a fraction, the
numerator of which shall be the number of Shares then owned by such Covenant
Preferred Stockholder and the denominator of which shall be the aggregate number
of Shares then owned by all of the Covenant Preferred Stockholders (the
"Fraction"). For purposes of calculating the Fraction, all issued and
outstanding securities held by the Covenant Preferred Stockholders that are
convertible into or exercisable or exchangeable for shares of Common Stock
(including any issued and issuable Covenant Preferred Shares) or for any such
convertible, exercisable or exchangeable securities, shall be treated as having
been so converted, exercised or exchanged.
(b) In the event the Company shall propose to issue Capital Stock
except for Excluded Stock, the Company shall give written notice (the "Offer of
Shares") to each Covenant Preferred Stockholder, which shall set forth the
number and kind or class of shares of Capital Stock proposed to be issued, the
terms and conditions thereof and the price therefor. Such notice shall be given
at least twenty (20) days prior to the issuance of such Capital Stock.
(c) The Offer of Shares by its terms shall remain open and
irrevocable for a period of twenty (20) days from the date of its delivery to
such Covenant Preferred Stockholder ("20-Day Period").
(d) Each Covenant Preferred Stockholder shall evidence its acceptance
of the Offer of Shares by delivering a written notice ("Notice of Acceptance"),
signed by the Covenant Preferred Stockholder, setting forth the number of
Company Offered Shares which the Covenant Preferred Stockholder elects to
purchase. The Notice of Acceptance must be delivered to the Company prior to the
end of the 20-Day Period.
(e) If the Covenant Preferred Stockholders do not tender Notices of
Acceptance for all of the Company Offered Shares, the Company shall have ninety
(90) days from the expiration of the 20-Day Period to sell all or any part of
the Company Offered Shares refused by the Covenant Preferred Stockholders to any
Person(s), but only upon terms and conditions which are in all material respects
no more favorable to such other Person(s) than those set forth in the Offer of
Shares.
16.
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(f) Upon the closing of the sale of Company Offered Shares to any
third party (which shall include full payment of the purchase price to the
Company), each Covenant Preferred Stockholder shall (i) purchase from the
Company, and the Company shall issue and sell to such Covenant Preferred
Stockholder, any Company Offered Shares for which such Covenant Preferred
Stockholder tendered a Notice of Acceptance upon the terms specified in the
Offer of Shares and (ii) execute and deliver an agreement restricting transfer
of such Company Offered Shares substantially as set forth in Section 3 of this
Agreement.
(g) In each case, any Company Offered Shares not purchased either by
the Covenant Preferred Stockholders or by any other Person in accordance with
this Section 4 may not be sold or otherwise disposed of until they are again
offered to the Covenant Preferred Stockholder under the procedures specified in
this Section 4.
(h) If the Capital Stock to be issued by the Company is to be issued
pursuant to a Public Offering (i) notwithstanding the time periods set forth
above, the Company may require that the Covenant Preferred Stockholders make an
election to either (A) commit to purchase shares of Capital Stock from the
Company at a price no higher than the public offering price at the closing of
the Public Offering or (B) waive their rights to subscribe for additional shares
of Common Stock to be issued in the Public Offering, (ii) the subscription right
shall not be applicable to shares issuable if the underwriters exercise their
over-allotment option; and (iii) the amount to be purchased pursuant to this
Section 4(h) may be reduced if in the written opinion of the managing
underwriters of the Public Offering, the purchase of such number of shares by
the Covenant Preferred Stockholders would adversely impact the Public Offering.
Such election shall be made sufficiently in advance of the filing of the
registration statement relating to the Public Offering as shall be reasonably
requested by the Company.
(i) The rights provided by this Section 4 may be assigned by any
Covenant Preferred Stockholder which is a limited partnership or a trust to any
and all members of its Group, provided, that all such rights of any assignee to
purchase Company Offered Shares will be subject to receipt of appropriate
representations from such assignee as reasonably requested by the Company to
ensure compliance with all applicable securities laws.
5. Board of Directors.
5.1 Number of Directors. In accordance with Section A.6(b)(i) of the
Charter of the Company, the holders of a majority in voting power of the
Covenant Preferred Shares, voting together as a separate class, have been
granted the exclusive right to elect to the Board of Directors that number of
the directors which shall equal a majority of the total number of directors on
the Board of Directors. The Company and each of the other parties hereto hereby
agree to take such actions as are necessary, so that the whole Board of
Directors consists of nine members.
5.2 Agreement to Vote for Directors. The Company hereby agrees to take
such actions as are necessary, and each of the other parties hereto agrees to
vote his, her or its Covenant Preferred Shares (and any other shares of the
Capital Stock of the Company over which he, she or it exercises voting control),
and take such other actions as are necessary, so as to elect and thereafter
continue in office as Directors of the Company (i) two nominees of the
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holders of the Series A Preferred Stock, (ii) one nominee of the holders of the
Series B Preferred Stock, (iii) one nominee of APA Excelsior IV, L.P., and (iv)
one nominee mutually agreed upon by the holders of at least 75% in interest of
the Covenant Preferred Shares, voting together as a class. Each nominating
Stockholder may replace any nominee designated by such nominating Stockholder
who has been elected to the Board of Directors with a new nominee upon notice to
the Board of Directors and to the other stockholders of the Company. If there is
any increase in size of the Board of Directors, such that there shall be more
than five Preferred Directors (as such term is defined in the Charter of the
Company), then, with respect to such additional directors ("Additional Preferred
Directors"), the Company hereby agrees to take such actions as are necessary,
and each of the other parties hereto agrees to vote his, her or its Covenant
Preferred Shares (and any other shares of the Capital Stock of the Company over
which he, she or it exercises voting control), and take such other actions as
are necessary, so as to elect and thereafter continue in office as Directors of
the Company (i) the nominee(s) of the holders of the Series A Preferred Stock
with respect to one-half of the Additional Preferred Directors, (ii) the
nominee(s) of the holders of the Series B Preferred Stock with respect to one-
half of the Additional Preferred Directors, and (iii) if there is an odd number
of Additional Preferred Directors, a nominee mutually agreed upon by the holders
at least 75% in interest of the Covenant Preferred Shares, voting together as a
class.
5.3 Default of Agreement to Vote. In case any of the covenants set forth
in this Section 5 shall have been breached by any party hereto, the party or
parties entitled to the benefit of such covenants or agreements may proceed to
protect and enforce their rights either by proceeding in equity and/or by action
at law, including, but not limited to, an action for damages as a result of any
such breach and/or an action for specific performance of any such covenant or
agreement contained in this Section 5 and/or a temporary or permanent
injunction, in any case without showing any actual damage and without
establishing, in the case of an equitable proceeding, that the remedy at law is
inadequate.
5.4 Board Observation Rights. For so long as CIT/VC or any member of the
CIT/VC Group is a holder of Shares, CIT/VC shall have the right to appoint a
designee as an observer to the Board of Directors. For so long as Benefit
Capital Management Corporation is a holder of Shares, Benefit Capital Management
Corporation shall have the right to appoint a designee as an observer to the
Board of Directors. For so long as New York Life Insurance Company is a holder
of Shares, New York Life Insurance Company shall have the right to appoint a
designee as an observer to the Board of Directors. For so long as they hold
observation rights under this Section 5.4, each of CIT/VC, Benefit Capital
Management and New York Life Insurance Company shall be given notice of all such
meetings at the same time and in the same manner as Directors of the Company are
informed.
6. Affirmative Covenants of the Company.
Subject to Sections 13 and 15, the Company covenants and agrees that, so
long as any Covenant Preferred Shares are outstanding, except to the extent the
Company receives the approval of the holders at least 75% in interest of the
Covenant Preferred Shares, voting together as a class:
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6.1 Use of Proceeds. The proceeds of the sale of the Preferred Stock sold
in connection with this Agreement and the Original Stockholders' Agreement shall
be used by the Company to continue the identification and commercialization of
products and processes by genomic analysis of diverse microbes and for working
capital purposes related thereto.
6.2 Consent as to Issuance of Common Stock. The Company will use its best
efforts to obtain any authorization, consent, approval or other action by and
make any filing with any court or Governmental Body that may be required under
applicable state securities laws in connection with the issuance of any shares
of Common Stock upon conversion of the holder of Covenant Preferred Shares.
6.3 Financial Information. The Company, except as otherwise indicated,
will deliver to each Covenant Preferred Stockholder:
(a) As soon as practicable and in any event within 90 calendar days
after the close of each fiscal year of the Company, copies of (i) the balance
sheet of the Company as of the end of such fiscal year, (ii) statements of
operations of the Company for such fiscal year, and (iii) statements of changes
in cash flows of the Company for such fiscal year, setting forth in each case in
comparative form the corresponding figures of the previous annual period and the
most recent Budget (as defined in clause (d) below), all in reasonable detail,
prepared in accordance with GAAP consistently applied throughout the periods
involved and certified (except for the comparison to the most recent Budget),
without qualification, by Coopers & Lybrand, LLP or another firm of independent
certified public accountants of recognized national standing.
(b) As soon as practicable, and in any event within 45 calendar days
after the end of each of the first three fiscal quarters of the Company, an
unaudited balance sheet of the Company as at the end of each such fiscal quarter
and unaudited statements of operations, and changes in cash flows for such
fiscal quarter, setting forth in each case in comparative form corresponding
figures for the preceding year's respective fiscal quarter and for the Budget,
all in reasonable detail, prepared in accordance with GAAP consistently applied
throughout the period involved and certified as being correct and complete and
fairly presenting the results of operations of the Company for the quarter
indicated, subject to year-end audit adjustment, by the principal financial
officer of the Company. In addition, as soon as practicable, and in any event
within 20 calendar days after the end of each fiscal quarter of the Company, the
principal financial officer of the Company will complete and sign a quarterly
financial summary in the form attached hereto as Exhibit A.
(c) For each calendar month, as soon as practicable and in any event
within 20 calendar days after the close of each month, copies of (i) the
balance sheet of the Company as of the end of such month, (ii) statements of
operations of the Company for such month, and (iii) statements of changes in
cash flows of the Company for such month setting forth in each case in
comparative form the corresponding figures for the preceding month and for the
Budget, for the year to date and for the comparable periods in the preceding
year, all in reasonable detail, prepared in accordance with GAAP consistently
applied throughout the periods involved and certified as being correct and
complete and fairly presenting the results of operations of the
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Company for the month indicated, subject to year-end audit adjustment, by the
principal financial officer of the Company.
(d) As soon as practicable and in any event no later than the end of
each fiscal year of the Company (or by January 30, 1999 for fiscal year 1999), a
proposed annual operating budget for the Company for the succeeding fiscal year,
containing forecasts of profit and loss and cash flow with monthly and quarterly
breakdowns and management's reasonably estimated projections of Indebtedness and
Commitments for the succeeding fiscal year (the "Budget"). The portions of the
Budget relating to Indebtedness, Commitments, acquisitions and dispositions
shall be approved by at least 75% of the Board of Directors. If less than 75% of
the Board of Directors vote to approve the portions of the Budget relating to
Indebtedness, Commitments, acquisitions and dispositions, then those portions of
the Budget shall be adopted if approved by the vote of (i) more than 50% of the
Board of Directors, and (ii) the holders of at least 75% in interest of the
Covenant Preferred Shares, voting as a class. Furthermore, any acquisition
described in Section 7.8 and any disposition described in Section 7.9 shall
require approval in accordance with those Sections.
(e) Simultaneously with the delivery of the monthly statements
required by clause (c), copies of a certificate of the principal financial
officer of the Company giving a narrative analysis of operations and trends in
the business of the Company during such month.
(f) Promptly upon, and in any event within 10 calendar days after,
their becoming available, a copy of (i) all reports, proxy statements, financial
statements and other materials delivered or sent by the Company to its
stockholders, (ii) all minutes of the proceedings of the Board of Directors of
the Company and all committees thereof and all written consents signed by
directors in lieu of meetings of the Board of Directors and committees thereof,
and (iii) all management letters reviewing the Company's accounting and control
procedures that the Company receives from its independent certified public
accountants.
(g) Concurrently with the furnishing of the reports pursuant to
Section 6.3(a) and (b) hereof, an Officer's Certificate stating that the Company
is not in default under, and has not breached, any material agreements or
obligations, including, without limitation, this Agreement, or if any such
default or breach exists, specifying the nature thereof and what actions the
Company has taken and proposes to take with respect thereto.
If for any period the Company shall have any Subsidiary or Subsidiaries
whose accounts are consolidated with those of the Company, then the financial
statements delivered for such period pursuant to the foregoing clauses (a), (b)
and (c) of this Section 6.3 shall be the consolidated and consolidating
financial statements of the Company and all such consolidated Subsidiaries and
if the financial statements of such Subsidiary or Subsidiaries are not
consolidated with those of the Company, separate financial statements for such
Subsidiary or Subsidiaries shall be provided.
6.4 Other Reports and Inspection. The Company, upon reasonable prior
notice, will make available to each Covenant Preferred Stockholder or its
representatives or designees during normal business hours (a) all assets,
properties and business records of the Company for inspection and copying and
(b) the directors, officers, employees and public accountant (and by
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this provision the Company hereby authorizes and instructs said accountants to
discuss with such holder and such designees its affairs, finances and accounts
and the responses of attorneys representing the Company to inquiries made by the
Company on behalf of said accountants in connection with their audit of the
financial affairs of the Company) of the Company for interviews concerning the
business, affairs and finances of the Company.
6.5 Corporate Existence. The Company will, and will cause each of its
Subsidiaries to, maintain preserve and renew its corporate existence and all
material licenses, authorizations and permits necessary to the conduct of its
business.
6.6 Insurance. The Company will maintain policies of insurance, including
but not limited to, fire, liability, worker's compensation, directors' &
officers' and company reimbursement, business interruption, and product
liability, in such amounts and covering such risks as are customarily carried by
businesses comparable to the business conducted by the Company. The Company has
developed and implemented a risk assessment and insurance program appropriate
for its business; and in connection therewith, to the extent that the insurance
referred to in the forgoing sentence is either not currently maintained or not
maintained in appropriate amounts, the Company will obtain such insurance.
6.7 Maintenance of Properties. The Company will, and will cause each of
its Subsidiaries to, maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly and
advantageously conducted at all times.
6.8 Compliance with Obligations. The Company will, and will cause each of
its Subsidiaries to, comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due to the extent to which the failure to so
comply would reasonably be expected to have a material adverse effect upon the
Business and Condition of the Company and its Subsidiaries taken as a whole,
unless and to the extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in accordance with
GAAP consistently applied) have been established on its books with respect
thereto.
6.9 Taxes. The Company will, and will cause each of its Subsidiaries to,
pay when due (i) all Taxes imposed upon it or any of its properties or income,
other than Taxes which are being contested in good faith and which Taxes in the
aggregate do not involve material amounts, and (ii) all claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like persons
which, if unpaid, might result in the creation of a lien upon any of its
properties other than claims or demands which are being contested in good faith.
6.10 Compliance with Law. The Company will, and will cause each of its
Subsidiaries to, comply, in all material respects, with all applicable statutes,
rules, regulations and orders of all Governmental Bodies, with respect to the
conduct of its business and the ownership of its properties, provided that the
Company shall not be deemed to be in violation of this Section 6.10 as a result
of any failure to comply with any provisions of such statutes, rules,
regulations and orders, the noncompliance with which would not result in fines,
penalties, injunctive relief or other civil or criminal liabilities which, in
the aggregate, would materially and
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adversely affect the Business and Condition of the Company and its Subsidiaries
taken as a whole.
6.11 Environmental Matters. The Company shall promptly advise each
Covenant Preferred Stockholder in writing of any pending or threatened claim,
demand or action by any governmental authority or third party relating to any
Hazardous Materials affecting any properties owned or leased by the Company of
which it has knowledge. The Company shall not discharge, place, release, spill
or dispose of any Hazardous Materials or any other pollutants or effluents upon
any properties owned or leased by the Company or elsewhere (including, but not
limited to, underground injection of such substances) other than in compliance
with the Applicable Environmental Laws and the Company shall not discharge into
the air any emission which would require a permit under the Clean Air Act or its
state counterparts or any other Environmental Laws unless any and all such
permit(s) are obtained prior to any discharge. The stockholders of the Company
shall have no control over, or authority with respect to, the waste disposal
operations of the Company.
6.12 Accounting System. The Company will maintain a system of accounting
and proper books of record and account, in accordance with GAAP, and will set
aside on its books reserves for depreciation, depletion, obsolescence,
amortization, pending and threatened litigation and otherwise as may be
appropriate in conformance with procedures and recommendations of the Company's
independent public accountants.
6.13 Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued Common Stock the number of shares
of Common Stock required for issuance upon the conversion of all of the
Preferred Stock (including any additional shares of Common Stock which may
become so issuable by reason of the operation of anti-dilution provisions of the
Preferred Stock).
6.14 Confidentiality Agreements with Employees and Consultants. The
Company will enter into confidentiality agreements approved by a majority of the
Board of Directors with employees and consultants of the Company retained after
the date hereof who should have or are proposed to have access to confidential
or proprietary information.
6.15 Board of Directors Meetings. The Company shall call, and use its best
efforts to have, regular meetings of the Board of Directors on a quarterly
basis. The Company shall pay all reasonable travel expenses and other out-of-
pocket expenses incurred by Directors who are not employed by the Company in
connection with attending meetings of the Board or any committee thereof or in
connection with attendance at meetings related to the business of the Company.
6.16 Publicity. The Company shall not identify any of the Covenant
Preferred Stockholders as a stockholder or affiliate of the Company in any
advertising or promotional material without the prior written consent of such
Covenant Preferred Stockholder.
6.17 Registration Rights. The Company shall not hereafter grant to any
persons any rights to register or qualify stock of the Company under Federal or
state securities laws, unless it shall have first obtained the written consent
of the holders of at least 75% in interest of the Covenant Preferred Shares,
voting as a class.
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6.18 Key Man Life Insurance. The Company has obtained and will maintain
"key man" life insurance policies (the "Key-Man Life Insurance") covering the
lives of such officers of the Company as are designated by the holders of at
least 75% in interest of the Covenant Preferred Shares, voting as a class, in
the amount of $1,000,000, the sole beneficiary of which shall be the Company.
6.19 Voting Agreement with Common Stockholders.
(a) Upon the exercise of any outstanding option or warrant of the
Company (including, without limitation, any options currently outstanding under
the Company's Restated 1994 Employee Incentive and Non-Qualified Stock Option
Plan (the "1994 Plan")), the Company will request that such exercising optionee
or warrant holder become a signatory to the Voting Agreement with respect to the
Common Stock exercisable thereof.
(b) The Company shall not hereafter issue any Common Stock or other
voting security (excluding Common Stock issuable upon the exercise of currently
outstanding options granted pursuant to the 1994 Plan) or any security
(including any options under any Stock Plan of the Company) which is convertible
into or exercisable for Common Stock or any other voting security unless, as a
condition precedent to such issuance, the holder of such security agrees to
become a signatory to the Voting Agreement.
6.20 Option Exercises. Upon the exercise of any option issued under the
1994 Plan, the optionee shall execute a Stock Purchase and Restriction Agreement
in substantially the form of Exhibit B, as amended, to the 1994 Plan.
6.21 Proprietary Rights. The Company has developed and implemented a
policy, satisfactory to the holders of at least 75% in interest of the Covenant
Preferred Shares, voting together as a class, with regard to noncompetition,
nonsolicitation of employees, suppliers and customers of the Company by current
and future employees of, or consultants to, the Company. It is contemplated that
current and future employees of, or consultants to, the Company will be required
to execute appropriate forms of agreement implementing the foregoing policy.
6.22 Approval of Budget. The Company shall obtain the approval required by
Section 6.3(d) of the portions of the Budget relating to Indebtedness,
Commitments, acquisitions and dispositions prior to the beginning of each fiscal
year beginning with fiscal year 1998.
6.23 Repayment of Loan Agreement and Release of Encumbrances. The Company
shall repay all amounts outstanding under the Loan Agreement prior to May 15,
1996 and in connection therewith shall obtain and promptly file such forms
including, without limitation, UCC-3 termination statements as would be required
to release any liens or encumbrances granted by the Company pursuant to the Loan
Agreement.
7. Negative Covenants of the Company.
Subject to Section 13 hereof, the Company covenants and agrees with the
Covenant Preferred Stockholders and their transferees that, without the approval
of the holders of at least 75% in interest of the Covenant Preferred Shares,
voting together as a class:
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7.1 Indebtedness; Commitments. The Company shall not incur any
Indebtedness or Commitments at any time which exceeds by 10% or more of the
amount of Indebtedness or Commitments included in a Budget approved by the Board
of Directors (and the Covenant Preferred Stockholders, if required) in
accordance with Section 6.3(d) hereof. If the Company determines to incur
Indebtedness or Commitments in an amount which exceeds by 10% or more the amount
of Indebtedness or Commitments included in an approved Budget, then the Company
must seek an additional approval in accordance with Section 6.3(d) hereof.
7.2 Restriction on Dividends. The Company shall not declare or make any
dividend payment or other distribution of assets, properties, cash rights,
obligations or securities on account or in respect of any of its shares of
Common Stock or any shares of preferred stock other than those which are both
(x) required by the Charter, and (y) relate to the Preferred Shares of the
Company.
7.3 Restriction on Issuances of Shares. The Company shall not issue any
shares of Capital Stock; provided, however, that the Company may issue shares of
Capital Stock pursuant to the options, warrants and rights listed on Schedule
7.3 hereof.
7.4 Protective Provisions. The Company shall not engage in any of the
actions specified in Sections A.6(c), B.6(c), C.6(c) or D.6(c) of Article III of
its Charter without the written consent in lieu of a meeting, or the affirmative
vote at a meeting called for such purpose, of the holders of Preferred Stock, as
provided in such Sections.
7.5 Business. The Company will only engage in the businesses of the
identification and commercialization of products and processes by genomic
analysis of diverse microbes and other living materials.
7.6 Guarantees. The Company will not incur any guarantee or similar
contingent obligation in respect of the indebtedness of others, whether or not
classified on the Company's balance sheet as a liability (a "Guarantee").
7.7 Conflicting Agreements. The Company will not enter into any agreement
which by its terms might restrict the performance of the Company's obligations
pursuant to the terms of this Agreement or the provisions relating to the
Preferred Stock included in the Charter, including but not limited to
registration rights, and the payment of dividends on, the redemption, voting or
conversion of, the Preferred Stock.
7.8 No Acquisitions. The Company shall not, nor shall it permit any of
its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
without the approval of the holders of at least 75% in interest of the Covenant
Preferred Shares, voting together as a class.
7.9 No Dispositions. Other than in the ordinary course of business and
other than dispositions of obsolete assets, the Company will not, nor shall it
permit any of its Subsidiaries to, sell, lease, encumber or otherwise dispose of
or agree to sell, lease, encumber or otherwise dispose of, in any transaction or
series of related transactions, any substantial assets of the
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Company without the approval of the holders of at least 75% in interest of the
Covenant Preferred Shares, voting together as a class.
7.10 Employee Stock and Stock Options. Other than options to purchase up
to 11,275,624 shares of Common Stock which may be issued under the 1994 Plan or
the 1997 Plan, the Company will not issue Common Stock or stock options to its
officers, directors, employees or others who render services to the Company (the
"Employees") unless such Common Stock or options, as the case may be, are issued
pursuant to a stock option plan approved by holders of at least 75% in interest
of the Covenant Preferred Shares, voting as a class, and an agreement in form
and substance satisfactory to holders of at least 75% in interest of the
Covenant Preferred Shares, voting as a class, except for immaterial changes
thereto as shall be approved from time to time by officers of the Company.
8. Confidentiality.
The Preferred Stockholders agree to keep the information heretofore or
hereafter furnished to the Preferred Stockholders by the Company or on the
Company's behalf (the "Confidential Material") confidential. Notwithstanding the
foregoing, the term Confidential Material does not include information that (i)
is or becomes publicly available other than through breach of this Agreement by
the Preferred Stockholders; (ii) is already known to the Preferred Stockholders
at the time of disclosure; (iii) is received by the Preferred Stockholders from
a third party not under an obligation of confidentiality to the Company or (iv)
is independently developed by the Preferred Stockholders without reference to
the Confidential Material. The Preferred Stockholders agree to take reasonable
precautions to safeguard the Confidential Material from disclosure to anyone
other than appropriate employees, officers, directors, partners and
representatives, including auditors and attorneys, of the Preferred
Stockholders, which persons shall be advised of the confidential nature of such
information. In the event that any Preferred Stockholder or any of such
Preferred Stockholder's representatives receive a request or demand to disclose
all or any part of the Confidential Material under the terms of a subpoena or
order issued by a court of competent jurisdiction or otherwise, the Preferred
Stockholders shall (i) promptly notify the Company of the existence, terms and
circumstances surrounding such request or demand so that the Company may seek a
protective order or other appropriate relief or remedy or waive compliance with
the terms hereof, (ii) consult with the Company on the advisability of taking
legally advisable steps to resist or narrow such request or demand, and (iii) if
disclosure of such Confidential Material is required, disclose such Confidential
Material and, subject to reimbursement by the Company of Preferred Stockholder's
reasonable expenses, including legal fees, cooperate with the Company in its
efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to such portion of the disclosed Confidential
Material which the Company may so designate. If, in the opinion of Preferred
Stockholder's counsel, disclosure by the Preferred Stockholders of all or any
part of the Confidential Material is required by law, the Preferred Stockholders
shall (i) promptly notify the Company of the proposed disclosure, (ii) disclose
only such Confidential Material which is required by law, in the reasonable
opinion of the Preferred Stockholders' counsel, to be disclosed and (iii)
subject to reimbursement by the Company of the Preferred Stockholders'
reasonable expenses, including legal fees, take all legally advisable steps to
obtain an order or other reliable assurance that confidential treatment will be
accorded to the disclosed Confidential Material to the maximum extent possible
or to obtain such other protection under law of the confidential
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nature of such Confidential Material to the maximum extent possible. Any
Preferred Stockholder who is entitled to receive information concerning the
Company pursuant to Sections 6.3 and 6.4, shall as a condition to receipt of
such confidential information, agree to be bound by this Section 8.
9. Events of Noncompliance.
9.1 Occurrence of Event of Noncompliance. An event of noncompliance (an
"Event of Noncompliance") hereunder shall occur if:
(a) the Company fails in any material respect to perform or observe
any of the covenants contained in the Company fails in any material respect to
perform or observe any of the covenants contained in this Stockholders'
Agreement, the Series A Stock Purchase Agreement, the Series B Stock Purchase
Agreement, the Series C Stock Purchase Agreement or the Series D Stock Purchase
Agreement, or fails in any material respect to comply with any of the provisions
of this Stockholders' Agreement, the Series A Stock Purchase Agreement, the
Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement, the
Series D Stock Purchase Agreement or of its Charter applicable to the Covenant
Preferred Shares or the Registrable Securities (other than the Series E
Registrable Securities);
(b) the Company's representations and warranties contained in this
Stockholders' Agreement, the Series A Stock Purchase Agreement (including the
Schedules and Exhibits attached thereto), the Series B Stock Purchase Agreement
(including the Schedules and Exhibits attached thereto), the Series C Stock
Purchase Agreement (including the Schedules and Exhibits attached thereto) or
the Series D Stock Purchase Agreement (including the Schedules and Exhibits
attached thereto) shall be untrue or misleading in any material respect as of
the time when made or as of the closings of such agreements;
(c) the Company shall become insolvent, make an assignment for the
benefit of its creditors, call a meeting of its creditors to obtain any general
financial accommodation or suspend business; any material obligation of the
Company shall be accelerated or shall not be paid when due; any judicial
judgment or settlement shall be outstanding, or a case under any provision of
Title 11 of the United States Code, 11 U.S.C. (S) 101 et seq. (the "Bankruptcy
Code"), or any comparable law of any jurisdiction, including provisions for
receivership or reorganization, shall be commenced by or against the Company
which, in the case of an action being commenced against the Company under the
Bankruptcy Code, shall remain unstayed or undismissed for a period of sixty (60)
days;
(d) the Company fails to complete, within five years from the date of
the Series B Stock Purchase Agreement either: (i) an Initial Public Offering,
(ii) a sale, liquidation or dissolution of the Company, or (iii) a sale,
transfer or disposition of substantially all of the assets of the Company;
(e) the Company (x) incurs Indebtedness or Commitments in violation
of Section 7.1 hereto, (y) pays dividends in violation of Section 7.2 hereto,
and/or (z) issues shares of Capital Stock in violation of Section 7.3 hereto;
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(f) a default or an event of default shall occur or exist with
respect to any debt or indebtedness of the Company; or
(g) a default or an event of default shall occur or exist with
respect to any material contract of the Company, which default could give rise
to a material claim by a third party against the Company or the Company's
assets.
9.2 Remedies. In the event of the occurrence and continuation of an Event
of Noncompliance, the holders of at least 75% in interest of the Covenant
Preferred Shares, voting as a class, may:
(a) demand, and be entitled to, in accordance with the provision of
Sections A.8, B.8, C.8 and D.8 of Article III of the Charter of the Company, an
immediate (i) redemption of all of the Covenant Preferred Shares held by them
(or a portion of such shares pro rata), and (ii) immediate payment of all
accrued but unpaid dividends and all declared but unpaid dividends;
(b) declare an Event of Noncompliance and elect all members of the
Board of Directors, which Board may sell, dispose of, or liquidate the assets
and/or business of the Company in whatever manner it believes will maximize the
return to the Preferred Stockholders, or cause the Company to issue additional
securities in a private placement or Public Offering.
If the holders of at least 75% in interest of the Covenant Preferred
Shares, voting as a class, declare that an Event of Noncompliance exists, the
Company may, for a period of 30 days after receipt of such declaration of an
Event of Noncompliance, pay the entire redemption amount (including immediate
payment of all accrued but unpaid dividends and all declared but unpaid
dividends), in cash, of the Preferred Stock. The holders of the Preferred Stock
shall, upon receipt of the full payment of the redemption amount (including
immediate payment of all accrued but unpaid dividends and all declared but
unpaid dividends), transfer and surrender all of their Preferred Stock to the
Company, as instructed, and they shall thereafter no longer have any rights as
stockholders of the Company.
If the holders of at least 75% in interest of the Covenant Preferred
Shares, voting together as a class, shall send written notice of their
redemption request to the Company, the Company shall promptly give each of the
other holders of Covenant Preferred Shares written notice of the redemption (the
"Redemption Notice").
The exercise of the foregoing contractual remedies shall be in addition to
all other legal and equitable remedies available to the Preferred Stockholders.
10. Filing of Reports Under the Exchange Act.
(a) The Company shall give prompt notice to the Preferred
Stockholders of (i) the filing of any registration statement (an "Exchange Act
Registration Statement") pursuant to the Exchange Act, relating to any class of
equity securities of the Company, (ii) the effectiveness of such Exchange Act
Registration Statement, and (iii) the number of shares of such class of equity
securities outstanding as reported in such Exchange Act Registration Statement,
in order to enable the Preferred Stockholders to comply with any reporting
requirements under the
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Exchange Act or the Securities Act. Upon the written request of a majority in
interest of the holders of Preferred Shares, the Company shall, at any time
after the Company has registered any shares of Common Stock under the Securities
Act, file an Exchange Act Registration Statement relating to any class of equity
securities of the Company then held by the holders of Preferred Shares or
issuable upon conversion or exercise of any class of debt or equity securities
or warrants or options of the Company then held by the holders of Preferred
Shares, whether or not the class of equity securities with respect to which such
request is made shall be held by the number of persons which would require the
filing of a registration statement under Section 12(g)(1) of the Exchange Act.
(b) If the Company shall have filed an Exchange Act Registration
Statement or a registration statement (including an offering circular under
Regulation A promulgated under the Securities Act) pursuant to the requirements
of the Securities Act, which shall have become effective (and in any event, at
all times following the initial public offering of any of the securities of the
Company), then the Company shall comply with all the reporting requirements of
the Exchange Act (whether or not it shall be required to do so) and shall comply
with all other public information reporting requirements of the Commission as a
condition to the availability of an exemption from the Securities Act for the
sale of any of the Restricted Securities by any holder of Restricted Securities
(including any such exemption pursuant to Rule 144 or Rule 144A thereof, as
amended from time to time, or any successor rule thereto or otherwise). The
Company shall cooperate with each holder of Restricted Securities in supplying
such information as may be necessary for such holder of Restricted Securities to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act (under Rule 144 or Rule 144A thereunder or otherwise)
for the sale of any of the Restricted Securities by any holder of Restricted
Securities.
11. Registration Rights.
11.1 Demand Registration Rights.
(a) Upon written request at any time by holders of Series A
Registrable Securities representing in the aggregate at least 50% of the total
number of Series A Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series A Registrable Securities, as requested by the
holders of Series A Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series A Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series A Registrable Securities
pursuant to this Section 11.1(a). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(a). A request by a holder of Series A Registrable
Securities to have the Company effect the registration of Series A Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the registration of the Series A Registrable Securities shall
become effective, unless and until the Series A Registrable Securities are sold
pursuant to the registration statement. The registration rights provided for in
this Section 11.1(a) are in addition to those provided for in Section 11.1(e).
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(b) Upon written request at any time by holders of Series B
Registrable Securities representing in the aggregate at least 50% of the total
number of Series B Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series B Registrable Securities, as requested by the
holders of Series B Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series B Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series B Registrable Securities
pursuant to this Section 11.1(b). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(b). A request by a holder of Series B Registrable
Securities to have the Company effect the registration of Series B Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the registration of the Series B Registrable Securities shall
become effective, unless and until the Series B Registrable Securities are sold
pursuant to the registration statement. The registration rights provided for in
this Section 11.1(b) are in addition to those provided for in Section 11.1(e).
(c) Upon written request at any time by holders of Series C
Registrable Securities representing in the aggregate at least 50% of the total
number of Series C Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series C Registrable Securities, as requested by the
holders of Series C Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series C Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series C Registrable Securities
pursuant to this Section 11.1(c). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(c). A request by a holder of Series C Registrable
Securities to have the Company effect the registration of Series C Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the registration of the Series C Registrable Securities shall
become effective, unless and until the Series C Registrable Securities are sold
pursuant to the registration statement. The registration rights provided for in
this Section 11.1(c) are in addition to those provided for in Section 11.1(e).
(d) Upon written request at any time by holders of Series D
Registrable Securities representing in the aggregate at least 50% of the total
number of Series D Registrable Securities at the time of such request, the
Company shall use its best efforts to effect the registration under the
Securities Act and registration or qualification under all applicable state
securities laws of the Series D Registrable Securities, as requested by the
holders of Series D Registrable Securities, all as provided in the following
provisions of this Section 11. Holders of Series D Registrable Securities may
require the Company to effect no more than one registration under the Securities
Act upon the request of the holders of the Series D Registrable Securities
pursuant to this Section 11.1(d). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 11.5(a) below shall not constitute a registration pursuant
to this Section 11.1(d). A request by a holder of Series D Registrable
Securities to have the Company effect the registration of Series D Registrable
Securities shall not obligate the holder to convert them into Common Stock,
whether or not the
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registration of the Series D Registrable Securities shall become effective,
unless and until the Series D Registrable Securities are sold pursuant to the
registration statement. The registration rights provided for in this Section
11.1(d) are in addition to those provided for in Section 11.1(e)
(e) Upon written request at any time by holders of Registrable
Securities representing in the aggregate at least 50% of the total number of
Registrable Securities at the time of such request, the Company shall use its
best efforts to effect the registration under the Securities Act and
registration or qualification under all applicable state securities laws of the
Registrable Securities, as requested by the holders of Registrable Securities,
all as provided in the following provisions of this Section 11. Holders of
Registrable Securities may require the Company to effect no more than two
registrations under the Securities Act, in the aggregate, upon the request of
the holders of Registrable Securities pursuant to this Section 11.1(e). Any
registration which is not declared effective pursuant to the Securities Act and
which does not remain effective as required by Section 11.5(a) below shall not
constitute one of the two registrations which the Company is obligated to effect
pursuant to this Section 11.1(e). A request by a holder of Shares to have the
Company effect the registration of Registrable Securities shall not obligate the
holder of Shares to convert them into Common Stock, whether or not the
registration of the Registrable Securities shall become effective, unless and
until the Registrable Securities are sold pursuant to the registration
statement. The registration rights provided for in this Section 11.1(e) are in
addition to those provided for in Sections 11.1(a), (b), (c) and (d).
11.2 Registration Requested by Holders. Whenever the Company shall be
requested, pursuant to Section 11.1 hereof, to effect the registration of any of
the Registrable Securities under the Securities Act (a "Request for
Registration"), the Company shall promptly give notice of such proposed
registration to all holders of Registrable Securities and thereupon shall, as
expeditiously as possible, use its best efforts to effect the registration under
the Securities Act and under all applicable state securities laws of:
(a) all Registrable Securities which the Company has been requested
to register pursuant to the Request for Registration; and
(b) all other Registrable Securities which holders of Registrable
Securities have, within thirty (30) days after the Company has given such
notice, requested the Company to register;
(c) all to the extent requisite to permit the sale or other
disposition by the holders of the Registrable Securities so to be registered. If
the holders of Registrable Securities who requested the registration of
Registrable Securities engage one or more underwriters to distribute such
Registrable Securities, the Company shall permit the managing underwriter(s) and
counsel to the underwriter(s) at the Company's expense to visit and inspect any
of the properties of the Company, examine its books, take copies and extracts
therefrom and discuss the affairs, finances and accounts of the Company with its
officers, employees and public accountants (and by this provision the Company
hereby authorizes said accountants to discuss with such underwriter(s) and such
counsel its affairs, finances and accounts), at reasonable times and upon
reasonable notice, with or without a representative of the Company being
present. The Company shall have the right to include in any registration of
Registrable Securities required
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pursuant to this Section 11.2 additional shares of its Common Stock to be issued
by the Company ("Company Securities") or shares of Common Stock ("Third Party
Registrable Securities") that have the benefit of duly exercised registration
rights contractually binding on the Company, provided that if any Registrable
Securities to be so registered for sale are to be distributed by or through
underwriters, then all Registrable Securities to be so registered for sale and
Company Securities and Third Party Registrable Securities, if any, shall be
included in such underwriting on the same terms and provided, however, that if,
in the written opinion of the managing underwriter(s), the total amount of such
securities to be registered will exceed the maximum amount of the Company's
securities which can be marketed (i) at a price reasonably related to their then
current market value, or (ii) without otherwise materially and adversely
affecting the entire offering, then the Company shall exclude from such
underwriting (x) first, the maximum number of Company Securities and Third Party
Registrable Securities as is necessary in the opinion of the managing
underwriter(s) to reduce the size of the offering and (y) then, the minimum
number of Registrable Securities, pro rata to the extent practicable, on the
basis of the number of Registrable Securities requested to be registered among
the participating holders of Registrable Securities, as is necessary to reduce
the size of the offering. A registration that covers both Registrable
Securities, Company Securities and Third Party Registrable Securities shall be
deemed to have been requested pursuant to a Request for Registration pursuant to
the applicable subsection Section 11.1 if the Registrable Securities of the type
covered by such subsection constitute at least 50% of the total offering on the
effective date of the registration statement but shall not be deemed to be one
of the registrations referred to in the applicable subsection of Section 11.1
hereof if Registrable Securities of the type covered by such subsection
constitute less than 50% of the total offering on the effective date of the
registration statement.
11.3 "Piggyback" Registrations.
(a) If the Company at any time proposes other than in accordance
with a Request for Registration to register any of its securities under the
Securities Act on Form S-1, S-2 or S-3 or on any other form upon which the
Registrable Securities may be registered for sale to the general public, whether
for its own account or for the account of others, the Company will at each such
time give notice to all holders of Registrable Securities of such proposal at
least thirty (30) days before the Company files a registration statement. Upon
the request of any holder of Registrable Securities given within twenty (20)
days after the Company has given such notice, the Company will cause the
Registrable Securities which the Company has been requested to register by such
holder of Registrable Securities to be registered under the Securities Act, all
to the extent requisite to permit the sale or other disposition by such holder
of Registrable Securities of the Registrable Securities so registered.
(b) If securities are to be registered for sale under a registration
not initiated by a Request for Registration and are to be distributed by or
through a firm of underwriters, then any Registrable Securities which the
Company has been requested to register pursuant to clause (a) of this Section
11.3 shall also be included in such underwriting on the same terms as other
securities of the same class as the Registrable Securities included in such
underwriting, provided that if, in the written opinion of the managing
underwriter(s), the total amount of such securities to be so registered, when
added to the Registrable Securities and the securities held by holders of
securities other than the Registrable Securities, if any, will exceed the
maximum amount of the
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Company's securities which can be marketed (i) at a price reasonably related to
their then current market value, or (ii) without otherwise materially and
adversely affecting the entire offering, then (subject to clause (d) of this
Section 11.3) the Company shall exclude from such underwriting (x) first, the
maximum number of securities, if any, other than Registrable Securities, being
sold for the account of persons other than the Company as is necessary to reduce
the size of the offering and (y) second, the minimum number of Registrable
Securities, if any, as is necessary in the opinion of the managing
underwriter(s) to reduce the size of the offering (any such reduction in
Registrable Securities to be made pro rata to the extent practicable on the
basis of the number of Registrable Securities requested to be registered among
the participating holders of Registrable Securities).
(c) If securities are to be registered for sale under a registration
not initiated by a Request for Registration and are to be distributed for the
account of holders of Third Party Registrable Securities or holders (other than
the Company) of other securities of the Company other than Registrable
Securities by or through a firm of underwriters of recognized standing under
underwriting terms appropriate for such transaction, then any Registrable
Securities which the Company has been requested to register pursuant to clause
(a) of this Section 11.3 shall also be included in such underwriting on the same
terms as other securities included in such underwriting, provided that if, in
the written opinion of the managing underwriter or underwriters, the total
amount of such securities to be so registered, when added to such Registrable
Securities, will exceed the maximum amount of the Company's securities which can
be marketed (i) at a price reasonably related to their then current market
value, or (ii) without otherwise materially and adversely affecting the entire
offering, then the Company shall exclude from such underwriting the number of
Registrable Securities and other securities, pro rata to the extent practicable,
on the basis of the number of securities requested to be registered, as is
necessary in the opinion of the managing underwriter(s) to reduce the size of
the offering.
(d) Notwithstanding Section 11.3 (a) and (b), the Company shall not
exclude more Registrable Securities from registration than is necessary to
reduce the number of Registrable Securities to be registered to one-fifth of the
total number of securities to be registered, provided, however, that the Company
may exclude all Registrable Securities from registration in connection with the
Company's Initial Public Offering in its sole discretion, whether or not such
exclusion is required in the opinion of the managing underwriter(s).
(e) Notwithstanding anything to the contrary contained herein, the
provisions of clause (y) of Section 11.3(b) and the provisions of Section
11.3(d) limiting the amount of the Registrable Securities requested to be
registered that may be excluded from such registration may be waived by the
affirmative vote of holders of 50% of the Registrable Securities requested to be
registered. If, by reason of the provisions of Section 11.3(b) or Section
11.3(d), in any public offering other than the Company's Initial Public
Offering, more than 10% of the Registrable Securities requested to be registered
are excluded from such registration statement, then, in each such case, the
holders of the Registrable Securities shall be entitled to an additional demand
registration pursuant to Section 11.1(e) and shall be entitled to an additional
registration pursuant to Section 11.1 at the Company's expense, without
reimbursement, in accordance with Section 11.6.
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11.4 Registrations on S-3. At such time as the Company shall have
qualified for the use of Form S-3 (or any successor form promulgated under the
Securities Act), each holder of Registrable Securities shall have the right to
request in writing an unlimited number of registrations on Form S-3 (except that
the holders of Series E Registrable Securities shall only have the right to
request in writing three (3) registrations on Form S-3), provided that the
Registrable Securities proposed to be included in each such registration
statement have a proposed aggregate offering price of at least $500,000 and that
no holder shall have a right to request that Registrable Securities be
registered on Form S-3 during any calendar year if Registrable Securities of
such holder were included in a registration statement on Form S-3 pursuant to a
request made by such holder during such calendar year. Each such request by a
holder shall: (a) specify the number of Registrable Securities which the holder
intends to sell or dispose of, and (b) state the intended method by which the
holder intends to sell or dispose of such Registrable Securities. Upon receipt
of a request pursuant to this Section 11.4, the Company shall use its best
efforts to effect such registration or registrations on Form S-3.
11.5 Company's Obligations in Registration. Whenever the Company is
obligated to effect the registration of any Registrable Securities under the
Securities Act, as expeditiously as possible the Company will use its best
efforts to:
(a) prepare and file with the Commission, a registration statement
with respect to such Registrable Securities and cause such registration
statement to become and remain effective, provided, that the Company shall not
be required to keep such registration statement effective, or to prepare and
file any amendments or supplements thereto, after the later of (i) the last
business day of the ninth month following the date on which such registration
statement becomes effective under the Securities Act or such longer period
during which the holders of the Registrable Securities registered thereunder
shall pay all expenses reasonably incurred to keep such registration statement
effective with respect to any of the Registrable Securities so registered or
(ii) the date on which all of the Registrable Securities registered pursuant to
such registration statement have been sold; provided further that in the event
the Commission shall have declared any other registration statement with respect
to an offering of securities of the Company to be effective within four months
prior to the Company's receiving a Request for Registration, the Company may
delay the effective date of the registration statement filed in response to the
Request for Registration until six months after the effective date of the
previous registration statement;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by such registration statement whenever
the holders of Registrable Securities covered by such registration statement
shall desire to dispose of the same;
(c) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered such number of
copies of a printed prospectus, including a preliminary prospectus and any
amendments or supplements thereto, in conformity with the requirements of the
Securities Act, and such other documents as such holders of
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Registrable Securities may reasonably request in order to facilitate the
disposition of such Registrable Securities;
(d) notify each holder of Registrable Securities, at any time when a
prospectus relating to the Registrable Securities covered by such registration
statement is required to be delivered under the Securities Act, of the Company's
becoming aware that the prospectus in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and at the request of any holder of Registrable
Securities, prepare and furnish to such holder any reasonable number of copies
of any supplement to or amendment of such prospectus necessary so that, as
thereafter delivered to any purchaser of the Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(e) register or qualify the Registrable Securities covered by such
registration statement under such securities or blue sky laws of such
jurisdictions as the holders of Registrable Securities for whom such Registrable
Securities are registered or are to be registered shall reasonably request, and
do any and all other reasonable acts and things which may be necessary or
advisable to enable such holders of Registrable Securities to consummate the
disposition in such jurisdictions of such Registrable Securities; provided,
however, that the Company shall not be required to consent to general service of
process for all purposes in any jurisdiction where it is not then subject to
process, qualify to do business as a foreign corporation where it would not be
otherwise required to qualify or submit to liability for state or local taxes
where it is not otherwise liable for such taxes;
(f) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered an agreement
satisfactory in form and substance to them by the Company and each of its
officers, directors and holders of 5% or more of any class of capital stock,
that during the thirty (30) days before and the 180 days after the effective
date of any underwritten public offering, the Company and such officers,
directors and 5% security holders shall not offer, sell, contract to sell or
otherwise dispose of any shares of capital stock or securities convertible into
capital stock, except as part of such underwritten public offering and except
that gifts may be made to relatives or their legal representatives upon the
condition that the donees agree in writing to be bound by the restrictions
contained in this clause (f) of Section 11.5;
(g) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered at the closing of
the sale of such Registrable Securities by such holders of Registrable
Securities a signed copy of (i) an opinion or opinions of counsel for the
Company acceptable to such holders of Registrable Securities in form and
substance as is customarily given to underwriters in public offerings, and (ii)
a "cold comfort" letter from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accounts to underwriters in an underwritten public offering, to the
extent that such "cold comfort" letters are then available to selling
stockholders;
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(h) otherwise use its efforts to comply with all applicable rules
and regulations of the Commission, and, if required, make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first day of the Company's first calendar quarter
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(i) use its best efforts to cause all Registrable Securities covered
by such registration statement to be listed on the principal securities exchange
on which similar equity securities issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or, if similar equity securities are not listed, to include the
Registrable Securities on the National Association of Securities Dealers
Automated Quotation System;
(j) in connection with any underwritten offering, enter into an
underwriting agreement with the underwriter(s) of such offering in the form
customary for such underwriter(s) for similar offerings, including such
representations and warranties by the Company, provisions regarding the delivery
of opinions of counsel for the Company and accountants' letters, provisions
regarding indemnification and contribution, and such other terms and conditions
as are at the time customarily contained in such underwriter's underwriting
agreements for similar offerings (and, at the request of any holder of
Registrable Securities that are to be distributed by such underwriter(s), any or
all (as requested by such holder) of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriter(s) shall also be made to and for the benefit of such holder); and
(k) permit any holder of Registrable Securities who, in the sole
judgment, exercised in good faith, of such holder, might be deemed to be a
controlling person of the Company, to participate in the preparation of such
registration statement and to require the insertion therein of material,
furnished to the Company in writing, that in the judgment of such holder, as
aforesaid, should be included, except to the extent that the Company shall
reasonably object to the inclusion of such material.
11.6 Payment of Registration Expenses. The costs and expenses of all
registrations and qualifications under the Securities Act, and of all other
actions which the Company is required to take or effect pursuant to this Section
11, shall be paid by the Company or holders of Third Party Registrable
Securities or other securities of the Company other than Registrable Securities,
if any (including, without limitation, all registration and filing fees,
printing expenses, expenses incident to filings with the National Association of
Securities Dealers, Inc., auditing costs and expenses, and the reasonable fees
and disbursements of counsel for the Company and one special counsel for the
holders of Registrable Securities) and the holders of Registrable Securities
shall pay only the underwriting discounts and commissions and transfer taxes, if
any, relating to the Registrable Securities sold by them; provided that the
Company shall pay without reimbursement such costs and expenses of (i) no more
than two registrations which become effective under the Securities Act as a
result of Requests for Registration pursuant to Section 11.1 and (ii) no more
than three registrations which become effective under the Securities Act as a
result of registrations on Form S-3 pursuant to the request of the holders of
Series E Registrable Securities under Section 11.4, and provided, further, that
in the event more
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than two registrations as described in clause (i) above or three registrations
as described in clause (ii) above, as applicable, become effective under the
Securities Act, the holders of Registrable Securities and other securities, if
any, included in such registrations shall reimburse the Company pro rata for all
registration and filing fees, reasonable printing expenses, reasonable auditing
costs and expenses (excluding costs and expenses of the Company's annual audit)
and the reasonable fees and expenses of counsel for the Company and the selling
stockholders and such reimbursement shall be made to the Company within five (5)
business days after the effective date of such a registration statement.
11.7 Information from Holders of Registrable Securities. Notices and
requests delivered by holders of Registrable Securities to the Company pursuant
to this Section 11 shall contain such information regarding the Registrable
Securities to be so registered and the intended method of disposition thereof as
shall reasonably be required in connection with the action to be taken. Each
holder of Registrable Securities hereby agrees to provide the Company, or its
agents or designees, with all information reasonably required in connection with
the registration under the Securities Act or any applicable state securities law
of any Registrable Securities.
11.8 Indemnification. In the event of any registration under the
Securities Act of any Registrable Securities pursuant to this Section 11, the
Company shall indemnify and hold harmless each holder of Registrable Securities
disposing of such Registrable Securities and each other person, if any, which
controls (within the meaning of the Securities Act) such holder of Registrable
Securities and each other person (including underwriters) who participates in
the offering of such Registrable Securities, against any losses, claims, damages
or liabilities, joint or several, to which such holder of Registrable Securities
or controlling person or participating person may become subject under the
Securities Act or otherwise, to the extent that such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which such
Registrable Securities were registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein, or in any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) or necessary to make the statements therein not
misleading, and will reimburse such holder of Registrable Securities and each
such controlling person or participating person for any legal or any other
expenses reasonably incurred by such holder of Registrable Securities or such
controlling person or participating person in connection with investigating or
defending any such loss, claim, damage, liability or proceeding, provided, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary or final prospectus or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such holder of Registrable
Securities or such controlling or participating person, as the case may be,
specifically for use in the preparation thereof. Each such holder of Registrable
Securities will, if requested by the Company prior to the initial filing of any
such registration statement, agree in writing, severally but not jointly, to
indemnify and hold harmless the Company and each person which controls (within
the meaning of the Securities Act) the Company and each other person (including
underwriters) who participates in the offering of such
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Registrable Securities against all losses, claims, damages and liabilities to
which the Company or such controlling person or participating person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement of
any material fact contained, on the effective date thereof, in any registration
statement under which such Registrable Securities were registered under the
Securities Act, or in any preliminary prospectus or final prospectus contained
therein, or in any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of
a prospectus, in the light of the circumstances under which they were made) not
misleading, to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such statement or omission made in such registration
statement, preliminary or final prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such holder of Registrable Securities
and specifically stated to be for use in the preparation thereof. Each
indemnified party shall cooperate with each indemnifying party in defending any
loss, claim, damage, liability or proceeding.
(a) Indemnification similar to that specified in the preceding
clause of this Section 11.8 (with appropriate modifications) shall be given by
the Company and, at the Company's request, each holder of Registrable Securities
with respect to any registration or other qualification of securities under any
state securities and "blue sky" laws.
(b) If the indemnification provided for in clauses (a) and (b) of
this Section 11.8 is unavailable or insufficient to hold harmless an indemnified
party, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party referred to in clauses (a) and (b) of this
Section 11.8 in such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and the indemnified party on the other
hand in connection with statements or omissions which resulted in losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statements or omissions. The parties agree that
it would not be just and equitable if contributions pursuant to this clause were
to be determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
first sentence of this clause. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this clause shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any loss, claim, damage, liability or proceeding which is the
subject of this clause. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(c) Each indemnified party shall notify the indemnifying party in
writing within ten (10) days after its receipt of notice of the commencement of
any action against it in respect of which indemnity may be sought from the
indemnifying party pursuant to this
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Section 11.8. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party, the indemnifying party will be
entitled to participate in the defense with counsel satisfactory to such
indemnified party. Each indemnified party shall cooperate with each indemnifying
party in defending any loss, claim, damage, liability or proceeding.
(d) Notwithstanding clauses (a) through (c) of this Section 11.8,
the aggregate amount which may be recovered by the Company, controlling persons
of the Company or underwriters from each holder of Registrable Securities
pursuant to the indemnification and contribution provided for in this Section
11.8 shall be limited to the total net proceeds for which the Registrable
Securities were sold by such holder of Registrable Securities.
(e) Notwithstanding any of the foregoing, if, in connection with an
underwritten public offering of Registrable Securities, the Company, the selling
stockholders and the underwriter(s) enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 11.8 shall be deemed inoperative for
purposes of such offering.
12. Small Business Matters.
12.1 Generally: Certain SBIC Covenants. CIT/VC is a Small Business
Investment Company ("SBIC") licensed by the United States Small Business
Administration ("SBA"). In order for CIT/VC to acquire and hold the Series B
Preferred Stock, it obtained from the Company certain representations and rights
as set forth below. As a material inducement to CIT/VC to purchase the Series B
Preferred Stock pursuant to the Series B Stock Purchase Agreement, the Company
made, and hereby makes the following representations and warranties and agrees
to comply with the following covenants:
(a) Assuming that CIT/VC's investment in the Company satisfies the
requirements of 13 C.F.R. (S)107.865(d), and has complied with the requirements
of 13 C.F.R. (S)107.865(e), the Company, together with its "affiliates" (as that
term is defined in 13 C.F.R. (S)121.103), is a "small business concern" within
the meaning of the Small Business Investment Act of 1958, as amended ("SBIA"),
and the regulations thereunder, including Title 13, Code of Federal Regulations,
(S)121.301(c). The information set forth in the SBA Forms 480, 652 and Part A of
Form 1031 regarding the Company and its affiliates, when it was delivered to
CIT/VC at the closing of the sale of the Series B Preferred Stock under the
Series B Stock Purchase Agreement, was accurate and complete.
(b) The proceeds from the sale of the Series B Preferred Stock were
or will be used by the Company to (1) finance working capital and other
corporate needs and (2) pay expenses related to the transactions contemplated by
the Series B Stock Purchase Agreement. No portion of such proceeds (i) were or
will be used to provide capital to a corporation licensed under the SBIA, (ii)
were or will be used to acquire farm land, (iii) were or will be used to fund
production of a single item or defined limited number of items, generally over a
defined production period, and such production constituted or will constitute
the majority of the activities of the Company and its Subsidiaries (examples
include motion pictures and electric generating
38.
<PAGE>
plants), or (iv) were or will be used for any purpose contrary to the public
interest (including, but not limited to, activities which are in violation of
law) or inconsistent with free competitive enterprise, in each case, within the
meaning of 13 C.F.R. (S)107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary
business activity involves, directly or indirectly, providing funds to others,
the purchase or discounting of debt obligations, factoring or long-term leasing
of equipment with no provision for maintenance or repair, and neither the
Company nor any of its Subsidiaries is classified under Major Group 65 (Real
Estate) of the SIC Manual. The assets of the business of the Company and its
Subsidiaries (the "Business") will not be reduced or consumed, generally without
replacement, as the life of the Business progresses, and the nature of the
business does not require that a stream of cash payments be made to the
Business' financing sources, on a basis associated with the continuing sale of
assets (examples of such businesses would include real estate development
projects and oil and gas wells). (See 13 C.F.R. 107.720)
(d) The proceeds from the sale of the Series B Preferred Stock were
not or will not be used substantially for a foreign operation. This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States.
12.2 Regulatory Compliance Cooperation.
(a) CIT/VC agrees to use commercially reasonable best efforts to
avoid the occurrence of a Regulatory Problem. In the event that CIT/VC
determines that it has a Regulatory Problem, the Company agrees to use
commercially reasonable efforts to take all such actions as are reasonably
requested by CIT/VC in order (A) to effectuate and facilitate any transfer by
CIT/VC of any Securities of the Company then held by CIT/VC to any Person
designated by CIT/VC (subject, however, to compliance with Section 3 of this
Agreement), (B) to permit CIT/VC (or any Affiliate of CIT/VC) to exchange all or
any portion of the voting Securities of the Company then held by such Person on
a share-for-share basis for shares of a class of non-voting Securities of the
Company, which non-voting Securities shall be identical in all respects to such
voting Securities, except that such new Securities shall be non-voting and shall
be convertible into voting Securities on such terms as are requested by CIT/VC
in light of regulatory considerations then prevailing, and (C) to continue and
preserve the respective allocation of the voting interests with respect to the
Company arising out of CIT/VC's ownership of voting Securities of the Company
and/or provided for in this Agreement before the transfers and amendments
referred to above (including entering into such additional agreements as are
requested by CIT/VC to permit any Person(s) designated by CIT/VC to exercise any
voting power which is relinquished by CIT/VC upon any exchange of voting
Securities for nonvoting Securities of the Company); and the Company shall enter
into such additional agreements, adopt such amendments to this Agreement, the
Company's Charter and the Company's By-laws and other relevant agreements and
taking such additional actions, in each case as are reasonably requested by
CIT/VC in order to effectuate the intent of the foregoing. If CIT/VC elects to
transfer Securities of the Company to a Regulated Holder in order to avoid a
Regulatory Problem, the Company shall enter into such agreements with such
Regulated Holder as it may reasonably request in order to assist such Regulated
Holder in complying with applicable laws, and regulations to which it is
subject. Such agreements may include restrictions on the
39.
<PAGE>
redemption, repurchase or retirement of Securities of the Company that would
result or be reasonably expected to result in such Regulated Holder holding more
voting securities or total securities (equity and debt) than it is permitted to
hold under such laws and regulations.
(b) In the event CIT/VC has the right to acquire any of the
Company's Securities from the Company or any other Person (as the result of
Sections 3 or 4 of this Agreement or otherwise), at CIT/VC's request the Company
will offer to sell to CIT/VC non-voting Securities (or, if the Company is not
the proposed seller, will arrange for the exchange of any voting securities for
non-voting securities immediately prior to or simultaneous with such sale) on
the same terms as would have existed had CIT/VC acquired the Securities so
offered and immediately requested their exchange for non-voting Securities
pursuant to Section 12.1(a) above.
(c) In the event that any Subsidiary of the Company ever offers to
sell any of its Securities to CIT/VC, then the Company will cause such
Subsidiary to enter into agreements with CIT/VC on substantially similar terms
as this Section 12.
12.3 Information Rights and Related Covenants.
(a) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall provide to CIT/VC a
written assessment, in form and substance satisfactory to CIT/VC, of the
economic impact of CIT/VC's financing under the Series B Stock Purchase
Agreement, specifying the full-time equivalent jobs created or retained, the
impact of the financing on the consolidated revenues and profits of the Business
and on taxes paid by the Business and its employees (See 13 C.F.R. 107.630(e)).
(b) Upon the request of CIT/VC (or any Affiliate of CIT/VC to whom
CIT/VC has Transferred any Securities of the Company), the Company will (A)
provide to such Person such financial statements and other information as such
Person may from time to time reasonably request for the purpose of assessing the
Company's financial condition and (B) furnish to such Person all information
reasonably requested by it in order for it to prepare and file SBA Form 468 and
any other information reasonably requested or required by the SBA or any
successor entity thereto.
(c) The Company will at all times comply with the non-discrimination
requirements of 13 C.F.R., Parts 112, 113 and 117.
12.4 Remedies. The Company understands that its violation of this
Agreement may result in CIT/VC being required by the SBA to sell the Series B
Preferred Stock, and such sale may be at depressed prices due to the
circumstances and timing of the sale. Therefore, in addition to all other
remedies available to CIT/VC for the Company's violation of this Agreement, the
Company agrees that CIT/VC shall be entitled to seek specific enforcement or
other equitable relief to prevent a violation by the Company of the terms of
this Agreement, and the Company waives any requirement that CIT/VC posts any
bond as a condition to seeking or obtaining equitable relief. CIT/VC
acknowledges and agrees that the remedies available to CIT/VC for the Company's
violation of this Agreement shall be limited to whatever equitable relief may be
available (such as specific performance, injunctive relief and rescission),
damages
40.
<PAGE>
resulting from CIT/VC being required to divest the Series B Preferred Stock and
costs of enforcement. CIT/VC expressly waives any claims for damages resulting
from any loss of, or restrictions imposed upon the use of, its SBIC license as a
result of the Company's breach of Section 12 of this Agreement.
13. Duration of Agreement. The rights and obligations of each Stockholder,
except the rights and obligations contained in Sections 3.1, 3.2, 3.3(c), 10, 11
and 12 hereof, and the covenants hereunder to that Stockholder shall terminate
as to each Stockholder upon the closing of the Initial Public Offering by the
Company. The obligations contained in Sections 8, 11 and 12 shall survive
indefinitely until, by their respective terms, they are no longer applicable.
14. Additional Remedies. In case any one or more of the covenants and/or
agreements set forth in this Agreement, the Series A Stock Purchase Agreement,
the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement,
the Series D Stock Purchase Agreement and/or the Series E Stock Purchase
Agreement shall have been breached by any party hereto, the party or parties
entitled to the benefit of such covenants or agreements may proceed to protect
and enforce their rights either by proceeding in equity and/or by action at law,
including, but not limited to, an action for damages as a result of any such
breach; and/or an action for specific performance of any such covenant or
agreement contained in this Agreement, the Series A Stock Purchase Agreement,
the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement,
the Series D Stock Purchase Agreement and/or the Series E Stock Purchase
Agreement and/or a temporary or permanent injunction, in any case without
showing any actual damage and without establishing, in the case of an equitable
proceeding, that the remedy at law is inadequate. The rights, powers and
remedies of the parties under this Agreement are cumulative and not exclusive of
any other right, power or remedy which such parties may have under any other
agreement or law. No single or partial assertion or exercise of any right, power
or remedy of a party hereunder shall preclude any other or further assertion or
exercise thereof. Any purported Transfer in violation of the provisions of this
Agreement shall be void ab initio.
15. Successors and Assigns; Limitation on Assignment. Except as otherwise
expressly provided herein, this Agreement shall bind and inure to the benefit of
the Company, each of the Stockholders and the respective successors or heirs and
personal representatives and permitted assigns of the Company and each of the
Stockholders. Each Stockholder agrees further that, it shall not sell any Shares
to any Person not a party to this Agreement unless such Person contemporaneously
with such sale executes and delivers to the Company an agreement to be bound by
the Stockholders' obligations hereunder, whereupon such Person shall have the
same obligations as the Preferred Stockholders under this Agreement. The terms,
representations, warranties and covenants contained in Sections 6 and 7 hereof
shall be binding upon and shall inure to the benefit of and be enforceable by,
the Preferred Stockholders and their respective successors, transferees and
assignees, provided, that the rights granted to the Preferred Stockholders by
Sections 6.3 and 6.4 may not be transferred or assigned to, and shall not inure
to the benefit of, a successor, transferee or assignee of the Preferred
Stockholders which is engaged in any business which directly competes with the
Company in any line of business engaged in, or planned to be engaged in, by the
Company. It is understood and agreed among the parties hereto that this
Agreement and the representations, warranties, and covenants made herein are
made expressly and solely for the benefit of the other party or parties hereto
(or their respective
41.
<PAGE>
successors or permitted assigns), and that no other person shall be entitled or
be deemed to be a third-party beneficiary of any party's rights under this
Agreement.
16. Entire Agreement. This Agreement, the Series A Stock Purchase Agreement,
the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement,
the Series D Stock Purchase Agreement, the Series E Stock Purchase Agreement,
the Charter and the By-Laws of the Company and each of the other documents
delivered in connection with the sale by the Company of its Series E Preferred
Stock pursuant to the Series E Stock Purchase Agreement contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior stockholders' agreements, including the Prior Stockholders'
Agreement and the Original Stockholders' Agreement, and all other prior and
contemporaneous arrangements or understandings with respect thereto. The parties
hereto, including the Company and the holders of at least 75% in interest of the
outstanding shares of Series A, B, C and D Preferred Stock, voting together as a
class, hereby agree that all rights granted and covenants made under the Prior
Stockholders' Agreement are hereby waived, released and terminated in their
entirety and shall have no further force or effect whatsoever. The rights and
covenants provided herein set forth the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
17. Notices. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person, duly sent by first class registered or
certified mail, postage prepaid, or telecopied or telexed, addressed or
telecopied to such party at the address or telecopier number set forth below, or
such other address or telecopier number as may hereafter be designated in
writing by the addressee in a notice complying as to delivery with the terms of
this Section 17; provided, however, that if the Stockholder is foreign, notice
shall be sent by both air courier, and telecopied or telexed to such
Stockholder:
If to the Company:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Attention: Chief Executive Officer
Telecopier No.: (619) 623-5180
with a copy to:
Cooley Godward LLP
4365 Executive Drive,
Suite 1100
San Diego, CA 92121
Telecopier: (619) 453-3555
Attention: M. Wainwright Fishburn, Esq.
If to any other party to this Stockholders' Agreement, to the address
listed for such party on Schedule 17 hereto, or for persons who become party to
this Stockholders' Agreement after
42.
<PAGE>
its initial execution, to the address listed for such person on the signature
page to this Stockholders' Agreement.
All such notices, requests, consents and communications shall be deemed to
have been given (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of telex or telecopier transmission, on the date on
which the sender receives machine confirmation of such transmission, and (c) in
the case of mailing, on the fifth business day following the date of such
mailing.
18. Changes. The terms and provisions of Sections 5, 6 and 7 of this Agreement
may not be modified or amended, or any of the provisions thereof waived,
temporarily or permanently, except pursuant to the written consent of (a) the
Company, and (b) the holders of at least 75% in interest of the Covenant
Preferred Shares, voting together as a class. Except as expressly set forth in
the preceding sentence and Section 11.3(e), the terms and provisions of this
Agreement may not be modified or amended, or any of the provisions hereof
waived, temporarily or permanently, except pursuant to the written consent of
(i) the Company, and (ii) the holders of at least 75% in interest of the
Preferred Shares, voting together as a class.
19. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
20. Headings. The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
21. Nouns and Pronouns. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of names and pronouns shall include the plural and vice-versa.
22. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability. Such prohibition or
unenforceability in any one jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
23. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly therein.
24. New York Life Insurance Company Compliance Obligations. Nothing in this
Agreement shall diminish the continuing obligations of New York Life Insurance
Company to comply with applicable requirements of law that it maintain
responsibility for the disposition of, and control over its admitted assets,
investments and property, including (without limiting the generality of the
foregoing) the provisions of Section 1411(b) of the New York Insurance Law, as
amended, and as hereinafter from time to time in effect.
43.
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement on the
date first above written, in the case of corporations by their respective
officers thereunto duly authorized.
Diversa Corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
Stockholders:
HealthCare Ventures III, L.P.
By: HealthCare Partners III, L.P.
its: General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
HealthCare Ventures IV, L.P.
By: HealthCare Partners IV, L.P.
its: General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
HealthCare Ventures V, L.P.
By: HealthCare Partners V, L.P.
its: General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
44.
<PAGE>
APA Excelsior IV/Offshore, L.P.
By: Patricof & Co. Ventures, Inc.
its: Investment Advisor
By:_____________________________________
Name:___________________________________
Title:__________________________________
APA Excelsior IV, L.P.
By: APA Excelsior IV Partners, L.P.
its: General Partner
By: Patricof & Co. Managers, Inc.
its: General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
The P/A Fund, L.P.
By: APA Pennsylvania Partners II, L.P.
its: General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
Patricof Private Investment Club, L.P.
By: Patricof & Co. Managers, Inc.
its: General Partner
By:_____________________________________
Name:___________________________________
Title:__________________________________
45.
<PAGE>
Larry Abrams
_______________________________
Aetna Life Insurance Company
By:____________________________
Name:__________________________
Title:_________________________
Axiom Venture Partners, L.P.
By:____________________________
Name:__________________________
Title:_________________________
William Baum
________________________________
Benefit Capital Management Corporation as
Investment Manager for The Prudential
Insurance Company of America (Separate
Account No. VCA-GA-5298)
By:_____________________________
Name:___________________________
Title:__________________________
Terrance J. Bruggeman
________________________________
Lee S. Casty
_________________________________
46.
<PAGE>
The Cit Group/Venture Capital, Inc.
By:________________________________
Name:______________________________
Title:_____________________________
CSK Venture Capital Co., Ltd.
By:________________________________
Name:______________________________
Title:_____________________________
The Donald D. Johnston Trust
By:________________________________
Donald D. Johnston, Trustee
Finfeeds International Limited
By:________________________________
Name:______________________________
Title:_____________________________
Donald C. Garaventi
___________________________________
GC&H Investments
By:________________________________
Name:______________________________
Title:_____________________________
Barry Glickman
__________________________________
47.
<PAGE>
Hudson Trust
By:_______________________________
Name:_____________________________
Title:____________________________
Frank Landsberger
__________________________________
Kenneth F. Logue
___________________________________
Mentus Money Purchase Plan
By:___________________________
Name:_________________________
Title:________________________
New York Life Insurance
By:____________________________
Name:__________________________
Title:_________________________
Novartis Agribusiness
Biotechnology Research, Inc.
By:____________________________
Name:__________________________
Title:_________________________
48.
<PAGE>
Rho Management Trust II
By:____________________________
Name:__________________________
Title:_________________________
Raymond D. Rice
_______________________________
Jay M. Short
_______________________________
R. Patrick Simms
_______________________________
Melvin I. Simon
_______________________________
State of Michigan
By:____________________________
Name:__________________________
Title:_________________________
Kathleen H. Van Sleen
_______________________________
49.
<PAGE>
SCHEDULE OF SERIES E INVESTORS
Name and Address No. of Shares
Novartis Agribusiness 5,555,556
Biotechnology Research, Inc.
3054 Cornwallis Road
Research Triangle Park, NC 27709
---------
Total 5,555,556
<PAGE>
SCHEDULE 7.3
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS
<PAGE>
SCHEDULE 17
NOTICES
If to HealthCare Ventures III, L.P., HealthCare Ventures IV, L.P. and HealthCare
Ventures, V, L.P.:
Twin Towers at Metro Park
379 Thornall Street
Edison, New Jersey 08837
Fax No.: (908) 906-1450
Attention: Jeffrey Steinberg
with a copy to:
Pepper, Hamilton & Scheetz LLP
1235 Westlakes Drive, Suite 400
Berwyn, Pennsylvania 19312-2401
Fax No.: (610) 640-7835
Attention: Chris Miller
If to APA Excelsior IV, L.P.; APA Excelsior IV/Offshore, L.P.; The P/A Fund,
L.P.; or Patricof Private Investment Club, L.P.:
Patricof & Co. Ventures, Inc.
445 Park Avenue
11th Floor
New York, New York 10022
Fax No.: (212) 319-6155
Attention: Patricia M. Cloherty
with a copy to:
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
20th Floor
New York, NY 10022
Fax No.: (212) 758-9526
Attention: Robert M. Friedman, Esq.
If to Mr. Larry Abrams:
24 Central Park South
New York, New York 10019
Fax No.: (212) 758-2976
<PAGE>
If to Aetna Life Insurance Company:
Aetna Life Insurance Company
151 Farmington Avenue, - RC21
Hartford, CT 06156-9000
Fax No.: (860) 273-8650
Attention: David M. Clarke
If to Axiom Venture Partners, L.P.:
Axiom Venture Partners, L.P.
City Place II, 17/th/ Floor
185 Asylum Street
Hartford, Connecticut 06103
Attention: Samuel F. McKay
Fax No.: (203) 548-7797
If to William Baum:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Benefit Capital Management Corporation:
39 Old Ridgebury Road
Danbury, CT 06817
Fax No.: (203) 794-2693
Attention: Susan DeCarlo
If to Terrance J. Bruggeman:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Mr. Lee S. Casty:
c/o French-American Securities, Inc.
200 West Adams Street
Suite No. 1500
Chicago, IL 60606
Fax No.: (312) 407-5746
<PAGE>
If to The CIT Group/Venture Capital, Inc.:
The CIT Group/Venture Capital, Inc.
650 CIT Drive
Livingston, NJ 07039
Fax No.: (201) 740-5555
Attention: Bruce Schackman
If to CSK Venture Capital Co., Ltd.:
Kenchiku Kaikan 7/th/ Floor
5-26-20 Shiba
Minatoku, Tokyo 108
Japan
Fax No.: 81.03.3457.7070
Attention: Fumio Takahashi
If to The Donald D. Johnston Trust:
The Donald D. Johnston Trust
18 Oyster Shell Lane
Hilton Head Island, SC 29926
Fax No.: (803) 681-6493
Attention: Donald P. Johnston, Trustee
If to Finnfeeds International Limited:
Finnfeeds International Limited
P.O. Box 777
Marlborough, Wiltshire, UK
Fax No.: 44(0)1672517778
Attention: Richard Cooper
with a copy to:
Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005
Fax No.: (212) 732-3232
Attention: Kirstin T. Knight, Esq.
If to Donald C. Garaventi:
330 Indian Harbor Boulevard
Vero Beach, FL 32963
Fax No.: (561) 234-2374
<PAGE>
If to GC&H Investments:
c/o Cooley Godward LLp
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Fax No.: (619) 453-3555
Attention: Wain Fishburn, Esq.
If to Barry Glickman:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Hudson Trust:
c/o Summit Asset Management Company, Inc.
666 Plainsboro Road
Suite 445, The Office Center
Plainsboro, NJ 08536
Fax No.: (609) 275-1892
Attention: Irene S. March
If to Frank Landsberger:
Mojave Therpeutic, Inc.
715 Olde Saw Mill River Road
Terrytown, NY 10591
Fax No.: (914) 347-0292
If to Kenneth F. Logue:
Logue and Rice
8000 Towers Crescent Drive
Suite 650
Vienna, VA 22182-2700
Fax No.: (703) 761-4248
If to Mentus Money Purchase Plan:
Aventine
8910 University Center Lane
Suite 750
San Diego, CA 92122-1085
Fax No.: (619) 455-6872
Attention: Guy Iannuzzi
<PAGE>
If to New York Life Insurance:
51 Madison Avenue
New York, NY 10010
Fax No.: (212) 447-4122
Attention: Himi Kittner
If to Novartis Agribusiness Biotechnology Research, Inc.:
Novartis Agribusiness Biotechnology
Research, Inc.
3054 Cornwallis Road
Research Triangle Park, NC 27709
Fax No.: (919) 541-8585
Attention: Dr. Juanjo Estruch
with a copy to:
Novartis Seeds, Inc.
7240 Holsclaw Road
Gilroy, CA 95020-8027
Fax No.: (408) 848-8129
Attention: Allen E. Norris, Esq.
If to Rho Management Trust II:
Rho Management Trust II
767 Fifth Avenue
43rd Floor
New York, New York 10153
Fax No.: (212) 751-3613
Attention: Joshua Ruch
with a copy to:
Gregory F.W. Todd, Esq.
888 Seventh Avenue, Suite 4500
New York, NY 10019
Fax No.: (212) 246-5151
If to Raymond D. Rice:
Logue and Rice
8000 Towers Crescent Drive
Suite 650
Vienna, VA 22182-2700
Fax No.: (703) 761-4248
<PAGE>
If to Jay M. Short:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to R. Patrick Simms:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
If to Melvin I. Simon
1075 Old Mill Road
Pasadena, CA 91108
Fax No.: (818) 577-9266
If to State of Michigan:
Acting Administrator
State of Michigan
Department of Treasury
Treasury Building
430 West Allegan
Lansing, MI 48922
Fax No.: (517) 335-3668
Attention: Garry Neal
If to Kathleen H. Van Sleen:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
<PAGE>
LIST OF SCHEDULES
Schedule of Series E Investors
Schedule 7.3 - Outstanding Options, Warrants and Rights
Schedule 17 - Notices
LIST OF EXHIBITS
Exhibit A - Quarterly Financial Summary
iv.
<PAGE>
Exhibit A
FORM OF QUARTERLY FINANCIAL SUMMARY
<PAGE>
Exhibit C
AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
AMENDED AND RESTATED VOTING AGREEMENT
This Amended and Restated Voting Agreement dated as of January 25, 1999
(this "Agreement"), by and among Diversa Corporation (the "Company") and the
Preferred Stockholders (defined below) and Common Stockholders (defined below)
who are signatories to this Agreement.
R E C I T A L S:
Whereas, in connection with the purchase and sale of Preferred Stock
(defined below) the Company has entered into certain Preferred Stock Agreements
(defined below) with the Preferred Stockholders;
Whereas, the Company has made certain representations, warranties,
covenants and agreements in the Preferred Stock Agreements, and has granted
certain remedies to the Preferred Stockholders in the Preferred Stock Agreements
and the Certificate of Incorporation (defined below) in the case of an Event of
Noncompliance (defined below); and
Whereas, in order to induce the Preferred Stockholders to enter into the
Preferred Stock Agreements, the Common Stockholders agreed to execute a Voting
Agreement, originally dated as of May 13, 1996, and as amended on July 14, 1997
and October 22, 1997 (the "Prior Voting Agreement"), to allow the Preferred
Stockholders to fully exercise any and all remedies which are available to the
Preferred Stockholders under the Preferred Stock Agreements and under the
Certificate of Incorporation;
Whereas, the Company is entering, or will enter, into a Stock Purchase
Agreement with the investor(s) listed on the Schedule of Series E Investors to
the Stockholders' Agreement (the "Series E Investors") pursuant to which the
Company will sell shares of its Series E Preferred Stock to the Series E
Investors; and
Whereas, in connection with the sale of the Series E Preferred Stock to the
Series E Investors, the Company and the Stockholders desire to terminate the
Prior Voting Agreement in its entirety with such Prior Voting Agreement being
superceded and replaced in its entirety with this Agreement;
Now, Therefore, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Definitions.
"Certificate of Incorporation" shall mean the Seventh Restated Certificate
of Incorporation of the Company, as the same may be restated and
amended from time to time.
"Common Stock" shall mean the Common Stock, $.001 par value per share, of
the Company.
1.
<PAGE>
"Common Stockholder" shall mean each Person who becomes a party to this
Agreement and who has purchased Common Stock from the Company or who acquires
Common Stock upon the conversion or exercise of any securities convertible into
or exercisable for Common Stock, by Transfer or otherwise, or who acquires (by
Transfer or otherwise) any security of the Company convertible into or
exercisable for Common Stock, or who acquires (by Transfer or otherwise) any
other security of the Company which by contract or statute has voting rights.
"Defaulting Stockholder" shall have the meaning set forth in Section 5 of
this Agreement.
"Event of Noncompliance" shall have the meaning set forth in Section 9 of
the Stockholders' Agreement. A summary of certain Events of Noncompliance is
attached hereto as Exhibit A.
"Initial Public Offering" shall mean the Company's initial distribution of
Common Stock in an underwritten public offering to the general public pursuant
to a registration statement filed with and declared effective by the Securities
and Exchange Commission pursuant to the Securities Act at a price per share
which is not less than 300% of the Conversion Price (as defined in the
Certificate of Incorporation) of the Series B Preferred Stock in effect at the
time of such public offering and resulting in gross proceeds (before
underwriting commissions and offering expenses) to the Company of not less than
$15 million.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, trust association, unincorporated
organization, other entity, or governmental body.
"Preferred Stock" shall mean the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock.
"Preferred Stock Agreements" shall mean, collectively, the Series A
Preferred Stock Purchase Agreement, the Series B Preferred Stock Purchase
Agreement, the Series C Preferred Stock Purchase Agreement, the Series D
Preferred Stock Purchase Agreement and the Stockholders' Agreement.
"Preferred Stockholder" shall mean any holder of Preferred Stock and any
Person to whom shares of Preferred Stock are Transferred and who becomes a party
to the Stockholders' Agreement.
"Preferred Stock Designee" shall mean the person appointed by the holders
of at least 75% in interest of the Preferred Stock voting together as a class.
In the event the Preferred Stockholders elect not to appoint a Preferred Stock
Designee, then references to the Preferred Stock Designee shall be deemed
references to the Preferred Stockholders and action to be taken by the Preferred
Stock Designee may be taken by the holders of at least 75% in interest of the
Preferred Stock, voting together as a class.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
successor statute and the rules and regulations of the Securities and Exchange
Commission thereunder, as shall be in effect at the applicable time.
2.
<PAGE>
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series A Preferred Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of December 21, 1994 by and among Industrial Genome
Sciences, Inc. and the parties thereto, as amended by the Stock Purchase
Agreement and Amendment to Stock Purchase Agreement, dated March 15, 1995 by and
among Industrial BioCatalysis Corporation and the parties thereto, as amended by
the Stock Purchase Agreement and Amendment to Stock Purchase Agreement dated
July 28, 1995 by and among Recombinant BioCatalysis, Inc. and the parties
thereto, as amended by Amendment No. 3 to the Stock Purchase Agreement dated May
13, 1996 by and among Diversa Corporation and the parties thereto.
"Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series B Preferred Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of May 13, 1996, by and among the Company and the purchasers
of the Series B Preferred Stock named therein.
"Series C Preferred Stock" shall mean the Series C Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series C Preferred Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of July 14, 1997, by and between the Company and Finnfeeds
International Limited.
"Series D Preferred Stock" shall mean the Series D Convertible Preferred
Stock, $.001 par value per share, of the Company.
"Series D Preferred Stock Purchase Agreement" shall mean the Stock Purchase
Agreement, dated as of October 22, 1997, by and between the Company and the
Series D Investors named therein.
"Series E Preferred Stock" shall mean the Series E Preferred Stock, $.001
par value per share, of the Company.
"Shares" shall mean and include all shares of voting capital stock,
including without limitation the Common Stock, of the Company now owned or
hereafter acquired by any Common Stockholder or transferee of such Stockholder
and any other security of the Company which by contract or statute has voting
rights.
"Stockholders' Agreement" shall mean the Amended and Restated Stockholders'
Agreement, dated of even date herewith, between the Company and the Stockholders
named therein, as the same may be amended from time to time, a copy of which is
on file at the offices of the Company.
"Transfer" shall include any sale, assignment, transfer, pledge,
encumbrance, or other disposition of, or the subjecting to a security interest
of, any Common Stock subject to this
3.
<PAGE>
Agreement, or any disposition of any Common Stock subject to this Agreement or
of any interest therein which would constitute a sale thereof within the meaning
of the Securities Act.
2. Term. This Agreement shall expire upon the earlier of (i) the closing
of the Initial Public Offering, or (ii) the date on which there are no
longer outstanding any shares of Preferred Stock.
3. Representations, Warranties and Covenants.
(a) Notwithstanding any provisions to the contrary in any other agreement,
each Common Stockholder agrees that, until this Voting Agreement has been
terminated, each Common Stockholder shall not Transfer any Shares, unless the
proposed transferee of such Shares agrees to become a signatory to this
Agreement.
(b) Each Common Stockholder hereby represents that he, she or it entered
into the Prior Agreement and is entering into this Agreement to enable the
Company to sell its Preferred Stock and to induce Preferred Stockholders to
enter into the Preferred Stock Agreements and to approve the Certificate of
Incorporation.
(c) The Company agrees that it shall not issue any Shares (other than
Shares issuable upon the exercise or conversion of currently outstanding
securities of the Company) to any Person unless as a condition precedent to such
issuance such Person shall execute a counterpart copy of this Agreement (unless
such Person is already a party to this Agreement).
4. Voting and Proxy
(a) If an Event of Noncompliance shall have been declared in accordance
with the Stockholders' Agreement, then, with respect to all actions to be taken
by the Company or its stockholders (whether by proxy or consent) on which the
Common Stockholders have the right, by statute or otherwise, to vote, whether as
a separate class or together with other classes of the Company's capital stock,
each Common Stockholder hereby irrevocably (i) makes, constitutes and appoints
the Preferred Stock Designee to act as such Common Stockholder's true and lawful
proxy and attorney-in-fact in the name and on behalf of such Common Stockholder,
with full power to appoint a substitute or substitutes with respect to the
Shares owned by such Common Stockholder, (ii) directs the Preferred Stock
Designee to vote the Shares owned by such Common Stockholder, at any time and
from time to time, with respect to all actions to be taken by the Company or its
stockholders (whether by proxy or consent) on which the Common Stockholders have
the right, by statute or otherwise, to vote, whether as a separate class or
together with other classes of the Company's capital stock, in the place and
stead of the Common Stockholder and (iii) agrees to cooperate generally with the
Preferred Stock Designee and the Preferred Stockholders in implementing the
decisions of the Preferred Stockholders with respect to the future course of the
Company. By giving this proxy each Common Stockholder hereby revokes any other
proxy granted by such Common Stockholder to vote any of the Shares owned by him,
her or it. The proxy granted herein shall expire on the date of termination of
this Agreement.
(b) All power and authority hereby conferred is coupled with an interest
and is irrevocable, shall not be terminated by any act of the Common
Stockholders or any of them or by operation of law, by lack of appropriate power
or authority, or by the occurrence of any other event or events and shall be
binding upon all beneficiaries, heirs at law, legatees, distributees,
successors,
4.
<PAGE>
assigns and legal representatives of any of the Common Stockholders. If after
the execution of this Agreement any holder of Common Stock shall cease to have
appropriate power or authority, or if any other such event or events shall
occur, the Preferred Stock Designee is nevertheless authorized and directed to
vote any Shares owned by a Defaulting Stockholder in accordance with the terms
of this Agreement as if such lack of appropriate power or authority or other
event or events had not occurred and regardless of notice thereof.
(c) Each Common Stockholder agrees to use good faith efforts to cause any
record owner of Common Stock of which the Common Stockholder is the sole (or
jointly with spouse) beneficial owner to grant to the Preferred Stock Designee a
proxy of the same effect as that contained herein. Each Common Stockholder shall
perform such further acts and execute such further documents as may be required
to vest in the Preferred Stock Designee the sole power to vote any shares owned
by such Common Stockholder as required herein.
(d) In the event any recapitalization, reorganization, sale of assets or
other transaction is approved by means of the proxy granted hereunder, the
Company shall obtain a valuation which allocates the total consideration to be
received by the respective classes of equity securities of the Company in any
such transaction. Any such valuation shall be made by a reputable, independent
investment banking firm, or other reputable, independent firm experienced in
valuations, selected by the Preferred Stockholders.
5. Further Assurances. Each party hereto shall perform such further acts and
execute such further documents as may be required to carry out the provisions of
this Agreement.
6. Assignment. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. None of the
Common Stockholders shall assign any rights or delegate any duties hereunder
without the prior written consent of the holders of at least 75% in interest of
the Preferred Stock, voting together as a class, and any assignment made without
such consent shall be void and constitute a default hereunder.
7. Specific Performance. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the Preferred Stockholders shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof or thereof in any court of the
United States or any state thereof having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity, and the
Common Stockholder(s) waive(s) any requirement that any or all Preferred
Stockholders post any bond as a condition to seeking or obtaining equitable
relief.
8. Notices. Any notice, demand, request, waiver, or other communication under
this Agreement shall be in writing (including facsimile or similar writing) and
shall be deemed to have been duly given (i) on the date of service if personally
served, (ii) on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid, (iii) on the next day after sending, if sent by
overnight service, or (iv) on the date sent if sent by facsimile, to the parties
at the following addresses or facsimile numbers with a copy sent by mail as
aforesaid on the same date (or at such other address or facsimile number for a
party as shall be specified by like notice):
5.
<PAGE>
If to the Company:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Fax No.: (619) 623-5180
Attention: Chief Executive Officer
with a copy to:
Cooley Godward LLP
4365 Executive Drive,
Suite 1100
San Diego, CA 92121
Telecopier: (619) 453-3555
Attention: M. Wainwright Fishburn, Esq.
If to a Preferred Stockholder to the address listed for such Preferred
Stockholder in the Stockholders' Agreement. If to a Common Stockholder to the
address listed for such Common Stockholder in the books and records of the
Company.
9. Severability. In the event that any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, in whole or in part, the validity of the remaining
provisions shall not be affected and the remaining portion of any provision held
to be invalid, illegal or unenforceable shall in no way be affected, prejudiced
or disturbed thereby.
10. Termination of Prior Agreement. The parties hereto, including the Company
and the holders of at least 75% in interest of the outstanding shares of
Preferred Stock, voting together as a class, hereby agree that all rights
granted and covenants made under the Prior Agreement are hereby waived, released
and terminated in their entirety and shall have no further force or effect
whatsoever. The rights and covenants provided herein set forth the sole and
entire agreement between the parties hereto with respect to the subject matter
hereof.
11. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, and all of which together shall constitute a single
agreement.
12. Governing Law. This Agreement shall be construed in accordance with, and
governed by, the internal laws of the State of Delaware, without giving effect
to the principles of conflict of laws thereof. Any legal action, suit or
proceeding arising out of or relating to this Agreement may be instituted in any
state or federal court located within the County of New York, State of New York,
and each party hereto agrees not to assert, by way of motion, as a defense, or
otherwise, in any such action, suit or proceeding, any claim that it is not
subject personally to the jurisdiction of such court or that such court is an
inconvenient forum, that the venue of the action, suit or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by
such court. Each party hereto further irrevocably submits to the jurisdiction of
any such court in any such action, suit or proceeding.
6.
<PAGE>
13. No Third Party Beneficiaries. This Agreement shall not confer any rights or
remedies upon any Person other than the parties hereto and their respective
successors and permitted assigns.
14. Amendments. The terms and provisions of this Agreement may be modified,
altered, supplemented or amended, and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least 75% in interest of the outstanding Preferred Stock, voting together as
a class. Any modification, alteration, supplement, amendment or waiver effected
in accordance with this Section 13 shall be binding upon each Preferred
Stockholder and Common Stockholder who are signatories hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7.
<PAGE>
EXHIBIT A/1/
Events of Noncompliance
Occurrence of Event of Noncompliance. An event of noncompliance (an "Event
of Noncompliance") hereunder shall occur if:
(a) the Company fails in any material respect to perform or
observe any of the covenants contained in this Stockholders' Agreement, the
Series A Stock Purchase Agreement, the Series B Stock Purchase Agreement,
the Series C Stock Purchase Agreement, or the Series D Stock Purchase
Agreement, or fails in any material respect to comply with any of the
provisions of this Stockholders' Agreement, the Series A Stock Purchase
Agreement, the Series B Stock Purchase Agreement, the Series C Stock
Purchase Agreement, the Series D Stock Purchase Agreement or of its Charter
applicable to the Preferred Shares or the Registrable Securities;
(b) the Company's representations and warranties contained in
this Stockholders' Agreement, the Series A Stock Purchase Agreement
(including the Schedules and Exhibits attached thereto), the Series B Stock
Purchase Agreement (including the Schedules and Exhibits attached thereto),
the Series C Stock Purchase Agreement (including the Schedules and Exhibits
attached thereto) or the Series D Stock Purchase Agreement (including the
Schedules and Exhibits attached thereto) shall be untrue or misleading in
any material respect as of the time when made or as of the closings of such
agreements;
(c) the Company shall become insolvent, make an assignment for
the benefit of its creditors, call a meeting of its creditors to obtain any
general financial accommodation or suspend business; any material
obligation of the Company shall be accelerated or shall not be paid when
due; any judicial judgment or settlement shall be outstanding, or a case
under any provision of Title 11 of the United States Code, 11 U.S.C. (S)
101 et seq. (the "Bankruptcy Code"), or any comparable law of any
jurisdiction, including provisions for receivership or reorganization,
shall be commenced by or against the Company which, in the case of an
action being commenced against the Company under the Bankruptcy Code, shall
remain unstayed or undismissed for a period of sixty (60) days;
(d) the Company fails to complete, on or before May 13, 2001
either: (i) an Initial Public Offering, (ii) a sale, liquidation or
dissolution of the Company, or (iii) a sale, transfer or disposition of
substantially all of the assets of the Company;
(e) the Company (x) incurs Indebtedness or Commitments in
violation of Section 7.1 hereto, (y) pays dividends in violation of Section
7.2 hereto, and/or (z) issues shares of Capital Stock in violation of
Section 7.3 hereto/2/;
- ----------------------------
/1/ Capitalized terms used but not otherwise defined herein shall have the
meaning ascribed to them in the Stockholder's Agreement.
/2/ References are to Sections 7.1, 7.2 and 7.3 of the Stockholder's Agreement.
A-1
<PAGE>
(f) a default or an event of default shall occur or exist with
respect to any debt or indebtedness of the Company; or
(g) a default or an event of default shall occur or exist with
respect to any material contract of the Company, which default could give
rise to a material claim by a third party against the Company or the
Company's assets.
A-2
<PAGE>
Exhibit D
MEMORANDUM REGARDING STOCK PURCHASE AGREEMENT
<PAGE>
MEMORANDUM REGARDING STOCK PURCHASE AGREEMENT
---------------------------------------------
In connection with the Stock Purchase Agreement between Novartis
Agribusiness Biotechnology Research, Inc. ("Novartis") and Diversa Corporation
("Diversa"), dated as of January __, 1999, pursuant to which Novartis is
purchasing 5,555,556 shares of Series E Preferred Stock of Diversa, Diversa
declares that for an aggregate amount of $12,500,001 (the "Transaction Amount")
that [****] of such Transaction Amount reflects a fee for access to the Diversa
technology specified in the Collaboration Agreement between Novartis and
Diversa, dated as of January 25, 1999 (the "Collaboration Agreement") that is in
existence as of the date of the Collaboration Agreement, and [****] of such
Transaction Amount reflects payment of research funding for the [****] full time
equivalent personnel of Diversa on an annualized basis under the Collaboration
Agreement.
DIVERSA CORPORATION
By:_______________________
Kathleen H. Van Sleen
Chief Financial Officer
Date: January 25, 1999
Acknowledgement: Novartis Agribusiness Biotechnology Research, Inc. acknowledges
that the above statement accurately reflects its understanding of the financial
allocation of the aggregate amount of the transaction specified.
NOVARTIS AGRIBUSINESS BIOTECHNOLOGY
RESEARCH, INC.
By:________________________________
Title:_____________________________
Date: January 25, 1999
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
EXHIBIT 10.20
COLLABORATION AGREEMENT
This Collaboration Agreement (the "Agreement") entered into as of June 28,
1999 (the "Effective Date"), is by and between Rhone-Poulenc Animal Nutrition
S.A. ("RPAN"), a French corporation with headquarters located at 42 avenue
Aristide Briand, 92160 Antony (France), and Diversa Corporation ("Diversa") a
Delaware corporation with headquarters located at 10665 Sorrento Valley Road,
San Diego, California 92121, collectively the ("Parties").
Whereas, Diversa has expertise in the discovery and development of, and has
discovered and developed enzymes, as well as proprietary technologies for the
rapid discovery, development and optimization of enzymes;
Whereas, RPAN has expertise in the use of enzymes and in particular for the
production of [*****].
Whereas, RPAN and Diversa wish to collaborate to discover and develop a
[*****] to be used in the production of [*****] as set forth in the project plan
attached hereto as Exhibit A (the "Project Plan").
Now, Therefore, in consideration of the mutual covenants set forth in this
Agreement, the Parties hereby agree as follows:
1. Definitions
"Base Catalyst" means the catalyst provided by RPAN to Diversa comprising
the RPAN Enzyme (defined below) immobilized in [*****].
"Catalyst" means the catalyst comprising an Option Enzyme (defined below)
or a Licensed Enzyme (defined below) immobilized in [*****].
"Catalyst Activity" means activity obtained in Phase V of the enzyme
performance assessment procedure as set forth in Exhibit B hereto.
"Derivative Enzyme" means any derivative of the Licensed Enzyme derived
through Diversa's application of the Evolution Technology or any [*****]
discovered through the use of the RPAN Enzyme in the Hybridization Technology.
"Enzyme" means any [*****] discovered and/or developed by Diversa for RPAN
during the course of the collaboration.
"[*****]" [*****].
"[*****]" [*****].
"Licensed Enzyme" means the Option Enzyme licensed to RPAN upon exercise of
the Option.
"Option Enzyme" means the Enzyme provided by Diversa to RPAN for evaluation
under the Project Plan.
"Product" means [*****].
1. *Confidential Treatment Requested
<PAGE>
"RPAN Enzyme" means the [*****] provided by RPAN to Diversa under this
Agreement.
2. Collaboration
RPAN and Diversa shall collaborate to discover and develop an enzyme having
[*****] activity to be used in the Catalyst to produce the Product as set forth
in the project plan attached hereto as Exhibit A (the "Project Plan").
3. Option
3.1 Option Grant. Subject to the terms and conditions of this Agreement,
Diversa will grant to RPAN an exclusive option (the "Option") to obtain an
exclusive, worldwide, royalty-bearing license (the "License") under Section 4.1
to use one of the Option Enzymes to produce the Catalyst and the Product.
3.2 Option Period. The Option will commence immediately upon delivery of
the Option Enzymes satisfying the criteria set forth in the Project Plan, and
remain in effect for a period of [*****] thereafter (the "Option Period").
3.3 Exercise of Option. RPAN may exercise the Option by providing Diversa
written notice of the exercise of such Option at any time during the Option
Period. If RPAN does not exercise the Option during the Option Period, the
Option shall expire, and RPAN shall have no further rights thereunder and both
parties shall return or destroy all forms of Confidential Information provided
to the other party under this Agreement relating to the discovery and
development of the Option Enzymes subject to such Option, within [*****] after
such expiration.
4. License Terms
4.1 License Grant. Upon exercise of the Option, and payment of the license
fee set forth in Section 5.2 herein, Diversa will grant to RPAN an exclusive,
worldwide license, including the right to grant sublicenses, to use the Licensed
Enzyme to the extent necessary to make and have made the Catalyst to use in the
production of the Product (the "License").
4.2 Term of license. The License will become effective upon payment of the
license fee as set forth in Section 5.2 and will continue, in any country, until
the expiration of the last to expire patent rights covering the Licensed Enzyme
in any country (the "Royalty Term").
4.3 Right to Sublicense. RPAN will have the right to grant sublicenses to
affiliates and third parties, provided that the terms of such sublicenses are
consistent with the terms of this Agreement.
4.4 [*****].
2. *Confidential Treatment Requested
<PAGE>
5. Payments
5.1 Research Funding Payment. Upon execution of the Collaboration
Agreement, RPAN will pay [*****] to Diversa, a payment which is estimated to by
[*****] of the total costs required to conduct the research hereunder. Diversa
will fund the remaining [*****] of such costs.
5.2 License Fee. Upon RPAN's exercise of the Option as set forth in
Section 3, it will pay Diversa a non-refundable license fee of [*****].
5.3 Royalties. RPAN will pay Diversa a royalty equal to [*****] of the
cost savings ("Cost Savings") generated by using the Licensed Enzyme in the
Catalyst to make the Product. The Cost Savings will be calculated from the work
performed in Phase V of the Enzyme Performance Assessment Procedure defined in
Exhibit B attached hereto. Further, the [*****]. In the event the Catalyst
demonstrates [*****] and a [*****] over the Base Catalyst, as determined from
the tests performed under Exhibit B, RPAN will pay Diversa a royalty of [*****]
of Product produced by RPAN, its affiliates or sublicensees. Said payment shall
be based on estimated cost savings in the Catalyst of approximately [*****] of
Product produced. RPAN and Diversa will mutually agree upon the applicable
royalty payable to Diversa for [*****]. Such agreed upon royalty shall be in
writing and attached hereto as an addendum. For increases in [*****], the
royalty will be equal to [*****] (See Exhibit C).
5.4 Royalty Period. Royalties shall be paid on a [*****] basis. Each
[*****] in which the Cost Savings are generated from the use of Licensed Enzymes
in the production of the Product shall be a "Royalty Period". Royalties are
payable within [*****] after the end of each Royalty Period.
5.5 Reports. At the same time as each royalty payment is due, RPAN shall
deliver to Diversa a report based upon the Royalty Period for which the payment
is due, containing the following information:
(a) Cost Savings generated during the applicable Royalty Period;
(b) Calculation of amount due to Diversa.
All amounts payable under this Section will first be calculated in the currency
of sale and then converted into U.S. dollars. The buying rates involved for the
currency of the United States into which the currencies involved are being
exchanged shall be the one quoted by The Wall Street Journal at the close of
-----------------------
business on the last business day of the applicable Royalty Period. Such amounts
shall be paid without deduction, except as required by law, of any withholding
taxes, value-added taxes, or other charges applicable to such payments
5.6 Records. RPAN shall maintain complete and accurate records of the
Licensed Enzyme used or sold by them or their Sublicensees under this Agreement,
and any amounts payable to Diversa in relation such use or sale, which records
shall contain sufficient information for Diversa to confirm the accuracy of such
records. RPAN shall retain such records for at least [*****] after the
conclusion of the Royalty Term. Diversa (acting as the "Auditing Party") shall
have the right, at its own expense, to cause an independent certified public
3. *Confidential Treatment Requested
<PAGE>
accountant reasonably acceptable to RPAN, to inspect such records of RPAN (the
"Audited Party") during normal business hours for the sole purpose of verifying
any reports and payments delivered under this Agreement. Such accountant shall
not disclose to the Auditing Party any information other than information
relating to accuracy of reports and payments delivered under this Agreement and
shall provide the Audited Party with a copy of any report given to the Auditing
Party. The Parties shall reconcile any underpayment or overpayment within
[*****] after the accountant delivers the results of the audit. The Auditing
Party shall bear the full cost of the audit unless, the audit performed under
this Section reveals an underpayment in excess of [*****] in any period, in
which case the Audited Party shall bear the full cost of such audit. Diversa may
exercise its rights under this Section only once every year and only with
reasonable prior notice to RPAN.
5.7 [*****]. In the event RPAN wishes to exercise such option, the parties
shall negotiate in good faith [*****] which shall be based on, but not limited
to, [*****]. This [*****] shall also take into consideration [*****]
6. Confidentiality
6.1 Definition of Confidential Information. Confidential Information shall
mean any technical or business information, whether orally or in writing,
furnished by either party (the "Disclosing Party") to the other Party (the
"Receiving Party") in connection with this Agreement. Such Confidential
Information shall include, without limitation, the existence and terms of this
Agreement, the identity of an Enzyme, the Enzyme, any gene encoding such Enzyme,
if relevant, the use of an Enzyme, trade secrets, know-how, inventions,
technical data or specifications, testing methods, business or financial
information, research and development activities, product and marketing plans,
and customer and supplier information, including, but not limited to, such items
that become known to a Party during visits to the facilities of the other Party.
6.2 Obligations. The Receiving Party agrees that it shall:
(a) Maintain all Confidential Information in strict confidence,
except that the Receiving Party may disclose or permit the disclosure of any
Confidential Information to its directors, officers, employees, consultants and
advisors who are obligated to maintain the confidential nature of such
Confidential Information and who need to know such Confidential Information for
the purposes set forth in this Agreement;
(b) Use all Confidential Information solely for the purposes set
forth in, or as permitted by, this Agreement; and
(c) Allow its directors, officers, employees, consultants and
advisors to reproduce the Confidential Information only to the extent necessary
to effect the purposes set forth in this Agreement, with all such reproductions
being considered Confidential Information.
Each Party shall be responsible for any breaches of this Section 6.2. by any of
its directors, officers, employees, consultants and advisors.
6.3 Exceptions. The obligations of the Receiving Party under Section 6.2.
above shall not apply to any specific Confidential Information to the extent
that the Receiving Party can demonstrate that such Confidential Information:
4. *Confidential Treatment Requested
<PAGE>
(a) Was in the public domain prior to the time of its disclosure
under this Agreement;
(b) Entered the public domain after the time of its disclosure under
this Agreement through means other than an unauthorized disclosure resulting
from an act or omission by the Receiving Party or its directors, officers,
employees, consultants, advisors or agents;
(c) Was or is independently developed or discovered by the Receiving
Party without use of the Confidential Information, and which can be demonstrated
by written record;
(d) Is or was disclosed to the Receiving Party at any time, whether
prior to or after the time of its disclosure under this Agreement, by a third
party having no fiduciary relationship with the Disclosing Party and having no
obligation of confidentiality to the Disclosing Party with respect to such
Confidential Information; or
(e) Is required to be disclosed to comply with applicable laws or
regulations (such as disclosure to the SEC, the EPA, the FDA, or the United
States Patent and Trademark Office or to their foreign equivalents), or to
comply with a court or administrative order, provided that the Disclosing Party
receives prior written notice of such disclosure and that the Receiving Party
takes all reasonable and lawful actions to obtain confidential treatment for
such disclosure and, if possible, to minimize the extent of such disclosure.
6.4 Survival of Obligations. The obligations set forth in Sections 6.1,
6.2 and 6.3 shall remain in effect after termination or expiration of this
Agreement for a period of [*****].
6.5 Public Announcement. The Parties shall issue a joint press release
regarding this Agreement, the text of which shall be subject to mutual agreement
of the Parties. Except for the information disclosed in the joint press release,
neither party shall use the name of the other party or reveal the existence of
or terms of this Agreement in any publicity or advertising without the prior
written approval of the other party, except that (i) either party may use the
text of a written statement approved in advance by both parties without further
approval, and (ii) either party shall have the right to identify the other party
and to disclose the terms of this Agreement as required by applicable securities
laws or other applicable law or regulation, provided that the receiving party
takes reasonable and lawful actions to minimize the degree of such disclosure.
7. Intellectual Property
7.1 Ownership of Inventions. All intellectual property rights which are in
the possession of either party as of the Effective Date of this Agreement will
remain in the possession of that party. Ownership of inventions conceived of or
reduced to practice during the course of the collaboration (the "Inventions")
will be as follows:
Inventions involving [*****].
. Diversa shall own all Inventions claiming [*****].
. RPAN will own all Inventions claiming [*****].
Inventions involving [*****].
. Diversa will own all Inventions relating to [*****].
5. *Confidential Treatment Requested
<PAGE>
. Diversa will own all Inventions relating to any [*****], provided,
however, that Diversa (i) will not use, or grant any third party the
right to use, any such [*****] that incorporates or was designed and/or
developed using any information or materials provided [*****] and (ii)
will grant RPAN a [*****] to use any such [****].
. RPAN will own all Inventions relating to [*****].
7.2 Other Inventions. Except as specifically provided above, ownership of
all other Inventions will be determined in accordance with the rules of
inventorship under United States patent law.
8. Patent Matters
8.1 Responsibilities. Each party will be responsible for filing,
prosecuting, maintaining, defending and enforcing any patent applications,
patents and other intellectual property rights owned by such party, and the
parties will decide upon mutual agreement which party will be responsible for
filing, prosecuting, maintaining, defending and enforcing any patent
applications, patents and other intellectual property rights owned jointly by
the parties on a case by case basis.
8.2 In the event that either party desires to abandon any patent
application, patent or other intellectual property right involving the [*****],
or if such party later declines responsibility for any such patent application,
patent or other intellectual property right, such party shall provide reasonable
prior written notice to the other party of such intention to abandon or decline
responsibility, and the other party shall have the right, at its own expense, to
file, prosecute, and maintain such patent application, patent or other
intellectual property right.
9. Term and Termination
9.1 Term. The term of this Agreement shall begin as of the Effective Date
and shall continue until the expiration of the Option Period, provided, however,
that if the Option is exercised, this Agreement shall continue until the last
day of the Royalty Term, unless earlier terminated as set forth below.
9.2 Termination.
9.2.1 Mutual Consent. This Agreement may be terminated at any time by
mutual written agreement of the Parties.
9.2.2 Material Breach. In the event that a Party commits a material
breach of any of its obligations under this Agreement and such Party fails (i)
to remedy that breach within thirty (30) days after receiving written notice
thereof from the other Party or (ii) to commence dispute resolution pursuant to
Section 10.3, within thirty (30) days after receiving written notice of that
breach from the other Party, the other Party may immediately terminate this
Agreement upon written notice to the breaching Party.
9.3 Disposition of Confidential Information. In the event of termination
or expiration of this Agreement, the Parties shall return or destroy all forms
of Confidential Information provided to them under this Agreement, within
[*****] after such termination or expiration, provided, however, that each Party
may retain one copy of such Confidential Information for record keeping purposes
only.
6. *Confidential Treatment Requested
<PAGE>
9.4 Effect of Termination or Expiration. Termination or expiration of this
Agreement shall not relieve the parties of any obligation accruing prior to such
termination or expiration and shall not terminate any License granted or License
Agreement entered into prior to such termination or expiration. The provisions
of Sections 5.6, Articles 6 and 7 shall survive the expiration or termination of
this Agreement.
10. Miscellaneous
10.1 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the parties. No party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.
10.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of [*****] other than those provisions
governing conflicts of law.
10.3 Dispute Resolution Procedures. The Parties recognize that disputes as
to certain matters may from time to time arise which relate to either Party's
rights and/or obligations hereunder. It is the objective of the Parties to
establish procedures to facilitate the resolution of such disputes in an
expedient manner by mutual cooperation and without resort to litigation. To
accomplish this objective, the Parties agree to follow the procedures set forth
in this Section 10.3 if and when such a dispute arises between the Parties. If a
dispute arises between the Parties relating to the interpretation or performance
of this Agreement or the grounds for the termination thereof, the Parties agree
to hold a meeting, attended by individuals with decision-making authority
regarding the dispute, to attempt in good faith to negotiate a resolution of the
dispute prior to pursuing other available remedies. If, within [*****] after
such meeting, the Parties have not succeeded in negotiating a resolution of the
dispute, such dispute shall be finally settled only in San Diego, California, in
accordance with the rules and procedures of the American Arbitration Association
by three arbitrators knowledgeable as to biotechnology industry standards. Each
Party shall select one arbitrator [*****] after the institution of the
arbitration proceeding and the third arbitrator will be selected by mutual
agreement of the other two arbitrators within [*****] of the appointment of the
two arbitrators selected by the Parties. All of the arbitrators will be neutral,
impartial, independent of the Parties and others having any known interest in
the outcome; will abide by the ABA and AAA Cannons of Ethics for neutral
arbitrators, and will have no ex parte communications about the case or about
the appointment of the third arbitrator or the arbitrator's views on matters of
law with either Party in the appointing process or otherwise during the pendency
of the arbitration. The Parties shall bear the costs of arbitration equally
unless the arbitrators, pursuant to their right, but not their obligation,
require the non-prevailing Party to bear all or any unequal portion of the
prevailing Party's costs. The arbitrators shall prepare and deliver a written,
reasoned opinion conferring their decision within [*****] of the final
arbitration hearing. The arbitrators shall not have the power to award punitive
damages under this Agreement and such an award is expressly prohibited. The
decision of the arbitrators shall be final and binding on all of the Parties.
Judgment on the award so rendered may be entered in any court of competent
jurisdiction at the option of the successful Party. The rights and obligations
of the Parties to arbitrate any dispute relating to the interpretation or
performance of this Agreement or the grounds for the termination thereof shall
survive the expiration or termination of this Agreement for any reason.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
10.5 Headings. All headings in this Agreement are for convenience only and
shall not affect the meaning of any provision hereof.
7. *Confidential Treatment Requested
<PAGE>
10.6 Binding Effect. This Agreement and all rights and obligations
hereunder shall inure to the benefit of and be binding upon the Parties, their
Affiliates, and their respective lawful successors and assigns.
10.7 Assignment. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder will be assignable in part or in whole by
any Party without the prior written consent of the other Party; provided,
however, that either Party may assign this Agreement to any of its Affiliates or
to any successor by merger or sale of substantially all of its business to which
this Agreement relates This Agreement will be binding upon the successors and
permitted assigns of the Parties. Any assignment which is not in accordance with
this Section will be void.
10.8 Notices. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized international overnight courier, confirmed
facsimile transmission, or registered or certified mail, return receipt
requested, postage prepaid to the following addresses or facsimile numbers:
If to RPAN: If to Diversa:
RPAN Diversa Corporation
42 avenue Aristide Briand 10665 Sorrento Valley Road
92160 Antony, France San Diego, California 92121
Attention: Research Director Attention: Carolyn Erickson
Copy: General Counsel - Tel: (619) 623-5104
Legal Department Fax: (619) 623-5180
Tel: (33) 1-46-74-70-00
Fax: (33) 1-40-96-96-96
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.
10.9 Amendment and Waiver. This Agreement may be amended, supplemented, or
otherwise modified only by means of a written instrument signed by the Parties.
Any waiver of any rights or failure to act in a specific instance shall relate
only to such instance and shall not be construed as an agreement to waive any
rights or fail to act in any other instance, whether or not similar.
10.10 Severability. In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and the parties shall negotiate in good faith to modify the Agreement to
preserve (to the extent possible) their original intent.
10.11 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings between the parties relating to the subject
matter hereof.
10.12 Regulatory Filings. RPAN shall have sole responsibility for making
all regulatory filings worldwide, including, without limitation, obtaining the
necessary approvals to market Products. Diversa will cooperate to provide
information required to make and maintain such filings, as appropriate,
8. *Confidential Treatment Requested
<PAGE>
by either party by registered airmail or by telefax. In case of such termination
the terminating party will not be required to pay to the other party any
indemnity whatsoever.
Accepted and Agreed to:
<TABLE>
<S> <C>
Rhone-Poulenc Animal Nutrition Diversa Corporation
Signature: /s/ Bernard Le Roux Signature: /s/ Jay M. Short
------------------------ -----------------------------------------------------------
Name: Bernard Le Roux Name: Jay M. Short
----------------------------- ----------------------------------------------------------------
Title: V.P. R & D RPAN Title: President Chief Executive Officer and Chief Technology Officer
---------------------------- ---------------------------------------------------------------
Date: July 8, 1999 Date: June 28, 1999
----------------------------- ----------------------------------------------------------------
</TABLE>
9. *Confidential Treatment Requested
<PAGE>
Exhibit A - Project Plan
PARTNERSHIP PROJECT R&D PLAN
Discovery of a [*****] for the [*****] for use as a [*****]
Background:
[*****]
[*****]
[*****]
[*****]
[*****]
1. [*****]
2. [*****]
3. [*****]
4. [*****]
5. [*****]
RPAN: Project Performance and Delivery:
1. [*****]
2. [*****]
3. [*****]
4. [*****]
5. [*****]
6. [*****]
7. [*****]
8. [*****]
10. *Confidential Treatment Requested
<PAGE>
Diversa: Project Performance and Delivery:
1. [*****]
2. [*****]
Diversa Effort
[*****]
[*****]
11. *Confidential Treatment Requested
<PAGE>
Exhibit B
RPAN's ENZYME PERFORMANCE ASSESSMENT PROCEDURE
Phase 1: [*****]
1. [*****]
2. [*****]
Approximate Time Required:
[*****]
[*****]
Phase II: [*****]
[*****]
3. [*****]
Approximate Time Required:
[*****]
Phase III: [*****]
1. [*****]
Approximate Time Required:
[*****]
Phase IV: [*****]
1. [*****]
Approximate Time Required
[*****]
Phase V: [*****]
1. [*****]
2. [*****]
Approximate Time Required:
[*****]
[*****]
12. *Confidential Treatment Requested
<PAGE>
Exhibit C
[*****]
[*****]
C-1. *Confidential Treatment Requested
<PAGE>
Exhibit D
LIST OF RELATED MOLECULES
[*****]
D-1. *Confidential Treatment Requested
<PAGE>
EXHIBIT 10.21
LICENSE AGREEMENT
This Agreement is made as of the 29/th/ day of March, 1999 by and between
Invitrogen Corporation, a corporation organized and existing under the laws of
the State of Delaware, with principal offices located at 1600 Faraday Avenue,
Carlsbad, California, 92008, ("Licensor") and Diversa Corporation, having its
principal place of business 10665 Sorrento Valley Road, San Diego, CA 92121
("Licensee").
1. Definitions
1.1 Affiliate means any business entity controlled by or under common
control with Licensee. For the purposes hereof, "control" shall mean, as to any
entity, effective ownership of greater than [*****] of the [*****].
1.2 Licensed Patent Rights means the United States Patent Application
[*****] and [*****] licensed to Licensor, including all [*****] and [*****] Said
list will be periodically updated by Licensor.
1.3 Licensed Products means any [*****] or any [*****].
1.4 Net Sales means the dollar amount of [*****] of Licensed Product(s) by
Licensee and/or Affiliates, less [*****].
1.5 Effective Date means the first date appearing above.
1.6 Field Of Use means [*****]. For purposes of this paragraph "Licensee's
proprietary technology" shall mean technology within the ambit of any claim in
an issued or pending patent claim of [*****] and any [*****].
1.7 Territory means the world.
2. License Grant
2.1 Licensor hereby grants to Licensee and Licensee accepts, subject to
the terms and conditions of this Agreement, an exclusive license to practice
Licensed Patent Rights in the Field Of Use in order to make, but not to have
made, use, and sell Licensed Products throughout the Territory for the term of
this Agreement.
1. *Confidential Treatment Requested
<PAGE>
2.2 Additionally, Licensor hereby grants to Licensee and Licensee accepts,
subject to the terms and conditions of this Agreement, a non-exclusive license
to use Licensed Patent Rights for [*****] for Licensee's [*****]. "[*****]"
shall include [*****] and excludes [*****] Notwithstanding the foregoing,
Licensee shall be free to commercialize any product resulting from Licensee's
use of the Licensed Patent Rights in its research and discovery without
incurring any further royalty obligations.
2.3 For purposes of Licensee's practice of the [*****], Licensor shall
provide Licensee annually with [*****] as set forth in Exhibit A hereto.
Licensee may purchase
additional quantities of [*****] needed subject to the pricing schedule set
forth in Exhibit A. In the event that Licensor sells [*****] to a third party
for a [*****] than that set forth on Exhibit A, then such [*****] shall be
extended to Licensee.
2.4 Licensee shall have the right to extend the licenses granted herein to
Affiliates subject to the terms and conditions of this Agreement. Licensee shall
have no right to grant sublicenses hereunder.
3. License Grant Fee
3.1 In consideration for the license granted under paragraph 2.1, Licensee
agrees to pay to Licensor a [*****] license grant fee of [*****] United States
dollars payable within [*****] following the execution of this Agreement.
3.2 Licensee further agrees to pay Licensor an annual license maintenance
fee in the sum of [*****] payable beginning [*****] from the end of the [*****]
following the EFFECTIVE DATE of this Agreement and continuing [*****] for the
life of this Agreement.
3.3 In consideration of the license granted in paragraph 2.2, Licensee
shall [*****] grant to Licensor a first option for a license to make, use,
import, offer and sell in the research reagent market, as described below, at
least [*****], but no more than [*****] of Licensee's [*****]. Such enzymes
shall be selected from (i) Licensee's [*****] DNA modifying [*****] enzymes
[*****] or (ii) novel DNA modifying [*****] enzymes [*****] during the term of
the Agreement provided; however, that [*****] ((i) and (ii) are collectively
referred to below as [*****]). Prior to transfer, Licensee will provide [*****]
as well as other information if available, for the [*****] and [*****]. In the
event that Licensor finds that any such [*****] as represented by
2. *Confidential Treatment Requested
<PAGE>
Licensee, then Licensee shall provide [*****]. Licensee may, in its sole
discretion, also provide [*****] as they become available to Licensor, which
Licensor shall use solely for the purpose of [*****] which may be licensed
hereunder. Licensor may exercise its option on up to [*****] within [*****]. In
the event that, by the [*****] of this Agreement, either (i) Licensee has not
provided [*****] to Licensor for evaluation as set forth herein or (ii) Licensor
has not exercised its option to license at least [*****] as set forth hereunder,
then [*****].
For clarity, "first option" means [*****].
3.4 Licensor may exercise such option by written notice to Licensee at any
time up to [*****] from the date Licensee provides [*****] to Licensor for
evaluation. Each [*****] shall be provided to Licensor by Licensee one time only
and each transfer shall be under the terms of a materials transfer agreement in
substantially the same form as Exhibit B hereto ("MTA"). Upon such notice of
option exercise by Licensor the parties shall enter into license negotiations
for the research reagent market. Such license shall not require any [*****] but
shall include, but not be limited to, a royalty rate of between [*****], a
provision that Licensee shall be named as the source of products licensed
thereunder in all [*****] and such other terms and conditions as are
commercially reasonable and customary in such agreements.
4. License Term
4.1 The license agreement will remain in effect the later of [*****] or
for so long as there are patents within License Patent Rights still in force.
5. Royalties
5.1 Commencing on the Effective Date, Licensee shall pay to Licensor
during the term of this agreement a royalty of [*****] sold under the license
granted in paragraph 2.1.
5.2 In the event that the royalty burden on any given Licensed Product is
increased due to the need for licensing additional components, the royalty
payable hereunder will be reduced by [*****] for each additional [*****] due to
third parties. Notwithstanding the foregoing, in no event shall the royalty due
Licensor be reduced to [*****] of the royalty specified in paragraph 5. 1.
3. *Confidential Treatment Requested
<PAGE>
6. Reporting
6.1 Licensee shall submit to Licensor within [*****] after the end of each
[*****] during the term of this Agreement, reports setting forth for the
preceding [*****] the following information:
(1) the number of each Licensed Product sold by Licensee and its
Affiliates;
(2) total billings for each Licensed Product;
(3) deductions applicable to determine the Net Sales thereof; and
(4) the amount of royalty due with respect to Licensee' sale of each
Licensed Product;
and with each such report pay the amount of royalty due. Such report shall be
certified as correct by an officer of Licensee.
6.2 All payments due hereunder shall be payable in United States dollars.
Conversion of foreign currency to U.S. dollars shall be made at the conversion
rate existing in the United States as reported in the Wall Street Journal on the
last working day of each royalty reporting period.
6.3 Late payments shall be subject to an interest charge of [*****].
Interest shall be calculated pro rata for lateness that includes [*****].
7. Record Keeping
7.1 Licensee shall keep, and shall require its Affiliates to keep accurate
and correct records of Licensed Products made, used or sold under this Agreement
appropriate to determine the amount of royalties due hereunder to Licensor. Such
records shall be retained for [*****] following a given reporting period. They
shall be available during normal business hours for
inspection at the expense of Licensor for the sole purpose of verifying reports
and payments hereunder. In the event that an inspection shows an under reporting
and underpayment in excess of [*****] for any [*****] period, then Licensee
shall pay the cost of such inspection as well as any additional sum that would
have been payable to Licensor had Licensee reported correctly, plus interest due
for lateness as specified above.
8. Intellectual Property Rights
8.1 All right, title and interest in and to all inventions, compositions,
and methods [*****] shall be owned by Licensee.
4. *Confidential Treatment Requested
<PAGE>
8.2 All right, title and interest in and to all inventions, compositions,
and methods [*****] shall be owned by Licensor.
8.3 All right, title and interest in and to all inventions [*****] shall
be owned jointly by Licensor and Licensee.
8.4 Licensor will automatically receive a royalty free, paid-up non-
exclusive license to [*****] for all purposes outside the Field Of Use.
8.5 Licensee will automatically receive a non-exclusive license to
[*****], without further license grant fees, but with running royalties payable
according to Section 5.
8.6 Exclusive licenses between the parties for Joint Inventions may be
granted and shall be negotiated in good faith.
9. Infringement
9.1 Licensee shall promptly notify Licensor of any suspected infringement
of any Licensed Patent Rights by a third party. Licensee and Licensor each shall
have the right to institute an action of infringement in the Field Of Use of the
Licensed Patent Rights in accordance with the following:
(a) If Licensor and Licensee agree to institute suit jointly, the
suit shall be brought in both their names, the out-of-pocket costs thereof shall
be borne equally, and any recovery or settlement shall be shared equally.
Licensee and Licensor shall agree on the manner in which they shall exercise
control over such action. Licensor may be represented, if it so desires, by
separate counsel of its own selection, the fees for which shall be paid by
Licensor.
(b) In the absence of an agreement to institute a suit jointly,
Licensor may institute suit and, at its option, join Licensee as a plaintiff.
Licensee shall execute all papers and perform such other acts as may be
reasonably required in the circumstances, at the expense of Licensor. Licensor
shall bear the entire cost of such litigation and shall be entitled to retain
the entire amount of any recovery or settlement.
(c) In the absence of an agreement to institute a suit jointly and if
Licensor notifies Licensee that it has decided not to join in or institute a
suit, as provided in (a) or (b) above, Licensee may institute a suit and, at its
option, join Licensor as a plaintiff. Licensor shall
execute all papers and perform such other acts as may be reasonably required in
the circumstances, at the expense of Licensee. Licensee shall bear the entire
cost of such litigation and shall be entitled to retain the entire amount of any
recovery or settlement.
5. *Confidential Treatment Requested
<PAGE>
(d) If Licensor decides to institute suit, it shall notify Licensee
in writing within [*****]. Licensee's failure to notify Licensor in writing,
within [*****] after the date of Licensor's notice, that it will join in
enforcing the patent pursuant to the above provisions shall constitute an
assignment by Licensee to Licensor all rights, causes of action and damages
resulting from any infringement alleged in the suit and Licensor shall be
entitled to retain the entire amount of any recovery or settlement.
(e) Should either Licensee or Licensor commence a suit under the
above provisions and thereafter elect to abandon same, it shall give timely
notice to the other party who may, at its discretion, continue prosecution of
the suit. The parties will negotiate in good faith to allocate the expenses and
proceeds of such suit.
9.2 In the event that a declaratory judgment action alleging invalidity
of any of the Licensed Patent Rights shall be brought against Licensee or
Licensor, then Licensor, at its sole option, shall have the right to intervene
and take over the sole defense of such action at its own expense. Licensor shall
have exclusive control of any enforcement of Licensed Patent Rights outside the
Field Of Use.
10. Termination
10.1 The obligation to pay royalties on a Licensed Product shall expire
when all patents within Licensed Patent Rights covering that Licensed Product
have expired in the jurisdiction where the Licensed Product is sold to its
ultimate consumer.
10.2 In the event Licensee fails to make payments due hereunder, Licensor
shall have the right to terminate this Agreement upon ninety (90) days written
notice, unless within the ninety (90) day notice period Licensee makes all
outstanding payments plus interest.
10.3 In the event that Licensee shall be in default in the performance of
any obligation under this Agreement (other than as provided in 10.2 above), and
if the default has not been remedied within ninety (90) days after the date of
notice in writing specifying the nature of such default, Licensor may terminate
this Agreement immediately by further written notice to Licensee.
10.4 This Agreement and all licenses granted under it shall terminate
automatically should Licensee commit any act of bankruptcy, become insolvent,
file a petition under any bankruptcy or insolvency act, or have any such
petition filed against it, or make any assignment for the benefit of its
creditors.
10.5 Licensee shall have the right to terminate this Agreement for any
reason or no reason upon ninety (90) days written notice to Licensor.
10.6 In the event of any termination or expiration, Licensee shall have
the right to continue selling Licensed Products until finished goods in
existence on the date of final notice of termination are sold, or [*****]
whichever is sooner, provided however that such right shall not apply to
voluntary termination under paragraph 10.5. Such sales will be subject to the
6. *Confidential Treatment Requested
<PAGE>
provisions of the Agreement. Following the [*****] or immediately upon the
effective date of a termination under paragraph 10.5, Licensee will destroy all
remaining materials which may be used to practice Licensed Patent Rights, or
which were produced under licenses granted herein and an officer of Licensee
shall certify such destruction to Licensor in writing under oath.
11. Breach And Cure
11.1 In addition to applicable legal standards, Licensee shall be in
material breach of this Agreement for failure to pay any fees under Section III
or any royalties pursuant to Section V.
11.2 Either party shall have the right to cure its material breach. The
cure shall be effected within a reasonable time but in no event later than
[*****] after written notice of breach given by the party claiming breach and
specifying the nature of the breach.
12. Warranty
12.1 Licensor represents and warrants it has the authority to issue the
licenses granted herein under License Patent Rights. Licensor warrants that, as
of Effective Date, it has disclosed to Licensee any claims, rights or
allegations by third parties of which it is aware which may conflict or overlap
with License Patent Rights. Licensor does not warrant the validity of the
License Patent Rights licensed hereunder and makes no representation whatsoever
with regard to the scope of the License Patent Rights, or that such License
Patent Rights may be exploited by Licensee or an Affiliate of Licensee without
infringing other patents. Licensor EXPRESSLY DISCLAIMS ANY OTHER IMPLIED OR
EXPRESS WARRANTIES AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE LICENSED PATENT RIGHTS OR LICENSED
PRODUCTS CONTEMPLATED BY THIS Agreement.
13. Indemnification
13.1 Licensee shall indemnify, defend and hold harmless Licensor against
any liability, damage, loss or expense (including reasonable attorneys' fees and
expenses of litigation) incurred by or imposed upon Licensor in connection with
any claim, suit, action, demand or judgment arising out of any theory of product
liability (including, but not limited to, actions in the form of tort, warranty,
or strict liability) relating to any product, process or service made, used or
sold pursuant to any right or license granted under this Agreement.
14. Publicity
14.1 All public announcements regarding the existence or terms of this
Agreement shall be coordinated between Licensor and Licensee and shall be made
only by mutual agreement.
15. Notices
15.1 Notices regarding termination of this Agreement shall be made by
certified mail, return
7. *Confidential Treatment Requested
<PAGE>
receipt requested or by a courier service requiring a signature upon receipt.
15.2 All other notices or documents to be given hereunder may be sent in a
pre-paid letter to the address of the relevant party set out in this Agreement
or to such other address as the parties may designate in writing for the
purposes of this part. Any notice sent by U.S. Mail shall be deemed (in the
absence of evidence of earlier receipt) to have been delivered [*****] after
dispatch.
16. Miscellaneous
16.1 This Agreement shall be governed by [*****] law applicable to
agreements made and to be performed in [*****].
16.2 This Agreement shall be binding on the parties hereto and upon their
respective heirs, administrators, successors and assigns. This Agreement may not
be assigned by either party without the written consent of the other party,
except that Licensee may assign this Agreement as part of a sale of transfer of
all, or substantially all, of the assets of Licensee to which the Agreement
relates.
16.3 This Agreement sets forth the entire agreement between the parties
concerning the subject matter hereof and merges all previous agreements or
communications.
16.4 Should any provision of this Agreement be held invalid, illegal or
unenforceable by a court of competent jurisdiction, such provision shall be
considered void. All other provisions, rights and obligations shall continue
without regard to such holding.
16.5 No amendment or modification of this Agreement shall be valid or
binding upon the parties unless made in writing and signed by both parties.
16.6 A waiver by either party of a breach by the other of any term of this
Agreement shall not prevent the subsequent enforcement of that term and shall
not be deemed a waiver of any subsequent, prior or continuing breach.
In Witness Whereof, the Licensor and Licensee have executed this Agreement as of
the Effective Date.
Licensor, by: Licensee, by:
/s/ Warner Broadus /s/ Carolyn Erickson
- ------------------------------------- -----------------------------
Signature Signature
Warner Broadus Carolyn Erickson
- ------------------------------------- -----------------------------
Printed Name Printed Name
General Counsel & Assistant Secretary Director, IP
- ------------------------------------- -----------------------------
Title Title
8. *Confidential Treatment Requested
<PAGE>
EXHIBIT A
Included in the Agreement: [*****].
Licensee may purchase [*****].
A-1. *Confidential Treatment Requested
<PAGE>
EXHIBIT B
Materials Transfer Agreement
Effective as of ____________, 1999, this Agreement ("Agreement") is made and
entered into by and between Diversa Corporation, a Delaware corporation with
headquarters at 10665 Sorrento Valley Road, San Diego, CA 92121 (hereinafter
"Diversa"), and _____________, a ___________________ corporation with
headquarters at ____________________________ (hereinafter "Recipient"),
collectively known as "The Parties."
WHEREAS, Diversa will provide Recipient with [*****] as set forth in Exhibit A
attached hereto and hereinafter referred to as "Material";
WHEREAS, Recipient desires to evaluate the Material;
WHEREAS, Recipient is willing to receive the Material pursuant to the terms and
conditions of this Agreement;
WHEREAS, Diversa agrees to provide the Material to Recipient pursuant to the
terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants herein
contained, the Parties mutually agree to the following terms:
1. Diversa will provide to Recipient the following Material: Diversa shall
provide Recipient with [*****] set forth in Exhibit A to allow Recipient to
[*****].
2. Recipient agrees that the Material shall be used solely for the purpose of
evaluation of the potential usefulness of the Material in Recipients
processes. The Material shall not be used in research that is subject to
consulting or licensing obligations of any third party without the prior
written consent of Diversa.
3. The Material delivered hereby is experimental in nature. DIVERSA MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. Diversa makes no representation that
the use of the Material will not infringe any patent or proprietary rights
of third parties.
4. Recipient agrees that the Material shall not be distributed to any third
party or entity, except affiliates and subsidiaries of Recipient, without
the prior written consent of Diversa.
5. Recipient agrees that dissemination of the Material shall be limited to
those employees of Recipient with a special need to know and work with such
Material.
6. Information transferred under this Agreement, including but not limited to
the Material and all information related to the Material, shall be
"Confidential Information". Recipient shall not disclose to third parties
any Confidential Information received from Diversa
hereunder, provided, however, that Recipient shall have no objections to
Diversa with respect to the use, or disclosure to others not party to this
Agreement, of such information which:
a) prior to disclosure was known to or in the possession of Recipient as
evidenced by its written records; or
b) is or becomes publicly known during the term of this Agreement, other
than through a breach of Recipient's obligations hereunder; or
c) is received from a third party having no obligations of
confidentiality to Diversa hereunder; or
d) is developed by Recipient independently of any disclosures made under
this Agreement as evidenced by its written records; or
B-1. *Confidential Treatment Requested
<PAGE>
e) is required by law or bona fide legal process to be disclosed,
provided that Recipient takes all reasonable steps to restrict and
maintain the confidentiality of such disclosure and provides
reasonable notice to Diversa; or
f) is authorized to be released in a written release by Diversa.
7. Recipient agrees to return all documents, samples, and other tangible items
containing or representing Confidential Information, and all copies
thereof, erase or destroy all Confidential Information contained in
computer memory or data storage apparatus, and certify in writing that it
has complied with the terms of this Paragraph 7, provided that Recipient
may, upon written notice to Diversa, retain in confidence a single copy of
that Confidential Information in the offices of Recipient's legal counsel
for legal records.
8. Recipient acknowledges that all right, title and interest in and to the
Materials belongs solely to Diversa. Recipient shall not modify the
Materials in any way, reverse engineer the Materials, use the Materials for
reproduction, offer the Materials or any derivative thereof for resale, use
the Materials in any form of human or animal testing.
9. [*****].
10. No rights under any intellectual property of Diversa or rights in any other
Material or Confidential Information that could not have been attained, but
for this Material, is granted or implied as a result of providing this
Material to Recipient.
11. None of the Material provided hereunder shall be used for any commercial
development directly or indirectly unless a license granting the same is
executed between the Parties. Recipient agrees that the Material, method of
using the Material, or any other material that could not have been made but
for the Material, shall not be sold or otherwise transferred to any third
party.
12. Diversa shall not be liable for any use of the Material or related know-how
and Recipient agrees to indemnify, defend, and hold harmless Diversa and
its officers, directors,
shareholders, employees, agents, and representatives (collectively
"Indemnitee") against all liability, demands, claims, costs, losses,
damages, recoveries, settlements, and expenses (including interest,
penalties, attorney fees, accounting fees, expert witness fees, costs, and
expenses) incurred by Indemnitee, known or unknown, contingent or
otherwise, directly or indirectly arising from or related to this Agreement
or the use of the Material or related know-how hereunder.
13. This Agreement and rights thereunder shall not be assigned or transferred,
directly or indirectly, in whole or in part by the Parties.
14. This Agreement shall be effective for [*****] from the date set forth
above.
15. The Parties may terminate this Agreement on [*****] written notice;
however, upon termination of this Agreement, nothing herein shall be
construed to release the Parties from any obligation that matured prior to
the effective date of such termination. In the event this Agreement is
terminated for any reason, the rights and obligations of Paragraphs 6, 7,
8, 9, 10, 11 and 12 shall survive termination of this Agreement.
16. The Parties represent and warrant that each has the authority to undertake
the obligations set forth in this Agreement without breaching or violating
any contractual or statutory obligation owed to another.
B-2. *Confidential Treatment Requested
<PAGE>
17. The provisions of this Agreement are severable and in the event any
provisions of this Agreement are determined to be held invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity and
enforceability of the remaining provisions hereof.
18. This Agreement constitutes the entire agreement and understanding between
the Parties concerning the subject matter thereof. It merges with and
supersedes all previous agreements and understandings between the Parties.
19. This Agreement shall be construed in accordance with the laws of the State
of [*****] without regard to its conflict of laws principles.
20. After receipt of the executed Agreement, Diversa will arrange to provide
Recipient with the Materials.
IN WITNESS WHEREOF, the Parties have, through duly authorized representatives,
executed this Agreement, effective as of the date set forth above.
Diversa Corporation
___________________________ ________________________________________
Name Carolyn Erickson
Director, Intellectual Property
Title:____________________
B-3. *Confidential Treatment Requested
<PAGE>
EXHIBIT A
TO BE PROVIDED
*Confidential Treatment Requested
<PAGE>
EXHIBIT 10.23
PATENT CROSS-LICENSE AGREEMENT
This agreement ("Agreement"), effective as of the 18/th/ day of
November, 1999 ("Effective Date"), is made by and between Terragen Discovery
Inc., a British Columbia corporation ("Terragen"), having its principal place of
business at Suite 300-2386 East Mall - UBC, Vancouver, British Columbia, Canada
V6T 1Z3, and Diversa Corporation, a Delaware corporation ("Diversa"), having its
principal place of business at 10665 Sorrento Valley Road, San Diego, California
92121.
Whereas, Terragen is the owner of [*****] Terragen Patent Rights (as
hereinafter defined), and Diversa is the owner of [*****] Diversa Patent Rights
(as hereinafter defined), both embodying technologies applicable in discovery of
multi-gene pathways and biomolecules of interest;
Whereas, each party is desirous of acquiring certain rights under the
other party's patent rights to use the other party's technology for the [*****];
and
Whereas, each party is willing to grant the other party such rights in
accordance with the terms and conditions set forth in this Agreement.
Now, Therefore, in consideration of the foregoing recitals and the
mutual covenants and conditions set forth herein, Terragen and Diversa hereby
agree as follows:
ARTICLE 1
DEFINITIONS
"[*****]" shall mean a [*****]
"Diversa Patent Rights" shall mean patents and patent applications set
forth in Exhibit A hereto, and all continuations-in-part, continuations,
divisionals, reissues, re-examinations or extensions thereof, and any foreign
patents and patent applications corresponding thereto. Diversa may modify
Exhibit A from time to time by providing written notice to Terragen to include
patents and patent applications that may be required in order for Terragen to
practice Diversa Patent Rights or Terragen Patent Rights.
"Diversa Products" shall refer to all products made, use, sold,
offered for sale or imported by Diversa that but for the licenses granted herein
would infringe Terragen Patent Rights.
"Field 1" shall mean small molecules for pharmaceutical applications.
"Field 2" shall mean all fields except Field 1.
"Patent Rights" shall refer to Terragen Patent Rights and Diversa
Patent Rights.
"[*****]" shall mean a [*****].
"Terragen Patent Rights" shall mean patents and patent applications
set forth in Exhibit B hereto, and all continuations-in-part, continuations,
divisionals, reissues, re-examinations or extensions thereof, and any foreign
patents and patent applications corresponding thereto, as well as any patents
and patent applications necessary to practice microdroplet screening
technologies as described in the patents and patent applications in Exhibit B.
Terragen may modify Exhibit B from time to time by providing written
1. *Confidential Treatment Requested
<PAGE>
notice to Diversa to include patents and patent applications that may be
required in order for Diversa to practice Diversa Patent Rights or Terragen
Patent Rights.
"Terragen Products" shall refer to small molecules generated by the
expression of partial, complete or hybrid gene pathways made, used, sold,
offered for sale or imported by Terragen that but for the license granted herein
would infringe Diversa Patent Rights. It is understood that small molecules do
not include proteins or nucleic acids.
"Valid Claim" shall mean: (i) a claim of an issued and unexpired
patent that has not been revoked or held unenforceable or invalid by a decision
of a court or other governmental body of competent jurisdiction, unappealable or
unappealed within the time allowed for appeal, and which has not been
statutorally disclaimed; or (ii) a claim included in a pending patent
application that is actively prosecuted and which has not been cancelled,
withdrawn, finally determined to be unallowable by the applicable governmental
body pursuant to an unappealable decision and/or abandoned in accordance with
the terms hereof.
ARTICLE 2
LICENSE GRANT
2.1 Terragen License Grant. Subject to the terms and conditions set forth
herein, Terragen hereby grants to Diversa the following:
(a) a co-exclusive, non-royalty bearing, worldwide, [*****] license
under Terragen Patent Rights to [*****] in Field 2. This license shall [*****]
to the [*****]. During the term of the license, Terragen will [*****] to [*****]
under [*****] in Field 2 to [*****].
(b) a non-exclusive, non-royalty bearing, non-sublicenseable,
worldwide license under Terragen Patent Rights to [*****] in Field 1, provided
that [*****] from the Effective Date, the license under this subparagraph shall
[*****]. This license shall [*****].
2.2 Diversa License Grant. Subject to the terms and conditions set forth
herein, Diversa hereby grants to Terragen the following:
(a) a non-exclusive, non-royalty bearing, worldwide, [*****] license
under Diversa Patent Rights to [*****] in Field 1.
2.3 License Limitations.
(a) Diversa agrees that it will not [*****] in [*****] of Diversa
Products in Field [*****] for a period of [*****] from the Effective Date.
(b) Terragen agrees that it will not [*****] in the [*****] and/or
[*****] of Terragen Products for a period of [*****] from the Effective Date.
ARTICLE 3
CONSIDERATION
3.1 Fees. In consideration of the licenses granted to Diversa by Terragen
under the terms of this Agreement, Diversa has granted the license referred to
in Section 2.2 and will pay Terragen the following:
(a) [*****] within [*****] of the Effective Date:
2. *Confidential Treatment Requested
<PAGE>
(b) an annual maintenance fee of [*****] within [*****] of [*****] of
the Effective Date until [*****] included in the [*****] unless the Agreement is
terminated earlier pursuant to Article 7 below.
ARTICLE 4
INTELLECTUAL PROPERTY
4.1 Except as permitted below, in further consideration of the licenses
granted under the terms of this Agreement, Terragen will not institute a legal
action challenging the validity and/or enforceability of Diversa Patent Rights,
and Diversa will not institute any legal action challenging the validity and/or
enforceability of Terragen Patent Rights, in each case, during the term of this
Agreement. "Legal action challenging the validity and/or enforceability of
Diversa Patent Rights/Terragen Patent Rights" shall include, but is not limited
to, pre-grant or post-grant opposition proceedings, utility suits, reexamination
proceedings, declaratory judgement actions, and civil actions under 35 U.S.C.
(S) 291 (interfering patents).
4.2 Except as permitted below, in further consideration of the licenses
granted under the terms of this Agreement, neither party shall take any action
to hinder or delay prosecution of patents or patent applications owned or
controlled by the other party and within the scope of Patent Rights without the
prior written consent of said other party during the term of this Agreement.
"Action taken to hinder or delay prosecution of patent applications" shall
include, but is not limited to, formal or informal protests and third-party
observations.
4.3 Upon the execution of this Agreement, a party who has brought a
pending legal action challenging the validity or enforceability of any patent or
patent application owned or controlled by the other party and within the scope
of Patent Rights, shall take appropriate steps to terminate said pending legal
action.
4.4 Notwithstanding the provisions of sections 4.1 and 4.2, a party may
present and prosecute one or more claims that are directed to the same
patentable invention as any claim(s) of the other party. Claims may be presented
to satisfy the provisions of 35 U.S.C. (S) 135(b) or otherwise, e.g., at the
request of an Examiner.
4.5 Notwithstanding the provisions of sections 4.1 and 4.2, in the event a
patent infringement action is brought against a party to this Agreement, the
party charged with infringement shall be permitted to raise all defenses
permitted by law, including invalidity or unenforceability of the patent
asserted against the party charged with infringement.
4.6 Notwithstanding the provisions of sections 4.1 and 4.2, nothing in
this agreement shall prevent a party from disclosing material information to the
Patent and Trademark Office to satisfy the duty of disclosure under 37 C.F.R.
(S) 1.56.
4.7 If the United States Patent and Trademark Office declares an
interference proceeding involving Terragen Patent Rights and Diversa Patent
Rights, the parties will negotiate a settlement of such an interference in good
faith. These negotiations will address all priority and non-priority issues that
could have been brought in the interference.
4.8 Infringement by Third Parties.
(a) In the event that either party determines that a third party is
making, using, or selling a product that may infringe a patent included in the
Patent Rights, it will promptly notify the other party in writing.
(b) Except as provided under Section 4.8(c), the party in whose name
the allegedly infringed Patent Rights are registered shall be solely responsible
for determining whether to bring suit
3. *Confidential Treatment Requested
<PAGE>
against such alleged infringer and controlling such suit, and the other party
shall take all reasonable steps to assist in such suit, provided that the
expenses of the other party are paid by the controlling party.
(c) If the matter involves an alleged infringement of the Terragen
Patent Rights in Field 2, then Terragen shall be initially responsible for
determining whether to bring suit against such alleged infringer. In the event
Terragen decides to bring suit, it shall give prompt written notice to Diversa
of that fact, and Diversa shall take all reasonable steps to assist Terragen in
such suit. Terragen shall be entitled to all amounts recovered in such suit
(other than amount to be paid to Diversa, should Diversa elect to join in such
suit as provided for herein), except that Diversa shall have the right to elect
to pay up to fifty percent (50%) of the litigation costs and receive a
percentage of any recovery equal to the percentage of total litigation costs,
including reasonable attorneys' fees, paid by Diversa. Diversa must make such
election within sixty (60) days of its receipt of Terragen's notice that it has
decided to bring suit. Diversa shall also have the right to be represented by
separate counsel in any such suit. Terragen shall have control over any such
suit, and decisions as to settlement, methods and/or terms and conditions for
resolving the suit shall be made by Terragen after good faith consultation with
Diversa. Upon the earlier of (i) Terragen's election not to bring a suit against
the alleged infringer, as indicated by prompt written notice to Diversa, or (ii)
180 days after Terragen has notice of such alleged infringement if Terragen has
not been able to cause the alleged infringer to cease infringement, Diversa
shall have the right, at its option, to commence such action at its own cost and
expense, in which case Diversa shall have control over such suit and be entitled
to all amounts recovered in such action, subject to payment of any costs of
Terragen in assisting in such suit. Subject to the right to receive payment for
its costs out of amounts recovered as aforesaid, Terragen shall take all
reasonable steps to assist Diversa in such suit.
4.9 Parties to Maintain Patent Rights. Each party shall have the
obligation and be responsible at its own cost and expense for maintaining and
extending those Patent Rights under its control for the term of this License.
Subject to Section 4.10, each party shall use good faith efforts to prosecute,
issue and maintain all Patent Rights.
4.10 Notice of Patent Lapse of Patent Rights. In the event that a party
elects to abandon any of the Patent Rights under its control, it shall promptly
advise the other party of the grant, lapse, nullification, revocation,
surrender, or invalidation of any such Patent Rights at least in advance of any
abandonment to enable the other party (the "Assuming Party") to assume that
prosecution, at the Assuming Party's expense, should the Assuming Party not
agree to such abandonment.
ARTICLE 5
LIMITED WARRANTIES/INDEMNIFICATION/LITIGATION
5.1 Limited Warranty. Each party warrants to the other that it has the
full right and power to make the representations and agreements set forth
herein. Terragen warrants that Exhibit B lists patent applications filed on or
before the Effective Date owned by Terragen, and Diversa warrants that Exhibit A
lists patent applications filed on or before the Effective Date owned by
Diversa.
5.2 No Other Warranties by Terragen. WITH RESPECT TO TERRAGEN PATENT
RIGHTS AND TERRAGEN TECHNOLOGY, TERRAGEN EXPRESSLY DISCLAIMS ALL WARRANTIES OF
ANY KIND AND MAKES NO EXPRESS OR IMPLIED WARRANTIES WHATSOEVER INCLUDING,
WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY, SATISFACTORY QUALITY
OR FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPH
5.1 ABOVE. TERRAGEN EXPRESSLY DISCLAIMS ALL WARRANTIES AS TO THE VALIDITY OR
SCOPE OF TERRAGEN PATENT RIGHTS, OR THAT THE TERRAGEN TECHNOLOGY WILL BE FREE
FROM INFRINGEMENT OF PATENTS OR PROPRIETARY RIGHTS OF THIRD PARTIES, OR THAT NO
THIRD PARTIES ARE IN ANY WAY INFRINGING TERRAGEN PATENT RIGHTS. In no event
shall Terragen be liable for any consequential, indirect, or incidental damages.
Further, Diversa shall make no statements, representations or warranties
whatsoever to any third party which are inconsistent with this disclaimer by
Terragen.
4. *Confidential Treatment Requested
<PAGE>
5.3 No Other Warranties by Diversa. WITH RESPECT TO DIVERSA PATENT RIGHTS
AND DIVERSA TECHNOLOGY, DIVERSA EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY KIND
AND MAKES NO EXPRESS OR IMPLIED WARRANTIES WHATSOEVER INCLUDING, WITHOUT
LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY, SATISFACTORY QUALITY OR
FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPH 5.1
ABOVE. DIVERSA EXPRESSLY DISCLAIMS ALL WARRANTIES AS TO THE VALIDITY OR SCOPE OF
DIVERSA PATENT RIGHTS, OR THAT THE DIVERSA TECHNOLOGY WILL BE FREE FROM
INFRINGEMENT OF PATENTS OR PROPRIETARY RIGHTS OF THIRD PARTIES, OR THAT NO THIRD
PARTIES ARE IN ANY WAY INFRINGING DIVERSA
PATENT RIGHTS. In no event shall Diversa be liable for any consequential,
indirect, or incidental damages. Further, Terragen shall make no statements,
representations or warranties whatsoever to any third party which are
inconsistent with this disclaimer by Diversa.
5.4 Infringement Litigation. Each party shall notify the other party in
writing in the event that any third party shall commence or threaten to commence
an action against Terragen or Diversa alleging that the practice of a method or
process embodied in one or more claims of Diversa Patent Rights or Terragen
Patent Rights infringes a patent of a third party. Each party shall keep the
other reasonably informed with respect to the progress of any such action from
time to time. Upon a party's reasonable request and at its expense, the other
party shall cooperate with the requesting party and its counsel with respect to
the defense of any such action against the requesting party.
ARTICLE 6
CONFIDENTIALITY
6.1 Definition of Confidential Information. Confidential Information
shall mean any technical, business or other proprietary information, whether
orally or in writing, furnished by one party (the "Disclosing Party") to the
other party (the "Receiving Party) in connection with this Agreement. Such
Confidential Information shall include, without limitation, the terms of this
Agreement, Diversa Patent Rights, and Terragen Patent Rights.
6.2 Obligations. The Receiving Party agrees that it shall:
(a) Maintain all Confidential Information in strict confidence,
except that the Receiving Party may disclose or permit the disclosure of any
Confidential Information to its Affiliates, directors, officers, employees,
consultants and advisors who are obligated to maintain the confidential nature
of such Confidential Information and who need to know such Confidential
Information for the purposes set forth in this Agreement;
(b) Use all Confidential Information solely for the purposes set
forth in, or as permitted by, this Agreement; and
(c) Allow its Affiliates, directors, officers, employees, consultants
and advisors to reproduce the Confidential Information only to the extent
necessary to effect the purposes set forth in this Agreement, with all such
reproductions being considered Confidential Information.
Each Party shall be responsible for any breaches of this Section 6.2 by any of
its Affiliates, directors, officers, employees, consultants and advisors.
6.3 Exceptions. The obligations of the Receiving Party under Section 6.2
above shall not apply to any specific Confidential Information to the extent
that the Receiving Party can demonstrate by written record that such
Confidential Information:
(a) Was in the public domain prior to the time of its disclosure
under this Agreement;
5. *Confidential Treatment Requested
<PAGE>
(b) Entered the public domain after the time of its disclosure under
this Agreement through means other than an unauthorized disclosure resulting
from an act or omission by the Receiving Party or its Affiliates, directors,
officers, employees, consultants, advisors or agents;
(c) Was or is independently developed or discovered by the Receiving
Party without use of the Confidential Information;
(d) Is or was disclosed to the Receiving Party at any time, whether
prior to or after the time of its disclosure under this Agreement, by a third
party having no fiduciary relationship with the Disclosing Party and having no
obligation of confidentiality to the Disclosing Party with respect to such
Confidential Information; or
(e) Is required to be disclosed to comply with applicable laws or
regulations (such as disclosure to the SEC, the EPA, the FDA, or the United
States Patent and Trademark Office or to their foreign equivalents), or to
comply with a court or administrative order, provided that the Disclosing Party
receives prior written notice of such disclosure and that the Receiving Party
takes all reasonable and lawful actions to obtain confidential treatment for
such disclosure and, if possible, to minimize the extent of such disclosure.
6.4 Survival of Obligations. The obligations set forth in Sections 6.1,
6.2 and 6.3 shall remain in effect after termination or expiration of this
Agreement, until such time as the Confidential Information falls into one of the
exceptions listed in Section 6.3.
6.5 Publicity. The parties shall issue a joint press release regarding
this Agreement, the text of which shall be subject to mutual agreement of the
parties. Except for the information disclosed in the joint press release,
neither party shall use the name of the other party or reveal the terms of this
Agreement in any publicity or advertising without the prior written approval of
the other party, except that (i) either party may use the text of a written
statement approved in advance by both parties without further approval, and (ii)
either Party shall have the right to identify the other party and to disclose
the terms of this Agreement as required by applicable securities laws or other
applicable law or regulation, provided that the receiving party takes reasonable
and lawful actions to minimize the degree of such disclosure.
ARTICLE 7
TERM AND TERMINATION
7.1 Diversa License Term. The term of the licenses granted to Diversa by
Terragen pursuant to this Agreement shall expire on a country by country basis,
upon the expiration of the last to expire Valid Claim within the Terragen Patent
Rights.
7.2 Terragen License Term. The term of the license granted to Terragen by
Diversa pursuant to this Agreement shall expire on a country by country basis,
upon the expiration of the last to expire Valid Claim within the Diversa Patent
Rights.
7.3 Termination Upon Material Breach. Either party may terminate the
licenses granted to the other party under this Agreement if such other party
breaches any material term of this Agreement and does not cure such breach
within [*****] following written notice; except for non-payment of money, in
which case the cure period shall be reduced to fifteen (15) days. Any right to
terminate arising under this Section 7.3 shall be stayed until resolved under
Section 9.2 if, during the relevant cure period, the party alleged to have been
in default shall:
(i) have initiated arbitration in accordance with Section 9.2
below, with respect to the alleged default; and
6. *Confidential Treatment Requested
<PAGE>
(ii) be diligently and in good faith co-operating in the prompt
resolution of such arbitration proceedings.
7.4 Termination Upon Bankruptcy. If either party (the "Insolvent Party")
files for protection under bankruptcy laws, makes an assignment for the benefit
of creditors, appoints or suffers appointment of a receiver or trustee over its
property, files a voluntary petition under any bankruptcy or insolvency act or
has any such petition filed against it which is not discharged within sixty (60)
days of the filing thereof, then the other party may, at its sole election upon
notice to the Insolvent Party, terminate the rights granted to the Insolvent
Party by written notice to such Insolvent Party.
7.5 Termination upon Patent Right Lapse. Either party may terminate the
license granted to the other party under this Agreement if the other party's
Patent Rights have lapsed, been canceled or abandoned, been admitted to be
invalid or unenforceable through reissue or disclaimer or have been declared
invalid by decision or judgment of a court of competent jurisdiction.
7.6 Termination Upon Licensed Rights Representing Majority of Assets.
Either party may terminate the licenses granted to the other party under this
Agreement if the licenses granted to the other party under this Agreement
represent more than 50% of the total assets of the other party.
7.7 Terragen Termination Rights [*****]. Terragen may terminate the
licenses granted to Diversa under this Agreement in the event that Diversa
[*****]. In the event the license to Diversa is terminated by Terragen pursuant
this Section 7.7, such termination will be effective upon the date of such
[*****].
7.8 Diversa Termination Rights [*****]. Diversa may terminate the license
granted to Terragen under this Agreement in the event that Terragen [*****] In
the event the license to Terragen is terminated by Diversa pursuant this Section
7.8, such termination will be effective upon the date of such [*****] Further,
in the event Terragen [*****] without prior written approval from Diversa within
[*****] of the Effective Date, Terragen shall [*****] Diversa the [*****]
Terragen by Diversa pursuant to Section 3.1 above, within [*****] of such
[*****].
7.9 Rights Upon Expiration. Upon expiration of the licenses granted
hereunder, neither party shall have any further rights or obligations with
respect to this Agreement in the countries with respect to which this Agreement
has then expired, except that expiration shall not relieve each party of any
obligations accruing prior to such expiration or of its obligations under
Articles 4, 5 and 6 herein. This Section 7.9 (and the sections referenced
herein) shall survive expiration of this Agreement.
7.10 Rights Upon Termination. Upon termination of the licenses granted by
one party (the "Terminating Party") to the other party (the "Terminated Party")
under this Agreement, the licenses granted by the Terminated Party to the
Terminated Party shall remain in full force effect until expiration or
termination in accordance with this Agreement. Any termination of licenses
granted under this Agreement shall not relieve either party of any obligations
with respect to such licenses accrued prior to the date of such termination or
its obligations under Articles 4, 5 and 6 herein. This Section 7.10 (and the
sections referenced herein) shall survive termination of this Agreement.
7. *Confidential Treatment Requested
<PAGE>
ARTICLE 8
ASSIGNMENT, CHANGE OF OWNERSHIP, RIGHTS UPON DISSOLUTION
8.1 Assignment. Except as otherwise expressly provided herein, neither
this Agreement nor any interest hereunder shall be assignable, nor any other
obligation delegable, by either party without the prior written consent of the
other; provided, however, that (subject to sections 7.7 and 7.8 above) a Party
may assign this Agreement to any affiliate of it or to any successor by law or
by sale of all or substantially all of its assets, provided that the assigning
party shall guarantee and remain liable and responsible for the performance and
further observance of all the assigning party's duties and obligations
hereunder; provided further that, in the event of such transaction, no
intellectual property rights of any person (other than Diversa or Terragen) that
is an acquiring party shall be included in the technology licensed hereunder.
The terms and provisions of this Agreement shall be binding upon the successors
and permitted assigns of the parties. Any assignment not in accordance with this
Section 8.1 shall be void.
8.2 Diversa Rights Upon Dissolution, Liquidation, Winding Up of Terragen.
Diversa will have a right of first option to negotiate the purchase of the
Terragen Patent Rights in the event of the dissolution, liquidation or winding
up of Terragen (an "Event") (subject to Section 9.12 hereof and to applicable
bankruptcy laws) within five (5) years of the Effective Date. Terragen will
provide prompt written notice to Diversa of any Event or proposed Event. Diversa
may exercise its option to negotiate the purchase of the Terragen Patent Rights
by providing Terragen written notice within sixty (60) days after the date of
such notice to Diversa by Terragen. If Diversa elects to exercise such option,
the parties shall negotiate in good faith with the goal of entering into a
definitive agreement within ninety (90) days after the date of Diversa's notice
to Terragen. If Diversa does not exercise such option within the sixty (60) day
option period or the parties are unable to enter into a definitive agreement
within the ninety (90) day period after Diversa's notice to Terragen that is has
exercised the option (or such longer period as the parties may mutually agree in
writing), then Terragen shall be free to sell or otherwise transfer the Terragen
Patent Rights to a third party; provided that, for a period of six months
following the end of the negotiation period, Terragen may not sell or otherwise
transfer the Terragen Patent Rights to any third party containing terms and
conditions which, in the aggregate, are more favorable to such third party than
the terms and conditions last offered to Diversa by Terragen, unless Terragen
first offers Diversa the opportunity to purchase the Terragen Patent Rights on
such terms and conditions.
8. *Confidential Treatment Requested
<PAGE>
ARTICLE 9
GENERAL PROVISIONS
9.1 Independent Contractors. Terragen and Diversa shall be independent
contractors and shall not be deemed to be partners, joint venturers or each
other's agents and neither party shall have the right to act on behalf of the
other except as is expressly set forth in this Agreement.
9.2 Arbitration. The Parties shall mutually consult in good faith in an
attempt to settle amicably in the spirit of co-operation any and all disputes
arising out of or in connection with this Agreement or questions regarding the
interpretation of the provisions hereof. All controversies or claims under this
Agreement, the enforcement or interpretation hereof, or because of an alleged
breach, default or misrepresentation under the provisions hereof that cannot be
settled amicably within [*****] from the date of notification of either party to
the other of such dispute or question, which notice shall specify the details of
such dispute or question, shall be settled by final and binding arbitration in
English, by one arbitrator appointed by the American Arbitration Association
("AAA"). If the parties cannot agree on the arbitrator to be so appointed, each
party shall be entitled to appoint one (1) arbitrator, and the [*****]
arbitrators so appointed shall agree upon a third. The arbitrator(s) shall have
the technical expertise required to understand and arbitrate the dispute. The
arbitration shall be conducted in [*****] if initiated by Terragen and in
Vancouver, British Columbia, if initiated by Diversa, in each case, in
accordance with the then-existing Commercial Arbitration Rules of the AAA.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof; provided, however, that the law applicable to
any controversy shall be the law of the [*****] or Federal Patent Law, as
applicable, regardless of its or any other jurisdiction's choice of law
principles. Notwithstanding the foregoing, either party may apply to any court
of competent jurisdiction for a temporary restraining order, preliminary
injunction or other interim or conservatory relief, as necessary, without breach
of this arbitration agreement and without any abridgement of the powers of the
arbitrator. In no event shall the demand for arbitration be made after the date
when institution of a legal or equitable proceeding based on such claim, dispute
or other matter in question would be barred by the applicable statute of
limitations. The costs of any arbitration, including administrative and
arbitrators' fees, shall be shared equally by the parties and each party shall
bear its own costs and attorneys' and witness' fees, provided however, that the
prevailing party, if determined by the arbitrator(s), shall be entitled to an
award against the other party in the amount of the prevailing party's costs
(including arbitration costs) and reasonable attorneys' fees.
9.3 Entire Agreement. This Agreement, together with the Non-Disclosure
Agreement signed by the parties dated [*****] sets forth the entire agreement
and understanding between the parties as to the subject matter hereof. There
shall be no amendments or modifications to this Agreement, except by a written
document signed by both parties.
9.4 [*****] Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of [*****] without giving effect to its
principles of conflicts of law.
9.5 Severability. If any provision of this Agreement is ultimately held
to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
9.6 No Waiver. Any delay in enforcing a party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of a party's right to the future enforcement of its rights
under this Agreement.
9.7 Notices. Any notices in writing and payments to be made provided
herein shall be deemed duly given and made if sent by courier or by certified or
registered mail, postage prepaid, to the addressees below. Either party may
change its address or its designated management representative by written notice
to the other party. The date of giving such notices and payments shall be the
date of mailing.
To Terragen:
Terragen Discovery Inc.
Suite 300
2386 East Mall
UBC Vancouver, British Columbia, Canada V6T 1Z3
Attention: Dr. Mario Thomas
Chief Executive Officer
To Diversa Corporation:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, California 92121
Attention: Dr. Jay Short
CEO, CTO and President
9.8 Captions. Captions and headings are relied on for convenience only
and in no way are to be construed to define, limit or affect the construction or
interpretation hereof.
9. *Confidential Treatment Requested
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9.9 Governmental Approvals. Each party shall be responsible for obtaining
all necessary governmental approvals for the development, testing, production,
distribution, sale and use of any products discovered and developed by such
party using Diversa Technology or Terragen Technology licensed hereunder, at
such party's sole expense. Each party shall have sole responsibility for any
warning labels, packaging, instructions to use, and quality control with respect
to any such product.
9.10 Compliance With Laws and Regulations. Each party shall comply with
all United States and foreign laws, regulations, rules and orders applicable to
use of the Diversa Technology or Terragen Technology, as applicable, the
development, testing, production, distribution, export, packaging, labeling,
sales and use of products derived from the use of the Diversa Technology or
Terragen Technology, as applicable.
9.11 No Use of Name. Neither party shall use in advertising, promotion or
sale of products, or the provision of services using the Diversa Technology or
Terragen Technology, as applicable, any trade name, trademark, servicemark,
trade-dress or other designation, or any confusingly similar variation thereof,
of the other party, unless consented to in writing by such other party.
9.12 Section 365(n). All licenses granted under the Agreement will be
deemed licenses of rights to intellectual property for purposes of Section
365(n) of the US Bankruptcy Code and a licensee under the Agreement will retain
and may fully exercise all of its rights and elections under the US Bankruptcy
Code.
9.13 Counterparts. This Agreement may be executed in counterparts, each of
which, when so executed and delivered, shall be deemed to be an original, and
all of which counterparts, taken together, shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
Terragen Discovery, Inc. Diversa Corporation
/s/ Mario Thomas /s/ Jay M. Short
- -------------------------------- -----------------------------------
Dr. Mario Thomas Dr. Jay M. Short
President CEO, President and CTO
10. *Confidential Treatment Requested
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EXHIBIT A
[*****] Patent Rights
Issued Patent Number/
Serial Number Title
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
*Confidential Treatment Requested
<PAGE>
EXHIBIT B
[*****] Patent Rights
Issued Patent Number/
Serial Number Title
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
[*****] [*****]
*Confidential Treatment Requested
<PAGE>
EXHIBIT 10.24
JOINT VENTURE AGREEMENT
This Joint Venture Agreement (the "Agreement") dated and effective as of
December 1, 1999 (the "Effective Date"), is entered into by Diversa Corporation
('Diversa"), a Delaware corporation, and Novartis Seeds AG ("Novartis"), a
corporation organized under the laws of Switzerland (individually a "Party" and
collectively the "Parties").
RECITALS
Whereas, the Parties desire to establish a joint venture (the "Joint
Venture") to develop and commercialize enzyme-related products for the animal
feed and agricultural product processing markets through a combination of
licensing, technology development and product development;
Whereas, Diversa, among others, will perform research and development
activities for the Joint Venture pursuant to appropriate agreements;
Whereas, Novartis will cause the formation of a new wholly-owned,
affiliated company ("Newco") which will be responsible for commercializing
products resulting from the Joint Venture with respect to non-transgenic
products;
Whereas, Novartis will be responsible for commercializing products
resulting from the Joint Venture with respect to transgenic crops;
Whereas, each Party will lend its expertise to the successful achievement
of Newco's commercialization objectives;
Whereas, the Parties agree that Newco will manage and direct the business
of the Joint Venture with respect to non-transgenic products;
Whereas, the Parties desire to enter into a written agreement providing for
the formation and performance of each Party's activities under the Joint
Venture; and
Now, Therefore, in consideration of the mutual covenants set forth in this
Agreement, the parties hereby agree as follows:
1. Definitions.
"Affiliate" shall mean any entity that directly or indirectly controls, is
controlled by or is under common control, with Novartis, or Diversa, as the case
may be, where control means direct or indirect possession of more than [*****]
of the outstanding voting securities of a corporation or a comparable equity
interest in any other type of entity, or operational control of such entity.
"Agreement" shall mean this Joint Venture Agreement.
1. *Confidential Treatment Requested
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"Agricultural Product Processing Field" shall mean the use of Biomolecules
on or in Crops to alter, modify or improve the performance or other
characteristics of the Crop. This field specifically excludes the [*****] Field.
"Animal Feed Field" shall mean the use of Biomolecules on or in Crops for
feed applications to alter, modify or improve feed conversion and/or animal
nutrition. This field specifically excludes all vaccines and therapeutic
applications.
"Biomolecule(s)" shall mean enzymes and/or genes encoding them.
"Board" shall mean the Board of Directors of Newco.
"Change of Control" shall mean any of the following transactions involving
another company (other than Novartis or any of its Affiliates) (a) a merger or
consolidation of Diversa which results in the voting securities of Diversa
outstanding immediately prior thereto ceasing to represent at least [*****] of
the combined voting power of the surviving entity immediately after such merger
or consolidation; (b) the sale of all or substantially all of the assets of
Diversa; or (c) any one person (other than Diversa, any trustee or other
fiduciary holding securities under an employee benefit plan of Diversa, or any
corporation owned directly or indirectly by the stockholders of Diversa, in
substantially the same proportion as their ownership of stock of Diversa),
together with any of such person's "affiliates" or "associates", as such terms
are used in the Securities Exchange Act of 1934, as amended, becoming the
beneficial owner of [*****] or more of the combined voting power of the
outstanding securities of Diversa or by contract or otherwise having the right
to control the Board of Directors or equivalent governing body of Diversa or the
ability to cause the direction of management of Diversa.
"Commercial Development Biomolecule" shall mean Diversa Biomolecules and/or
Derivative Newco Biomolecules that have been, pursuant to Preliminary Efficacy
Trials, designated by Newco in accordance with the Research and Development
Agreement, for commercialization in or as a Product.
"Confidential Information" shall have the meaning set forth in Section 7.1.
"Crop" shall mean any component of any cultivated plant species, including,
[*****]
"Derivative Newco Biomolecules" shall mean all Biomolecules that are
derived or discovered from Newco Biomolecules through application of Diversa
Technology, and any derivatives of such Biomolecules.
[*****] shall mean the difference in value between [*****] and [*****]
containing [*****] determined in accordance with the definition of Net Sales
(excluding the provisions applicable to
2. *Confidential Treatment Requested
<PAGE>
Combination Products), as established by competent written records, with the
intent of determining the value contributed to such product(s) by the Commercial
Development Biomolecule(s).
"Disclosing Party" shall mean that Party disclosing Confidential
Information to the other Party under Section 7.
"Diversa Biomolecules" shall mean all Biomolecules owned by, or licensed to
Diversa, with the right to license or sublicense, as of the Effective Date or
during the Research Period.
"Diversa Know-How" shall mean all trade secrets, inventions, data,
processes, procedures, devices, methods, formulas, media and/or all lines,
Biomolecules, clones, strains, genes, reagents, protocols and marketing and
other information or know-how including improvements thereon, whether or not
patentable, which are not covered by the Diversa Patent Rights, but which are
necessary or useful for the commercial exploitation of the Diversa Patent Rights
or the conduct of the Projects or otherwise relate to Biomolecules or Products,
and which are owned by or licensed to Diversa, with the right to license, as of
the Effective Date or otherwise during the Research Period,
"Diversa Patent Rights" shall mean all patent and provisional patent
applications, issued and subsisting patents and substitutions, divisionals,
continuations, continuations-in-part, reissues, reexaminations, extensions and
supplementary protection certificates thereof, including foreign counterparts of
the foregoing, in each case which are owned by or licensed to Diversa, with the
right to license, as of the Effective Date or otherwise during the Research
Period, which are necessary or useful to achieve the commercial objectives of
the Joint Venture, or otherwise relate to Biomolecules or Products arising from
the conduct of the Projects. Without limiting the generality of the foregoing,
Diversa Patent Rights include any patents and patent applications claiming
Inventions owned by Diversa under the terms of the Research and Development
Agreement.
"Diversa Technology" shall mean the Diversa Know-How and the Diversa Patent
Rights.
"Fields" shall mean the Animal Feed Field and the Agricultural Product
Processing Field.
"Inventions" shall mean all inventions, discoveries, developments and
improvements conceived of in the course of work performed on any Project.
"Joint Venture Period" shall mean the period beginning on the Effective
Date and ending on the fifth anniversary of the Effective Date.
"Management Expenses" shall mean all actual expenses incurred by Newco in
the management of the Joint Venture, including expenses of the President and
other employees or consultants of Newco as provided in Section 6.1.
3. *Confidential Treatment Requested
<PAGE>
"Net Sales" shall mean the [*****] of a Royalty-Bearing [*****] sold by
Novartis or any of its Affiliates or by Sublicensees less discounts, rebates,
returns, taxes (other than income tax), transportation costs, and insurance in
amounts actually incurred and customary in the trade. For each Royalty-Bearing
[*****], the [*****] shall include [*****] as applicable, [*****] of such
Royalty-Bearing [*****] even if such amounts [*****] of such Royalty-Bearing
[*****] including, without limitation, [*****].
With respect to sales by Novartis or any of its Affiliates or Sublicensees
of any product which incorporates both (i) [*****] Royalty-Bearing [*****] and
(ii) [*****] or [*****] or [*****] that involve an additional trait (a
"Combination Product"), Net Sales shall be calculated by multiplying the [*****]
by the [*****]. The [*****] as used herein, shall mean [*****]. The fair market
value of such components shall be equal to [*****]; provided, however, that, in
the event that the [*****] of any such component is not available, the fair
market value of such component shall be [*****].
"Newco Biomolecules" shall mean all Biomolecules which are provided by
Newco to Diversa under the Research and Development Agreement.
"Novartis/Newco Agreement" shall mean that agreement between Novartis and
Newco under which Novartis grants to Newco, all rights, to the extent Novartis
has such a transferable right, required for Newco to commercialize Products for
non-transgenic applications.
"Novartis Patent Rights" shall mean all patent and provisional patent
applications, issued and subsisting patents and substitutions, divisionals,
continuations, continuations in-part, reissues, reexaminations, extensions and
supplementary protection certificates thereof, including foreign counterparts of
the foregoing owned by or licensed to Novartis or any of its Affiliates, with
the right to license, as of the Effective Date or otherwise during the Research
Period, claiming inventions owned (or in-licensed) and controlled by Novartis or
any of its Affiliates which are necessary or useful to the achieve the
commercial objectives of the Joint Venture, or otherwise relate to Biomolecules
or Products arising from the conduct of the Projects. Without limiting the
generality of the foregoing, Novartis Patent Rights include any patents and
patent
4. *Confidential Treatment Requested
<PAGE>
applications claiming Inventions owned by Newco under the terms of the Research
and Development Agreement.
"Preliminary Efficacy Trials" shall mean, with respect to each Commercial
Development Biomolecule, preliminary testing conducted by or for Novartis or
Newco to determine functional efficacy conducted under anticipated use
conditions, generally outside of a laboratory environment. Preliminary Efficacy
Trials [*****], such as [*****] in the [*****] and [*****] for [*****] including
[*****] for [*****] and [*****] trials, [*****] for [*****].
"President" shall mean the executive officer of Newco appointed by the
Board pursuant to Section 5.1.
"Product" when used without further qualification shall mean a commercial
product containing or consisting of any Biomolecule designated in accordance
with the Research and Development Agreement as a Commercial Development
Biomolecule.
"Profit" shall mean an amount, which shall not be less than zero, equal to
(a) [*****] less (b) [*****] (but excluding [*****] and any payment by [*****]
under the [*****], in each case calculated in accordance with U.S. generally
accepted accounting principles consistently applied.
"Project(s)" shall mean research efforts undertaken pursuant to the terms
of the Research and Development Agreement.
"Receiving Party" shall mean that Party receiving Confidential Information
under Section 7.1.
"Research and Development Agreement" shall mean that certain Research and
Development Agreement, dated on or about the Effective Date, between Newco and
Diversa.
"Research FTE" shall mean the equivalent of one full year of work on a full
time basis by a scientist or other professional possessing skills and experience
necessary to carry out the Project by a Party, determined in accordance with
such Party's normal policies and procedures.
"Research Period" shall mean the period beginning on the Effective Date and
ending upon the termination or expiration of the Research and Development
Agreement.
"Royalty-Bearing [*****] shall mean any Product that is a commercial
transgenic Crop.
"Royalty Period" shall mean, with respect to each Royalty-Bearing [*****]
in any country, every [*****] or [*****] commencing with the [*****]
5. *Confidential Treatment Requested
<PAGE>
and ending upon the later to occur of (a) [*****], or (b) [*****], or (c)
[*****].
"Sublicensee" shall mean any third party (other than an Affiliate of
Novartis or an Affiliate of Diversa) licensed by Novartis or its Affiliates to
make, use (except where the implied right to use accompanies the sale to the
third party of any Royalty-Bearing [*****] by Novartis or its Affiliates or
Sublicensees), sell, import, export, advertise, promote and otherwise
commercialize any Royalty-Bearing [*****].
"Valid Claim" shall mean a claim included in any pending patent application
or any issued patent included within the Novartis Patent Rights or the Diversa
Patent Rights, which, if with respect to any pending claim, has not been
irrevocably abandoned or held to be unpatentable by a court or other authority
of competent jurisdiction in a proceeding which is not reversed, not appealable
and not appealed, or, with respect to any issued claim, has not been held
invalid by a decision of a court or other authority of competent jurisdiction
which is not reversed, not appealable and not appealed.
"Year" shall mean any consecutive 12-month period during the Joint Venture
Period that begins on the Effective Date or the [*****] anniversary of the
Effective Date. For example, Year 1 shall be the consecutive 12-month period
beginning on the Effective Date.
The above definitions are intended to encompass the defined terms in both the
singular and plural tenses.
2. Purpose; Grant of Exclusive License; Preferred Manufacturer.
2.1 Purpose. The purpose of the Joint Venture is to develop and
commercialize enzyme-related products in the Animal Feed Field and the
Agricultural Product Processing Field. It is anticipated that Newco will
negotiate and enter into agreements with third parties providing for the
sublicense of Products to such third parties in the Fields, for [*****] pursuant
to the terms of license agreements between Newco and such third parties. It is
anticipated that Novartis will commercialize Products in the Fields for [*****].
In furtherance of this purpose, and to the extent that each Party has the right
to do so, each Party hereby agrees to (a) make available to Newco those rights
and technology which are necessary for Newco to commercialize Products for
[*****], and (b) Diversa agrees to make available to Novartis those rights and
technology, which are necessary for Novartis to commercialize Products for
[*****].
2.2 Grant of Exclusive License. Subject to the royalty payment obligations
under
6. *Confidential Treatment Requested
<PAGE>
Sections 6.5 and 6.6, Diversa hereby grants to Novartis an exclusive, worldwide
license, with the right to sublicense, under the Diversa Technology for making,
using, selling, offering for sale, and importing Products in the Animal Feed
Field, In addition, subject to the royalty payment obligations under Sections
6.5 and 6.6, Diversa hereby grants to Novartis an exclusive, worldwide license,
with the right to sublicense, under the Diversa Technology for making, using,
selling, offering for sale, and importing Products in the Agricultural Product
Processing Field, such license to be limited to mutually agreed upon Projects.
Novartis agrees to make available to Newco, by way of the Novartis/Newco
Agreement, those rights under this Section 2.2 which are necessary for Newco to
commercialize Products for non-transgenic applications.
2.3 Preferred Manufacturer. Novartis hereby agrees that Newco will include
a bid from Diversa for manufacturing by fermentation in any proposal made to a
third party licensee seeking a source for manufacture, and Diversa will
negotiate with the third party the terms upon which Diversa would produce such
Commercial Development Biomolecules by fermentation, such terms to include a
supply guarantee sufficient to meet the commercial objectives of the Joint
Venture with respect to such third party licensee. For the avoidance of doubt,
Novartis has sole exclusive right to produce Commercial Development Biomolecules
by means other than fermentation.
3. [This Section Was Intentionally Deleted]
4. Board of Directors.
4.1 Board of Directors of Newco. The Board of Directors of Newco shall
oversee the operations of the Joint Venture with respect to [*****] in a manner
consistent with the articles of incorporation of Newco and operation of a
Novartis Affiliate. The Board shall be comprised of not more than fifteen
regular members elected by the shareholder(s) of Newco. The Parties agree that
the initial Board shall be composed of seven regular members. Novartis shall
have the right to nominate [*****] regular members for the initial Board, and
Diversa shall have the right to nominate [*****] regular members for the initial
Board. In addition, a [*****] member of the initial Board shall be elected by
the shareholder(s) from a list of nominees submitted by either, or both,
Parties. The shareholder(s) of Newco shall authorize one of these members to
serve as the chairman of the Board. Each regular member shall have [*****] vote,
and all decisions shall be by majority vote consistent with this Agreement
except as provided in Section 4.3. Withdrawal or removal of a Board member shall
be performed consistent with the articles of incorporation of Newco. If a
Party's nominated member resigns or is removed from the Board, then only such
Party may nominate a replacement for the departing member.
4.2 Board Meetings and Actions. The chairman of the Board will call semi-
annual meetings as determined by Board resolution. He shall send written notice
at least 10 days in advance of such meetings to each regular member of the
Board. Special Board meetings, however, may be called by any regular member at
any time by reasonable prior written notice to
7. *Confidential Treatment Requested
<PAGE>
all regular members. Telephonic meetings of the Board may be held as necessary.
A telephonic meeting is valid if all members in attendance are able to hear each
other simultaneously. A waiver of notice as to the time and place for any
meeting may be executed by all of the members of the Board. The Board will
appoint a Secretary, who will keep the minutes of the meetings and distribute
them to all members. A quorum, as defined in the articles of incorporation for
Newco, shall be required for the transaction of business; provided that at least
[*****] must be present to constitute a quorum. Should a [*****] representative
fail to appear at a properly noticed Board meeting, whether regular or Special,
for [*****] then [*****] shall forfeit, without recourse, the right of having at
least [*****] being present to constitute a quorum. The Board may also act
without conducting a formal meeting by the execution of a unanimous consent
resolution that provides a summary description of the action to be taken and
other pertinent information necessary to inform the members entitled to vote on
such matters.
4.3 Requirement for [*****] of the Board. The approval of greater than
[*****] of the sitting Board members shall be required for any of the following:
4.3.1 Approval, in advance of the next fiscal year, of the annual
strategic business plan and financial plan of Newco and any activity outside the
scope of such business and financial plan;
4.3.2 Any agreement or contract entered into between Newco and
Diversa, or any agreement or contract between Newco and Novartis that materially
impact the terms of this Agreement or termination of or waiver of compliance
with any such agreements or contracts;
4.3.3 Approval of any dissolution, liquidation, merger,
consolidation, business combination or similar transaction involving Newco;
4.3.4 Any change in the authorized number of members of the Board, or
the representation of each Party; and
4.3.5 Approval of the terms of reference under which the officers of
Newco are authorized to act on behalf of Newco.
5. Operational Management.
5.1 Appointment and Responsibility of the President. The President of
Newco shall be appointed by the Board. Subject only to the overall direction of
the Board, including the obligation to implement the orders and resolutions of
the Board, and to the limitations set forth in Section 4, the President shall
(i) be responsible for the direction, performance and supervision of the Joint
Venture in accordance with the terms of reference, policies and procedures
established by the Board; (ii) prepare budgets and reports relating to
activities under the Joint Venture, including an annual budget for Management
Expenses; (iii) hire and terminate the other employees and consultants of Newco
in accordance with guidelines established by the Board; (iv) negotiate and enter
into agreements with third parties
8. *Confidential Treatment Requested
<PAGE>
within the terms of reference established by the Board; and (v) provide reports
to the Board at the semi-annual Board meetings. The President may be replaced or
removed by the Board. The President shall serve until replaced or removed by the
Board.
5.2 Authority of the President. The President may delegate his/her
authority to another officer of Newco. Notwithstanding any other provisions of
this Agreement, in no circumstances may the President, or any other officer,
employee or agent of Newco, take any of the actions set forth in Section 4.3
without the prior approval of the Board.
The President shall report in writing at least quarterly to the chairman
(with copies to other Board members) on the progress of the Projects as well as
the status of other Joint Venture activities. Such report shall include Project
results and general status updates and operational budget summaries, including
explanations of any variance from budget. The report shall inform the chairman
of any anticipated or actual problems in regard to the Projects or the general
business of Newco, including any significant changes in schedule or staffing.
6. Contributions, Other Payments, Profit Sharing.
6.1 Contributions.
6.1.1 On or about the Effective Date, it is anticipated that Diversa
and Newco will enter into the Research and Development Agreement.
6.1.2 During the Joint Venture Period, it is anticipated that Newco
will employ or engage as consultants the following number of full-time
equivalents ("FTEs") for the management of the activities of the Joint Venture:
Year Management FTEs
Year 1 [*****]
Year 2 [*****]
Year 3 [*****]
Year 4 [*****]
Year 5 [*****]
6.1.3 During the Joint Venture Period, Novartis and Diversa will
share the payment of all Management Expenses in the ratio of [*****] payable by
Novartis and [*****] payable by Diversa; provided that Management Expenses over
the Joint Venture Period shall not exceed a total of [*****]. The President will
establish an annual budget for Management Expenses, subject to Board approval.
Management Expenses shall be paid promptly following receipt of a quarterly
invoice from Newco detailing the applicable expenses. Following the Joint
Venture Period, Diversa will not be responsible for any Management Expenses,
except as otherwise agreed in writing by the Parties.
6.2 Exclusivity Fees. In consideration of the grant of exclusive rights to
Novartis pursuant to Section 2.2:
9. *Confidential Treatment Requested
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6.2.1 Within [*****] of the execution of this Agreement, subject to
approval by the appropriate regulatory or governmental authorities, Novartis
shall pay to Diversa [*****] in consideration of the exclusive rights in the
[*****] granted to Novartis, pursuant to Section 2.2; and
6.2.2 Upon the [*****] anniversary of the Effective Date, Novartis
shall pay to Diversa [*****] in consideration of the exclusive rights in the
[*****] pursuant to Section 2.2.
6.3 Research Funding. During the Joint Venture Period, Novartis will fund,
or will cause to be funded, under the terms of the Research and Development
Agreement the minimum total number of Research FTEs for research and related
activities of the Joint Venture indicated in the column "Total Research FTEs"
below, which includes the minimum number of Research FTEs at Diverse indicated
in the column "Diversa Research FTEs" below. Funding for the Research FTEs for
research and related activities of the Joint Venture conducted at Diversa shall
be provided to Diversa through Newco pursuant to the Research and Development
Agreement. Subsequent to [*****] and until such time as the Research and
Development Agreement is entered into by the Parties, payments shall be made in
accordance with the Letter of Intent executed between the Parties on [*****] Any
such payments made pursuant to the Letter of Intent shall be applied to the FTE
payment obligations under the Research and Development Agreement.
<TABLE>
<CAPTION>
Year Total Research FTEs Diversa Research FTEs
<S> <C> <C>
Year 1 [*****] [*****]
Year 2 [*****] [*****]
Year 3 [*****] [*****]
Year 4 [*****] [*****]
Year 5 [*****] [*****]
</TABLE>
The cost per Research FTE for the first [*****] of the Joint Venture Period
shall be [*****] for Diversa Research FTEs and [*****] for all other Research
FTEs. Beginning in the [*****] year of the Joint Venture Period, a cost-of-
living adjustment will be applied to all Research FTEs. Thereafter, the cost-
of-living adjustment will be applied on a yearly basis and will be based on
standard Consumer Price Index values.
6.4 Commercialization Payments. In consideration of the licenses granted to
Novartis by Diversa, Novartis shall pay to Diversa commercialization fees for
each Commercial Development Biomolecule within [*****] after the first
commercial sale of the first Product as follows: (a) [*****] for Products that
are [*****] and (b) [*****] for all other Products.
6.5 Profit Sharing. In consideration of the rights granted under Section
2.2, Diversa and Novartis shall each share in all Profit of Newco as follows:
(a) [*****] shall receive [*****] of the [*****] of Profit, and (b) thereafter,
Novartis shall receive [*****] and Diversa shall receive [*****] of all Profit
paid as a royalty to each, and (c) thereafter, the Novartis U.S.
10. *Confidential Treatment Requested
<PAGE>
parent company of Newco shall receive the remaining [*****] of Profits paid as a
dividend. Profit shall be calculated on [*****], but each of Diversa and
Novartis shall receive [*****] on their respective share of the Profit paid as
[*****] after the [*****] based upon the [*****] adjusted [*****] and [*****] to
take account of [*****]. Copies of Newco's financial statements will be provided
to Diversa within [*****].
6.6 Royalties from Novartis to Diversa. Regarding the sale by Novartis,
its Affiliates and Sublicensees of Royalty-Bearing [*****] in the applicable
Fields, Novartis shall pay Diversa, as a royalty, [*****] of Differential Net
Sales on a [*****] within [*****] after the end of the applicable [*****]
provided that, if Differential Net Sales cannot be determined, Diversa and
Novartis will assess in good faith the [*****] [*****] and will [*****] based on
[*****] which would be comparable to the royalty on Differential Net Sales
described above. In those cases where Novartis must obtain a third party license
specific to bringing a Commercial Development Biomolecule to market, the
amortized cost of such license will be deducted from Differential Net Sales
before calculating the royalty due to Diversa.
6.7 Reports and Payments. Within [*****] after the conclusion of each
Royalty Period, Novartis shall pay to Diversa the estimated royalty payment due
for such Royalty Period based on the royalty rates applicable to units of
Royalty-Bearing [*****] shipped during such Royalty Period less estimated
returns, and shall deliver to Diversa a report containing the following
information:
(a) Adjustments and calculation of Net Sales for the applicable
Royalty Period in each country of sale; and
(b) Calculation of royalty.
Any corrections to the [*****] royalty payment will be established at the end of
the [*****] and factored into the corresponding royalty payment for such
[*****]. All amounts payable under this Section will first be calculated in the
currency of sale and then converted into U.S. dollars. The buying rates involved
for the currency of the United States into which the currencies involved are
being exchanged shall be the one quoted by The Wall Street Journal at the close
of business on the last business day of the applicable Royalty Period. Such
amounts shall be paid without deduction, except as required by law, of any
withholding taxes, value-added taxes, or other charges applicable to such
payments.
6.8 Records. Novartis and its Affiliates shall maintain complete and
accurate records of Royalty Bearing [*****] made, used or sold by them or their
Sublicensees under this Agreement, and any amounts payable to Diversa in
relation to Royalty Bearing [*****] which records shall contain sufficient
information to Diversa to confirm the accuracy of any reports delivered to them
in accordance with Section 6.7. Novartis and its Affiliates shall retain such
records relating to a given Royalty Period for at least three (3) years after
the conclusion of that Royalty Period. Diversa (acting as the "Auditing Party")
shall
11. *Confidential Treatment Requested
<PAGE>
have the right, at its own expense, to cause an independent certified public
accountant reasonably acceptable to Novartis, to inspect such records of
Novartis or its Affiliates (the "Audited Party") during normal business hours
for the sole purpose of verifying any reports and payments delivered under this
Agreement. Such accountant shall not disclose to the Auditing Party any
information other than information relating to accuracy of reports and payments
delivered under this Agreement and shall provide the Audited Party with a copy
of any report given to the Auditing Party. The Parties shall reconcile any
underpayment or overpayment within [*****] after the accountant delivers the
results of the audit. The Auditing Party shall bear the full cost of the audit
unless, the audit performed under this Section reveals an underpayment in excess
of [*****] in any Royalty Period, in which case the Audited Party shall bear the
full cost of such audit. Diversa may exercise its rights under this Section only
once every year and only with reasonable prior notice to Novartis. Novartis
shall use commercially reasonable efforts to ensure that said auditor will have
access to records of Royalty-Bearing Transgenic Products sold by its Affiliates.
6.9 Late Payments. In the event that any payment, including royalty
payments, due hereunder is not made when due, the payment shall accrue interest
from that date due at the rate of [*****] per month; provided however, that in
no event shall such rate exceed the maximum legal annual interest rate. The
payment of such interest shall not limit Diversa nor Novartis from exercising
any other rights it may have as a consequence of the lateness of any payment
6.10 Commercialization Outside the Fields. In the event that (a) Diversa
pursues commercialization of any Commercial Development Biomolecule contained in
a Product outside the Fields, (b) Newco has not exercised its right of first
option under the Research and Development Agreement, and (c) Diversa desires to
commercialize a Product containing such Commercial Development Biomolecule
outside the Field by itself or through a third party license, Diversa agrees to
pay Novartis a royalty on sales of such Products under commercially reasonable
terms and conditions set forth in a separate agreement entered into and
negotiated in good faith between the Parties prior to such commercialization.
6.11 Payments in U.S. Dollars. All payments due under this Agreement shall
be payable in United States dollars by wire transfer to an account designated by
the Party entitled to receive the payment.
7. Confidential Information.
7.1 Definition of Confidential Information. Confidential Information shall
mean any technical or business information, whether orally or in writing,
furnished by the Disclosing Party to the Receiving Party in connection with this
Agreement. Such Confidential Information shall include, without limitation, the
existence and terms of this Agreement, the identity of a Biomolecule, the
Biomolecule, any gene encoding such Biomolecule, if relevant, the use of a
Biomolecule, patent rights, trade secrets, know-how, inventions, technical data
or specifications, testing methods, business or financial information, research
and development activities, product and marketing plans, and customer and
supplier information, including, but
12. *Confidential Treatment Requested
<PAGE>
not limited to, such terms that become known to a Party during visits to the
facilities of any other Party.
7.2 Obligations. The Receiving Party agrees that it shall:
7.2.1 Maintain all Confidential Information in strict confidence,
except that the Receiving Party may disclose or permit the disclosure of any
Confidential Information to its Affiliates, directors, officers, employees,
consultants and advisors who are obligated to maintain the confidential nature
of such Confidential Information and who need to know such Confidential
Information for the purposes set forth in this Agreement. Further, each Party
will be entitled to disclose to its Sublicensees that Confidential Information
of the other Party as those Sublicensees need to know in order to commercialize
Products, provided that those Sublicensees are obligated to maintain the
confidential nature of such Confidential Information;
7.2.2 Use all Confidential Information solely for the purposes set
forth in, or as permitted by, this Agreement;
7.2.3 Allow its Affiliates, directors, officers, employees,
consultants and advisors to reproduce the Confidential Information only to the
extent necessary to effect the purposes set forth in this Agreement, with all
such reproductions being considered Confidential Information; and
7.2.4 If the Receiving Party is Novartis, then Novartis shall also
have the right to disclose Confidential Information to Novartis Agricultural
Discovery Institute, Inc. (NADII) provided that NADII is obligated to maintain
the confidential nature of such Confidential Information.
Each Party shall be responsible for any breaches of this Section 7.2 by any of
its Affiliates, directors, officers, employees, consultants and advisors, and,
in the case of Novartis, also for any breach of this Section 7.2 by NADII.
7.3 Exceptions. The obligations of the Receiving Party under Section 7.2.
above shall not apply to any specific Confidential Information to the extent
that the Receiving Party can demonstrate that such Confidential Information:
7.3.1 Was in the public domain prior to the time of its disclosure
under this Agreement;
7.3.2 Entered the public domain after the time of its disclosure
under this Agreement through means other than an unauthorized disclosure
resulting from an act or omission by the Receiving Party or its Affiliates,
directors, officers, employees, consultants, advisors or agents;
7.3.3 Was or is independently developed or discovered by the
Receiving Party without use of the Confidential Information, and which can be
demonstrated by written record;
13. *Confidential Treatment Requested
<PAGE>
7.3.4 Is or was disclosed to the Receiving Party at any time,
whether prior to or after the time of its disclosure under this Agreement by a
third party having no fiduciary relationship with the Disclosing Party and
having no obligation of confidentiality to the Disclosing Party with respect to
such Confidential Information; or
7.3.5 Is required to be disclosed to comply with applicable laws
or regulations (such as disclosure to the SEC, the EPA, the FDA, or the United
States Patent and Trademark Office or to their foreign equivalents), or to
comply with a court or administrative order, provided that the Disclosing Party
receives prior written notice of such disclosure and that the Receiving Party
takes all reasonable and lawful actions to obtain confidential treatment for
such disclosure and, if possible, to minimize the extent of such disclosure.
7.4 Survival of Obligations. The obligations set forth in Sections 7.1,
7.2 and 7.3 shall remain in effect after termination or expiration of this
Agreement for a period of [*****].
7.5 Public Announcement. The Parties shall issue a Joint press release
regarding the Joint Venture, the text of which shall be subject to mutual
written agreement of the Parties. Except for the information disclosed in the
joint press release, no Party shall use the name of any other Party or reveal
the existence of or terms of this Agreement in any publicity or advertising
without the prior written approval of the other party, except that (i) a Party
may use the text of a written statement approved in advance by the Parties
without further approval, and (ii) a party shall have the right to identify the
other parties and to disclose the terms of this Agreement as required by
applicable securities laws or other applicable law or regulation, provided that
such Party takes reasonable and lawful actions to minimize the degree of such
disclosure.
8. Representations And Warranties.
8.1 Authorization. Each Party represents and warrants to the other that
it has the legal right and power to enter into this Agreement and to fully
perform its obligations hereunder, and that the performance of such obligations
will not conflict with its charter documents or any agreements, contracts, or
other arrangements to which it is a party. Novartis will strive to cause the
U.S. parent company of Newco to comply with the applicable provisions of this
Agreement.
8.2 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER
PARTY MAKES ANY REPRESENTATION AND EXTENDS NO WARRANTY OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT.
8.3 Limitation of Liability. IN NO EVENT WILL EITHER PARTY, ITS
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER
PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES,
WHETHER BASED UPON A CLAIM OR ACTION OF
14. *Confidential Treatment Requested
<PAGE>
CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE,
ARISING OUT OF THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS TO THE OTHER
PARTY THAT IN CARRYING OUT ITS OBLIGATIONS UNDER THIS AGREEMENT IT WILL NOT
KNOWINGLY VIOLATE OR INFRINGE THE VALID AND ENFORCEABLE INTELLECTUAL PROPERTY
RIGHTS, INCLUDING THOSE CONFERRED BY A VALID, ENFORCEABLE US PATENT, OF ANY
THIRD PARTY, NOR AID AND ABET THE OTHER PARTY IN ANY SUCH VIOLATION OR
INFRINGEMENT.
9. Term; Termination.
9.1 Term. The term of this Agreement will commence as of the Effective
Date and will continue until the end of the Joint Venture Period unless
terminated earlier in accordance with Section 9.2 or extended by mutual
agreement of the Parties. Novartis shall have an exclusive option to extend the
Joint Venture Period for a period of [*****] subject to the execution of an
extension of the Research and Development Agreement under mutually agreeable
terms, and further provided that the exercise of such option [*****]. Diversa
and Novartis will commence negotiations [*****] prior to the end of the Joint
Venture Period to extend the Joint Venture Period on mutually acceptable terms,
and complete such negotiations [*****] prior to the end of the Joint Venture
Period. If the Joint Venture Period is not extended pursuant to the preceding
sentence, Diversa. and Novartis will negotiate in good faith to establish a
[*****].
9.2 Termination.
9.2.1 Change of Control. Novartis shall have the right to
terminate this Agreement upon the occurrence of a Change of Control during the
term of this Agreement by providing written notice of termination to Diversa
within sixty (60) days following receipt of written notice of the occurrence of
such Change of Control. In the event that Novartis does not terminate this
Agreement under this Section 9.2.1, this Agreement will be binding upon
Novartis, Diversa or any successor to Diversa in such Change of Control. Diversa
may notify Novartis in advance of a proposed Change of Control and, if Novartis
approves of such Change of Control in writing or notifies Diversa in writing
that it does not intend to terminate this Agreement within forty five (45) days
after such notice from Diversa, then the foregoing right of termination shall be
deemed waived.
9.2.2 Mutual Consent. This Agreement may be terminated at any time
by mutual written agreement of the Parties.
9.2.3 Material Breach. In the event that a Party commits a
material breach of any of its obligations under this Agreement or any party
commits a material breach under the Research and Development Agreement, or the
Novartis/Newco Agreement, and such party fails (i) to remedy that breach within
[*****] after receiving written notice thereof
15. *Confidential Treatment Requested
<PAGE>
from the other party to such agreement or (ii) to commence dispute resolution
under such agreement, within [*****] after receiving written notice of that
breach from the non-breaching party or parties, the non-breaching party or
parties may immediately terminate this Agreement and the Research and
Development Agreement or Novartis/Newco Agreement, as applicable, upon written
notice to the breaching party.
9.2.4 Breach of Payment Obligations. In the event that a party
fails to make timely payment of any amounts due under this Agreement, or under
the Research and Development Agreement within 10 business days after demand
therefor, the non-breaching party or parties may terminate any of these
agreements upon 30 days prior written notice, unless the breaching party cures
such breach by paying all past-due amounts within such 30 day notice period,
provided that such breaching party shall be entitled to use such cure provision
no more than once in any 12 month period.
9.3 Disposition of Confidential Information. In the event of termination
or expiration of this Agreement, the Parties shall return or destroy a forms of
Confidential Information provided to them under this Agreement within 30 days
after such termination or expiration, provided, however, that each Party may
retain one copy of such Confidential Information for the sole purpose of use in
any litigation resulting from this Agreement or the activities undertaken
pursuant thereto, and further provided that each Party shall retain full use of
Confidential Information as provided under this Agreement to the extent it
relates to any of the rights accrued to a Party hereunder prior to such
termination or expiration.
9.4 Effect of Termination or Expiration. Termination or expiration of
this Agreement shall not relieve the parties of any obligation accruing prior to
such termination or expiration, nor shall it encumber any of the rights accrued
to a Party hereunder prior to such termination or expiration. In addition, upon
termination or expiration of this Agreement, the rights granted to the Parties
under Sections 2.1, 2.2 and 2.3 for Diversa Technology shall survive but only as
they relate to (a) Transferred Biomolecules as defined in the Research and
Development Agreement, or (b) Commercial Development Biomolecules. Further,
Diversa will not assert against Novartis, its Affiliates or Sublicensees any
rights to patents or know-how it may develop or acquire after the Research
Period with respect to such Transferred Biomolecules or Commercial Development
Biomolecules, and further provided that the financial obligations of each Party
with respect to Transferred Biomolecules or Commercial Development Biomolecules
under the provisions of Sections 6.4, 6.5, 6.6, 6.7 and 6.10 shall survive
termination or expiration of this Agreement but only to the extent that the
Parties mutually agree through good faith negotiation to payment at royalty
rates equivalent thereunder but in the absence of the Joint Venture. Further,
the provisions of Sections 7.1, 7.2, 7.3, 7.4, 8.2, 8.3, 9.3, 9.4 and 10 shall
survive the expiration or termination of this Agreement. Termination of this
Agreement pursuant to Section 9.2 shall not limit any other rights and remedies
of the terminating party.
10. Miscellaneous.
10.1 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency or employer-employee
relationship between the
16. *Confidential Treatment Requested
<PAGE>
parties. No Party shall incur any debts or make any commitments for the other,
except to the extent, if at all, specifically provided herein.
10.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of [*****] other than those provisions
governing conflicts of law.
10.3 Dispute Resolution Procedures.
10.3.1 The Parties hereby agree that they will attempt in good faith
to resolve any controversy, claim or dispute arising out of or relating to this
Agreement ("Dispute") promptly by negotiations. Any such dispute which is not
settled by the parties within 15 days after notice of such Dispute is given by
one Party to the others in writing shall be referred to the Chief Executive
Officer of Diversa and the appropriate Senior Executive of Novartis who are
authorized to settle such Disputes on behalf of their respective companies
("Senior Executives"). The Senior Executives will meet for negotiations within
15 days of such notice of Dispute, at a time and place mutually acceptable to
both Senior Executives. If the Dispute has not been resolved within 30 days
after the end of the 15 day negotiation period referred to above (which period
may be extended by mutual agreement), unless otherwise specifically provided for
herein, any Dispute will be settled first by non-binding mediation and
thereafter by arbitration as described in Sections 10.3.2 and 10.3.3 below.
10.3.2 Any Dispute which is not resolved by the Parties within the
time period described in Section 10.3.1 shall be submitted to an alternative
dispute resolution process ("ADR"). Within five business days after the
expiration of the 30-day period set forth in Section 10.3.1, each of Diversa and
Novartis shall select for itself a representative with the authority to bind
such Party and shall notify the other Party in writing of the name and title of
such representative. Within 10 business days after the date of delivery of such
notice, the representatives shall schedule a date for engaging in non-binding
ADR with a neutral mediator or dispute resolution firm mutually acceptable to
both representatives. Any such mediation shall be held in [*****] if brought by
Novartis and Research Triangle Park, [*****] if brought by Diversa. Thereafter,
the representatives of Diversa and Novartis shall engage in good faith in an ADR
process under the auspices of such individual or firm. If the representatives of
the Diversa and Novartis have not been able to resolve the Dispute within 30
business days after the conclusion of the ADR process, or if the representatives
of such Parties fail to schedule a date for engaging in non-binding ADR within
the 10-day period set forth above, the Dispute shall be settled by binding
arbitration as set forth in Section 10.3.3 below. If the representatives of
Diversa and Novartis resolve the dispute within the 30-day period set forth
above, then such resolution shall be binding upon all Parties. If Diversa or
Novartis fails to abide by such resolution, the other Party can immediately
refer the matter to arbitration under Section 10.3.3.
10.3.3 If the parties have not been able to resolve the dispute as
provided in Sections 10.3.1 and 10.3.2 above, the Dispute shall be finally
settled by binding arbitration. Any arbitration hereunder shall be conducted
under rules of conciliation and arbitration of the
17. *Confidential Treatment Requested
<PAGE>
International Chamber of Commerce by three arbitrators chosen according to the
following procedure: each of Diversa and Novartis shall appoint one arbitrator
and the two so nominated shall choose the third. If the arbitrators chosen by
the Parties cannot agree on the choice of the third arbitrator within a period
of 30 days after their appointment, then the third arbitrator with such
requisite qualifications shall be appointed by the Court of Arbitration of the
International Chamber of Commerce. Any such arbitration shall be held in San
Diego, California if brought by Novartis and Paris, France if brought by
Diversa, or such other location as the arbitrators may agree, and shall be
conducted in English. The arbitral award (i) shall be final and binding upon all
Parties; and (ii) may be entered in any court of competent jurisdiction.
10.3.4 Nothing contained in this Section or any other provisions of
this Agreement shall be construed to limit or preclude Diversa or Novartis from
bringing any action in any court of competent jurisdiction for injunctive or
other provisional relief to compel the other Parties to comply with their
obligations hereunder before or during the pendency of mediation or arbitration
proceedings.
10.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
10.5 Headings. All headings in this Agreement are for convenience only and
shall not affect the meaning of any provision hereof
10.6 Binding Effect. This Agreement and all rights and obligations
hereunder shall inure to the benefit of and be binding upon the Parties and
their respective lawful successors and assigns (including, without limitation,
any successor to Diversa upon a Change of Control).
10.7 Assignment. Except as otherwise provided herein, including the Change
of Control provisions of Section 9.2.1, neither this Agreement nor any interest
hereunder will be assignable in part or in whole by any Party without the prior
written consent of the other Parties; provided, however, that Novartis and
Diversa may assign this Agreement to any of their respective Affiliates or to
any successor by merger or sale of substantially all of its business to which
this Agreement relates (provided that, in the event of such merger or sale, no
intellectual property of any acquiring or acquired corporation that is not a
Party shall be included in the technology licensed hereunder). This agreement
will be binding upon the successors and permitted assigns of the Parties. Any
assignment which is not in accordance with this Section will be void.
10.8 Notices. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized international overnight courier, confirmed
facsimile transmission, or registered or certified mail, return receipt
requested, postage prepaid to the following addresses or facsimile numbers:
18. *Confidential Treatment Requested
<PAGE>
If to Novartis: If to Diversa:
Novartis Seeds AG Diversa Corporation
Schwarzwaldallee 215 10665 Sorrento Valley Road
CH-4002 Basel San Diego, California 92121
Attention: Wally Beversdorf Attention: Carolyn Erickson
Tel: (+4161) 697-3650 Tel: (858) 453-7020
Fax: (+4161) 697-3972 Fax: (858) 453-7032
with a copy to: with a copy to:
Novartis Seeds AG Cooley Godward LLP
Schwarzwaldallee 215 4365 Executive Drive, Suite 1100
CH-4002 Basel San Diego, CA 9221
Attention: Verena Trutmann Attention: L. Kay Chandler
Tel: (+41.61) 697-2375 Tel: (858) 550-6000
Fax: (+4161) 697-2590 Fax: (858) 453-3555
A Party may change its designated address and facsimile number by notice to the
other Parties in the manner provided in this Section.
10.9 Amendment and Waiver. This Agreement may be amended, supplemented,
or otherwise modified only by means of a written instrument signed by all of the
Parties. Any waiver of any rights or failure to act in a specific instance shall
relate only to such instance and shall not be construed as an agreement to waive
any rights or fail to act in any other instance, whether or not similar.
10.10 Severability. In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and the Parties shall negotiate in good faith to modify the Agreement to
preserve (to the extent possible) their original intent.
10.11 Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings between the Parties relating to the subject
matter hereof, including but not limited to the Letter of Intent executed by the
Parties and dated [*****]. Notwithstanding the foregoing, the provisions of the
Letter of Intent with respect to research and development, including, without
limitation, research funding, shall remain in full force and effect until both
this Agreement and the Research and Development Agreement have been fully
executed.
10.12 Force Majeure. No Party shall be held liable or responsible to the
other party, nor be deemed to be in breach of this Agreement, for failure or
delay in fulfilling or performing any provisions of this Agreement (other than
payment obligations) when such failure or delay is caused by or results from any
cause whatsoever outside the reasonable control of the
19. *Confidential Treatment Requested
<PAGE>
party concerned including, but not limited to, fire, explosion, breakdown of
plant, damage to plant material by pests or otherwise, strike, lock-out, labor
disputes, casualty or accident, lack or failure of transportation facilities,
flood, lack or failure of sources of supply or of labor, raw materials or
energy, civil commotion, embargo, any law, regulation, decision, demand or
requirement of any national or local government or authority. The Party claiming
relief shall, without delay, notify the other party by registered airmail or by
telefax of the interruption and cessation thereof and shall use its best efforts
to remedy the effects of such hindrance with all reasonable dispatch. The onus
of proving that any such Force Majeure event exists shall rest upon the Party so
asserting. During the period that a Party is prevented from performing its
obligations under this Agreement due to a Force Majeure event, the other Parties
may, in their sole discretion, suspend any obligations that relate thereto. Upon
cessation of such Force Majeure event, the Parties hereto shall use their best
efforts to make up for any suspended obligations. If such Force Majeure event is
anticipated to continue, or has existed for nine (9) consecutive months or more,
this Agreement may be forthwith terminated by any Party by registered mail or by
telefax. In case of such termination, the terminating Party will not be required
to pay to the other Parties any indemnity whatsoever.
In Witness Whereof, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.
Novartis Seeds AG Diversa Corporation
/s/ W.D. Beversdorf /s/ William H. Baum
- ------------------------ ----------------------------
By: W.D. Beversdorf By: William H. Baum
-------------------- ------------------------
Title: Head, R & D Title: Sr. V. P. - Bus. Div.
----------------- ---------------------
/s/ Verena Trutmann
- ------------------------
By: Verena Trutmann
--------------------
Title: General Counsel
-----------------
20. *Confidential Treatment Requested
<PAGE>
EXHIBIT 10.25
RESEARCH LEASE
Equipment: CellSys 100(TM) Microdrop Maker (includes ice-water bath container
and a 12.3 cm autoclavable stainless steel shaft/blade assembly) as described in
Exhibit B, Equipment Specifications.
Reagents: [*****] of sterilized CelMix(TM) 200 Emulsion Matrix and [*****] of
sterilized CelBioGel(TM) Encapsulation Matrix.
Exhibit A lists the patents covering the Equipment and Reagents; Exhibit B lists
the Equipment specifications.
ONE CELL SYSTEMS, INC. (LESSOR)
100 Inman Street
Cambridge, MA 02139
DIVIERSA CORPORATION (LESSEE)
10665 Sorrento Valley Road
San Diego, CA 92121
Equipment Location Address (if different than above):
Street: _____________________________________________________
City: _____________________ State: ___________ Zip: _______
Renewal Lease Term: [*****];[*****] through December 31, 1999.
Lease Payment: [*****] for the Renewal Lease Term.
Payment Schedule: [*****] due by [*****].
LEASE TERMS AND CONDITIONS
Lessee requests that Lessor lease to Lessee the personal property shown above
(the "Equipment") for research purposes only. Lessee's offer will be binding on
Lessor when Lessor accepts it by having an authorized employee sign in the space
provided below. All Lease Payments and other sums due and to become due shall
be payable to Lessor at Lessor's offices at 100 Inman Street, Cambridge, MA
02139.
1. Lease-Payment. The Lease Payment for the Renewal Lease Term is [*****]
which is due by [*****].
2. Equipment Location. Equipment shall be delivered to, and not be removed
without Lessor's prior written consent from the "Equipment Location" shown above
or if no location is specified, Lessee's billing address. Lessor shall have the
right to inspect Equipment at any reasonable time during business hours with
reasonable notice.
1. *Confidential Treatment Requested
<PAGE>
3. Reagent Shipments. Unless directed to the contrary by Lessee in writing,
Lessor shall ship at [*****] of the Lease to the Equipment Location [*****] of
sterilized CelMix(TM) 200 Emulsion Matrix and [*****] of sterilized
CelBioGel(TM) Encapsulation Matrix. These shipments will be F.O.B. Cambridge,
MA; Lessor will prepay the freight and invoice Lessee accordingly, or, at
Lessee's direction, utilize Lessee's FedEx account number [*****].
4. Ownership; Personal Property. This equipment is Lessor's property, and no
rights or interests in it are conveyed except as expressly set forth herein.
The Equipment is and shall at all times remain personal property.
5. Use of Equipment and Reagents. The Equipment and Reagents can be used only
for Lessee's own internal research purposes. Lessee cannot sell or provide
services (now or in the future) that use or encompass the Equipment or Reagents
to third parties; Lessee cannot sell or provide products (now or in the future)
that either use or were developed (in whole or in part) with the Equipment or
Reagents or are manufactured by the Equipment to third parties. Lessee's
obligations and Lessor's rights under this Section 5 shall survive Lease
expiration or termination.
6. Assignment, Offset. LESSEE MAY NOT ASSIGN, TRANSFER, OR SUBLET ANY INTEREST
IN THIS LEASE OR THE EQUIPMENT WITHOUT LESSOR'S PRIOR WRITTEN CONSENT. Lessor
may assign this Lease or mortgage the Equipment, or both, in whole or in part
without notice to Lessee. If Lessee receives notice, Lessee will acknowledge
receipt thereof in writing. Each assignee or mortgagee of Lessor shall have all
Lessor's rights, but none of Lessor's obligations under this Lease. Lessee shall
not assert against assignee or mortgagee any defenses, counterclaims, or offsets
Lessee may have against Lessor. This Lease inures to the benefit of and is
binding upon the heirs, legatees, successors, and assigns of the parties hereto.
Lessee acknowledges that any assignment by Lessor will neither materially change
Lessee's duties hereunder nor increase Lessee's burdens or risks hereunder.
7. Lessee's Options After Expiration of Renewal Lease Term. At least [*****]
prior to the expiration of the Renewal Lease Term Lessor will send to Lessee 1)
notification that Lessee's Renewal Lease will expire as of a particular date and
2) a Continuing Lease specifying the terms and conditions upon which Lessee can
continue to lease the Equipment; the Lease Payment in the Continuing Lease will
be no more than [*****] of the Lease Payment in the Renewal Lease Term. Within
[*****] after the expiration of the Renewal Lease Term and assuming that no
default has occurred and is continuing, Lessee has the following Options:
(A) to release the Equipment on the terms and conditions specified in the
Continuing Lease, or
(B) to surrender the Equipment,
8. Taxes, No Liens. As Lessor directs, Lessee shall pay all charges and taxes
(local, state, and federal) incurred by Lessor which may now or hereafter be
imposed or levied upon the leasing, possession, or use of the Equipment,
excluding, however, all taxes on or measured by Lessor's net income. Lessee
shall keep the Equipment free and clear of all liens and encumbrances.
9. Indemnity. Lessee shall indemnify, defend, and hold Lessor harmless from
any costs, expenses, damages, fines, claims, or lawsuits arising from the lease,
possession, use, condition,
2. *Confidential Treatment Requested
<PAGE>
or return of the Equipment. The obligations under this Section 9 shall survive
Lease expiration or termination.
10. Lease Term, Noncancelability, Nonassignability. This lease shall continue
fur the number of months shown in the space above as the Renewal Lease Term and
end after Lessee has fulfilled all Lessee's obligations. THIS LEASE CANNOT BE
CANCELED OR TERMINATED FOR ANY REASON EXCEPT AS EXPRESSLY PROVIDED HEREIN.
LESSEE MAY NOT ASSIGN, TRANSFER, OR SUBLET ANY INTEREST IN THIS LEASE OR THE
EQUIPMENT WITHOUT LESSOR'S PRIOR WRITTEN CONSENT.
11. Warranty and Maintenance. Lessor warrants that the Equipment is free from
defects in materials and workmanship for the duration of this Lease and will
perform substantially in accordance with the Equipment documentation for the
life of the Equipment. Lessor will provide all labor and parts required to
maintain the Equipment in operating condition for the duration of this Lease.
Lessee is responsible for any freight and shipping charges associated with any
non-warranty repair or maintenance of the Equipment.
12. Disclaimer of Other Warranties. Section 11 contains the only Warranty of
any kind, express or implied, including but not limited to the implied
warranties of merchantability and fitness for a particular purpose, that are
made by Lessor on this Equipment. No oral or written information or advice
given by Lessor or Lessor's employees shall create a warranty or in any way
increase the scope of this Warranty, and Lessee may not rely on any such
information or advice.
13. Late Payment Charges. If any payment to Lessor required herein is not paid
on or before its due date, Lessee shall pay to Lessor interest on any such late
payment from the due date thereof until the date paid at the lesser of [*****]
or the [*****].
14. Default. If Lessee's failure to perform any obligation hereunder continues
for [*****] after Lessor demands in writing performance thereof, Lessor may take
possession of any Equipment, which possession shall not terminate Lessee's
obligations under this Lease. Lessee will he responsible for Lessor's legal
costs and expenses.
15. Insurance. Lessee shall at Lessee's expense provide and maintain (a)
insurance against loss, theft, damage or destruction of the Equipment for its
full replacement value, naming Lessor as the loss payee, and (b) public
liability and property damage insurance naming Lessor as additional insured.
Such insurance (and written evidence thereof delivered to Lessor at Lessor's
request) shall be satisfactory to Lessor. If Lessee fails to provide such
evidence, Lessor will have the right, but no obligation, to have such insurance
protecting Lessor placed at Lessee's expense.
3. *Confidential Treatment Requested
<PAGE>
1.6. Patents. All inventions and discoveries, whether or not patentable, which
are conceived or reduced to practice by Lessee while utilizing the Equipment
and/or Reagents shall be the sole and exclusive property of Lessee, provided
however, that any patent claims reciting the Equipment (specifically or
generically) and/or Reagents (specifically or generically which can form "bead
polymers" or "gel microdrops" as described in the Patents listed in Exhibit A of
this Lease) individually or as a component of a product or a process shall be
jointly owned by the Lessor and Lessee. Lessor's rights under this Section 16
shall survive Lease expiration or termination.
17. Miscellaneous; Lessee Waivers; Consent to Jurisdiction. This instrument
constitutes the entire agreement between the parties as to the subject matter
contained herein, and it shall not be amended, altered, or changed except by a
written agreement signed by the parties hereto and no provision of this Lease
can be waived except by Lessor's written consent. Lessee authorizes Lessor to
do all acts which Lessor may reasonably deem necessary to protect Lessor's
interests hereunder. This is a contract of lease only and nothing shall create
in Lessor solely a security interest or give Lessee an equity or other property
interest in the Equipment except as specifically provided herein.
The Undersigned affirms that he/she are duly authorized to execute this Lease
Contract:
One Cell Systems, Inc. (Lessor) by: Diversa Corporation (Lessee) by:
/s/ Edward O'Lear /s/ Carolyn Erickson
- ------------------------------------ -----------------------------------
Edward O'Lear Carolyn Erickson
Vice President Director, IP
Date: February 16, 1999
4. *Confidential Treatment Requested
<PAGE>
EXHIBIT A
PATENTS
The following Patents and pending patent applications cover the encapsulation of
a variety of biological substances using the Reagents (both specifically and
generically) and Equipment (both specifically and generically) and then assaying
for a variety of parameters:
[*****]
EXHIBIT B
EQUIPMENT SPECIFICATIONS
[*****]
5. *Confidential Treatment Requested
<PAGE>
EXHIBIT 10.26
RESEARCH AND DEVELOPMENT AGREEMENT
between
NOVARTIS ENZYMES, INC.
and
DIVERSA CORPORATION
*Confidential Treatment Requested
<PAGE>
RESEARCH AND DEVELOPMENT AGREEMENT
This Research and Development Agreement, dated and effective as of December
1, 1999 (the "Effective Date"), is between Diversa Corporation ("Diversa"), a
Delaware corporation, and Novartis Enzymes, Inc. ("NEI"), a Delaware corporation
and wholly-owned subsidiary of Novartis Seeds AG ("Novartis"). Diversa and NEI
are referred to herein individually as a "Party" and collectively as the
"Parties."
R E C I T A L S
---------------
WHEREAS, Diversa has discovered and developed Biomolecules (as defined
below), as well as proprietary technologies for the rapid discovery, development
and optimization of Biomolecules;
WHEREAS, Novartis has caused the formation of a new wholly-owned,
affiliated company known as NEI, referred to as "Newco" in the Joint Venture
Agreement, which desires to commercialize products useful in the animal feed and
the agricultural product processing markets; and
WHEREAS, NEI and Diversa desire to enter into a relationship whereby
Diversa discovers, develops and delivers Biomolecules to NEI for NEI to use in
the production and commercialization of products in the areas of animal feed and
agricultural product processing;
WHEREAS, NEI also may transfer to Novartis such Biomolecules as are
appropriate for the development of commercial products with respect to
transgenic crops;
NOW, THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, the parties hereby agree as follows:
1. Definitions.
------------
"Affiliate" shall mean any entity that directly or indirectly controls, is
---------
controlled by or is under common control, with NEI or Diversa, as the case may
be, where "control" means direct or indirect possession of more than [*****] of
the outstanding voting securities of a corporation or a comparable equity
interest in any other type of entity, or operational control of such entity.
"Agreement" shall mean this Research and Development Agreement.
---------
"Agricultural Product Processing Field" shall mean the use of Biomolecules
-------------------------------------
on or in Crops to alter, modify or improve the performance or other
characteristics of the Crop. This field specifically excludes the [*****]
Field.
"Agricultural Product Processing Projects" shall mean the Projects defined
----------------------------------------
by the RAC pursuant to Section 3.1 in which the field of use of the applicable
Biomolecule(s) is within the Agricultural Product Processing Field.
2. *Confidential Treatment Requested
<PAGE>
"Alternate" shall have the meaning set forth in Section 3.4.
---------
"Animal Feed Field" shall mean the use of Biomolecules on or in Crops for
-----------------
feed applications to alter, modify or improve feed conversion and/or animal
nutrition. This field specifically excludes all vaccines and therapeutic
applications.
"Biomolecule(s)" shall mean enzymes and/or genes encoding them.
--------------
"Change of Control" shall mean any of the following transactions involving
-----------------
another company (other than NEI or any of its Affiliates) (a) a merger or
consolidation of Diversa which results in the voting securities of Diversa
outstanding immediately prior thereto ceasing to represent at least [*****] of
the combined voting power of the surviving entity immediately after such merger
or consolidation; (b) the sale of all or substantially all of the assets of
Diversa; or (c) any one person (other than Diversa, any trustee or other
fiduciary holding securities under an employee benefit plan of Diversa, or any
corporation owned directly or indirectly by the stockholders of Diversa, in
substantially the same proportion as their ownership of stock of Diversa),
together with any of such person's "affiliates" or "associates", as such terms
are used in the Securities Exchange Act of 1934, as amended, becoming the
beneficial owner of 50% or more of the combined voting power of the outstanding
securities of Diversa or by contract or otherwise having the right to control
the Board of Directors or equivalent governing body of Diversa or the ability to
cause the direction of management of Diversa.
"Commercial Development Biomolecule" shall mean Diversa Biomolecules and/or
----------------------------------
Derivative NEI Biomolecules that have been, pursuant to Preliminary Efficacy
Trials, designated by NEI in accordance with this Agreement, for
commercialization in or as a Product.
"Committee Member" shall have the meaning set forth in Section 3.
----------------
"Confidential Information" shall have the meaning set forth in Section 7.1.
------------------------
"Crop" shall mean any component of any cultivated plant species, including,
----
[*****].
"Derivative NEI Biomolecules" shall mean all Biomolecules that are derived
---------------------------
or discovered from NEI Biomolecules through application of Diversa Technology
and any derivatives of such Biomolecules.
"Disclosing Party" shall mean that Party disclosing Confidential
----------------
Information to the other Party under Section 7.
3. *Confidential Treatment Requested
<PAGE>
"Diversa Biomolecules" shall mean all Biomolecules owned by, or licensed
--------------------
to, Diversa, with the right to license or sublicense, as of the Effective Date
or during the Research Period.
"Diversa Know-How" shall mean all know-how, trade secrets, inventions,
----------------
data, processes, procedures, devices, methods, formulas, media and/or all lines,
Biomolecules, clones, strains, genes, reagents, protocols and marketing and
other information, including improvements thereon, whether or not patentable,
which are not covered by the Diversa Patent Rights, but which are necessary or
useful for the commercial exploitation of the Diversa Patent Rights or the
conduct of the Projects or otherwise relate to Biomolecules or Products, and
which are owned by or licensed to Diversa, with the right to license, as of the
Effective Date or otherwise during the Research Period.
"Diversa Inventions" shall mean those Inventions over which Diversa has
------------------
exclusive ownership and control as provided in Section 5.1.
"Diversa Patent Rights" shall mean all patent and provisional patent
---------------------
applications, issued and subsisting patents and substitutions, divisionals,
continuations, continuations-in-part, reissues, reexaminations, extensions and
supplementary protection certificates thereof, including foreign counterparts of
the foregoing, in each case which are owned by or licensed to Diversa, with the
right to license, as of the Effective Date or otherwise during the Research
Period, which are necessary or useful for the conduct of the Projects or
otherwise relate to Biomolecules or Products arising from the conduct of the
Projects. Without limiting the generality of the foregoing, Diversa Patent
Rights include any patents and patent applications claiming Inventions owned by
Diversa under Sections 5.1.1, 5.1.3 and 5.1.4.
"Diversa Technology" shall mean the Diversa Know-How and the Diversa Patent
------------------
Rights.
"Fields" shall mean the Animal Feed Field and the Agricultural Product
------
Processing Field.
"Indemnitees" shall have the meaning set forth in Section 9.1.
-----------
"Indemnitor" shall have the meaning set forth in Section 9.1.
----------
"Inventions" shall have the meaning set forth in Section 5.1.
----------
"Joint Inventions" shall have the meaning set forth in Section 5.2.3.
----------------
"Joint Venture Agreement" shall mean that certain Joint Venture Agreement,
-----------------------
dated as of its effective date, by and between Diversa and Novartis Seeds AG.
"[*****]" shall mean, with respect to each Project, the [*****] activity
level against a [*****] according to the Project Plan.
"NEI Biomolecules" shall mean all Biomolecules owned by, or licensed to,
----------------
NEI, with the right to license or sublicense which are provided by NEI to
Diversa under this Agreement.
4. *Confidential Treatment Requested
<PAGE>
"NEI Inventions" shall mean those Inventions over which NEI has exclusive
--------------
ownership and control as provided in Section 5.1.
"NEI Patent Rights" shall mean all patent and provisional patent
-----------------
applications, issued and subsisting patents and substitutions, divisionals,
continuations, continuations-in-part, reissues, reexaminations, extensions and
supplementary protection certificates thereof, including foreign counterparts of
the foregoing, in each case which are owned by or licensed to NEI, with the
right to license, as of the Effective Date or otherwise during the Research
Period, which are necessary or useful for the conduct of the Projects or
otherwise relate to Biomolecules or Products. Without limiting the generality of
the foregoing, NEI Patent Rights include any patents and patent applications
claiming Inventions owned by NEI under Sections 5.1.2, 5.1.3 and 5.1.5.
"Preliminary Efficacy Trials" shall mean, with respect to each Commercial
---------------------------
Development Biomolecule and Transferred Biomolecule, preliminary testing
conducted by or for NEI to determine functional efficacy conducted under
anticipated use conditions, generally outside of a laboratory environment.
Preliminary Efficacy Trials [*****], such as [*****] in the [*****] and [*****]
for [*****] including [*****], and [*****] or any other [*****] for [*****].
"Product" when used without further qualification shall mean a commercial
-------
product containing or consisting of any Biomolecule designated under this
Agreement as a Commercial Development Biomolecule.
"Project" shall mean research efforts undertaken pursuant to a Project
-------
Plan.
"Project Plan" shall mean a written plan prepared by the RAC, documenting
------------
the research and development to be performed by Diversa and the work to be
performed by NEI in support of a Project. Such documentation will include
[*****], an [*****] of [*****] of [*****] in terms of [*****] and all
[*****],[*****] and [*****] for purposes of [*****] and an estimated schedule
for completion of the research and development work, as well as specific details
regarding the [*****] of Biomolecules delivered by Diversa to NEI (including,
without limitation, [*****], the [*****] and details of [*****] plans to
[*****]. Each Project Plan may be amended from time to time, as required and
subject to approval by the [*****], and incorporated by reference as part of
this Agreement.
"Receiving Party" shall mean that Party receiving Confidential
Information under Section 7.
"Research FTE" shall mean the equivalent of one full year of work on a
------------
full-time basis by a scientist or other professional employed or retained as a
consultant by Diversa and possessing
5. *Confidential Treatment Requested
<PAGE>
skills and experience necessary to carry
out the Project(s) contemplated by this Agreement, determined in accordance with
Diversa's normal policies and procedures.
"Research Period" shall mean the period beginning on the Effective Date and
---------------
ending upon the termination or expiration of this Agreement.
"Responsible Party" shall have the meaning set forth in Section 5.2.3.
-----------------
"RAC" shall have the meaning set forth in Section 3.
---
"[*****]" shall mean [*****] of a Biomolecule against a [*****] appropriate
to the [*****] as determined by the [*****].
"Sublicensee" shall mean any third party (other than an Affiliate of a
-----------
Party) licensed by NEI or its Affiliates to make, use (except where the implied
right to use accompanies the sale to the third party of any [*****] by NEI or
its Affiliates or Sublicensees), sell, import, export, advertise, promote and
otherwise commercialize any [*****].
"[*****]" shall mean a [*****] discovered or derived under the terms of
this Agreement which [*****].
"Valid Claim" shall mean a claim included in any pending patent application
-----------
or any issued patent included within the NEI Patent Rights or the Diversa Patent
Rights, which, if with respect to any pending claim, has not been irrevocably
abandoned or held to be unpatentable by a court or other authority of competent
jurisdiction in a proceeding which is not reversed, not appealable and not
appealed, or, with respect to any issued claim, has not been held invalid by a
decision of a court or other authority of competent jurisdiction which is not
reversed, not appealable and not appealed.
"Year" shall mean any consecutive 12-month period during the Research
----
Period that begins on the Effective Date or an anniversary of the Effective
Date. For example, Year 1 shall be the consecutive 12-month period beginning on
the Effective Date.
The above definitions are intended to encompass the defined terms in both
the singular and plural tenses.
2. Collaboration.
--------------
2.1. Scope. Diversa agrees to work exclusively with NEI in the Animal
-----
Feed Field and on Agricultural Product Processing Projects under the terms of
the Joint Venture Agreement during the term of this Agreement.
2.2. Projects. During the Research Period, NEI and Diversa will, with the
--------
advice of the RAC, define and perform Projects in the Fields with the goal of
identifying or discovering Biomolecules suitable for development by NEI or its
Affiliates. Each such proposed Agricultural
6. *Confidential Treatment Requested
<PAGE>
Product Processing Project and the corresponding Project Plan will be further
defined by the RAC in accordance with Section 3.
NEI agrees to provide funding in accordance with Section 6.1 for the
following minimum number of Diversa FTEs to work on Projects for the following
years :
[*****]
2.3. Limited Use of [*****] Provided by Diversa. Without limiting any
--------------- --------------------
other provision of this Agreement, NEI agrees that it will use [*****] derived
from [*****] provided by Diversa pursuant to any Project Plan only for
evaluating such [*****] in connection with the Project and will not use such
[*****] for any other purpose. NEI may not transfer such [*****] to any other
party; provided that NEI may transfer such [*****] to its Affiliates subject to
the limitations on use set forth herein and only to the extent necessary to
effect the purposes of this Agreement. NEI will inform Diversa in writing of the
targets to be used in [*****] such [*****] prior to commencing such [*****]. NEI
will provide Diversa with regular written reports (no less frequently than once
per quarter) identifying the [*****] and [*****] used in such [*****] and the
results of such [*****]. NEI will employ a system to track the identity and use
of such clones and to ensure that such [*****] are maintained separately from
any other [*****] used by NEI (or any Affiliate of NEI, if applicable) and will
provide Diversa with a detailed description of such system prior to the delivery
of any [*****] by Diversa to NEI under any Project Plan.
2.4. Biomolecules Provided by a Party. Each Party shall be responsible
--------------------------------
for ensuring that all Biomolecules made available by such Party for the
collaboration are done so in compliance with any intellectual property rights
required by the Biodiversity Convention or legislation related thereto, and such
Party shall further bear all obligations associated therewith.
3. Research Advisory Committee.
----------------------------
NEI and Diversa shall establish a research advisory committee (the "RAC")
comprised of [*****] persons (each, a "Committee Member"), [*****] of whom shall
be appointed by NEI and [*****] of whom shall be appointed by Diversa. The RAC
may invite other representatives of the Parties, or other individuals as deemed
appropriate by the RAC, to participate in meetings of the RAC, as appropriate,
provided that no such representative shall have the right to vote as a Committee
Member. Each Committee Member, other representative of a Party or other
individual invited to participate in a meeting shall, if not already so
obligated to a Party, sign a confidentiality undertaking committing such
Committee Member, representative or invited individual to fully comply with and
respect the Confidentiality obligations of Section 7.
7. *Confidential Treatment Requested
<PAGE>
The Committee Members will, within [*****] of executing this Agreement,
define and approve the [*****] Projects and Project Plans for this Agreement.
3.1. Responsibilities. The [*****]. The [*****], and all [*****] When
-----------------
advising NEI management, the [*****] shall, among other things, [*****], and
[*****]. Other responsibilities include, but are not limited to, the following:
3.1.1. Design and Development of Project Plans. The RAC shall take
---------------------------------------
into account the desires and directions of NEI management and advise NEI
management in writing on all Project Plans undertaken pursuant to this
Agreement. The RAC must design and develop all Project Plans to be performed
under the terms of this Agreement. Such design and development will be based on,
but not limited to, [*****], the [*****], the [*****], especially with respect
to [*****], the [*****],[*****]. In addition, for Agricultural Product
Processing Projects, the RAC shall advise NEI management as to whether Diversa
is free to collaborate or has previously granted rights to a third party for the
particular project at the time the project is proposed. Project Plans for the
Projects will be an integral part of this Agreement.
3.1.2. Amendment of Project Plans. All amendments to the Project
---------------------------
Plans proposed by the RAC shall be in writing and be subject to the approval of
NEI management, and incorporated by reference into this Agreement. Amendments to
Project Plans will be an integral part of this Agreement.
3.1.3 Agricultural Product Processing Projects. Work on each
----------------------------------------
Project Plan for Agricultural Product Processing Projects will begin within
[*****] of NEI management approval in writing for each relevant Project Plan.
Agricultural Product Processing Projects will be established as being [*****] at
the time that the applicable Project Plan is approved.
3.1.4. Review of Reports. At certain reporting milestones defined by
-----------------
the RAC for each Project, Diversa and NEI shall deliver to the RAC reports
containing a complete compilation of all research activities and data derived
from the activities undertaken hereunder by such Party as part of the Projects,
including revisions to the Project Plans, as appropriate. The RAC will review
such data to determine progress made on the Projects, and make a written report
of its findings to NEI management on a timely basis. Reports to and from the RAC
as
8. *Confidential Treatment Requested
<PAGE>
well as all meeting minutes and other documents brought to the attention to
the RAC shall be subject to the confidentiality provisions contained herein.
3.1.5. [*****] of [*****]. Based on the research and development
----
efforts undertaken pursuant to Project Plans, the RAC shall recommend to NEI
management the selection of [*****] or [*****] for [*****]. Such recommendation
shall be accompanied by an amendment to the relevant Project Plan with respect
to the further [*****] of such [*****]. Based on the information received, the
management of NEI shall notify the RAC in writing whether it accepts such
[*****] as [*****]. Upon acceptance by NEI, Diversa shall deliver [*****] to NEI
and/or Novartis Seeds AG for [*****] and [*****].
3.1.6. Establishment and Evaluation of [*****]. The RAC must
--------------------------------
establish and recommend in writing to NEI management for NEI's approval the
[*****] and [*****] for each Project Plan, which shall be consistent with
Section [*****] hereof. The RAC will regularly [*****] under each Project Plan
to determine whether [*****] thereunder have been achieved.
3.2. Meetings of the RAC. The RAC shall meet at least once per [*****] at
--------------------
a location to be determined by the RAC. Within [*****] following each meeting of
the RAC, the RAC shall prepare and deliver to both Parties a written report
describing the RAC's deliberations, conclusions and proposed actions. Subject to
written approval by both parties, such report shall be incorporated as part of
this Agreement by reference.
3.3. Requirements for Action. All proposals, actions, recommendations and
-----------------------
reports of the RAC will require the unanimous consent of all of its voting
members. The Committee Members or Alternates of NEI shall collectively have
[*****] on the RAC, and the Committee Members or Alternates of Diversa shall
collectively have [*****] on the RAC.
3.4. Members. The initial Committee Members of the RAC shall be designated
-------
by each Party in writing within [*****] of executing this Agreement.
Diversa and NEI may change one or more of their respective Committee
Members; provided, however, that such person is qualified as reasonably
demonstrated by that Party. All appointments and withdrawals of appointment
shall be made by written notice to the other Party.
Diversa and NEI may designate in writing an alternate Committee
Member ("Alternate") if the designated Committee Member cannot attend a meeting;
provided, however, that such Alternate is qualified as reasonably demonstrated
by that party. Any action taken with approval of an Alternate shall be as valid
as if taken with the approval of the designated Committee Member.
9. *Confidential Treatment Requested
<PAGE>
3.5. Visits to Facilities. Committee Members shall have reasonable
---------------------
opportunity to visit the facilities of NEI or Diversa (and such party's
Affiliates, if applicable) where activities under this Agreement are in
progress, and with reasonable prior notice. Each of Diversa and NEI shall bear
its own expenses in connection with such site visits, unless such visits are
deemed by the RAC to be part of a Project, in which case the costs will be
included as part of the applicable Project Plan.
3.6. Information Sharing. Each of the Parties shall provide to the RAC
-------------------
all information in such Party's possession that is relevant to the RAC's
deliberations regarding research, development and commercialization efforts
related to the Projects. Without limiting the generality of the foregoing, the
Parties will provide the RAC with the opportunity to review data from the
[*****] to determine the status of the Projects.
3.7. Dispute Resolution. If the RAC fails to achieve unanimous consent
-------------------
upon any matter, then it will issue a report on that matter to [****] giving
full consideration to the opposing points of view in the RAC. [****] shall then,
in consultation with the Research and Development Committee of the Board of
Directors of NEI, resolve the matter in the interests of NEI..
4. Grant of Rights.
----------------
4.1. Grant of First Option. Subject to the terms and conditions of this
---------------------
Agreement, with respect to each [*****], Diversa hereby grants to NEI a right of
first option to an exclusive, worldwide, royalty-bearing license (the "License")
under the Diversa Technology to use the applicable [*****] to make, have made,
use, sell, offer for sale and import Products outside the applicable Field.
4.2 Other Rights. All other rights which are to the benefit of NEI with
------------
respect to Diversa's proprietary interest in Biomolecules are provided for in
the Joint Venture Agreement.
5. Intellectual Property Rights.
-----------------------------
5.1. Intellectual Property Ownership. Ownership of all inventions,
-------------------------------
discoveries, developments and improvements conceived of in the course of work
performed on any Project (the "Inventions") shall be determined in accordance
with this Section 5.1.
5.1.1. Diversa shall have exclusive ownership and control,
subject to the grant of exclusive license under the Joint Venture
Agreement, over [*****] made pursuant to this Agreement ([*****]),
including, without limitation, any such Biomolecules, compositions
containing any such Biomolecules ([*****]), methods of using such
Biomolecules (including methods of using
10. *Confidential Treatment Requested
<PAGE>
such Biomolecules to make any Product but not methods of using any
Product), methods of making such Biomolecules, and Diversa Know-How.
5.1.2. NEI shall have exclusive ownership and control over all
Inventions relating to any Product, including, without limitation, such
Products, methods of using such Products and methods of making such
Products.
5.1.3. With respect to all Inventions relating to all [*****]
designed and/or developed in the course of a Project, (a) Diversa shall
have exclusive ownership and control over all such Inventions having solely
Diversa inventors; (b) Diversa shall have joint ownership and control over
all such Inventions having Diversa and NEI inventors; provided that, except
as contemplated by the Project, Diversa will not use, and will not provide
or grant any rights to any third party to use, any [*****] that
incorporates or was designed and/or developed using any information or
materials provided to Diversa by NEI; and (c) NEI shall have exclusive
ownership and control over all such Inventions having solely NEI inventors.
5.1.4 Subject to Sections 5.1.1, 5.1.2 and 5.1.3, Joint
Inventions shall be jointly owned.
5.1.5 Subject to Sections 5.1.1, 5.1.2, 5.1.3, and 5.1.4,
Inventions shall be owned by the Party which employs the inventor thereof.
5.1.6 Inventorship of Inventions shall be determined in
accordance with United States patent law.
5.1.7. Each Party will (and will cause each of its Affiliates)
to make such assignments and take such other actions as may be necessary or
appropriate to effect the ownership of Inventions in accordance with this
Section 5.1.
5.2. Filing, Prosecution and Maintenance of Patents.
----------------------------------------------
5.2.1. NEI Patent Rights. NEI shall have the sole right, at its
-----------------
own expense, to control the filing, prosecution and maintenance of all NEI
Patent Rights.
5.2.2. Diversa Patent Rights. Diversa shall have the sole right,
---------------------
at its own expense, to control the filing, prosecution and maintenance of all
Diversa Patent Rights.
5.2.3 Patent Rights Claiming Joint Inventions. With respect to
---------------------------------------
NEI Patent Rights or Diversa Patent Rights to the extent they claim Inventions
conceived of jointly by Diversa and NEI ("Joint Inventions"), the Parties shall
mutually agree in writing which Party shall file, prosecute and maintain patent
applications and patents protecting Joint Inventions described in Section 5.1.4,
the costs for which shall be shared equally between the Parties. The Party
responsible for filing, prosecution and maintenance of such patent applications
and patents under Section 5.2.1 or 5.2.2, as applicable (the "Responsible
Party") will furnish the other Party
11. *Confidential Treatment Requested
<PAGE>
with copies of documentation of patent applications and patents that claim any
Joint Invention and other related correspondence relating thereto to and from
governmental patent agencies or other authorities and permit the other Party to
offer its comments thereon before the Responsible Party makes a submission to a
governmental patent agency or other authority which could materially affect the
scope or validity of the patent coverage with respect to such Joint Inventions.
The other Party shall offer its comments promptly. If the Responsible Party with
respect to patent applications and patents claiming any Joint Invention decides
to abandon or not to pursue prosecution of any such patent applications or
patents which claim such Joint Invention, it shall permit the other Party, at
its option and expense, to undertake such obligations. The Party not undertaking
such actions shall fully cooperate with the other Party and shall provide to the
other Party whatever assignments and other documents that may be needed in
connection therewith. In the event that Parties cannot agree on which Party
shall file, prosecute and maintain such patent applications and patents, Joint
Inventions shall be protected in patent applications and patents filed,
prosecuted and maintained by outside counsel reasonably acceptable to both
Parties, with equal control and joint responsibility for costs incurred in
connection with the applicable patent applications and patents.
5.3. Cooperation of the Parties. Each Party agrees (and will cause any of
--------------------------
its Affiliates) to cooperate fully in the preparation, filing, prosecution and
maintenance of any patent rights under this Agreement. Such cooperation
includes, but is not limited to:
(a) executing all papers and instruments, or using reasonable
efforts to cause its employees or agents, to execute such papers and
instruments, so as to effectuate the ownership of intellectual property rights
set forth in Section 5.1 above and to enable the other Party to file and to
prosecute patent applications and to maintain patents in any country;
(b) promptly informing the other Party of any matters coming to
such Party's attention that may affect the preparation, filing, or prosecution
of any such patent applications or the maintenance of any such patents; and
(c) undertaking no actions that are potentially deleterious to the
preparation, filing, or prosecution of such patent applications or to the
maintenance of such patents.
5.4. Infringement by Third Parties.
-----------------------------
5.4.1 Notice. Diversa and NEI shall promptly notify the other in
------
writing of any alleged or threatened infringement by a third party of any patent
or patent application included in the Diversa Patent Rights or NEI Patent Rights
of which they become aware. Both Parties shall use reasonable efforts in
cooperating with each other to terminate such infringement without litigation.
5.4.2 NEI Actions. NEI shall have the first right to bring and
-----------
control, by counsel of its own choice, any action or proceeding with respect to
infringement of (a) any NEI Patent Rights, and (b) any Diversa Patent Rights
with respect to a [*****]. Diversa shall have the right, at its own expense,
to participate in any such action
12. *Confidential Treatment Requested
<PAGE>
regarding the Diversa Patent Rights by counsel of its own choice. Upon written
notice to Diversa, NEI may require Diversa to participate in such action as a
necessary party to such action, at NEI's expense. If NEI fails to bring an
action or proceeding with respect to any such Diversa Patent Rights within (a)
ninety (90) days following the notice of alleged infringement or (b) ten (10)
days before the time limit, if any, set forth in the appropriate laws and
regulations for the filing of such actions, whichever comes first, Diversa shall
have the right to bring and control any such action, at its own expense and by
counsel of its own choice, and NEI shall have the right, at its own expense, to
be represented in any such action by counsel of its own choice.
5.4.3 Diversa Actions. Diversa shall have the right to bring and
---------------
control, by counsel of its own choice, any action or proceeding with respect to
infringement of any Diversa Patent Rights which are directed to a Diversa
Biomolecule transferred under the terms of this Agreement which is not a [*****]
at the time of commencement of such action or proceeding.
5.4.4 Cooperation; Awards. In the event a Party brings an
-------------------
infringement action, the other Party shall (and will cause any of its
Affiliates) cooperate fully, including if required to bring such action, the
furnishing of a power of attorney. Neither Party shall have the right to settle
any patent infringement litigation under this Section 5.4 in a manner that
diminishes the rights or interests of the other Party without the prior written
consent of such other Party. Except as otherwise agreed to by the Parties as
part of a cost sharing arrangement, any recovery realized as a result of such
litigation, after reimbursement of any litigation costs of Diversa and NEI,
shall belong to the Party who brought the action.
5.5. Claimed Infringement by Third Parties. Diversa and NEI shall
-------------------------------------
promptly notify the other in writing of any allegation by a third party that the
exercise of the rights granted to NEI under this Agreement or the activities
conducted by either Party under this Agreement infringes or may infringe the
intellectual property rights of such third party. Each Party will use reasonable
efforts (and will cause any of its Affiliates) to cooperate with the other Party
to resolve or defend against such claims. Neither Party shall have the right to
settle any patent infringement litigation under this Section 5.5 in a manner
that diminishes the rights or interests of the other Party without the prior
written consent of such other Party.
6. Payments, Reports, and Records.
-------------------------------
6.1. Research Funding. NEI agrees to fund the [*****] number of Research
----------------
FTEs at Diversa indicated in Section 2.1 above at a cost of [*****] per FTE for
the [*****] of this Agreement. Beginning in the third year of this Agreement, a
Cost-of-Living Adjustment (COLA) will be applied to all FTEs. Thereafter, the
COLA will be applied on a yearly basis and will be based on standard CPI values.
6.2. Payments. Payments due pursuant to the above Section 6.1 shall be
--------
made in quarterly installments, in advance. In the event the Effective Date
occurs during a calendar quarter, the first payment shall be the sum of the
prorated amount due for that calendar quarter plus the amount due for the
subsequent full calendar quarter.
13. *Confidential Treatment Requested
<PAGE>
6.3. Research Milestone Payments. Each Year for the first five (5) Years
----------------------------
following the Effective Date, NEI shall pay to Diversa research milestones in
accordance with the Project Plans for each Project. Such research milestone
payments shall not exceed [*****] of the total costs of all research FTEs for
each Year, as set forth under the column headed "Total Research FTEs" in Section
6.3 of the Joint Venture Agreement (the "Maximum Annual Milestones"). In any
event, each Year for the first [*****] following the Effective Date, NEI shall
pay to Diversa guaranteed research milestones equal to [*****] of the Maximum
Annual Milestones for such Year. Research milestone payments under this Section
6.3 shall be non-refundable and shall not be credited against any other payments
payable to Diversa under this Agreement or under the Joint Venture Agreement.
6.5. Payments in U.S. Dollars. All payments due under this Agreement
------------------------
shall be payable in United States dollars by wire transfer to an account
designated by Diversa.
6.6. Records. NEI and its Affiliates shall maintain complete and accurate
-------
records of Products made, used or sold by them or their Sublicensees under this
Agreement, and any amounts payable to Diversa in relation to Products, which
records shall contain sufficient information to permit Diversa to confirm the
payments due under the terms of this Agreement, and the Joint Venture Agreement.
NEI and its Affiliates shall retain such records relating to a given Product for
at least [*****] after the first commercial sale of said Product. Diversa
(acting as the "Auditing Party") shall have the right, at its own expense, to
cause an independent certified public accountant reasonably acceptable to NEI,
to inspect such records of NEI or its Affiliates (the "Audited Party") during
normal business hours for the sole purpose of verifying any reports and payments
delivered under this Agreement. Such accountant shall not disclose to the
Auditing Party any information other than information relating to accuracy of
reports and payments delivered under this Agreement and shall provide the
Audited Party with a copy of any report given to the Auditing Party. The Parties
shall reconcile any payment due within [*****] after the accountant delivers the
results of the audit. The Auditing Party shall bear the full cost of the audit
unless, the audit performed under this Section reveals lack of payment due under
the terms of this Agreement, the License Agreement(s) or the Joint Venture
Agreement in which case the Audited Party shall bear the full cost of such
audit. Diversa may exercise its rights under this Section only once every year
and only with reasonable prior notice to NEI. NEI shall use commercially
reasonable efforts to ensure that the other Party will have access to records of
Products sold by its Affiliates.
6.7. Late Payments. In the event that any payment due hereunder is
-------------
not made when due, the payment shall accrue interest from that date due at the
rate of [*****]; provided however, that in no event shall such rate exceed the
maximum legal annual interest rate. The payment of such interest shall not
limit Diversa from exercising any other rights it may have as a consequence of
the lateness of any payment.
14. *Confidential Treatment Requested
<PAGE>
7. Confidential Information.
------------------------
7.1. Confidential Information. Confidential Information shall mean
-------------------------
any technical or business information, whether orally or in writing, furnished
by the Disclosing Party to the Receiving Party in connection with this
Agreement. Such Confidential Information shall include, without limitation, the
existence and terms of this Agreement, the identity of a Biomolecule, the
Biomolecule, any gene encoding such Biomolecule, if relevant, the use of a
Biomolecule, patent rights, trade secrets, know-how, inventions, technical data
or specifications, testing methods, business or financial information, research
and development activities, product
and marketing plans, and customer and supplier information, including, but not
limited to, such items that become known to a Party during visits to the
facilities of any other Party.
7.2 Obligations. The Receiving Party agrees that it shall:
7.2.1 Maintain all Confidential Information in strict
confidence, except that the Receiving Party may disclose or permit the
disclosure of any Confidential Information to its Affiliates, directors,
officers, employees, consultants and advisors who are obligated to maintain the
confidential nature of such Confidential Information and who need to know such
Confidential Information for the purposes set forth in this Agreement. Further,
each Party will be entitled to disclose to its Sublicensees that Confidential
Information of the other Party as those Sublicensees need to know in order to
commercialize Products, provided that those Sublicensees are obligated to
maintain the confidential nature of such Confidential Information;
7.2.2 Use all Confidential Information solely for the purposes
set forth in, or as permitted by, this Agreement;
7.2.3 Allow its Affiliates, directors, officers, employees,
consultants and advisors to reproduce the Confidential Information only to the
extent necessary to effect the purposes set forth in this Agreement, with all
such reproductions being considered Confidential Information; and
7.2.4 If the Receiving Party is Novartis, then Novartis shall
also have the right to disclose Confidential Information to Novartis
Agricultural Discovery Institute, Inc. ("NADII") provided that NADII is
obligated to maintain the confidential nature of such Confidential Information.
Each Party shall be responsible for any breaches of this Section 7.2 by any of
its Affiliates, directors, officers, employees, consultants and advisors, and,
in the case of Novartis, also for any breach of this Section 7.2 by NADII.
7.3 Exceptions. The obligations of the Receiving Party under Section
7.2. above shall not apply to any specific Confidential Information to the
extent that the Receiving Party can demonstrate that such Confidential
Information:
7.3.1 Was in the public domain prior to the time of its
disclosure under this Agreement;
15. *Confidential Treatment Requested
<PAGE>
7.3.2 Entered the public domain after the time of its disclosure
under this Agreement through means other than an unauthorized disclosure
resulting from an act or omission by the Receiving Party or its Affiliates,
directors, officers, employees, consultants, advisors or agents;
7.3.3 Was or is independently developed or discovered by the
Receiving Party without use of the Confidential Information, and which can be
demonstrated by written record;
7.3.4 Is or was disclosed to the Receiving Party at any time,
whether prior to or after the time of its disclosure under this Agreement by a
third party having no fiduciary relationship with the Disclosing Party and
having no obligation of confidentiality to the Disclosing Party with respect to
such Confidential Information; or
7.3.5 Is required to be disclosed to comply with applicable laws
or regulations (such as disclosure to the SEC, the EPA, the FDA, or the United
States Patent and Trademark Office or to their foreign equivalents), or to
comply with a court or administrative order, provided that the Disclosing Party
receives prior written notice of such disclosure and that the Receiving Party
takes all reasonable and lawful actions to obtain confidential treatment for
such disclosure and, if possible, to minimize the extent of such disclosure.
7.4 Survival of Obligations. The obligations set forth in Sections
7.1, 7.2 and 7.3 shall remain in effect after termination or expiration of this
Agreement for a period of [*****].
7.4. Publication. Diversa, Novartis and NEI shall cooperate in appropriate
-----------
publication of the results of research and development work performed pursuant
to the Project Plans, but subject to the predominating interest to obtain patent
protection for any patentable subject matter. To this end, prior to any public
disclosure of such results, the Party proposing disclosure shall send the other
party(ies) a copy of the information to be disclosed, and shall allow the other
Party(ies) [*****] from the date of receipt in which to determine whether the
information to be disclosed contains subject matter for which patent protection
should be sought prior to disclosure, or otherwise contains Confidential
Information of the reviewing Party(ies). The Party proposing disclosure shall be
free to proceed with the disclosure unless prior to the expiration of such
[*****] period the reviewing Party(ies) notify the Party proposing disclosure
that the disclosure contains subject matter for which patent protection should
be sought or Confidential Information of the reviewing party(ies), and the Party
proposing publication shall then delay public disclosure of the information for
an additional period to be mutually agreed upon to permit the preparation and
filing of a patent application on the subject matter to be disclosed or for the
parties to determine a mutually acceptable modification to such publication to
protect the Confidential Information of the reviewing Party(ies) adequately. The
Party proposing disclosure shall thereafter be free to publish or disclose the
information. The determination of authorship for any paper shall be in
accordance with accepted scientific practice.
16. *Confidential Treatment Requested
<PAGE>
8. Representations and Warranties.
------------------------------
8.1. Authorization. Each Party represents and warrants to the other that
-------------
it has the legal right and power to enter into this Agreement, to extend the
rights and licenses granted to the other in this Agreement, and to fully perform
its obligations hereunder, and that the performance of such obligations will not
conflict with its charter documents or any agreements, contracts, or other
arrangements to which it is a party.
8.2 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER
----------
PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTY OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT.
8.3 Limitation of Liability. IN NO EVENT WILL EITHER PARTY, ITS
-----------------------
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER
PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES,
WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT
LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT.
9. Indemnification.
----------------
9.1 Indemnification. Each Party (an "Indemnitor") shall indemnify, defend,
---------------
and hold harmless the other Party and their directors, officers, employees, and
agents and their respective successors, heirs and assigns (an "Indemnitee"),
against any liability, damage, loss, or expense incurred by or imposed upon the
Indemnitee or any one of them in connection with any claims, settlements, suits,
actions, demands, or judgments arising out of any theory of product liability
(including, but not limited to, actions in the form of tort, warranty, or strict
liability) concerning any product (or any process or service) that is made,
used, or sold by the Indemnitor or its Affiliates or Sublicensees pursuant to
any right or license granted under this Agreement; provided, however, that such
indemnification right shall not apply to any liability, damage, loss, or expense
to the extent directly attributable to the negligence, reckless misconduct, or
intentional misconduct of the Indemnitee. An Indemnitee shall not be entitled to
indemnification for the settlement of any claim pursuant to this Agreement
unless it obtains the prior written consent of the Indemnitor to such
settlement.
9.2 Procedures. Any Indemnitee that intends to claim indemnification under
----------
Section 9.1 shall promptly notify the Indemnitor of any claim in respect of
which the intends to claim such indemnification, and the Indemnitor shall assume
the defense thereof with counsel mutually satisfactory to the Parties; provided,
however, that an Indemnitee shall have the right to retain its own counsel, with
the fees and expenses of no more than the law firm representing all Indemnitees
in the proceeding or related proceeding, to be paid by the Indemnitor, if
17. *Confidential Treatment Requested
<PAGE>
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in Section 9.1. shall not apply to amounts
paid in settlement of any loss, claim, liability or action if such settlement is
effected without the consent of the Indemnitor. The failure to deliver notice to
the Indemnitor within a reasonable time after the commencement of any such
action, shall not relieve the Indemnitor of any liability to the Indemnitee
under Section 9.1, except to the extent the Indemnitor has been prejudiced by
such failure to give notice. Each Party and its Affiliates and their employees
and agents shall cooperate fully with the other Party and its legal
representatives in the investigation of any action, claim or liability covered
by this indemnification.
10. Term; Termination.
------------------
10.1 Term. The term of this Agreement will commence as of the Effective
----
Date and, unless sooner terminated as provided hereunder, will expire upon the
[*****] anniversary of the Effective Date, unless extend by mutual agreement of
the Parties.
10.2 Termination.
-----------
10.2.1 Change of Control. NEI shall have the right to terminate
-----------------
this Agreement upon the occurrence of a Change of Control during the term of
this Agreement by providing written notice of termination to Diversa within
[*****] following receipt of written notice of the occurrence of such Change of
Control. In the event that NEI does not terminate this Agreement under this
Section 10.2.1, this Agreement will be binding upon NEI, Diversa or any
successor to Diversa in such Change of Control. Diversa may notify NEI in
advance of a proposed Change of Control and, if NEI approves of such Change of
Control in writing or notifies Diversa in writing that it does not intend to
terminate this Agreement within [*****] after such notice from Diversa, then the
foregoing right of termination shall be deemed waived.
10.2.2 Mutual Consent. This Agreement may be terminated at any time
--------------
by mutual written agreement of the Parties.
10.2.3 Material Breach. In the event that Diversa, or NEI commits a
---------------
material breach of any of its obligations under this Agreement or the Joint
Venture Agreement and such party fails (i) to remedy that breach within [*****]
after receiving written notice thereof from the other party or parties or (ii)
to commence dispute resolution pursuant to Section 11.3, within [*****] after
receiving written notice of that breach from the other party or parties, the
non-breaching party or parties may immediately terminate this Agreement, the
Joint Venture Agreement and the Novartis License Agreement, as applicable, upon
written notice to the breaching party.
10.2.4 Breach of Payment Obligations. In the event that a party
-----------------------------
fails to make timely payment of any amounts due under this Agreement, the Joint
Venture Agreement or the
18. *Confidential Treatment Requested
<PAGE>
Novartis License Agreement within ten (10) business days after demand therefor,
the non-breaching party or parties may terminate this Agreement, the Joint
Venture Agreement and the Novartis License Agreement, as applicable, upon thirty
(30) days prior written notice, unless the breaching party cures such breach by
paying all past-due amounts within such thirty (30) day notice period, provided
that the breaching party shall be entitled to use such cure provision no more
than once in any twelve (12) month period.
10.3. Disposition of Confidential Information. In the event of
---------------------------------------
termination or expiration of this Agreement, the Parties shall return or destroy
all forms of Confidential Information of the other Party provided to them under
this Agreement, within thirty (30) days after such termination or expiration;
provided, however, that each Party may retain one copy of such Confidential
Information for the sole purpose of use in any litigation resulting from this
Agreement or the activities undertaken pursuant to this Agreement; and further
provided that each Party shall retain full use of Confidential Information as
provided under this Agreement to the extent it relates to any of the rights
accrued to a Party hereunder prior to such termination or expiration.
10.4. Effect of Termination or Expiration. Termination or expiration of
-----------------------------------
this Agreement shall not relieve the parties of any obligation accruing prior to
such termination or expiration, nor shall it encumber any of the rights accrued
to a Party hereunder prior to such termination or expiration. Diversa will not
take any action to prevent NEI or its Affiliates from commercializing,
subsequent to termination or expiration of this Agreement, any Transferred
Biomolecule or Commercial Development Biomolecule in the Animal Feed Field or
the Agricultural Product Processing Field, or any other field defined in a
License related to such Transferred Biomolecule or Commercial Development
Biomolecule pursuant to Section 4.1 herein. The financial obligations of each
Party with respect to Transferred Biomolecules or Commercial Development
Biomolecules under this Agreement and any License executed pursuant to Section
4.1, or the Joint Venture Agreement shall survive termination or expiration of
this Agreement but only to the extent that the Parties mutually agree through
good faith negotiation to payment at royalty rates equivalent under the Joint
Venture Agreement. The provisions of Sections 5.1, 5.2, 5.3, 7, 8.2, 8.3, 9,
10.3, 10.4 and 11 shall survive the expiration or termination of this Agreement.
Termination of this Agreement pursuant to Section 10.2 shall not limit any other
rights and remedies of the terminating party.
11. Miscellaneous.
--------------
11.1. Relationship of Parties. Nothing in this Agreement is intended
-----------------------
or shall be deemed to constitute a partnership, agency, employer-employee or
joint venture relationship between the parties. No party shall incur any debts
or make any commitments for the other, except to the extent, if at all,
specifically provided herein.
11.2. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of [*****] other than those provisions
governing conflicts of law.
19. *Confidential Treatment Requested
<PAGE>
11.3. Dispute Resolution Procedures. Any controversy, claim or dispute
-----------------------------
dispute arising out of or relating to this Agreement shall be resolved in
accordance with Section 10.3 of the Joint Venture Agreement.
11.4. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
11.5. Headings. All headings in this Agreement are for convenience only
---------
and shall not affect the meaning of any provision hereof.
11.6. Binding Effect. This Agreement and all rights and obligations
---------------
hereunder shall inure to the benefit of and be binding upon the Parties, their
Affiliates, and their respective lawful successors and assigns (including,
without limitation, any successor to Diversa upon a Change of Control subject to
Section 10.2.1).
11.7. Assignment. Except as otherwise provided herein, neither this
-----------
Agreement nor any interest hereunder will be assignable in part or in whole by
any Party without the prior written consent of the other Party; provided,
however, that either Party may assign this Agreement to any of its Affiliates or
to any successor by merger or sale of substantially all of its business to which
this Agreement relates (provided that, in the event of such merger or sale, no
intellectual property of any acquiring corporation that is not a Party shall be
included in the technology licensed hereunder). This Agreement will be binding
upon the successors and permitted assigns of the Parties. Any assignment which
is not in accordance with this Section will be void.
11.8. Notices. All notices, requests, demands and other communications
--------
communications required or permitted to be given pursuant to this Agreement
shall be in writing and shall be deemed to have been duly given upon the date of
receipt if delivered by hand, recognized international overnight courier,
confirmed facsimile transmission, or registered or certified mail, return
receipt requested, postage prepaid to the following addresses or facsimile
numbers:
If to NEI: If to Diversa:
Novartis Enzymes, Inc. Diversa Corporation
[*****] 10665 Sorrento Valley Road
[*****] San Diego, California 92121
[*****] Attention: Carolyn Erickson
[*****] Tel: (858) 453-7020
[*****] Fax: (858) 453-7032
20. *Confidential Treatment Requested
<PAGE>
with a copy to: with a copy to:
Novartis Seeds AG Cooley Godward LLP
Schwarzwaldallee 215 4365 Executive Drive, Suite 1100
CH-4002 San Diego, CA 9221
Attention: Verena Trutmann Attention: L. Kay Chandler, Esq.
Tel: (+4161) 697-2375 Tel: (858) 550-6000
Fax: (+4161) 697-2590 Fax: (858) 453-3555
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.
11.9. Amendment and Waiver. This Agreement may be amended, supplemented,
--------------------
or otherwise modified only by means of a written instrument signed by both
parties. Any waiver of any rights or failure to act in a specific instance shall
relate only to such instance and shall not be construed as an agreement to waive
any rights or fail to act in any other instance, whether or not similar.
11.10. Severability. In the event that any provision of this Agreement
------------
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and the parties shall negotiate in good faith to modify the Agreement to
preserve (to the extent possible) their original intent.
11.11. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings between the parties relating to the subject
matter hereof.
11.12. Regulatory Filings. NEI shall have sole responsibility for making
------------------
all regulatory filings worldwide, including, without limitation, all filings
required by the Biodiversity Convention and other legislation related to the
ownership or use of biological resources with respect to a Product. Diversa will
cooperate to provide information required to make and maintain such filings, as
appropriate.
11.13. Force Majeure. Neither party shall be held liable or responsible
-------------
to the other party, nor be deemed to be in breach of this Agreement, for failure
or delay in fulfilling or performing any provisions of this Agreement (other
than payment obligations) when such failure or delay is caused by or results
from any cause whatsoever outside the reasonable control of the party concerned
including, but not limited to, fire, explosion, breakdown of plant, damage to
plant material by pests or otherwise, strike, lock-out, labor disputes, casualty
or accident, lack or failure of transportation facilities, flood, lack or
failure of sources of supply or of labor, raw materials or energy, civil
commotion, embargo, any law, regulation, decision, demand or requirement of any
national or local government or authority (in each case, "Force Majeure"). The
party claiming relief shall, without delay, notify the other party by registered
airmail or by telefax of the interruption and cessation thereof and shall use
its best efforts to remedy the effects of such hindrance with all reasonable
dispatch. The onus of proving that any such Force Majeure
21. * Confidential Treatment Requested
<PAGE>
event exists shall rest upon the party so asserting. During the period that one
party is prevented from performing its obligations under this Agreement due to a
Force Majeure event, the other party may, in its sole discretion, suspend any
obligations that relate thereto. Upon cessation of such Force Majeure event the
parties hereto shall use their best efforts to make up for any suspended
obligations. If such Force Majeure event is anticipated to continue, or has
existed for nine (9) consecutive months or more, this Agreement may be forthwith
terminated by either party by registered airmail or by telefax. In case of such
termination the terminating party will not be required to pay to the other party
any indemnity whatsoever.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.
NOVARTIS ENZYMES, INC. DIVERSA CORPORATION
By: /s/ Gary Pace /s/ Jay M. Short
-------------------------- -------------------------------------
Gary M. Pace Jay M. Short
Vice President & Secretary President and Chief Executive Officer
21. *Confidential Treatment Requested
<PAGE>
EXHIBIT 10.27
[LOGO APPEARS HERE]
[LETTERHEAD OF RECOMBINANT BIOCATALYSIS(TM) INC.]
February 3, 1997
Mr. R. Patrick Simms
7353 Swan Point Way
Columbia, MD 21045
Dear Pat:
We are pleased to offer you employment by Recombinant BioCatalysis, Inc. (RBI)
on the following terms:
TITLE: Vice President - Process Engineering and Manufacturing
BASE SALARY: $165,000 per annum, with increases at the discretion of the
Board of Directors.
ANNUAL BONUS: An annual bonus of up to 20% of base salary based upon a
combination of the Company's performance against the
Business Plan and your performance against agreed upon
goals.
EQUITY: The Company will grant you a series of options over the
next five years with the intent of providing you with an
equity interest in the Company equal to ten times your base
salary. In February 1997 the Board will grant you an option
on 200,000 shares at the fair market value as determined by
the Board of Directors (currently $.146 per share). On each
subsequent March, the Board will grant you additional
shares subject to your continued satisfactory employment
with the Company. Each option grant will vest over a four
year period with 25% vesting on the first anniversary of
the grant.
SEVERANCE ON
TERMINATION WITHOUT
CAUSE: Up to six months base salary and benefits paid monthly
until new employment begins. For cause terminations are
those defined in the 1994 Stock Option Plan.
EQUITY PURCHASE: You will be permitted to purchase $50,000 of the Series B
Convertible Preferred Stock at the same price and on the
same terms as the other Series B investors at any time up
to March 31, 1997. Payment may be in the form of a recourse
note payable with interest over a 4 year period.
BENEFITS: You will be entitled to the Company's health, dental,
disability, life insurance, 401(k) and other benefits on
the same terms as other officers.
VACATION: Four weeks.
RELOCATION: As you know, the Company is relocating its Corporate
headquarters from Sharon Hill, PA to San Diego, CA in the
first quarter 1997. Until the move is completed, RBI needs
you to be flexible in working both in Sharon Hill and La
Jolla. Upon completion of the Corporate move, the Company
will offer you the following relocation package from your
home in Maryland: (i) two Company paid
<PAGE>
house or apartment hunting visits to San Diego; (ii)
mortgage and closing cost, excluding points, for both
Maryland and California; (iii) moving costs; and (iv) a
gross up for tax purposes of any taxable income associated
with the move or interim living expenses. The above is
limited to a maximum of $50,000.
INTERIM LIVING
EXPENSES: Will be paid by RBI up to $3,000 per month, until your
Maryland home is sold.
AGREEMENTS: As a condition of employment you will be required to sign
RBI's standard form of invention, non-disclosure and non-
compete agreement. An offer of employment will be subject
to a satisfactory medical examination.
This offer, is open to February 5, 1997 and your employment is to commence by
March 1, 1997.
Please give me a call when you have had a chance to review this. If acceptable,
please sign and return one copy of this letter.
Pat, we are all convinced that you will make a tremendous contribution to RBI.
Best personal regards,
/s/ Terrance J. Bruggeman
Terrance J. Bruggeman
Chairman and Chief Executive Officer
ACCEPTED:
/s/ R. Patrick Simms
- -------------------------------
R. Patrick Simms
2/3/97
- -------------------------------
Date
<PAGE>
EXHIBIT 10.28
August 30, 1994
Dr. Jay Short
320 Delage Drive
Encinitas, CA 92024
Dear Jay:
I am delighted that you have decided join Industrial Genome Sciences. My
recent visit to La Jolla reinforced my opinion that you are the perfect choice
for Chief Technology Officer for IGS. You have won the respect of your former
colleagues from StrataGene, and it is clear that they were overjoyed that you
decided to come with IGS.
The IGS Board of Directors has approved the following particulars as terms
of your employment. If you are in agreement with these terms, please return a
signed copy to me. For ease of comparison, I shall refer to the numbered issues
you raised in your letter to me of July 15.
1. I continue to believe that Rockville, Maryland is the best site for the
primary research effort for IGS.
2. All moving expenses, including travel and relocating your household effects
to Maryland would be paid by IGS, including three house or apartment hunting
trips for your family in addition to the preliminary scouting trip you made
earlier this month.
3. All expenses including fees normally and reasonably associated with the sale
of your home in San Diego and purchase of a new home in Maryland, including up
to $12,000 toward "points" in connection with your new mortgage. If you
experience difficulty in selling your home in California, IGS shall assist you
in the effort, for example by assuming extra mortgage payments with adequate
guarantees that the house is marketed appropriately.
4. Up to six months living expenses in Maryland prior to purchasing a new home.
5. Interest free loan in an amount up to $30,000 available in case it is needed
in connection with new home purchase. Repayable over five years or within nine
months of departure from IGS.
6. Signing bonus of $75,000.
7. Equity in IGS. A grant of 2.5% of the shares outstanding at signing, plus an
option to purchase 1.5% of the shares outstanding at signing at fair market
value. If you exercise your option soon, it should be a nominal expense. A loan
can be made available to help with the purchase of the option shares.
Furthermore, you will have opportunities to increase your holdings of IGS stock
through future incentive compensation awards.
<PAGE>
8. Termination without cause - salary for 6 months or through the initial term
of the agreement, whichever is greater.
9. Salary $200,000/yr. plus a performance bonus, guaranteed to be at least 20%
of salary for the first year.
10. Four weeks paid vacation per year.
12. We shall set up a 401(k) plan as soon as possible.
13. A September 1, 1994 start date is fine.
15. Info on long term disability and life insurance will be forwarded to you.
16. Move to Maryland by October 31, 1994 OK. I understand that your current
plans accelerate that schedule.
17. There shall be an R&D budget, controlled by the CTO, comprised of supplies,
equipment, travel and personnel lines.
18. As CTO you will have hiring and firing authority, consistent with IGS
company employment policies, over all personnel in R&D departments.
19. As CTO you will have authority over all R&D matters at all IGS R&D sites.
20-22. You may have a budget for business expenses including personal journal
subscriptions, professional memberships, E-mail access, cellular phone etc.
Furthermore, IGS will purchase and make available to you for home use, a
personal computer and printer, a notebook computer, a FAX machine and other
reasonable equipment to help you accomplish your work.
23. There will be a stock option plan for all exempt employees. We need to
decide on a plan for non-exempts.
24. Research Division goals and milestones will be established jointly with the
management team.
25. The CTO may set work hour policy for the R&D Division
26. Car allowance for business use - $400/month.
27. IGS is incorporated in Delaware, so I think the California law forbidding
non-compete clauses is not relevant. I propose that different classes of
termination be handled differently. I would like a non-compete agreement if you
resign voluntarily or are terminated for cause. If you are terminated without
cause, non-compete provision would be waived.
<PAGE>
28. The plan for the senior management team is to have an CTO, a CFO and a
president, each reporting to the CEO. This cannot be guaranteed in your employee
agreement, but that is the plan. We can specify that you, as long as you are
CTO, shall report directly to the CEO.
29. Membership on IGS Board of Directors. OK.
30-31 You may maintain outside board memberships and consultantships, as long
as there is no conflict of interest, and as long as the non-IGS time commitment
is 8 days per year or less.
32. Participation in companies spun off from IGS should be as appropriate for
your roles in the spinout and as an IGS stockholder.
33. IGS business plan development will be one of the first milestones for our
new management team. I look forward to developing it with you.
I truly believe that together we can assemble and run a technical team that
will vault us into the industrial enzyme marketplace and launch a prosperous
business. No doubt it will be challenging, but the fundamentals are in place. We
should be able to create a new company or significant financial value, and I am
very happy we are moving toward that vision together.
Best regards,
/s/ Barry L. Marrs
Barry L. Marrs
for
Industrial Genome Sciences
Accepted on this date:
/s/ Jay M. Short
- -------------------
Jay M. Short, Ph.D.
<PAGE>
EXHIBIT 10.29
[LETTERHEAD OF DIVERSA APPEARS HERE]
April 2, 1999
Karin Eastham
4965 Gunston Court
San Diego, CA 92130
Dear Karin,
We are pleased to make you an offer to join Diversa Corporation as a full-time
employee. The Terms of the offer are as follows:
Title: Sr. VP, Finance and Chief Financial Officer, reporting
to CEO & President.
Starting Salary: $17,500/Month. (Please note, however, we are paid
semi-monthly; annual salary divided by 24 pay periods.)
Annual Bonus: An annual bonus of up to 20% of your base salary as
outlined in the Annual Bonus Plan. The first year bonus
will be a guaranteed 20% bonus. Diversa reserves the
right to amend this Plan in support of the business
objectives.
Equity: 600,000 stock options shares (approx. .74% of the
outstanding shares), to be vested over a four year
period, subject to the approval of the Board of
Directors and the conditions stated in the Employee
Incentive and Non-Statutory Stock Option Plan. The
expected grant price is 60 cents/share. The first 25%
vesting will occur the earlier of completing one year
of service or a successful IPO. Also, there will be
opportunities for additional stock options based on
performance.
Insurance/401(K): You will be eligible to participate in medical, dental
and vision insurance benefits the first of the month
following your date of hire. You will also be eligible
to enroll in our 401(K) Plan the first of the month
following three (3) full time months of employment.
Diversa may make a discretionary employer match decided
on each year by the Company's Board of Directors.
Currently the Company match equals 25% up to the first
6% contributed by employees.
Vacation: Up to four weeks of paid vacation annually, accrued at
a monthly rate.
Outside Board
Memberships: Ability to participate on outside Boards assuming no
conflict of interest with Diversa's business, and no
impact on Diversa's daily business operation. These
Board positions will be subject to Diversa's Board of
Directors' approval.
<PAGE>
Karin Eastham
Page 2 of 2
April 2, 1999
Home Office
Equipment: Home based computer and printer for business purposes
during the term of employment, not to exceed $4,000.
Agreements: This offer of employment is subject to and expressly
conditioned upon your execution of the Company's
standard invention and non-disclosure agreement. A copy
is enclosed.
Terms of Employment: In a dynamic environment in which Diversa does
business, the company must be able to respond rapidly
to business and technological changes. We are also
aware that employees want the freedom to respond to
changing career opportunities. For these reasons, as an
employee of Diversa Corporation, you will enjoy the
At-Will Employment Policy. This means you are free to
terminate your employment and the company may terminate
your employment, at any time, with or without any
reason or cause. Any oral representations to the
contrary are invalid. Any employment contract for
anything other than At-Will Employment Policy is only
valid if made in writing and signed by the Chief
Executive Officer of the Company. Upon beginning
employment, you will be presented with an employee
handbook that will also describe our Company's At-Will
Employment Policy, as well as other personnel
guidelines and various benefits to which you may be
entitled.
If these terms are acceptable, please indicate by signing and returning a copy
of this letter. If you have any questions about this offer, please call me
directly.
Karin, we are convinced that you will make a tremendous contribution to Diversa.
Please let me know by April 8, 1999, if you wish to accept this position. The
starting target date is May 3, 1999.
Sincerely,
Diversa Corporation
/s/ Jay Short
Jay Short
CEO & President
I accept Diversa's employment offer:
/s/ Karin Eastham 4-2-99
- -------------------------------------- ----------------
Karin Eastham Date
<PAGE>
EXHIBIT 10.30
[LOGO APPEARS HERE]
[LETTERHEAD OF RECOMBINANT BIOCATALYSIS(TM) INC.]
July 31, 1997
Mr. William H. Baum
25 Lake End Place
Mountain Lakes, New Jersey 07046
Dear Bill,
We are pleased to offer you employment with Diversa Corporation with the
following terms:
TITLE: Vice President - Sales and Marketing.
BASE SALARY: $16,250.00 per month.
ANNUAL BONUS: An annual bonus of up to 20% of base salary based upon a
combination of the Company's performance against the
Business Plan and your performance against agreed upon
goals, with a guaranteed bonus of $13,000 for 1997 only.
START BONUS: The Company will pay you $15,000 on September 1, 1997,
and $15,000 on March 1, 1998 to compensate for the loss
of the vesting of your options and bonus payment which
you represent you would have received from International
Specialty Products.
EQUITY: In August 1997, the Board will grant you an option on
275,000 shares at the fair market value as determined by
the Board of Directors (currently $.146 per share). This
is subject to the conditions stated in the Employee
Incentive and Non-Qualified Stock Option Plan and vested
over a four year period.
SEVERANCE ON Up to six months base salary and benefits paid monthly
TERMINATION WITHOUT until new employment begins. For cause termination's are
CAUSE: those defined in the 1994 Stock Option Plan.
EQUITY PURCHASE: You will be permitted to purchase $50,000 of the Series D
Convertible Preferred Stock at the same price and on the
same terms as the other Series D investors at the closing
of the financing, which is expected to be in September
1997.
BENEFITS: You will be entitled to the Company's health, dental,
disability, life insurance 401(k) and other benefits on
the same terms as other officers.
VACATION: Four (4) weeks per year, accrued at 1.67 days per month.
- --------------------------------------------------------------------------------
<PAGE>
Mr. William H. Baum
July 31, 1997
page -2-
RELOCATION: The Company will offer you the following relocation package
from your home in New Jersey: (i) two (2) Company paid house
or apartment hunting visits to San Diego; (ii) mortgage and
closing costs, excluding points, for both New Jersey and
California; (iii) moving costs; and (iv) a gross up for tax
purposes of any taxable income associated with the moving
expenses. The aforementioned is limited to a maximum of
$50,000.
AGREEMENTS: As a condition of employment you will be required to sign
Diversa Corporation's standard form of invention, non-
disclosure and non-compete agreement. An offer of employment
will be subject to a satisfactory medical examination.
TERMS OF In a dynamic environment in which Diversa Corporation does
EMPLOYMENT: business, the Company must be able to respond rapidly to
business and technological changes. We are also aware that
employees want the freedom to respond to changing career
opportunities. For this reason, as an employee of Diversa
Corporation, you will enjoy the At-Will Employment Policy.
This means you are free to terminate your employment and the
Company may terminate your employment, at any time, with or
without reason or cause. Any oral representations to the
contrary are invalid. Any employment contract for anything
other than the At-Will Employment Policy, is only valid if
made in writing and signed by the Chief Executive Officer of
the Company. Upon beginning employment, you will be
presented with an employee handbook which will also describe
our Company's At-Will Employment Policy, as well as other
personnel guidelines and various benefits to which you may
be entitled.
This offer is open to August 4, 1997, and your employment is to commence by
August 18, 1997.
Please give me a call when you have had a chance to review this. If acceptable,
please sign and return one copy of this letter.
Bill, we are all convinced that you will make a tremendous contribution to
Diversa Corporation.
Best personal regards,
/s/ Terrance J. Bruggerman
Terrance J. Bruggerman
Chairman and Chief Executive Officer
ACCEPTED:
/s/ William H. Baum
- ---------------------
William H. Baum
Aug. 1, 1997
- ---------------------
Date
<PAGE>
EXHIBIT 10.31
SEPARATION AGREEMENT
This Separation Agreement ("Agreement") is made and entered into by
and between Terrance J. Bruggeman ("Mr. Bruggeman") and Diversa Corporation (the
"Company"), as of the Effective Date provided for in paragraph 20 herein.
1. Resignation. Effective February 4, 1999, Mr. Bruggeman tendered and
the Company accepted his resignation as Chief Executive Officer and any and all
other positions he may have held with the Company and its subsidiaries (the
"Separation Date"). As part of this Agreement, Mr. Bruggeman agrees to resign
his position as a Director on the Company's Board of Directors as of the
Effective Date of this Agreement.
2. Accrued Salary and Vacation. The Company has paid Mr. Bruggeman all
accrued salary, and all accrued and unused vacation benefits earned prior to the
Separation Date, subject to standard payroll deductions and withholdings.
3. Expense Reimbursement. Within thirty (30) business days of Mr.
Bruggeman's execution of this Agreement, Mr. Bruggeman agrees that he will
submit his final documented expense reimbursement statement reflecting all
business expenses he incurred prior to and including the Separation Date, if
any, for which he seeks reimbursement. The Company shall reimburse Mr.
Bruggeman's expenses pursuant to Company policy and regular business practice.
4. Severance. The Company agrees to make severance payments to Mr.
Bruggeman in the form of continuation of his base salary in effect on the
Separation Date up until the earlier of (i) twelve (12) months from the
Separation Date, or (ii) the date in which Mr. Bruggeman begins employment with
another company or business entity (the "Severance Period"). These payments
will be made on the Company's ordinary payroll dates, and will be subject to
standard payroll deductions and withholdings. The Company further agrees that,
in the event Mr. Bruggeman dies during the Severance Period, it will continue to
pay Mr. Bruggeman's Severance Payments to his estate for the duration of the
Severance Period.
5. Relocation. The Company agrees that it will pay Mr. Bruggeman the sum
of Four Thousand Two Hundred Dollars ($4,200.00) as a cost of living adjustment
payment provided for under his relocation benefits arrangement with the Company
within five (5) business days of the Effective Date of this Agreement. Mr.
Bruggeman acknowledges that he is not entitled to, and shall not receive from
the Company, any additional relocation benefits or payments.
6. Attorneys' Fees. The Company agrees that, as part of this Agreement
and in consideration thereof, it will reimburse Mr. Bruggeman for the cost of
his reasonable attorneys' fees in connection with the review and negotiation of
this Agreement in an amount not to exceed Four Thousand Five Hundred Dollars
($4,500.00).
1.
<PAGE>
7. Additional Severance. The Company agrees that, as part of this
Agreement and in consideration thereof, it will pay Mr. Bruggeman the sum of
Fifty Thousand Dollars ($50,000.00) subject to standard deductions and
withholdings, within ten (10) business days of the Effective Date of this
Agreement.
8. Job Search Reimbursement. The Company agrees that, as part of this
Agreement and in consideration thereof, it will reimburse Mr. Bruggeman for the
costs and expenses that he may incur in connection with his job search and other
related expenses incurred prior to December 31, 1999, in an amount not to exceed
Fifteen Thousand Dollars ($15,000.00).
9. Stock Options. In exchange for the promises and covenants set forth
herein, and in consideration thereof, the Company agrees that the vesting of
each outstanding stock option (the "Stock Options") held by Mr. Bruggeman as
listed on Exhibit A attached hereto, shall be accelerated such that, as of the
Effective Date of this Agreement, the number of shares vested under the Stock
Options shall equal the number of shares that would have vested through June 10,
1999 had he remained an employee of the Company continuously through that date.
Should Mr. Bruggeman choose to exercise any such Stock Options, he must do so
within 90 days of the Separation Date. The Stock Options will terminate 90 days
after the Separation Date if not exercised. Except as provided herein, Mr.
Bruggeman understands and agrees that all vesting under any stock compensation
award (e.g., incentive stock option, non-qualified stock option, stock purchase
agreement, or restricted stock bonus agreement) from the Company shall cease
upon the Separation Date.
10. Health Insurance. To the extent provided by the federal COBRA law or,
if applicable, state insurance laws, and by the Company's current group health
insurance policies, Mr. Bruggeman will be eligible to continue his health,
prescription drug, vision and dental insurance benefits. Mr. Bruggeman will be
provided with a separate notice of his COBRA rights. In the event that Mr.
Bruggeman elects continued coverage under COBRA, the Company will pay his COBRA
insurance premiums up until the earlier of (i) eighteen (18) months from the
Separation Date, or (ii) the date in which Mr. Bruggeman begins employment with
another company or business entity (the "Premium Period"). Thereafter, Mr.
Bruggeman shall be solely responsible for the payment of his COBRA premiums, if
any. The Company further agrees that, in the event Mr. Bruggeman dies during
the Premium Period, it will continue to pay Mr. Bruggeman's dependents' COBRA
insurance premiums for the duration of the Premium Period.
11. Key Man Life Insurance. The Company agrees that it will cancel the
key man life insurance policy on Mr. Bruggeman's life within a reasonable period
of time following the execution of this Agreement.
12. Condition Precedent. This Agreement is expressly conditioned on the
closing of the purchase of 793,455 shares of Mr. Bruggeman's Series B
Convertible Preferred Stock (the "Shares") by certain current shareholders of
such stock at a price of $1.09 per share (the "Transaction"). This Transaction
is to be completed within a reasonable period of time after the execution of the
Agreement, but no later than April 12, 1999. The Company has prepared the
necessary documentation for the Transaction which is submitted to Mr. Bruggeman
concurrent with this Agreement and which Mr. Bruggeman agrees he will execute.
In the event the
2.
<PAGE>
purchase price for the Shares is not tendered by the purchasing shareholders,
for whatever reason (other than Mr. Bruggeman's refusal to accept the purchase
price), this Agreement shall be rescinded and Mr. Bruggeman will return to
Diversa any sums or amounts paid to him hereunder; provided, however, in such
event, Mr. Bruggeman may retain the benefits provided for in paragraphs 2, 3, 4,
5 and 10 pursuant to the terms and conditions of each respective paragraph.
13. Other Compensation and Benefits. Except as expressly provided herein,
Mr. Bruggeman acknowledges that he will not receive (nor is he entitled to) any
additional compensation, severance, stock options, stock or benefits from the
Company, notwithstanding any prior agreements to the contrary.
14. Nonsolicitation. Mr. Bruggeman agrees that for one (1) year after the
Separation Date, he will not, either directly or through others, solicit or
attempt to solicit any person (including any entity) who is then an employee,
consultant or independent contractor of the Company to terminate his, her or its
relationship with the Company in order to become an employee, consultant or
independent contractor to or for any other person or entity.
15. Proprietary Information Obligations. Mr. Bruggeman hereby
acknowledges his continuing obligations under the Employee Invention and Non-
Disclosure Agreement not to use or disclose any confidential or proprietary
information of the Company without prior written authorization from a duly
authorized representative of the Company. A copy of Mr. Bruggeman's Employee
Invention and Non-Disclosure Agreement is attached hereto as Exhibit B. Mr.
Bruggeman acknowledges that irreparable damage would result to the Company if he
breached the provisions of this paragraph 12, and the Company would not have an
adequate remedy at law for such a breach or threatened breach. In the event of
such a breach or threatened breach, Mr. Bruggeman agrees that the Company, may,
notwithstanding anything to the contrary herein contained, and in addition to
the other remedies which may be available to it, seek to enjoin him, together
with all those persons associated with him, from the breach or threatened breach
of such covenants.
16. Company Property. Mr. Bruggeman agrees to return to the Company,
within ten (10) days of the execution of the Agreement, all Company documents
(and all copies thereof) and other Company property in his possession, or his
control, including, but not limited to, Company files, notes, drawings, records,
business plans and forecasts, financial information, specifications, computer-
recorded information, tangible property, credit cards, entry cards,
identification badges and keys; and, any materials of any kind which contain or
embody any proprietary or confidential material of the Company (and all
reproductions thereof); provided, however, that if Mr. Bruggeman discovers any
such documents or property in his possession after the expiration of such ten
(10) day period, Mr. Bruggeman agrees to return such property to the Company as
soon as practicable following discovery.
17. Nondisparagement. Mr. Bruggeman agrees that he will not at any time
intentionally disparage the Company in any manner likely to be harmful to the
Company, its business reputation, or the personal or business reputation of its
directors, stockholders or employees, and the Company agrees that neither it nor
its officers and directors will at any time intentionally disparage Mr.
Bruggeman or his personal or business reputation, provided that each
3.
<PAGE>
party shall respond accurately and fully to any question, inquiry or request for
information when required by legal process.
18. Confidentiality and Publicity. The provisions of this Agreement shall
be held in strictest confidence by Mr. Bruggeman and the Company and shall not
be publicized or disclosed in any manner whatsoever other than as follows: (a)
the parties may disclose this Agreement in confidence to their respective
attorneys, accountants, auditors, tax preparers, and financial advisors (and, in
the case of Mr. Bruggeman, to members of his family); (b) the Company may
disclose this Agreement as necessary to fulfill standard or legally required
corporate reporting or disclosure requirements; and (c) the parties may disclose
this Agreement insofar as such disclosure may be necessary to enforce its terms
or as otherwise required by law. In particular (and without limitation), Mr.
Bruggeman agrees not to discuss the contents of this Agreement with present or
former Company employees or other personnel.
19. Release of Claims by Mr. Bruggeman. Except as otherwise set forth in
this Agreement, Mr. Bruggeman hereby releases, acquits and forever discharges
the Company, its officers, directors, agents, attorneys, servants, employees,
shareholders, successors, assigns and affiliates, of and from any and all
claims, liabilities, demands, causes of action, costs, expenses, attorneys'
fees, damages and obligations of every kind and nature, in law, equity, or
otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the execution date hereof, including
but not limited to: any and all such claims and demands directly or indirectly
arising out of or in any way connected with Mr. Bruggeman's employment with the
Company or the termination of that employment; claims or demands related to
salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
sabbatical benefits, severance benefits, or any other form of compensation;
claims pursuant to any federal, state or local law or cause of action including,
but not limited to, the federal Civil Rights Act of 1964, as amended; the
federal Age Discrimination in Employment Act of 1967, as amended (the "ADEA");
the federal Americans with Disabilities Act of 1990; the California Fair
Employment and Housing Act, as amended; tort law; contract law; wrongful
discharge; discrimination; fraud; defamation; emotional distress; and breach of
the implied covenant of good faith and fair dealing. Notwithstanding the above,
Mr. Bruggeman does not release any claims he may have (i) under this Agreement,
(ii) for indemnification pursuant to and in accordance with applicable statutes
and the applicable terms of the charters, articles of incorporation or bylaws of
Company, including but not limited to the Company's general liability and
Director's and Officer's Liability Policies, (iii) for accrued and vested
benefits under the terms of applicable employee benefit plans, or (iv) with
respect to his Stock Options or his Series B Convertible Stock Agreements.
20. ADEA Waiver. Mr. Bruggeman acknowledges that he is knowingly and
voluntarily waiving and releasing any rights he may have under the ADEA. He
also acknowledges that the consideration given for the waiver in paragraphs 6,
7, 8 and 9 is in addition to anything of value to which he was already entitled.
He further acknowledges that he has been advised by this writing that: (a) his
waiver and release do not apply to any claims that may arise after he signs this
Agreement; (b) he has the right to consult with an attorney prior to executing
this Agreement; (c) he has twenty-one (21) days within which to consider this
Agreement (although he may choose to voluntarily execute this Agreement
earlier); (d) he has
4.
<PAGE>
seven (7) days following the execution of this Agreement to revoke the
Agreement; (e) this Agreement shall not be effective until the date upon which
the revocation period has expired, which shall be the eighth day after this
Agreement is executed by Mr. Bruggeman, provided that the Company has also
signed the Agreement by that date (the "Effective Date").
21. Section 1542 Waiver. Mr. Bruggeman acknowledges that he has read and
understands Section 1542 of the Civil Code of the State of California which
reads as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Mr. Bruggeman hereby expressly waives and relinquishes all rights and benefits
under that section and any law or legal principle of similar effect in any
jurisdiction with respect to the release granted in this Agreement.
22. Release of Claims by the Company. The Company hereby releases, acquits
and forever discharges Mr. Bruggeman and his agents, successors, assigns and
affiliates from any and all claims, liabilities, demands, causes of action,
costs, expenses, attorneys' fees, damages, indemnities and obligations of every
kind in nature, in law, equity or otherwise arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date the Company executes this Agreement, relating to any act or omission by Mr.
Bruggeman within the authorized course and scope of his employment with the
Company, with the exception of any claim arising out of his obligations under
this Agreement, including the Employee Invention and Non-Disclosure Agreement or
any other obligations relating to the proprietary information of the Company.
The Company, its officers, directors and managerial employees acknowledge that
as of the Effective Date they have no knowledge, information or belief that Mr.
Bruggeman has performed any act or omission outside the authorized course and
scope of his employment.
23. No Admissions. It is understood and agreed by Mr. Bruggeman and the
Company that this Agreement represents a compromise settlement of various
matters, and that the promises and payments in consideration of this Agreement
shall not be construed to be an admission of any liability or obligation by
either party to the other party or to any other person.
24. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (a) by registered or certified
mail, return receipt requested, postage prepaid, or (b) via a reputable express
courier service, in each case to the address set forth below. Any such notice,
instruction or communication shall be deemed to have been delivered three
business days after it is mailed, by certified mail, postage prepaid, return
receipt requested, or one business day after it is sent via a reputable
nationwide overnight courier service.
5.
<PAGE>
If to the Company: Diversa Corporation
10665 Sorrento Valley Road
San Diego, California 92121-1623
Attn: Chief Executive Officer
If to Mr. Bruggeman: Terrance J. Bruggeman
5240 Fiore Terrace, #J-215
San Diego, California 92122
Any party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the party to
whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other party to
this Agreement notice thereof in the manner set forth in this paragraph 21.
25. Entire Agreement. This Agreement, including the Exhibits hereto,
constitutes the complete, final and exclusive embodiment of the entire agreement
between Mr. Bruggeman and the Company with regard to the subject matter hereof,
and supercedes that certain employment offer letter dated May 10, 1996, between
Mr. Bruggeman and the Company. It is entered into without reliance on any
promise or representation, written or oral, other than those expressly contained
herein. It may not be modified except in a writing signed by Mr. Bruggeman and
a duly authorized officer of the Company. Each party has carefully read this
Agreement, has been afforded the opportunity to be advised of its meaning and
consequences by his or its respective attorneys, and signed the same of his or
its own free will.
26. Successors and Assigns. This Agreement shall bind the heirs, personal
representatives, successors, assigns, executors, and administrators of each
party, and inure to the benefit of each party, its heirs, successors and
assigns. However, because of the unique duties under this Agreement, Mr.
Bruggeman agrees not to delegate the performance of such duties under this
Agreement.
27. Applicable Law. This Agreement shall be deemed to have been entered
into and shall be construed and enforced in accordance with the laws of the
State of California as applied to contracts made and to be performed entirely
within California.
28. Severability. If a court of competent jurisdiction determines that
any term or provision of this Agreement is invalid or unenforceable, in whole or
in part, then the remaining terms and provisions hereof shall be unimpaired.
Such court will have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
that most accurately represents the parties' intention with respect to the
invalid or unenforceable term or provision.
29. Arbitration. To ensure rapid and economical resolution of any
disputes which may arise under this Agreement, Mr. Bruggeman and the Company
agree that any and all disputes or controversies of any nature whatsoever,
arising from or regarding the interpretation,
6.
<PAGE>
performance, enforcement or breach of this Agreement shall be resolved by
confidential, final and binding arbitration (rather than trial by jury or court
or resolution in some other forum) to the fullest extent permitted by law. Any
arbitration proceeding pursuant to this Agreement, shall be conducted by the
American Arbitration Association ("AAA") in San Diego under the then existing
AAA arbitration rules. If for any reason all or part of this arbitration
provision is held to be invalid, illegal, or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not effect any other portion of this arbitration provision
or any other jurisdiction, but this provision will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable part
or parts of this provision had never been contained herein, consistent with the
general intent of the parties insofar as possible.
30. Attorneys' Fees. In any legal action or other proceeding brought to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and documented out-of-pocket
expenses.
31. Section Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
32. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
In Witness Whereof, the parties have duly authorized and caused this
Agreement to be executed as follows:
Terrance J. Bruggeman,
an individual.
/s/ Terrance J. Bruggeman
- ------------------------------
Terrance J. Bruggeman
Dated: April 5, 1999
------------------------
Daniel T. Carroll,
Chairman of the Human Resource
Committee of the Board of Directors
/s/ Daniel T. Carroll
- ------------------------------
Daniel T. Carroll
Dated: April 6, 1999
------------------------
7.
<PAGE>
EXHIBIT A
STOCK OPTIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Date of Grant Vesting Commencement Shares Subject to the Vested as of
Date Option 06-10-99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
11-05-96 11-05-96 1,646,462 1,234,846
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
Recombinant BioCatalysis(TM) Inc.
EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT
This Employee Invention and Non-Disclosure Agreement is made this 15th day of
September, 1996 ("Effective Date") by and between RECOMBINANT BIOCATALYSIS(TM)
INC., a Delaware corporation with a principal place of business at Elmwood Court
Two, 512 Elmwood Avenue, Sharon Hill, PA 19079-1003, and a further place of
business at 505 coast Boulevard South, La Jolla, California 92037 ("RBI"), and
T. J. Bruggeman, an individual having an address at 6 ________________________
("Employee").
In consideration of the mutual promises and other good and valuable
consideration, and as part of the terms of employment of Employee by RBI, the
parties agree as follows:
INVENTIONS
1. Employee agrees to disclose to RBI promptly in writing any and all
inventions, developments, discoveries, improvements and ideas, whether
patentable or not; (a) which are made, discovered, and/or conceived by Employee
alone or with others in the course of his or her employment or provision of
services to RBI; (b) which are based on or utilize RBI Proprietary Information
(as defined in Paragraph 6); or (c) which result or arise from or relate to the
use of RBI's facilities, equipment, materials, funds, or actual or demonstrably
anticipated research or development. All such improvements, inventions,
developments, discoveries, ideas, and intellectual property rights, shall be
referred to individually and collectively as "Developed Technology." RBI shall
receive such disclosures in confidence. To the extent required by contracts
between RBI and the United States or any of its agencies, full title to certain
patents and inventions shall be in the United States.
2. Employee agrees that all Developed Technology made, discovered or
conceived by Employee, either solely or in collaboration with any other person,
during the term of Employee's employment with RBI, whether or not patented or
copyrighted, is and shall remain the sole and exclusive property of RBI, its
successors and assigns. Employee irrevocably agrees to assign and does assign
to RBI or its nominees, successors or assigns, all right, title and interest in
and to Developed Technology. Employee agrees to execute any and all papers and
perform any and all acts as may be necessary to perfect such assignment.
3. With regard to the copyright laws of the United States, RBI notes that
U.S. Copyright Act (S) 101 defines the term "work made for hire," in pertinent
part, as a "work prepared by an employee within the scope of his or her
employment." U.S. Copyright Act (S) 201(b) provides that "[i]n the case of a
work made for hire, the employer or other person for whom the work was prepared
is considered the author for purposes of this title and, unless the parties have
expressly agreed otherwise in a written instrument signed by them, owns all of
the rights comprised in the copyright." RBI further notes that the judicial
decisions under the U.S. Copyright Act broadly interpret the phrase "within the
scope of his or her employment." This phrase has been applied to cover, among
other things, some works created by an employee at
<PAGE>
home on his own time and for no additional pay, without any request by the
employer. RBI intends to assert its ownership and other rights in the "work made
for hire" are to the fullest legally permissible extent.
4. In the event that RBI makes or proposes to make any United States or
foreign patent application relating to Developed Technology owned by RBI
pursuant to this Agreement, Employee shall cooperate fully with RBI and its
patent counsel in preparing and prosecuting any such application. Employee
agrees to execute, acknowledge and deliver all such papers, including, but not
limited to, applications for patents, applications for copyright registration
and applications for trademark registration as may be necessary or appropriate
to enable RBI to publish or protect Developed Technology owned by RBI by
patents, copyrights or otherwise in the name of RBI or its nominees, successors
or assigns. Employee further agrees to render all such assistance as RBI may
require in any patent office, proceeding, litigation or other administrative,
judicial or related proceeding in the United States or foreign country,
involving Developed Technology owned by RBI.
5. In the event RBI is unable, after reasonable effort to secure
Employee's signature on any of the documents referenced in Paragraphs 2 and 4
whether because of Employee's physical or mental incapacity or for any other
reason whatsoever, Employee irrevocably designates and appoints RBI and its duly
authorized officers and agents as Employee's agent and attorney-in-fact, for
purposes of effecting any or all prosecutions and/or issuances of any such
copyright, patent or trademark protection or other analogous protection.
CONFIDENTIAL INFORMATION
6. For purposes of this Agreement, the phrase "RBI Proprietary
Information" includes without limitation the following:
(a) technical information, including patent strategy, information
encompassed by Developed Technology or trade secrets, locations and sources of
bio-material, methods of harvesting bio-material, experiment and research
design, results, techniques and processes; biological materials, including but
not limited to enzymes and clones; work in progress; manufacturing and process
know-how; laboratory notebooks, research journals, idea notebooks, notes and
letters; concepts; ideas; apparatus and equipment design; and computer software;
(b) technical management information, including technical manuals,
product proposals, status reports, performance objectives and criteria and
analyses of areas for business development; and
(c) business information, including cost, pricing, project, financial,
accounting and personnel information, notes, letters, business strategies,
plans, proposals, projections and forecasts, customer lists, customer
information and sales and marketing plans, proposals, projections, efforts,
information and data.
"RBI Proprietary Information" shall also include any and all information
and materials received by RBI or Employee from a third party subject to an
obligation of confidentiality and/or non-disclosure.
<PAGE>
7. Developed Technology owned by RBI and RBI Proprietary Information
shall be considered confidential and trade secret and shall not be disclosed to
any person or entity or used by Employee for any purpose at any time during or
following the termination or cessation of Employee's employment with RBI, except
as required in Employee's performance of job duties for RBI. Nothing in this
Agreement shall restrict Employee's ability to make such disclosures during the
course of his or her employment as may be necessary or appropriate to the
effective and efficient discharge of the duties and responsibilities of Employee
or as such disclosures may be required by law. Failure by RBI to mark any of
RBI Proprietary Information as "confidential" or "proprietary" shall not affect
its status as RBI Proprietary Information under the terms of this Agreement.
COMPETITIVE ACTIVITIES
8. During the term of Employee's employment with RBI, and for a period of
two (2) years after the termination or cessation of Employee's employment with
RBI, Employee shall not, without the prior written approval of RBI, alone or as
a partner, officer, director, consultant, employee, stockholder, agent,
contractor or otherwise, engage in any employment, consulting, business or other
activity or occupation competitive with RBI.
9. During the term of Employee's Employment with RBI, and for a period of
two (2) years after the termination or cessation of Employee's employment with
RBI, Employee shall not directly or indirectly disrupt, damage, impair or
interfere with RBI, whether by way of interfering with, raiding, hiring,
soliciting its employees, disrupting its relationships with customers, agents,
representatives or vendors, or otherwise or by attempting to do any of the
foregoing.
10. Employee acknowledges that the identifies of RBI's customers, of
customer leads, contracts with customers and other related customer information
gained during Employee's employment with RBI about those customers is secret and
confidential and constitutes a trade secret and Employee agrees that during the
term of Employee's employment with RBI, and for a period of two (2) years after
termination or cessation of Employee's employment with RBI, Employee shall not
use, rely on or exploit, directly or indirectly, such information to solicit
business from any such customers.
11. Employee acknowledges that Employee has carefully read and construed
the provision of the preceding paragraphs and believes that Employee has
received and will receive sufficient consideration and other benefits in
connection with Employee's employment relationship with RBI to justify such
restrictions.
RBI PROPERTY
12. At the request of RBI, and in any event at the time of leaving RBI's
employment, Employee shall return any and all materials and documents, and
copies thereof, in the possession of or under the control of Employee, whether
prepared by RBI. Employee or anyone else, when such materials or documents are,
include, incorporate or refer to RBI Proprietary Information or Developed
Technology. The term document is used in its broadest sense, and includes,
without limitation, drawings, blueprints, laboratory notebooks, binders,
research journals, idea
<PAGE>
notebooks, memoranda, specifications, formulas, devices, documents, list and
files (including those pertaining to employees, customers and suppliers),
equipment, apparatus, correspondence, computer hardware, systems, programs,
software, storage media (whether on or in the form of computer discs, tapes,
hard drives, or other method whether now known or devised in the future),
manuals, printouts, routines, sub-routines, price lists, pricing information,
devices, and writings of any and every kind or nature.
13. During the term of Employee's employment with RBI, Employee shall not
remove from RBI's offices or premises any documents, records, files,
correspondence, reports, memoranda or similar materials of or containing RBI
Proprietary Information, or other materials or property of any kind belonging to
RBI, unless necessary or appropriate in accordance with the duties and
responsibilities of Employee. In the event that such materials or property are
removed, all of the above-referenced documents and materials shall be returned
to their proper files or places of safekeeping as promptly as possible after the
removal shall service its specific purpose. Notwithstanding the foregoing,
laboratory notebooks shall not be removed from RBI's offices or premises at
anytime for any reason, other than for off site storage of the notebooks.
14. During the term of Employee's employment with RBI, Employee shall not
make, retain, remove and/or distribute any copies of any of the above-referenced
documents and materials for any reason whatsoever, except as may be necessary in
the discharge of his or her assigned duties. Employee shall not divulge to any
third person the nature of an/or contents of any of the above-referenced
documents and materials, or of any other oral or written information to which he
or she may have access or with which for any reason he or she may become
familiar, except as disclosure shall be necessary in the performance of the
duties and responsibilities of Employee.
GENERAL PROVISIONS
15. Employee represents and warrants to RBI that there are no
restrictions, agreements or understandings whatsoever to which Employee is a
party which would prevent or make unlawful Employee's execution of this
Agreement or Employee's employment. Employee further represents and warrants
that there are no restrictions, agreements or understandings whatsoever to which
Employee is a party, which are, or would be inconsistent or in conflict with,
this Agreement or Employee's employment or would prevent, limit or impair in any
way the performance by Employee of the obligations set forth in this Agreement.
16. No rights or licenses, expressed or implied, in or to any RBI
Proprietary information or Developed Technology are granted to Employee under
this Agreement.
17. This Agreement constitutes the entire and exclusive Agreement between
Employee and RBI with respect to the subject matter and supersedes and mergers
any and all prior or contemporaneous discussions, agreements, representations
and understandings of the parties with respect to the employment of Employee
with RBI. No supplement, modification or amendment of this Agreement shall be
binding upon RBI or Employee unless set forth in a written agreement executed by
RBI and Employee, which agreement specifically references this Agreement.
<PAGE>
18. No provision of this Agreement may be waived orally. Waivers of any
terms of this Agreement shall be in writing and shall be signed by the party
sought to be bound by such waiver.
19. Neither this Agreement, nor any benefits of this Agreement, are
assignable by Employee, however, RBI may assign this Agreement to, and this
Agreement's terms and provisions shall insure to the benefit of, any parent,
subsidiary, affiliate, successor or other assignee of RBI.
20. The waiver of the breach of any term or provision of this Agreement
shall not operate as or be construed to be a waiver of any other or subsequent
breach of this Agreement.
21. Employee acknowledges that it is impossible to measure fully in money
the injury that will be caused to RBI in the event of a breach or threatened
breach of any of the provisions of this Agreement, and therefore agrees and
acknowledges that RBI has no adequate remedy at law. Accordingly, Employee
shall not, in any action or proceeding to enforce any of the provisions of this
Agreement, assert the claim or defense that such an adequate remedy at law
exists. RBI shall be entitled to injunctive relief to enforce the provisions of
this Agreement, without prejudice to any other remedy RBI may have at law or in
equity.
22. The periods of time set forth in Paragraphs 8, 9 and 10 of this
Agreement shall not include, and shall be deemed extended by, any time required
for litigation to enforce the relevant covenant periods, provided that RBI is
successful on the merits in any such litigation. The "time required for
litigation" is defined to mean the period of time from service of process upon
Employee through the expiration of all appeals related to such litigation.
23. If an action at law or in equity is brought to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to recover,
in addition to any other relief, reasonable attorney's fees, costs and
disbursements.
24. The language of this Agreement shall be construed as a whole according
to its fair meaning and not strictly for or against any of the parties hereto.
25. If any provision of this Agreement is adjusted to be void or otherwise
unenforceable, in whole or in part, such adjudication shall not affect the
validity of the remainder of the Agreement.
26. This agreement shall be interpreted and governed by the laws of the
State of California without reference to its choice of law principles.
27. Any notice by either party shall be given by personal delivery or by
sending such notice by certified mail, return-receipt requested, or telecopied,
addressed or telecopied as the case may be, to the other party at its address
set forth below or at such other address designated by notice in the manner
provided in this Paragraph 27. Such notice shall be deemed to have been
received upon the date of actual delivery or personally delivered or, in the
case of mailing, two (2) days after deposit with the U.S. mail, or, in the case
of facsimile transmission, when confirmed by the facsimile machine report.
<PAGE>
If to RBI, to: If to Employee, to:
Recombinant BioCatalysis, Inc. Terrance J. Bruggeman
10665 Sorrento Valley Drive 6 ______________ Road
San Diego, CA 92121 Westport, CT 06880
Telecopier: (619) 453-7032 Telecopier: (203) 454-7901
In Witness Whereof, the parties have executed this Agreement effective as
of the date referenced above.
Recombinant BioCatalysis, Inc. Employee
By:________________________ By: /s/ Illegible Signature
-------------------------
Title:_____________________ Title: Chief Executive Officer
------------------------
<PAGE>
EXHIBIT 10.32
SEPARATION AGREEMENT
This Separation Agreement ("Agreement") is made and entered into by and
between Kathleen H. Van Sleen ("Ms. Van Sleen") and Diversa Corporation (the
"Company"), as of the last day either party executes this Agreement (the
"Effective Date").
1. Resignation. Ms. Van Sleen has tendered and the Company has accepted
her resignation as Chief Financial Officer, Vice President, Finance and
Administration, Treasurer and Secretary and all other positions she may hold
with the Company and its subsidiaries, effective March 15, 1999 (the "Separation
Date").
2. Accrued Salary and Vacation. The Company will pay Ms. Van Sleen all
accrued salary, and all accrued and unused vacation benefits earned prior to the
Separation Date, subject to standard payroll deductions and tax withholdings.
Ms. Van Sleen is entitled to this payment regardless of whether she signs this
Agreement.
3. Expense Reimbursement. Ms. Van Sleen agrees that she will use her
best efforts to submit her final documented expense reimbursement statement
reflecting all business expenses she incurred through the Separation Date, if
any, within twenty (20) business days of the Effective Date. The Company shall
reimburse Ms. Van Sleen's expenses pursuant to Company policy and regular
business practice. Ms. Van Sleen acknowledges and agrees that she is not
entitled to any further reimbursement from the Company for expenses relating to
her relocation to San Diego, California, including, but not limited to, expenses
related to the purchase of her new home.
4. Severance Payment. The Company agrees that it will pay Ms. Van Sleen,
as severance, One Hundred Seventy-Seven Thousand Six Hundred Twenty-Four Dollars
and Ninety Five Cents ($177,624.95) subject to the following deductions (the
"Severance Payment"): (i) standard payroll deductions and tax withholdings, and
(ii) a Forty-Six Thousand Five Hundred Dollars ($46,500.00) advance that was
provided to Ms. Van Sleen in connection with the closing of her new home. The
Severance Payment will be paid to Ms. Van Sleen within three (3) business days
of the Effective Date of this Agreement.
5. Advance. Ms. Van Sleen acknowledges that she received a Four Thousand
Four Hundred Dollars ($4,400.00) advance payment from the Company in connection
with the lease of a home in 1997 (the "Advance"). The Company agrees, as part
of this Agreement, that it shall forgive Ms. Van Sleen's obligation to repay the
Advance provided that Ms. Van Sleen does not receive reimbursement from the
landlord or any other entity. If Ms. Van Sleen receives reimbursement on the
Advance, or any portion thereof, she shall promptly send the Company a check in
the same amount. To the extent that the Advance or any portion thereof is
forgiven by the Company, Ms. Van Sleen agrees and acknowledges that she shall be
solely responsible for the income tax implications attributable to her in
connection with such forgiveness.
6. Promissory Note. The Company agrees that, in consideration of the
terms and conditions of this Agreement, it shall forgive the outstanding balance
of Thirty-Seven Thousand Five Hundred Dollars ($37,500.00) remaining on that
certain loan in the amount of Fifty
1.
<PAGE>
Thousand Dollars ($50,000.00) granted to Ms. Van Sleen pursuant to a Secured
Promissory Note between Ms. Van Sleen and the Company dated May 31, 1997, a copy
of which is attached hereto as Exhibit A. Ms. Van Sleen agrees and acknowledges
that she shall be solely responsible for the income tax implications
attributable to her in connection with the forgiveness of this loan and shall
indemnify the Company to the fullest extent in connection with such tax
obligations.
7. Stock Options. In exchange for the promises and covenants set forth
herein, and in consideration thereof, the Company agrees that the term and
vesting of each outstanding stock option (the "Stock Options") held by Ms. Van
Sleen, as set forth on Exhibit B attached hereto, shall continue beyond the
Separation Date until March 30, 2000 (the "Vesting Period"). The Company
further agrees that Ms. Van Sleen shall have ninety (90) days after the
conclusion of the Vesting Period to exercise her vested stock options. Ms. Van
Sleen understands that her Stock Options shall terminate ninety (90) days after
the conclusion of the Vesting Period if not exercised. Ms. Van Sleen further
acknowledges that, by virtue of receiving an extension of the exercise period,
any of her Stock Options originally granted as incentive stock options will no
longer be treated as such, but will instead be treated for tax purposes as if
they are nonqualified stock options.
8. Health and Dental Insurance. To the extent provided by the federal
COBRA law or, if applicable, state insurance laws, and by the Company's current
group health and dental insurance policies, Ms. Van Sleen will be eligible to
continue her health and dental insurance benefits. Ms. Van Sleen will be
provided with a separate notice of her COBRA rights. In the event that Ms. Van
Sleen elects continued coverage under COBRA, the Company will pay her COBRA
health insurance premiums up until the earlier of (i) twelve (12) months from
the Separation Date, or (ii) the date in which Ms. Van Sleen begins employment
with another company or business entity. Thereafter, Ms. Van Sleen shall be
solely responsible for the payment of her COBRA benefits.
9. Life Insurance. The Company agrees that it will continue to provide
Ms. Van Sleen with life insurance up until the earlier of (i) twelve (12) months
from the Separation Date, or (ii) the date in which Ms. Van Sleen begins
employment with another company or business entity
10. Scope of Compensation and Benefits. Except as expressly provided
herein, Ms. Van Sleen acknowledges that she will not receive (nor is she
entitled to) any additional compensation, severance, stock options, stock,
relocation benefits or other benefits (including, but not limited to, disability
insurance) from the Company, notwithstanding any prior agreements to the
contrary.
11. Nonsolicitation. Ms. Van Sleen agrees that for one (1) year after the
Separation Date, she will not directly solicit any person (including any entity)
who is then an employee, consultant or independent contractor of the Company to
terminate his, her or its relationship with the Company in order to become an
employee, consultant or independent contractor to or for any other person or
entity.
12. Proprietary Information Obligations. Ms. Van Sleen hereby
acknowledges her continuing obligations under the Employee Invention and Non-
Disclosure
2.
<PAGE>
Agreement not to use or disclose any confidential or proprietary information of
the Company, among other obligations described in the Employee Invention and
Non-Disclosure Agreement. A copy of Ms. Van Sleen's Employee Invention and Non-
Disclosure Agreement is attached hereto as Exhibit C. Ms. Van Sleen acknowledges
that irreparable damage would result to the Company if she breached the
provisions of this paragraph 12, and the Company would not have an adequate
remedy at law for such a breach or threatened breach. In the event of such a
breach or threatened breach, Ms. Van Sleen agrees that the Company, may,
notwithstanding anything to the contrary herein contained, and in addition to
the other remedies which may be available to it, seek to enjoin her, together
with all those persons associated with her, from the breach or threatened breach
of such covenants.
13. Company Property. Ms. Van Sleen agrees to return to the Company,
within ten (10) days of the execution of the Agreement, all Company documents
(and all copies thereof) and other Company property in her possession, or her
control, including, but not limited to, Company files, notes, drawings, records,
business plans and forecasts, financial information, specifications, computer-
recorded information, tangible property, credit cards, entry cards,
identification badges and keys; and, any materials of any kind which contain or
embody any proprietary or confidential material of the Company (and all
reproductions thereof); provided, however, that if Ms. Van Sleen discovers any
such documents or property in her possession after the expiration of such ten
(10) day period, Ms. Van Sleen agrees to return such property to the Company as
soon as practicable following discovery.
14. Nondisparagement. Ms. Van Sleen agrees that she will not at any time
intentionally disparage the Company in any manner likely to be harmful to the
Company, its business reputation, or the personal or business reputation of its
directors, stockholders or employees, and the Company agrees that neither it nor
its executive officers and directors will at any time intentionally disparage
Ms. Van Sleen or her personal or business reputation, provided that each party
shall respond accurately and fully to any question, inquiry or request for
information when required by legal process. The Company and Ms. Van Sleen
acknowledge that irreparable damage would result if either party breaches the
provisions of this paragraph 14, and that such party would not have an adequate
remedy at law for such a breach or threatened breach. In the event of such a
breach or threatened breach, the parties agree that the affected party may,
notwithstanding anything to the contrary herein contained, and in addition to
the other remedies which may be available, seek to enjoin the other party, its
officers, directors, or agents from the breach or threatened breach of this
Section 14. The parties agree that a breach of this provision shall be deemed
to be a material breach of the Agreement.
15. Confidentiality and Publicity. The provisions of this Agreement shall
be held in strictest confidence by Ms. Van Sleen and the Company and shall not
be publicized or disclosed in any manner whatsoever other than as follows: (a)
the parties may disclose this Agreement in confidence to their respective
attorneys, accountants, auditors, tax preparers, and financial advisors (and, in
the case of Ms. Van Sleen, to members of her family); (b) the Company may
disclose this Agreement as necessary to fulfill standard or legally required
corporate reporting or disclosure requirements; and (c) the parties may disclose
this Agreement insofar as such disclosure may be necessary to enforce its terms
or as otherwise required by law. In particular (and without limitation), Ms.
Van Sleen agrees not to discuss the contents of this Agreement with present or
former Company employees or other personnel.
3.
<PAGE>
16. Release of Claims by Ms. Van Sleen. Except as otherwise set forth in
this Agreement, Ms. Van Sleen hereby releases, acquits and forever discharges
the Company, its officers, directors, agents, attorneys, servants, employees,
shareholders, insurers, successors, assigns and affiliates, of and from any and
all claims, liabilities, demands, causes of action, costs, expenses, attorneys'
fees, damages and obligations of every kind and nature, in law, equity, or
otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts or
conduct at any time prior to and including the Effective Date hereof, including
but not limited to: any and all such claims and demands directly or indirectly
arising out of or in any way connected with Ms. Van Sleen's employment with the
Company or the termination of that employment; claims or demands related to
salary, bonuses, commissions, stock, stock options, or any other ownership
interests in the Company, vacation pay, fringe benefits, expense reimbursements,
sabbatical benefits, severance benefits, or any other form of compensation;
claims pursuant to any federal, state or local law or cause of action including,
but not limited to, the federal Civil Rights Act of 1964, as amended; the
federal Age Discrimination in Employment Act of 1967, as amended (the "ADEA");
the federal Americans with Disabilities Act of 1990; the California Fair
Employment and Housing Act, as amended; tort law; contract law; wrongful
discharge; discrimination; fraud; defamation; emotional distress; and breach of
the implied covenant of good faith and fair dealing.
17. Section 1542 Waiver. Ms. Van Sleen acknowledges that she has read and
understands Section 1542 of the Civil Code of the State of California which
reads as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by
him must have materially affected his settlement with
the debtor.
Ms. Van Sleen hereby expressly waives and relinquishes all rights and benefits
under that section and any law or legal principle of similar effect in any
jurisdiction with respect to the release granted in this Agreement.
18. No Admissions. It is understood and agreed by Ms. Van Sleen and the
Company that this Agreement represents a compromise settlement of various
matters, and that the promises and payments in consideration of this Agreement
shall not be construed to be an admission of any liability or obligation by
either party to the other party or to any other person.
19. Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (a) by registered or certified
mail, return receipt requested, postage prepaid, or (b) via a reputable express
courier service, in each case to the address set forth below. Any such notice,
instruction or communication shall be deemed to have been delivered three (3)
business days after it is mailed, by certified mail, postage prepaid, return
receipt requested, or one (1) business day after it is sent via a reputable
nationwide overnight courier service.
4.
<PAGE>
If to the Company: Diversa Corporation
10665 Sorrento Valley Road
San Diego, California 92121-1623
Attn: Chief Executive Officer
If to Ms. Van Sleen: Kathleen H. Van Sleen
5055 Seachase Way
San Diego, California 92130
Any party may give any notice, instruction or communication in connection with
this Agreement using any other means (including personal delivery, telecopy or
ordinary mail), but no such notice, instruction or communication shall be deemed
to have been delivered unless and until it is actually received by the party to
whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other party to
this Agreement notice thereof in the manner set forth in this paragraph 18.
20. Entire Agreement. This Agreement, including the Exhibits hereto,
constitutes the complete, final and exclusive embodiment of the entire agreement
between Ms. Van Sleen and the Company with regard to the subject matter hereof,
and supercedes that certain employment offer letter dated December 11, 1996,
between Ms. Van Sleen and the Company. It is entered into without reliance on
any promise or representation, written or oral, other than those expressly
contained herein. It may not be modified except in writing and signed by Ms.
Van Sleen and a duly authorized officer of the Company. Each party has
carefully read this Agreement, has been afforded the opportunity to be advised
of its meaning and consequences by her or its respective attorneys, and signed
the same of her or its own free will.
21. Successors and Assigns. This Agreement shall bind the heirs, personal
representatives, successors, assigns, executors, and administrators of each
party, and inure to the benefit of each party, its heirs, successors and
assigns. However, because of the unique duties under this Agreement, Ms. Van
Sleen agrees not to delegate the performance of such duties under this
Agreement.
22. Applicable Law. This Agreement shall be deemed to have been entered
into and shall be construed and enforced in accordance with the laws of the
State of California as applied to contracts made and to be performed entirely
within California.
23. Severability. If a court of competent jurisdiction determines that
any term or provision of this Agreement is invalid or unenforceable, in whole or
in part, then the remaining terms and provisions hereof shall be unimpaired.
Such court will have the authority to modify or replace the invalid or
unenforceable term or provision with a valid and enforceable term or provision
that most accurately represents the parties' intention with respect to the
invalid or unenforceable term or provision.
24. Attorneys' Fees. In any legal action or other proceeding brought to
enforce or remedy a breach of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and documented out-of-pocket
expenses.
5.
<PAGE>
25. Section Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
26. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.
In Witness Whereof, the parties have duly authorized and caused this
Agreement to be executed as follows:
Kathleen H. Van Sleen,
an individual.
/s/ Kathleen H. Van Sleen
- ------------------------------
Kathleen H. Van Sleen
Dated: May 10, 1999
------------------------
Daniel T. Carroll,
Chairman of the Human Resources
Committee of the Board of Directors
/s/ Daniel T. Carroll
- ------------------------------
Daniel T. Carroll
Dated: May 7, 1999
------------------------
6.
<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
<PAGE>
SECURED PROMISSORY NOTE
$50,000 May 31, 1997
San Diego, California
For Value Received, Kathleen H. Van Sleen (the "Maker"), residing at 12828
Harwick Lane, San Diego, California 92130, promises to pay to Recombinant
BioCatalysis, Inc., a Delaware corporation qualified to do business in
California ("Holder"), or order, the principal sum of Fifty Thousand Dollars
($50,000) together with interest on the outstanding principal balance from the
date hereof until maturity at the rate of six and sixty-four one-hundredths
percent (6.64%) per annum.
Principal shall be paid in four (4) equal annual installments commencing
March 30, 1998 and continuing on the thirtieth (30/th/) day of each March
thereafter until March 30, 2001, at which time the entire remaining balance of
principal and interest shall be due and payable. Interest earned through each
annual payment date shall be paid annually at the same time as each principal
payment. Each payment shall be credited first to interest then due computed on
the amount of principal then unpaid and the remainder to principal. Should
interest not be paid when due, it shall thereafter bear like interest as the
principal. Notwithstanding anything to the contrary set forth herein, all
principal and interest hereunder shall be due and payable immediately upon the
ninetieth (90/th/) day following the cessation of the employment relationship
between Maker and Recombinant BioCatalysis, Inc.
Maker shall have the right to prepay this Note at any time and without
notice.
Payments under this Note are payable when due without demand, notice, set
off or counterclaim in lawful money of the United States at:
Recombinant BioCatalysis, Inc.
10665 Sorrento Valley Road
San Diego, California 92121
or wherever otherwise designated in writing from time to time by the Holder of
this Note.
Whenever any payment on this Note shall be stated to be due on a day which
is not a business day, such payment shall be made on the next succeeding
business day and such extension of time shall be computed in the computation of
the payment of interest on this Note.
This Note is secured by a pledge of stock pursuant to a Pledge Agreement by
and between Maker, as debtor, and Holder, as pledgee and secured party, of even
date herewith (the "Pledge Agreement").
The following shall constitute events of default hereunder and under the
Pledge Agreement:
(a) Maker shall fail or refuse to pay within 10 days of notice by the
holder of this Note that any payment of principal of or interest upon this Note
is due and payable;
<PAGE>
(b) any assignment is made by Maker for the benefit of creditors;
(c) any warranty, representation or statement furnished to Holder by
or on behalf of Maker under this Note, the Pledge Agreement or any other
agreement entered into contemporaneously herewith is, or at the time made or
furnished was, false in any material respect;
(d) any of the following shall occur with respect to Maker or the
security for this Note, provided that proceedings initiated by third parties
under (i), (ii) and (iii) shall not constitute defaults unless Maker shall fail
to obtain dismissal of such proceeding within sixty (60) days of initiation of
such proceeding:
(i) the appointment of a receiver, liquidator, or trustee;
(ii) the adjudication as a bankrupt of insolvent;
(iii) the filing of any voluntary or involuntary petition for
bankruptcy or reorganization; or
(iv) Maker is unable, or admits in writing an inability, to pay
their debts when due; or
(e) Maker defaults in the performance of any other covenant or the
observance of any other condition contained herein, in the Pledge Agreement or
in any other agreement entered into contemporaneously herewith.
Upon the occurrence of any of the foregoing events of default, the holder
of this Note may, at its option, declare all principal and interest hereunder
immediately due and payable without notice or demand, and may exercise any of
its rights under this Note and/or the Pledge Agreement.
Maker agrees to pay attorneys' fees and costs incurred by the holder of
this Note in connection with any actions to collect payments due hereunder, and
in the event suit or action is instituted to enforce or interpret this Note
(including without limitation efforts to modify or vacate any automatic stay or
injunction), the prevailing party shall be entitled to recover all expenses
reasonably incurred at, before or after trial and on appeal, whether or not
taxable as costs, or in any bankruptcy proceeding, or in connection with post-
judgment collection efforts, including, without limitation, attorneys' fees,
witness fees (expert and otherwise) deposition costs, copying charges and other
expenses.
Maker and any surety, guarantor, or endorser who may become liable for all
or any part of the obligations evidenced by this Note, jointly or severally,
hereby waive presentment, protest, and notice of protest, notice of intention to
accelerate, demand, notice of dishonor and notice of non-payment of and
formalities of any kind relative to this Note, and expressly consents to any
extension of the time of payment hereof or of any installments hereof and to the
release of any party liable for this obligation, and any such extension or
release may be made without notice to any of said parties and without in any way
affecting or discharging this liability. The right to
<PAGE>
plead any and all statutes of limitations as a defense to this Note is hereby
waived to the fullest extent by law.
All agreements in this Note or the Pledge Agreement are expressly limited
so that in no contingency or event whatsoever, whether by reason of advancement
or acceleration of maturity of the indebtedness, or otherwise, shall the amount
paid or agreed to be paid hereunder for the use, forbearance or detention of
money exceed the highest lawful rate permitted under applicable usury laws, if
any. If, from any circumstance whatsoever, fulfillment of any provision of this
Note or the Pledge Agreement, at the time performance of such provision shall be
due, shall be prohibited by law, the obligation to be fulfilled shall be reduced
to the maximum not so prohibited and if, from any circumstance whatsoever, the
holder of this Note shall ever receive as interest under this Note or the Pledge
Agreement, an amount which would exceed the highest lawful rate, the receipt of
such excess shall be deemed a mistake and shall be credited against the
principal amount of the indebtedness to which the same may lawfully be credited,
and any portion of such excess not capable of being so credited shall be rebated
to Maker.
This Note shall be governed and construed in accordance with the laws of
the State of California.
Maker hereby irrevocably submits to the jurisdiction of any applicable
state or federal court sitting in California in any action or proceeding brought
to enforce or otherwise arising out of or relating to this Note, and hereby
waives any objection to venue in any such court and any claim that such forum is
an inconvenient forum.
TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, BOTH
HOLDER AND MAKER IRREVOCABLY WAIVE AND COVENANT THAT THEY WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY
FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION OR
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER OR REMEDY UNDER, IN
CONNECTION WITH, ARISING OUT OF OR BASED UPON THIS NOTE OR THE SUBJECT MATTER
HEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING OR WHETHER IN
CONTRACT OR TORT OR OTHERWISE, HOLDER AND MAKER ACKNOWLEDGE THAT THE PROVISION
OF THIS PARAGRAPH CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH EACH HAS RELIED,
IS RELYING AND WILL RELY IN ENTERING INTO THIS TRANSACTION AND RELATED
TRANSACTIONS. HOLDER OR MAKER MAY FILE AN ORIGINAL, COUNTERPART OR COPY OF THIS
PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE OTHER'S CONSENT TO THE
WAIVER OF THEIR RIGHTS TO TRIAL BY JURY.
MAKER:
/s/ Kathleen H. Van Sleen
---------------------------------
KATHLEEN H. VAN SLEEN
<PAGE>
EXHIBIT B
STOCK OPTIONS SCHEDULE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Vesting
Date of Commencement Shares Subject to Vested as of Vested as of
Grant Date the Option 3-15-99 3-30-00
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12-16-97 12-30-96 350,000 175,000 284,375
- ----------------------------------------------------------------------------------
08-28-97 06-26-97 30,000 11,250 20,625
- ----------------------------------------------------------------------------------
08-28-97 12-16-97 120,000 30,000 67,500
- ----------------------------------------------------------------------------------
01-07-99 01-07-99 100,000 0 25,000
- ----------------------------------------------------------------------------------
Total: 216,250 397,500
------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT
<PAGE>
DIVERSA CORPORATION
EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT
This Employee Invention and Non-Disclosure Agreement is made this _____ day
of __________________, 199____ ("Effective Date") by and between DIVERSA
Corporation, a Delaware corporation with a principal place of business at 10665
Sorrento Valley Road, San Diego, CA 92121 ("Diversa"), and _________________,
an individual having an address at
_________________________
_________________________ ("Employee")
In consideration of the mutual promises and other good and valuable
consideration, and as part of the terms of employment of Employee by Diversa,
the parties agree as follows:
INVENTIONS
1. Employee agrees to disclose to Diversa promptly in writing any and all
inventions, developments, discoveries, improvements and ideas, whether
patentable or not; (a) which are made, discovered, and/or conceived by Employee
alone or with others in the course of his or her employment or provision of
services to Diversa; (b) which are based on or utilize Diversa Proprietary
Information (as defined in Paragraph 6); or (c) which result or arise from or
relate to the use of Diversa's facilities, equipment, materials, funds, or
actual or demonstrably anticipated research or development. [(As used in this
Paragraph 1, the term "invention" shall have the same meanings as "Invention" as
defined in California Labor Code (S) 2870 (see Appendix "A")]. All such
improvements, inventions, developments, discoveries, ideas, and intellectual
property rights, shall be referred to individually and collectively as
"Developed Technology." Diversa shall receive such disclosures in confidence.
Pursuant to California Labor Code (S) 2870 et seq Diversa shall also maintain a
review process for employees to determine ownership of such Developed
Technology. To the extent required by contracts between Diversa and the United
States or any of its agencies, full title to certain patents and inventions
shall be in the United States.
2. Employee agrees that all Developed Technology made, discovered or
conceived by Employee, either solely or in collaboration with any other person,
during the term of Employee's employment with Diversa, whether or not patented
or copyrighted, is and shall remain the sole and exclusive property of Diversa,
its successors and assigns. Employee irrevocably agrees to assign and does
assign to Diversa or its nominees, successors or assigns, all right, title and
interest in and to Developed Technology. Employee agrees to execute any and all
papers and perform any and all acts as may be necessary to perfect such
assignment. However, the terms of this Paragraph 2 shall not apply to any
inventions which are expressly excluded from coverage pursuant to California
Labor Code (S) 2870 (see Appendix "A").
3. With regard to the copyright laws of the United States, Diversa notes
that U.S. Copyright Act (S) 101 defines the term "work made for hire," in
pertinent part, as a "work prepared by an employee within the scope of his or
her employment." U.S. Copyright Act (S) 201(b) provides that "[i]n the case of
a work made for hire, the employer or other person for
<PAGE>
whom the work was prepared is considered the author for purposes of this title
and, unless the parties have expressly agreed otherwise in a written instrument
signed by them, owns all of the rights comprised in the copyright." Diversa
further notes that the judicial decisions under the U.S. Copyright Act broadly
interpret the phrase "within the scope of his or her employment." This phrase
has been applied to cover, among other things, some works created by an employee
at home on his own time and for no additional pay, without any request by the
employer. Diversa intends to assert its ownership and other rights in the "work
made for hire" are to the fullest legally permissible extent.
4. In the event that Diversa makes or proposes to make any United States
or foreign patent application relating to Developed Technology owned by Diversa
pursuant to this Agreement, Employee shall cooperate fully with Diversa and its
patent counsel in preparing and prosecuting any such application. Employee
agrees to execute, acknowledge and deliver all such papers, including, but not
limited to, applications for patents, applications for copyright registration
and applications for trademark registration as may be necessary or appropriate
to enable Diversa to publish or protect Developed Technology owned by Diversa by
patents, copyrights or otherwise in the name of Diversa or its nominees,
successors or assigns. Employee further agrees to render all such assistance as
Diversa may require in any patent office, proceeding, litigation or other
administrative, judicial or related proceeding in the United States or foreign
country, involving Developed Technology owned by Diversa.
5. In the event Diversa is unable, after reasonable effort to secure
Employee's signature on any of the documents referenced in Paragraphs 2 and 4
whether because of Employee's physical or mental incapacity or for any other
reason whatsoever, Employee irrevocably designates and appoints Diversa and its
duly authorized officers and agents as Employee's agent and attorney-in-fact,
for purposes of effecting any or all prosecutions and/or issuances of any such
copyright, patent or trademark protection or other analogous protection.
CONFIDENTIAL INFORMATION
6. For purposes of this Agreement, the phrase "Diversa Proprietary
Information" includes without limitation the following:
(a) technical information, including patent strategy, information
encompassed by Developed Technology or trade secrets, locations and sources of
bio-material, methods of harvesting bio-material, experiment and research
design, results, techniques and processes; biological materials, including but
not limited to enzymes and clones; work in progress; manufacturing and process
know-how; laboratory notebooks, research journals, idea notebooks, notes and
letters; concepts; ideas; apparatus and equipment design; and computer software;
(b) technical management information, including technical manuals,
product proposals, status reports, performance objectives and criteria and
analyses of areas for business development; and
(c) business information, including cost, pricing, project,
financial, accounting and personnel information, notes, letters, business
strategies, plans, proposals, projections and
<PAGE>
forecasts, customer lists, customer information and sales and marketing plans,
proposals, projections, efforts, information and data.
"Diversa Proprietary Information" shall also include any and all
information and materials received by Diversa or Employee from a third party
subject to an obligation of confidentiality and/or non-disclosure.
7. Developed Technology owned by Diversa and Diversa Proprietary
Information shall be considered confidential and trade secret and shall not be
disclosed to any person or entity or used by Employee for any purpose at any
time during or following the termination or cessation of Employee's employment
with Diversa, except as required in Employee's performance of job duties for
Diversa. Nothing in this Agreement shall restrict Employee's ability to make
such disclosures during the course of his or her employment as may be necessary
or appropriate to the effective and efficient discharge of the duties and
responsibilities of Employee or as such disclosures may be required by law.
Failure by Diversa to mark any of Diversa Proprietary Information as
"confidential" or "proprietary" shall not affect its status as Diversa
Proprietary Information under the terms of this Agreement.
COMPETITIVE ACTIVITIES
8. During the term of Employee's employment with Diversa, Employee shall
not, without the prior written approval of Diversa, alone or as a partner,
officer, director, consultant, employee, stockholder, agent, contractor or
otherwise, engage in any employment, consulting, business or other activity or
occupation competitive with Diversa.
9. During the term of Employee's Employment with Diversa, and for a
period of two (2) years after the termination or cessation of Employee's
employment with Diversa, Employee shall not directly or indirectly disrupt,
damage, impair or interfere with Diversa, whether by way of interfering with,
raiding, hiring, soliciting its employees, disrupting its relationships with
customers, agents, representatives or vendors, or otherwise or by attempting to
do any of the foregoing.
10. Employee acknowledges that the identifies of Diversa's customers, of
customer leads, contracts with customers and other related customer information
gained during Employee's employment with Diversa about those customers is secret
and confidential and constitutes a trade secret and Employee agrees that during
the term of Employee's employment with Diversa, and for a period of two (2)
years after termination or cessation of Employee's employment with Diversa,
Employee shall not use, rely on or exploit, directly or indirectly, such
information to solicit business from any such customers.
11. Employee acknowledges that Employee has carefully read and construed
the provision of the preceding paragraphs and believes that Employee has
received and will receive sufficient consideration and other benefits in
connection with Employee's employment relationship with Diversa to justify such
restrictions.
DIVERSA PROPERTY
<PAGE>
12. At the request of Diversa, and in any event at the time of leaving
Diversa's employment, Employee shall return to Diversa any and all materials and
documents, and copies thereof, in the possession of or under the control of
Employee, whether prepared by Diversa. Employee or anyone else, when such
materials or documents are, include, incorporate or refer to Diversa Proprietary
Information or Developed Technology. The term document is used in its broadest
sense, and includes, without limitation, drawings, blueprints, laboratory
notebooks, binders, research journals, idea notebooks, memoranda,
specifications, formulas, devices, documents, list and files (including those
pertaining to employees, customers and suppliers), equipment, apparatus,
correspondence, computer hardware, systems, programs, software, storage media
(whether on or in the form of computer discs, tapes, hard drives, or other
method whether now known or devised in the future), manuals, printouts,
routines, sub-routines, price lists, pricing information, devices, and writings
of any and every kind or nature.
13. During the term of Employee's employment with Diversa, Employee shall
not remove from Diversa's offices or premises any documents, records, files,
correspondence, reports, memoranda or similar materials of or containing Diversa
Proprietary Information, or other materials or property of any kind belonging to
Diversa, unless necessary or appropriate in accordance with the duties and
responsibilities of Employee. In the event that such materials or property are
removed, all of the above-referenced documents and materials shall be returned
to their proper files or places of safekeeping as promptly as possible after the
removal shall service its specific purpose. Notwithstanding the foregoing,
laboratory notebooks shall not be removed from Diversa's offices or premises at
anytime for any reason, other than for off site storage of the notebooks.
14. During the term of Employee's employment with Diversa, Employee shall
not make, retain, remove and/or distribute any copies of any of the above-
referenced documents and materials for any reason whatsoever, except as may be
necessary in the discharge of his or her assigned duties. Employee shall not
divulge to any third person the nature of an/or contents of any of the above-
referenced documents and materials, or of any other oral or written information
to which he or she may have access or with which for any reason he or she may
become familiar, except as disclosure shall be necessary in the performance of
the duties and responsibilities of Employee.
GENERAL PROVISIONS
15. Employee represents and warrants to Diversa that there are no
restrictions, agreements or understandings whatsoever to which Employee is a
party which would prevent or make unlawful Employee's execution of this
Agreement or Employee's employment. Employee further represents and warrants
that there are no restrictions, agreements or understandings whatsoever to which
Employee is a party, which are, or would be inconsistent or in conflict with,
this Agreement or Employee's employment or would prevent, limit or impair in any
way the performance by Employee of the obligations set forth in this Agreement.
16. No rights or licenses, expressed or implied, in or to any Diversa
Proprietary information or Developed Technology are granted to Employee under
this Agreement.
<PAGE>
17. This Agreement constitutes the entire and exclusive Agreement between
Employee and Diversa with respect to the subject matter and supersedes and
mergers any and all prior or contemporaneous discussions, agreements,
representations and understandings of the parties with respect to the employment
of Employee with Diversa. No supplement, modification or amendment of this
Agreement shall be binding upon Diversa or Employee unless set forth in a
written agreement executed by Diversa and Employee, which agreement specifically
references this Agreement.
18. No provision of this Agreement may be waived orally. Waivers of any
terms of this Agreement shall be in writing and shall be signed by the party
sought to be bound by such waiver.
19. Neither this Agreement, nor any benefits of this Agreement, are
assignable by employee, however, Diversa may assign this Agreement to, and this
Agreement's terms and provisions shall insure to the benefit of, any parent,
subsidiary, affiliate, successor or other assignee of Diversa.
20. The waiver of the breach of any term or provision of this Agreement
shall not operate as or be construed to be a waiver of any other or subsequent
breach of this Agreement.
21. Employee acknowledges that it is impossible to measure fully in money
the injury that will be caused to Diversa in the event of a breach or threatened
breach of any of the provisions of this Agreement, and therefore agrees and
acknowledges that Diversa has no adequate remedy at law. Accordingly, Employee
shall not, in any action or proceeding to enforce any of the provisions of this
Agreement, assert the claim or defense that such an adequate remedy at law
exists. Diversa shall be entitled to injunctive relief to enforce the
provisions of this Agreement, without prejudice to any other remedy Diversa may
have at law or in equity.
22. The periods of time set forth in Paragraphs 8, 9 and 10 of this
Agreement shall not include, and shall be deemed extended by, any time required
for litigation to enforce the relevant covenant periods, provided that Diversa
is successful on the merits in any such litigation. The "time required for
litigation" is defined to mean the period of time from service of process upon
Employee through the expiration of all appeals related to such litigation.
23. If an action at law or in equity is brought to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to recover,
in addition to any other relief, reasonable attorney's fees, costs and
disbursements.
24. The language of this Agreement shall be construed as a whole according
to its fair meaning and not strictly for or against any of the parties hereto.
25. If any provision of this Agreement is adjusted to be void or otherwise
unenforceable, in whole or in part, such adjudication shall not affect the
validity of the remainder of the Agreement.
26. This agreement shall be interpreted and governed by the laws of the
State of California without reference to its choice of law principles.
<PAGE>
27. Any notice by either party shall be given by personal delivery or by
sending such notice by certified mail, return-receipt requested, or telecopied,
addressed or telecopied as the case may be, to the other party at its address
set forth below or at such other address designated by notice in the manner
provided in this Paragraph 27. Such notice shall be deemed to have been
received upon the date of actual delivery or personally delivered or, in the
case of mailing, two (2) days after deposit with the U.S. mail, or, in the case
of facsimile transmission, when confirmed by the facsimile machine report.
If to Diversa, to: If to Employee, to:
Diversa Corporation ___________________________
10665 Sorrento Valley Drive ___________________________
San Diego, CA 92121 ___________________________
Telecopier: (619) 453-7032 Telecopier_________________
In Witness Whereof, the parties have executed this Agreement effective as
of the date referenced above.
Diversa Corporation Employee
By: /s/ Ana M. Gomez By: /s/ Kathy Van Sleen
--------------------------- ---------------------------
Title: Human Resources Manager Title: CFO
------------------------ ------------------------
Attachments: Appendix "A": California Labor Code (S) 2870
<PAGE>
EXHIBIT 10.33
June 25, 1998
[LOGO] DIVERSA
Jay M. Short, Ph.D.
320 Delage Drive
Encinilas, California 92024 CONFIDENTIAL
Dear Jay,
The Board has been exceptionally pleased by your contributions to the success of
Diversa. The Board wishes to recognize your contribution as follows:
Title: President and Chief Technology Officer.
Bonus Payment: $500,000 paid by June 25, 1998, and $500,000
paid on June 1, 1999, conditioned on your
continued employment with Diversa Corporation
on the date of each payment. This special
bonus will not affect your participation in
Diversa Corporation's bonus program for its
executives.
Stock Option Grant: An additional grant of incentive stock option
at 4% of total Diversa Corporation's fully
diluted shares effective June 25, 1998.
Company Support: The Board, pursuant to an approved budget,
will permit Management to operate Diversa
within the current financial resources for a
period of one (1) year.
Vesting: Four (4) years, under the terms of the 1997
Stock Option Plan with 25% of the options
vesting on the first anniversary and 1/12 of
the remainder vesting quarterly thereafter
and an accelerated immediate vesting of the
unvested portion of stock options granted
above upon the sale of the Company, or the
involuntary termination of your employment
without cause as defined in Diversa's Stock
Purchase and Restriction Agreement.
R&D Support: One to two people, as required, in the areas
of R&D sales and partnership management;
reporting to Jay Short.
1
<PAGE>
Jay M. Short
June 25, 1998
Page 2
Severance: In the event the Company is liquidated
or is sold below the current valuation
($0.85 per share), salary will continue
for two (2) years from the date of
involuntary termination without cause,
either under the current bi-monthly
salary schedule or in a lump sum, at
the election of the employer. In
addition, all options and bonus payment
mentioned above are accelerated. The
two (2) year severance clause will
revert to the previously agreed upon
six (6) months clause after June 25,
2000.
In addition, the provision of the Employee Invention and Non-Disclosure
Agreement between you and Diversa Corporation will remain in full force and
effect.
Sincerely,
/s/ Terrance J. Bruggeman
Terrance J. Bruggeman
Chairman and Chief Executive Officer
I am in agreement with the aforementioned.
/s/ Jay M. Short
- --------------------------------
Jay M. Short, Ph.D.
2
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Information" and "Experts" and to the use of our report dated
November 10, 1999, except for Note 11, as to which the date is December 15,
1999, in the Registration Statement (Form S-1) and related Prospectus of
Diversa Corporation for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
December 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 4,473 3,924
<SECURITIES> 1,079 5,839
<RECEIVABLES> 54 190
<ALLOWANCES> (6) (1)
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,010 10,294
<PP&E> 2,622 2,707
<DEPRECIATION> 1,178 1,116
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<CURRENT-LIABILITIES> 3,540 4,663
<BONDS> 0 0
0 0
48,402 48,408
<COMMON> 6 7
<OTHER-SE> (45,732) (42,686)
<TOTAL-LIABILITY-AND-EQUITY> 8,706 13,072
<SALES> 0 0
<TOTAL-REVENUES> 1,347 6,459
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 13,536 12,443
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 308 306
<INCOME-PRETAX> (11,845) (5,803)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,845) (5,803)
<EPS-BASIC> (2.33) (0.89)
<EPS-DILUTED> (0.18) (0.08)
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