<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 2000
REGISTRATION NO. 333-92853
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4
TO
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. [_]
---------------
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 FEBRUARY 9, 2000
PRELIMINARY PROSPECTUS
7,000,000 SHARES
[LOGO OF DIVERSA]
COMMON STOCK
-----------
This is an initial public offering of 7,000,000 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 $20.00
and $22.00 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 5 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>
<CAPTION>
Per
Share Total
-------- --------
<S> <C> <C>
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 1,050,000 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.
CHASE H&Q
DEUTSCHE BANC ALEX. BROWN
The date of this prospectus is , 2000
<PAGE>
[GATEFOLD COVER]
[Gatefold Cover: A diagram entitled "Diversa: Innovation from BioDiversity and
Gene Evolution" depicting alternative ecosystems, progressing to multiple
images depicting the discovery, development and manufacture of novel enzymes
and other biologically active compounds through our proprietary processes and
technologies, which then leads to photographs representing our four target
markets.
[Inside Front Cover: Heading reading "Diversa Corporation discovers and
develops novel enzymes and other biologically active compounds from diverse
environmental sources for use in agricultural, chemical processing, industrial
and pharmaceutical applications. We have commercialized our first product for
the industrial market and have multiple projects in various stages of
development in our target markets," followed by a diagram representing our
discovery and evolution processes and technologies, which then leads to
photographs representing our four target markets.
<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 a 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. Enzymes are proteins that catalyze, or facilitate,
one or more chemical reactions. Our processes significantly speed the discovery
and development of such 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 organisms that have not previously been
cultured in the laboratory found in diverse natural environments;
. We isolate, catalog and store genes and gene pathways, or groups of
genes that produce enzymes that act together to synthesize a molecule,
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. We estimate that our environmental gene
libraries currently contain the complete genomes of over 1 million unique
microorganisms.
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 GeneReassembly, enable us to modify the DNA sequences of genes
in order to optimize new genes for commercial applications. We use our Gene
Site Saturation Mutagenesis technology to create a family of related genes that
all differ from a parent gene by a single amino acid change at each defined
position. We use our GeneReassembly technologies for the reassembly of related
genes from two or more different species to create a large population of new
gene variants. The new genes created through these technologies can then be
screened for one or more desired characteristics.
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 and we have 42 other
projects with multiple production applications in various stages of
development.
1
<PAGE>
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 S.A. 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 $10.7 million received
from inception through December 31, 1999, our partners are committed to fund at
least $68.0 million under existing agreements over the next five years. Our
partners have also invested $9.2 million in our equity securities.
OUR TARGET MARKETS AND PRODUCTS
We are developing enzymes and other biologically active compounds for a
number of industries, including agricultural, chemical processing, industrial
and pharmaceutical applications. Our target markets provide both short-term and
long-term product revenue opportunities. Within these broad markets we are
targeting billion dollar 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;
. Deploy 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>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Diversa................. 7,000,000 shares
Common stock to be outstanding after the
offering....................................... 32,811,401 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 December
31, 1999. This table excludes:
. 5,492,798 shares of our common stock reserved for issuance under our
stock option plans of which 3,125,000 shares are subject to outstanding
options with a weighted average exercise price of $1.73 per share and
13,937 shares of common stock issuable upon exercise of an outstanding
option granted outside our stock option plans with an exercise price of
$0.03 per share;
. 277,719 shares available for issuance under our Non-Employee Directors'
Stock Option Plan;
. 416,579 shares available for issuance under our 1999 Employee Stock
Purchase Plan; and
. 364,120 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $1.44 per share.
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
22,834,011 shares of common stock upon the closing of this offering;
. the issuance of an estimated 32,000 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 began to accrue on
December 21, 1999;
. a 1-for-2.8806 reverse-split in our common stock that was effected on
February 8, 2000; and
. no exercise of the underwriters' over-allotment option to purchase up to
1,050,000 shares.
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.
3
<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>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................. $ 25 $ 706 $ 1,155 $ 1,347 $10,272
Total operating expenses...... 8,857 12,125 13,455 15,201 19,506
Operating loss................ (8,832) (11,419) (12,300) (13,854) (9,234)
Net loss...................... (8,904) (11,646) (12,392) (13,510) (9,019)
Net loss applicable to common
stockholders................. $(8,904) $(11,646) $(12,392) $(13,510) $(9,085)
======= ======== ======== ======== =======
Historical net loss per share,
basic and diluted............ $ (7.37) $ (7.68) $ (7.72) $ (7.64) $ (3.86)
======= ======== ======== ======== =======
Historical weighted average
shares outstanding........... 1,208 1,517 1,606 1,768 2,353
Pro forma net loss per share.. $ (0.36)
=======
Pro forma weighted average
shares outstanding........... 25,187
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments................................... $ 5,084 $ 5,084 $140,594
Working capital................................ 13,902 13,902 149,412
Total assets................................... 31,072 31,072 167,412
Capital lease obligations, less current
portion....................................... 2,677 2,677 2,677
Redeemable convertible preferred stock......... 48,402 -- --
Stockholders' equity (deficit)................. (42,813) 5,589 141,099
</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.
Pro forma balance sheet data assumes the conversion of all our outstanding
preferred stock into common stock in conjunction with the closing of this
offering.
The pro forma as adjusted balance sheet data above reflect the sale of
7,000,000 shares of our common stock in this offering at an assumed initial
public offering price of $21.00 per share after deducting estimated
underwriting discounts and commissions and estimated expenses of this offering,
the conversion of all outstanding preferred stock into common stock and the
issuance of an estimated 32,000 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 began to accrue on December 21, 1999. See "Use of
Proceeds" and "Capitalization" for a discussion about how we intend to use the
proceeds from this offering and about our capitalization.
4
<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 $10.5 million for the year ended December 31, 1999. As of
December 31, 1999, we had an accumulated deficit of approximately $56.4
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 regulatory approval and 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. 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.
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
5
<PAGE>
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 have arrangements with a third party that has
the required manufacturing equipment and available capacity to manufacture
Pyrolase 160 under our direction and oversight. 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.
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
6
<PAGE>
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.
ANY INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES COULD HARM OUR
COMPETITIVE POSITION.
Our intellectual property consists of patents, copyrights, trade secrets,
know-how and trademarks. As of January 15, 2000, we owned 24 issued patents
relating to our technologies, had received notices of allowance with respect to
7 other patent applications and have over 125 patents pending. In addition, as
of January 15, 2000, we had in-licensed more than 25 additional patents or
patent applications that we believe strengthen our patent portfolio. 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
7
<PAGE>
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 102 at December 31, 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, including our patent position,
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.
We are not currently a party to any litigation with regard to our patent
position. However, 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 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 United States. 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.
8
<PAGE>
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.
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.
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. Our policy is to 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 by the
individual or made known to the individual by us during the course of the
individual's relationship with us 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. 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. We are not aware of
another company that has the scope and integration of technologies and
processes that we have. There are, however, a number of companies who compete
with us in various steps throughout our technology process. For example,
Terragen Discovery is involved in accessing organisms from diverse environments
for pharmaceutical applications. 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 and Genencor International, Inc.
are involved in the development, overexpression, fermentation and purification
of enzymes. There are also a number of academic institutions involved in
various phases of our technology process. Many of these competitors have
significantly greater financial and human resources than we do. 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.
9
<PAGE>
Any products that we develop through our technologies will compete in
multiple, highly competitive markets. 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.
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. While substantially all of our projects
to date have focused on non-human applications of our technologies and products
outside of the FDA's review, in the future we may pursue strategic alliances
for further research and development of drug products for humans that would
require FDA approval before they could be marketed in the United States. In
addition, any drug product candidates must also be approved by the regulatory
agencies of foreign governments before any product can be sold in those
countries. 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, if results from pre-clinical or clinical trials do not
meet regulatory requirements or if they 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. Even after
investing significant time and expenditures, we may not obtain regulatory
approval for any drug 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. 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.
10
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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 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 year ended
December 31, 1999 was $10.3 million, as compared to $1.3 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;
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. 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 and other technology-
based businesses, particularly in the San Diego area. If we are not able to
attract and retain the necessary personnel to accomplish our business
objectives, we may experience constraints that will adversely affect our
ability to meet the demands of our 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.
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.
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,
12
<PAGE>
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.
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 of any of our technologies, causes injury or is found
otherwise unsuitable during product testing, manufacturing, marketing or sale.
We currently have no product liability insurance. When we attempt to obtain
product liability insurance, this insurance may be 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.
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY WE ARE IN.
The stock market, from time to time, has experienced significant price and
volume fluctuations that are unrelated to the operating performance of
companies. The market prices of technology companies, particularly life science
companies, have been highly volatile. Our stock may be affected by this type of
market volatility, as well as by our own performance. The following factors,
among other risk factors, may have a significant effect on the market price of
our common stock:
. Developments in our relationships with current or future 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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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. After this offering, we will have outstanding 32,811,401 shares of
common stock. All the shares sold in this offering will be freely tradeable. Of
the remaining 25,811,401 shares of common stock outstanding after this
offering, all of such shares will be eligible for sale in the public market
beginning 180 days after the date of this prospectus. After this offering we
also intend to register up to approximately 6,187,096 shares of our common
stock for sale upon exercise of outstanding stock options issued pursuant to
compensatory benefit plans or reserved for future issuance pursuant to our 1997
Equity Incentive Plan, 1999 Non-Employee Directors' Stock Option Plan and 1999
Employee Stock Purchase Plan. 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 54.5% 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 $16.78 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."
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.
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YEAR 2000 ISSUES COULD RESULT IN THE INTERRUPTION OF OUR BUSINESS AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.
We have completed our 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 completed minor remediation with regard to software
programs, hardware and microprocessor-controlled equipment. We did not
experience any year 2000 problems. 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 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.
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$135.5 million, based upon an assumed initial public offering price of $21.00
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 $156.0 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. As of December 31, 1999, we have accrued $66,000
related to those dividends, and will accrue approximately $6,500 per day in
additional dividends for each day between January 1, 2000 and the completion of
this offering. 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 and estimate that 32,000 shares
of common stock will be issued to satisfy this obligation. 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 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.
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.
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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 December 31, 1999
---------------------------
Pro Forma
Pro As
Actual Forma Adjusted
------- ------- ---------
(in thousands, except
share data)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments.. $ 5,084 $ 5,084 $140,594
======= ======= ========
Capital lease obligations, less current portion.... $ 2,677 $ 2,677 $ 2,677
------- ------- --------
Redeemable convertible preferred stock, par value
$0.001; 60,718,183 shares authorized; 60,220,183
shares issued and outstanding (actual); no shares
authorized, issued or outstanding (pro forma and
pro forma as adjusted)............................ 48,402 -- --
Stockholders' equity (deficit):
Series E convertible preferred stock, par value
$0.001; 5,555,556 shares authorized, issued and
outstanding (actual) 5,000,000 preferred stock
shares authorized, no shares issued or
outstanding (pro forma and pro forma as
adjusted)........................................ 6 -- --
Common stock, par value $0.001; 28,630,349 shares
authorized, 2,945,390 shares issued and
outstanding (actual); 65,000,000 shares
authorized, 25,811,401 shares issued and
outstanding (pro forma); 32,811,401 shares issued
and outstanding (pro forma as adjusted).......... 3 26 33
Additional paid-in capital........................ 20,102 68,487 203,990
Deferred compensation............................. (5,520) (5,520) (5,520)
Notes receivable from stockholders................ (36) (36) (36)
Accumulated deficit............................... (57,351) (57,351) (57,351)
Accumulated other comprehensive loss.............. (17) (17) (17)
------- ------- --------
Total stockholders' equity (deficit)........... (42,813) 5,589 141,099
------- ------- --------
Total capitalization........................... $ 8,266 $ 8,266 $143,776
======= ======= ========
</TABLE>
This table sets forth as of December 31, 1999:
. our actual capitalization;
. our pro forma capitalization, assuming the conversion of all of our
outstanding preferred stock into common stock in conjunction with the
closing of this offering;
. a 1-to-2.8806 reverse-split in our common stock that will take effect
prior to the date of this offering;
. our pro forma as adjusted capitalization to give effect to the sale of
7,000,000 shares of our common stock in this offering at an assumed
initial public offering price of $21.00 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; and
. the issuance of an estimated 32,000 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 began to accrue on
December 21, 1999.
This table excludes:
. 5,492,798 shares of our common stock reserved for issuance under our
stock option plans, of which 3,125,000 shares are subject to outstanding
options with a weighted average exercise price of $1.73 per share and
13,937 shares of common stock issuable upon exercise of an outstanding
option granted outside of our stock option plans with an exercise price
of $0.03 per share;
. 277,719 shares available for issuance under our Non-Employee Directors'
Stock Option Plan;
. 416,579 shares available for issuance under our 1999 Employee Stock
Purchase Plan; and
. 364,120 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $1.44 per share.
17
<PAGE>
DILUTION
Our historical net tangible book value as of December 31, 1999 was
approximately negative $45.3 million, or ($15.38) per share, based on the
number of common shares outstanding as of December 31, 1999. Historical net
tangible book value per share is equal to the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding as of December 31, 1999.
Our pro forma net tangible book value, as of December 31, 1999, was $3.1
million, or $0.12 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 considering the conversion of all outstanding preferred stock into common
stock. After giving effect to our sale of common stock offered hereby at an
assumed initial public offering price of $21.00 per share, and our receipt of
the estimated net proceeds from the offering, our pro forma net tangible book
value as of December 31, 1999 would have been approximately $138.6 million, or
$4.22 per share. This represents an immediate increase in net tangible book
value of $4.10 per share to existing stockholders and an immediate dilution of
$16.78 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $21.00
Historical net tangible book value per share before the
offering..................................................... $(15.38)
Increase per share attributed to the conversion of preferred
stock to common stock........................................ 15.50
-------
Pro forma net tangible book value per share before the
offering..................................................... 0.12
Increase per share attributable to new investors.............. 4.10
-------
Pro forma net tangible book value per share after this
offering....................................................... 4.22
------
Dilution per share to new investors............................. $16.78
======
</TABLE>
If the underwriters exercise their over-allotment in full, there will be an
increase in pro forma net tangible book value to $4.70 per share to existing
shareholders and an immediate dilution in pro forma net tangible book value of
$16.30 to new shareholders. Our existing shareholders would own 76.2% and our
new public investors would own 23.8% of the total number of shares of our
common stock outstanding after this offering.
The following table summarizes, on a pro forma basis as of December 31,
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..... 25,779,401 78.6% $ 58,604,000 28.5% $ 2.27
New public investors...... 7,000,000 21.4% 147,000,000 71.5% $21.00
---------- ----- ------------ -----
Total................... 32,779,401 100.0% $205,604,000 100.0%
========== ===== ============ =====
</TABLE>
The discussion and tables above assume no exercise of stock options or
warrants outstanding as of December 31, 1999. As of December 31, 1999, there
were options outstanding under our employee stock option plans to purchase a
total of 3,125,000 shares of common stock, with a weighted average exercise
price of $1.73 per share, 364,120 shares of common stock issuable upon the
exercise of outstanding warrants, with a weighted average exercise price of
$1.44 per share, and an option outstanding granted outside our stock option
plans to purchase 13,937 shares of common stock at $0.03 per share held by one
of our founders. To the extent that any of these options or warrants are
exercised, there will be further dilution to new investors.
18
<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 1999,
and with respect to the Company's balance sheets at December 31, 1998 and 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 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>
Year Ended December 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Collaborative revenue........ $ -- $ 200 $ 669 $ 625 $ 9,166
Grant and product revenue.... 25 506 486 722 1,106
------- -------- -------- -------- --------
Total revenue.............. 25 706 1,155 1,347 10,272
Operating expenses:
Research and development..... 5,306 6,496 8,195 10,665 12,149
Selling, general and
administrative.............. 3,551 4,465 5,260 4,536 7,357
Restructuring charge......... -- 1,164 -- -- --
------- -------- -------- -------- --------
Total operating expenses... 8,857 12,125 13,455 15,201 19,506
------- -------- -------- -------- --------
Operating loss............... (8,832) (11,419) (12,300) (13,854) ( 9,234)
Other income (expense)....... (72) (227) (92) 344 215
------- -------- -------- -------- --------
Net loss..................... (8,904) (11,646) (12,392) (13,510) ( 9,019)
Dividends payable to
preferred stockholders...... -- -- -- -- (66)
Net loss applicable to common
stockholders................ $(8,904) $(11,646) $(12,392) $(13,510) $( 9,085)
======= ======== ======== ======== ========
Historical net loss per
share, basic and diluted.... $ (7.37) $ (7.68) $ (7.72) $ (7.64) $ (3.86)
======= ======== ======== ======== ========
Historical weighted average
shares outstanding.......... 1,208 1,517 1,606 1,768 2,353
Pro forma net loss per
share....................... $ (0.36)
========
Pro forma weighted average
shares outstanding.......... 25,187
<CAPTION>
As of December 31,
-----------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short term investments...... $ 622 $ 5,040 $ 16,607 $ 5,552 $ 5,084
Working capital.............. (1,276) 3,584 13,540 2,470 13,902
Total assets................. 4,769 9,973 20,284 8,706 31,072
Capital lease obligations,
less current portion........ 2,213 1,725 1,500 2,202 2,677
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) (42,813)
</TABLE>
See our financial statements for a description of the computation of the
historical and pro forma net loss per share and the number of shares used in
the historical and pro forma per share calculations in "Statement of Operations
Data" above.
19
<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 S.A.
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
year ended December 31, 1999, we have experienced significant growth compared
to the year ended December 31, 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 December 31, 1999, we had current and
long-term deferred revenue totaling $19.6 million.
We have incurred substantial operating losses since our inception. As of
December 31, 1999, our accumulated deficit was $57.3 million, and total
stockholders' equity, after considering the conversion of all outstanding
shares of preferred stock to common stock, was $5.6 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
Years Ended December 31, 1999 and 1998
Revenue
Our revenue increased $9.0 million to $10.3 million for the year ended
December 31, 1999 from $1.3 million for the year ended December 31, 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 year ended December 31, 1999 and for 46% of total revenue for
the year ended December 31, 1998.
Research and Development Expenses
Our research and development expenses increased $1.4 million to $12.1
million for the year ended December 31, 1999, from $10.7 million for the year
ended December 31, 1998. During 1999, our research efforts
20
<PAGE>
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. 1999 expenses also increased over 1998 due to amortization of
deferred compensation, as discussed in the paragraphs below. 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 $2.9 million to
$7.4 million for the year ended December 31, 1999 from $4.5 million for the
year ended December 31, 1998. This increase was primarily attributable to
expenses related to separation agreements with former employees and
amortization of deferred compensation, as discussed in the paragraph below. We
expect that our selling, general and administrative expenses will increase to
support our growth and requirements as a public company.
Other Income (Expense)
Other income (expense) primarily consists of interest income and interest
expense. Interest income was relatively level at $0.5 million for the year
ended December 31, 1999 as compared to $0.6 for the year ended December 31,
1998. Interest expense increased $0.1 million to $0.4 million for the year
ended December 31, 1999 from $0.3 million for the year ended December 31, 1998.
This increase was primarily attributable to expanded equipment lease financing.
Provision for Income Taxes
We incurred net operating losses for the year ended December 31, 1999 and
1998, and accordingly, we did not pay any federal or state income taxes. As of
December 31, 1999, we had federal net operating loss carryforwards of
approximately $45.8 million, which begin to expire in 2009. The net operating
loss carryforwards for state tax purposes were approximately $28.9 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.
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 value of our common
stock, as estimated by us for financial reporting purposes, 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 accordance with EITF 96-18.
We recorded non-cash compensation charges of $1.1 million in 1999 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 value of our common stock estimated for
financial reporting purposes on the date of the modification of the option
grants.
21
<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.
In connection with the grant of stock options to employees, we recorded
deferred compensation of approximately $1.9 million in the year ended December
31, 1998. 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
$1.7 million for the year ended December 31, 1998. Included in research and
development and selling, general and administrative expenses are $0.5 million
and $1.2 million, respectively, of amortization expense.
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 December 31, 1999, we had
cash, cash equivalents and short-term investments of approximately $5.1
million. We expect to receive an additional $15.0 million in January 2000 from
Novartis Seeds AG as an initial payment under a strategic alliance agreement
signed in December 1999. Our funds are currently invested in U.S. Treasury and
government agency obligations and investment-grade corporate obligations.
As part of our plan to lease new executive offices and research and
development facilities in 2000, we plan to construct a pilot manufacturing
facility, which will be used for process development activities. Our costs for
fixed assets relating to the pilot manufacturing facility will be approximately
$2.4 million, all of which we anticipate financing through equipment leases. As
of December 31, 1999, we had no purchase commitments relating to the pilot
facility.
22
<PAGE>
Our operating activities used cash of $4.0 million in the year ended
December 31, 1999, $10.8 million in the year ended December 31, 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 $5.4 million in 1999, $1.9 million in
1998 and $0.7 million in 1997. Our investing activities consist primarily of
purchases of property and equipment, purchases of investment securities,
purchase of technology rights and increases in long-term deferred assets.
Our financing activities provided $7.5 million for the year ended December
31, 1999 and provided cash of $0.6 million 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 including committed minimum funding totaling
$68.0 million from our collaborators to be received between 2000 and 2004 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
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 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 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 completed minor remediation
with regard to software programs, hardware and microprocessor-controlled
equipment. When appropriate, we coordinated our remediation efforts with our
third party suppliers.
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.
23
<PAGE>
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.
To date, we have not experienced any material adverse effect on our business
or operating results as a result of any year 2000 problems. In addition, we
have not deferred any material information technology projects or equipment
purchases, as a result of our year 2000 problem activities.
Most Likely Consequences of Year 2000 Problems. We believe we have
identified and 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.
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.
24
<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 December 31, 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.
25
<PAGE>
BUSINESS
We believe that we are a 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), 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 S.A. 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
26
<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
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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.
. 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.
Innovation From Biodiversity And Gene Evolution Process
[Diagram titled Diversa: Innovation from BioDiversity Process]
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.
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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 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
Annual revenue for the chemical industry currently exceeds $800 billion. Our
focus is on both fine chemicals, such as chiral chemicals used as building
blocks for pharmaceuticals, and high-performance
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chemicals. The current market for fine chemical intermediates 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.
. 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.
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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.
. 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.
Deploy 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.
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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 S.A. 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 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. We estimate that 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.
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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 may contain more than 4,000 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 described in the
scientific literature.
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 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.
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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.
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,
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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 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;
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. 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.
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.]
As of January 15, 2000, we had 43 projects in various stages of development
in our target markets. Of these, 8 had reached advanced stages of development,
of which one had been commercialized. An additional 15 projects had 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 $10.7 million received from inception through December 31, 1999, our
partners are committed to fund $68.0 million under existing agreements over the
next five years. 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 an exclusive
option to receive a worldwide license to products developed. At Novartis'
election the license may be either exclusive or non-exclusive. In conjunction
with the transaction, Novartis purchased 5,555,556 shares of series E preferred
stock for gross proceeds of $7.3 million, paid a technology access fee of $3.0
million and provided project research funding of $2.2 million to us, for
aggregate total proceeds of $12.5 million. We are recognizing the research
payments and the technology access fee on a percentage of completion basis as
research is performed.
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, of which $15.0 million
will be due within 30 days of regulatory approval and an additional $5.0
million due at the 18 month anniversary of this agreement. Additionally, we
will receive minimum research funding over five years of $33.9 million, as well
as milestone payments upon achievement of project objectives totaling up to
$7.7 million 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. The three-year
agreement requires Dow to make annual technology development payments of $1.5
million. Dow will also fund the research costs for the duration of the contract
totaling $10.8 million. We will also receive milestone payments of up to $2.7
million upon achievement of established objectives and license and
commercialization fees for any resulting products. We will also receive
royalties on sales of our royalty-bearing products sold or sublicensed by Dow.
We are amortizing the technology development fees over the minimum guaranteed
period of the agreement. In the license agreement, we grant Dow an exclusive,
worldwide, royalty-bearing license to use enzymes for research processes.
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
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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.
Rhone-Poulenc Animal Nutrition S.A.
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.
In conjunction with the agreement, we issued 844,444 shares of our series C
preferred stock to Finnfeeds for $1,900,000. We received and recognized as
revenue $0.8 million in research funding over the period from May 1996 through
December 31, 1998. 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,
including manufacturing and sales of the enzyme. 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. The financial impact of these agreements to us is not significant.
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
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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 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 $2.5 million license fee and
will pay annual maintenance fees for the remaining life of the patents. 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. The financial impact of these agreements to us is not
significant.
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 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, Inc. 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
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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 technology
process. 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.
Any products that we develop will compete in multiple, 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
manufacture Pyrolase 160 pursuant to an arrangement with a third party that has
the required manufacturing equipment and available capacity to manufacture the
product under our direction and oversight. 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
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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.
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. As of January 15,
2000, we owned 24 issued patents relating to our technologies, had received
notices of allowance with respect to 7 other patent applications and have over
125 patents pending. In addition, as of January 15, 2000, 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, including our patent
position, 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 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. 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.
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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 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 December 31, 1999, we had approximately 102 full-time employees, 25 of
whom hold Ph.D. degrees. Of these employees, 77 were engaged in research and
development and 25 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 lease negotiations for approximately 75,000 square feet of
space that will be built to our specifications. We plan to occupy the new space
in late 2000, at which time we plan to sublease our current space for the
remaining term. We will not have any equity interest related to the new
facility.
LEGAL PROCEEDINGS
We are not presently a party to any material legal proceedings.
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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 advisors 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
The following table sets forth information about our directors and executive
officers as of January 15, 2000:
<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 (2)....................... 54 Director
Donald D. Johnston (2).................. 74 Director
Mark Leschly (2)........................ 31 Director
Melvin I. Simon, Ph.D. ................. 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, 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 Engineering and
Manufacturing from February 1997 to October 1998. Mr. Simms served as Senior
Vice President, Business Development and Manufacturing, at Biosys, Inc., an
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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 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, Manager,
Business Development & Regulatory Affairs, Senior Patent & Licensing Liaison,
Patent & Licensing Liaison and Laboratory Administrator. 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
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. 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 1972 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, Incorporated, and
Woodhead Industries Inc. Mr. Carroll earned an A.B. 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., an international
venture capital company. From 1988 through 1999, she was General Partner, and
successively, Senior Vice President, President and Co-Chairman of that firm.
From 1970 to 1977, she also was General Partner of that firm. She has served in
government, as Deputy Administrator of the U.S. Small Business Administration
from 1977 through 1978 and as Chairman of the U.S. Russia Investment Fund from
1995 to the present. She is past president and chairman of the National Venture
Capital Association and has been honored by the National Association of Small
Business Investment Companies for her work with growth companies. She is a
director of several privately-held companies and of several philanthropies. She
holds a B.A. from the San Francisco College for Women and an M.A. and an M.I.A.
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 an M.A. from the University of California, San Diego.
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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 HealthCare 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. from the University of Cincinnati.
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 Mr. Carroll, 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 Messrs.
Johnson, Johnston and Leschly.
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
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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 or consulting 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-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, 1999, Mr. Carroll, 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.
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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, 1999 to our current and former Chief Executive
Officer, the four other most highly compensated officers whose total salary and
bonus exceeded $100,000 in fiscal 1999 and our former Chief Financial Officer
who departed from Diversa during the last fiscal year. 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 YEAR SALARY BONUS OTHER OPTIONS
--------------------------- ---- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Jay M. Short, Ph.D. (1)..................... 1999 $262,333 $500,000 -- --
Current President, Chief Executive Officer 1998 $243,000 $545,000 -- 1,292,045
and Chief Technology Officer
Terrance J. Bruggeman (2)................... 1999 $ 72,315 $ -- $316,229(3) --
Former Chief Executive Officer 1998 $270,000 $ 65,000 $ 25,000(4) --
William H. Baum............................. 1999 $207,400 $ 10,000 -- 199,609
Senior Vice President, Business
Development 1998 $195,000 $ 28,000 -- --
Karin Eastham (5)........................... 1999 $142,100 -- -- 277,718
Current Senior Vice President, Finance, 1998 -- -- -- --
Chief Financial Officer and Secretary
R. Patrick Simms............................ 1999 $188,558 $ 10,000 -- 95,465
Senior Vice President, Operations 1998 $173,000 $ 29,000 $ 7,096(6) 34,714
Kathleen H. Van Sleen (7)................... 1999 $ 97,898 $ -- $228,467(8) 34,714
Former Vice President, Finance and 1998 $190,000 $ 36,000 $ 4,949(6) --
Administration, Chief Financial Officer,
Treasurer 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
in June 1998, he was awarded a bonus of $1,000,000 payable in two equal
installments of $500,000 in 1998 and 1999. In January 2000, our Board
granted Dr. Short an option to purchase 206,453 shares of common stock at
an exercise price equal to the initial public offering price.
(2) Mr. Bruggeman resigned as Chief Executive Officer effective as of February
1999.
(3) Consists of $4,200 for reimbursement of relocation costs, $297,500 for
severance payments and $14,529 for separation expenses.
(4) Consists of $16,700 for reimbursement of relocation costs and $8,300 for a
cost of living adjustment for relocation.
(5) 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.
48
<PAGE>
(6) For reimbursement of relocation costs.
(7) Ms. Van Sleen resigned as Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary effective as of March 1999.
(8) Consists of $131,125 for separation payments, $55,443 for payments relating
to Ms. Van Sleen's purchase of a residence and $41,900 of forgiveness of
indebtedness.
OPTION GRANTS
The following table sets forth information concerning stock options granted
to our named executive officers during the fiscal year ended December 31, 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION 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...... -- -- $ -- -- $ -- $ --
Terrance J. Bruggeman... -- -- -- -- -- --
William H. Baum......... 17,357 1.1% 0.58 01/07/09 569,000 891,000
43,393 2.9% 1.73 06/30/09 1,373,000 2,178,000
138,859 9.2% 2.02 10/26/09 4,355,000 6,931,000
Karin Eastham........... 208,289 13.7% 1.73 04/29/09 6,593,000 10,456,000
69,429 4.6% 2.02 10/26/09 2,177,000 3,465,000
R. Patrick Simms........ 26,036 1.7% 0.58 01/07/09 854,000 1,337,000
69,429 4.6% 2.02 10/26/09 2,177,000 3,465,000
Kathleen H. Van Sleen... 34,714 2.3% 0.58 01/07/09 1,139,000 1,783,000
</TABLE>
The figures above represent options granted under our 1997 Equity Incentive
Plan. We granted options to purchase 1,515,695 shares of our common stock in
1999. 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 are applied to an assumed initial public offering
price of $21.00 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.
49
<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,
1999 and the value and number of unexercised options held by each of the named
executive officers at December 31, 1999. The value of unexercised in-the-money
options at December 31, 1999 represents an amount equal to the difference
between the assumed initial public offering price of $21.00 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
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999
SHARES ACQUIRED VALUE -------------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jay M. Short, Ph.D...... 290,300 $397,324 276,816 724,929 $5,758,000 $14,812,000
Terrance J. Bruggeman... 428,676 560,620 -- -- -- --
William H. Baum......... 95,466 152,350 -- 199,609 -- 3,826,000
Karin Eastham........... 69,429 16,667 -- 208,289 -- 3,997,000
R. Patrick Simms........ 19,093 30,470 64,437 159,468 1,323,000 3,161,000
Kathleen H. Van Sleen... -- -- 118,463 19,526 2,434,000 400,000
</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 2,912,587 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 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.
50
<PAGE>
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 December 31, 1999, we had issued and outstanding under the 1994 plan
options to purchase approximately 109,847 shares of common stock and
approximately 841,986 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 $0.03 to $0.73.
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
5,982,633 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 694,299 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 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 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
51
<PAGE>
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.
The board or the committee will have the authority, with the consent of the
affected optionholders, to cancel outstanding options under the plan in return
for the grant of new options for the same or a different number of option
shares with an exercise price per share based upon the fair market value of our
common stock on the new grant date.
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
replaced with substitute awards 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 December 31, 1999, we had issued and outstanding under the 1997 plan
options to purchase approximately 3,014,988 shares of common stock and
approximately 599,775 shares had been purchased upon the exercise of options.
The per share exercise prices of these options range from $0.43 to $8.65.
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 277,719 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 27,771 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 27,771 shares of common stock,
provided such person has not previously been in our employ; and
. On the day following 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 6,943 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.
52
<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, subject to earlier termination
following the optionee's cessation of service. Options granted under the
directors' plan may be exercised prior to vesting, subject to our repurchase.
Outstanding options under the plan will vest in full on an accelerated basis
upon certain changes in control or ownership of the Company, unless assumed or
replaced with substitute options by the successor entity. 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 or amended by the board of directors, the directors' plan
automatically terminates 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 416,579 shares of common stock initially has been reserved
for issuance under the purchase plan. The share reserve will automatically
increase on the day of each annual stockholders' meeting by an amount equal to
three-fourths of one percent (0.75%) of the total number of outstanding shares
of our common stock on the day of the annual stockholders' meeting, or an
amount determined by our board, but in no event will any such annual increase
exceed 347,149 shares. 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 shall be at least
85% of the lower of the fair market value of the common stock at the
commencement date of each offering period or the fair market value of the
common stock at 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.
53
<PAGE>
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 56,847 shares of our common stock and he also received a stock option
under our 1994 plan to purchase 34,108 shares of common stock at an exercise
price of $0.03 per share. 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 1,001,744 shares
of our common stock at an exercise price of $0.58 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. In January 2000, we granted
Dr. Short a stock option under our 1997 plan to purchase 206,453 shares of
common stock at an exercise price equal to the initial public offering price.
This option vests 25% at the first anniversary of the grant date, with the
remainder vesting over the following three years.
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 1997
plan to purchase 69,429 shares of our common stock at an exercise price of
$0.43 per share. 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 March 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 1997 plan to purchase
95,466 shares of our common stock at an exercise price of $0.43 per share. 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
54
<PAGE>
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 208,289
shares of our common stock at an exercise price of $1.73 per share. This option
vests 25% at the earlier of the first anniversary of the date of hire or 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.
55
<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 39,449 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. This series D preferred stock will automatically convert into an
aggregate of 1,401,996 shares of common stock upon the closing of this
offering. 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
NUMBER OF SHARES OF COMMON STOCK
SERIES D PREFERRED UPON CONVERSION
STOCK UPON OF SERIES D
INVESTOR PROMISSORY NOTE CONVERSION PREFERRED STOCK
-------- --------------- ------------------- ---------------
<S> <C> <C> <C>
HealthCare Ventures
Entities................. $1,001,162 1,177,837 408,885
Patricof & Co. Ventures
Entities................. 1,000,000 1,176,470 408,411
Rho Management Trust II... 410,153 482,532 167,510
Donald D. Johnston........ 500,000 588,235 204,205
Melvin I. Simon, Ph.D. ... 20,000 23,529 8,168
</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.,
HealthCare 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 a special limited partner of funds
managed by Patricof & Co. Ventures, Inc., including APA Pennsylvania Partners
II, L.P., 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
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into an aggregate of 8,612,620 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 2,154,446
Patricof & Co. Ventures Entities................ 2,184,999 758,519
Rho Management Trust II......................... 2,336,042 810,856
State of Michigan............................... 5,882,353 2,042,058
William H. Baum................................. 58,824 20,420
Donald D. Johnston.............................. 588,235 204,205
Melvin I. Simon, Ph.D. ......................... 23,529 8,168
</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 1,928,610 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 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 6,942 shares of our
common stock under our 1994 plan in consideration for his agreement to amend
the original agreement. This initial 6,942 share option was fully vested and
exercisable upon its grant to Dr. Simon and carried an exercise price of $0.42
per share. We also granted Dr. Simon a second stock option to purchase 20,828
shares of common stock having an exercise price of $0.42 per share that vested
over a period of three years. This second option grant was fully vested
effective as of October 1999.
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 22,564 shares of our
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<PAGE>
common stock under our 1997 plan, with 8,678 shares vesting in October 2000 and
6,943 shares in each of the following two years.
In December 1999, we granted Dr. Simon a stock option under our 1997 plan to
purchase 173,574 shares of our common stock with an exercise price of $8.64 per
share. One third of the shares subject to this option were vested upon grant
and the remaining shares vested in February 2000 when the option vesting
schedule was accelerated by our Board. The Company recorded a charge to
operations of approximately $1.7 million based on the fair value of the
options.
In August 1997, we granted Daniel T. Carroll a stock option under our 1997
plan to purchase 5,207 shares of our common stock with an exercise price of
$0.43 per share. One-third of the shares vested on October 1, 1997 and one-
twelfth vested quarterly thereafter until fully vested. In February 1998 we
granted Mr. Carroll a second stock option under our 1997 plan to purchase 5,207
shares of our common stock with an exercise price of $0.58 per share. This
option vests in equal annual installments over a period of three years. In
December 1999 we granted Mr. Carroll a third stock option under our 1997 plan
to purchase 17,357 shares of our common stock with an exercise price of $8.64
per share. This option was fully vested upon grant.
In August 1997, we granted Donald D. Johnston a stock option under our 1997
plan to purchase 5,207 shares of our common stock with an exercise price of
$0.43 per share. One-third of the shares vested on October 1, 1997 and one-
twelfth vested quarterly thereafter until fully vested. In February 1998 we
granted Mr. Johnston a second stock option under our 1997 plan to purchase
5,207 shares of our common stock with an exercise price of $0.58 per share.
This option vests in equal annual installments over a period of three years. In
December 1999 we granted Mr. Johnston a third stock option under our 1997 plan
to purchase 17,357 shares of our common stock with an exercise price of $8.64
per share. This option was fully vested upon grant.
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 or 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 142,892 shares of our common stock having an exercise
price of $0.43 per share. In conjunction with this agreement modification, the
Company recorded a charge to compensation expense of $557,000.
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 208,289 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 62,920 options with an average exercise price of $0.46 per
share. In conjunction with this agreement modification and an extension of the
exercise date for her previously vested options, the Company recorded a charge
to compensation expense of $538,000. Ms. Van Sleen is not required to perform
consulting or any other services as part of the separation agreement.
Both Mr. Bruggeman and Ms. Van Sleen terminated their employment with
Diversa in the ordinary course of business in connection with our continued
evolution and growth.
In December 1999, we granted Peter Johnson a stock option under our 1997
plan to purchase 41,657 shares of our common stock with an exercise price of
$5.76 per share. This option vests in equal annual installments over a period
of three years.
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<PAGE>
In November 1999, our Board implemented a program to allow optionees to
early exercise stock options prior to vesting. Six optionees, including Jay
Short, Karin Eastham, William Baum and Melvin Simon, purchased our common stock
pursuant to this program. This stock was subject to repurchase restrictions
which lapsed over the same period as the predecessor stock options would have
vested. As part of our agreement to amend the options, we agreed to prepare tax
election forms for the benefit of the optionees. These tax election forms were
not prepared or timely filed and, as a result, the optionees were exposed to
substantial potential tax liabilities. In order to minimize the potential
adverse tax consequences to the optionees, on February 7, 2000, our Board
removed the stock repurchase restrictions and agreed to advance funds to the
optionees in an amount necessary to provide the cash to pay the individual tax
liabilities that resulted from removal of the repurchase restrictions. After
consideration of each optionee's individual tax situation and in order to
fairly rectify the effect of our failure to timely prepare these tax election
forms, our Board agreed to compensate two optionees, Ms. Eastham and Dr. Simon,
directly in amounts of approximately $80,000 and $160,000, respectively, to
compensate for the permanent tax liabilities associated with our failure to
complete the filings. Our Board also agreed to make full recourse secured loans
to the optionees, including approximately $400,000.00 to Dr. Short, $400,000.00
to Ms. Eastham, $250,000.00 to Mr. Baum and $100,000.00 to Dr. Simon, to assist
with temporary differences in taxation. The loans carry a market interest rate
and are repayable in five years, and prepayment is required in specified
circumstances, including if the employee leaves the Company or sells the
related shares of stock.
All of the shares of preferred stock and promissory notes described under
this section were issued in reliance upon the exemption provided by Section
4(2) of the Securities Act and/or Regulation D under the Securities Act. With
respect to the issuance of options described under this section, exemption from
registration was not necessary 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.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 31, 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 25,779,401 shares of common
stock outstanding as of December 31, 1999 and assuming 32,811,401 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 1,050,000 shares of our common stock, and up to 33,861,401
shares of common stock will be outstanding after completion of this offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO OFFERING
------------------------------------------------
PERCENTAGE OF
SHARES ISSUABLE SHARES DIVERSA SHARES
PURSUANT TO MAY REPURCHASE BENEFICIALLY
NUMBER OF OPTIONS AND WITHIN 60 DAYS OWNED
SHARES WARRANTS EXERCISABLE OF -----------------
BENEFICIALLY WITHIN 60 DAYS DECEMBER 31, BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF DECEMBER 31, 1999 1999(1) OFFERING OFFERING
- ------------------------------------ ------------ -------------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Funds Affiliated with HealthCare Ventures (2).. 5,744,544 139,265 -- 22.2% 17.4%
44 Nassau St.
Princeton, New Jersey 08542
Funds Affiliated with Patricof & Co.
Ventures, Inc. (3)............................ 4,616,965 -- -- 17.9% 14.1%
445 Park Avenue, 11th Floor
New York, New York 10022
Rho Management Trust II (4).................... 2,353,438 20,461 -- 9.1% 7.2%
767 Fifth Avenue, 43rd Floor
New York, New York 10153
State of Michigan ............................. 2,042,058 -- -- 7.9% 6.2%
Department of Treasury, Treasury Building
30 West Allegan
East Lansing, Michigan 48922
Novartis Seeds AG ............................. 1,928,610 -- -- 7.5% 5.9%
Schwarzwaldallee 215
CH-4002 Basel
Switzerland
Jay M. Short, Ph.D............................. 712,994 338,615 61,803 2.7% 2.2%
Terrance J. Bruggeman.......................... 428,676 -- -- 1.7% 1.3%
William H. Baum................................ 120,225 4,339 41,767 * *
Karin Eastham.................................. 69,429 -- 69,429 * *
R. Patrick Simms............................... 110,138 77,456 -- * *
Kathleen H. Van Sleen.......................... 153,440 127,461 -- * *
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR TO OFFERING
------------------------------------------------
PERCENTAGE OF
SHARES ISSUABLE SHARES DIVERSA SHARES
PURSUANT TO MAY REPURCHASE BENEFICIALLY
NUMBER OF OPTIONS AND WITHIN 60 DAYS OWNED
SHARES WARRANTS EXERCISABLE OF -----------------
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY WITHIN 60 DAYS DECEMBER 31, BEFORE AFTER
OWNER OWNED OF DECEMBER 31, 1999 1999(1) OFFERING OFFERING
- ------------------------------ ------------ -------------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
James H. Cavanaugh, Ph.D. (2).. 5,744,544 139,265 -- 22.2% 17.4%
Daniel T. Carroll.............. 26,035 26,035 -- * *
Patricia M. Cloherty (3)....... 4,616,968 -- -- 17.9% 14.1%
Peter Johnson.................. -- -- -- * *
Donald D. Johnston............. 621,667 26,035 -- 2.4% 1.9%
Mark Leschly (4)............... 2,353,438 20,461 -- 9.1% 7.2%
Melvin I. Simon, Ph.D. ........ 219,048 57,858 22,564 * *
All executive officers and
directors as a group (12
persons)...................... 14,617,864 713,442 195,563 55.2% 43.6%
</TABLE>
- --------
* Less than one percent.
(1) On February 7, 2000, our Board approved the removal of these stock
repurchase restrictions. See "Certain Transactions."
(2) Includes:
. 3,229,005 shares held by HealthCare Ventures III, L.P., including
107,659 shares issuable upon exercise of warrants exercisable within 60
days of December 31, 1999, which represents 12.5% and 10.0%,
respectively, of the total number of shares outstanding before and
after this offering.
. 949,145 shares held by HealthCare Ventures IV, L.P., including 31,606
shares issuable upon exercise of warrants exercisable within 60 days of
December 31, 1999, which represents 3.7% and 2.9%, respectively, of the
total number of shares outstanding before and after this offering.
. 1,566,394 shares held by HealthCare Ventures V, L.P., which represents
6.1% and 4.9%, 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.
(3) Includes:
. 3,049,566 shares held by APA Excelsior IV, L.P., which represents 11.8%
and 9.4%, respectively, of the total number of shares outstanding
before and after this offering.
. 969,468 shares held by The P/A Fund, L.P., which represents 3.8% and
3.0%, respectively, of the total number of shares outstanding before
and after this offering.
. 537,510 shares held by APA Excelsior IV/Offshore, L.P., which
represents 2.1% and 1.7%, respectively, of the total number of shares
outstanding before and after this offering.
. 60,422 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 a special limited partner of 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.
(4) 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.
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<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 65,000,000 shares of common stock, $0.001 par value, and
5,000,000 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 December 31, 1999, there were 2,945,390 shares of common stock
outstanding, held by approximately 115 stockholders of record. An additional
22,834,011 shares of our common stock will be issued upon conversion of all
outstanding shares of the preferred stock on the closing of this offering and
an estimated 32,000 shares will be issued related to dividends payable to the
holders of our series A, B and D preferred stock for the period between
December 21, 1999 and the completion 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
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<PAGE>
. 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.
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 22,866,011 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
63
<PAGE>
supermajority vote of members of our board of directors and/or stockholders to
amend some bylaw provisions. 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 American
Stock Transfer & Trust Company.
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<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 32,811,401 shares
of common stock, assuming no exercise of the underwriters' over-allotment
option. Of these shares, the 7,000,000 shares sold in this offering will
generally be freely tradable without restriction or further registration under
the Securities Act. Of the remaining 25,811,401 shares, all may be sold in the
public market upon expiration of lock-up agreements 180 days after the date
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 advisors 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 6,187,096 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.
65
<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........................................................... 7,000,000
===========
</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 $1.2 million.
66
<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 1,050,000 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 25,594,411 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 and
shares issuable upon exercise of outstanding options granted outside our plans.
During this lock-up period, subject to various conditions, we may also issue
additional equity securities in connection with collaborative and licensing
arrangements or to pay for possible acquisitions, so long as the recipients of
such securities are also subject to the 180 day lock-up period.
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.
67
<PAGE>
RESERVED SHARE PROGRAM
At our request, the underwriters have reserved for sale at the initial
public offering price up to 400,000 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 12,252 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
LLP regarding accounting principles.
68
<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.
69
<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 1999......................... F-3
Statements of Operations for the years ended December 31, 1997, 1998 and
1999................................................................... F-4
Statement of Stockholders' Deficit for the years ended December 31,
1997, 1998 and 1999.................................................... F-5
Statements of Cash Flows for the years ended December 31, 1997, 1998 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 1999, and the related statements of operations,
stockholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diversa Corporation at
December 31, 1998 and 1999 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
January 12, 2000, except for Note 11, as to which the
date is February 8, 2000.
F-2
<PAGE>
DIVERSA CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AS OF
-------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 4,473,000 $ 2,490,000
Short-term investments............. 1,079,000 2,594,000
Accounts receivable, net of
allowance of $6,000 and $1,000 at
December 31, 1998 and 1999,
respectively...................... 48,000 15,571,000
Other current assets............... 410,000 659,000
------------ ------------
Total current assets............. 6,010,000 21,314,000
Property and equipment, net.......... 2,622,000 3,096,000
Acquired technology rights, net...... -- 2,487,000
Other assets......................... 74,000 4,175,000
------------ ------------
Total assets......................... $ 8,706,000 $ 31,072,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................... $ 235,000 $ 668,000
Accrued liabilities................ 1,530,000 1,653,000
Deferred revenue................... 301,000 4,491,000
Notes payable...................... 552,000 --
Current portion of capital lease
obligations....................... 922,000 600,000
------------ ------------
Total current liabilities........ 3,540,000 7,412,000
------------ ------------
Capital lease obligations, less
current portion..................... 2,202,000 2,677,000
Deposit from sublessee............... 300,000 300,000
Long-term deferred revenue........... -- 15,094,000
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 December 31, 1998
and 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 December 31, 1999;
5,000,000 shares authorized, no
shares issued and outstanding
pro forma.......................... -- 6,000 --
Common stock--$0.001 par value;
28,630,349 shares authorized,
1,856,343 and 2,945,390 shares
issued and outstanding at December
31, 1998 and 1999, respectively;
65,000,000 shares authorized,
25,779,401 shares issued and
outstanding pro forma.............. 2,000 3,000 26,000
Additional paid-in capital.......... 267,000 20,102,000 68,487,000
Deferred compensation............... -- (5,520,000) (5,520,000)
Notes receivable from stockholders.. (93,000) (36,000) (36,000)
Accumulated deficit................. (45,916,000) (57,351,000) (57,351,000)
Accumulated other comprehensive
income (loss)...................... 2,000 (17,000) (17,000)
------------ ------------ ------------
Total stockholders' equity
(deficit)....................... (45,738,000) (42,813,000) $ 5,589,000
------------ ============ ============
Total liabilities and
stockholders' equity (deficit).. $ 8,706,000 $ 31,072,000
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
DIVERSA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Revenue:
Collaborative revenue.............. $ 669,000 $ 625,000 $ 9,166,000
Grant and product revenue.......... 486,000 722,000 1,106,000
------------ ------------ -----------
Total revenue........................ 1,155,000 1,347,000 10,272,000
Operating expenses:
Research and development........... 8,195,000 10,665,000 12,149,000
Selling, general and
administrative.................... 5,260,000 4,536,000 7,357,000
------------ ------------ -----------
Total operating expenses............. 13,455,000 15,201,000 19,506,000
------------ ------------ -----------
Loss from operations................. (12,300,000) (13,854,000) (9,234,000)
Other income (expense)............... (25,000) 99,000 79,000
Interest income...................... 288,000 553,000 527,000
Interest expense..................... (355,000) (308,000) (391,000)
------------ ------------ -----------
Net loss............................. (12,392,000) (13,510,000) (9,019,000)
Dividends payable to preferred
stockholders........................ -- -- (66,000)
------------ ------------ -----------
Net loss applicable to common
stockholders........................ $(12,392,000) $(13,510,000) $(9,085,000)
============ ============ ===========
Historical net loss per share, basic
and diluted......................... $ (7.72) $ (7.64) $ (3.86)
============ ============ ===========
Shares used in calculating historical
net loss per share, basic and
diluted............................. 1,606,000 1,768,000 2,353,000
Pro forma net loss per share......... $ (0.36)
===========
Shares used in calculating pro forma
net loss per share.................. 25,187,000
</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........... -- $ -- 1,576,978 $2,000 $ 190,000 $ -- $ (50,000) $(22,298,000) $ --
Issuance of
notes
receivable from
stockholders
related to sale
of preferred
stock ......... -- -- -- -- -- -- (113,000) -- --
Stock options
exercised...... -- -- 50,847 -- 18,000 -- -- -- --
Dividends....... -- -- -- -- -- -- -- (66,000) --
Net loss and
comprehensive
loss........... -- -- -- -- -- -- -- (12,392,000) --
Deferred
compensation
related to
stock options.. -- -- -- -- 2,113,000 (2,113,000) -- -- --
Amortization of
deferred
compensation... -- -- -- -- -- 685,000 -- -- --
--------- ------ --------- ------ ----------- ----------- ---------- ------------ --------
Balance at
December 31,
1997........... -- -- 1,627,825 2,000 2,321,000 (1,428,000) (163,000) (34,756,000) --
Comprehensive
income (loss):
Net loss........ -- -- -- -- -- -- -- (13,510,000) --
Unrealized gain
on available-
for-sale
securities..... -- -- -- -- -- -- -- -- 2,000
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Stock options
exercised...... -- -- 228,518 -- 59,000 -- -- -- --
Payments
received on
notes
receivable..... -- -- -- -- -- -- 70,000 -- --
Deferred
compensation
related to
stock options.. -- -- -- -- 1,929,000 (1,929,000) -- -- --
Amortization of
deferred
compensation... -- -- -- -- -- 1,665,000 -- -- --
--------- ------ --------- ------ ----------- ----------- ---------- ------------ --------
Balance at
December 31,
1998........... -- -- 1,856,343 2,000 4,309,000 (1,692,000) (93,000) (48,266,000) 2,000
Comprehensive
income (loss):
Net loss........ -- -- -- -- -- -- -- (9,019,000) --
Unrealized loss
on available-
for-sale
securities..... -- -- -- -- -- -- -- -- (19,000)
Comprehensive
loss........... -- -- -- -- -- -- -- -- --
Issuance of
preferred
stock, net of
issuance costs
of $71,000..... 5,555,556 6,000 -- -- 7,248,000 -- -- -- --
Issuance of
stock options
to former
employee as
part of
severance
agreement...... -- -- -- -- 1,095,000 -- -- -- --
Stock options
exercised...... -- -- 1,089,047 1,000 607,000 -- -- -- --
Payment of note
receivable from
stockholders... -- -- -- -- -- -- 13,000 -- --
Forgiveness of
notes
receivable
related to
employee
terminations... -- -- -- -- -- -- 44,000 -- --
Dividends
payable to
preferred
stockholders... -- -- -- -- -- -- -- (66,000) --
Deferred
compensation
related to
stock options.. -- -- -- -- 6,843,000 (6,843,000) -- -- --
Amortization of
deferred
compensation... -- -- -- -- -- 3,015,000 -- -- --
--------- ------ --------- ------ ----------- ----------- ---------- ------------ --------
Balance at
December 31,
1999........... 5,555,556 $6,000 2,945,390 $3,000 $20,102,000 $(5,520,000) $ (36,000) $(57,351,000) $(17,000)
========= ====== ========= ====== =========== =========== ========== ============ ========
<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........... (12,392,000)
Deferred
compensation
related to
stock options.. --
Amortization of
deferred
compensation... 685,000
--------------
Balance at
December 31,
1997........... (34,024,000)
Comprehensive
income (loss):
Net loss........ (13,510,000)
Unrealized gain
on available-
for-sale
securities..... 2,000
--------------
Comprehensive
loss........... (13,508,000)
Stock options
exercised...... 59,000
Payments
received on
notes
receivable..... 70,000
Deferred
compensation
related to
stock options.. --
Amortization of
deferred
compensation... 1,665,000
--------------
Balance at
December 31,
1998........... (45,738,000)
Comprehensive
income (loss):
Net loss........ (9,019,000)
Unrealized loss
on available-
for-sale
securities..... (19,000)
--------------
Comprehensive
loss........... (9,038,000)
Issuance of
preferred
stock, net of
issuance costs
of $71,000..... 7,254,000
Issuance of
stock options
to former
employee as
part of
severance
agreement...... 1,095,000
Stock options
exercised...... 608,000
Payment of note
receivable from
stockholders... 13,000
Forgiveness of
notes
receivable
related to
employee
terminations... 44,000
Dividends
payable to
preferred
stockholders... (66,000)
Deferred
compensation
related to
stock options.. --
Amortization of
deferred
compensation... 3,015,000
--------------
Balance at
December 31,
1999........... $(42,813,000)
==============
</TABLE>
F-5
<PAGE>
DIVERSA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Operating activities:
Net loss applicable to common
stockholders........................ $(12,392,000) $(13,510,000) $(9,085,000)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 842,000 1,178,000 1,498,000
Loss on disposal of property and
equipment.......................... 86,000 -- --
Dividends payable to Series A, B and
D preferred stockholders........... -- -- 66,000
Amortization of deferred
compensation....................... 685,000 1,665,000 3,015,000
Issuance of stock options to former
employees.......................... -- -- 1,095,000
Forgiveness of notes receivable..... -- -- 44,000
Change in operating assets and
liabilities:
Accounts receivable, net............ (61,000) 233,000 (664,000)
Other current assets................ (64,000) (137,000) (609,000)
Other assets........................ 48,000 78,000 (47,000)
Accounts payable.................... (10,000) (294,000) 433,000
Accrued liabilities................. (312,000) (335,000) 123,000
Deferred revenue.................... -- 301,000 81,000
------------ ------------ -----------
Net cash used in operating
activities......................... (11,178,000) (10,821,000) (4,050,000)
Investing activities:
Purchases of property and equipment.. (1,310,000) (1,234,000) (1,421,000)
Purchase of acquired technology
rights.............................. -- -- (2,500,000)
Proceeds from release of restricted
investment securities............... 263,000 405,000 --
Purchases of investments............. -- (21,710,000) (26,943,000)
Maturities of investments............ -- 20,633,000 25,426,000
Deposit from sublessee............... 300,000 -- --
------------ ------------ -----------
Net cash used in investing
activities......................... (747,000) (1,906,000) (5,438,000)
Financing activities:
Advances under capital lease
obligations......................... 1,024,000 1,624,000 1,075,000
Principal payments on capital
leases.............................. (978,000) (1,146,000) (922,000)
Proceeds from repayment of notes
receivable from stockholders........ 1,402,000 70,000 13,000
Payments on long-term debt/note
payable............................. (15,000) (14,000) (552,000)
Proceeds from sales of preferred and
common stock, net of issuance
costs............................... 22,125,000 59,000 7,891,000
Payments of preferred stock
dividends........................... (66,000) -- --
------------ ------------ -----------
Net cash provided by financing
activities......................... 23,492,000 593,000 7,505,000
------------ ------------ -----------
Net (decrease) increase in cash and
cash equivalents..................... 11,567,000 (12,134,000) (1,983,000)
Cash and cash equivalents at beginning
of period............................ 5,040,000 16,607,000 4,473,000
------------ ------------ -----------
Cash and cash equivalents at end of
period............................... $ 16,607,000 $ 4,473,000 $ 2,490,000
============ ============ ===========
Supplemental disclosure of cash flow
information:
Interest paid........................ $ 363,000 $ 368,000 $ 451,000
============ ============ ===========
Supplemental schedule of noncash
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
DECEMBER 31, 1999
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.
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 consisted of investments in
U.S. government treasury securities. At December 31, 1999, short-term
investments consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN (LOSS)
--------- ------ -----------
<S> <C> <C> <C>
Corporate debt securities.......................... $1,505 $1,496 $ (9)
Obligations of U.S. Government agencies............ 1,106 1,098 (8)
------ ------ ----
$2,611 $2,594 $(17)
====== ====== ====
</TABLE>
These investments all mature in less than one year.
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, 1998 and 1999, the Company had
collaborative research agreements that accounted for 58%, 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.
F-7
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, if indicators of impairment
exist, the Company assesses the recoverability of the affected long-lived
assets by determining whether the carrying value of such assets can be
recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company measures the amount of such impairment by comparing the
carrying value of the asset to the present value of the expected future cash
flows associated with the use of the asset. While the Company's current and
historical operating and cash flow losses are indicators of impairment, the
Company believes the future cash flows to be received from the long-lived
assets will exceed the assets' carrying value, and accordingly the Company has
not recognized any impairment losses through December 31, 1999.
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. The Company recognizes revenue only on payments that are non
refundable, and defers revenue recognition until performance obligations have
been completed. None of the strategic alliances or grants require scientific
achievement as a performance obligation.
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 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).
F-8
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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
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, 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. The pro forma shares have been adjusted to
give effect to the 1-for-2.8806 reverse stock split contemplated in Note 11.
The following table presents the calculation of basic, diluted and pro forma
basic and diluted net loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Net loss applicable to common
stockholders......................... $(12,392,000) $(13,510,000) $(9,085,000)
Basic and diluted net loss per share.. $ (7.72) $ (7.64) $ (3.86)
============ ============ ===========
Weighted-average shares used in
computing historical net loss per
share, basic and diluted............. 1,606,000 1,768,000 2,353,000
Pro forma:
Net loss............................ $(9,085,000)
Pro forma net loss per share, basic
and diluted (unaudited).............. $ (0.36)
===========
Shares used above..................... 2,353,000
Pro forma adjustment to reflect
weighted-average effect of assumed
conversion of convertible preferred
stock (unaudited).................. 22,834,000
-----------
Shares used in computing pro forma
net loss per share, basic and
diluted (unaudited)................ 25,187,000
</TABLE>
F-9
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 23,620,000, 24,231,000 and
25,959,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
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 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
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
------- -----------
<S> <C> <C>
Trade.................................................. $13,000 $ 23,000
Grants................................................. 41,000 204,000
Partnership alliances.................................. -- 15,345,000
------- -----------
54,000 15,572,000
Allowance for doubtful accounts........................ (6,000) (1,000)
------- -----------
Total.................................................. $48,000 $15,571,000
======= ===========
</TABLE>
The partnership alliance receivable consists primarily of a receivable from
Novartis related to the joint venture discussed in Note 3. This receivable was
recorded upon the commencement of the related research efforts in December 1999
after the agreement was signed, and the payment of the receivable is due by
February 2000.
F-10
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Laboratory equipment............................... $ 4,228,000 $ 5,720,000
Computer equipment................................. 1,735,000 2,112,000
Furniture and fixtures............................. 274,000 322,000
Leasehold improvements............................. 77,000 132,000
----------- -----------
6,314,000 8,286,000
Accumulated depreciation and amortization.......... (3,692,000) (5,190,000)
----------- -----------
Total.............................................. $ 2,622,000 $ 3,096,000
=========== ===========
</TABLE>
At December 31, 1999, other assets primarily consisted of a $4.0 million
long-term receivable from the Novartis joint venture (See Note 3). This
receivable is due in June 2001, and is carried at its present value using a
discount rate of 15%.
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Compensation........................................... $ 855,000 $ 929,000
Professional fees...................................... 334,000 287,000
Property taxes......................................... 67,000 85,000
Other.................................................. 274,000 352,000
---------- ----------
$1,530,000 $1,653,000
========== ==========
</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 for gross proceeds of $7.3 million, paid a
technology access fee of $3.0 million, and provided project research funding of
$2.2 million 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 only obligation of
the Company under this agreement is to perform research activities; Novartis
did not acquire any rights or privileges other than as disclosed in Note 4 as
an owner of Series E preferred stock.
All of the research required under the collaboration was completed by
December 31, 1999, and accordingly the entire technology access fee of $3.0
million and the research funding of $2.2 million were recognized in 1999. The
Company has no further performance obligations related to this alliance.
Novartis Joint Venture
In December 1999, the Company formed a five-year, renewable strategic
alliance with Novartis Seeds AG ("Novartis"). Through a contract joint venture,
the Company and Novartis will jointly pursue opportunities in the field of
animal feed and agricultural product processing. Both parties 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
F-11
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
field of agricultural product processing. Novartis will pay for the license
granted under this agreement, of which $15.0 million is due by February 2000
and an additional $5 million due in June 2001. The Company has recorded the
receivable at its present value of $4.0 million. The technology access fee will
be recognized as revenue on a straight-line basis over the term of the
agreement. Additionally, the Company will receive minimum research funding over
five years of $33.9 million, as well as milestone payments upon achievement of
project objectives totalling up to $7.7 million and license and
commercialization fees for any resulting products. Research funding will be
recognized as the research is performed, and milestone payments will be
recognized as revenue when earned. The Company will receive a share of the
profits in the form of royalties on any product sales.
Revenue recognized under the Novartis contract joint venture agreement was
$0.8 million for the year ended December 31, 1999, consisting of research
funding of $0.5 million and amortization of the license fee of $0.3 million.
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 annual
technology development payments of $1.5 million each year. Dow will fund the
research costs for the duration of the contract totaling $10.8 million. The
Company will receive milestone payments of up to $2.7 million upon achievement
of established objectives and license and commercialization fees for any
resulting products. The Company will receive royalties on product sales. The
Company is amortizing the technology development fees over the minimum
guaranteed period of the agreement.
Revenue recognized under the strategic alliance with Dow was approximately
$2.5 million (27% of total collaborative revenues) for the year ended December
31, 1999, consisting of research funding of $1.9 million, and amortization of
technology development fees of $0.6 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. The Company received and recognized as revenue $0.8
million in research funding over the period from May 1996 through December 31,
1998. The only obligation of the Company under this agreement is to perform
research activities; Finnfeeds did not acquire any rights or privileges other
than as disclosed in Note 4 as an owner of Series C preferred stock.
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.
Terragen Discovery Inc.
In November 1999, the Company signed a license agreement with Terragen
Discovery Inc. ("Terragen") under which Terragen and the Company agreed to
cross license certain technologies. Under the terms of the
F-12
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
agreement, the Company made an initial payment of $2.5 million in 1999 and
agreed to make annual payments of $100,000 to Terragen to maintain the patent
rights over the remaining patent life. The Terragen license was acquired to
enhance the Company's intellectual property position in combinational
libraries. The Company has capitalized the initial payment as an intangible
asset, which will be amortized over the sixteen year patent life.
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. The
financial impact of these agreements on the Company is not significant.
4. PREFERRED STOCK AND STOCKHOLDERS' EQUITY
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 22,834,011 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.
Characteristics and Terms Applicable to Preferred Stock
The Company has Series A, B, C, D and E preferred stock (the "Preferred
Stock") outstanding at December 31, 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 conversion ratio will be adjusted to 1-for-2.8806 when the
reverse stock split discussed in Note 11 is effected. The Company has reserved
the full number of shares of Common Stock issuable upon conversion of the
Preferred Stock.
F-13
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A summary of convertible preferred stock issued and outstanding as of
December 31, 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 Company has accrued $66,000 in dividends payable, as of December
31, 1999, and will continue to accrue approximately $6,500 per day through the
completion of an initial public offering. The Company intends to settle the
dividend payable through the issuance of shares of common stock valued at the
IPO price. 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-14
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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
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 416,579 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
F-15
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 277,719 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 27,772
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 1,736 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
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.
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.
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 5,836,468, and an
equal number of shares of common stock are reserved for the exercise of these
options. This aggregate number includes 3,020,204 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
$0.03.
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 951,902 shares have been granted under the 1994 Plan and 110,000
options remain outstanding related to the 1994 Plan. In August 1997, this Plan
was terminated and there are no options available for future grant.
F-16
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Information with respect to the plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance at January 1, 1997...................... 1,279,000 $0.40
Granted....................................... 1,203,000 $0.43
Exercised..................................... (51,000) $0.35
Cancelled..................................... (81,000) $0.46
----------
Balance at December 31, 1997.................... 2,350,000 $0.43
Granted....................................... 1,185,000 $0.58
Exercised..................................... (228,000) $0.26
Cancelled..................................... (346,000) $0.43
----------
Balance at December 31, 1998.................... 2,961,000 $0.49
Granted....................................... 1,515,000 $3.14
Exercised..................................... (1,089,000) $0.55
Cancelled..................................... (262,000) $0.49
----------
Balance at December 31, 1999.................... 3,125,000 $1.73
==========
</TABLE>
At December 31, 1999, options under the plans to purchase approximately
3,125,000 shares were exercisable and approximately 2,368,000 shares remain
available for grant.
Following is a further breakdown of the options outstanding under the plans
as of December 31, 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>
$0.03--$0.49............ 469,000 7.0 $0.40 469,000 $0.40
$0.58................... 1,331,000 8.4 $0.58 1,331,000 $0.58
$1.73--$8.64............ 1,325,000 9.7 $3.43 1,325,000 $3.43
--------- ---------
$0.03--$8.64............ 3,125,000 8.8 $1.73 3,125,000 $1.73
========= =========
</TABLE>
The Company has outstanding an option to purchase 13,937 shares of common
stock with an exercise price of $0.03 per share that was issued in 1994 to a
founder of the Company as consideration for waiving certain rights in
conjunction with a previous financing. This option was issued outside of the
1994 and 1997 plans. The option expires at the earlier of the 10th anniversary
of the option or eighteen months after the completion of an IPO.
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.
F-17
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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,
---------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Adjusted pro forma net loss....... $(12,466,000) $(13,572,000) $(9,251,000)
Adjusted pro forma basic net loss
per share........................ $ (7.76) $ (7.68) $ (3.93)
</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 years ended December 31, 1997, 1998 and 1999, in connection with
the grant of certain stock options to employees, the Company recorded deferred
stock compensation totaling approximately $10.8 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 year ended December
31, 1999, the Company recorded amortization of deferred stock compensation
expense of approximately $3.0 million.
The Company has a total of approximately 364,000 warrants outstanding,
consisting of approximately 174,000 warrants to purchase Series A Preferred
Stock at $2.88 per share, and approximately 190,000 warrants to purchase
common stock at between $0.03 and $0.43 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.
At December 31, 1999, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock......................... 22,834,000
1994 and 1997 Stock Option Plan................................... 5,493,000
Option issued to a founder of the Company......................... 14,000
Warrants.......................................................... 364,000
----------
28,705,000
==========
</TABLE>
Employee Terminations
During 1999, the Company agreed to separation terms with two former
officers. In conjunction with these agreements, the Company agreed to
accelerate one year's unvested options for one officer, and extend the vesting
period for one year for the other officer. The Company considered each
modification to require a remeasurement of the options and accordingly
recorded an expense of $1.1 million related to the option modifications. The
expense was recorded at the time of the separation as the former officers will
perform no services on behalf of the Company after the separation date.
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, 1998 and 1999, the Company made discretionary contributions
of approximately $39,000, $45,000 and $54,000, respectively.
F-18
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
Year ending December 31:
2000................................................ $ 943,000 $ 563,000
2001................................................ 1,012,000 580,000
2002................................................ 1,035,000 49,000
2003................................................ 817,000 --
2004................................................ 296,000 --
Thereafter............................................ 45,000 --
---------- ----------
Total minimum lease payments.......................... 4,148,000 $1,192,000
==========
Amount representing interest.......................... 871,000
----------
Present value of minimum capital lease obligations.... 3,277,000
Current portion....................................... 600,000
----------
Long-term capital lease obligation.................... $2,677,000
==========
</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, 1998, and 1999, rent and administrative service
expense under operating leases for the San Diego facility was approximately
$413,000, $516,000, and $533,000, respectively.
Equipment acquired under capital leases is included in property and
equipment, and amounted to $4,971,000 and $6,075,000 (net of accumulated
amortization of $2,421,000 and $1,916,000) as of December 31, 1998 and December
31, 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 December 31, 1999, the Company has $828,000 available under lease financing
lines.
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
$413,000 for the year ended December 31, 1998 and 1999, respectively.
F-19
<PAGE>
DIVERSA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Income Taxes
Significant components of the Company's deferred tax assets are shown below.
A valuation allowance of $19,269,000 and $22,605,000 has been recognized to
offset the deferred tax assets at December 31, 1998 and 1999, respectively, as
realization of such assets is uncertain.
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 16,584,000 $ 17,724,000
Deferred revenue.................................. -- 1,155,000
Licenses.......................................... -- 1,266,000
Start-up costs.................................... 556,000 278,000
Allowances and accrued liabilities................ 574,000 349,000
Federal and state tax credits..................... 1,391,000 1,669,000
Depreciation...................................... 164,000 164,000
------------ ------------
Total deferred tax assets......................... 19,269,000 22,605,000
Valuation allowance............................... (19,269,000) (22,605,000)
------------ ------------
Net deferred tax assets............................. $ -- $ --
============ ============
</TABLE>
At December 31, 1999, the Company has federal and California net operating
loss carryforwards of approximately $45,817,000 and $28,901,000, 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 $657,000, 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
In February 2000, the Company effected a 1-for-2.8806 reverse stock split of
the Company's common stock. All share data have been retroactively restated to
reflect the reverse stock split. In conjunction with the reverse stock split,
the certificate of incorporation was amended to authorize 65,000,000 shares of
common stock and 5,000,000 shares of preferred stock.
In February 2000, the Company initiated a loan program for 6 employees to
loan them monies to pay a personal tax liability. This tax liability resulted
from the Company's delayed filing of a Form 83B election related to those
employees' exercise of incentive and non qualified stock options during 1999.
This failure to timely file the Form 83B election exposed the employees to
significant personal tax liability. To limit the tax exposure, the Company has
elected to accelerate the vesting of the remaining unvested options, totaling
approximately 207,000 options, and will loan the employees a total of $1.6
million in full recourse promissory notes. The loans carry a market interest
rate, and will be repaid over a five year term. In addition, the proceeds from
any sale of stock or realization of the individuals' tax credit carryforward
will first be used to repay the outstanding loan.
In February 2000, the Company accelerated the vesting on 104,145 stock
options previously granted to a director of the Company who also serves as
Chairman of the Scientific Advisory Board and as a consultant. To the extent
the option grants were for consulting services, the Company will record a
charge to operations of $1.7 million in the first quarter of 2000 in accordance
with SFAS 123 and EITF 96-18.
F-20
<PAGE>
[LOGO OF DIVERSA]
<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............................................................. 5
Special Statement Regarding Forward-Looking Statements................... 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Corporate Information.................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Information........................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 26
Management............................................................... 44
Certain Transactions..................................................... 56
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 62
Shares Eligible for Future Sale.......................................... 65
Underwriting............................................................. 66
Legal Matters............................................................ 68
Experts.................................................................. 68
Where You Can Find More Information...................................... 69
Index to Financial Statements............................................ F-1
</TABLE>
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[LOGO OF DIVERSA]
7,000,000 SHARES
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BEAR, STEARNS & CO. INC.
CHASE H&Q
DEUTSCHE BANC ALEX. BROWN
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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.................................................... $ 46,755
NASD filing fee..................................................... 18,210
Nasdaq National Market listing fee.................................. 95,000
Printing and engraving expenses..................................... 200,000
Legal fees and expenses............................................. 450,000
Accounting fees and expenses........................................ 250,000
Blue Sky fees and expenses.......................................... 10,000
Transfer agent and registrar fees................................... 10,000
Miscellaneous....................................................... 120,035
----------
Total........................................................... $1,200,000
==========
</TABLE>
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 or by such committee such disinterested directors may designate, (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 our bylaws and 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 if such suit for recovery is successful in whole or in
part. 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, (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,
determines that the director or officers' conduct was knowingly fraudulent,
deliberately dishonest or constituted willful misconduct or (v) if
indemnification is 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 December 31, 1999, the Registrant had issued and sold, in the
aggregate, 62,949 shares of its common stock for per share exercise prices
ranging from $0.58 to $2.02 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 December 31, 1999, the Registrant had issued and sold, in the
aggregate, 702,386 shares of its common stock for per share exercise prices
ranging from $0.04 to $1.73 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 1-for-2.8806 reverse 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 Certificate 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 by and 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.
16.1** Letter from PricewaterhouseCoopers LLP to the Securities and Exchange
Commission, dated January 28, 2000.
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.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed as an exhibit to this Registration Statement.
+ 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.
II-5
<PAGE>
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 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
Amendment No. 4 to the 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 9th day of February, 2000.
By:/s/ Karin Eastham
-----------------------------------
Karin Eastham
Senior Vice President, Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jay M. Short* President, Chief Executive February 9, 2000
_________________________________ Officer, Chief Technology
Jay M. Short, Ph.D. Officer and Director
(Principal Executive
Officer)
/s/ Karin Eastham Senior Vice President, February 9, 2000
____________________________________ Finance and Chief Financial
Karin Eastham Officer (Principal Financial
Officer)
/s/ James H. Cavanaugh* Director February 9, 2000
____________________________________
James H. Cavanaugh, Ph.D.
/s/ Daniel T. Carroll* Director February 9, 2000
____________________________________
Daniel T. Carroll
/s/ Patricia M. Cloherty* Director February 9, 2000
____________________________________
Patricia M. Cloherty
/s/ Donald D. Johnston* Director February 9, 2000
____________________________________
Donald D. Johnston
/s/ Mark Leschly* Director February 9, 2000
____________________________________
Mark Leschly
/s/ Melvin I. Simon* Director February 9, 2000
____________________________________
Melvin I. Simon, Ph.D.
/s/ Peter Johnson* Director February 9, 2000
____________________________________
Peter Johnson
*By: /s/ Karin Eastham
____________________________________
Karin Eastham
Attorney-in-Fact and Agent
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER
EXHIBIT DESCRIPTION OF DOCUMENT
------- ----------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriter's Agreement.
3.1** Registrant's Certificate 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.
16.1** Letter from PricewaterhouseCoopers LLP to the Securities and Exchange
Commission, dated January 28, 2000.
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.
27.1** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed as an exhibit to this Registration Statement.
+ 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 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
<TABLE>
<CAPTION>
Total
Total Shares Fully-Diluted Shares
--------------------------------------------------------------------------------------------------------
Series A Series B Series C Series D Common Warrants(a) Options(b) # %
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PATRICOF FUNDS:
APA Excelsior IV, L.P.
The P/A Fund, L.P.
APA Excelsior IV/Offshore,
L.P.
Patricof Private Investment
Club, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Patricof Funds
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE FUNDS:
HealthCare Ventures III, L.P.
HealthCare Ventures IV, L.P.
HealthCare Ventures V, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
Total HealthCare Funds
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INVESTORS:
Benefit Capital Management
Corporation
New York Life Insurance
Company
CSK Venture Capital Co.,
Ltd.
State of Michigan
GC&H Investments
Mentus Money Purchase Plan
Logue, Kenneth F.
Rice, Raymond D.
Finnfeeds International
Limited
Abrams, Larry
Axiom Venture Partners, L.P.
Comdisco Warrant
Johnston, Donald
Rho Management Trust II
Aetna Life Insurance Company
Landsberger, Frank
Casty, Lee
Hudson Trust
The CIT Group/Venture
Capital, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Investors
- -----------------------------------------------------------------------------------------------------------------------------------
FOUNDERS:
The Institute for Genomic
Research, et al.
Haseltine, Wm.
Miller, Jeffrey H.
Simon, Melvin I.
Stetter, Karl O.
Kom, Peter, et al.
Friedman, Gary, et al.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Founders
- -----------------------------------------------------------------------------------------------------------------------------------
EMPLOYEES & CONSULTANTS:
CURRENT EMPLOYEES
Bruggeman, Terrance
Short, Jay
Van Sleen, Kathleen
Simms, Patrick
Baum, Bill
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal Management
- -----------------------------------------------------------------------------------------------------------------------------------
Other Employees
Pool Available (c)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Employees
- -----------------------------------------------------------------------------------------------------------------------------------
TERMINATED EMPLOYEES
Marrs, Barry
Garaventi, Don
Other Terminated Employees
- -----------------------------------------------------------------------------------------------------------------------------------
Total Terminated Employees
- -----------------------------------------------------------------------------------------------------------------------------------
Glickman, Bary
Carroll, Daniel (Director)
Other Consultants
- -----------------------------------------------------------------------------------------------------------------------------------
Total Employees and
Consultants
- -----------------------------------------------------------------------------------------------------------------------------------
Grand Total
===================================================================================================================================
</TABLE>
FOOTNOTES:
(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 10.15
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80 (b) (4)
200.83 and 230.406
LICENSE AGREEMENT
BETWEEN
THE DOW CHEMICAL COMPANY
AND
DIVERSA CORPORATION
*Confidential Treatment Requested
1
<PAGE>
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE NUMBER
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
I DEFINITIONS 1
- -------------------------------------------------------------------------------------------------
II PATENT LICENSE GRANT 4
- -------------------------------------------------------------------------------------------------
III PAYMENTS 6
- -------------------------------------------------------------------------------------------------
IV PATENT RIGHTS 9
- -------------------------------------------------------------------------------------------------
V CONFIDENTIALITY 11
- -------------------------------------------------------------------------------------------------
VI ASSIGNMENT 12
- -------------------------------------------------------------------------------------------------
VII THIRD PARTY INFRINGEMENT CLAIMS 12
- -------------------------------------------------------------------------------------------------
VIII PATENT ENFORCEMENT & LITIGATION 13
- -------------------------------------------------------------------------------------------------
IX U.S. EXPORT CONTROL AND GOVERNMENT LICENSES 14
- -------------------------------------------------------------------------------------------------
X PRODUCT LIABILITY AND INDEMNIFICATION 15
- -------------------------------------------------------------------------------------------------
XI WARRANTY & DISCLAIMER, 16
- -------------------------------------------------------------------------------------------------
XII TERM AND TERMINATION 17
- -------------------------------------------------------------------------------------------------
XIII FORCE MAJEURE 18
- -------------------------------------------------------------------------------------------------
XIV DISPUTE RESOLUTION 19
- -------------------------------------------------------------------------------------------------
XV NOTICES 20
- -------------------------------------------------------------------------------------------------
XVI MISCELLANEOUS PROVISIONS 21
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
APPENDIX TITLE PAGE
- -------------------------------------------------------------------------------------------------
<C> <S> <C>
A PATENT RIGHTS A
- -------------------------------------------------------------------------------------------------
A-1 DIVERSA PATENT RIGHTS A-1
- -------------------------------------------------------------------------------------------------
A-2 DIVERSA PATENT RIGHTS [****] A-2
- -------------------------------------------------------------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ROYALTY BEARING PRODUCTS
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
A-3 DIVERSA PATENT RIGHT [****] A-3
- --------------------------------------------------------------------------------------------------------------------
B JOINT PATENT RIGHTS B-1
- --------------------------------------------------------------------------------------------------------------------
C LICENSED PRODUCT C-1
- --------------------------------------------------------------------------------------------------------------------
D ROYALTY BEARING PRODUCT D-1
- --------------------------------------------------------------------------------------------------------------------
E ROYALTY BEARING PRODUCT CLASSIFICATION E-1
- --------------------------------------------------------------------------------------------------------------------
F ROYALTY SCHEDULE F-1
- --------------------------------------------------------------------------------------------------------------------
G OPTION AGREEMENT G-1
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
ii
<PAGE>
This LICENSE AGREEMENT (including the Appendices hereto, the "License") is
by and between THE DOW CHEMICAL COMPANY, a corporation duly formed and existing
under the laws of the State of Delaware, having a place of business at 2030 Dow
Center, Midland, Michigan 48674, United States of America ("DOW" or a "Party"),
and DIVERSA CORPORATION, a corporation duly formed and existing under the laws
of the State of Delaware, having a place of business at 10665 Sorrento Valley
Road, San Diego, California 92121, United States of America ("DIVERSA" or a
"Party").
R E C I T A L S
A. DIVERSA has discovered and developed enzymes and has expertise in the
rearrangement of DNA to produce and discover genes utilizing proprietary
technologies for the rapid discovery, development and optimization of
enzymes.
B. DOW has expertise in the discovery, development and production of chemical
compounds.
C. DOW and DIVERSA are concurrently with this License entering into a separate
Collaborative Research and Development Agreement ("Agreement") in order to
perform research together to discover and optimize the function of new
genes, processes and products resulting thereupon that can be used by DOW
to produce certain, desired commercial chemical compounds.
D. DIVERSA represents that it has Patent Rights and Know-How that pertain to
this License.
E. DOW is desirous of obtaining, and DIVERSA wishes to grant to DOW, a
worldwide, exclusive royalty-bearing license to use Patent Rights and
Licensed Products in Research Target Processes.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, and
for other good and valuable consideration, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
When used in this License, the following terms shall have the meanings set out
below, unless the context requires otherwise. The singular shall be interpreted
as including the plural and vice versa, unless the context clearly indicates
otherwise.
1
<PAGE>
1.1 "Affiliate" means any corporation, firm, limited liability company,
partnership or other entity that directly or indirectly controls or is
controlled by or is under common control with a Party to this License.
Control for this purpose means ownership, directly or through one or more
affiliated entities, of 50 percent (50%) or more of the shares of stock
entitled to vote for the election of directors in the case of a
corporation, or 50 percent (50%) or more of the equity interests in the
case of any other type of legal entity, or any other arrangement whereby a
Party controls or has the right to control the board of directors or
equivalent governing body of a corporation or other entity.
1.2 "Agreement" means the Collaborative Research Agreement between DOW and
DIVERSA, executed concurrently with this License.
1.3 "Areas of Interest" means the development of Improved Enzymes (as defined
below) for use in the following [****] specific areas:
(a) [****]
(b) [****]
(c) [****]
1.4 "Confidential Information" means all information, Know-How, scientific,
technical, or non-technical data, samples and Materials, business plans,
and marketing and sales information disclosed by one Party to the other
under this License, and including information disclosed under the Agreement
regarding Licensed Products, whether disclosed or provided in oral, written
(including but not limited to electronic, facsimile, paper or other means),
graphic, photographic or any other form, except to the extent that such
information:
(a) as of the date of disclosure is known to the receiving Party as
shown by written documentation, other than by virtue of a prior
confidential disclosure from the disclosing Party to the
receiving Party;
(b) as of the date of disclosure is in, or subsequently enters, the
public domain through no fault or omission of the receiving
Party;
(c) as of the date of disclosure or thereafter is obtained from a
Third Party free from any obligation of confidentiality; or
(d) as of the date of disclosure or thereafter is developed by the
receiving Party independent of the disclosure by the disclosing
Party as evidenced by written documentation.
1.5 "Controls" or "Controlled" means, with respect to intellectual property,
possession by DIVERSA (other than by virtue of this License) of the ability
to grant licenses or sublicenses to DOW without violating the terms of any
agreement or other arrangement with any Third Party and to the reasonable,
good faith knowledge and belief of DIVERSA, without violating the rights of
a Third Party.
*Confidential Treatment Requested
2
<PAGE>
1.6 [****] means a [****] that is not [****] whereupon the [****] shall be
[****] on the [****] and [****] of the [****] including a [****] of [****]
an [****].
1.7 "Effective Date" means the date of last signature of the Parties at the end
of this License.
1.8 "Field" means [****]
1.9 "Improved Enzyme" means an enzyme or enzymes, either ex vivo or in vivo,
provided to DOW by DIVERSA which is within the claims of Patent Rights or
Joint Patent Rights or that incorporates, is derived from, or is
identified, discovered, developed or made through the use of Know-How,
which is developed in the Areas of Interest under the Agreement.
1.10 "Joint Patent Rights" means patent rights, which are jointly developed or
invented by both Parties under the Agreement in accordance with its terms,
as shown in Appendix B, which Appendix B-1 may be modified to include joint
patent rights obtained during the Research Term under the Agreement, and
which rights pertain to a Licensed Product. Joint Patent Rights concern
only the scope of the claims that have not been held invalid or
unenforceable after all appeals have been exhausted. Claims shall be deemed
valid unless held otherwise.
1.11 "Know-How" means all Research Results, as defined and obtained under the
Agreement, and all know-how, nonpatented inventions, improvements,
discoveries, data, instructions, processes, formulas, sequences,
information (including, without limitation, chemical, physical and
analytical, safety, manufacturing and quality control data and
information), procedures, devices, methods and trade secrets which are
conceived, discovered or invented during the term of the Agreement, and
which are necessary or appropriate to develop and commercialize Licensed
Products. (Know-How does not include inventions within the Patent Rights or
Joint Patent Rights.)
1.12 "Licensed Product" means (i) any Improved Enzyme which is used to convert a
Research Target (as defined in the Agreement) into a product using a
Research Target Process, or (ii) any Improved Enzyme which is based on or
incorporates or is identified, discovered, or developed under the
Agreement, for which both (i) and (ii) are designated by the RMC, and
encompassed
*Confidential Treatment Requested
3
<PAGE>
within DIVERSA Patent Rights or Joint Patent Rights and listed on Appendix
C, which is attached hereto and made a part hereof and which is identical
to Appendix G of the Agreement.
1.13 "Material" means the original, tangible materials of any type provided by
DOW or DIVERSA to the other Party in order that the recipient can perform
its obligations under this License.
1.14 "Net Sales" means the amount invoiced on sales of Royalty Bearing Product
by DOW and its Affiliates to a Third Party, less the following deductions
to the extent included in the amounts invoiced:
(a) [****] and
(b) [****] and
(c) [****] and
(d) [****] and
(e) [****]
Net Sales shall not include sales between or among DOW and its Affiliates.
1.15 "Patent Rights" means patent and patent applications Controlled solely by
DIVERSA as shown in Appendix A, including:
(a) all patents and patent applications which are conceived of under the
Agreement, and which are necessary (but for this License DOW would
infringe these patents) for DOW to make, use or sell the Royalty
Bearing Products; and are listed on Appendix A-1, attached hereto and
made a part hereof, which Appendix A-1 may be modified to include
Patent Rights obtained during this License;
(b) the patents and patent applications listed on Appendix A-2, attached
hereto and made a part hereof, are patent rights of DIVERSA that
[****] and
(c) any divisions, continuations, continuations-in-part, reissues,
reexaminations, extensions or other governmental actions which extend
any of the subject matter of the patent applications or patents in
*Confidential Treatment Requested
4
<PAGE>
(i) or (ii) above, and any substitutions, confirmations, patents-of-
addition, registrations or revalidations of any of the foregoing,
which Patent Rights are necessary (but for this License DOW would
infringe these patents) for DOW to make, use or sell the Royalty
Bearing Products, which shall be listed on Appendix A-1 or A-2,
respectively;
(d) [****]
in each case, which are Controlled by DIVERSA. All patents and patent
applications subject to this definition are listed on Appendix A or will be
included on Appendix A as they are developed or obtained under the
Agreement and this License. Patent Rights concern only the scope of the
claims that have not been held invalid or unenforceable after all appeals
have been exhausted. Claims shall be deemed valid unless held otherwise.
1.16 "Royalty Bearing Product" means the material resulting from the application
of a Licensed Product or a Licensed Product in a Research Target Process
(defined in the Agreement), which shall be classified by its Royalty
Bearing Product Classification and listed in Appendix D, attached hereto
and made a part hereof. (If DIVERSA manufactures for DOW a Licensed Product
using an in vivo Improved Enzyme, it shall be subject to a separate
agreement.)
1.17 "Royalty Bearing Product Classification" means the [****] in accord with
Appendix E, as attached hereto and made a part hereof. The Royalty Bearing
Product [****]
1.18 "Royalty Schedule" means the [****] Royalty Bearing Product, as determined
by the [****] read from the [****] on Appendix F, attached hereto and made
a part hereof.
1.19 "Territory" means the world.
1.20 "Third Party" means anyone other than DOW or DIVERSA, or their respective
Affiliates.
*Confidential Treatment Requested
5
<PAGE>
ARTICLE II
PATENT LICENSE GRANT
--------------------
2.1 Grant of License to DOW - Subject to the terms and conditions of this
License, DIVERSA hereby grants to DOW, and DOW hereby accepts:
(a) an a exclusive, royalty-bearing, worldwide license, including the
right to grant sublicenses pursuant to Section 2.4, under the DIVERSA
Patent Rights and Joint Patent Rights to make, have made, import,
have imported, use, have used, sell, have sold and otherwise exploit
Royalty Bearing Products;
(b) an exclusive, world-wide license, including the right to grant
sublicenses pursuant to Section 2.4, under DIVERSA's enzymes [****]
to use enzymes to convert Research Target(s) into products via
Research Target Processes (Research Target and Research Target
Processes are defined as in the Agreement). The royalty for this
grant is obtained by DIVERSA under (a);
(c) a non-exclusive, royalty-bearing, world-wide license to [****] and
(d) a royalty-free license to any Know-How required to exploit the rights
granted under (a), (b), and (c), and for DOW or its Affiliates to
perform research on any Improved Enzyme.
2.2 Grant of Right to DIVERSA - If DOW desires that any Licensed Product be
further modified after DIVERSA supplies it to DOW under the terms of the
Agreement, then DOW may request that:
(a) DIVERSA perform such added modification under the Agreement, if it is
still in effect; or
(b) if the Agreement is no longer in effect, then using good faith, the
Parties shall negotiate terms consistent with the intent of obtaining
a Licensed Product; or
(c) if DIVERSA declines to do such modification within thirty (30) days
or an agreement is not reached within three (3) months having terms
similar to the Agreement and providing for the work to commence
within thirty (30) days of the signature date, [****]
*Confidential Treatment Requested
6
<PAGE>
Notwithstanding the above, [****] if (i) a transfer or sale of
substantially all of the business of DIVERSA to which this License relates
occurs, whether by merger, sale of stock, sale of assets or otherwise, to a
[****] or (ii) bankruptcy, insolvency, dissolution or winding up of DIVERSA
(other than dissolution or winding up for the purposes of reconstruction or
amalgamation). [****]. DOW would continue to pay DIVERSA for any Royalty
Bearing Product under this License.
2.3 Grant of Rights to Use Licensed Products for New Research Targets within
the Field after Termination of the Agreement - In the event DOW desires to
obtain exclusive or non-exclusive rights to Licensed Products to make, have
made, use, sell, offer for sale and import products in new Research Targets
within the Field, DIVERSA and DOW agree to negotiate such rights in good
faith, subject to any prior obligations DIVERSA has regarding the granting
of said rights. If DIVERSA becomes aware of new Research Targets for
Licensed Products within the Field, then DIVERSA shall notify DOW of such
Licensed Product application, and [****]. If DOW declines to negotiate a
license and DIVERSA and a Third Party desire to use a Licensed Product for
a new Research Target, DIVERSA and DOW agree to negotiate for DIVERSA to
pay DOW royalties on net sales of such Licensed Product in such Research
Target consistent with the royalties DOW pays to DIVERSA under this License
as indicated in Table 1 of Appendix F attached hereto.
2.4 Sublicensing - The exclusive license granted under Section 2.1(a) to DOW
includes the right to sublicense Third Parties, whether or not Affiliates
of DOW, including the right to enter into distributor contracts,
manufacturing contracts, or other commercial transactions, including but
not limited to sublicensing a competitor of DOW. DOW will be responsible
for all payments due to DIVERSA as a result of any sublicensee and
Affiliate Net Sales in the Field in the Territory. DOW will be responsible
for the observance by all sublicensees of all applicable provisions of this
License and will use its reasonable good faith efforts to cause all
sublicensees to observe the covenants in this License (i.e., regarding
confidentiality, maintaining records, reporting Net Sales, and governmental
regulations). All sublicenses, other than a label license for DOW Net
Sales, shall be in writing. DOW shall notify DIVERSA in writing within
thirty (30) days of the grant of any
*Confidential Treatment Requested
7
<PAGE>
sublicense hereunder. Notwithstanding the foregoing, DOW shall have no
right under any circumstances to sublicense any rights to the DIVERSA
Patent Rights listed on Appendix A-3, and licensed to DOW hereunder.
2.5 Reservations by DOW - DOW reserves the right to work with Third Parties
outside the Areas of Interest, or after the Agreement terminates within the
Areas of Interest, or to conduct its own research within the Areas of
Interest.
2.6 Ex vivo Improved Enzyme Production - If DOW chooses not to exclusively
manufacture a Licensed Product, DIVERSA shall be given a right of first
refusal to manufacture such Licensed Product. DIVERSA must submit a bid
which is competitive with any other Third Party supplier. Any bid received
by DIVERSA shall be held confidential by DOW. If DIVERSA is the lowest
cost, most effective producer of the Licensed Product, DOW and DIVERSA
shall negotiate in good faith a separate manufacturing agreement for
DIVERSA to provide the relevant Licensed Product to or on behalf of DOW.
Such agreement may include the development of additional technology for
such production. If such an agreement is negotiated, it shall contain at a
minimum terms for a worldwide, non-exclusive license for the Know-How and
any Patent Rights required (whether under this License in Appendix B-2 or
developed separately). This [****].
2.7 Prior Option Agreement - DOW exercised its rights under a prior Option
(copy attached for reference as Appendix H) for a license to a precursor
for an Improved Enzyme and paid DIVERSA the exercise fee. This License
shall also be a grant to the technology and the precursor Improved
Enzyme(s) developed under that Option in the same manner for a Licensed
Product.
ARTICLE III
PAYMENTS
--------
3.1 Milestone Payment for Option under Section 2.7 - To meet the milestone
payment due DIVERSA under the Option in accord with Section 2.7, DOW shall
pay DIVERSA Two Hundred Thousand Dollars ($200,000) within thirty (30) days
from the Effective Date. This License shall suffice for the exercise of the
Option for a license.
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3.2 License Product Nomination - When an Improved Enzyme is identified by the
RMC under the Agreement as being adequately developed for
commercialization, then DOW must inform DIVERSA in writing within sixty
(60) days whether such Improved Enzyme shall become a Licensed Product
under this License. If DOW desires to designate an Improved Enzyme as a
Licensed Product, then it shall be listed on either Appendix C or D under
the terms of this License and classified by DOW under the Royalty Bearing
Product Classification of Appendix E as to which Royalty Schedule applies
in accord with Appendix F. Up to three (3) Improved Enzymes per Royalty
Bearing Product can be designated as Licensed Product(s). Within [****] of
designation of more than one Improved Enzyme as a Licensed Product, DOW
will select [****] Licensed Product for each Royalty Bearing Product, and
all other Licensed Product(s) shall revert to Improved Enzyme status. If
DOW does not designate an Improved Enzyme as a Licensed Product, then
DIVERSA may license such Improved Enzyme to a Third Party for other than
any Research Target without further obligation to DOW, unless Section 3.8
applies.
3.3 License Fees - Within thirty (30) days of the identification by the RMC of
a Licensed Product in accordance with Section 3.2, DOW shall pay to DIVERSA
a license fee of [****] dollars. Only [****].
3.4 Commercialization Fees - Within thirty (30) days of the first commercial
sale by DOW of each Royalty Bearing Product from a commercial scale plant,
DOW shall pay to DIVERSA [****] dollars. Only [****].
3.5 Royalty Payments - Royalties owed for each Royalty Bearing Product are
subject to Section 4.8 and shall vary according to Table 1 in the Royalty
Schedule set forth on Appendix F. Upon pilot plant evaluation for each
Royalty Bearing Product, DOW will propose to DIVERSA the Royalty Bearing
Product Classification and specific royalty from Table 1 in the Royalty
Schedule in Appendix F. DIVERSA and DOW shall discuss the proposal. The
proposal shall be subject to DIVERSA approval, which shall not be
unreasonably withheld. In the [****].
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3.6 Method of Payment - All payments due under this License shall be made in
with the respective sections of Article III by check or by bank wire
transfer in immediately available funds to a bank account designated in
writing to DOW by DIVERSA. In the event that the due date of any payment
subject to this Article III hereof is a Saturday, Sunday or national
holiday, such payment may be paid on the following business day. Any late
payments shall bear interest, to the extent permitted by applicable law, at
the prime rate (as reported by the Bank of America, San Francisco,
California or its successor bank) on the date such payment is due plus two
(2%) percent, calculated on the number of days such payment is delinquent.
The rights provided in this Section 3.6 shall in no way limit any other
remedies available to DIVERSA hereunder.
3.7 Sublicense Payments - Any sublicense agreement for Royalty Bearing Product
shall contain royalty provisions that at a minimum provide for the payment
of the same running royalty as would similarly be paid to DIVERSA by DOW in
accord with Section 3.5. DOW will be responsible for any auditing for
performance for similar terms and conditions by a sublicensee.
3.8 [****].
3.9 [****].
3.10 Exchange Rate and Payment - Royalty payments shall be paid to DIVERSA in US
dollars in funds to be deposited in a US account as instructed in writing
by DIVERSA in accordance with Section 3.6. If DOW receives payment on
Royalty Bearing Products in currency other than US dollars, such payments
shall be converted to US dollars on the last day of the calendar quarter
using an exchange rate established by a leading New York bank, such as
CitiBank, and published in The Wall Street Journal, but are not due for
sixty (60) days from the last day of each calendar quarter for each Royalty
Bearing Product.
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If DOW receives payment in a form other than a currency, it shall be
estimated at its fair market value and converted to U.S. dollars.
3.11 Quarterly Royalty Reports and Payments - Within sixty (60) days after the
close of each calendar quarter, DOW shall submit a report on the Net Sales
on Royalty Bearing Product for the Territory in sufficient detail to enable
a calculation of the royalty due in accord with Article III and payment of
the royalty (if any) due. The quarterly reports will also specify the
calculations based on Sections 3.7 and 3.10, Royalty Bearing Product
Classifications made, the royalty rate from Table 1 of the Royalty Schedule
in Appendix F for a given Royalty Bearing Product, and identification of
any Licensed Products that are returned as Improved Enzymes.
3.12 Books of Account - DOW shall maintain true and complete books of account
containing an accurate record of all data necessary for the proper
computation of royalty payments due from it or on behalf of any Affiliate.
Such records shall be maintained for at least five (5) years after the date
of the pertinent royalty payment.
3.13 Audit Right - DIVERSA shall have the right through a firm of independent
public accountants to whom DOW has no reasonable objection, to examine the
books of account of DOW at reasonable times within three (3) years after
the end of the calendar year to which they relate (but not more than once
in each calendar year) for the purpose of verifying the correctness of any
report concerning payment of royalties under Article III. Such examination
shall be made during normal business hours at the place of business of DOW.
The information provided as a result of any such examination shall be
maintained in confidence on the terms specified in Article V. The fees and
expenses of such an audit shall be borne by DIVERSA, unless such audit
discloses an underpayment of more than five percent (5%) of the amount due
under this License. In such case, DOW shall bear the full cost of such
audit. If any such audit shows any underpayment or overcharge, a correcting
payment or credit against future royalties shall be made. Any payment
required from DOW to DIVERSA from such audit shall be made within thirty
(30) days of DIVERSA's receipt of the auditors' statement. DOW shall be
subject to a penalty as if the payment were deemed late in accord with
Section 3.6.
3.14 Withholding Tax Payments - If any taxes for DIVERSA's account, withholding
or otherwise, are levied by any taxing authority in the Territory in
connection with the receipt by DIVERSA of any amounts payable under Article
III of this License according to any tax treaty or agreement between the
United States and any country in the Territory, then DOW shall have the
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right to pay such taxes to the local tax authorities and the payment to
DIVERSA shall be the net amount due after reduction by the amount of such
taxes, together with
(a) evidence of payment of such taxes and a translation thereof
into English,
(b) indication of the amount of such tax paid, and
(c) indication of the country in the TERRITORY and the authority to
whom it was paid, and
(d) other information required for DOW to comply with DOW's royalty
reporting obligations under this License.
ARTICLE IV
PATENT RIGHTS
-------------
4.1 DIVERSA to Maintain Patent Rights - DIVERSA shall have the obligation and
be responsible at its own cost and expense for prosecuting the patent
applications in Patent Rights for maintaining and extending those Patent
Rights for the term of this License. DIVERSA shall use good faith efforts
to prosecute, issue and maintain all Patent Rights.
DIVERSA shall supply DOW with a copy of all Patent Rights applications,
their published texts, and issued patents. Where available a translation
into English shall be provided.
4.2 Joint Patent Rights -
In those instances where joint inventors (as defined by 35 U.S.C. et seq.)
between DOW (or its Affiliate) and DIVERSA (or its Affiliate) result in a
patentable invention, then DOW and DIVERSA shall mutually determine, using
their good faith efforts:
(a) whether DOW or DIVERSA shall file a patent application;
(b) whether the patent application has joint ownership and joint
claim structure; and
(c) which Party should prosecute the patent application and pay the
annuities.
Thus DOW shall have joint ownership rights to such Joint Patent Rights in
accord with Article II. If either Party desires exclusive rights to Joint
Patent Rights, then such Party must notify the other and both Parties shall
negotiate in good faith. Should such joint inventorship arise, then the
Parties shall discuss in good faith how the costs are shared, which Party
should file the Joint Patent Rights, where the Joint Patent Rights should
be
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filed, and, if term extension or restoration is available, who should
extend the patent. DIVERSA shall use its reasonable good faith efforts to
obtain the Joint Patent Rights and secure the broadest scope reasonably
possible in view of the commercial intent of DOW.
Each Party shall supply the other Party with a copy of all joint patent
applications, their published texts, and issued patents included in the
Joint Patent Rights under its control and their official actions and shall
advise the other Party on the content of any responses. Where available a
translation into English shall be provided.
4.3 Notice of Patent Lapse of Patent Rights and Joint Patent Rights -DIVERSA
shall promptly advise DOW of the grant, lapse, nullification, revocation,
surrender, or invalidation of any of the Patent Rights and Joint Patent
Rights under its control at least in advance of any abandonment to enable
DOW to assume that prosecution, at DOW's expense, should DOW not agree to
such abandonment. If under these facts, DOW succeeds in issuing the Patent,
then patent costs shall be credited against royalty payments. DOW shall
promptly advise DIVERSA of the grant, lapse, nullification, revocation,
surrender, or invalidation of any of the Joint Patent Rights under its
control at least in advance of any abandonment to enable DIVERSA to assume
that prosecution, at DIVERSA's expense, should DIVERSA not agree to such
abandonment.
4.4 Validity, Non-Infringement - DIVERSA does not warrant that the manufacture,
use and sale of Licensed Products do not fall within the scope of Third
Party patents or the industrial property rights of a Third Party. However,
to the best of DIVERSA's knowledge, information and belief, that as of the
Royalty Bearing Product Classification, the [****] for the [****] does not
fall within the scope of Third Party patents which are not owned or
licensed by DIVERSA.
4.5 Disclaimer of Warranties as to Patent Rights - Other than as stated in
Section 4.4, DIVERSA makes no representation that the inventions covered in
any Patent Rights are patentable or that the Patent Rights are or will be
valid or enforceable, nor does DIVERSA warrant or represent that the
exercise of the rights licensed hereunder is free of infringement of patent
rights of Third Parties.
4.6 Hold Harmless - [****] agrees to hold [****] harmless for patent
infringement under [****]
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which may be [****] under this License so long as this License is in effect
and is not terminated.
4.7 Cooperation - DIVERSA and DOW shall use good faith efforts to cooperate
with respect to any issues that concern the development of the Licensed
Product under this License. DOW is aware that competition in the Territory
is likely if no Patent Rights or Joint Patent Rights exist or are obtained,
and DOW accepts this License with that knowledge. DIVERSA shall promptly
inform DOW of any references of which DIVERSA becomes aware which might
significantly impact the scope of the Patent Rights or Joint Patent Rights
or dominate Patent Rights or Joint Patent Rights.
4.8 Patent Rights Issues - DOW [****] owes DIVERSA under Article III for
Royalty Bearing Products made using Licensed Products [****] DIVERSA agrees
that it [****]
4.9 Country list for Global Filing Issues - DIVERSA shall file all Patent
Rights at least in the US and PCT [****]
4.10 DOW technology and patents - DOW may develop and patent technology in the
Field or Areas of Interest during this License. DOW does not need to pay
any royalty to DIVERSA on such technology or patents unless it is dominated
by any DIVERSA patents. [****]
ARTICLE V
CONFIDENTIALITY
---------------
5.1 Efforts - Each Party shall use good faith efforts to retain in confidence
and not disclose to any Third Party each other's Confidential Information
*Confidential Treatment Requested
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disclosed pursuant to the terms of this License. Such "good faith efforts"
shall mean the same degree of care, but no less than a reasonable degree of
care, as the receiving Party uses to protect its own Confidential
Information of a like nature. All Confidential Information initially
received in a non-written form shall be reduced to writing within thirty
(30) days by the disclosing Party and such writing provided to the
receiving Party. The receiving Party shall not be obligated if such writing
is not received timely. DOW shall continue to use the same good faith
efforts with respect to the DIVERSA Confidential Information already in its
possession under the Agreement. Each Party may use Confidential Information
of the other Party only to the extent required to accomplish the purposes
of this License.
5.2 Notwithstanding the provisions of Section 5.1, if the receiving Party
becomes legally compelled to disclose any of the disclosing Party's
Confidential Information, the receiving Party shall promptly advise the
disclosing Party of such required disclosure in order that the disclosing
Party may seek a protective order confidential treatment or such other
remedy as the disclosing Party may consider appropriate in the
circumstances. The receiving Party shall disclose only that portion of the
Confidential Information which it is legally required to disclose. Such a
disclosure shall not release the receiving Party with respect to the
Confidential Information so disclosed except to the extent of permitting
the required disclosure.
5.3 Disclosure to Affiliates, Contractors - DOW may disclose Confidential
Information to its Affiliates, sublicensees, consultants, contractors
(parties under contract with DOW for the custom manufacturing or shipping
of Royalty Bearing Product or obtention of registration in the Territory),
as may be necessary to exercise the rights granted hereunder and to
register and prepare for commercialization of Royalty Bearing Product, and
to commercialize Royalty Bearing Product under this License, under
conditions of confidentiality at least as stringent as those set out in
Article V.
5.4 Survival of Confidentiality - Termination of this License for any reason
shall not relieve the Parties of their obligations under Article V. The
provisions of Article V shall survive termination of this License for ten
(10) years.
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ARTICLE VI
ASSIGNMENT
----------
6.1 DOW - DOW shall have the right to assign its rights in this License (or any
part hereof) to an Affiliate: provided, however, that DOW shall continue to
be responsible for the obligations of any such Affiliate. DOW may assign
its rights hereunder in connection with the transfer or sale of all or
substantially all of the business of DOW to which this License relates,
whether by merger, sale of stock, sale of assets or otherwise.
6.2 DIVERSA - DIVERSA shall have the right to assign its rights in this License
(or any part hereof) to an Affiliate: provided, however, that DIVERSA shall
continue to be responsible, using its reasonable best efforts, for the
obligations of any such Affiliate, including honoring the terms of this
License. DIVERSA may assign its rights hereunder in connection with the
transfer or sale of all or substantially all of the business of DIVERSA to
which this License relates, whether by merger, sale of stock, sale of
assets or otherwise.
ARTICLE VII
THIRD PARTY INFRINGEMENT CLAIMS
-------------------------------
7.1 Defense of Third Party Patent Claims - If a claim is brought by a Third
Party that the manufacture, use or the sale of a Royalty Bearing Product in
the Territory (regardless of use) infringes a patent of such Third Party,
DOW will give prompt written notice to DIVERSA of such claim if it concerns
Patent Rights or Joint Patent Rights. The Parties shall confer in accord
with Section 7.2.
7.2 Mutual Decisions - From the Effective Date and using their good faith
efforts, DIVERSA and DOW shall discuss any claim or suit brought by a Third
Party for patent infringement and mutually evaluate whether that Third
Party's patent is infringed by the manufacture, use or sale of Royalty
Bearing Product by DOW or its Affiliates in the Territory. Specifically,
DIVERSA and DOW shall mutually try to agree on:
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(a) the strategy for such suit or claim, e.g. whether to negotiate
a settlement, sue or withdraw selling Royalty Bearing Product
from the country in the Territory in which infringement is
claimed;
(b) the basis to be determined for sharing the costs of litigation,
damages awarded, and royalty to be paid to the Third Party.
[****].
(c) which Party should conduct the defense or if both DIVERSA and
DOW should jointly defend; and the consequences of such
decisions, such as amendment to this License with regard to
royalties due to DIVERSA.
7.3 Third Party License - The Parties shall use their good faith efforts
(either individually or together) to [****]. As of the Royalty Bearing
Product Classification, DIVERSA is not aware of the need for any such Third
Party license.
ARTICLE VIII
PATENT ENFORCEMENT & LITIGATION
-------------------------------
8.1 Prosecution by DIVERSA -
8.1.1 DIVERSA, at its sole discretion, may take action on its own behalf
and expense to institute any action or proceeding by reason of
infringement of any of the Patent Rights related to a Royalty
Bearing Product. If either Party learns of any infringement of
Patent Rights by a Third Party, it shall promptly notify the other
Party. DIVERSA shall have the first right, at its own expense, to
prosecute all litigation against a Third Party infringer. DOW shall
provide all reasonable cooperation, including [****] required to
prosecute such litigation. DOW shall be consulted concerning the
litigation. DIVERSA gets to [****].
8.1.2 If the possible infringement concerns a Licensed Product for the
Research Target that is [****] then DIVERSA shall [****] and removal
from the market place of all infringing
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Third Party products. DIVERSA will bear the costs and shall be
entitled to any recovery obtained from such litigation, settlement
or compromise thereof. If DIVERSA elects not to take action for such
infringement, then DOW may do so at DOW's expense and shall be
entitled to any recovery obtained from such litigation, settlement
or comprise thereof and DOW retains all damages received.
8.1.3 If the infringement of the Licensed Product is in areas that are
[****] then DIVERSA shall [****]
8.1.4 If a Patent Right is finally declared invalid or unenforceable in a
judicial or administrative proceeding from which no appeal is or can
be taken, then from and after that date with respect to that Patent
Right in that country of the Territory, [****] If no other Patent
Right is providing protection in that country of the Territory, then
[****]
8.2 Neither Party Defends - If neither DIVERSA nor DOW will defend the Patent
Rights in a particular country in the Territory, then for that Patent
Rights in that country the royalty under Article III is [****] upon that
decision.
8.3 Joint Patent Rights Suits - If the litigation concerns Joint Patent Rights,
then both DIVERSA and DOW shall mutually work together and divide equally
any recovery, but each shall pay their own costs.
8.4 Settlement - Any settlement of an infringement suit, whether brought by DOW
or by DIVERSA, shall be subject to the consent of both Parties, which
consent shall not be unreasonably withheld.
8.5 Cooperation - Each Party shall cooperate with the other Party to the extent
reasonably requested in any legal action:
(i) brought by a Third Party against one Party; or
(ii) brought by a Third Party against both Parties; or
(iii) taken against a Third Party by either Party regarding Patent Rights
or Joint Patent Rights in the Field in the Territory, and each Party
shall have the right to participate in any defense, compromise or
settlement to the extent that, in its judgment, it may be prejudiced
thereby.
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In addition, DOW shall not settle any claim or suit in any manner that
shall adversely affect any Patent Rights or Joint Patent Rights, require
any payment by DIVERSA or reduce the royalty due to DIVERSA hereunder
without the prior written consent of DIVERSA.
ARTICLE IX
EXPORT CONTROL AND GOVERNMENT REGULATIONS
-----------------------------------------
9.1 Compliance by DIVERSA - DIVERSA agrees to comply with all governmental
regulations for shipping Improved Enzyme, whether in vivo or in vitro, to
DOW or any regulation for safety of the culture.
9.2 Compliance by DOW - DOW agrees to comply with all necessary United States,
European and other country's governmental regulations in the Territory with
respect to export of Know-How and any Royalty Bearing Product. DOW agrees
to not export or re-export any Know-How or Royalty Bearing Product received
from DIVERSA or the direct products of such technology to any prohibited
country listed in the U.S. Export Administration Regulations (15 C.F.R.
(S)700 et seq.) unless properly authorized by the U.S. Government.
9.3 Clearances - DOW agrees to obtain all necessary clearances from any
government in the Territory for export or re-export with respect to the
Know-How or Royalty Bearing Product.
ARTICLE X
PRODUCT LIABILITY AND INDEMNIFICATION
-------------------------------------
10.1 Indemnity by DIVERSA - DIVERSA shall indemnify and hold DOW, its agents,
directors, officers, employees and Affiliates harmless from and against any
and all liabilities, claims, demands, damages, costs, expenses or money
judgments (including reasonable attorneys' fees and expenses) incurred by
or rendered against any of them for personal injury, sickness, disease or
death or property damage which directly arise out of:
(a) the intentional misconduct or negligence of DIVERSA; or
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(b) the breach by DIVERSA of its representations, warranties or
agreements given in this License; or
(c) any activity carried out with Licensed Product by DIVERSA other than
through DOW and its Affiliates under this License or other written
agreements between the Parties;
provided, however, that DOW shall give DIVERSA notice in writing as soon as
practicable of any such claim or lawsuit and shall permit DIVERSA to
undertake the defense thereof (including the right to settle the claim
solely for monetary consideration)at DIVERSA's expense. However,
(i) DOW will cooperate in such defense by providing access to
witnesses and evidence available to it. DOW shall have the
right to participate in any defense to the extent that in its
judgment, DOW may be prejudiced thereby; and
(ii) in any claim or suit in which DOW seeks indemnification by
DIVERSA, DOW shall not settle, offer to settle or admit
liability or damages in any such claim or suit without the
prior written consent of DIVERSA.
10.2 Indemnity by DOW - DOW shall defend, indemnify and hold DIVERSA and its
Affiliates, and their respective agents, directors, officers, and employees
harmless from and against any and all losses, liabilities, claims, demands,
damages, costs, expenses or money judgments (including reasonable
attorneys' fees and expenses) incurred by or rendered against any of them
for personal injury, sickness, disease or death or property damage which
arise out of
(i) the [****] of Royalty Bearing Product by DOW or its Affiliates,
except for those instances provided in Section 10.1 for which DIVERSA
is obligated to indemnify DOW; or
(ii) the breach by DOW of any of its representations, warranties or
covenants contained in this License or any agreement contemplated by
the terms of this License; or
(iii) the intentional misconduct or gross negligence of DOW;
provided, however, that DIVERSA shall give DOW notice in writing in accord
with Article XV as soon as practicable of any such claim or lawsuit and
shall permit DOW to undertake the defense thereof at DOW's expense.
However,
(i) DIVERSA will cooperate in such defense by providing access to
witnesses and evidence available to it. DIVERSA shall have the right
to participate in any defense to the extent that in its judgment,
DIVERSA may be prejudiced thereby; and
(ii) In any claim or suit in which DIVERSA seeks indemnification by DOW,
DIVERSA shall not settle, offer to settle or admit liability or
damages in any such claim or suit without the prior written consent
of DOW.
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ARTICLE XI
WARRANTY AND DISCLAIMER
-----------------------
11.1 Belief of Accuracy - DIVERSA represents that the [****] and any [****]
transferred or provided to DOW hereunder are believed to be accurate and
complete as of their then current status at DIVERSA at the date when the
Licensed Product is added to Appendix C or D or as of the Effective Date
and that DIVERSA's interpretations and conclusions drawn therefrom were
made in good faith and in the exercise of DIVERSA's scientific judgment as
of the dates of the documents contained therein, and that to the best of
DIVERSA's knowledge, data subject to regulations is in compliance with such
regulations.
11.2 Reliance - DOW represents that it will be solely relying on its own
evaluation of the Licensed Product and the other Confidential Information
transferred or provided to it hereunder and on its scientific expertise in
using the same in its development and commercialization of Royalty Bearing
Product.
11.3 Mutual Representations - DIVERSA and DOW each represents and warrants as
follows:
11.3.1 Organization - It is a corporation duly organized, validly existing
and is in good standing under the laws of the jurisdiction of its
incorporation, is qualified to do business and in good standing as
a foreign corporation in each jurisdiction in which the performance
of its obligations hereunder requires such qualification and has
all requisite power and authority, corporate or otherwise, to
conduct its business as now being conducted, to own, lease and
operate its properties and to execute, deliver and perform this
License.
11.3.2 Authorization - The execution, delivery and performance by it of
this License have been duly authorized by all necessary corporate
action and do not and will not: (a) require any consent or approval
of its stockholders or (b) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to
it or any provision of its charter documents.
11.3.3 Binding Agreement - This Agreement is a legal, valid and binding
obligation of it, enforceable against it in accordance with its
terms and conditions.
*Confidential Treatment Requested
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11.3.4 Warranty Disclaimer - EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS License, NEITHER Party MAKES ANY REPRESENTATION OR WARRANTY OF
ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO ANY Confidential
Information, Patent Rights, Know-How, Improved Enzymes, Licensed
Products, OR OTHER TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER
SUBJECT MATTER OF THIS License AND HEREBY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-
INFRINGEMENT, OR VALIDITY OF TECHNOLOGY OR PATENT CLAIMS, ISSUED OR
PENDING, WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
11.3.5 Limited Liability - EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER
DIVERSA NOR DOW WILL BE LIABLE TO THE OTHER PARTY WITH RESPECT TO
ANY SUBJECT MATTER OF THIS License UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (i) ANY
SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR
LOST PROFITS OR (ii) COST OF PROCUREMENT OF SUBSTITUTE GOODS,
TECHNOLOGY OR SERVICES.
ARTICLE XII
TERM AND TERMINATION
--------------------
12.1 Term - Unless terminated under the provisions of this Article XII, this
License shall continue in full force and effect until the expiration of the
last to expire Patent Rights and Joint Patent Rights listed on Appendices A
and B, subject to the survivorship clause Section 12.7.
12.2 [****]
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12.3 Termination by DOW - DOW may surrender and terminate this License on three
(3) months written notice to DIVERSA, either for specific Royalty Bearing
Products or this License as a whole. DOW will disclose to DIVERSA its
reasons for any such termination. It is understood that upon evaluation
for commercialization some Royalty Bearing Products may be re-designated
as Licensed Products and also that some Licensed Products may be re-
designated as Improved Enzymes.
12.4 Termination by DIVERSA - DIVERSA shall have the further right to terminate
this License immediately, but separately on each Royalty Bearing Product,
on written notice to DOW if:
(a) DOW shall cease to carry on business or a receiver shall be
appointed to DOW's assets; or
(b) DOW fails to meet any of its payments in accord with Article III;
however, DOW shall be entitled to a period of sixty (60) days from
the delivery of a notice of failure to pay in which to remedy or to
undertake to remedy the same; or
(c) DOW breaches any material provision (e.g., Sections 2.2 and 2.4) of
this License and has not cured such breach within thirty (30) days
after written notice thereof by DIVERSA.
12.5 On Termination - DOW shall, upon termination of this License by DIVERSA
under Section 12.4, termination by DOW under Section 12.3, or termination
by either Party under Section 12.8:
(a) pay to DIVERSA all payments and royalties due or accrued at the
termination date within thirty (30) days after termination; and
(b) make no further use of any kind of any and all Know-How and
Confidential Information of DIVERSA disclosed hereunder by DIVERSA,
except to the extent such information has become public knowledge
other than through fault of DOW, and make no further use of the
surviving Patent Rights.
12.6 Effect of Termination.
(a) Upon termination of this License, all rights to the DIVERSA
Intellectual Property as defined in the Agreement shall revert to
DIVERSA; and
(b) Within thirty (30) days following the termination of this License,
but separately on each Royalty Bearing Product, each party shall
return to the other Party, or destroy, upon the written request of
the other Party, any and all Confidential Information of the other
Party in its possession; and
(c) Expiration or termination of this License shall not relieve the
Parties of any obligation accruing prior to such expiration or
termination.
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12.7 Survival of [****] - On termination of this License: the obligations of
confidentiality set forth in Article V shall survive for the time stated
therein; Export Control compliance set forth in Article IX shall survive;
and the indemnification obligations set forth in Article X and third party
infringement claims set forth in Article VII shall also survive as to all
claims or actions arising from events which occurred before termination.
Article XIV shall survive termination of this License so long as any
disputes arising prior to such termination exist.
12.8 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 60 days of the filing thereof, then the other Party may, at its
sole election upon notice to the Insolvent Party, terminate this License
by written notice under Section 15.1.
All rights and licenses granted under or pursuant to this License shall be
deemed to be, for purposes of Section 365(n) of the US Bankruptcy Code,
licenses or rights to "intellectual property" as defined under Section
101(52) of the US Bankruptcy Code. The Parties agree that each Party, as a
licensee of such rights under this License, shall retain and may fully
exercise all of its rights and elections under the US Bankruptcy Code,
subject to performance by the licensee of its preexisting obligations
under this License.
ARTICLE XIII
FORCE MAJEURE
-------------
13.1 Event of Force Majeure - In the event that performance under this License,
or any obligation hereunder, is hindered, delayed or prevented by reason
of acts of God, strikes, lockouts, labor troubles, intervention of any
governmental authority, fire, riots, insurrections, invasions, war or
other reason of similar nature beyond the reasonable control of the Party
and are without its fault or negligence, then performance of that act
shall be excused for the period of the delay and the period for the
performance of that act shall be extended for an equivalent period.
13.2 Notification. Upon occurrence of an event of force majeure, the affected
Party shall promptly notify the other Party in writing, setting forth the
nature of the occurrence, its expected duration and how that Party's
performance is affected.
*Confidential Treatment Requested
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The affected Party shall resume the performance of its obligations as soon
as practicable after the force majeure event ceases.
ARTICLE XIV
DISPUTE RESOLUTION
------------------
14.1 Choice of Law - This License shall be governed by the laws of the State of
Delaware, excepting its conflict of laws principles, in all respects of
validity, construction and performance, except that all questions
concerning the construction, validity, coverage or infringement of Patent
Rights or Joint Patent Rights shall be decided in accordance with the
patent law of the country where the patent was granted.
14.2 Disputes - Both Parties shall make good faith efforts to resolve any
questions concerning construction and performance under this License,
excluding Patent Rights and antitrust issues, by:
14.2.1 Notice, contact and negotiation, all proceedings and documents in
English, between the Parties listed under Article 15.1 within one
hundred twenty (120) days from the date of the notice by
negotiation either by telephone or by meeting in Denver, CO; and
14.2.2 If unsuccessful under Article 14.2.1, then senior executive
management with settlement authority and counsel of DOW and
DIVERSA shall meet at a mutually agreeable location within sixty
(60) days from a date of notice that Article 14.2.1 failed to
resolve the issues. Counsel shall present the legal and factual
arguments to such executives in English, with supporting evidence
if necessary, and resolution by these executives is expected
within ten (10) days, which may be reduced to writing in English
as an amendment to this License; and
14.2.3 If such executives have not met or resolved the issues under
Article 14.2.2, then within seventy five (75) days from the date
of the notice under Article 14.2.1, the Parties shall submit the
issues to mediation in Chicago, IL, in English, in accordance with
the Rules of the American Arbitration Association ("AAA"), which
may be modified by the Parties, and judgment shall not be binding.
The Parties agree that the following procedures shall be adhered
to even though they may, in part, not be in full conformance with
said Rules:
(a) Three Mediators shall be selected from a list of at least 20
arbitrators selected by the AAA composed of counsel with
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chemistry, molecular biology or pharmaceutical expertise who are
practicing or retired partners in law firms or in-house corporate
counsel not affiliated with the Parties with at least 15 years of
experience in law and knowledge of the pertinent laws of any country
relevant to the dispute. The mediation proceedings and reports shall
be in English. The time from the beginning of submission for
mediation and conclusion of any oral or written proceedings shall not
exceed six (6) months; and
(b) Limited discovery to only that which each Party has a substantial,
demonstrable need, and shall be conducted in the most expeditious and
cost-effective manner. The Mediators shall resolve any issues with
regard to the discovery. Decision by the Mediators shall be given in
writing within thirty (30) days from the end of oral proceedings; and
(c) The decision by the Mediators is binding, but should either Party
then need to have a Court of competent jurisdiction for the Parties
enforce the decision, either Party may introduce into court the
decision reached by Mediation with its supporting evidence.
ARTICLE XV
NOTICES
-------
15.1 Official -Any notice, request or communication specifically provided for
or permitted to be given under this License must be in writing and may be
delivered by hand delivery, overnight courier service, or electronic
transmission such as facsimile, and shall be deemed effective as of the
time of actual delivery thereof to the addressee. For purposes of notice
the addresses of the Parties shall be as follows:
If to DIVERSA:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, California 92121
Attention: Jay M. Short, PhD
Chief Executive Officer
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Telephone: 619-623-5135
Facsimile: 619-623-5180
With a copy to:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, California 92121
Attention: Carolyn Erickson
Director, Intellectual Property
Telephone: 619-623-5104
Facsimile: 619-453-9133
If to DOW:
The Dow Chemical Company
Patent Department
1790 Building, Washington Street
Midland, Michigan 48674
Attention: Karen L. Kimble
Senior Counsel
[****]
*Confidential Treatment Requested
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15.2 Development Issues - For purposes of commercial development reporting, the
addresses of the Parties shall be as follows:
If to DIVERSA:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, California 92121
Attention: Jay M. Short, PhD
Chief Executive Officer
Telephone: 619-623-5135
Facsimile: 619-623-5180
If to DOW:
The Dow Chemical Company
1707 Building, Washington Street
Midland, Michigan 48674
Attention: William Dowd
Biomaterials Platform Director
[****]
ARTICLE XVI
MISCELLANEOUS PROVISIONS
------------------------
16.1 Amendments - This License may be amended only in writing executed by both
Parties.
16.2 Entirety of Agreement - This License together with the Agreement sets
forth the entire agreement and understanding between the Parties hereto
with respect to the commercialization of Royalty Bearing Products in the
Territory.
16.3 Severability - If any term or provision under this License is deemed
invalid under the laws of a particular country or jurisdiction, the
invalidity shall not invalidate
*Confidential Treatment Requested
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the whole License but it shall be construed as if not containing that
particular term or provision and the rights and obligations of the Parties
shall be construed and enforced accordingly. The Parties shall negotiate
in good faith a substitute provision in compliance with the law to as
nearly as possible retain the Parties intent in legally valid language.
16.4 Waivers, Cumulative Remedies - A waiver by either Party of any term or
condition of this License in any one instance shall not be deemed
construed to be a waiver of such term or condition for any similar
instance in the future or of any subsequent breach hereof. All rights,
remedies, undertakings, obligations and agreements contained in this
License shall be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of either Party.
16.5 Headings - Headings in this License are included herein for ease of
reference and shall not affect the meaning of the provisions of this
License, nor shall they have any other legal effect.
16.6 Other Documents - Each Party agrees to execute such additional papers or
documents in customary legal form and to make such governmental filings or
applications as may be necessary or desirable to effect the purposes of
this License and carry out its provisions.
16.7 Publicity - Neither DOW nor DIVERSA shall make the financial terms of this
License public, except as required by law or by mutual consent. Either
Party may make such disclosure of the existence of this License to its
attorneys, advisors, investors, prospective investors, leaders and other
financing sources, under circumstances that reasonably ensure
confidentiality. In the event that a filing of a copy of this License with
the US Securities and Exchange Commission is required, then DIVERSA shall
seek confidential treatment of information considered confidential by DOW
and shall redact the financial and as much other information as possible.
Any press release or publicity of this License shall be reviewed and
approved by both Parties prior to any release. It is expected that a Q&A
outline for use in responding to inquires about this License shall be
prepared and used by both Parties. Thereafter both Parties may disclose
the information contained in such press release and Q&A outline without
the need for further approval. In no event shall the financial terms of
this License be publicly disclosed, except as note in the first paragraph
of Section 16.7.
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In addition, DIVERSA may make public statements regarding the Licensed
Products by announcing in general terms that DOW has exercised its license
to them.
16.8 Interpretation - DOW and DIVERSA acknowledge and agree that: (i) each
Party and its counsel reviewed and negotiated the terms and provisions of
this License and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting Party shall not be employed in the interpretation of this
License; and (iii) the terms and provisions of the License shall be
construed fairly as to all Parties hereto and not in favor of or against
any Party, regardless of which Party was generally responsible for the
preparation of this License.
16.9 Counterparts - This License may be executed simultaneously in two (2) or
more counterparts, each of which shall be deemed an original.
16.10 No Agency or Partnership - Nothing contained in this License shall give
either Party the right to bind the other Party, or be deemed to constitute
either Party as an agent for the other Party or as a partner with the
other Party or any Third Party.
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IN WITNESS WHEREOF, the Parties have caused this License to be executed in
duplicate originals as of the last signature date below, by their duly
authorized representatives. This License is intended to be signed concurrently
with the Agreement and shall not be effective until the Agreement has also been
executed by both Parties. Such License may be subject to management and/or Board
approval by each Party. Upon signature such Board approval is indicated to have
been obtained.
DIVERSA CORPORATION THE DOW CHEMICAL COMPANY
By ________________________ By_________________________________
Name Jay M. Short, PhD Name Fernand Kaufmann
Title Chief Executive Officer Title Vice President
New Businesses and
Strategic Development
Date__________________________ Date______________________________
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Appendix A-3
------------
Diversa Patent Rights [****]
[****]
*Confidential Treatment Requested
<PAGE>
Appendix E
Royalty Bearing Product Classification
Product Classifications:
The Royalty Bearing Product shall be classified according to the following
definitions:
. [****]
. [****]
. [****]
*Confidential Treatment Requested
<PAGE>
Appendix F
----------
Royalty Schedule
[****]
[****]
[****]
[****]
[****]
[****]
*Confidential Treatment Requested
<PAGE>
[****]
[****]
[****]
[****]
<PAGE>
OPTION AGREEMENT
THIS option agreement (hereinafter "OPTION") is made between THE DOW CHEMICAL
COMPANY (hereinafter "DOW" or a "Party"), a corporation duly formed and existing
under the laws of the State of Delaware, having a place of business at 2030 Dow
Center, Midland, Michigan 48674, United States of America, and Recombinant
BioCatalysis Inc. (hereinafter "RBI" or a "Party"), a corporation duly formed
and existing under the laws of Delaware, having a place of business at 10665
Sorrento Valley Road, San Diego, CA 92121;
WITNESSETH:
WHEREAS, DOW possess an enzyme for use in a recycle process or with a reaction
coproduct produced by DOW; and
WHEREAS, DOW has proprietary rights in this enzyme and desires that the enzyme
be improved; and
WHEREAS, RBI desires to undertake the further evaluation of this enzyme under
the terms of this OPTION and, if RBI is able to improve on this enzyme, RBI is
willing to grant DOW an exclusive or non-exclusive license to such improvements;
WHEREAS, DOW desires to obtain an exclusive or non-exclusive, global license to
this improved enzyme; and
WHEREAS, RBI desires to supply DOW with such improved enzyme.
NOW, THEREFORE, DOW and RBI, in consideration of the mutual covenants contained
herein, agree as follows:
ARTICLE 1 - DEFINITIONS
When used in this OPTION, the following terms shall have the meanings set out
below, unless the context requires otherwise. The singular shall be interpreted
as including the plural and vice versa, unless the context clearly indicates
otherwise.
1.1 "AFFILIATE" means a corporation or any other entity that at any time during
the term of this OPTION directly or indirectly through one or more
intermediaries is CONTROLLED by the designated Party, but only for so long
as the relationship exists. A corporation or other entity shall no longer
be an AFFILIATE when through loss, divestment, dilution or other reduction
of a Party's ownership, the Party loses CONTROL of such corporation or
other entity.
1.2 "CANDIDATE ENZYMES" means those ENZYMES which meet the criteria of
exhibiting initial hydrolysis rates (Vmax) significantly higher than the
wild type (wt) recombinant ENZYME [*****].
*Confidential Treatment Requested
<PAGE>
[****]
1.3 "CDA" means a Confidential Disclosure Agreement between the Parties
effective August 27, 1996, a copy attached hereto as Appendix E.
1.4 "CONFIDENTIAL INFORMATION" means any proprietary information of a Party
that is submitted to the other Party hereunder, including, but not limited
to PATENTS, JOINT PATENTS, ENZYME, sample of ENZYME, TECHNOLOGY, the FIELD,
financial terms of this OPTION, business information of RBI or DOW and
business development plans for an ENZYME.
1.5 "CONTROL" or "CONTROLLED" shall mean, in the case of a corporation,
ownership or control, directly or indirectly, of more than fifty percent
(50%) of the shares of stock entitled to vote for the election of directors
and, in the case of an entity other than a corporation, ownership or
control, directly or indirectly, of more than 50% of the assets or the
ability in the case of either a corporate or non-corporate entity to direct
the management and affairs of such entity.
1.6 "EFFECTIVE DATE" means June 30,1997.
1.7 "ENZYME" means any enzyme supplied by DOW to RBI for use under this OPTION
in the FIELD, including TECHNOLOGY such as its amino acid or DNA sequence,
or expression system; and any improvements to such enzyme (e.g., where the
productivity of the enzyme is increased and/or where the product inhibition
is lowered) when done by RBI.
1.8 "EVOLVED ENZYMES" means those ENZYMES which meet the criteria of exhibiting
initial hydrolysis rates at least 6-fold that of the wild type (wt)
recombinant ENZYME for a multiply halogenated organic molecule in aqueous
buffer in the presence of the product as an inhibitor. Kinetically, an
EVOLVED ENZYME is characterized as having a Vmax (at 100 mM of product) >
-
6.0 times Vmax (recombinant ENZYME at 0 mM of product).
1.9 "FIELD" means the use of ENZYME in a recycle process or with a reaction
coproduct produced by DOW where the ENZYME [*****].
1.10 "IMPROVED ENZYMES" means those ENZYMES which meet the criteria of [*****].
1.11 "LETTER OF INTENT" means the agreement signed between DOW and RBI,
effective May 27, 1997, a copy attached hereto for reference as Appendix A.
*Confidential Treatment Requested
<PAGE>
1.12 "LICENSE" means a license agreement contemplated under Section 5.2 to be
granted by RBI to DOW if, by no later than the end of the OPTION TERM, DOW
notifies RBI in writing of its desire to exercise its rights to obtain a
license.
1.13 "JOINT PATENTS" means those PATENTS in the FIELD which are jointly owned by
and have claims present by employees of both DOW and RBI during the term of
this OPTION and, if they exist, shall be listed in Appendix B, which shall
be reviewed and updated [*****], to be attached hereto and made a part
hereof.
1.14 "OPTION TERM" means until December 1, 1998 for an exclusive LICENSE and
until January 31, 1999 for a non-exclusive LICENSE, unless extended in
writing by the Parties.
1.15 "PATENTS" means all patent applications and patents to which RBI has rights
which claim improvements to the ENZYME made by RBI (or other inventions,
including but not limited to, apparatus, made by RBI in the course of
performing work under the RESEARCH PLAN) during this OPTION TERM, together
with any continuations, continuations-in-part, divisions, reissues,
registrations, confirmations, patents-of -addition, and extensions of the
foregoing, which claims cover the preparation, use or per se ENZYME in the
TERRITORY, which shall be listed in Appendix C (such patents to be mutually
agreed upon to be listed if regarding other inventions), to be attached
hereto and made a part hereof, and reviewed and updated annually as of the
EFFECTIVE DATE.
1.16 "PRODUCTIVITY ENZYMES" means those ENZYMES which meet the criteria of
exhibiting at least [*****].
1.17 "RESEARCH PLAN" means a mutually agreed upon plan for RBI to perform
research activities to improve ENZYME for commercial use to achieve TARGET
ACTIVITY in the FIELD during the OPTION TERM in accord with Appendix D,
attached hereto and made a part hereof.
1.18 "SIGNATURE DATE" means the date of the last signature of the Parties to
this OPTION.
1.19 "TARGET ACTIVITY" refers to the Milestone [*****] target for the [*****].
It is determined at the [*****] and projected from the Milestone 2 data to
be sufficient for a [*****]. It is defined in terms of [*****].
*Confidential Treatment Requested
<PAGE>
1.20 "TECHNOLOGY" means data for ENZYME, including for example physical
properties, DNA sequence, Vmax and Ki and process to make them
1.21 "TERRITORY" means the world.
ARTICLE 2 - GRANT OF OPTION
2.1 Grant of OPTION - RBI hereby grants to DOW, and DOW hereby accepts either:
(1) an exclusive right during the OPTION TERM to acquire an exclusive
LICENSE to make, have made, use, sell, import and have sold ENZYME(S)
for the FIELD in the TERRITORY under the PATENTS, JOINT PATENTS and
TECHNOLOGY and subject to Section 5.3; or
(2) a non-exclusive right during the OPTION TERM to acquire a nonexclusive
LICENSE to make, have made, use, sell, import and have sold ENZYME(S)
for the FIELD in the TERRITORY under the PATENTS, JOINT PATENTS and
TECHNOLOGY and subject to Section 5.3.
Whether (1) or (2) above is selected is solely DOW's choice during the OPTION
TERM.
2.2 Reservation - DOW reserves for itself and its AFFILIATES the right to do
internal research on ENZYMES (excluding any improvements to the ENZYMES
made by RBI) within the FIELD during the OPTION TERM.
2.3 Expansion of FIELD - In the event that DOW wishes to expand the FIELD at
the time of exercise of the LICENSE, the Parties agree to discuss in good
faith the proposed expansion of the FIELD and the terms therefore.
2.4 Exercise of OPTION for LICENSE - DOW may exercise its rights under Section
2.1 by providing written notice to RBI of its election under Section 2.1
(1) or (2) on or before the last day of the OPTION TERM.
ARTICLE 3 - OPTION PAYMENTS
3.1 Initial Payment for OPTION - Within fifteen (15) business days from the
EFFECTIVE DATE, DOW shall pay RBI [*****].
3.2 Additional Payments during OPTION TERM - The further payments to RBI by DOW
are tied to the achievement of milestone technical events in accord with
Article 4. DOW shall be invoiced one (1) month prior to any payment due to
RBI for each of these milestones. The payments for each milestone are:
3.2.1 Milestone 1 - [*****] - [*****], if RBI is technically successful as
defined in Article 4; plus [*****], if RBI accomplishes this Milestone
1 in less than [*****] from the date of receipt by RBI of [*****] from
DOW;
*Confidential Treatment Requested
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3.2.2 Milestone 2 - [*****] - [*****], payable within [*****] of receipt
by DOW of the ENZYME [*****] by DOW that RBI has provided DOW with
[*****] (DOW shall use its reasonable good faith efforts to conclude
such evaluation within [*****] the CANDIDATE [*****]); plus [*****],
if RBI provides DOW with [*****] CANDIDATE ENZYMES and/or [*****]
ENZYME [*****]; and
3.2.3 Milestone 3 - [*****]
(A) [*****] payable within [*****] of receipt by DOW of the ENZYME
[*****] by DOW that RBI has provided DOW [*****]; plus
(B) [*****] payable within [*****] of receipt by DOW of the ENZYME
[*****] by DOW that RBI has provided DOW [*****] ENZYME (for
both (A) and (B) of this Section 3.2.3 DOW shall use its
reasonable good faith efforts to conclude such evaluations
[*****] of the ENZYMES), plus a bonus of -
(i) [*****] if either of the criteria for (B) [*****] are met
within [*****] from the EFFECTIVE DATE, plus
(ii) [*****] if the [*****] exceeds [*****], plus
(iii) [*****] if the [*****] exceeds [*****].
It is agreed that if any of these milestones categories in Section 3.2 is
surpassed by an ENZYME providing performance at a higher category that the
payments for those surpassed categories will still be made.
The [*****].
These payments are tied to performance under the RESEARCH PLAN described in
Article 4.
3.3 Payments to RBI - All payments under this Article 3 are to be made to:
Recombinant BioCatalysis, Inc. and sent by wire transfer to:
*Confidential Treatment Requested
<PAGE>
Account Name: [*****].
ARTICLE 4 - ENZYME USE AND RESEARCH PLAN
4.1 RBI Obligations - RBI shall maintain sole physical control of the ENZYME
which shall be treated as CONFIDENTIAL INFORMATION under the terms of
Article 7 of this OPTION. RBI shall use any information provided to it by
DOW solely to improve ENZYME in the FIELD. RBI shall provide a written
report with a summary of the data to DOW on a quarterly basis or at a
milestone achievement in accord with Section 4.3 in a quarter, whichever
occurs first. (If clarification of a report is requested by DOW to more
fully understand such report, then a meeting of respective personnel is
permitted.) A final written report shall be provided of the results
obtained by RBI on its improvement efforts for the ENZYME, including its
sequence, within thirty (30) days at the end of the OPTION TERM or within
thirty (30) days upon termination.
4.2 Development Efforts - During the OPTION TERM, RBI shall perform research
activities to improve the ENZYME to achieve TARGET ACTIVITY in the FIELD in
a diligent manner as specified in Article 3 and described in detail in a
RESEARCH PLAN. Such improvement can be met by any manner acceptable to the
Parties. The ENZYME is to be improved for commercial use in a manner agreed
upon between the Parties. The RESEARCH PLAN may be amended by mutual,
written consent of the Parties. However, either Party may terminate the
research and this OPTION at any technical milestone specified in Section
4.3 for any reason; but if RBI terminates, then DOW has thirty (30) days to
notify RBI whether DOW desires either an exclusive or nonexclusive LICENSE
in accord with Section 2.1 for the ENZYME until that termination. If DOW
terminates the research and this OPTION and any of the milestones beyond
Milestone 1 have been achieved and completed in accord with each milestone
requirement in accordance with Section 4.3, then RBI shall have the rights
described in Section 5.2.3.
4.3 Milestones -
4.3.1 Milestone 1
DOW completes preliminary [*****] and defines general parameters for
the ENZYME, [*****]
RBI develops of a suitable [*****].
4.3.2 Milestone 2
*Confidential Treatment Requested
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RBI [*****] ENZYME by [*****] to obtain CANDIDATE ENZYME, transfers
to DOW the [*****] CANDIDATE ENZYMES and [*****] of each CANDIDATE
ENZYME.
DOW confirms [*****] CANDIDATE ENZYMES and evaluates their
performance attributes [*****].
(DOW and RBI scientists shall discuss the relationship between
[*****] in performance of the [*****] CANDIDATE ENZYME and
improvement in productivity of the CANDIDATE ENZYME as a supported
catalyst. After such discussions, the Parties shall mutually agree
on [*****] i.e. TARGET ACTIVITY, prior to starting Milestone 3.)
4.3.3 Milestone 3
(A) RBI increases productivity as stated in Article 3 for [*****]
ENZYMES and transfers [*****] of all such ENZYMES to DOW
together with each ENZYME's [*****]. DOW confirms [*****]
ENZYMES and evaluates their performance attributes [*****]. If
[*****] ENZYME [*****], then part (B) below shall occur.
(B) RBI [*****]as stated in Article 3 for [*****] ENZYMES and
transfers [*****] of [*****] ENZYMES to DOW together with each
ENZYME's [*****]. DOW confirms [*****] ENZYMES and evaluates
their performance attributes [*****].
4.4 RESEARCH PLAN and Payments are tied - The events under Section 4.3 for
performance under the RESEARCH PLAN are tied to payments under Article 3.
4.5 DOW Obligations - DOW shall provide the assay mentioned in Section 4.3.1,
Milestone 1, analytical information or know-how, including evaluation of
the modified ENZYME at DOW facilities, the identity of the gene for the
host interaction desired, and the DNA sequence of the gene. All information
supplied by DOW to RBI shall be treated as confidential under Article 7.
ARTICLE 5 - LICENSE TERMS
The following terms are contemplated by the Parties to be included in a LICENSE
if, by no later than the end of the OPTION TERM, DOW exercises its right to such
LICENSE.
*Confidential Treatment Requested
<PAGE>
5.1 Exercise Payment - Upon exercise of the right to a LICENSE, a payment shall
be due to RIBI depending upon whether DOW elects rights under Section 2.1
(1) or (2) as follows. If DOW elects Section 2.1 (1) for an exclusive
LICENSE, then a one time fee of Two Hundred Thousand Dollars (US$200,000)
Dollars is payable within thirty (30) days from exercise of the exclusive
LICENSE but no sooner than December 1, 1998. If DOW elects Section 2.1(2)
for a non-exclusive LICENSE, then terms shall be negotiated using
reasonable good faith efforts by the Parties by January 31, 1999.
5.2 Exercise for LICENSE - The OPTION TERM shall be for the term of the
Research Plan, including any mutually agreed upon extensions. At present
both Parties agree that the OPTION TERM for an exclusive LICENSE shall run
from the EFFECTIVE DATE until December 1, 1998 and for a nonexclusive
LICENSE until January 31, 1999. In addition, DOW has eighteen (18) months
from its receipt by DOW to evaluate the TECHNOLOGY and improved ENZYME
provided by RBI before execution of the LICENSE.
5.2.1 By the end of the OPTION TERM, DOW, at its sole discretion, may
negotiate an exclusive LICENSE to the ENZYME and gene coding for the
ENZYME in the FIELD from RBI, or purchase the ENZYME or immobilized
ENZYME from RBI or an alternate supplier in accord with Section 5.3.
Upon execution of the LICENSE, manufacturing licenses and terms of
sale for any ENZYME shall be on commercially reasonable terms,
mutually agreed upon, and shall include, without limitation,
royalties and minimum payments (as negotiated by the Parties in good
faith taking into account the value created by the respective
contributions of the Parties, e.g., monetary, scientific and capital
contributions). If DOW exercises the OPTION for a nonexclusive
LICENSE, RBI shall also have the non-exclusive right to make, have
made, use, sell, import, and have sold ENZYME for the FIELD in the
TERRITORY under the PATENTS, JOINT PATENTS and TECHNOLOGY.
5.2.2 In the event that the ENZYME is improved and DOW has had eighteen
(18) months from the time the TECHNOLOGY and improved ENZYME was
delivered to DOW in accord with Milestone 3(B) of Section 3.2.3 to
test it, and DOW then provides written notice to RBI in accord with
Section 12.1 of DOW's lack of interest in commercial use of the
improved ENZYME provided by RBI, then, RBI shall have the rights
described in Section 5.2.3.
5.2.3 RBI Rights - Under the circumstances described in Sections 4.2 and
5.2.2 and in the event that RBI terminates the OPTION in accord with
Section 10.2 upon material breach by DOW, DOW shall have no LICENSE
(but shall have the right for internal research use of ENZYME,
TECHNOLOGY, PATENTS and JOINT PATENTS) and RBI shall have all
commercial rights to make, have made, use, sell, import and have
sold ENZYME for the FIELD in the TERRITORY under the PATENTS, JOINT
PATENTS and TECHNOLOGY by notifying DOW in writing in accord with
Section 12.1 and making the following payments (at RBI's sole
option):
<PAGE>
(A) RBI shall pay DOW as a [****] fee for DOW's total investment in
the ENZYME (which fee shall be computed from the time of such
request by RBI, but in no event would be less than [****] Such
payment would be due to DOW within thirty (30) days from
invoice by DOW; or
(B) RBI agrees to pay to DOW reasonable royalty and payments for
all income received from RBI's commercialization or sale of the
TECHNOLOGY or PATENTS using the ENZYME. Such payments shall be
negotiated as an agreement by the Parties using their good
faith efforts.
RBI must elect between (A) and (B) within one hundred and eighty (180) days from
DOW's written notification of lack of interest and convey their election in
writing to DOW in accord with Section 12.1.
Any payments to DOW under this Section 5.2.3 shall be made to. The Dow Chemical
Company, and be sent by wire transfer to:
[*****].
5.3 Supply of ENZYME - In the event that the ENZYME is improved and is of
further interest to DOW and DOW exercises its rights to a LICENSE under
Section 2.1, then DOW shall have [****] from the time the improved ENZYME
is delivered in a practicable form to DOW in accord with Milestone 3(B)
under Section 4.3.3 (B) to provide written notice under Section 12.1 to RBI
of DOW's intent to either:
(A) have RBI supply the improved ENZYME commercially to DOW. If this
course is mutually agreed upon then a commercial agreement shall be
negotiated using reasonable good faith efforts by the Parties; or
(B) inform RBI that DOW will use an alternate supplier (not RBI) for the
improved ENZYME. RBI agrees to provide to a qualified third party
under appropriate, reasonable licensing terms for the industry, the
information and rights required to supply the ENZYME to DOW; or
(C) If DOW does not desire any commercial supply of the improved ENZYME,
then refer to Section 5.2.2.
5.4 DOW Evaluation - DOW has the right, during the OPTION TERM and the [*****]
evaluation period, for its purposes of evaluation only, to produce
sufficient ENZYME for its needs.
*Confidential Treatment Requested
<PAGE>
5.5 Other terms - Other customary and negotiated terms are expected to be
included in the LICENSE and are permitted.
ARTICLE 6 - PATENT RIGHTS
6.1 RBI to Maintain PATENTS - Any improvements to the ENZYME made by RBI during
this OPTION TERM shall belong to RBI, if within the claimed scope of any
PATENT. DOW shall be informed of all such PATENTS and be provided with a
copy thereof, and provided with their publication numbers or patent numbers
and each country where filing was done. If requested by DOW, a completed
file wrapper for a given application or patent shall be provided to DOW. An
annual status of the concerned PATENTS shall be provided to DOW until all
have issued or are abandoned. If DOW exercises its rights for a LICENSE,
then rights to any PATENTS shall be granted in the LICENSE for the FIELD
for the TERRITORY. If RBI obtains rights under Section 5.2.3, then such
rights shall include rights to any PATENTS for the FIELD for the TERRITORY.
6.2 Notice of Patent Lapse - RBI shall advise DOW of the grant, lapse,
nullification, revocation, surrender, or invalidation of any of the PATENTS
at the annual update of the PATENT listing for Appendix C.
6.3 JOINT PATENTS - Although unlikely to occur, in those instances where joint
inventions between DOW and RBI result in a patentable invention, then DOW
and RBI shall mutually determine, using their good faith efforts, whether
the patent application has joint ownership and joint claim structure, and
which Party should prosecute the patent application and pay the annuities.
Both Parties shall elect any countries in which filing shall be done. If
DOW exercises its rights for a LICENSE, then rights to any JOINT PATENTS
shall be granted in the LICENSE for the FIELD for the TERRITORY. If RBI
obtains rights under Section 5.2.3, then such rights shall include rights
to JOINT PATENTS for the FIELD for the TERRITORY.
6.4 TECHNOLOGY - TECHNOLOGY developed during the OPTION TERM or known as of the
LETTER OF INTENT by either Party shall remain that Party's property. Any
use by one Party of the other's TECHNOLOGY shall be under the
confidentiality provisions of Article 7.
6.5 DOW Patents - No rights are granted by DOW to RBI to use any DOW
intellectual property rights including patents (such as sole DOW patents),
trade secrets, confidential information and computer programs, except in
providing the contemplated services under the RESEARCH PLAN. If Section
5.2.3 pertains, then rights to commercial use of the JOINT PATENTS and
ENZYME are granted by DOW to RBI.
ARTICLE 7 - CONFIDENTIALITY
7.1 Each Party shall use good faith efforts to retain in confidence and not
disclose to any third party each other's CONFIDENTIAL INFORMATION. Such
"good faith efforts" shall mean the same degree of care, but no less than a
reasonable degree of care, as the receiving Party uses to protect its own
CONFIDENTIAL INFORMATION of a like nature. This obligation shall be
effective from August 29, 1996 upon the SIGNATURE
<PAGE>
DATE and shall cease five (5) years from termination of this OPTION. This
OPTION shall supersede the CDA upon the SIGNATURE DATE.
7.2 Excepted from the obligation of confidentiality under Section 7.1 is that
information which:
(a) is available, or becomes available, to the general public without
fault of the receiving Party; or
(b) is obtained by the receiving Party without an obligation of
confidence from a third party (other than a governmental agency) who
is rightfully in possession of such information and is under no
obligation of confidentiality to the disclosing Party concerning such
information; or
(c) is released from confidentiality in writing by the disclosing Party;
or
(d) is permitted to be disclosed by Section 7.4.
For the purpose of Section 7.1, a specific CONFIDENTIAL INFORMATION shall not be
deemed to be within the foregoing exceptions merely because it is embraced by
more general information in the public domain, or in the possession of the
receiving Party. In addition, any combination of features shall not be deemed to
be within the foregoing exceptions merely because individual features are in the
public domain or in the possession of the receiving Party, but only if the
combination itself and its principle of operation and process to make it are in
the public domain or in the possession of the receiving Party.
7.3 Notwithstanding the provisions of Section 7.1, if the receiving Party
becomes legally compelled to disclose any of the disclosing Party's
CONFIDENTIAL INFORMATION, the receiving Party shall promptly advise the
disclosing Party of such required disclosure in order that the disclosing
Party may seek a protective order or such other remedy as the disclosing
Party may consider appropriate in the circumstances. The receiving Party
shall disclose only that portion of the CONFIDENTIAL INFORMATION which it
is legally required to disclose. Such a disclosure shall not release the
receiving Party with respect to the CONFIDENTIAL INFORMATION so disclosed
except to the extent of permitting the required disclosure. In addition,
the receiving Party may disclose CONFIDENTIAL INFORMATION of the disclosing
Party to the extent such disclosure is reasonably necessary in connection
with the filing or prosecution of JOINT PATENTS. If DOW CONFIDENTIAL
INFORMATION is reasonably necessary to be disclosed in connection with the
filing or prosecution of PATENTS, then DOW's prior written consent must be
obtained in accord with Section 12.1.
7.4 Disclosure to AFFILIATES - RBI or DOW may disclose CONFIDENTIAL INFORMATION
to its AFFILIATES, and consultants as may be necessary to exercise the
rights granted hereunder, but only under conditions of confidentiality at
least as stringent as those set out in Sections 7.1, 7.2 and 7.3.
7.5 Document Return - In the event of termination of this OPTION under Article
10, without exercise of a LICENSE, then:
<PAGE>
(a) RBI will cease its use of the ENZYMES in accord with Section 10.3,
and
(b) each Party will cease its use of all CONFIDENTIAL INFORMATION of the
other Party provided hereunder and, on the disclosing Party's
request, within sixty (60) days either return all such CONFIDENTIAL
INFORMATION, including any copies thereof, ENZYMES in whatever media
or form, or will promptly destroy the same and certify such
destruction to the disclosing Party.
Notwithstanding the above, a Party may retain one copy of any CONFIDENTIAL
INFORMATION of the other Party in its legal files, but shall return or destroy
any DOW samples of ENZYME or ENZYME provided by the other Party. The foregoing
provisions shall not apply to RBI to the extent it exercises its rights under
Section 5.2.3.
ARTICLE 8 - U.S. EXPORT CONTROL AND GOVERNMENT LICENSES
8.1 Compliance - Both Parties agree to comply, at their expense, with all
necessary United States governmental regulations with respect to export of
ENZYMES and TECHNOLOGY in the TERRITORY. Both Parties agree to not export
or re-export any ENZYME or TECHNOLOGY received from the other or the direct
products of such TECHNOLOGY to any prohibited country listed in the U.S.
Export Administration Regulations unless properly authorized by the U.S.
Government. Each Party shall be responsible for the acts of its AFFILIATES,
contractors, and consultants and assumes all liability if it or its
AFFILIATES, fails to obtain any of the necessary licenses or commits any
violations of the United States Export Laws or Regulations (15 C.F.R.
(S)700 et seq.). Each Party shall indemnify the other for its acts and for
any breach of compliance.
8.2 Licenses and Clearances - Both Parties agree to obtain all necessary
licenses or clearances, at its expense, and to comply with all applicable
regulations of agencies in the TERRITORY.
ARTICLE 9 - WARRANTY, DISCLAIMER, GUARANTEE
9.1 Belief of Accuracy - Each Party represent that ENZYME, TECHNOLOGY and any
other CONFIDENTIAL INFORMATION transferred or provided to the other Party
hereunder are believed to be accurate and complete as of their current
status on the EFFECTIVE DATE and that each Party's interpretations and
conclusions drawn therefrom were made in good faith and in the exercise of
its scientific judgment as of the dates of the documents contained therein.
However, neither Party warrants or represents that such information is or
will be sufficient to market ENZYME or to commercially produce ENZYME, or
to commercialize ENZYME in the TERRITORY or that DOW or RBI shall be free
to practice or sell any ENZYME.
9.2 DOW Representation - DOW will be solely relying on its own evaluation of
ENZYME, TECHNOLOGY and the other CONFIDENTIAL INFORMATION transferred or
provided to it hereunder and on its own scientific expertise in using the
same in its development and evaluation of ENZYME.
<PAGE>
9.3 Validity, Non-Infringement - No warranty is provided that the manufacture,
use and sale of ENZYME falls outside the scope of third party patents or
the industrial property rights of a third party.
9.4 Disclaimer of Warranties as to PATENTS - RBI makes no representation that
the inventions covered in any PATENTS are patentable or that the PATENTS
are or will be valid or enforceable, nor does RBI warrant or represent that
the exercise of the rights hereunder is free from infringement of patent
rights of third parties.
ARTICLE 10 - TERM AND TERMINATION
10.1 Term - Unless terminated under the provisions of this Article 10, this
OPTION shall continue in effect until the end of the OPTION TERM, unless
mutually agreed upon in writing by the Parties to be extended.
10.2 Termination for Breach - In the event of a material breach by either DOW or
RBI of any of the obligations contained in this OPTION, the other Party
shall be entitled to terminate this OPTION by notice in writing under
Section 12.1, provided that such notice shall specify the breach or
breaches. If the said breach or breaches are capable of remedy, the Party
committing such breach or breaches shall be entitled to a period of sixty
(60) days from the delivery of such notice in which to remedy or to
undertake to remedy the same. In the case the defaulting Party shall fail
to remedy the breach or to undertake to remedy the breach to the
satisfaction of the injured Party, the injured Party shall have the right
to cancel this OPTION in whole or only terminate those rights and
obligations relating to the particular breach by simple notification to the
Party in default. Failure of a Party to exercise its rights under this
Section 10.2 shall not be construed as a waiver as to future breaches
whether or not they are similar.
10.3 Termination by RBI or DOW - Either Party may terminate this OPTION at the
end of any Milestone in Section 4.3 by written notice to the other. Each
will disclose to the other its reasons for any such termination. Upon such
termination, both Parties shall refrain from further use of CONFIDENTIAL
INFORMATION received from the other Party, including ENZYME, except that
this provision shall not apply to RBI if it exercises its rights under
Section 5.2.3.
10.4 Termination by DOW - DOW shall have the further right to terminate this
OPTION immediately on written notice to RBI if:
(a) RBI shall cease to carry on business or shall go into liquidation or
a receiver shall be appointed to RBI's assets; or
(b) RBI shall become bankrupt or insolvent or unable to meet any of its
performance obligations; or
(c) RBI fails to conduct testing on the ENZYMES for more than sixty (60)
days from any Milestone.
10.5 On Termination - DOW shall, upon termination of this OPTION under Article
10:
<PAGE>
(a) pay to RBI all payments due or accrued at the termination date within
thirty (30) days after termination; and
(b) make no further use of, or permit any use by any third party of any
kind of any and all ENZYMES disclosed hereunder by RBI, and make no
further use of the surviving PATENTS in the FIELD.
10.6 Survival of Certain Obligations - On termination of this OPTION: the
obligations of confidentiality set forth in Article 7 shall survive for the
time stated therein; payments due under Article 3 shall survive for the
terms specified; and Export Control compliance set forth in Article 8 shall
survive indefinitely.
ARTICLE 11 - FORCE MAJEURE
11.1 Event of Force Majeure - In the event that performance under this OPTION,
or any obligation hereunder, is hindered, delayed or prevented by reason of
acts of God, strikes, lockouts, labor troubles, intervention of any
governmental authority, fire, riots, insurrections, invasions, war or other
reason of similar nature beyond the reasonable control of the Party and are
without its fault or negligence, then performance of that act shall be
excused for the period of the delay and the period for the performance of
that act shall be extended for an equivalent period.
11.2 Notification. Upon occurrence of an event of force majeure, the affected
Party shall promptly notify the other Party in writing, setting forth the
nature of the occurrence, its expected duration and how that Party's
performance is affected. The affected Party shall resume the performance of
its obligations as soon as practicable after the force majeure event
ceases.
ARTICLE 12 - NOTICES
12.1 Official -Any notice, request or communication specifically provided for
or permitted to be given under this OPTION must be in writing and may be
delivered by hand delivery, courier service, or electronic transmission
such as telex, facsimile, or telegram, and shall be deemed effective as of
the time of actual delivery thereof to the addressee. For purposes of
notice the addresses of the Parties shall be as follows:
DOW:
The Dow Chemical Company
2030 Dow Center
Midland, Michigan
48674
USA
Attention: William Dowd
Director
Biocatalysis Laboratory
[*****]
*Confidential Treatment Requested
<PAGE>
with a copy to:
The Dow Chemical Company
Patent Department
1790 Building, Washington Street
Midland, Michigan 48674
USA
Attention: Karen L. Kimble, JD
Senior Counsel
[*****]
RBI:
Recombinant BioCatalysis, Inc.
10665 Sorrento Valley Road
San Diego, CA 92121
USA
Attention: Donald C. Garaventi
President
[*****]
12.2 For purposes of scientific reporting, the Parties designate as their
respective principle contacts:
DOW:
The Dow Chemical Company
Building 1707
Washington Street
Midland, MI 48674
USA
Attention: Joseph Affholter, PhD
Research Leader
[*****]
RBI:
Recombinant BioCatalysis, Inc.
10665 Sorrento Valley Road
San Diego, CA 92121
USA
Attention: Dan Robertson, PhD
Director of Enzymologys
*Confidential Treatment Requested
<PAGE>
[*****]
12.3 Each Party may change its address and its representative for notice by the
giving of notice thereof in the manner provided in Section 12.1.
ARTICLE 13 - ASSIGNMENT
13.1 Assignment - Neither Party to this OPTION shall assign or sublicense any
rights hereunder without the prior written consent of the other Party, such
consent not to be unreasonably withheld. It being agreed, however, that
without such consent being required from RBI, DOW may assign to its
AFFILIATES, but RBI must be notified in writing in accord with Section
12.1.
13.2 Consolidation, Reorganization or Merger - Should RBI be consolidated,
reorganized or merged with another entity, this OPTION and all rights and
obligations arising under this OPTION may be assigned to the successor
entity or the assignee of all or substantially all of RBI's business and
assets without DOW's prior written consent. However, RBI shall promptly
notify DOW prior to such action in accord with Section 12.1.
Effect on Successors and Assignees - This OPTION shall inure to the benefit of
and be binding upon such successors and permitted assignees.
ARTICLE 14 - LIABILITY
14.1 DOW Liability to RBI - Neither DOW, any of its AFFILIATES, nor the
respective agents, servants, officers, directors, and employees of each
shall be liable to RBI, or RBI's employees, directors, officers, agents or
legal heirs, for any personal injury, death, or property damage that occurs
while RBI is performing under this OPTION, except to the extent such
injury, death, or property damage is caused by the sole negligence of DOW.
14.2 RBI Liability to DOW - Neither RBI, any of its subsidiaries, nor the
respective agents, servants, officers, directors, and employees of each
shall be liable to DOW, or DOW's employees, directors, officers, agents or
legal heirs, for any personal injury, death, or property damage that occurs
while DOW is performing under the OPTION, except to the extent such injury,
death, or property damage is caused by the sole negligence of RBI.
14.3 Safety by RBI - RBI personnel agree to observe the same safety and other
rules required of DOW employees while RBI is on premises owned, operated,
leased or under the control of DOW.
14.4 Safety by DOW - DOW personnel agree to observe the same safety and other
rules required of RBI employees while LOW is on premises owned, operated,
leased or under the control of RBI.
ARTICLE 15 - MISCELLANEOUS PROVISIONS
*Confidential Treatment Requested
<PAGE>
15.1 Amendments - This OPTION may be amended only in writing executed by both
Parties.
15.2 Disputes - Both Parties shall make good faith efforts to resolve any
questions concerning construction and performance under this OPTION
15.3 Entirety of Agreement - This OPTION sets forth the entire agreement and
understanding between the Parties hereto with respect to ENZYME for its
evaluation in the TERRITORY for use in the FIELD. This OPTION shall be
deemed to be in compliance with the LETTER OF INTENT and should any
differences exist, this OPTION shall control.
15.4 Severability - If any term or provision under this OPTION is deemed
invalid under the laws by a United States court of competent jurisdiction,
the invalidity shall not invalidate the whole OPTION but it shall be
construed as if not containing that particular term or provision for that
particular country or jurisdiction and the rights and obligations of the
Parties shall be construed and enforced accordingly. The Parties shall
negotiate in good faith a substitute provision as an addendum to this
OPTION for that particular country or jurisdiction in compliance with the
law to as nearly as possible retain the Parties intent in legally valid
language.
15.5 Waivers, Cumulative Remedies - A waiver by either Party of any term or
condition of this OPTION in any one instance shall not be deemed construed
to be a waiver of such term or condition for any similar instance in the
future or of any subsequent breach hereof. All rights, remedies,
undertakings, obligations and agreements contained in this OPTION shall be
cumulative and none of them shall be a limitation of any other remedy,
right, undertaking, obligation or agreement of either Party.
15.6 Publicity - Neither DOW nor RBI shall make the financial terms of this
OPTION public, except as required by law. In the event that a filing of a
copy of this OPTION with the US Securities and Exchange Commission is
required, then RBI shall seek confidential treatment of information
considered confidential by DOW. Any press release or publicity of this
OPTION shall be reviewed and approved by both Parties prior to any release.
15.7 Choice of Law - This OPTION shall be governed by the laws of the State of
Michigan, excepting its conflict of laws principles, in all respects of
validity, construction and performance; except that all questions
concerning the construction, validity, coverage or infringement of PATENTS
or JOINT PATENTS shall be decided in accordance with the patent law of the
country where the PATENT or JOINT PATENT was granted.
15.8 Headings - Headings in this OPTION are included herein for ease of
reference and shall not affect the meaning of the provisions of this
OPTION, nor shall they have any other legal effect.
15.9 Cooperation - RBI and DOW shall use good faith efforts to cooperate with
respect to any issues that concern the development of the ENZYME under this
OPTION.
<PAGE>
15.10 RBI's Status - RBI's status hereunder is that of an independent
contractor, and not that of an agent of DOW. As such RBI is responsible of
all Income Tax withholding and the payment of any other appropriate taxes
on all payments to RBI by DOW.
IN WITNESS WHEREOF, the Parties have duly executed duplicate originals of this
OPTION by their appropriate authorized representative. Such OPTION may be
subject to management and/or Board approval by each Party. Separate signature
pages are acceptable in facsimile form and shall be accepted in lieu of original
signatures, provided each Party receives a dated, signed, legible facsimile
indicating the signator for the other Party. Upon the SIGNATURE DATE, this
OPTION shall be effective as of the EFFECTIVE DATE. If requested by either
Party, duplicate originals, bearing the same date as the facsimile signature or
in lieu of facsimile signatures may be provided.
THE DOW CHEMICAL COMPANY RECOMBINANT BIOCATALYSIS, INC.
By:__________________________________ By:___________________________________
Name: R.J. Pangborn Name: T.J. Bruggeman
Title: Vice President Title: CEO
Central & New Businesses R & D
Date:________________________________ Date:_________________________________
<PAGE>
APPENDIX A
May 27, 1997
Donald C. Garaventi
President
Recombinant BioCatalysis, Inc.
10665 Sorrento Valley Road
San Diego, CA 92121
USA
LETTER OF INTENT
Dear Mr. Garaventi:
The purpose of this Letter of Intent is to summarize the present arrangements
and intent between The Dow Chemical Company ("DOW") and Recombinant BioCatalysis
Inc. ("RBI") for use of an enzyme provided by DOW. The Parties intend to
negotiate an option agreement ("Option") encompassing this intent.
RBI and DOW shall negotiate in good faith to result in an Option having at least
the following terms and conditions:
1. Option Territory - The Option shall be for the world.
2. Permitted Use by RBI - RBI shall use any information provided to it by DOW
solely to improve an enzyme identified by DOW for use in recycle process or
with a reaction coproduct produced by DOW [*****]. [This enzyme and any
improvements thereto (e.g., where the productivity of the enzyme is
increased and/or where the product inhibition is lowered) are referred to
as "Enzyme".]
3. Option Grant - The Option, if DOW requests an exclusive grant for the Field
to make, have made, use, sell, import and have sold the Enzyme for the
Field in the Territory, shall include the patents and technology on the
Enzyme in the Field subject to the terms of the Option and any
manufacturing license agreement. The fee for this exclusive Option is a one
time fee of [*****] payable no sooner than December 1, 1998.
If DOW requests a non-exclusive grant for the Field to make, have made, use,
sell, import and have sold the Enzyme for the Field in the Territory, including
the patents and technology on the Enzyme In the Field, then the terms shall be
negotiated using reasonable good faith efforts by the Parties by January 31,
1999.
In either event the Option shall be executed by the Parties no later than
December 1, 1998 if exclusive or January 31, 1999 if non-exclusive.
*Confidential Treatment Requested
1.
<PAGE>
4. Option Term - The Option term shall be for the term of the research plan
("Plan"), including any mutually agreed upon extensions ("Term"). At
present both Parties agree that the Term for an exclusive license shall run
from the letterhead date of this Letter of Intent until December 1, 1998
and for a nonexclusive until January 31, 1999. By the end of the Term DOW,
at its sole discretion, may negotiate an exclusive license to the Enzyme
and gene coding for the Enzyme in the Field from RBI, or purchase the
Enzyme or immobilized Enzyme from RBI or an alternate supplier in accord
with Paragraph 8. Upon exercise of the license, manufacturing licenses and
terms of sale for any Enzyme shall be on commercially reasonable terms,
mutually agreed upon, and shall include, without limitation, royalties and
minimum payments.
In the event that the Enzyme is improved and DOW has had [*****] from the time
the technology and improved Enzyme is delivered to DOW in accord with Milestone
3(B) to test it, and DOW then provides written notice to RBI of DOW's lack of
interest in commercial use of the improved Enzyme provided by RBI, then, at
RBI's sole option, either:
(a) RBI shall pay DOW as a one time fee for DOW's total investment in the
Enzyme (which fee shall be computed from the time of such request by RBI,
but in no event would be less than [*****]). Such payment would be due to
DOW within thirty (30) days from invoice by DOW; or
(b) RBI agrees to pay to DOW reasonable royalty and payments for all income
received from RBI's commercialization or sale of the technology or patents
using the Enzyme. Such payments shall be negotiated as an agreement by the
Parties using good faith efforts.
RBI must elect between (a) and (b) within [*****] from DOW's written
notification of lack of interest and convey their election in writing to DOW.
DOW has the right, during the Term and the eighteen (18) month evaluation
period, for purposes of evaluation only, to produce sufficient Enzyme for its
needs.
5. Payments - Within fifteen (15) days from execution of the Option DOW shall
pay RBI [*****]. For subsequent payments DOW shall be invoiced one (1)
month prior to any payment due to RBI. The further payments are tied to
achievement of milestone technical events. The technical events for each
milestone payment are described in Paragraph 6. The payments for each
milestone are:
Milestone 1 - [*****]
[*****] if RBI is technically successful as defined in Paragraph 6; plus [*****]
if RBI accomplishes this Milestone 1 in less than [*****] days from the date on
which RBI receives the assay from DOW;
Milestone 2 - Productivity Calibration Definitions for Milestone 2:
"Candidate Enzymes" are those which meet the criteria of exhibiting initial
hydrolysis rates (Vmax) significantly higher than the wild type (wt) recombinant
enzyme toward a [*****].
*Confidential Treatment Requested
2.
<PAGE>
Kinetically, a Candidate Enzyme that is significantly
higher is characterized as having a Vmax [*****].
"Evolved Enzymes" are those which meet the criteria of exhibiting [*****].
Payments for Milestone2:
[*****] payable within thirty (30) days of receipt by DOW of the Enzyme
sequences and validation by DOW that RBI has provided DOW with at least [*****]:
and
Milestone 3 - Productivity Enhancement Definitions for Milestone 3:
"Improved Enzymes" are those which meet the criteria of, exhibiting at least;
plus [****] if RBI provides DOW with at least [*****].
"Productivity Enzymes" are those which meet the criteria of exhibiting at least
[*****].
"Target Activity" refers to the Milestone 3 improvement target for the initial
hydrolysis rate (Target Vmax) toward a [*****]. It is determined at the
conclusion of Milestone 2 and projected from the Milestone 2 data to be
sufficient for a commercial catalyst. It is defined in terms of fold-improvement
over the wild-type (wt) recombinant Enzyme activity under [*****].
Payments for Milestone 3:
(A) [*****] payable within thirty (30) days of receipt by DOW of the Enzyme
sequence and validation by DOW that RBI has provided DOW with at least [*****]
plus (B) [*****] payable within thirty (30) days of receipt by DOW of the Enzyme
sequence and validation by DOW that RBI has provided DOW with at least [*****]
*Confidential Treatment Requested
3.
<PAGE>
[****]
(i) [*****]
(ii) [*****]
(iii) [*****]
[*****]
[*****]
These payments are tied to performance under the Plan described in Paragraph 6.
6. Plan - During the Term, RBI shall perform research activities to improve
the Enzyme to achieve Target Activity in the Field in a diligent manner as
specified in Paragraph 5 and described in detail in a protocol attached to
the Option. Such improvement can be met by any manner acceptable to the
Parties. The Enzyme is to be improved for commercial use in a manner agreed
upon between the Parties. The protocol may be amended by written consent of
the Parties. However, either Party may terminate the research and the
Option at any technical milestone specified below for any reason; but if
RBI terminates, then DOW has thirty (30) days to notify RBI whether DOW
desires either an exclusive or non-exclusive license for the Enzyme until
that termination.
. Milestone 1 = [*****].
. Milestone 2 = [*****].
4.
<PAGE>
[****]
. Milestone 3 = [*****].
(B) RBI increases productivity as stated in Paragraph 5 for Productivity
Enzymes and transfers as UCA [*****] DOW confirms [****].
These events for performance under the Plan are tied to payments under Paragraph
5.
7. Patents - Any improvements to the Enzyme made by RBI during the Option
shall belong to RBI, if within the claimed scope of an issued RBI patent or
pending patent application. DOW shall be informed of all such patents or
pending applications and be provided with a copy thereof, and provided with
their publication numbers or patent numbers and each country where filing
was done. If requested by DOW, a completed file wrapper for a given
application or patent shall be provided to DOW. An annual status of the
concerned patents shall be provided to DOW until all have issued or are
abandoned.
Although unlikely to occur, in any instance where a Joint patent between DOW and
RBI results in a patentable invention, then DOW and RBI shall mutually
determine, using good faith efforts, whether DOW or RBI shall file and prosecute
the patent application and pay the annuities. If DOW exercises its Option for
exclusive rights for the joint patent shall be granted in the Option to DOW for
the Field for the Territory.
Know-how developed under the Option or known as of the Letter of Intent by
either Party shall remain that Party's property. Any use by one Party of the
other's know-how shall be under the confidentiality provisions of Paragraph 14.
8. [*****] - In the event that the Enzyme is improved and is of further
interest to DOW and DOW exercises its Option, then DOW shall have [*****]
from the time the improved Enzyme is delivered in a practicable form to DOW
in accord with Milestone 3(B) to provide by written notice to RBI of DOW's
intent to either:
*Confidential Treatment Requested
5.
<PAGE>
(a) [*****]. If this course is mutually agreed upon then a commercial
agreement shall be negotiated using reasonable good faith efforts by the
Parties;
or
(b) inform RBI that DOW will use an alternate supplier (not RBI) for the
improved Enzyme. RBI agrees to provide to a qualified third party under
appropriate, reasonable licensing terms for the industry, the information
and rights required to supply the Enzyme to DOW.
If DOW does not desire any commercial supply of the improved Enzyme, then refer
to Paragraph 4.
9. RBI Obligations - RBI shall provide a written report with a summary of the
data to DOW on a quarterly basis or at a milestone achievement in a
quarter, whichever occurs first. (If clarification of a report is requested
by DOW to more fully understand such report, then a meeting of respective
personnel permitted.) A final written report shall be provided of the
results obtained by RBI on its improvement efforts for the Enzyme,
including its sequence, within thirty (30) days at the end of the Term or
within thirty (30) days upon termination, and [*****].
10. DOW Obligations - DOW shall provide the [*****].
11. Safety - RBI personnel agree to observe the same safety and other rules
required of DOW employees while RBI is on premises owned, operated, leased
or under the control of DOW.
DOW personnel agree to observe the same safety and other rules required of
RBI employees while DOW is on premises owned, operated, leased or under the
control of RB1.
12. Liability - Neither DOW, any of its subsidiaries, nor the respective
agents, servants, and employees of each shall be liable to RBI or RBI's
employees, directors, agents or legal heirs, for any personal injury,
death, or property damage that occurs while RBI is performing under the
Option, except to the extent such injury, death, or property damage is
caused by the sole negligence of Dow.
Neither RBI, any of its subsidiaries, nor the respective agents, servants,
and employees of each shall be liable to DOW, or DOW's employees,
directors, agents or legal heirs, for any personal injury, death, or
property damage that occurs while DOW is performing under the Option,
except to the extent such injury, death, or property damage is caused by
the sole negligence of RBI.
*Confidential Treatment Requested
6.
<PAGE>
13. RBI's Status - RBI's status hereunder is that of an independent contractor,
and not that of an agent of DOW. As such RBI is responsible of all Income
Tax withholding and the payment of any other appropriate taxes on all
payment to RBI by DOW.
14. Confidentiality - The Parties agree to maintain confidential all
discussions and information obtained from the other regarding the Enzyme,
the Field, business information of RBI or DOW since August 29, 1996, and to
maintain confidential any discussions on terms for the Option, except for
information:
(a) which was known to RBI prior to receipt or development hereunder;
(b) which is, or without fault of RBI becomes, generally known to the public;
or
(c) which is acquired by RBI, without an obligation of confidence, from a third
party having a legal right to make such disclosure.
No rights are granted by DOW to RBI to use any DOW intellectual property
rights including patents, trade secrets, confidential information and
computer programs, except in providing the contemplated Plan services. Each
Party's obligations for confidentiality shall cease five (5) years from
termination of this Letter of Intent or Option, which ever time is later.
Confidentiality terms and conditions shall also be included and continued
in the Option.
15. Publicity - Neither DOW nor RBI shall make public the financial terms of
this Letter of Intent. Any press release or publicity concerning this
Letter of Intent shall be reviewed and approved by both Parties prior to
any release.
16. Entire Agreement - This Letter of Intent document contains the entire
agreement between the Parties and supersedes all preexisting agreements
between them respecting its subject matter. Modification of this Letter of
Intent shall only be binding if made in writing and signed by both Parties.
17. Choice of Law - This Agreement shall be subject to the laws of the State of
Michigan, excepting its conflict of laws provisions.
18. Other Items - Other customary terms and conditions in the Option are also
expected and modifications of this Letter of Intent that form a part of the
Option are permitted.
Upon signature by both Parties, the letterhead date is the effective date
for this Letter of Intent. This Letter of Intent shall be void ab initio
if not signed by both Parties no later than June 16, 1997. The negotiations
for the Option shall then begin, using good faith efforts, to complete the
Option no later than forty-five (45) days from this letterhead date. Such
Option is subject to management and/or Board approval by each Party, which
shall be secured by each Party prior to exercise of and/or signing the
Option, if required. Should the Parties fail to reach agreement for the
Option by that date, then either the date may be extended by mutual written
consent or the negotiations may be terminated.
7.
<PAGE>
Sincerely,
Fred P. Carson
Vice President
Research and Development
AGREED TO AND ACCEPTED BY:
Recombinant BioCatalysis Inc.
_______________________________
Donald G. Garaventi
President
Date________________
8.
<PAGE>
This Appendix is blank as of the
SIGNATURE DATE. Additions during the
OPTION TERM are possible.
1.
<PAGE>
This Appendix is blank as of the
SIGNATURE DATE. Additions during the
OPTION TERM are possible.
1.
<PAGE>
APPENDIX D
[DOW PARTNERSHIP PROJECT SPREADSHEET]
1.
<PAGE>
APPENDIX E
CONFIDENTIALITY AGREEMENT August 27, 1996
In order to protect certain proprietary, confidential information (Information)
which may be exchanged between them, The Dow Chemical Company (DOW), having an
address of: Patent Department, P.O. Box 1967, 1790 Building, Midland, Michigan
48641-1967, Attn: Karen L. Kimble; and Recombinant Biocatalysis, Inc., Elmwood
Court Two, 512 Elmwood Avenue, Sharon Hill, PA 19079-1005 (RBI), and together
hereafter called the Parties, agree that:
1. The effective date of this Agreement is August 27, 1996.
2. The Discloser(s) of Information is (are): Both Parties.
3. The Recipient(s) of Information is (are): Both Parties.
4. The Information disclosed under this Agreement is: any and all information
including but not limited to, data, know-how, any and all subject matter
(whether patentable or not) pertaining to the Parties research, inventions,
development, materials, technology, businesses plans, processes, protocols,
enzymes, expression systems, the commercial applications of enzymes which
the parties consider to be of value, and all information generated by RBI as
a result of carrying out the purpose set forth in paragraph 5.
5. The purpose for disclosing Information is to see if RBI's proprietary
technology might be used to improve performance of Dow proprietary [****]
enzymes, or if RBI's proprietary collection of enzymes contains any enzymes
of commercial interest to DOW, or if RBI and DOW should enter into a
relationship to identify novel enzymes of commercial interest to DOW.
6. This Agreement covers only Information disclosed between Effective Date and
August 27, 1997. Recipient's obligations shall expire on August 27, 1999.
7. Recipient agrees to maintain Information in confidence and not disclose
Information to any third party except as expressly provided in this
Agreement. Recipient will not use Information except as provided for in
Paragraph 5. Recipient shall use the same degree of care, but no less than a
reasonable degree of care, as the Recipient uses to protect its own
confidential information of a like nature to prevent disclosure of
Information to third parties. Third parties include all governmental patent
offices.
8. Recipient's obligations will apply only to Information that is: (a)
disclosed in tangible form clearly identified as confidential at the time of
disclosure; (b) disclosed initially in non-tangible form and identified as
confidential at the time of disclosure and, within thirty (30) days of the
initial disclosure, is summarized and designated as confidential in writing
and delivered to Recipient; or (c) generated by Recipient as set forth in
Paragraph 4.
*Confidential Treatment Requested
1.
<PAGE>
9. Recipient has no obligation with respect to any Information disclosed
hereunder which: (a) was in Recipient's possession before receipt from
Discloser; (b) is or becomes a matter of general public knowledge through
no fault of Recipient; (c) is rightfully received by Recipient from a third
party without an obligation of confidence; (d) is disclosed by Discloser to
a third party without an obligation of confidence on the third party; (e)
is independently developed by Recipient's representatives who have not had
access to such Information; or (f) is disclosed without obligation of
confidence under operation of law, governmental regulation, or court order,
provided Recipient first gives Discloser notice and uses all reasonable
effort to secure confidential protection of such Information. Specific
confidential Information shall not be considered to fall within the above
exceptions merely because it is within the scope of more general
information within an exception. A combination of features shall not be
considered to fall within the above exceptions unless the combination
itself, including its principles of operation, are within the exceptions.
10. All Information shall be provided at the sole discretion of Discloser. With
respect to Information, DISCLOSER MAKES NO WARRANTIES OF ACCURACY,
RELIABILITY, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PURPOSE.
INFORMATION IS PROVIDED ON AN "AS-IS" BASIS AND DISCLOSER EXPRESSLY
DISCLAIMS ANY WARRANTIES WITH RESPECT TO THE INFORMATION. Discloser shall
not be liable for any consequential, punitive, exemplary or incidental
damages arising out of the evaluation or use of Information by Recipient.
11. Neither Party transfers any rights in Information. No rights are granted
under any intellectual property rights of either Party. This Agreement does
not create any other obligations, including agency or partnership
obligations, between the parties. This Agreement does not constitute an
offer to sell Information. Results obtained by Recipient upon evaluation of
Information shall be disclosed to Discloser. Copyrights on reports of
results transferred to Discloser generated by Recipient based on the
evaluation of Information shall be owned by Discloser.
12. Recipient will not knowingly export or reexport any Information or software
received from Discloser or the direct products of such Information or
software to any country or entity or for any use prohibited by the U.S.
Export Administration Regulations unless properly authorized by the U.S.
Government.
13. The parties may disclose Information received from Discloser to their
Affiliates, consultants or third-party contractors on a need-to-know basis,
subject to confidentiality terms consistent with this Agreement. The
Parties warrant that their Affiliates, consultants or third-party
contractors will comply with the terms of this Agreement. Affiliates means
companies wherein either Party owns or controls, directly or indirectly,
greater than fifty percent of the equity interest of the company or in
which a Party has management control.
14. This Agreement can only be changed by a written document signed by all
parties. The terms of this Agreement shall become effective upon the
Effective Date when executed
2.
<PAGE>
by all parties. This Agreement shall become voidable upon written notice
by DOW in the event it is not executed by all parties within 120 days of
the date first written above. This Agreement shall be governed according
to the laws of the State of Michigan. The parties have caused this
Agreement to be executed in duplicate and this Agreement may be signed in
separate counterparts.
THE DOW CHEMICAL COMPANY RECOMBINANT BIOCATALYSIS, INC.
By: ___________________________ By: _____________________________
Name: _________________________ Name: ___________________________
Title: ________________________ Title: __________________________
Date: _________________________ Date: ___________________________
3.
<PAGE>
EXHIBIT 10.16
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
COLLABORATIVE RESEARCH AGREEMENT
BETWEEN
THE DOW CHEMICAL COMPANY
AND
DIVERSA CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
ARTICLE TITLE PAGE NUMBER
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1 DEFINITIONS 1
- ---------------------------------------------------------------------------------------------------
2 R&D PROGRAM 6
- ---------------------------------------------------------------------------------------------------
3 LICENSE RIGHTS 14
- ---------------------------------------------------------------------------------------------------
4 PAYMENTS 16
- ---------------------------------------------------------------------------------------------------
5 LICENSE AGREEMENT; DEVELOPMENT REPORTS 17
- ---------------------------------------------------------------------------------------------------
6 TREATMENT OF CONFIDENTIAL INFORMATION 17
- ---------------------------------------------------------------------------------------------------
7 INTELLECTUAL PROPERTY RIGHTS 20
- ---------------------------------------------------------------------------------------------------
8 PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF 21
PATENT RIGHTS
- ---------------------------------------------------------------------------------------------------
9 LEGAL ACTION 22
- ---------------------------------------------------------------------------------------------------
10 TERMINATION AND DISENGAGEMENT 23
- ---------------------------------------------------------------------------------------------------
11 REPRESENTATIONS AND WARRANTIES 25
- ---------------------------------------------------------------------------------------------------
12 INDEMNIFICATION 26
- ---------------------------------------------------------------------------------------------------
13 DISPUTE RESOLUTION 27
- ---------------------------------------------------------------------------------------------------
14 MISCELLANEOUS 28
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
APPENDIX TITLE PAGE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
A-1 RESEARCH [*****] A-1
- ---------------------------------------------------------------------------------------------------
A-2 [*****] PLANS A-2
- ---------------------------------------------------------------------------------------------------
A-3 RMC MEMBERSHIP A-3
- ---------------------------------------------------------------------------------------------------
B-1 PATENT RIGHTS [*****] B-1
- ---------------------------------------------------------------------------------------------------
B-2 DIVERSA PATENT RIGHTS [*****] B-2
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Confidential Treatment Requested
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
APPENDIX TITLE PAGE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
B-3 PATENT RIGHTS [*****] B-3
- ---------------------------------------------------------------------------------------------------
B-4 [*****] DIVERSA PARENT RIGHTS [*****] B-4
- ---------------------------------------------------------------------------------------------------
C MILESTONE PAYMENTS C-1
- ---------------------------------------------------------------------------------------------------
D LICENSE AGREEMENT D-1
- ---------------------------------------------------------------------------------------------------
E [*****] PROCEDURES E-1
- ---------------------------------------------------------------------------------------------------
F MATERIAL TRANSFER AGREEMENT F-1
- ---------------------------------------------------------------------------------------------------
G LICENSED [*****] G-1
- ---------------------------------------------------------------------------------------------------
H RESEARCH [*****] H-1
- ---------------------------------------------------------------------------------------------------
</TABLE>
iii * Confidential Treatment Requested
<PAGE>
COLLABORATIVE RESEARCH AGREEMENT
BETWEEN
THE DOW CHEMICAL COMPANY
AND
DIVERSA CORPORATION
COLLABORATIVE RESEARCH AGREEMENT (including the Appendices hereto, the
"Agreement") by and between THE DOW CHEMICAL COMPANY, a corporation duly formed
and existing under the laws of Delaware, having a place of business at 2030 Dow
Center, Midland, Michigan 48674, United States of America ("DOW" or a "Party"),
and DIVERSA CORPORATION, a corporation duly formed and existing under the laws
of Delaware, having a place of business at 10665 Sorrento Valley Road, San
Diego, California 92121, United States of America ("DIVERSA" or a "Party").
R E C I T A L S
A. DIVERSA has discovered and developed enzymes and has expertise in the
rearrangement of DNA to produce and discover genes utilizing proprietary
technologies for the rapid discovery, development and optimization of enzymes.
B. DOW has expertise in the discovery, development and production of
chemical compounds.
C. DOW and DIVERSA wish to enter into this Agreement in order to perform
research together to discover and optimize the function of new genes, processes
and products resulting thereupon that can be used by DOW to produce certain,
desired commercial chemical compounds.
D. DIVERSA will perform research either independently or with DOW on
projects funded and supported by DOW in order to discover and develop such
genes processes and products resulting therefrom for the purpose of development,
manufacture use and sale of products by DOW.
E. DOW will perform research to develop products and technology [*****].
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the Parties hereby agree as
follows:
1 * Confidential Treatment Requested
<PAGE>
Article 1. DEFINITIONS
When used in this Agreement, the following terms shall have the meanings set out
below, unless the context requires otherwise. The singular shall be interpreted
as including the plural and vice versa, unless the context clearly indicates
otherwise.
1.1 "Affiliate" means any corporation, firm, limited liability company,
---------
partnership or other entity that directly or indirectly controls or is
controlled by or is under common control with a Party to this Agreement.
Control for purpose means ownership, directly or through one or more
affiliated entities, of [*****] or more of the shares of stock
entitled to vote for the election of directors in the case of a
corporation, or [*****] or more of the equity interests in the
case of any other type of legal entity, or any other arrangement whereby a
Party controls or has the right to control the board of directors or
equivalent governing body of a corporation or other entity.
1.2 "Agreement Term" means six months from the expiration or termination of
---------------
the Research Term or until this Agreement is otherwise terminated as
provided herein.
1.3 "Areas of Interest" means the development of [*****] Enzymes (as defined
-----------------
below) for use in the following [*****]:
[*****]
1.4 "Confidential Information" means all information, Know-How, scientific,
------------------------
technical, or non-technical data, samples and Materials, business plans,
and marketing and sales information disclosed by one Party to the other
hereunder or under the Option Agreement between DIVERSA and DOW dated June
30, 1997, whether disclosed or provided in oral, written (including but not
limited to electronic, facsimile, paper or other means), graphic,
photographic or any other form, except to the extent that such information:
(i) as of the date of disclosure is known to the receiving Party as
shown by written documentation, other than by virtue of a prior
confidential disclosure from the disclosing Party to the receiving
Party;
(ii) as of the date of disclosure is in, or subsequently enters, the
public domain through no fault or omission of the receiving Party;
(iii) as of the date of disclosure or thereafter is obtained from a Third
Party free from any obligation of confidentiality; or
(iv) as of the date of disclosure or thereafter is developed by the
receiving Party independent of the disclosure by the disclosing
Party as evidenced by written
2 * Confidential Treatment Requested
<PAGE>
documentation.
1.5 "Consultants" means a non-Affiliate person who is under confidentiality to
-----------
and paid by a Party to act or advise on that Party's behalf under this
Agreement.
1.6 "Controls" or "Controlled" means, with respect to intellectual property,
-------- ----------
possession (other than by virtue of this Agreement) of the ability to
grant licenses or sublicenses to the other Party hereto without violating
the terms of any agreement or other arrangement with any Third Party
[*****].
1.7 "DIVERSA Intellectual Property" means DIVERSA Patent Rights and DIVERSA
-----------------------------
Know-How and Joint Intellectual Property.
1.8 "DIVERSA Know-How" means know-how Controlled solely by DIVERSA. The term
----------------
"know-how" means all Research Results and all know-how, nonpatented
inventions, improvements, discoveries, data, instructions, [*****]
information (including, without limitation, [*****] and information),
processes, procedures, devices, methods and trade secrets which are
conceived, discovered or invented during the Research Term in the course
of performance of the R&D Program or which have been conceived, discovered
or invented by DIVERSA prior to this Agreement, and which are necessary or
appropriate to develop and commercialize Licensed Products; and does not
include inventions within the Patent Rights.
1.9 "DIVERSA Patent Rights" means Patent Rights Controlled solely by DIVERSA
[*****].
1.10 "DIVERSA Research Results" means Research Results invented or discovered
------------------------
solely by DIVERSA.
1.11 "DOW Intellectual Property" means DOW Patent Rights and DOW Know-How and
-------------------------
Joint Intellectual Property.
1.12 "DOW Know-How" means Know-How Controlled solely by DOW.
------------
1.13 "DOW Patent Rights" means Patent Rights Controlled solely by DOW.
-----------------
1.14 "DOW Research Results" means Research Results invented or discovered
--------------------
solely by DOW.
1.15 "Effective Date" means the date of last signature set forth at the end of
--------------
this Agreement.
1.16 "Field" means [*****]; all Areas of Interest shall fall within this field.
-----
1.17 "FTE" means the equivalent of one full year of work on a full time basis
---
by a scientist or other professional [*****]
3 * Confidential Treatment Requested
<PAGE>
[*****].
1.18 "Intellectual Property" means Diversa Intellectual Property and Dow
---------------------
Intellectual Property.
1.19 "[*****] Enzyme" means an enzyme or enzymes, either ex vivo or in vivo,
--------------
provided to Dow by Diversa which is within the claims of DIVERSA Patent
Rights or that incorporates, is derived from, or is identified,
discovered, developed or made through the use of DIVERSA Know-How, which
is developed from the [*****].
1.20 "Jointly Developed" or "Jointly Invented" means any item developed or
----------------- ----------------
invented by both Parties in the course of the performance of the R & D
Program during the Research Term. If the item developed or invented is a
patentable invention, such invention is jointly developed if both Parties'
employees or consultants are considered inventors under 35 U.S.C. et.
seq., as interpreted by the U.S. Patent and Trademark Office and the
United States courts.
1.21 "Joint Intellectual Property" means Joint Patent Rights and Joint Know-
---------------------------
How.
1.22 "Joint Know-How" means Know-How which is Jointly Developed or Jointly
--------------
Invented.
1.23 "Joint Patent Rights" means Patent Rights which are Jointly Developed.
-------------------
1.24 "Joint Research Results" means Research Results which are Jointly
----------------------
Developed or Jointly Invented.
1.25 "Know-How" means all Research Results and all know-how, nonpatented
--------
inventions, improvements, discoveries, data, instructions, [*****]
information (including, without limitation, [*****] and information),
processes, procedures, devices, methods and trade secrets which are
conceived, discovered or invented during the Research Term in the course
of performance of the R&D Program, and which are necessary or appropriate
to develop and [*****].
1.26 "License Agreement" means the agreement described in Section 5.1 hereof.
-----------------
1.27 "Licensed Product" means (i) [*****] which is used to [*****], or (ii)
----------------
[*****] and which is [*****] and which both (i) and (ii) are designated by
the RMC and listed on Appendix G attached hereto, encompassed within
[*****], which is attached hereto and made a part hereof. It is expected
that [*****] at the exercise of each License Agreement.
1.28 "Material" means the original, tangible materials provided by DOW or
--------
DIVERSA to the
4 * Confidential Treatment Requested
<PAGE>
other Party in order that the recipient can perform its obligations under
the R&D Program and any exchange of samples developed during the R&D
Program.
1.29 "Patent Rights" means (i) all patents and patent applications which are
-------------
conceived of by DIVERSA and/or DOW during the Research Term and in the
course of performance of the R & D Program, and which are necessary for
DOW to make, use or sell the Royalty Bearing Products (as defined in the
License Agreement); if such patent rights arise they shall be listed on
Appendix B-1, attached hereto and made a part hereof; (ii) the patents and
patent applications listed on Appendix B-2, attached hereto and made a
part hereof, are patent rights of DIVERSA that [*****]; (iii) the [*****];
and (iv) any divisions, continuations, continuations-in-part, reissues,
reexaminations, extensions or other governmental actions which extend any
of the subject matter of the patent applications or patents in (i) or (ii)
above, and any substitutions, confirmations, patents-of-addition,
registrations or revalidations of any of the foregoing, in each case,
------------
which are Controlled by DIVERSA or DOW during the Research Term and which
are necessary for DOW to make, have made, use, sell, have sold, export or
import the Royalty Bearing Products. All patents and patent applications
subject to this definition are listed on Appendix B or will be included on
Appendix B by the end of the Agreement Term.
1.30 "R&D Program" means the research and development program to be conducted
-----------
during the Research Term by DIVERSA and DOW pursuant to Section 2, as more
fully described [*****].
1.31 "Research Data" means all data, [*****] and any other information
-------------
obtained or developed in the course of performance of the R&D Program.
1.32 "Research Management Committee" or "RMC" means the committee created
----------------------------- ---
pursuant to Section 2.2 hereof and which membership is defined in Appendix
A-3, attached hereto and made a part hereof.
1.33 "Research Materials" mean all tangible property obtained or developed in
------------------
the course of performance of the R&D Program, including but not limited to
[*****] Enzymes.
1.34 "Research Project Flow Chart" means a chart as Appendix H, attached hereto
---------------------------
for reference, to aid in understanding the efforts made under this
Agreement and the [*****].
5 * Confidential Treatment Requested
<PAGE>
1.35 "Research Results" means Research Data and Research Materials.
----------------
1.36 "[*****]" means a specific target within [*****] as specifically
-------
described in Appendix A-1 hereto and made a part hereof, as may be amended
from time to time by the RMC in its written minutes.
1.37 "[*****]" means a [*****] within [*****] as specifically described in
-------
Appendix A-1 hereto and made a part hereof, as may be amended from time to
time by the RMC in its written minutes.
1.38 "Research Term" means the period commencing on the Effective Date and,
-------------
unless extended by written agreement of the Parties or sooner terminated
as provided herein, terminating on the third (3) anniversary of the
Effective Date.
1.39 "Responsible Party" shall have the meaning set forth in Section 8.1.2.
-----------------
1.40 "Staffing Level" shall have the meaning set forth in Section 2.1.1(d).
--------------
1.41 "Third Party" means any party who is not a Party, or an Affiliate.
-----------
1.42 "[*****] Plans" mean the written plans drafted and approved by the RMC
-------------
defining the activities to be carried out for, and the budget for, each
[*****] during each twelve month period of the R&D Program, as more
specifically detailed in [*****] attached hereto and made a part hereof,
as modified from time to time by the RMC in its written minutes. The
[*****] Plan Procedures are provided in [*****], attached hereto and made
a part hereof.
Article 2. R&D PROGRAM
2.1 Implementation of the R&D Program.
----------------------------------
2.1.1 Basic Provisions of Program.
(a) The primary objective of the R&D Program shall be the
identification and development of [*****] Enzymes providing
enhanced or new properties useful in the [*****]. The Research
[*****] indicates the progress expected to occur under this
Agreement; namely, from [*****] discovery to [*****] Enzyme to
identification of a Licensed [*****]. Once a Licensed [*****]
is identified then the License Agreement pertains for the
remainder of the [*****].
(b) DIVERSA and DOW shall use their reasonable good faith efforts
to conduct the research activities set forth in the [*****]
Plans, and to provide Materials as set forth therein. Both
Parties shall employ the best methods they know which are
legally available to them to
6 * Confidential Treatment Requested
<PAGE>
perform the [*****] Plans. However, [*****] (which basis must
be explained to DIVERSA) about the ability of DIVERSA to
[*****], then DOW may request a modification to the [*****]
Plan. DOW accepts that this could effect the ability to obtain
the desired [*****] Enzyme(s) for the [*****].
(c) The Research [*****] and Research [*****], both in [*****], are
defined in the [*****] Plans in [*****], as amended from time
to time by the RMC in its written minutes.
(d) In carrying out the R&D Program, DIVERSA shall devote [*****]
FTEs per year for each of the [*****] years of the Research
Term ("Staffing Level"), and DOW shall pay DIVERSA for the
services of such FTEs as set forth herein. At the request of
DOW, DIVERSA will in good faith consider and discuss proposed
increases or decreases to the Staffing Level with adjustments
in payments. Notwithstanding the foregoing or anything
contained herein to the contrary, that the Staffing Level shall
remain at [*****] FTEs, unless the Parties, in each Party's
sole discretion, agree in writing to increase or decrease the
Staffing Level. Any increase or decrease to the Staffing Level
agreed to by the Parties shall be [*****] in the relevant
[*****] Plan for each Research [*****] or Research [*****] and
the budget associated with such [*****] Plan. Unless previously
consented to in writing by DOW, the budget for the [*****] Plan
for each Research [*****] and Research [*****] shall remain
within the funding proposed in Section 4. No more than [*****]
times per Research Term year, DOW shall have the right to
audit, at its expense, during regular business hours at
DIVERSA's place of business and, if conducted at different
sites also where the work is performed, both for the technology
development and FTEs assigned to the R&D Program.
(e) DIVERSA and DOW shall use commercially reasonable efforts to
perform the tasks set forth in the [*****] Plans, and to
provide the facilities, materials and equipment necessary to
perform the research activities set forth in the [*****] Plans.
(f) DIVERSA shall not be obligated to utilize more than [*****]
FTEs per year in the R&D Program. DOW shall be responsible for
the expense of research activities in the R&D Program that are
[*****], provided that DOW is notified of the reasons why
DIVERSA [*****], is notified of the [*****], and gives its
prior written consent.
-------------
(g) At such time as each [*****] Plan is under consideration by the
RMC, DOW may propose to the RMC to [*****] any selected
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Research [*****] or Research [*****] and upon acceptance of
the proposal by the RMC in its written minutes, DIVERSA will
[*****] in respect of such Research [*****] or Research
[*****], subject to DOW's obligations to maintain the Staffing
Level. In such event, DOW may propose a substitute Research
[*****] or Research [*****] within [*****] of the Areas of
Interest to be included in the R&D Program, which shall be
subject to the approval of the RMC. In the event no replacement
Research [*****] in any Area of Interest can be identified by
DOW and approved by the RMC, then (i) DOW may propose a new
[*****] which when accepted by the RMC would be added by
amendment to this Agreement or a new Research [*****] or
Research [*****] within the Field and if this new replacement
is acceptable to DIVERSA, this new replacement shall be
instituted promptly; or (ii) the Staffing Level will be
adjusted in accordance with Section 2.1.1(d).
(h) Upon any such abandonment under Section 2.1.1(g), DOW shall
have no further commercial rights with respect to any [*****]
Enzymes or other DIVERSA Intellectual Property related to the
abandoned Research [*****] or Research [*****]. DIVERSA shall,
however, be free to continue the research efforts on its own
behalf or with a Third Party at [*****] to DOW. All Joint
Intellectual Property related to any abandoned Research [*****]
or Research [*****] shall be listed on [*****] 3, attached
hereto and made a part hereof. DOW shall retain the right to do
research or non-commercial development using such Research
[*****]. However, if DOW should later develop during the
Agreement Term a suitable [*****] which DOW then desires to
commercialize and which product used [*****] Enzyme or DIVERSA
Patent Rights, then DOW would request [*****] DIVERSA. Unless
the abandoned Area of Interest has been [*****], DIVERSA shall
negotiate using good faith efforts with DOW for such [*****].
2.1.2 Collaborative Efforts and Reports.
---------------------------------
(a) The Parties agree that the successful execution of the R&D
Program will require the collaborative use of both Parties'
areas of expertise. The Parties shall keep the RMC fully
informed about the status of the portions of the R&D Program
they respectively perform. Without limiting the foregoing, each
Party shall furnish to the RMC [*****] reports within [*****]
days after the end of each [*****] period, describing the
progress of its activities in connection with the R&D Program
in reasonable
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detail, including at least:
(i) an estimation by DIVERSA of the FTEs used for each
Research [*****] and Research [*****] and the budget
used for each [*****] Plan, and
(ii) a summary of the testing and development of
[*****] Enzymes and Licensed [*****].
The reports described in this Section 2.1.2 (a) shall describe
all [*****] Enzymes that have been put into [*****], and shall
also contain sufficient other information to allow a Party to
monitor the other Party's compliance with this Agreement,
including without limitation, each Party's obligations with
respect to the accomplishment of the [*****]. All reports and
information provided under this Section 2.1.2 (a) shall be
deemed Confidential Information of the Party which provided
the information.
(b) DIVERSA and DOW shall cooperate in the performance of the R&D
Program and, subject to any confidentiality obligations to
Third Parties or legal restrictions, shall exchange
information [*****] as necessary to carry out the R&D Program
pursuant to the provisions of this Agreement. Each Party will
attempt to accommodate any reasonable request of the other
Party to send or receive personnel for purposes of discussing
the R&D Program. Such visits and access will be at mutually
agreed times, have defined purposes, be of agreed limited
duration, and be scheduled in advance. Each Party shall
[*****] of their respective personnel related to these visits.
It is understood that any such visiting personnel may be
[*****] the R&D Program and the rights of Third Parties, which
may include [*****] of the R&D Program. All personnel shall
abide by the required rules for any Third Party visiting that
Party's site, including, but not limited to, [*****] and other
matters.
(c) During the Research Term and for a period of [*****] years
thereafter, DIVERSA and DOW shall maintain records of the R&D
Program (or cause such records to be maintained) in sufficient
detail and good scientific manner as will properly reflect all
work done in the R&D Program and results achieved in the
performance of the R&D Program. Each Party shall allow the
other Party to have reasonable access to all pertinent
Research [*****] generated by or on behalf of such Party with
respect to each [*****] Enzyme. This retention of records may
be extended if there is a legal proceeding pending (i.e.,
court action, or US
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interference or opposition involving the Intellectual
Property) where those records are reasonably required and a
written request with the reason is provided to the Party.
Nothing herein shall require, or be construed to require, that
DIVERSA disclose to DOW any DIVERSA Know-How, except to the
extent necessary for the filing of patent applications
[*****]. DOW shall not be required to disclose to DIVERSA any
DOW Know-How or any DOW [*****] on any Research [*****],
Research [*****] or [*****] Enzyme, except for the reasonable
information required by the RMC.
2.1.3 Work Plans.
----------
(a) In order to carry out the R&D Program, the RMC shall develop a
[*****] Plan for each Research [*****] and Research [*****].
These [*****] Plans shall be in writing and attached hereto as
[*****]. The [*****] Plans for each initial Research [*****]
and Research [*****] will be agreed to not later than [*****]
after the Effective Date and will be attached hereto as
Appendix [*****] and made a part hereof. For each [*****]
period during the Research Term after the period covered by the
initial [*****] Plans attached hereto as Appendix [*****],
[*****] Plans shall be prepared by the co-chairs of the RMC and
approved by the RMC no later than [*****] days before the end
of the then current [*****] period. Absent written agreement by
the Parties, DIVERSA and DOW shall continue to conduct research
activities within the scope of the projects set forth in the
previous [*****] Plans, within the bounds of the then currently
available FTEs.
(b) Each [*****] Plan shall set forth specific, [*****] research,
and development, objectives, including, without limitation, the
applicable Research [*****] and Research [*****] within Areas
of Interest, and resource allocations in accordance with the
procedures set forth in Appendix [*****] attached hereto. Each
[*****] Plan will reflect at least [*****], but no more than
[*****] research milestones per year. These research milestones
shall be designed to facilitate diligent development and
identification of [*****] Enzymes for use in the Research
[*****] or Research [*****]. The RMC will review research
milestones on at least a [*****] basis. If the milestones are
not met, then in the next written [*****] Plan, the RMC must
(i) revise these milestones and/or [*****] Plan, (ii) replace
the Research [*****] or Research [*****] with another Research
[*****] or Research [*****] using their good faith efforts,
(iii) if the replacement under (ii) is not deemed viable by the
RMC, then DIVERSA and DOW agree to use their good faith efforts
to permit some new [*****] in the Field to be substituted as a
new [*****], or
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(iv) abandon that Research [*****] or Research [*****] if so
requested by DOW.
(c) If the RMC is unable to agree as to the terms of a [*****] Plan
for any given [*****] period following the initial [*****]
period for a [*****] Plan, by the date provided in Section
2.1.3(a), above, then the matter shall be addressed as provided
in Article 13 below .
(d) The [*****] Plans may be modified by the RMC to satisfy the
requirements of the Research [*****] and Research [*****], but
a written copy of each revised [*****] Plan, signed by the co-
chairs, shall be supplied to each Party as an amendment to
Appendix [*****].
2.1.4 Additional Research Activities.
------------------------------
(a) In the event that prior to the end of the Research Term, all
research activities directed to [*****] Research [*****] and
Research [*****] have been successfully completed or terminated
by agreement of the Parties, then DOW shall have the right to
propose to DIVERSA:
(i) [*****] Research [*****] or Research [*****] to be
pursued in the Areas of Interest under the R&D
Program, or
(ii) deploying the FTEs on Research [*****] and
Research [*****] which are already underway, or
(iii) if (i) and (ii) are not available, then
considering deploying, using their good faith efforts,
the FTE's on Research [*****] or Research [*****]
within the Areas of Interest and for which DIVERSA has
[*****] or serious obligations ([*****]) to a Third
Party, or
(iv) if (i) through (iii) are not available, then
reducing the number of FTE's and [*****] for those
FTEs no longer required computed in accordance with
Section 4.4.
If DIVERSA does not have [*****] with respect to the Research
[*****] or Research [*****] proposed in Section 2.1.4(a)(i) or
(iii) and does not have a [*****] on its own behalf or with a
Third Party, the Parties shall negotiate in good faith the
terms on which such additional research activities
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may be conducted under the R&D Program. Such additional
research activities will only be initiated if the Parties reach
written agreement on the terms thereof, including, without
limitation, milestone and other payments on resulting products.
(b) During the R&D Program DOW may also propose that additional
research activities directed to [*****] and Research [*****]
and Research [*****] within those Areas of Interest, using
their good faith efforts, be conducted in connection with the
R&D Program. In such event, the Parties shall discuss an
expansion of the R&D Program, provided DIVERSA shall have no
obligation to conduct any such activities with DOW unless terms
for such activities are agreed to in writing by the Parties. If
DIVERSA does not have a [*****] with respect to a proposed
additional Research [*****]or Research [*****]on its [*****] or
with a Third Party, DIVERSA will notify DOW in writing of such
within [*****] days of the proposal, and within [*****] days of
such notice, the RMC will implement a [*****] for each
additional Research [*****] or Research [*****]. In the event
the RMC fails to initiate a [*****] Plan within such [*****]
day period, or if DOW notifies DIVERSA in writing that it does
not intend to pursue an additional Research [*****] or Research
[*****], DIVERSA shall have [*****] to DOW under this Agreement
with respect to such [*****] Research [*****] or Research
[*****] and may collaborate with a Third Party on such [*****]
Research [*****] or Research [*****].
(c) DOW shall further have the right during the [*****] period
following the Effective Date to propose up to [*****] projects
encompassed in new Areas of Interest [*****]. DIVERSA will
consider such proposal, and, if the Parties agree to proceed,
the Parties will negotiate a separate agreement for such a
collaboration [*****]. The separate agreement will contain
terms consistent with other DIVERSA agreements of this nature
for [*****], including a separate [*****], and different
milestone and [*****] payments.
2.1.5 Disclosures.
-----------
If DIVERSA or DOW wishes to disclose any Research [*****] to a Third
Party on a confidential basis, it shall first submit a description
of the proposed disclosure directly to all members of the RMC for
review at least [*****] prior to any such disclosure. Within [*****]
of receipt of such description, the RMC shall notify DIVERSA or DOW,
as the case may be, of its approval or denial of
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such disclosure, provided such approval shall not be unreasonably
withheld. Failure to provide such notice within the [*****] period
shall be deemed to be consent to the proposed disclosure.
Notwithstanding the foregoing, subject to Section 2.5, DIVERSA may
provide any [*****] Enzyme under confidentiality terms at least as
strict as this Agreement to a Third Party [*****] for use [*****] the
Areas of Interest. DOW may provide any [*****] Enzyme under
confidentiality terms at least as strict as this Agreement to any
Third Party without the consent of the RMC or DIVERSA if used within
the Areas of Interest if used with technology or intellectual property
unavailable to DIVERSA.
2.2 Research Management Committee.
-----------------------------
2.2.1 Establishment and Functions of RMC.
----------------------------------
(a) DIVERSA and DOW hereby agree to establish the RMC. The RMC
will act on behalf of the Parties and will be responsible
for the planning and monitoring of the R&D Program and for
setting forth specific research and development
objectives, including, without limitation, (i) preparation
and approval of each [*****] Plan in accordance with the
procedures set forth in Appendix [*****] attached hereto
and made a part hereof, (ii) determining whether research
projects should be continued as active projects, and (iii)
determining resource allocation for the R&D Program, so as
to insure that meaningful research and development
activity will be undertaken on all Research [*****] and
Research [*****] in each [*****] period, taking into
account that the overall research and development focus
reflects both [*****] priorities.
(b) In planning and monitoring the R&D Program, the RMC shall
assign tasks and responsibilities taking into account each
Party's respective specific capabilities and expertise in
order to avoid duplication and enhance efficiency and
synergies. For example, [*****].
2.2.2 RMC Membership.
--------------
DIVERSA and DOW each shall appoint, in its sole discretion,
[*****] members to the RMC, including a co-chair designated by
DOW and a co-chair designated by DIVERSA. Substitutes or
alternates for the co-chairs
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or other RMC members, if any, may be appointed at any time by
written notice to the other Party prior to any meeting of the
RMC. All RMC members shall be full time employees of DIVERSA
and DOW. If either Party desires that an employee of an
Affiliate or a consultant attend an RMC meeting, then such
consultant to a Party must be under confidentiality obligations
to that Party having terms at least a strict as those of this
Agreement, must be approved in writing to attend by the other
Party, and such person has no vote in the decisions of the RMC.
The initial co-chairs and other RMC members are identified in
Appendix [*****] attached hereto and made a part hereof, which
Appendix shall be updated in writing from time to time to
reflect any changes in RMC membership.
2.2.3 Meetings.
--------
The RMC shall meet at least quarterly, with such meetings
alternating between [*****], and [*****], unless the Parties
agree otherwise. The first such meeting shall be held in
[*****] within [*****] days after the Effective Date at which
time the initial [*****] Plans shall be finalized. Any
additional meetings, other than [*****], shall be held at
places and on dates selected by the co-chairs of the RMC. RMC
members may participate in any such meeting in person, by
telephone or by videoconference. In addition, the RMC may act
without a formal meeting by a written memorandum signed by the
co-chairs of the RMC. Subject to the obligations set forth in
Article 6, other full-time employees of each Party, in addition
to the members of the RMC, may attend RMC meetings as nonvoting
observers at the invitation of either Party with the prior
written approval of the other Party.
2.2.4 Minutes.
-------
The RMC shall keep minutes of its meetings that record all
decisions and all actions recommended or taken. The Party
hosting the meeting shall be responsible for the preparation of
the meeting agenda and preparation and circulation of the draft
minutes. Draft minutes shall be delivered by mail, electronic
mail or facsimile to the co-chairs of the RMC within [*****]
after each meeting. Any intellectual property issues that may
need attention will be highlighted and forwarded to each
Party's Patent Coordinator. Draft minutes shall be edited by
the co-chairs and shall be issued in final form only with their
approval and agreement as evidenced by their signatures on the
minutes. A copy of the signed minutes shall be retained in each
Party's files for at least [*****] after termination of this
Agreement.
2.2.5 Quorum; Voting; Decisions.
-------------------------
At each RMC meeting, at least [*****] members appointed by each
Party shall constitute a quorum and decisions shall be made by
[*****] vote. If the RMC is unable to reach agreement on any
matter, such dispute shall be
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settled pursuant to Article 13 below.
2.2.6 Expenses.
--------
DIVERSA and DOW shall [*****] expenses of their respective RMC
members related to their participation on the RMC and
attendance at RMC meetings.
2.3 Third Party Licenses.
--------------------
2.3.1 DOW Responsibility.
------------------
In the event that DOW can reasonably demonstrate that [*****]
of a Third Party's patent rights would [*****] under a [*****]
Plan, then DOW shall so notify DIVERSA. DIVERSA shall state
whether it has obtained or is planning to obtain [*****] of the
[*****] Plan to go forward. If DOW elects to [*****], then the
RMC may amend the [*****] Plan if only DOW can [*****]. If DOW
and DIVERSA elect not to [*****], then the [*****] Plan shall
be altered by the RMC to enable the performance of the modified
[*****] Plan.
2.3.2 DIVERSA Responsibility.
----------------------
In the event that it is necessary to [*****] to perform the R&D
Program with regard to [*****] provided by DIVERSA, including,
without limitation, [*****], DIVERSA will be responsible for
the payment of any amounts due to Third Parties for the [*****]
for the performance of the R&D Program with regard to such
[*****] and the costs of [*****]. The decision [*****] shall be
solely DIVERSA's, and DOW shall be notified of that decision.
Notwithstanding the foregoing, DIVERSA shall be responsible for
[*****] for use of an [*****] Enzyme. DIVERSA and DOW shall
promptly notify the other Party in writing of any allegation by
a Third Party that the use of an [*****] Enzyme [*****]. If DOW
believes that a [*****] to use an [*****] Enzyme, then DOW
shall express its concerns to DIVERSA in writing. DIVERSA shall
explain to DOW whether it agrees that a [*****] and shall
provide sufficient explanation and reasons for its answer.
Should DIVERSA be aware and concerned of such [*****] or be
considering, instituting or have instituted a [*****], then all
such [*****] by DIVERSA. The decision whether such a license is
required shall be DIVERSA's. Notwithstanding the foregoing,
DIVERSA shall
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use good faith efforts to terminate [*****].
2.3.3 Infringement Claims.
-------------------
In the event that DOW or DIVERSA receives a written notice of
an allegation of possible patent infringement from a Third
Party or determines that there is such possible infringement
based on (i) the use of a particular [*****], which has been or
is planned to be used in the conduct of the R&D Program, or
(ii) the use of an [*****] Enzyme or Confidential Information
of DIVERSA [*****], such Party shall, within [*****] days,
notify the other Party in writing and provide an explanation of
the circumstances. If such possible infringement is of concern
to DOW, DIVERSA may provide a [*****] to DOW from [*****],
which may be based on a [*****], explaining DIVERSA's position
and the bases therefore.
In such event if no prior legal opinion has been done such that
the [*****], then the Parties shall forward a copy of such
claim to a [*****] and request that such [*****]. The cost of
this review shall be borne by [*****]. If the [*****] that the
activities of the R&D Program with respect to the [*****] would
be found by a court of competent jurisdiction to infringe a
claim of the Third Party patent which is likely to be found
valid, then within [*****] days of such [*****], either
(i) a [*****] will be substituted by DIVERSA for use in the
[*****] Enzyme in the R&D Program, subject to the approval of
the RMC, or
(ii) DIVERSA will notify DOW that it will [*****] from such
Third Party for any intellectual property rights necessary for
use of the [*****] in the R&D Program pursuant to Section
2.3.2, or
(iii) if the claim relates to alleged infringement of [*****]
used to obtain a [*****] an [*****] Enzyme, DIVERSA will
determine if an alternative technology could be used that does
not infringe the claim of such Third Party patent, and propose
to the RMC that such [*****], whereupon any [*****] Plan
relating to the aforementioned [*****] Enzyme will be modified
by the RMC; or
(iv) the RMC may elect to cease to conduct any activity in the
R&D Program requiring the use of [*****] and, if necessary,
reallocate DIVERSA's FTEs to other activities within the R&D
Program,
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If either (i), (ii), (iii), or (iv) above is not satisfied
within [*****], DOW may, upon written notice to DIVERSA,
immediately terminate this Agreement and cease all payments,
after such notice, except for work performed prior to receipt
of such notice by DIVERSA and the payment due under Section
10.4.
2.4 Post Research Term Cooperation.
------------------------------
At least [*****] months prior to the expiration of the Research Term, the
Parties shall meet to agree on mechanisms for coordinating and managing
activities (including, but not limited to, patent prosecution and
publication review) that will occur after the expiration of the Research
Term which would otherwise be addressed by the RMC. Any patent applications
included in Intellectual Property or Joint Intellectual Property which have
not been filed shall be filed in the first instance during the Agreement
Term, and both Parties shall cooperate with respect to all issues and
formal papers. As part of such considerations, if any research project has
not yet resulted in a Licensed [*****] and requires reasonable additional
development to accomplish such result, and either the RMC notifies DOW and
DIVERSA at its last meeting of this development request or DOW notifies
DIVERSA not later than [*****] months after the expiration of the Research
Term that DOW wishes to continue such research project with the help of
DIVERSA, then DIVERSA agrees to consider in good faith the terms of such a
continuation as proposed by DOW, which, in any event, will include the
undertaking by DIVERSA to give to DOW access to experienced DIVERSA FTEs to
be employed in the diligent continuation of the research project at the
same cost as set forth in Section 4.4 hereof plus [*****]. Notwithstanding
the foregoing, in no event will DIVERSA be obligated to continue any
Research [*****] beyond the Research Term. Should DIVERSA elect not to
continue with such incomplete [*****], then DOW is permitted to continue
such [*****] in any manner, including with a Third Party, but without the
use of DIVERSA Intellectual Property.
2.5 Research Exclusivity.
--------------------
During the Research Term, DIVERSA will not collaborate with or license the
rights to any Third Party to use any [*****] Enzyme in a Research [*****]
to convert a Research [*****] to a [*****], as defined in Appendix [*****],
so long as DOW satisfies the diligence obligations set forth in the [*****]
Plan with respect to the development of the applicable [*****] Enzyme.
During the Research Term, DOW will not collaborate with or license the
rights to any Third Party to evolve any enzyme in a Research [*****] to
convert a Research [*****] to a [*****], as defined in Appendix [*****].
Article 3. LICENSE RIGHTS
3.1 To DOW.
------
(a) Subject to the terms and conditions of this Agreement, DIVERSA hereby
grants to DOW a non-exclusive, nonsublicensable, royalty-free,
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worldwide license under the specific DIVERSA Intellectual Property
listed on Appendix [*****] and Appendix [*****] (attached hereto and
made a part hereof) to all Research [*****] using any Licensed [*****]
to make, have made, import, have imported, use, have used, sell, have
sold and otherwise exploit Royalty Bearing Products (as defined in the
License Agreement), and a royalty-free license to all DIVERSA Know-How
required for DOW to commercialize Royalty Bearing Products, and the
[*****] provided to DOW by DIVERSA hereunder solely to conduct the R&D
Program. DOW (i) shall promptly notify DIVERSA in writing of any
improvements to the DIVERSA Intellectual Property conceived of or
developed by DOW during the Research Term (the "Improvements"), and
(ii) shall irrevocably assign to DIVERSA all right, title and interest
in and to such Improvements. Such Improvements shall be included in
the DIVERSA Intellectual Property licensed to DOW under this Section
3.1 and under the License Agreement.
(b) Should DOW determine that modification of an [*****] Enzyme is
required, after it has been provided to DOW by DIVERSA under the terms
of this Agreement, to make the Licensed [*****] related to such
[*****] Enzyme [*****], then DOW may request that DIVERSA perform such
added modification under the R&D Program or, if this Agreement has
terminated, then under terms to be negotiated in good faith by the
Parties. DOW may use the [*****] or request that a Third Party perform
the desired modifications of an [*****] Enzyme:
(1) if DIVERSA is unwilling to perform such added modification,
or
(2) upon (i) the transfer or sale of all or substantially all of
the business of DIVERSA to which this Agreement relates, whether
by merger, sale of stock, sale of assets or otherwise, to a
[*****], or (ii) the bankruptcy, insolvency, dissolution or
winding up of DIVERSA (other than dissolution or winding up for
the purposes of [*****]), then DOW or its Affiliates may modify
the [*****] Enzyme to make the Licensed [*****] related to the
[*****] Enzyme commercially viable and DOW continues to be able
to use DIVERSA Intellectual Property listed in Appendix [*****]
(attached hereto and made a part hereof) solely to modify the
[*****] Enzyme and/or the Licensed [*****] related to the [*****]
Enzyme, provided that DOW pays DIVERSA for the [*****].
(c) Notwithstanding the foregoing Sections 3.1 (a) and (b), DOW (or DOW
with its consultants or though a separate agreement between DOW and a
Third Party) may
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conduct independent research activities outside the R&D Program,
whether within the Areas of Interest or not, and [*****], but except
as otherwise agreed to by DIVERSA in writing, DOW agrees that it will
not itself or through any Third Party use any DIVERSA Intellectual
Property, Joint Intellectual Property and/or Research [*****] to
develop a [*****] Licensed [*****], except under the terms of this
Agreement.
3.2 To DIVERSA.
----------
Subject to the terms and conditions of this Agreement, DOW hereby grants to
DIVERSA (i) a nonexclusive, nontransferable, nonsublicensable, royalty-
free, worldwide research license to DOW Intellectual Property, where
legally possible, and the [*****] provided to DIVERSA by DOW, solely to
conduct the R&D Program, and (ii) a nonexclusive, nontransferable,
nonsublicensable, royalty-free, worldwide license under any patents, trade
secrets and other intellectual property Controlled by DOW that relate to
[*****] Enzymes in the R&D Program.
3.3 Assignment.
----------
3.3.1 DOW.
---
DOW shall have the right to assign its rights in the license granted
herein (or any part thereof) to an Affiliate; provided, however,
that DOW shall continue to be responsible for the obligations of any
such Affiliate. DOW may assign its rights hereunder in connection
with the transfer or sale of all or substantially all of the
business of DOW to which this Agreement relates, whether by merger,
sale of stock, sale of assets or otherwise.
3.3.2 DIVERSA.
-------
DIVERSA shall have no right to assign its rights in the licenses
granted to it by DOW pursuant to Section 3.2 hereof (or any part
thereof) to any of its Affiliates or any Third Party, except in
connection with the transfer or sale of all or substantially all of
the business of DIVERSA to which this Agreement relates, whether by
merger, sale of stock, sale of assets or otherwise. If DIVERSA is
acquired by a Third Party [*****] for Research [*****] or if DIVERSA
is controlled by merger, sale of stock, sale of assets or otherwise
to a Third Party competitor, then prior to closure of such
acquisition, DOW shall be informed of the identity of the Third
Party competitor and at DOW's sole discretion can elect to terminate
this Agreement under Section 10.4 and request in writing immediate
return of all Confidential Information.
3.4 Retained Rights.
----------------
3.4.1 DIVERSA.
-------
DIVERSA shall retain all right, title and interest in and to the
DIVERSA
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<PAGE>
Intellectual Property and Joint Intellectual Property, except as
expressly granted to DOW in Section 3.1 or in the License Agreement.
DIVERSA may grant to Third Parties licenses under the Diversa
Intellectual Property for use of [*****] Enzymes; provided, however,
that such licenses do not conflict with the license granted to DOW
herein or under the License Agreement, and provided that in the
event the [*****] Enzyme is a [*****] provided by DOW to DIVERSA
under the terms of this Agreement, DIVERSA obtains DOW's prior
written consent (which may be withheld for any reason) and pays a
reasonable royalty to DOW in accordance with a separate license
agreement to be negotiated in good faith between the Parties.
DIVERSA shall inform DOW of the application(s) for an [*****] Enzyme
that is intended transferred to a Third Party if the [*****] Enzyme
is a [*****] provided by DOW to DIVERSA under the terms of this
Agreement.
Notwithstanding the license granted to DOW in Section 3.1, DIVERSA
shall retain the right to use all [*****] Enzymes for its own
research purposes (i.e., to develop, improve and validate its
technology and intellectual property).
3.4.2 DOW.
---
DOW shall retain all right, title and interest in and to the DOW
Intellectual Property and Joint Intellectual Property, except as not
expressly granted to DIVERSA in Section 3.2; provided, however, that
during the Agreement Term, DOW shall not grant any license under the
DOW Intellectual Property or Joint Intellectual Property which
conflicts with the license granted to DIVERSA herein.
Article 4. PAYMENTS
4.1 Technology Development.
----------------------
Within [*****] days after the Effective Date, DOW shall pay to DIVERSA a
technology development fee of One Million Five Hundred Thousand
(US$1,500,000) Dollars, and shall similarly provide DIVERSA with a
technology development fee of One Million Five Hundred Thousand
(US$1,500,000) Dollars, during the Agreement Term, within [*****] days of
each of the successive two anniversary dates of the Effective Date.
Thus within [*****] days after the Effective date, DOW shall pay to DIVERSA
a technology development fee of One Million Five Hundred Thousand
(US$1,500,000) Dollars and Nine Hundred Thousand (US$900,000)
Dollars for the first quarter FTE payment under Section 4.4 for a total of
Two Million Four Hundred Thousand (US$2,400,000) Dollars.
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4.2 Milestone Payments.
------------------
DOW shall make milestone payments to DIVERSA as set forth in Appendix
[*****] attached hereto and made a part hereof. The RMC shall determine
whether DIVERSA has achieved a milestone and shall note such decision in
its signed minutes. If the RMC cannot reach a decision, then Article 13
shall control. The milestone goal achievements shall be determined [*****]
by the RMC at its meeting [*****], shall be performance driven goals, and
shall be paid by DOW to DIVERSA [*****] days after the determination has
been made by the RMC that the milestone was met. The amount of milestone
payments in a given year may be up to [*****] Dollars for all [*****]
Plans.
4.3 Payments.
--------
All payments due under this Agreement shall be made in accord with the
respective sections of Article 4 by bank wire transfer in immediately
available funds to a bank account designated in writing to DOW by DIVERSA.
In the event that the due date of any payment subject to this Article 4
hereof is a Saturday, Sunday or national holiday, such payment may be paid
on the following business day. Any late payments shall bear interest to the
extent permitted by applicable law at the prime rate (as reported by the
Bank of America, San Francisco, California, or its successor), on the date
such payment is due plus an additional [*****], calculated on the number of
days such payment is delinquent. The rights provided in this Section 4.3
shall in no way limit any other remedies available to DIVERSA hereunder.
4.4 FTE Payments.
------------
4.4.1 In addition to the other payments due pursuant to this Article 4,
DOW will pay to DIVERSA a nonrefundable amount of Three Million Six
Hundred Thousand (US$3,600,000) Dollars per year for the 12 FTEs
set forth in Section 2.1.1(d) for each of the three years of the
Research Term, commencing as of the Effective Date.
4.4.2 Payments due pursuant to the above Section 4.4.1 shall be made in
advance, on or before the first day of each calendar quarter, with
the first and last payments prorated in the event that the Effective
Date is not the first day of a calendar quarter. Should payment be
due on a Saturday, Sunday or national holiday, such payment may be
paid on the following business day. In the event that the Parties
agree to a different Staffing Level for any given calendar quarter,
the payment set forth in this Section 4.4 shall be prorated
accordingly based on a level of funding of [*****] Dollars per year
per FTE. Any change in the amount of the FTE payment due in a
quarter shall be reported to DOW by DIVERSA in writing [*****] days
in advance of such payment.
Article 5. LICENSE AGREEMENT; DEVELOPMENT REPORTS
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5.1 License Agreement.
-----------------
The Parties have entered into a License Agreement covering [*****] Enzymes
and Licensed [*****] executed contemporaneously with this Agreement, a copy
of which is attached hereto for reference as Appendix [*****]. DIVERSA
hereby represents:
(a) that it is willing and able to grant to DOW
(i) an exclusive, royalty bearing, worldwide license under the
DIVERSA Intellectual Property to use the [*****] Enzymes and the
[*****] the [*****] Enzymes in a Research [*****] to make, have
made, use, sell, offer for sale and import Royalty Bearing
Products (as defined in the License Agreement), and
(ii) a non-exclusive, royalty bearing, worldwide license under DIVERSA
Intellectual Property to improve Licensed [*****]; and
(b) that to the best of its knowledge, there are [*****] required for DOW
to practice the DIVERSA Intellectual Property.
5.2 DOW may perform research within the Areas of Interest independent of this
Agreement. If DOW desires that a Third Party assist DOW in such research,
it shall be in accordance with Sections 3.1, 3.3 and 3.4.
Article 6. TREATMENT OF CONFIDENTIAL INFORMATION
6.1 Confidentiality.
---------------
6.1.1 General.
-------
(a) DIVERSA and DOW each recognize that the other Party's
Confidential Information constitutes highly valuable and
proprietary confidential information. Subject to the terms and
conditions of Article 8, DIVERSA and DOW agree that, except as
required by applicable law, rule or regulation (including the
filing and prosecution of patent applications) or judicial or
administrative order, during the Agreement Term and for
[*****] years thereafter, unless these terms are modified by
the License Agreement after the expiration of the Agreement
Term that:
(i) it will keep confidential and will cause its
employees, consultants, and Affiliates, to keep
confidential, all Confidential Information of the
other Party that is disclosed to it, or to any of
its employees or consultants, under or in
connection with this Agreement; and
(ii) neither it nor any of its respective employees,
consultants or Affiliates shall use Confidential
Information of the other Party for any purpose
whatsoever, except as expressly permitted in this
Agreement.
22 * Confidential Treatment Requested
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(b) Notwithstanding subsection (a) above:
(i) either Party may disclose the other Party's
Confidential Information to the extent reasonably
necessary in prosecuting or defending litigation,
complying with applicable governmental regulations or
court orders or otherwise submitting information to tax
or other governmental authorities; provided that, if a
Party is required to make any such disclosure of the
other Party's Confidential Information, it will give
reasonable advance notice to the other Party of such
disclosure and will use reasonable efforts to secure
confidential treatment of such Confidential Information
(whether through protective orders or otherwise); and
(ii) the Parties will reasonably cooperate with each
other in the making of reasonable disclosures of
Confidential Information to actual and potential
agents, investment bankers, investors and potential
investors of each Party; provided, however, that such
disclosures shall be critically required for an
investment objective, notice shall be provided to the
Party who owns the Confidential Information to protect
its rights, and only be made under the terms of a
confidentiality agreement providing protections no less
stringent than those contained herein.
6.1.2 Restricted Access.
-----------------
(a) Disclosure of a Party's Confidential Information to any of the
officers, employees, consultants or agents of the other Party
shall be made only if and to the extent necessary to carry out
rights and responsibilities under this Agreement, shall be
limited to the maximum extent possible, consistent with such
rights and responsibilities, and shall only be made to persons
who are bound to maintain the confidentiality thereof and not
to use such Confidential Information except as expressly
permitted by this Agreement. If DOW discloses any DIVERSA
Confidential Information to [*****], it shall do so under these
same terms and conditions of this Section 6.1.2.
(b) Each Party shall use at least the same standard of care, but no
less than a reasonable standard of care for this industry, as
it uses to protect its own Confidential Information to ensure
that its [*****], employees, agents, consultants and other
representatives do not disclose or make any unauthorized use of
Confidential Information of the other Party. Each Party shall
promptly notify the other Party of any unauthorized use or
disclosure of Confidential Information of the other Party.
(c) Within [*****] days following termination or expiration of this
Agreement, each Party will return to the other Party, or
destroy, upon the written request of the other Party, all
Confidential
23 * Confidential Treatment Requested
<PAGE>
Information disclosed to it by the other Party pursuant to this
Agreement, including all copies and extracts of documents;
provided that a Party may retain Confidential Information of
the other Party relating to any license or right to use
Intellectual Property that survives such termination and one
copy of all other Confidential Information may be retained in
confidential and inactive archives solely for the purpose of
establishing the contents thereof and to determine the
continuing obligations of each Party.
6.1.3 Employee Confidentiality Agreements.
-----------------------------------
DIVERSA and DOW each represent that all of its employees and any
consultants to such Party participating in the R&D Program or who
shall otherwise have access to Confidential Information of the other
Party are bound by written agreements to maintain such information
in confidence and not to use such information except as expressly
permitted herein. Each Party agrees to [*****] by which its
employees and consultants are bound.
6.2 Publicity.
---------
Except as expressly provided herein, neither Party may disclose the
existence or terms of this Agreement without the prior written consent of
the other Party; provided, however, that either Party may make such
disclosure to the extent required by law and that either Party may make a
disclosure of the existence of this Agreement to its attorneys, advisers,
investors, prospective investors, lenders and other financing sources,
under circumstances that reasonably ensure the confidentiality thereof.
Notwithstanding the foregoing, the Parties shall mutually agree upon a
press release to announce the execution of this Agreement, together with a
corresponding Q&A outline for use in responding to inquiries about the
Agreement; thereafter, DOW and DIVERSA may each disclose to Third Parties
the information contained in such press release and Q&A outline without the
need for further approval by the other Party. In no event shall the
financial terms of this Agreement be publicly disclosed, except to the
extent required by any Securities and Exchange Commission filings or
regulations, but all financial terms must be redacted prior to submission.
In addition, DIVERSA may (i) make public statements regarding Licensed
[*****] by announcing in general terms the achievement of milestones,
following consultation with DOW and with the prior written consent of DOW,
and (ii) without the prior consent of DOW, make public statements, without
identifying DOW, regarding the overall success rate(s) achieved by and/or
for its customers with the use of its technology, including a general
description of activities undertaken in connection with the R&D Program,
and success of such activities. DOW is free to make public statements,
press releases, and the like, with respect to Licensed [*****].
6.3 Publication.
-----------
A Party wishing to publish or otherwise publicly disclose its Research
[*****] shall first submit a draft of the proposed manuscripts
simultaneously to all members of the RMC
24 * Confidential Treatment Requested
<PAGE>
for review by the other Party at least [*****] days prior to any submission
for publication or other public disclosure. To avoid loss of patent rights
as a result of premature public disclosure of patentable information, the
reviewing Party shall notify the submitting Party in writing within [*****]
days after receipt of such proposed disclosure whether the reviewing Party
desires that a patent application be filed on any invention disclosed in
such proposed disclosure. In the event that the reviewing Party desires
such filing, the submitting Party shall withhold publication or disclosure
of such proposed disclosure until the earlier of (i) the date a patent
application is filed thereon, or (ii) the date the Parties determine after
consultation that no patentable invention exists, or (iii) [*****] days
after receipt by the submitting Party of the reviewing Party's written
notice of the reviewing Party's desire to file such patent application. If
the proposed disclosure contains Confidential Information of the reviewing
Party that is subject to nondisclosure obligations under this Article 6,
the submitting Party agrees to remove such Confidential Information upon
request of the reviewing Party.
Article 7. INTELLECTUAL PROPERTY RIGHTS
7.1 Disclosure of Inventions.
------------------------
Each Party shall promptly inform the RMC of all Research [*****] relevant
to the progress of each [*****] Plan towards its pre-agreed goals, in
accordance with a procedure established by the RMC.
7.2 Ownership.
---------
All intellectual property rights, which are in possession of either Party
as of the Effective Date, shall remain in the possession of that Party.
Ownership of inventions conceived of during the course of the collaboration
in the Areas of Interest (the "Inventions") will be as follows:
7.2.1 DIVERSA Intellectual Property Rights.
------------------------------------
DIVERSA shall have sole and exclusive ownership of all right, title
and interest on a worldwide basis in and to any DIVERSA Research
Results.
7.2.2 DOW Intellectual Property Rights.
--------------------------------
DOW shall have sole and exclusive ownership of all right, title and
interest on a worldwide basis in and to any DOW Research Results.
7.2.3 Joint Intellectual Property Rights.
----------------------------------
DOW and DIVERSA shall jointly own all Joint Research Results.
7.2.4 Inventions Relating to [*****] Enzymes or Licensed Products.
-----------------------------------------------------------
Notwithstanding the foregoing, (i) DIVERSA will own all Inventions
relating to compositions of matter, uses or methods of, or otherwise
involving, any [*****] Enzyme or [*****] except for Joint
Intellectual Property
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<PAGE>
or [*****] supplied by DOW, and (ii) DOW will own all Inventions
relating to compositions of matter, uses or methods of, or otherwise
involving, products made by Licensed [*****] in the Areas of
Interest. If the product made by the Licensed [*****] is within the
Field but outside the Areas of Interest, then DOW shall have a right
of first refusal for a reasonable time to obtain rights for that use
under a separate license agreement.
7.3 Patent Coordinators.
-------------------
DIVERSA and DOW shall each appoint a patent coordinator ("Patent
Coordinator") who shall serve as such Party's primary liaison with the
other Party on matters relating to ownership of Inventions, inventorship,
patent filing, prosecution, maintenance and enforcement. Each Party may
replace its Patent Coordinator at any time by notice in writing to the
other Party. The initial Patent Coordinator from DIVERSA is [*****] and
from DOW is [*****].
7.4 Inventorship.
------------
Except as specifically provided above, ownership of Inventions and
inventorship shall be determined by the Patent Coordinators in accordance
with United States patent law. If the Patent Coordinators can not agree on
inventorship or ownership of Inventions, then a neutral patent attorney
acceptable to both Parties shall make the determination, with each Party
[*****].
7.5 Deposits.
--------
Should deposits of the [*****] Enzyme or Licensed [*****] be desired by
either Party to support the filing of a patent application, both Parties
agree to cooperate to enable and obtain such deposit. Ownership of and
costs for the deposit shall be borne by the Party responsible in accordance
with Article 8.
Article 8. PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF
PATENT RIGHTS
The following provisions relate to the filing, prosecution and maintenance
of Patent Rights claiming Inventions.
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8.1 Filing and Prosecution of Patents.
---------------------------------
8.1.1 Primary Responsibilities.
------------------------
In consultation with the Patent Coordinators, the RMC will
coordinate the determination of what patents will be filed on
Research [*****]. Unless the RMC agrees otherwise in writing, the
Parties shall have the following responsibilities for patent filing,
prosecution and maintenance (including the defense of interferences,
oppositions and similar proceedings) (collectively, "Patent
Activities"):
(a) Royalty Bearing Products (as defined in the License Agreement).
--------------------------------------------------------------
DOW will be responsible, at its sole expense, for Patent
Activities with respect to Inventions made by DIVERSA or DOW or
Jointly Developed relating primarily to Royalty Bearing
Products and [*****] that use [*****] Enzymes and/or [*****]
Enzymes that make Royalty Bearing Products (as defined in the
License Agreement) in accordance with Section 7.2.4 (ii).
(b) Improved Enzymes. DIVERSA will be responsible, at its sole
-----------------
expense, for Patent Activities with respect to Inventions made
by DIVERSA or DOW or Jointly Developed relating primarily to
[*****] Enzymes in accordance with Section 7.2.4 (i).
(c) All Other Inventions. DOW will be responsible, at its sole
--------------------
expense, for Patent Activities with respect to Inventions made
solely by DOW not otherwise covered in Section 8.1.1 (a) and
(b). DIVERSA will be responsible, at its sole expense, for
Patent Activities with respect to Inventions made solely by
DIVERSA not otherwise covered in Section 8.1.1 (a) and (b). In
the case of Inventions Jointly Developed not otherwise covered
in Section 8.1.1, Patent Activities shall be conducted by
outside counsel, reasonably acceptable to both Parties, with
equal control and joint responsibility for costs incurred in
connection with the applicable Patent Activities.
8.1.2 Cooperation.
-----------
In each case in Section 8.1.1 above, the Party responsible for
Patent Activities for the applicable patent applications (the
"Responsible Party") shall use reasonable efforts to obtain patent
coverage that is as broad as possible to [*****] thereof. Each Party
shall be kept informed of all substantive matters relating to the
preparation and prosecution of all patent applications under the
Joint Patent Rights.
8.2 Elective Termination of Rights.
------------------------------
If at any time the Responsible Party does not wish to file any patent
application or
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<PAGE>
wishes to discontinue the prosecution or maintenance of any Patent Rights
claiming any [*****] Enzyme or Licensed [*****] filed in any country, it
shall promptly give notice of such intention to the other Party. The latter
shall have the right, [*****], to assume responsibility for
the filing, prosecution or maintenance of any such Patent Rights on a
country-by-country basis at its own expense, by giving notice to the
Responsible Party of such intention within [*****] days. No assignment of
Patent Rights shall occur to the other Party unless specifically agreed to
under appropriate negotiated terms and conditions. In any such case, the
Party declining such responsibilities shall not grant any Third Party a
license under its interest in the applicable Patent Rights in the
applicable country or countries and may not practice the applicable Patent
Rights for any commercial use (but may practice, royalty free such Patent
Rights for research use) without the prior written consent of the other
Party. The other Party will bear the costs of Patent Activities with
respect to all Patent Rights for which it has assumed responsibility
pursuant to this Section 8.2.
Article 9. LEGAL ACTION
9.1 Actual or Threatened Infringement.
---------------------------------
9.1.1 Notice.
------
In the event either Party becomes aware any where in the world of
any actual or threatened commercially material infringement or
unauthorized possession, knowledge or use of any Patent Rights
(collectively, an "Infringement"), that Party shall, within 60 days,
notify the other Party and provide it with all available details to
the extent it is legally permitted to do so. The [*****].
9.1.2 Primary Responsibility.
----------------------
(a) Notwithstanding the foregoing, if the Parties do not otherwise
agree on a course of action, DOW shall have primary
responsibility for the prosecution, prevention or termination
of any Infringement of DOW's Patent Rights hereunder, at DOW's
expense and with the sharing of recoveries as specified below.
(b) DIVERSA shall have primary responsibility for the prosecution,
prevention or termination of any Infringement of DIVERSA's
Patent Rights, at DIVERSA's expense and with the sharing of
recoveries as specified below.
If either Party which has primary responsibility as described in (a)
or (b) above determines that it is necessary or desirable for the
other Party to join any such suit, action or proceeding, the other
Party shall execute all papers and perform such other acts as may be
reasonably required in the circumstances, at the
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expense of the Party which has primary responsibility.
9.1.3 Jointly-Owned Patents.
---------------------
In the event of an Infringement of Joint Patent Rights, the Parties
shall agree which Party will have the rights and responsibilities of
abating such Infringement, and how the expenses and any recovery
thereof shall be shared. In this event, the responsible Party shall
[*****], and shall keep the other Party fully informed as to the
status of such matters. In the event only one Party wishes to pursue
such proceeding, it shall have the right to proceed alone, at its
expense, and may retain any recovery, and the other Party agrees, at
the request and expense of the Party initiating such action, to
cooperate and join in any proceedings in the event that a Third
Party asserts that the co-owner of such Joint Invention is necessary
or indispensable to such proceedings.
9.1.4 Costs.
-----
DOW shall bear the cost of any proceeding or suit under this Section
9.1 brought by DOW; DIVERSA shall bear the cost of any such
proceeding or suit brought by DIVERSA. In each such case, the
Responsible Party shall have the right first to [*****] in such suit
or in [*****] incurred by such Party, including [*****]. The
remainder shall [*****] so incurred. Any remaining amounts or any
non-monetary recovery shall be kept by the Responsible Party. If the
suit results in damages being owed to a Third Party, then the
Responsible Party [*****], except if the suit is based on Joint
Patent Rights and both Parties are actively involved, then the costs
and damages are to [*****].
9.1.5 Separate Counsel.
----------------
Each Party shall always have the right to be represented by counsel
of its own selection and at its own expense in any suit instituted
under this Section 9.1 by the other Party for an Infringement.
9.1.6 Standing.
--------
If either Party lacks standing and the other Party has standing to
bring any such suit, action or proceeding as specified above, then
the Responsible Party may request the other Party to do so at the
Responsible Party's expense. The Party with standing is under no
obligation to comply with such request, but rather is free to refuse
such request.
9.1.7 Cooperation.
-----------
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<PAGE>
In any action under this Section 9.1, each Party shall fully
cooperate with and assist the other Party as reasonably requested.
No suit regarding DIVERSA Intellectual Property or Joint
Intellectual Property may be settled by DOW without DIVERSA's prior
written consent. No suit regarding DOW Intellectual Property or
Joint Intellectual Property may be settled by DIVERSA without DOW's
prior written consent.
9.2 Defense of Claims Asserted by Third Parties Against DOW.
-------------------------------------------------------
DOW shall indemnify DIVERSA for the development, manufacture, use,
handling, storage, sale or other disposition of Licensed [*****] or
Research [*****] by DOW or its Affiliates during the Agreement Term.
9.3. Defense of Claims Asserted by Third Parties Against DIVERSA.
-----------------------------------------------------------
DIVERSA shall indemnify DOW for the development, manufacture, use,
handling, storage, sale or other disposition of [*****] Enzyme or Research
[*****] by DIVERSA or its Affiliates during the Agreement Term.
9.4 Notice.
------
DOW or DIVERSA shall notify the other in accord with Section 14.1 of any
suits or claims or proceedings brought against it under Section 9.2 or 9.3,
respectively.
Article 10. TERMINATION AND DISENGAGEMENT
10.1 Term.
----
This Agreement shall be effective as of the Effective Date and, unless
otherwise terminated earlier pursuant to this Agreement, shall continue in
full force and effect until the end of the Agreement Term. Nevertheless,
this Agreement may be terminated at any time upon mutual written agreement
of the Parties, provided that DOW pays any actual costs to DIVERSA done
under the [*****] Plans until the date of termination.
10.2 Material Breach. In the event either Party has materially breached or
---------------
defaulted in the performance of any of its obligations hereunder, the
nonbreaching Party may terminate this Agreement. A material breach of this
Agreement by a Party shall be deemed to have occurred:
(a) upon the failure of a Party to pay, when due, any amount due
hereunder to the other Party, if such Party has not paid the
amount due within [*****] days after receiving notice from the
non-breaching Party of such failure to pay; or
(b) upon breach of any other material obligation or condition by a
Party, if such Party has not cured such breach within [*****]
days after receiving written notice from the nonbreaching Party
of such breach. For this purpose a breach of a material
obligation must result from a failure to meet that Party's
representations,
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warrantees, covenants or performance under the [*****] Plan.
10.3 Bankruptcy.
----------
10.3.1 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 [*****] days of the filing thereof, then the
other Party may, at its sole election upon notice to the Insolvent
Party, terminate this Agreement by written notice to such Party.
10.3.2 All rights and licenses granted under or pursuant to this Agreement
shall be deemed to be, for purposes of Section 365(n) of the U.S.
Bankruptcy Code, licenses or rights to "intellectual property" as
defined under Section 101(52) of the U.S. Bankruptcy Code. The
Parties agree that each Party, as a licensee of such rights under
this Agreement, shall retain and may fully exercise all of its
rights and elections under the U.S. Bankruptcy Code, subject to
performance by the licensee of its preexisting obligations under
this Agreement.
10.4 Termination by DOW.
------------------
DOW may terminate this Agreement upon [*****] days prior written notice to
DIVERSA; provided, however, that DOW shall pay to DIVERSA (i) [*****] upon
termination of this Agreement during the [*****] following the Effective
Date, and (ii) [*****] upon termination of this Agreement during the
[*****] following the Effective Date. DOW may immediately terminate this
Agreement in accord with Section 3.3.2 by providing [*****] days written
notice to DIVERSA and providing payment of any remaining technology
development fees of Section 4.1 (but no payment of any remaining FTE fees
under Section 4.4). Notwithstanding the foregoing, DIVERSA will not refund
DOW any portion of any payments made under Section 4.4.
10.5 Effect of Termination; Accrued Obligations.
------------------------------------------
10.5.1 Accrued Obligations.
-------------------
Termination of this Agreement for any reason shall not release any
Party hereto from any liability which, at the time of such
termination, has already accrued to the other Party or which is
attributable to a period prior to such termination, nor preclude
either Party from pursuing any rights and remedies it may have
hereunder or at law or in equity which accrued or are based upon
any event occurring prior to such termination.
10.5.2 Licenses.
--------
(i) In the event that DOW terminates this Agreement to DIVERSA,
pursuant to Section 10.2, then the R&D Program shall immediately
terminate and all
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<PAGE>
payments due by DOW to DIVERSA shall immediately terminate. This
Agreement relates to research rights only and all commercial rights
are stated in the License Agreement and are not affected hereby.
(ii) In the event DOW terminates the Agreement pursuant to Section 10.
3.1, the licenses granted to DIVERSA in Article 3 shall terminate.
(iii) In the event DIVERSA terminates the Agreement pursuant to Section
10.3.1, the licenses granted to DOW in Article 3 shall terminate.
10.6 Surviving Provisions.
--------------------
Articles 12, 13 and 14 and Sections 6.1, 6.2, 7.2, 7.5, 10.5, 11.1.4 and
11.1.5 of this Agreement shall survive the expiration or termination of
this Agreement for any reason.
Article 11. REPRESENTATIONS AND WARRANTIES
11.1 Mutual Representations.
----------------------
DIVERSA and DOW each represents and warrants as follows:
11.1.1 Organization.
------------
It is a corporation duly organized, validly existing and is in good
standing under the laws of the jurisdiction of its incorporation,
is qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the performance of its
obligations hereunder requires such qualification and has all
requisite power and authority, corporate or otherwise, to conduct
its business as now being conducted, to own, lease and operate its
properties and to execute, deliver and perform this Agreement.
11.1.2 Authorization.
-------------
The execution, delivery and performance by it of this Agreement
have been duly authorized by all necessary corporate action and do
not and will not: (a) require any consent or approval of its
stockholders or (b) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to
it or any provision of its charter documents.
11.1.3 Binding Agreement.
-----------------
This Agreement is a legal, valid and binding obligation of it,
enforceable against it in accordance with its terms and conditions.
11.1.4 Warranty Disclaimer.
-------------------
The Parties acknowledge that the research activities contemplated
hereunder are experimental, and that the R&D Program may not be
successful. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER
32
<PAGE>
PARTY MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY CONFIDENTIAL INFORMATION, PATENT
RIGHTS, KNOW-HOW, [*****] ENZYMES, LICENSED [*****], OR OTHER
TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS
AGREEMENT AND HEREBY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, OR VALIDITY OF
TECHNOLOGY OR PATENT CLAIMS, ISSUED OR PENDING, WITH RESPECT TO ANY
AND ALL OF THE FOREGOING.
11.1.5 Limited Liability.
-----------------
EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER DIVERSA NOR DOW WILL
BE LIABLE TO THE OTHER PARTY WITH RESPECT TO ANY SUBJECT MATTER OF
THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER LEGAL OR EQUITABLE THEORY FOR (i) ANY SPECIAL, INDIRECT,
INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST PROFITS OR
(ii) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR
SERVICES.
Article 12. INDEMNIFICATION
12.1 Indemnification.
----------------
Neither Party shall indemnify the other Party nor its Affiliates, or
respective officers, directors, employees and agents and its respective
successors, heirs and assigns ("Indemnitees") except for Sections 9.2 and
9.3, its respective gross negligence, or failure to perform using its
reasonable best efforts under the [*****] Plans. This paragraph does not
limit either Party's other remedies available to it under the laws.
12.2 Procedure.
---------
A Party that intends to claim indemnification under this Article 12 (the
"Indemnitee") shall promptly notify the other Party (the "Indemnitor") in
writing of any loss, claim, damage, liability or action in respect of which
the Indemnitee or any of its Affiliates or their directors, officers,
employees, agents, consultants or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in,
and, to the extent the Indemnitor so desires, to assume the defense thereof
with counsel of its own choice.
The indemnity agreement in this Article 12 shall not apply to amounts paid
in settlement of any loss, claim, damage, liability or action if such
settlement is made without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure to deliver written notice
to the Indemnitor within a reasonable time after the commencement of any
such action, if prejudicial to its ability
33 * Confidential Treatment Requested
<PAGE>
to defend such action, shall relieve such Indemnitor of any liability to
the Indemnitee under this Article 12.
At the Indemnitor's request, the Indemnitee under this Article 12, and its
employees and agents, shall cooperate fully with the Indemnitor and its
legal representatives in the investigation and defense of any action, claim
or liability covered by this indemnification and provide full information
with respect thereto.
Article 13. DISPUTE RESOLUTION
13.1 Informal Dispute Resolution.
---------------------------
13.1.1 Senior Officials.
----------------
The Parties recognize that a bona fide dispute as to certain
matters may from time to time arise during the Agreement Term,
which relates to either Party's rights or obligations hereunder. In
the event of the occurrence of such a dispute, either Party may, by
written notice to the other Party, have such dispute referred to
the [*****] of DIVERSA and the [*****] of DOW, or their successors
or counterparts, for resolution by good faith negotiations within
[*****] days after such notice is received at a [*****].
13.1.2 Interim Conduct.
---------------
If the Parties are unable to reach agreement with respect to a
[*****] Plan pursuant to Section 13.1.1, then such dispute shall be
resolved as described in Section 13.2 below.
13.2 Arbitration.
-----------
Any dispute under this Agreement, except one that arises with respect to
determination of Research [*****] or Research [*****], which is not settled
by mutual consent pursuant to Section 13.1, shall be finally settled by
binding arbitration, conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (or such rules as
are appropriate to the dispute) by three independent, neutral arbitrators
having at least 15 years of experience in the areas of the contested issues
and appointed in accordance with said rules. The procedures or rules for
the arbitration may be modified by mutual consent of the Parties, including
having mediation rather than an arbitration conducted. Any arbitration
shall be in English held in [*****]. The arbitrators shall determine what
discovery shall be permitted, consistent with the goal of limiting the cost
and time that the Parties must expend for discovery; provided, however,
that the arbitrators shall permit such discovery, as they deem necessary to
permit an equitable resolution of the dispute. Any written evidence
originally in a language other than English shall be submitted in English
translation accompanied by the original or a true copy thereof. Except as
otherwise expressly
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provided in this Agreement, the costs of the arbitration, including
administrative and arbitrator fees, shall be [*****] by the Parties and
each Party shall bear its own costs and attorneys' and witness' fees
incurred in connection with the arbitration.
A disputed performance or suspended performance(s) pending the resolution
of the arbitration must be completed within a reasonable time period
following the final decision of the arbitrators.
Any arbitration subject to this Article 13 shall be completed within
[*****] from the filing of notice of a request for such arbitration and a
written decision with reasons therefore provided to the Parties. Any
decision shall be deemed confidential and not disclosed to any Third Party.
Should a Party believe that reporting the decision is required by
governmental regulation, then the Parties shall mutually agree as to the
content of such report.
Any decision which requires a monetary payment shall require such payment
to be payable in United States dollars, free of any tax or other deduction.
The Parties agree that the decision shall be the sole, exclusive and
binding remedy between them regarding any and all disputes, controversies,
claims and counterclaims presented to the arbitrators. If a decision is
not complied with by a Party, then any award or decision may be entered in
a court of competent jurisdiction for a judicial recognition of the
decision and an order of enforcement.
Article 14. MISCELLANEOUS
14.1 Notices.
-------
All notices (including, but not limited to, legal matters and copies of the
signed RMC minutes) shall be in writing mailed via certified mail, return
receipt requested, or overnight express mail, courier providing evidence of
delivery, addressed as follows, or to such other address as may be
designated by notice so given from time to time:
If to DOW: THE DOW CHEMICAL COMPANY
[*****]
If to DIVERSA: DIVERSA CORPORATION
10665 Sorrento Valley Road
San Diego, California 92121
Attention: Chief Executive Officer
Notices shall be deemed given as of the date received.
If the notice relates to scientific matters, such as the RMC, a [*****]
Plan, a Research [*****], or a Research [*****], the notice for the Parties
is to be supplied and received in the manner described above but sent to:
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If to DOW: THE DOW CHEMICAL COMPANY
[*****]
If to DIVERSA: DIVERSA CORPORATION.
10665 Sorrento Valley Road
San Diego, California 92121
Attention: Jay M. Short, Ph.D.
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<PAGE>
14.2 Governing Law and Jurisdiction.
-------------------------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the application of
principles of conflicts of law.
14.3 Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective legal representatives, successors and
permitted assigns.
14.4 Headings.
--------
Section and subsection headings are inserted for convenience of reference
only and do not form a part of this Agreement.
14.5 Counterparts.
------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original.
14.6 Amendment; Waiver.
-----------------
This Agreement may be amended, modified, superseded or canceled, and any of
the terms may be waived, only by a written instrument executed by each
Party or, in the case of waiver, by the Party or Parties waiving
compliance. Nevertheless, Appendices [*****] may be amended by the
signatures of the co-chairs of the RMC to a revised Appendix, which must
then be supplied to the persons for notice under Section 14.1, and
Appendices [*****] may be amended by the signatures of both Patent
Coordinators listed in Section 7.3. The delay or failure of any Party at
any time or times to require performance of any provisions shall in no
manner affect the rights at a later time to enforce the same. No waiver by
any Party of any condition or of the breach of any term contained in this
Agreement, whether by conduct, or otherwise, in any one or more instances,
shall be deemed to be, or considered as, a further or continuing waiver of
any such condition or of the breach of such term or any other term of this
Agreement.
14.7 No Agency or Partnership.
------------------------
Nothing contained in this Agreement shall give either Party the right to
bind the other Party, or be deemed to constitute either Party as an agent
for the other Party or as a partner with the other Party or any Third
Party.
14.8 Assignment and Successors.
-------------------------
Except as expressly provided herein, this Agreement may not be assigned by
either Party without the prior written consent of the other Party, except
that each Party may, without such consent, assign this Agreement and the
rights, obligations and interests of such Party, in whole or in part, to
any
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purchaser or other transferee of all or substantially all of its assets
in the line of business to which this Agreement pertains, or to any
successor corporation resulting from any merger or consolidation of such
Party with or into another entity, subject, however, in the case of
DIVERSA to the restriction set forth in Section 3.3.2. In the event of
any merger or consolidation by a Party into another entity, such Party
shall promptly notify the other Party in writing of such merger or
consolidation and the obligations under this Agreement shall be
maintained and performed by the successor entity unless modified in
accord with Section 14.6.
14.9 Force Majeure.
-------------
Neither DOW nor DIVERSA shall be liable to the other Party for failure of
or delay in performing obligations set forth in this Agreement, and
neither shall be deemed in breach of its obligations, if such failure or
delay is due to natural disasters or any other cause beyond the
reasonable control of a Party, and notice of such prevention of
performance is promptly provided by the non-performing Party to the other
Party. Such excuse shall be continued so long as the condition
constituting force majeure continues and the non-performing Party takes
reasonable efforts to remove the condition. In event of such force
majeure, the Party affected thereby shall use reasonable efforts to cure
or overcome the same and resume performance of its obligations hereunder.
14.10 Interpretation.
--------------
The Parties hereto acknowledge and agree that: (i) each Party and its
counsel reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting Party shall not be employed in the interpretation of this
Agreement; and (iii) the terms and provisions of this Agreement shall be
construed fairly as to all Parties hereto and not in a favor of or
against any Party, regardless of which Party was generally responsible
for the preparation of this Agreement.
14.11 Integration: Severability.
-------------------------
This Agreement (including the Exhibits attached hereto) together with the
License Agreement sets forth all of the agreements and understandings
between the Parties with respect to the subject matter hereof and
supersedes all other agreements and understandings between the Parties
with respect to the same.
If any provision of this Agreement is or becomes invalid or is ruled
invalid by any court of competent jurisdiction or is deemed
unenforceable, it is the intention of the Parties that the remainder of
this Agreement shall not be affected. If possible, the invalid provision
shall be replaced with a valid provision, which meets the intent of the
Parties.
14.12 Approvals.
---------
DOW shall be responsible, at its expense, for obtaining any approvals
from governmental entities which may be required under applicable law for
the development of Research [*****] or Licensed [*****], and shall use
its best efforts to obtain all necessary
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approvals as soon as reasonable. DIVERSA shall be responsible, at its
expense, for obtaining any approvals from governmental entities which may
be required under applicable law for the shipment of [*****] Enzymes to
DOW to perform its obligations under the R&D Program.
14.13 Export Controls.
---------------
This Agreement is made subject to any restrictions concerning the export
of Licensed [*****], Research [*****], Research [*****] or Intellectual
Property (collectively, "Technology") from the United States that may be
imposed upon either Party from time to time by laws or regulations of the
United States. Neither Party will export, directly or indirectly, any
Technology to any country for which the United States government or any
agency thereof at the time of export requires an export license or other
governmental approval, without first obtaining the written consent to do
so from the Department of Commerce, Bureau of Export Administration, or
other agency of the United States government when required by applicable
statute or regulation.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in duplicate as of the last signature date below, by their duly authorized
representatives. This Agreement is intended to be signed concurrently with the
License Agreement and shall not be effective until the License Agreement has
also been executed by both Parties.
THE DOW CHEMICAL COMPANY
Date:______________________________ By:_________________________________
Fernand Kaufmann
Vice President
New Businesses and Strategic
Development
DIVERSA CORPORATION
Date:_______________________________ By:_________________________________
Jay M. Short, Ph.D.
Chief Executive Officer
13 Appendix Enc.:
Appendix A-1: [*****]
Appendix A-2: [*****]
Appendix A-3: [*****]
Appendix B-1: [*****]
Appendix B-2: [*****]
Appendix B-3: [*****]
[*****]
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Appendix B-4: [*****]
Appendix C: [*****]
Appendix D: [*****]
Appendix E: [*****]
Appendix F: [*****]
Appendix G: [*****]
Appendix H: [*****]
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<PAGE>
APPENDIX [*****]
RESEARCH [*****] AND/OR RESEARCH [*****]
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
[*****] PLANS
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
RMC MEMBERSHIP
* Confidential Treatment Requested
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APPENDIX A-3
RMC MEMBERSHIP
The following employees of DIVERSA will represent DIVERSA as the company's
initial RMC members:
[*****]
[*****]
[*****]
The following employees of DOW will represent DOW as the company's initial RMC
members:
[*****]
[*****]
[*****]
[*****]
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APPENDIX [*****]
PATENT RIGHTS DURING THE AGREEMENT TERM UNDER THE [*****] PLANS
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
DIVERSA PATENT RIGHTS WHICH [*****]
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
PATENT RIGHTS DIRECTED TO [*****] RESEARCH [*****] AND/OR RESEARCH
[*****]
* Confidential Treatment Requested
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APPENDIX [*****]
SPECIFIC [*****] DIVERSA PATENT RIGHTS USED TO [*****] ENZYMES
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APPENDIX [*****]
[*****]
<TABLE>
<CAPTION>
Title/Subject Filing Date Serial No.
- ------------------------------------------------------------------------------------------
<S> <C> <C>
[*****]
</TABLE>
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
[*****]
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
[*****]
[*****].
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
LICENSE AGREEMENT
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
[*****] PLAN PROCEDURES
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APPENDIX E
[*****]
[*****]
I. [*****]
[*****]
1. [*****];
2. [*****]; and
3. [*****].
II. [*****]
[*****]:
1. [*****];
2. [*****];
3. [*****];
4. [*****]; and
5. [*****].
III. [*****]
[*****]:
1. [*****]; and
2. [*****].
IV. [*****]
* Confidential Treatment Requested
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[*****].
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
MATERIAL TRANSFER AGREEMENT
* Confidential Treatment Requested
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APPENDIX F
MATERIAL TRANSFER AGREEMENT
Effective as of , (the "Effective Date") this Agreement ("MTA")
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 The Dow Chemical Company, a Delaware corporation
with headquarters at 2030 Dow Center, Midland, Michigan 48674 (hereinafter
"DOW"), collectively known as "The Parties".
WHEREAS, DIVERSA will provide DOW with certain proprietary genes as set forth
below and hereinafter referred to as "Material" pursuant to the terms and
conditions of this Agreement; and
WHEREAS, DOW desires to use the Material for purposes of research to be
conducted under the Collaborative Research Agreement between the Parties dated
July 22, 1999 (the "Agreement") and is willing to receive the Material pursuant
to the terms and conditions of this MTA.
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 DOW the following Material: [TO BE DETERMINED]
2. DOW agrees that the Material shall be used solely for the purpose research
under the Agreement and shall not be used for any other purpose whatsoever.
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.
4. Information transferred under this MTA, including but not limited to the
Material and all information related to the Material, shall be "Confidential
Information". DOW shall not disclose to third parties any Confidential
Information received from DIVERSA hereunder, provided, however, that DOW
shall have no obligations 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 DOW as
evidenced by its written records; or
b) is or becomes publicly known during the term of this MTA, other than
through a breach of DOW's obligations hereunder; or
c) is received from a third party having no obligations of confidentiality
to DIVERSA hereunder; or
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d) is developed by DOW independently of any disclosures made under this
MTA as evidenced by its written records; or
e) is required by law or bona fide legal process to be disclosed
provided that DOW takes all reasonable notice to DIVERSA or
f) is authorized to be released in written release by DIVERSA.
5. DOW shall not modify the Materials in any way reverse engineer the Material
use the Materials for reproduction, offer the Materials or any derivative
thereof for resale, or use the Materials in any form of human or animal testing
except as provided in the Agreement.
6. DOW 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 except as provided in the Agreement.
7. In the event that DOW provides DIVERSA with DOW's Material all the
provisions above shall be construed to bind DIVERSA in the place of DOW in an
identical manner. DIVERSA acknowledges that it has received Material from DOW
under another research agreement for use as a dehalogenase enzyme, which
Material may be used under this MTA for the present Agreement.
8. This MTA and rights thereunder shall not be assigned or transferred directly
or indirectly in whole or in part by the Parties except as provided in the
Agreement.
9. This MTA shall become effective beginning on the Effective Date and through
the term of the Agreement.
10. This MTA may be terminated as set forth in the Agreement.
11. The Parties represent and warrant that each has the authority to undertake
the obligations set forth in the MTA without breaching or violating any
contractual or statutory obligation owed to another.
12. The provisions of this MTA are severable and in the event any provisions
of this MTA 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.
13. This MTA shall be construed in accordance with the laws of the State of
Delaware without regard to its conflict of laws principles.
After receipt of the executed Agreement, DIVERSA will arrange to provide DOW
with the materials.
IN WITNESS WHEREOF, the Parties have, through duly authorized representatives,
executed this MTA, effective as of the date forth above.
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THE DOW CHEMICAL COMPANY DIVERSA CORPORATION
_________________________________ _________________________________
Name:____________________________ Name:____________________________
Title:___________________________ Title:___________________________
Date:____________________________ Date:____________________________
<PAGE>
APPENDIX [*****]
LICENSED [*****]
* Confidential Treatment Requested
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APPENDIX [*****]
RESEARCH [*****]
* Confidential Treatment Requested
<PAGE>
APPENDIX [*****]
RESEARCH [*****]
* Confidential Treatment Requested
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EXHIBIT 10.17
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
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. [*****].
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(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 [*****]
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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) the manufacture of Phytase by GCI solely for sale to FFI
(b) the use and sale of Phytase for the manufacture of Products for
the Animal Health Field and Animal Nutrition Field; and
(c) the manufacture, use and sale of Products for the Animal Health
Field and Animal Nutrition Field.
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
sublicense the DIVERSA Technology to GCI for activities in connection with the
manufacture of Phytase, and then only in connection with a supply agreement
which provides that GCI will exclusively supply Phytase 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,
[*****].
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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 as of the Effective
Date, and shall continue for the life of the sale by FFI, an Affiliate of FFI
and/or a sublicensee of FFI of Products using the Diversa Technology, except as
otherwise provided in this Article V.
5.2 FFI may terminate the term of this License Agreement at any time upon
six (6) months 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 Each party agrees to indemnify and hold the other party harmless
against any loss claim, liability and expense (including reasonable attorney's
fees and expenses of litigation) that a court may order such other party to pay
to a third party as a result of:
(a) any misrepresentation or breach of warranty by the indemnifying
party under this License Agreement; and
(b) any failure by the indemnifying party to perform any of its
obligations hereunder.
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 Diversa Technology pursuant to this
License Agreement; provided, however, that such indemnification shall not apply
to any claims resulting from the willful misconduct or negligence of DIVERSA,
its directors, officers or employees.
6.8 It shall be a condition of any indemnification hereunder that the
party seeking indemnification notify the indemnifying party promptly, and give
the indemnifying party the opportunity of defending, any litigation at the
indemnifying party's expense by counsel of the indemnifying party's choice who
shall be under the indemnifying party's sole discretion and control. The
indemnifying party shall have the right to settle or compromise any such
litigation in its sole discretion and expense.
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 New York without regard to
the principles of conflicts of laws of New York 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.
<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 New York, New York 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 New York. 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
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
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
Jay Short, Ph.D. Michael Lanahan, Ph.D.
Keith Kretz, Ph.D. Juan Estruch, Ph.D.
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.
10. *Confidential Treatment Requested
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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 Development Biomolecule, 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 Development Biomolecule 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 License Fee and
royalty rate shall be determined by mutual agreement of the Parties taking into
account a non-exclusive License. Any such option shall be freely transferable or
assignable to an Affiliate of Novartis or to NADI or any of its Affiliates.
4.2 Option Period. The Option will be effective ("Option Effective
Date") upon (a) the designation by the Research Committee of a Biomolecule as a
Development Biomolecule, 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. * CONFIDENTIAL TREATMENT REQUESTED
(a) the Option Exercise Date, or
(b) the date Novartis notifies Diversa that Novartis does not intend
to proceed with further development of the Development Biomolecule in accordance
with the applicable Project Plan, or
(c) thirty (30) days after the projected date for achievement of any
technical milestone included in the applicable Novartis Project Plan, as
approved by the Research Committee, 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 sixty
(60) days after written notice from Diversa to comply with this provision, or
(d) the Research Committee determines that the results of any
technical milestone included in the applicable Novartis Project Plan, as
approved by the Research Committee, demonstrate that the applicable Minimum
Activity Level was not achieved in accordance with such Novartis Project Plan;
provided that the Research Committee will meet within thirty (30) days following
the projected date for achievement of such technical milestone to make such
determination, and, if the Research Committee does not meet within such thirty
(30) day period, the applicable Minimum Activity Level will deemed not to have
been achieved provided further that in the event such technical milestone has
not been achieved, in accordance with such Novartis Project Plan, the Research
Committee may extend the time in which to achieve such technical milestone if it
determines that such technical milestone is achievable within a reasonable
period of time consistent with the previously defined goals of such Novartis
Project 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 Development Biomolecule subject to such
Option within thirty (30) days 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.
12.
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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 applicable Licensed Biomolecule to the extent
necessary to make, have made, use, sell, offer for sale and import Royalty-
Bearing Products in the applicable Novartis Field. For clarification, (a) if the
Novartis Field includes transgenic applications, the License will entitle
Novartis to use the gene encoding the Licensed Biomolecule in Royalty-Bearing
Products and, to the extent necessary, to use such gene in such Royalty-Bearing
Products to make or have made such Licensed Biomolecule solely in order to make,
have made, use, sell, offer for sale and import such Royalty-Bearing Products;
and (b) if the Novartis Field includes non-transgenic applications, the License
will entitle Novartis to use the Licensed Biomolecule in Royalty-Bearing
Products and to make, have made, use, sell, offer for sale and import such
Royalty-Bearing Products. The terms of each License, including the Novartis
Field and the exclusive License Fee for each specific Licensed Biomolecule 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
specific Licensed Biomolecule will become effective upon payment of amounts due
under Section 6.4. License(s) granted under the terms of this Agreement will
continue until expiration of the Royalty-Bearing Period unless the License
Agreement is terminated in accordance with its terms.
4.5 Scope of License.
The Parties hereby agree that the Novartis Field related to the Initial
Projects 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 Development Biomolecules related to New Projects, the Novartis Field
will be defined at the time of designation of such Development Biomolecule by
the Research Committee. It is the intent of the Parties that the Novartis Field
will include the definition of the specific Crop, or Crops, on or in which
Royalty-Bearing Products 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
<PAGE>
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 Licensed Biomolecules. Novartis shall have the
sole and absolute discretion to make all decisions relating to marketing and
other commercialization activities in the Novartis Field with respect to any
Licensed Biomolecule or any Royalty-Bearing Product containing such Licensed
Biomolecule. However, each License Agreement shall include certain minimum
performance requirements with respect to the development and commercialization
of the applicable Licensed Biomolecule and Royalty-Bearing Product containing
such Licensed Biomolecule, as agreed upon by the Parties, and reversion of
rights with respect to such Licensed Biomolecule 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 exclusive ownership and control over all
Inventions relating to any Diversa Biomolecule and any derivative Biomolecule
made pursuant to this Agreement (including but not limited to Derivative
Novartis Biomolecules and Derivative Licensed Biomolecules, whether or not any
such Biomolecules are Licensed Biomolecules, including, without limitation, any
such Biomolecules, compositions containing any such Biomolecules (other than
Royalty-Bearing Products), methods of using such Biomolecules and methods of
making such Biomolecules. Diversa will not use any Derivative Novartis
Biomolecule in the applicable Novartis Field except pursuant to the Project and
will not provide or grant any rights to any third party to use any Derivative
Novartis Biomolecule in the applicable Novartis Field; provided that Diversa may
use any Derivative Novartis Biomolecule in any field outside of the Novartis
Field and may provide or grant any rights to any third party to use any
Derivative Novartis Biomolecule in any field outside of the Novartis Field if
the utility of such Derivative Novartis Biomolecule in the applicable field was
discovered without use of any information or materials provided to Diversa by
Novartis (as documented by Diversa). In addition, Diversa will not use, or
provide or grant any rights to any third party to use, any Derivative Licensed
Biomolecule for the same or similar use as any Royalty-Bearing Product. Nothing
herein is intended to limit Diversa's rights (including the right to grant
licenses to third parties) to any Biomolecules, except Development Biomolecules
subject to an Option under Section 4.1, Licensed Biomolecules subject to a
License under a License Agreement, Derivative Novartis Biomolecules to the
extent their use is limited by this Section 5.1.1 and Derivative Licensed
Biomolecules to the extent their use is limited by this Section 5.1.1; except
that no license, either express or implied, is granted by Novartis to
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Diversa under any Novartis Patent Rights, nor under any other intellectual
property rights held by Novartis or its Affiliates, or by NADI and its
Affiliates, whether or not such rights arise from the performance of this
agreement.
5.1.2 Novartis shall have exclusive ownership and control over
all Inventions relating to any Royalty-Bearing Product, including, without
limitation, such Royalty-Bearing Products, methods of using such Royalty-Bearing
Products and methods of making such Royalty-Bearing Products subject to payment
by Novartis to Diversa of compensation for Royalty-Bearing Products
commercialized outside of the Novartis Field as agreed upon by the Parties prior
to any such commercialization.
5.1.3 With respect to all Inventions relating to all assays
designed and/or developed in the course of the Project, (a) Diversa shall have
exclusive ownership and control over all such Inventions having solely Diversa
inventors; (b) Diversa shall have exclusive ownership and control over all such
Inventions having Diversa and Novartis 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 assay that incorporates or was
designed and/or developed using any information or materials provided to Diversa
by Novartis and (c) Novartis shall have exclusive ownership and control over all
such Inventions having solely Novartis 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 Biomolecule or Royalty-Bearing Product decides to
abandon or not to pursue
15.
<PAGE>
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 Novartis 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 Novartis Patent Rights, as well as any Diversa
Patent rights, subject to an Option or a License at the time of commencement of
such action or proceeding. Diversa shall have the right, at its own expense, to
participate in any such action regarding the Diversa Patent Rights by counsel of
its own choice. Upon written notice to Diversa, Novartis may require Diversa to
participate in such action as a necessary party to such action, at Novartis'
expense. If Novartis 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
16.
<PAGE>
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 Novartis 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 not subject to an Option or
a License 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 Novartis, NADI and any of its Affiliates 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.
17. *Confidential Treatment Requested
<PAGE>
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.
18. *Confidential Treatment Requested
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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;
19. *Confidential Treatment Requested
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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
21. *Confidential Treatment Requested
<PAGE>
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
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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. Novartis (the "Indemnitor") shall indemnify,
defend, and hold harmless Diversa 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 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
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 last day of the Research Period, or (ii) the
last day of the last Option Period.
10.2 Termination.
10.2.1 Change of Control. Novartis 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 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 10.2.1, this Agreement will be binding upon Novartis and Diversa, or any
successor to Diversa 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 ninety (90)
days after receiving written notice thereof from the other Party or (ii) to
commence dispute resolution pursuant to Section 10.3, within ninety (90) 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.
24.
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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
ten (10) business days after demand therefor, Diversa may terminate this
Agreement upon thirty (30) days prior written notice, unless the Novartis cures
such breach by paying all past-due amounts within such thirty (30) day notice
period, provided that Novartis 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 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 if Diversa is
the breaching Party, Novartis may retain Development Biomolecules, 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 5, 7.1, 7.2, 7.3, 7.4, 8.2, 8.3, 9, 10.3, 10.4 and 11
shall survive the expiration or termination of this Agreement, and the
provisions of Sections 4.4, 4.5, 4.6, 4.7, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 and
6.10 shall survive the termination of this Agreement with respect to any License
granted or Option exercised prior to such termination. 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 state of California 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,
27. *Confidential Treatment Requested
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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
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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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Flowchart:
[*****]
6. *Confidential Treatment Requested
<PAGE>
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:
[*****]
10. *Confidential Treatment Requested
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Exhibit B
Stock Purchase Agreement
<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.
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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.
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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.
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(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.
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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.
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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.
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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.
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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
CAPITALIZATION TABLE
Actual Prior To Series E Closing
<TABLE>
<CAPTION>
Total
Total Shares Fully-Diluted Shares
--------------------------------------------------------------------------------------------------------
Series A Series B Series C Series D Common Warrants(a) Options(b) # %
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PATRICOF FUNDS:
APA Excelsior IV, L.P.
The P/A Fund, L.P.
APA Excelsior IV/Offshore,
L.P.
Patricof Private Investment
Club, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Patricof Funds
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE FUNDS:
HealthCare Ventures III, L.P.
HealthCare Ventures IV, L.P.
HealthCare Ventures V, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
Total HealthCare Funds
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INVESTORS:
Benefit Capital Management
Corporation
New York Life Insurance
Company
CSK Venture Capital Co.,
Ltd.
State of Michigan
GC&H Investments
Mentus Money Purchase Plan
Logue, Kenneth F.
Rice, Raymond D.
Finnfeeds International
Limited
Abrams, Larry
Axiom Venture Partners, L.P.
Comdisco Warrant
Johnston, Donald
Rho Management Trust II
Aetna Life Insurance Company
Landsberger, Frank
Casty, Lee
Hudson Trust
The CIT Group/Venture
Capital, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Investors
- -----------------------------------------------------------------------------------------------------------------------------------
FOUNDERS:
The Institute for Genomic
Research, et al.
Haseltine, Wm.
Miller, Jeffrey H.
Simon, Melvin I.
Stetter, Karl O.
Kom, Peter, et al.
Friedman, Gary, et al.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Founders
- -----------------------------------------------------------------------------------------------------------------------------------
EMPLOYEES & CONSULTANTS:
CURRENT EMPLOYEES
Bruggeman, Terrance
Short, Jay
Van Sleen, Kathleen
Simms, Patrick
Baum, Bill
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal Management
- -----------------------------------------------------------------------------------------------------------------------------------
Other Employees
Pool Available (c)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Employees
- -----------------------------------------------------------------------------------------------------------------------------------
TERMINATED EMPLOYEES
Marrs, Barry
Garaventi, Don
Other Terminated Employees
- -----------------------------------------------------------------------------------------------------------------------------------
Total Terminated Employees
- -----------------------------------------------------------------------------------------------------------------------------------
Glickman, Bary
Carroll, Daniel (Director)
Other Consultants
- -----------------------------------------------------------------------------------------------------------------------------------
Total Employees and
Consultants
- -----------------------------------------------------------------------------------------------------------------------------------
Grand Total
===================================================================================================================================
</TABLE>
FOOTNOTES:
(a) [****]
(b) [****]
(c) [****]
* CONFIDENTIAL TREATMENT REQUESTED
<PAGE>
SCHEDULE 4.2 - CAPITALIZATION
DIVERSA CORPORATION
CAPITALIZATION TABLE
Projected After Series E Closing
<TABLE>
<CAPTION>
Total
Total Shares Fully-Diluted Shares
--------------------------------------------------------------------------------------------------------
Series A Series B Series C Series D Common Warrants(a) Options(b) # %
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PATRICOF FUNDS:
APA Excelsior IV, L.P.
The P/A Fund, L.P.
APA Excelsior IV/Offshore,
L.P.
Patricof Private Investment
Club, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Patricof Funds
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE FUNDS:
HealthCare Ventures III, L.P.
HealthCare Ventures IV, L.P.
HealthCare Ventures V, L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
Total HealthCare Funds
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INVESTORS:
Benefit Capital Management
Corporation
New York Life Insurance
Company
CSK Venture Capital Co.,
Ltd.
State of Michigan
GC&H Investments
Mentus Money Purchase Plan
Logue, Kenneth F.
Rice, Raymond D.
Finnfeeds International
Limited
Abrams, Larry
Axiom Venture Partners, L.P.
Comdisco Warrant
Johnston, Donald
Rho Management Trust II
Aetna Life Insurance Company
Landsberger, Frank
Casty, Lee
Hudson Trust
The CIT Group/Venture
Capital, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Other Investors
- -----------------------------------------------------------------------------------------------------------------------------------
FOUNDERS:
The Institute for Genomic
Research, et al.
Haseltine, Wm.
Miller, Jeffrey H.
Simon, Melvin I.
Stetter, Karl O.
Kom, Peter, et al.
Friedman, Gary, et al.
- -----------------------------------------------------------------------------------------------------------------------------------
Total Founders
- -----------------------------------------------------------------------------------------------------------------------------------
EMPLOYEES & CONSULTANTS:
CURRENT EMPLOYEES
Bruggeman, Terrance
Short, Jay
Van Sleen, Kathleen
Simms, Patrick
Baum, Bill
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal Management
- -----------------------------------------------------------------------------------------------------------------------------------
Other Employees
Pool Available (c)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Current Employees
- -----------------------------------------------------------------------------------------------------------------------------------
TERMINATED EMPLOYEES
Marrs, Barry
Garaventi, Don
Other Terminated Employees
- -----------------------------------------------------------------------------------------------------------------------------------
Total Terminated Employees
- -----------------------------------------------------------------------------------------------------------------------------------
Glickman, Bary
Carroll, Daniel (Director)
Other Consultants
- -----------------------------------------------------------------------------------------------------------------------------------
Total Employees and
Consultants
- -----------------------------------------------------------------------------------------------------------------------------------
Grand Total
===================================================================================================================================
</TABLE>
FOOTNOTES:
(a) [****]
(b) [****]
(c) [****]
* CONFIDENTIAL TREATMENT REQUESTED
<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
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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.
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
46.
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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.
47.
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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.
48.
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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.
49.
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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
50.
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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
51.
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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
52.
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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
53.
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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
66.
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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.
67.
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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.
69.
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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
70.
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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.
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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: ______________________________
Terrance J. Bruggeman
Chief Executive Officer
Attest:
____________________________
Kathleen H. Van Sleen
Secretary
72.
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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.
<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.
<PAGE>
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
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
15.
<PAGE>
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
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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
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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
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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
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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
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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
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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.
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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:_____________________________________
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.
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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.
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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.
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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.
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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.
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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.
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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
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
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 Right of First Refusal. RPAN will have a right of first refusal to
obtain a license from Diversa to use the Licensed Enzyme to make and have made
certain molecules related to the product specified in Exhibit D ("Related
Molecules"). In the event that Diversa proposes to grant such a license to any
third party. Diversa will notify RPAN in writing of the offer of such license
and the terms upon which such license is proposed to be granted to such third
party (the "Offer"). RPAN shall have a period of ninety (90) days from the date
of such notice in which to review the Offer and notify Diversa in writing that
it wishes to acquire such rights on such or similar terms. If RPAN provides such
notice within such ninety (90) day period, then the parties shall proceed
diligently in good faith to enter into a definitive agreement with regard to
such rights on customary terms for similar licenses. If RPAN does not provide
written notice of its wish to acquire such rights or provides written notice
that it is not interested in acquiring such rights on the terms presented in the
offer within such ninety (90) day period, then Diversa shall be free to grant
such rights to a third party on terms no more favorable to such third party than
the terms set forth in the Offer.
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 Option Enzymes or Products.
. Diversa shall own all Inventions claiming compositions of matter, uses
or methods of or otherwise involving, any Option Enzyme or any derivative or
analog thereof (including any Derivative Enzyme).
. RPAN will own all Inventions claiming composition of matter uses or
methods of or otherwise involving the Base Catalyst and the Products.
Inventions involving Assays.
. Diversa will own all Inventions relating to any assays designed and/or
developed in the course of the collaboration that are conceived of solely by
Diversa.
5. *Confidential Treatment Requested
<PAGE>
. Diversa will own all Inventions relating to any assays designed and/or
developed in the course of the collaboration that are conceived of
jointly by Diversa and RPAN provided, however, that Diversa (i) will not
use, or grant any third party the right to use, any such assays that
incorporates or was designed and/or developed using any information or
materials provided to Diversa by RPAN other than for research under this
Agreement and (ii) will grant RPAN a free non-exclusive, non
transferable license to use any such assays solely for RPAN's internal
research purposes.
. RPAN will own all Inventions relating to any assays designed and/or
developed in the course of the collaboration with Diversa that are
conceived of solely by RPAN.
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 New York 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.
<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.
<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
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
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 cloning of DNA inserts from uncultured organisms
only in conjunction with LICENSEE'S proprietary technology. 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 ten (10)
years 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 which cannot be practiced without LICENSED PATENT RIGHTS conceived
and/or reduced to practice solely by LICENSEE ("LICENSEE INVENTIONS") 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 dominated by LICENSED PATENT RIGHTS conceived and/or reduced to
practice solely by LICENSOR ("LICENSOR INVENTIONS") shall be owned by Licensor.
8.3 All right, title and interest in and to all inventions dominated by
PATENT RIGHTS conceived and reduced to practice jointly by LICENSOR AND LICENSEE
("JOINT INVENTIONS") shall be owned jointly by Licensor and Licensee.
8.4 Licensor will automatically receive a royalty free, paid-up non-
exclusive license to LICENSEE INVENTIONS for all purposes outside the Field Of
Use.
8.5 Licensee will automatically receive a non-exclusive license to
LICENSOR INVENTIONS within the FIELD OF USE 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 California law applicable to
agreements made and to be performed in California.
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 five (5) years 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 California 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.
<PAGE>
EXHIBIT A
TO BE PROVIDED
<PAGE>
EXHIBIT 10.22
SECOND AMENDMENT
The License Agreement ("Agreement") between Mycogen Corporation ("MYCOGEN") and
Diversa Corporation ("DIVERSA"), dated December 19, 1997, was amended on March
6, 1998 ("March 6/th/ Amendment"). In order to avoid possible misunderstandings
as to the rights and obligations arising under the Agreement, as amended, the
following understandings are hereby confirmed:
1. MYCOGEN Technology is defined in Section 1.6 of the Agreement. MYCOGEN
Technology includes information, techniques, data, materials and chemicals
relating to MYCOGEN's proprietary [*****] gene expression system. In
particular, MYCOGEN Technology includes, but is not limited to, the host
strains and expression plasmids of [*****] which were provided to DIVERSA
by MYCOGEN, and all information pertaining to the use of such strains,
including methods and materials used to cultivate these strains and recover
Products, which were provided to DIVERSA by MYCOGEN.
2. Pursuant to Section 11.2 of the March 6/th/ Amendment, DIVERSA agreed that
it shall not make any improvements, adaptations, modifications to, or
reverse engineer any part of the MYCOGEN Technology. Consistent with the
March 6th Amendment, DIVERSA will not improve, adapt, modify or reverse
engineer the host strains, expression plasmids, or cultivation and recovery
methods of [*****] provided to DIVERSA by MYCOGEN, with the exception of
any modifications to methods of cultivation of the [*****] host strains or
recovery and expression of the proteins that are required to be made by
DIVERSA in order to allow DIVERSA to economically commercialize Products.
In particular, prohibited improvements, adaptations or modifications of
MYCOGEN Technology include, but are not limited to, [*****] of the [*****]
host strains provided to DIVERSA by MYCOGEN and [*****] to improve or
modify the [*****] host strains that are part of the MYCOGEN Technology.
3. Appendix A to this Second Amendment further exemplifies: (i) Know-How owned
or Controlled by MYCOGEN, which is included in the definition of MYCOGEN
Technology in the Agreement, and (ii) improvements to MYCOGEN Technology as
described in the March 6/th/ Amendment.
4. Any improvements, adaptations or modifications of MYCOGEN Technology made
by DIVERSA to allow DIVERSA to express, recover and commercialize Products
in the System become the sole property of MYCOGEN pursuant to Section 11.2
of the March 6/th/ Amendment. DIVERSA shall promptly disclose to MYCOGEN
any such improvements, adaptations or modifications of MYCOGEN Technology
made by DIVERSA including any improvement, adaptation or modification of
the [*****] host strains and expression plasmids transferred to DIVERSA by
MYCOGEN and methods used to cultivate the organisms and recover Products or
other enzymes. MYCOGEN shall have the right to use such improvements,
adaptations and modifications for the production of enzymes, including the
production of enzymes for third parties.
5. The license granted to DIVERSA under the MYCOGEN Technology, pursuant to
Section 2.1 of the Agreement, is to use the System to produce, make, have
made, use, offer for sale, sell and import Product(s) and other enzymes.
The System is defined in Section 1.8 of the Agreement to mean MYCOGEN's
proprietary [*****] gene expression system, including the host strain,
expression plasmids, and proprietary cultivation and recovery methods
transferred to DIVERSA by MYCOGEN under the terms of the license. The
license granted to DIVERSA by MYCOGEN under the Agreement, as amended on
March 6, 1998, is limited to use of the System as defined in the Agreement.
No rights are granted to use any improvements, adaptations or modifications
of MYCOGEN's proprietary [*****] host strains and expression plasmids,
except as provided in Paragraphs 2 and 4 of this Second Amendment. It is
understood that the Agreement as amended does not prevent DIVERSA from
using information that is both subject to the exceptions in Section 5.2(a)
to (d) of the Agreement and not covered by patents owned or controlled by
MYCOGEN or its Affiliates to independently develop gene expression systems
without the aid, application or use of Confidential Information received
from MYCOGEN.
6. Nothing in the Agreement or the March 6/th/ Amendment shall be construed to
grant to DIVERSA any rights in MYCOGEN's Know-how developed after December
19, 1997, except with respect to improvements, adaptations or modifications
that are derived by MYCOGEN from DIVERSA Know-How, as provided in Section
11.1 of the March 6/th/ Amendment,
1. *Confidential Treatment Requested
<PAGE>
where this DIVERSA Know-how is Confidential Information of DIVERSA received
by MYCOGEN and this Confidential Information is not subject to any
exception in Section 5.2 of the Agreement.
7. This Second Amendment is a confirmation and clarification of obligations
existing under the Agreement and March 6/th/ Amendment and as such shall be
deemed effective as of March 6, 1998. The definitions of terms defined in
the Agreement and March 6/th/ Amendment are incorporated herein to the
extent such terms have not been expressly explained or clarified by this
Second Amendment.
ACCEPTED AND AGREED TO:
MYCOGEN CORPORATION DIVERSA CORPORATION
/s/ Ronald L. Meeusen /s/ Jay M. Short
- ----------------------------- -------------------------------
Name: Name: JAY M. SHORT
Title: V.P. R&D Title: CEO
Date: 7-30-99 Date: 7-20-99
2. *Confidential Treatment Requested
<PAGE>
APPENDIX A
Exemplification of MYCOGEN Technology and Improvements
"MYCOGEN Technology", as defined in the License Agreement of December 19, 1997
between MYCOGEN and DIVERSA ("Agreement"), includes, but is not limited to, the
following Know-How owned or Controlled by MYCOGEN on the Effective Date of the
License Agreement that in each case was transferred to DIVERSA by MYCOGEN under
the terms of the Agreement:
A. [*****]
B. [*****]
C. [*****]
1. [*****]
2. [*****]
3. [*****]
4. [*****]
5. [*****]
6. [*****]
7. [*****]
8. [*****]
1. *Confidential Treatment Requested
<PAGE>
9. [*****]
10. [*****]
11. [*****]
12. [*****]
13. [*****]
14. [*****]
15. [*****]
16. [*****]
17. [*****]
D. All documentation for regulatory submissions relating to products produced
in [*****], including TSCA premanufacture notices and toxicology data
E. Confidential Information related to business information of MYCOGEN and its
affiliates pertaining to plans for development and commercialization of [*****]
gene expression system
2. *Confidential Treatment Requested
<PAGE>
IMPROVEMENTS TO MYCOGEN TECHNOLOGY
Improvements, adaptations and modifications of the MYCOGEN Technology, which are
described as "Improvements" in the March 6, 1998 Amendment of the Agreement
include, but are not limited to, changes in the Know-How provided by MYCOGEN
related to [*****] host strains, plasmids, vectors, raw material
specifications, or recipe variables to produce make or have made Products or
other enzymes. Products and Know-How are defined in the Agreement.
<PAGE>
IMPROVEMENTS TO MYCOGEN TECHNOLOGY
CONFIDENTIAL
AMENDMENT
March 6, 1998
Effective immediately, the License Agreement between Diversa Corporation
(hereinafter "DIVERSA"), and Mycogen Corporation (hereinafter, "MYCOGEN"),
effective December, 1997, is hereby amended as follows:
1. Article 1 - Definitions shall be amended to include the following
definitions:
1.10 "DIVERSA Inventions" means all inventions, discoveries, modifications,
improvements, technical information and know-how, whether patentable or not made
by DIVERSA's employees or agents alone or in conjunction with employees or
agents of third parties.
1.11 "MYCOGEN Inventions" means all inventions, discoveries, modifications,
improvements, technical information and know-how, whether patentable or not,
made by MYCOGEN's employees or agents alone or in conjunction with employees or
agents of third parties.
1.12 "Joint Inventions" means all inventions, discoveries, modifications,
improvements, technical information and know-how, whether patentable or not,
made jointly by DIVERSA's and MYCOGEN's employees or agents.
2. Article 11 - Intellectual Property Ownership shall be added to the Agreement
and shall read as follows:
11.1 Improvements to DIVERSA Know-How. MYCOGEN agrees that it shall not
make any improvements, adaptations or modifications (collectively
"Improvements") to, or reverse engineer any part of DIVERSA Know-How,
Notwithstanding the foregoing, any Improvements to DIVERSA Know-How made by
MYCOGEN shall become the sole property of DIVERSA.
11.2 Improvements to MYCOGEN Technology. DIVERSA agrees that it shall not
make any Improvements to, or reverse engineer any part of, the MYCOGEN
Technology. Notwithstanding the foregoing, any Improvements to the MYCOGEN
Technology made by DIVERSA shall become the sole property of MYCOGEN. All such
Improvements will be incorporated into the license granted to DIVERSA pursuant
to this Agreement.
11.3 Except as set forth in Sections 11.1 and 11.2, DIVERSA shall have
exclusive ownership and title to DIVERSA's Inventions, and MYCOGEN shall have
exclusive ownership and title to MYCOGEN's Inventions.
11.4 Except as set forth in Sections 11.1 and 11.2, DIVERSA and MYCOGEN
shall have joint ownership and title to Joint Inventions. Further, in the event
of any such Joint Invention, the parties shall grant to each other a
nonexclusive, irrevocable, royalty free license, without the right to grant
sublicenses, to make, use, import, sell, offer to sell, have made and have used
any such Invention resulting from work under this Agreement.
11.5 DIVERSA shall have the right to prepare, file, prosecute and maintain
patent applications and patents, continuations, continuations-in-part,
divisionals, reissues, additions, renewals, or extensions thereof covering
DIVERSA's Inventions, in countries and regions of its choice throughout the
world, for which DIVERSA shall bear all costs.
11.6 MYCOGEN shall have the right to prepare, file, prosecute and maintain
patent applications and patents, continuations, continuations-in-part,
divisionals, reissues, additions, renewals, or extensions thereof covering
MYCOGEN's Inventions, in countries and regions of its choice throughout the
world, for which MYCOGEN shall bear all costs.
1. *Confidential Treatment Requested
<PAGE>
11.7 DIVERSA shall have the right to prepare, file, prosecute and maintain
patent applications and patents, continuations, continuations-in-part,
divisionals, reissues, additions, renewals, or extensions thereof covering Joint
Inventions, in countries and regions of choice throughout the world, for which
DIVERSA and MYCOGEN shall share all costs equally with the following exceptions:
(a) In the event MYCOGEN elects not to protect nor share in the
aforementioned costs to protect any Joint Invention, and DIVERSA desires to
file, prosecute or maintain a patent application or patent in that country.
DIVERSA may do so in the name of both DIVERSA and MYCOGEN subject to MYCOGEN's
consent which consent shall not be unreasonably withheld. Upon this election,
MYCOGEN agrees to promptly appoint DIVERSA as its attorney-in-fact for the
limited purpose of executing all documents and performing any other act
necessary to file, prosecute or maintain a patent application or patent in any
country of choice.
(b) In the event DIVERSA elects not to protect nor share in the
aforementioned costs to protect any Joint Invention and MYCOGEN desires to file,
prosecute or maintain a patent application or patent in that country, MYCOGEN
may do so in the name of both MYCOGEN and DIVERSA, subject to DIVERSA's consent
which consent shall not be reasonably withheld. Upon this election, DIVERSA
agrees to promptly appoint MYCOGEN as its attorney-in-fact for the limited
purpose of executing all documents and performing any other act necessary to
file, prosecute, or maintain a patent application or patent in any country of
choice.
DIVERSA shall invoice MYCOGEN for MYCOGEN's share of such expenses, which
invoice shall be paid by MYCOGEN within thirty (30) days.
11.8 Each party shall provide reasonable assistance to the other party to
facilitate filing and prosecution of all patent applications and maintaining and
extending patents covering inventions and discoveries subject to this section
and shall execute all documents deemed necessary or desirable therefor.
All of the other terms and conditions of the Agreement shall remain in full
force and effect.
CONFIDENTIAL
IN WITNESS WHEREOF, the parties have caused this instrument to be executed by
their duly authorized officers as of the day and year set forth below.
ACCEPTED AND AGREED TO:
Mycogen Corporation
/s/ Andrew L. Barnes
- -------------------------------
Print Name: Andrew L. Barnes
--------------------
Print Title: Exec. VP
-------------------
Date: 3/10/98
--------------------------
Diversa Corporation
/s/ Patrick Simms
- -------------------------------
Patrick Simms
Vice President
Date: 3/6/98
--------------------------
2. *Confidential Treatment Requested
<PAGE>
License Agreement
This License Agreement (the "Agreement"), dated as of December, 1997 (the
"Effective Date"), is made by and between Mycogen Corporation, a California
corporation 92121 ("MYCOGEN"), and Diversa Corporation, a Delaware corporation
having its principal offices at 10665 Sorrento Valley Road, San Diego,
California 92121 ("Diversa").
Recitals
Whereas, MYCOGEN possesses a proprietary gene expression System (as defined
below) and other proprietary rights, know-how and experience relating to gene
expression;
Whereas, DIVERSA desires to obtain immediate access and a worldwide,
exclusive license to utilize such gene expression System to produce Product(s);
(as defined below) ;
Whereas, MYCOGEN desires to grant DIVERSA immediate access and a
worldwide, exclusive license to utilize such gene expression System to produce
Product(s);
Now, Therefore, in consideration of the mutual covenants and promises set
forth in the Agreement, the parties agree as follows:
Article 1 - Definitions
1.1 "Affiliate" means an individual, trust, business trust, joint venture,
partnership, corporation, association or any other entity which owns, is owned
by or is under common ownership with a party. For the purposes of this
definition, the term "owns" (including, with correlative meanings, the terms
"owned by" and under common ownership with") as used with respect to any party,
shall mean the possession (directly or indirectly) of more than 50% of the
outstanding voting securities of a corporation or comparable equity interest in
any other type of entity.
1.2 "Confidential Information" means all information and materials received by
either party from the other party pursuant to this Agreement and all information
and materials developed in the course of the Research Activities, including,
without limitation, Know-How of each party. Confidential Information disclosed
in tangible form shall be marked " Confidential," "Proprietary" or in some other
manner to indicate its confidential nature. If disclosed orally, Confidential
Information shall be designated as confidential at the time of disclosure and
reduced to a written summary by the disclosing party and shall be marked in a
manner to indicated its confidential nature and delivered to the receiving party
within 45 days after disclosure.
1.3 "Control" means the ability to grant a license or sublicense as provided
for herein without violating the terms of any agreement with or other
arrangement with any Third Party.
1.4 "Gross Revenues" means the gross amount received by DIVERSA as a direct
result of sale of Product(s) and other enzymes by DIVERSA, its Affiliates or
their distributors, less allowances on returned or rejected goods, prepaid
freight, sales or other taxes (other than taxes based on net income) refunds
transportation charges (if separately stated or invoiced), rebates, cash, trade
and quantity discounts actually paid. Transfer of a Product to an Affiliate for
sale by the Affiliate shall not be considered a sale. In the case of such a
transfer to an Affiliate, the Gross Revenues shall be based on the gross amount
invoiced for the Product(s) by the Affiliate as invoiced to its customer. Sale
of a Product to an Affiliate by Diversa shall be considered a sale and shall be
included in Gross Revenues. In the event a Product is sold as a Combination
Product, Gross Revenues, for purposes of determining royalty payments on the
Combination Product shall be calculated as provided in this paragraph. The term
"Combination Product", shall mean a product consisting of a Product and at least
one other Biologically Active Component. The term "Biologically Active Component
shall mean a biologically active component of a Combination Product that is
itself essential to the function of the Combination Product. For purposes of
this Agreement, a Product is not a Combination Product if it consists solely of
one or more Product(s) and one or more other components that are not
Biologically Active Components (Gross Revenues in a Combination Product shall be
calculated by multiplying Gross Revenues of the Combination Product by the
fraction A/(A+B) where A is the value of the Product(s) without the other
biologically Active Components, and B is the value of the other biologically
Active Components without the Product(s).
1. * Confidential Treatment Requested
<PAGE>
1.5 "Know-How" means information, techniques, data, materials and chemicals
(whether or not patentable), including, without limitation, inventions,
techniques, practices, methods, knowledge, know-how, skill, experience, test
data, analytical and quality control data, patent and legal data or
descriptions, sales and manufacturing data.
1.6 "MYCOGEN Technology" means the Know-How owned or Controlled by MYCOGEN
necessary or appropriate to develop, manufacture and commercialize Product(s),
including, without limitation, the Know-How relating to the System, including
the host strain and plasmid vectors.
1.7 "Product(s)" means any enzyme which is obtained by expressing any gene or
combination of genes owned by or licensed to DIVERSA using the System,
including, without limitation, any enzyme sold as an industrial enzyme or
pharmaceutical intermediate.
1.8 "System" means MYCOGEN's proprietary [****] gene expression system used to
produce the Product(s).
1.9 "Third Party" means any entity other than DIVERSA or MYCOGEN or an
Affiliate of DIVERSA or MYCOGEN.
Article 2 - License Grant
2.1 License. Subject to the terms and conditions set forth herein, MYCOGEN
hereby grants to DIVERSA an exclusive, worldwide license, including the right to
grant sublicenses pursuant to section 2.2, under the MYCOGEN Technology to use
the System to produce, make, have made, use, offer for sale, sell and import
Product(s) and other enzymes, with the exception that Diversa shall not use the
System to contract manufacture any enzyme for any third party. Notwithstanding
the foregoing, MYCOGEN and its Affiliates retain the rights to use the System
for the production of enzymes, including for the production of enzymes for third
parties by MYCOGEN.
2.2 Sublicense. MYCOGEN and DIVERSA contemplate that DIVERSA may from time to
time desire to grant sublicenses to third parties to use the System to produce
Product(s) for DIVERSA to be offered for sale by DIVERSA. Accordingly, DIVERSA
shall have the right to grant one or more sublicenses to any third party to use
the System to produce Product(s), provided that any such sublicense expressly
provides that (i) the sublicensees shall have no right to sublicense the System,
and (ii) the sublicensee shall be subject in all respects to provisions in this
Agreement.
Article 3 - Payments And Royalties
3.1 Payments. In partial consideration for the rights granted herein, DIVERSA
shall pay to MYCOGEN a [****], [****] of this Agreement.
3.2 Royalty. DIVERSA shall pay to MYCOGEN a royalty equal to [****].
3.3 [****]
2. *Confidential Treatment Requested
<PAGE>
3.4 Duration of Royalty Obligations. Royalty obligations shall continue for the
term of this Agreement.
3.5 Reduction in Royalty Rate. In the event that DIVERSA is or becomes
obligated to pay additional royalties to MYCOGEN or any third party under
separate license agreement(s) for use of the System, then up to 50% of the
additional or third party royalties owed shall be credited against royalties
owed to MYCOGEN under the terms of this Agreement. In no event, however, shall
the royalty obligation owed to MYCOGEN be reduced below 2% of Gross Revenues of
the Product(s) for any relevant royalty payment period.
Article 4 - Payments and Reports
4.1 Semi-Annual Payments. Royalties shall be calculated on a semi-annual basis,
and payable within 60 days after the end of each calendar six month period based
upon Gross Revenues during the previous calendar six month period. All payments
will be made in U.S. Dollars. The exchange rate for conversion of any currency
to U.S. Dollars will be the exchange rate prevailing at Citibank N.A. in New
York for the last business day of each such calendar period. Interest will be
paid on the outstanding balance of any late payments at the prime rate of
interest reported by Citibank, N.A. in New York, as such rate may change from
time to time plus 2% per annum from the due date until the date that such
payment in full is actually received. DIVERSA will assume the risk of any
inconvertibility of any currency.
4.2 Reports. DIVERSA shall furnish to MYCOGEN, at the same time as each royalty
payment is due, a written report of Gross Revenues of each Product and the
royalty due and payable, for the calendar six month period upon which the
royalty payment is based.
4.3 Records. DIVERSA shall keep full, complete and proper records and accounts
of Gross Revenues of each Product, in sufficient detail to enable the royalties
payable to MYCOGEN to be determined. Upon reasonable notice to DIVERSA, MYCOGEN
shall have the right through an independent certified public accountant to audit
DIVERSA's records pertaining to the Product(s) during normal business hours to
verify the royalties payable pursuant to this Agreement; provided, however, that
such audit shall not take place more often than once a year and shall not cover
such records for more than the preceding three years and provided further that
such accountant shall report to MYCOGEN only as to the accuracy of the royalty
reports and payments submitted by DIVERSA to MYCOGEN hereunder. Such audit shall
be at MYCOGEN expense; provided, however, in the event the audit discloses that
MYCOGEN was underpaid royalties by at least 5% for any calendar six month period
then DIVERSA shall reimburse MYCOGEN for audit costs together with an amount
equal to the additional royalties to which MYCOGEN is entitled. DIVERSA shall
preserve and maintain all such records and accounts required for audit for a
period of three years after the calendar six month period for which the record
applies.
Article 5 - Confidentiality
5.1 Nondisclosure. During the Term of this Agreement, and for a period of
five years thereafter, each party will maintain all Confidential Information as
confidential and will not disclose any Confidential Information to any Third
Party or use any Confidential Information for any purpose except (a) as
expressly authorized by this Agreement, (b) as required by law or court order,
or (c) to its Affiliates. Each party may use such Confidential Information only
to the extent required to accomplish the purposes of this Agreement. Each party
will use at least the same standard of care as it uses to protect proprietary or
confidential information of its own to ensure that its Affiliates, employees,
agents, consultants and other representatives do not disclose or make any
unauthorized use of the Confidential Information. Each party will promptly
notify the other upon discovery of any unauthorized use or disclosure of the
Confidential Information.
5.2 Exceptions. Confidential Information shall not include any information
which the receiving party can prove by competent evidence:
3. *Confidential Treatment Requested
<PAGE>
a) is now, or hereafter becomes, through no act or failure to act on the
part of the receiving party, generally known or available;
b) is known by the receiving party at the time of receiving such
information, as evidenced by its records;
c) is hereafter furnished to the receiving party by a Third Party, as a
matter of right and without restriction on disclosure;
d) is independently developed by the receiving party without the aid,
application or use of Confidential Information; or
e) is the subject of a written permission to disclose provided by the
disclosing party.
Article 6 - Representations, Warranties And Covenants
6.1 Corporate Power. Each party hereby represents and warrants that such party
is duly organized and validly existing under the laws of the state of its
incorporation and has full corporate power and authority to enter into this
Agreement and to carry out the provisions hereof.
6.2 Due Authorization. Each party hereby represents and warrants that such
party is duly authorized to execute and deliver this Agreement and to perform
its obligations hereunder.
6.3 Binding Agreement. Each party hereby represents and warrants that this
Agreement is a legal and valid obligation binding upon it and is enforceable in
accordance with its terms. The execution, delivery and performance of this
Agreement by such party does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be
bound, nor violate any law or regulation of any court, governmental body or
administrative or other agency having authority over it.
6.4 Disclaimer Of Warranties By Mycogen. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, MYCOGEN DOES NOT MAKE ANY REPRESENTATION OR WARRANTY TO DIVERSA OF
ANY NATURE, EXPRESS OR IMPLIED, THAT THE SYSTEM WILL BE USEFUL FOR, OR ACHIEVE
ANY PARTICULAR RESULTS. MYCOGEN SPECIFICALLY DISCLAIMS ANY WARRANTY OF
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Article 7 - Term And Termination
7.1 Term. This Agreement shall commence as of January 1, 1998, and shall
continue unless terminated in accordance with the terms of this Agreement.
7.2 Termination for Cause. Either party may terminate this Agreement upon 60
days written notice upon the occurrence of any of the following:
a) Upon or after the bankruptcy, insolvency, dissolution or winding up of
the other party (other than dissolution or winding up for the purposes
of reconstruction or amalgamation); or
b) Upon or after the breach of any material provision of this Agreement by
the other party if the breaching party has not cured such breach or
diligently proceeded to cure such breach within the 60 day period
following written notice of termination by the other party.
7.3 Effects of Termination. Expiration or termination of this Agreement shall
not relieve the parties of any obligation accruing prior to such expiration or
termination. The provisions of Sections 4.3, 6.4 and 7.3 and Articles 5, 8 and 9
shall survive termination or expiration of this Agreement.
Article 8 - Dispute Resolution
8.1 Disputes. The parties recognize that disputes as to certain matters may
from time to time arise which relate to either party's rights and/or obligations
hereunder. It is the objective of the parties to
4.
<PAGE>
establish procedures to facilitate the resolution of such disputes in an
expedient manner by mutual cooperation and without resort to litigation. To
accomplish this objective, the parties agree to follow the procedures set forth
in this Article 8 if and when such a dispute arises between the parties.
8.2 Procedure. 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 30 days 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 within 30 days after the institution of the arbitration
proceeding and the third arbitrator will be selected by mutual agreement of
the other two arbitrators within 30 days 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 30 days 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.
Article 9 - Indemnification And Insurance
9.1 Patent Infringement Indemnification. DIVERSA will at all times during the
term of this Agreement and thereafter, indemnify, defend and hold harmless
MYCOGEN and its directors, officers, employees, and affiliates, against any
claim, proceeding, demand, liability, or expense (including legal expenses and
reasonable attorney's fees) which relates to any action brought by a third party
alleging infringement of a U.S. or foreign patent as a result of the activities
of DIVERSA under this Agreement, except to the extent that such alleged
infringement is the direct result of an activity of MYCOGEN.
MYCOGEN will at all times during the term of this Agreement and thereafter,
indemnify, defend and hold harmless DIVERSA and its directors, officers,
employees, and affiliates, against any claim, proceeding, demand, liability, or
expense (including legal expenses and reasonable attorney's fees) which relates
to any action brought by a third party alleging infringement of a U.S. or
foreign patent as a result of the activities of MYCOGEN under this Agreement,
except to the extent that such alleged infringement is the direct result of an
activity of DIVERSA.
9.2 Product Liability Indemnification. DIVERSA will at all times during the
term of this Agreement and thereafter, indemnify, defend and hold harmless
MYCOGEN and its directors, officers, employees, and affiliates, against any
claim, proceeding, demand, liability, or expense (including legal expenses and
reasonable attorney's fees) which relates to injury to persons or property, or
against any other claim, proceeding, demand, expense and liability of any kind
whatsoever resulting from the production, manufacture, sale, use, lease,
consumption or advertisement of Product(s), except to the extent that such
alleged infringement is the direct result of an activity of MYCOGEN.
9.3 Obligation of Agents. DIVERSA will require all agents who are involved
with the development, manufacturing, use or sale of Product(s), process or
service relating to this Agreement to provide the same level of indemnification
as set forth in this section.
5. *Confidential Treatment Requested
<PAGE>
9.4 Survival. This Clause 9 will survive expiration or termination of this
Agreement.
Article 10 - Miscellaneous
10.1 Assignment.
(a) Neither party will have the right to assign its rights or
obligations under this Agreement with the prior written consent of the
other party. Any attempted assignment in violation of this provision will
be void. However, this Agreement shall survive any merger, reorganization
or sale of all or substantially all of the assets of either party with or
into another party and no consent for such transaction shall be required
hereunder; provided, however, that in the event of such transaction, no
intellectual property rights of the acquiring corporation shall be
included in the technology licensed hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of the parties. Any assignment not in
accordance with this Agreement shall be void.
10.2 Force Majeure. Neither party shall lose any rights hereunder or be liable
to the other party for damages or losses on account of failure of performance by
the defaulting party if the failure is occasioned by government action, war,
fire, explosion, flood, strike, lockout, embargo, act of God, or any other
similar cause beyond the control of the defaulting party; provided, however,
that the party claiming force majeure has exerted all reasonable efforts to
avoid or remedy such condition.
10.3 Notices. Any notices or communications provided for in this Agreement to
be made by either of the parties to the other shall be in writing and delivered
personally or sent by United States mail, registered or certified, postage paid,
by overnight delivery service such as FedEx or UPS or by facsimile, with
confirmation of receipt, addressed as follows:
If to DIVERSA:
Diversa Corporation
10665 Sorrento Valley Road
San Diego, CA 92121
Attn: Carolyn A. Erickson
Director Intellectual property
Phone No. (619)623-5104
Fax No. (619)623-5190
If to MYCOGEN:
MYCOGEN Corporation
5501 Oberlin Drive
San Diego, CA 92121
Attn: [*****]
Either party may by like notice specify or change an address to which notices
and communications shall thereafter be sent. Notices sent by facsimile shall be
effective upon confirmation of receipt, notices sent by mail or overnight
delivery service shall be effective upon receipt, and notices given personally
shall be effective when delivered.
10.4 Governing Law. This Agreement shall be governed by, construed and enforced
in accordance with the laws of the State of California, as such laws are applied
to contracts entered into and to be performed entirely within the State of
California by California residents.
6. *Confidential Treatment Requested
<PAGE>
10.5 Waiver. Except as specifically provided for herein, the waiver from time
to time by either of the parties of any of their rights or their failure to
exercise any remedy shall not operate or be construed as a continuing waiver of
same or of any other of such party's rights or remedies provided in this
Agreement.
10.6 Severability. If any term, covenant or condition of this Agreement or the
application thereof to any party or circumstance shall, to any extent, be held
to be invalid or unenforceable, then (a) the remainder of this Agreement, or the
application of such term, covenant or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant or condition of this Agreement shall be
valid and be enforced to the fullest extent permitted by law; and (b) the
parties hereto covenant and agree to renegotiate any such term, covenant or
application thereof in good faith in order to provide a reasonably acceptable
alternative to the term, covenant or condition of this Agreement or the
application thereof that is invalid or unenforceable, it being the intent of the
parties that the basic purposes of this Agreement are to be effectuated.
10.7 Independent Contractors. It is expressly agreed that DIVERSA and MYCOGEN
shall be independent contractors and that the relationship between the two
parties shall not constitute a partnership or agency of any kind. Neither
DIVERSA nor MYCOGEN shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior written authorization of the party to
do so.
10.8 Entire Agreement; Amendment. This Agreement sets forth all of the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the parties hereto, and supersedes and terminates all
prior agreements and understanding between the parties with respect to the
subject matter hereof. There are no covenants, promises, agreements, warranties,
representations conditions or understandings, either oral or written, between
the parties other than as set forth herein and therein. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon the parties hereto unless reduced to writing and signed by the respective
authorized officers of the parties.
10.9 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.
<PAGE>
In Witness Whereof, the parties have executed this License Agreement as of
the date first set forth above.
Mycogen Corporation Diversa Corporation
By: /s/ Andrew C. Barnes /s/ Patrick Simms
---------------------------------- ------------------------------
Patrick Simms
Name: Andrew C. Barnes Vice President
--------------------------------
Title: Exec. VP
-------------------------------
8.
<PAGE>
EXHIBIT 10.23
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
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) a one time up front payment of two million five hundred thousand
dollars (US$2,500,000) within thirty (30) days of the Effective
Date;
2. *Confidential Treatment Requested
<PAGE>
(b) an annual maintenance fee of one hundred thousand dollars
(US$100,000) within thirty (30) days of each anniversary date of the Effective
Date until all Valid Claims included in the Terragen Patent Rights have expired
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.
<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.
<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 sixty (60) days 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.
<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 Upon Certain Diversa Acquisitions/Mergers.
Terragen may terminate the licenses granted to Diversa under this Agreement in
the event that Diversa transfers all or substantially all of its business
whether by way of merger, sale of stock, sale of assets or otherwise to a
[****] within two (2) years of the Effective Date. 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 transfer.
7.8 Diversa Termination Rights Upon Certain Terragen Acquisitions/Mergers.
Diversa may terminate the license granted to Terragen under this Agreement in
the event that Terragen transfers all or substantially all of its business,
whether by way of merger, sale of stock, sale of assets or otherwise [****]
during the term of this Agreement. 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 transfer. Further, in the event Terragen
transfers all or substantially all of its business, whether by way of merger,
sale of stock, sale of assets or otherwise to a [****] without prior written
approval from Diversa within five (5) years of the Effective Date, Terragen
shall reimburse Diversa the two (2) million five hundred thousand dollars
($2,500,000) paid Terragen by Diversa pursuant to Section 3.1 above, within
ninety (90) days of such transfer.
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.
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 San Diego, California, 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 State of California or Federal Patent
Law, as applicable, regardless of its or any other jurisdiction's choice of law
principles. Notwithstanding the foregoing, either party may
8. *Confidential Treatment Requested
<PAGE>
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 California Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of California 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.
<PAGE>
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.
<PAGE>
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
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
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
<PAGE>
"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.
<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
<PAGE>
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.
<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 five (5) years, 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 shall not require
the payment to Diversa of any additional exclusivity fees. Diversa and Novartis
will commence negotiations twelve months prior to the end of the Joint Venture
Period to extend the Joint Venture Period on mutually acceptable terms, and
complete such negotiations six months 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
staged reduction in the number of Research FTEs at Diversa and funding for such
Research FTEs over the two-year period following the end of the Joint Venture
Period.
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 Delaware 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.
<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.
<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: 1.8 liters of sterilized CelMix(TM) 200 Emulsion Matrix and 120 x 0.4
ml aliquots 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: 12 months; January 1, 1999 through December 31, 1999.
Lease Payment: US $20,000 for the Renewal Lease Term.
Payment Schedule: US $20,000 due by March 15, 1999.
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 US $20,000
which is due by March 15, 1999.
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.
<PAGE>
3. Reagent Shipments. Unless directed to the contrary by Lessee in writing,
Lessor shall ship at the beginning of each month of the Lease to the Equipment
Location 150 ml of sterilized CelMix(TM) 200 Emulsion Matrix and 10 x 0.4 ml
aliquots 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
(1754-9278-0).
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 30 days
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 125% of the Lease Payment in the Renewal Lease Term. Within
ten days 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.
<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 1.5% per
month or the maximum rate allowed by law.
14. Default. If Lessee's failure to perform any obligation hereunder continues
for thirty days 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.
<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.
<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:
U.S. 4,399,219; 4,401,755;4,643,968;4,647,536; 4,916,060; 4,959,301;
5,055,390; 5,225,332;
European 0 007 887 and 0 070 318;EPC 83000 856 2;
Canadian 1,174,952; 1,179,583; 1,230,566;
Swedish 820 1401-0;
and other pending applications throughout the world.
EXHIBIT B
EQUIPMENT SPECIFICATIONS
Included with the CellSys 100(TM) microdrop maker are an ice water bath
container and a 12.3 cm stainless steel shaft/blade assembly. The CellSys
100(TM) microdrop maker is a sophisticated emulsifier designed to maximize cell
encapsulation while preserving cell integrity. High rotation speeds and unique
blade configuration allow the selection of microdrop diameter sizes between 10u
and 200u.
Physical Dimensions:
Width: 20.3 cm
Depth: 25.4 cm
Height: 38.1 cm
Weight: 6.8 kg
Power Input: 110-135 VAC, 50/60Hz, 1 amp
Rotational Speed Ranges: OFF to 2800 rpm
The CellSys 100(TM) microdrop maker is equipped with a moveable stage allowing
immersion of the oil-agarose emulsion in an ice water bath while maintaining the
proper shear force for uniform preparation of solidified gel microdrops. The
CellSys 100(TM) microdrop maker's, compact size conserves laboratory space and
facilitates transfer into a laminar flow hood.
5.
<PAGE>
EXHIBIT 10.26
Confidential Treatment Requested
Under 17 C.F.R. (S)(S) 200.80(b)(4)
200.83 and 230.406
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.
<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.
<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
fifth 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 Delaware other than those provisions
governing conflicts of law.
19.
<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.
<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.
<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 January
12, 2000, except for Note 11, as to which the date is February 8, 2000, in
Amendment No. 4 to the Registration Statement (Form S-1, Registration No. 333-
92853) and related Prospectus of Diversa Corporation for the registration of
shares of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
February 8, 2000
