<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 333-30758
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PARADIGM GENETICS, INC.
(Exact name of Registrant as specified in our charter)
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<S> <C> <C>
Delaware 8731 56-2047837
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
104 Alexander Drive
Research Triangle Park, North Carolina 27709
(919) 425-3000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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John A. Ryals, Ph.D.
Chief Executive Officer and President
Paradigm Genetics, Inc.
104 Alexander Drive
Research Triangle Park, North Carolina 27709
(919) 425-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Jeffrey M. Wiesen, Esq. Henry P. Nowak, Esq. David W. Pollak, Esq.
Peter S. Lawrence, Esq. Vice President and Stephanie M. Gulkin,
Mintz, Levin, Cohn, General Counsel Esq.
Ferris, Morgan, Lewis & Bockius
LLP
Paradigm Genetics, Inc.
Glovsky and Popeo, P.C 104 Alexander Drive
One Financial Center Research Triangle Park 101 Park Avenue
Boston, MA 02111 North Carolina 27709 New York, NY 10178
(617) 542-6000 (919) 425-3000 (212) 309-6000
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Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement number for
the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell securities, and we are not soliciting +
+offers to buy these securities, in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 27, 2000
PROSPECTUS
5,000,000 Shares
[Paradigm Logo Appears Here]
Common Stock
This is an initial public offering of common stock by Paradigm Genetics,
Inc. We are selling 5,000,000 shares of common stock. It is currently estimated
that the initial public offering price will be between $14.00 and $16.00 per
share.
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There is currently no public market for our common stock. We have applied to
list our common stock on the Nasdaq National Market under the symbol PDGM.
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<CAPTION>
Per Share Total
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<S> <C> <C>
Public offering price........................................ $ $
Underwriting discounts....................................... $ $
Proceeds to Paradigm Genetics................................ $ $
</TABLE>
The underwriters may also purchase up to 750,000 additional shares of common
stock from us at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.
Chase Securities Inc. expects to deliver the shares to purchasers on or
about , 2000.
-------------
Investing in our common stock involves risks.
See "Risk Factors" beginning on page 5.
-------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Chase H&Q
J.P. Morgan & Co.
Pacific Growth Equities, Inc.
Stephens Inc.
, 2000
<PAGE>
[Inside front cover and Gatefold]
[Graphic: Includes graphic depiction summarizing the
steps in our GENEFUNCTION FACTORY. The graphic is titled:
"Our GENEFUNCTION FACTORYTM. Text underneath the graphic
states: "Our GENEFUNCTION FACTORYTM is an assembly-line
process that enables us rapidly to discover genes, alter
genes in plants and other organisms, evaluate the results
of the alterations and determine the function of genes.
We capture information throughout the process in
FUNCTIONFINDERTM, our computerized system for storing and
analyzing biological information.
Second graphic includes pictures of components of our
FUNCTIONFINDERTM bioinformatics system. The graphic is
entitled "FUNCTIONFINDERTM."]
<PAGE>
TABLE OF CONTENTS
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Page
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Prospectus Summary................................................. 1
Risk Factors....................................................... 5
Special Note Regarding Forward-Looking Statements.................. 13
Use of Proceeds.................................................... 14
Dividend Policy.................................................... 14
Capitalization..................................................... 15
Dilution........................................................... 16
Selected Financial Data............................................ 17
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 18
Business........................................................... 22
Management......................................................... 38
Certain Transactions............................................... 48
Principal Stockholders............................................. 50
Description of Capital Stock....................................... 52
Shares Eligible for Future Sale.................................... 55
Underwriting....................................................... 57
Legal Matters...................................................... 60
Experts............................................................ 60
Where You Can Find More Information................................ 60
Index to Financial Statements...................................... F-1
</TABLE>
i
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PROSPECTUS SUMMARY
This summary highlights the most important features of this offering and
the information contained elsewhere in this prospectus. You should read the
entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors" beginning on page 5.
Paradigm Genetics, Inc.
Overview
We are industrializing the process of determining gene function by
creating an assembly-line process to generate information that we believe will
enable us to develop novel products in four major sectors of the global
economy: crop production, nutrition, human health and industrial products. We
have developed our GeneFunction Factory to simultaneously study the functions
of many genes in our selected plants and fungi. We designed our GeneFunction
Factory to be an integrated, rapid, industrial-scale laboratory through which
we can discover and modify genes, understand the consequences of the
modifications and reliably determine the function of those genes. We store and
annotate gene function information in our FunctionFinder bioinformatics system,
which is a computer system that helps us and our partners analyze the large
volumes of complex data generated from our study of genes. We currently have
strategic alliances with Bayer AG in the area of crop production and with The
Monsanto Company in the areas of crop production and nutrition. We describe
these alliances in greater detail below.
The Opportunity
In the early 1990s, a worldwide effort began to decipher and make publicly
available the precise sequence of the entire genetic content, or genomes, of
various organisms, including humans, pathogens and agricultural crops. Industry
experts anticipate that researchers will complete the sequencing of the entire
human genome, as well as the genome of the small mustard plant, Arabidopsis, by
the end of the year 2000. However, knowing a gene's sequence does not provide
enough information to determine gene function. In addition, the traditional
process of determining gene function has been slow, labor intensive and
formulaic. Furthermore, new technologies, such as those that measure gene
expression, in the absence of other supporting data, provide insufficient
information to conclude a gene's function.
Our GeneFunction Factory
We believe the most reliable way to determine a gene's precise function is
to study the effects of altered forms of the gene on an organism. The biology
and genetics of certain organisms, which we call model organisms, make them
effective tools for investigating the function of genes of other organisms with
commercial value, which we refer to as target organisms. By applying our
GeneFunction Factory to selected plants and fungi, we and our strategic
partners intend to use the resulting information to develop novel products. By
using our GeneFunction Factory we are able to discover a gene, alter the gene,
measure the consequences of the alteration, determine the function of the gene
and place the resulting large amount of information into our FunctionFinder
bioinformatics system. Our assembly-line approach automates the measurement of
thousands of physical and chemical characteristics of a selected organism at
different times of the organism's life cycle. Our GeneFunction Factory
presently is capable of determining the function of approximately 50 genes per
week, and we believe that it will be able to determine the function of up to
200 genes per week by the end of 2000.
Initially, we are using our GeneFunction Factory to determine the function
of genes in Arabidopsis, rice and six filamentous fungi, which are multi-cell
fungi. Arabidopsis is a useful model organism because it is related to
soybeans, cotton, vegetables and oil seed crops. Rice is an important target
and model organism
1
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because it is one of the world's most important grains, and it is closely
related to corn, wheat, barley, sugarcane, oats and rye. Fungi are useful
target and model organisms for developing potential products in crop
production, nutrition, human health and industrial products. We work with our
model organisms to infer the function of genes in target organisms, when
working directly with the target is not practicable. We have chosen our
particular models because they are relevant to target organisms with commercial
value, are efficient research tools and are amenable to the collection of large
numbers of measurements. We intend to study the function of essentially every
gene in these organisms, and utilize this information to develop novel
products.
Our Strategy
Our goal is to be the leading supplier of gene function information in our
model and target organisms. The key elements of our strategy are to:
. determine the function of genes in our target and model organisms;
. continue to develop our GeneFunction Factory and FunctionFinder
bioinformatics system;
. develop products both with strategic partners and independently;
. focus our development efforts on large market opportunities; and
. pursue intellectual property protection for our GeneFunction Factory and
gene function information.
We will continue to make significant expenditures in excess of our
revenues to pursue our strategy. Through December 31, 1999, we had incurred a
net loss of approximately $10.6 million, and this loss will continue to
increase for the foreseeable future. We may need additional funding to pursue
our strategy and because we are an early stage company and our technology is
unproven, we may not be able to achieve our goals or achieve or maintain
profitability.
Our Strategic Alliances
To date, we have established strategic alliances with Bayer and Monsanto.
The Bayer alliance is focused on the development of new herbicides while the
Monsanto alliance is focused on the development of crop production and
nutrition products. Under these alliances, we have total committed funding of
approximately $56 million and have performance fees, milestone payments and
payments in connection with extension options that could generate as much as an
additional $133 million. We will also earn product development milestones and
sales royalties if products are commercialized from these alliances.
In September 1998, we entered into a three-year collaboration with Bayer
for the development of new chemical herbicides. We will use our GeneFunction
Factory to identify Arabidopsis genes that may be targets for herbicide
discovery and will provide Bayer with assays to screen chemicals for potential
herbicides and access to customized Arabidopsis-based releases of our
FunctionFinder bioinformatics system.
In November 1999, we entered into a six-year strategic alliance with
Monsanto to develop crop production and nutrition products. Monsanto is to
provide us with thousands of gene sequences from Arabidopsis and other
organisms. Using our GeneFunction Factory, we will provide functional analysis
of these genes to Monsanto.
We were incorporated in North Carolina on September 9, 1997. We
reincorporated as a Delaware corporation on April 7, 2000. Our facilities and
executive offices are located at 104 Alexander Drive, Research Triangle Park,
North Carolina 27709, and our telephone number at that address is (919) 425-
3000. Our worldwide web address is www.paragen.com. The information on our web
site is not incorporated by reference into this prospectus.
2
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The Offering
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<S> <C>
Common Stock offered by Paradigm Genetics........... 5,000,000 shares
Common Stock to be outstanding after this offering.. 23,911,254 shares
Use of proceeds..................................... Research and development, plant and
equipment and general corporate
purposes, including possible
acquisition of or investment in
complementary businesses, products
or technologies. For a more detailed
discussion of our anticipated use of
proceeds from this offering, see
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. PDGM
</TABLE>
The above information is based on the number of shares outstanding as of
March 27, 2000 and excludes:
. 1,537,760 shares of common stock issuable upon the exercise of stock
options at a weighted average exercise price of $2.55 per share; and
. 763,779 shares of common stock underlying warrants at a weighted
average exercise price of $1.77 per share.
------------------
Unless otherwise indicated, all information contained in this prospectus:
. reflects our reincorporation from a North Carolina corporation to a
Delaware corporation on April 7, 2000;
. assumes that the underwriters do not exercise their over-allotment
option; and
. reflects the mandatory conversion of all of our outstanding shares of
Series A and Series B Preferred Stock into a total of 10,353,198 shares
of common stock upon completion of this offering.
The number of shares of common stock to be outstanding after this offering
reflects the mandatory conversion of 3,000,000 shares of our Series C Preferred
Stock, which were sold in January 2000.
3
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Summary Financial Data
The following statement of operations data for the period from inception
(September 9, 1997) through December 31, 1997 and for the years ended December
31, 1998 and 1999 have been derived from our financial statements and the notes
to those financial statements that are included elsewhere in this prospectus.
The summary balance sheet data as of December 31, 1999 are presented (1) on an
actual basis, (2) on a pro forma basis to reflect the mandatory conversion of
all of our outstanding preferred stock at December 31, 1999 into a total of
10,353,198 shares of common stock upon completion of this offering; and (3) on
a pro forma as adjusted basis to reflect the receipt of estimated proceeds from
our sale of 5,000,000 shares of common stock in this offering at an assumed
initial public offering price of $15.00 per share, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us.
For a more detailed explanation of the financial data, see "Selected
Financial Data" on page 17, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 18 and our financial
statements and the notes to those financial statements beginning on page F-1 of
this prospectus.
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<CAPTION>
Period From
Inception
(September 9, Years Ended December
1997) to 31,
December 31, -----------------------
1997 1998 1999
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(in thousands, except per share
data)
<S> <C> <C> <C>
Statements of Operations Data:
Collaborative research agreements and
grant revenues....................... $ -- $ 871 $ 2,197
Total operating expenses.............. 220 5,171 12,442
Net loss.............................. (220) (4,290) (10,620)
Net loss per share--basic and
diluted.............................. $ (0.19) $ (1.14) $ (2.51)
Weighted average common shares
outstanding--basic and diluted....... 1,160,958 3,750,036 4,236,409
Pro forma net loss per share--basic
and diluted.......................... $ (0.76)
Pro forma weighted average common
shares outstanding--basic and
diluted.............................. 14,046,759
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments............................... $ 3,956 $ 3,956 $ 72,706
Working capital............................ (3,635) (3,635) 65,115
Total assets............................... 14,225 14,225 82,975
Long-term debt, less current portion....... 8,047 8,047 8,047
Preferred stock............................ 11,919 -- --
Accumulated deficit........................ (15,163) (15,163) (15,163)
Total stockholders' equity (deficit) ...... (2,827) (2,827) 65,923
</TABLE>
The pro forma and pro forma as adjusted balance sheet data do not reflect
our receipt of proceeds of approximately $15.0 million, or $5.00 per share,
from the sale of 3,000,000 shares of our Series C Preferred Stock in January
2000. If this amount had been included, our total assets would have been
approximately $98.0 million and our total stockholders' equity would have been
approximately $80.9 million.
4
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business, operating results and
financial condition and could result in a complete loss of your investment.
Risks Related to our Business
We have a history of net losses. We will continue to incur net losses that may
depress our stock price.
We have incurred net losses in each year since our inception and expect
these losses to continue. We experienced a net loss of approximately $10.6
million for the year ended December 31, 1999. As of December 31, 1999, we had
an accumulated deficit of approximately $15.2 million. To date, we have derived
all of our revenues from only two strategic alliances and a government grant.
We expect to derive revenue in the foreseeable future principally from
strategic alliances. We expect to spend a significant amount of capital to fund
research and development and enhance our core technologies, including our
GeneFunction Factory. 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 revenues to become profitable. We cannot
predict when, if ever, we will become profitable.
We may never become profitable if we and our strategic partners are unable to
develop or commercialize our technologies into products.
We have no experience in manufacturing and marketing products, and we
currently do not have the resources or capability to manufacture products on a
commercial scale. In order for us to commercialize our products on our own, we
would need to develop, or obtain through outsourcing arrangements or through
acquisitions, the capability to manufacture, market and sell products. Since we
do not currently possess the resources necessary to develop and commercialize
potential products ourselves, we must enter into strategic alliances to develop
and commercialize products.
We have entered into only two strategic alliances, with Bayer and
Monsanto, to fund the development of certain new products, including herbicides
and plants with improved nutritional and growth characteristics. We have
derived substantially all of our revenues to date from these two collaborative
research and development agreements. If we are unable to successfully achieve
milestones or our strategic partners fail to develop successful products, we
will not earn the revenues contemplated under such collaborative agreements. In
addition, we may not be able to enter into additional strategic alliances. We
do not control the resources that our strategic partners devote to our projects
and our strategic partners may not perform their obligations. Also, we may
pursue opportunities in fields that conflict with our strategic partners or in
which our strategic partners could become active competitors. In either case,
we may not be able to commercialize our products.
We may need additional financing, which may not be available, and any
financings may dilute the percentage ownership of our existing stockholders,
cause us to relinquish rights to our technologies or cause us to grant licenses
on unfavorable terms.
Our existing capital resources may not be sufficient to fund our future
operating plans and we may therefore need to raise significant additional
capital. We have expended significant resources in developing our GeneFunction
Factory and expect our capital expenditures and operating expenses to increase
over the next several years as we continue developing the GeneFunction Factory
and increase our research and development activities. The amount of additional
capital which we expect we will need to raise will depend on many factors,
including:
. the number, breadth and progress of our research programs;
. the achievement of the milestones under certain of our existing
strategic alliances;
5
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. our ability to establish additional and maintain current and
additional strategic alliances;
. our strategic partners' success in commercializing products developed
under our strategic alliances;
. our success in commercializing products to which we have retained the
rights under our strategic alliances;
. the costs incurred in enforcing and defending our patent claims and
other intellectual property rights; and
. the costs and timing of obtaining regulatory approvals for any of our
products.
We may need to raise additional capital through public or private equity
offerings, debt financings or additional strategic alliances and licensing
arrangements. We may not be able to find additional financing when we need it
or on terms favorable to our stockholders or us. If we raise additional capital
by issuing equity securities, such an issuance will reduce the percentage
ownership of existing stockholders. Furthermore, we may need to issue
securities that have rights, preferences and privileges senior to our common
stock. If we raise additional funds through strategic alliances and licensing
arrangements, we may be required to relinquish rights to certain of our
technologies or product candidates, or to grant licenses on unfavorable terms.
If we lose our key personnel or are unable to attract and retain additional
personnel, our operations could be disrupted and our revenues could decrease.
Our success depends on the continued services and on the performance of
our senior management and scientific staff, in particular John Ryals, Ph.D.,
our Chief Executive Officer and President. The loss of the services of Dr.
Ryals or any of our other senior management or scientific staff could seriously
impair our ability to operate and achieve our objectives, which could reduce
our revenues. We have $2 million of key man life insurance on Dr. Ryals. This
amount may not be sufficient to compensate us for the loss of his services. In
addition, recruiting and retaining qualified scientific personnel to perform
future research and development work will be critical to our success.
In order to achieve our business objectives, we must identify, attract,
train and motivate additional personnel with expertise in specific industries
and areas applicable to the products developed through our technologies. We
compete intensely for these personnel and we may be unable to achieve our
personnel goals. Our failure to achieve any of these goals could seriously
limit our ability to improve our operations and financial results.
If we were successfully sued for product liability, we could face substantial
liabilities that exceed our resources.
We may be held liable if any product we develop, or any product which is
made using our technologies, causes injury or is found unsuitable during
product testing, manufacturing, marketing or sale. For example, a genetically
modified food could, after it is sold, be found to cause illness in individuals
who eat the food. Also, like other pharmaceutical products, those produced
through genetically modified plants could be found to cause illness. These
risks are inherent in the development of chemical, agricultural and
pharmaceutical products. We currently do not have product liability insurance.
If we choose to obtain product liability insurance but cannot obtain sufficient
insurance coverage at an acceptable cost or otherwise protect against potential
product liability claims, the commercialization of products that we or our
strategic partners develop may be prevented or inhibited. If we are sued for
any injury caused by our products, our liability could exceed our total assets.
6
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If we do not compete effectively, our losses could increase.
Our technology platform for the industrialization of gene function
determination faces competition from functional genomics technologies, which
are computer hardware and software technologies that researchers use to help
them identify the role that specific genes play within organisms, created by
others, including Exelixis, Inc., CuraGen Corporation, Rosetta Inpharmatics,
Inc. and Large Scale Biology Corporation (formerly known as Biosource
Technologies, Inc.). We expect competition to intensify in genomics research as
scientists achieve technology advances that become widely known. Genomic
technologies have undergone and are expected to continue to undergo rapid and
significant change. Our future success will depend in large part on maintaining
a competitive position in the genomics field, and particularly in the
functional genomics field. We or others may make rapid technological
developments which may result in products or technologies becoming obsolete
before we recover the expenses we incur in connection with our development. We
or our strategic partners may offer products which could be made obsolete by
less expensive or more effective crop enhancement, nutrition enhancement, drug
discovery and industrial product development technologies, including
technologies that may be unrelated to genomics. We may not be able to enhance
our technology in ways necessary to compete successfully with newly emerging
technologies.
Any products that we may develop alone or in collaboration with others
will compete in highly competitive markets. In the specific markets in which we
apply or intend to apply our technology platform, we face competition from
plant genomics, pharmaceutical, agrochemical and biotechnology companies. Many
of our existing and potential competitors have substantially greater financial
resources, research and development staffs, facilities, manufacturing and
marketing experience, distribution channels and human resources than we do.
Many of these competitors have achieved substantial market penetration in the
crop production, nutrition, human health and industrial products markets.
Our exclusive use of plant and fungal model organisms may limit our
ability to compete in the human health market and the industrial products
markets. We believe that our ability to compete in the human health market may
depend on the degree to which information we develop on plant and fungal gene
and pathway functions may relate to human physiology. Competing companies who
use model organisms with greater similarities to human genes, such as mice, as
well as companies that do direct studies of human populations, may have a
substantial advantage in developing products for humans.
If we are not able to adequately acquire and protect patents and licenses, we
may not be able to operate our business and remain competitive.
Our business and competitive position will depend 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. As of March 27, 2000, we had 31 patent applications pending covering
our technology with the United States Patent and Trademark Office. We hold no
issued patents and we may never receive patents on our applications in the
United States or 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.
Third parties have filed, and in the future are likely to file, patent
applications covering genes and gene function that we have developed or may
develop or technology upon which our technology platform depends. If patent
offices issue patents on these patent applications and we wish to use the
claimed genes, gene functions or technology, we would need to obtain a license
from the third party. However, we might not be able to obtain any such license
on commercially favorable terms, if at all, and if we do not obtain these
licenses, we might be prevented from using certain technologies or taking
certain products to market.
7
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The patent positions of biopharmaceutical and biotechnology companies,
including our patent position, are generally uncertain and involve complex
legal and factual questions. Patent law relating to the scope of claiming the
technology field in which we operate is still evolving. We will be able to
protect our proprietary rights from unauthorized use by third parties only to
the extent that our proprietary technologies are covered by valid and
enforceable patents or are effectively maintained as trade secrets. We will
apply for patents covering both our technologies and products, as we deem
appropriate. However, other companies may challenge these applications and
governments may not issue patents we request. 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 rely upon trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information. These measures may not provide adequate protection for our trade
secrets or other proprietary information. Even though we seek to protect our
proprietary information by entering into confidentiality agreements with
employees, strategic partners and consultants, people may still disclose our
proprietary information and we might not be able to meaningfully protect our
trade secrets.
If third parties make or file claims of intellectual property infringement
against us or otherwise seek to establish their intellectual property rights,
we may have to spend time and money in response and shut down some of our
operations.
Third parties may claim that we are employing their proprietary technology
without authorization or that we are infringing their patents. We could incur
substantial costs and diversion of management and technical personnel in
defending ourselves against any of these claims. Furthermore, parties making
claims against us may be able to obtain injunctive or other equitable relief
which could effectively block our ability to further develop, commercialize and
sell products. In the event of a successful claim of infringement, courts may
order us to pay damages and obtain one or more licenses from third parties. We
may not be able to obtain these licenses at a reasonable cost, if at all.
Defense of any lawsuit or failure to obtain any of these licenses could prevent
us from commercializing available products.
Risks Related to our Industry
We are an early stage company using unproven technologies and, as a result, we
may never achieve, or be able to maintain, profitability.
You should evaluate us in light of the uncertainties affecting an early
stage biotechnology company. Our GeneFunction Factory is still in the early
stages of development. We have not yet proven that determining the function of
a gene in commercially significant target organisms will enable us to develop
commercial products.
If adverse public reaction limits the acceptance of genetically modified
products, demand for any products that we or our collaborators may develop may
decrease.
The commercial success of our product candidates will depend in part on
public acceptance of the use of genetically modified products, including drugs,
plants and plant products. Claims that genetically modified products are unsafe
for consumption or pose a danger to the environment may influence public
attitudes. Any genetically modified products that our collaborators or we may
develop may not gain public acceptance. Due to public reaction in both the
United States and Europe, some food manufacturers and restaurants have already
decided not to sell food that has been genetically altered. If this continues
or increases, this could cause a decrease in demand for products that we or our
collaborators may develop.
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Any products that we or our strategic partners develop using the gene function
information we provide may be subject to a lengthy and uncertain government
regulatory process that may not result in the necessary approvals, may delay
the commercialization of these products or may be costly, any of which could
reduce our revenues.
Any new product that we or our strategic partners develop will likely
undergo extensive regulatory review process in the United States by the FDA and
the USDA and by regulators in other countries before it can be marketed or
sold. For example, in the United States, the FDA must approve any drug or
biologic product before it can be marketed in the U.S. This regulatory review
process can take many years and require substantial expense. Adverse publicity
could lead to greater regulation and trade restrictions on imports and exports
of genetically modified products. Changes in the policies of U.S. and foreign
regulatory bodies could increase the time required to obtain regulatory
approval for each new product.
Our efforts to date have been primarily limited to identifying targets. If
regulators approve any products that we or our strategic partners develop, the
approval may impose limitations on the uses for which a product may be
marketed. Regulators may continue to review a product after approving it for
marketing to the public. Regulators may impose restrictions and sanctions,
including banning the continued sale of the product, if they discover problems
with the product or its manufacturer.
Risks Related to this Offering
We may face a financial liability arising out of a possible violation of the
Securities Act of 1933 in connection with e-mails sent to all of our employees
regarding participation in our directed share program.
As part of our initial public offering, we and the underwriters have
determined to make available up to 500,000 shares of our common stock at the
initial public offering price for directors, employees, business associates and
related persons associated with us. On February 28 and March 13, 2000, we sent
e-mail messages with respect to the proposed directed share program to all of
our employees setting forth procedural aspects for participating in the
directed share program and informing them about the administration of the
program and that their friends and families might have an opportunity to
participate in the proposed program. No person who received either e-mail
should rely on it in any manner in making a decision whether to purchase shares
of our common stock in this offering. We did not deliver a preliminary
prospectus prior to distribution of the e-mails, and each e-mail may constitute
a non-conforming prospectus under the Securities Act of 1933. As a result, we
may have a contingent liability under the Securities Act of 1933. Any liability
would depend upon the number of shares of our common stock purchased by the
recipients of the e-mails. The recipients of the e-mails who purchase shares of
our common stock in this offering may have a right for a period of one year
from the date of the purchase to obtain recovery of the consideration paid in
connection with their purchase of shares of our common stock or, if they had
already sold the stock, sue us for damages resulting from their purchase of
shares of our common stock. If any liability is asserted with respect to either
e-mail, we will vigorously contest the matter. However, if all of the
purchasers in the directed share program who received the e-mails are awarded
damages after an entire or substantial loss of their investment, the damages
could total up to approximately $4.5 million plus interest based on an assumed
initial public offering price of $15.00 per share and based on the Company's
intention to allocate up to 300,000 of the potential 500,000 shares to such
persons. Although the Company does not intend to allocate more than 300,000
shares to employees who received the e-mails, or their friends and families, if
a violation of the Securities Act were deemed to apply to the entire allocation
of 500,000 shares in the directed share program, our damages could total up to
approximately $7.5 million plus interest based on an assumed initial public
offering price of $15.00 per share. If this occurs, our financial condition
would be adversely affected.
9
<PAGE>
Our management will have broad discretion as to the use of proceeds from this
offering and may spend the proceeds in ways with which you may not agree.
Our management will have broad discretion over the use of proceeds from
this offering. We currently intend to use the proceeds of this offering for
research and development and general corporate purposes. Our management may
allocate the net proceeds among these purposes as it determines is necessary.
In addition, market factors may require our management to allocate all or
portions of the net proceeds for other purposes. Management may not use the
proceeds in a manner in which you approve. Accordingly, you will be relying on
the judgment of our management with regard to the use of proceeds from this
offering.
Our stock price may be extremely volatile and you may not be able to resell
your shares at or above the initial public offering price.
Prior to this offering, there has been no public market for shares of our
common stock. An active trading market may not develop following completion of
this offering, or if developed, may not be maintained. We and representatives
of the underwriters will negotiate the initial public offering price for the
shares. This price may not be indicative of prices that will prevail later in
the market. The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly life
science companies, have been highly volatile. You may not be able to resell
your shares at or above the initial public offering price.
If our results of operations fluctuate and quarterly results are lower than the
expectations of securities analysts, then the price of our common stock could
fall.
Our operating results historically have fluctuated on a quarterly basis
and are likely to continue to do so in the future. These fluctuations could
cause our stock price to fluctuate significantly or decline. Some of the
factors, which could cause our operating results to fluctuate, include:
. expiration of research contracts with strategic partners, which may
not be renewed or replaced;
. the success rate of our discovery efforts leading to milestones and
royalties;
. the timing and willingness of strategic partners to commercialize our
products which would result in royalties; and
. general and industry specific economic conditions, which may affect
our strategic partners' research and development expenditures.
A large portion of our expenses, including expenses for facilities,
equipment and personnel are relatively fixed. Accordingly, if revenues decline
or do not grow as anticipated due to expiration of research contracts or
government research grants, failure to obtain new contracts or other factors,
we may not be able to correspondingly reduce our operating expenses. In
addition, we plan to significantly increase operating expenses in 2000. Failure
to achieve anticipated levels of revenues could therefore significantly harm
our operating results for a particular fiscal period.
Our operating results in some quarters may not meet the expectations of
stock market analysts and investors. In that case, our stock price would likely
decline.
If our stockholders sell substantial amounts of our common stock after this
offering, the market price of our common stock may fall.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be 23,911,254 shares of common stock
outstanding immediately after this offering, or 24,661,254 shares if the
underwriters exercise their over-allotment option in full. All of the
10
<PAGE>
shares sold in this offering will be freely transferable without restriction or
further registration under the Securities Act, except for any shares purchased
by our "affiliates," as defined in Rule 144 of the Securities Act, and except
for any shares that are subject to 180-day lock-up agreements providing that
the stockholders will not offer, sell, pledge or otherwise dispose of their
shares for a period of 180 days after this date of this prospectus without the
prior written consent of Chase Securities Inc. The remaining shares of common
stock outstanding will be "restricted securities" as defined in Rule 144.
Holders of these shares may sell them in the future without registration under
the Securities Act to the extent permitted by Rule 144 or other exemptions
under the Securities Act. See "Shares Eligible for Future Sale."
Anti-takeover provisions of Delaware law and our charter could make a third-
party acquisition of us difficult.
We reincorporated as a Delaware corporation on April 7, 2000. The anti-
takeover provisions of Delaware law could make it more difficult for a third
party to acquire control of us, even if the change in control would be
beneficial to stockholders. We will be subject to the provisions of Section 203
of the General Corporation Law of Delaware. Section 203 will prohibit us from
engaging in certain business combinations, unless the business combination is
approved in a prescribed manner. Accordingly, Section 203 may discourage, delay
or prevent someone from acquiring or merging with us. In addition, upon
completion of this offering, our restated certificate of incorporation and
amended and restated by-laws will contain certain provisions that may make a
third party acquisition of us difficult, including:
. a classified board of directors, with three classes of directors each
serving a staggered three-year term;
. the ability of the board of directors to issue preferred stock; and
. the inability of our stockholders to call a special meeting or act by
written consent.
Some of our existing stockholders can exert control over us, and may not make
decisions that are in the best interests of all stockholders.
After this offering, our officers, directors and stockholders who
beneficially own more than five percent of our common stock will together
control 17,173,448, or approximately 65.7%, of our outstanding common stock. As
a result, these stockholders, if they act together, 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 significant corporate transactions. In addition, this concentration
of ownership may delay or prevent a change in control of us and might affect
the market price of our common stock, even when a change may be in the best
interests of all stockholders. In addition, the interests of this concentration
of ownership may not always coincide with our interests or the interests of
other stockholders and accordingly, they could cause us to enter into
transactions or agreements, which we would not otherwise consider.
Future issuances of preferred stock may dilute the rights of our common
stockholders.
Our board of directors will have the authority to issue up to 5,000,000
shares of preferred stock and to determine the price, rights, privileges and
other terms of these shares. The board of directors may exercise this authority
without the approval of the stockholders. The rights of the holders of any
preferred stock that we may issue in the future may adversely affect the rights
of holders of our common stock.
11
<PAGE>
You will experience immediate dilution in the book value per share of the
common stock you purchase.
The assumed initial public offering price is substantially higher than the
book value per share of our common stock. Investors purchasing common stock in
this offering will, therefore, incur immediate dilution of $11.57 in net
tangible book value per share of common stock, based on an assumed initial
public offering price of $15.00 per share. Investors will incur additional
dilution based on the exercise of outstanding stock options and warrants.
12
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some statements contained in this prospectus are forward-looking
statements concerning our operations, economic performance and financial
condition. Forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, are included, for example, in
the discussions about:
. our strategy;
. sufficiency of our cash resources;
. revenues from existing and new strategic alliances;
. product development;
. our research and development and other expenses; and
. our operational and legal risks.
These statements involve risks and uncertainties. Actual results may
differ materially from those expressed or implied in those statements. Factors
that could cause these differences include, but are not limited to, those
discussed under "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
------------------
"Paradigm Genetics", the Paradigm Genetics logo and FunctionFinder are
trademarks of Paradigm Genetics, Inc. The Company has filed a trademark
application for GeneFunction Factory. Other trademarks and trade names
appearing in this prospectus are the property of their holders.
13
<PAGE>
USE OF PROCEEDS
The net proceeds that we will receive from our sale of shares of common
stock in this offering are estimated to be approximately $68.8 million, after
deducting the estimated underwriting discounts and commissions and offering
expenses payable by us and assuming an initial public offering price of $15.00
per share. If the underwriters exercise their over-allotment option in full, we
estimate the net proceeds from this offering will be approximately $79.2
million. We intend to use the net proceeds of this offering for the following
purposes:
. approximately 45% for research and development;
. approximately 35% for acquisitions of plant and equipment;
. approximately 10% for the development of our physical infrastructure;
and
. approximately 10% for general corporate purposes, including the
possible acquisition of or investment in complementary businesses,
products or technologies.
At the present time, we have no understandings, commitments or agreements with
respect to any material acquisition. Pending the use of the net proceeds of
this offering for the purposes described above, we intend to invest these
proceeds in short-term, interest-bearing, investment-grade securities.
The foregoing information is based on current expectations, and we may
allocate the net proceeds among these purposes as we deem necessary or
appropriate. The amounts and timing of our actual expenditures will depend upon
numerous factors, including the time actually required to reach profitability,
the status of our product development efforts, the success of our strategic
alliances, the amount of proceeds actually raised in this offering, the amount
of cash generated by our operations and competition. In addition, these and
other market factors, some of which are not yet known, may require us to
allocate portions of the net proceeds for purposes other than those described
above. See "Risk Factors--Risks Related to This Offering--Our management will
have broad discretion as to the use of proceeds from this offering and may
spend the proceeds in ways with which you may not agree" on page 10.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable
future.
Our loan security agreement with Transamerica Business Credit Corporation
prohibits the payment of any cash dividends to any of our stockholders,
warrantholders or optionholders until we have paid in full all amounts under
the terms of the agreement. See note 7 of our financial statements.
14
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December
31, 1999 (1) on an actual basis; (2) on a pro forma basis to reflect the
mandatory conversion of all of our outstanding preferred stock at December 31,
1999 into a total of 10,353,198 shares of common stock upon the completion of
this offering and to reflect the increase in the number of authorized shares of
our Common Stock from 30,000,000 to 50,000,000 and the authorization of an
additional 5,000,000 shares of Preferred Stock, all of which is undesignated,
effected by our reincorporation as a Delaware corporation on April 7, 2000; and
(3) on a pro forma as adjusted basis to reflect the receipt of the estimated
proceeds from our sale of 5,000,000 shares of common stock in this offering at
an assumed initial public offering price of $15.00 per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us. This information should be read in conjunction with our
financial statements and the notes to those financial statements beginning on
page F-1 of this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(unaudited) (unaudited)
(in thousands, except
share data)
<S> <C> <C> <C>
Long-term debt, less current portion......... $ 8,047 $ 8,047 $ 8,047
Stockholders' equity (deficit):
Series A Preferred Stock, $0.01 par value;
8,000,000 shares designated, 7,562,500
shares issued and outstanding, actual; no
shares issued or outstanding, pro forma and
pro forma as adjusted...................... 5,951 -- --
Series B Preferred Stock, $0.01 par value;
2,790,698 shares designated, 2,790,698
shares issued and outstanding, actual; no
shares issued or outstanding, pro forma and
pro forma as adjusted...................... 5,968 -- --
Preferred Stock, $0.01 par value; no shares
authorized, issued or outstanding, actual;
5,000,000 shares authorized, no shares
issued or outstanding, pro forma and pro
forma as adjusted.......................... -- -- --
Common Stock, $0.01 par value; 30,000,000
shares authorized; 5,224,257 shares issued
and outstanding, actual; 50,000,000 shares
authorized, 18,577,455 shares issued and
outstanding, pro forma; and 50,000,000
shares authorized, 23,577,455 shares issued
and outstanding, pro forma as adjusted..... 52 156 206
Additional paid-in capital.................. 3,530 15,345 84,045
Deferred compensation....................... (3,165) (3,165) (3,165)
Accumulated deficit......................... (15,163) (15,163) (15,163)
-------- -------- --------
Total stockholders' equity (deficit)..... (2,827) (2,827) 65,923
-------- -------- --------
Total capitalization................... $ 5,220 $ 5,220 73,970
======== ======== ========
</TABLE>
The pro forma amounts above do not include the effect on total
capitalization of the receipt of approximately $15.0 million of proceeds from
the sale of 3,000,000 shares of our Series C Preferred Stock at a sales price
of $5.00 per share. After giving effect to the sale of the Series C Preferred
Stock, our pro forma total capitalization would be approximately $20.2 million
and our pro forma as adjusted total capitalization would be approximately $89.0
million.
The outstanding share information is based on our shares outstanding as of
December 31, 1999 and excludes:
. 1,537,760 shares of common stock issuable upon the exercise of stock
options outstanding as of March 27, 2000 at a weighted average exercise
price of $2.55 per share; and
. 763,779 shares of common stock issuable upon the exercise of warrants
outstanding as of March 27, 2000 at a weighted average exercise price
of $1.77 per share.
See "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and
Results of Operations" and the financial statements and notes thereto included
in this prospectus.
15
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after
giving effect to the mandatory conversion of all of our outstanding preferred
stock into a total of 10,353,198 shares of common stock was negative $2.8
million or ($0.18) per share of common stock. Pro forma net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding.
After further giving effect to the sale of 3,000,000 shares of our Series C
Preferred Stock for $5.00 per share on January 21, 2000, our pro forma net
tangible book value as of December 31, 1999 was $12,147,299 or $0.65 per
share. This represents an increase in pro forma net tangible book value of
$0.83 per share of common stock. Further, assuming the sale by us of 5,000,000
shares of common stock in this offering at an assumed initial public offering
price of $15.00 per share, our pro forma net tangible book value as of
December 31, 1999 would have been approximately $65.9 million, or $3.43 per
share of common stock. This represents an immediate increase in pro forma net
tangible book value of $2.78 per share to our existing stockholders and an
immediate dilution in pro forma net tangible book value of $11.57 per share to
new investors purchasing shares in this offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $15.00
Pro forma net tangible book value per share at December 31,
1999......................................................... $(0.18)
Increase per share attributable to our sale of Series C
Preferred Stock.............................................. $ 0.83
------
Pro forma net tangible book value per share at December 31,
1999 after giving effect to our sale of Series C Preferred
Stock........................................................ $ 0.65
Increase per share attributable to new investors.............. $ 2.78
Pro forma net tangible book value per share after the offering.. $ 3.43
------
Dilution per share to new investors............................. $11.57
======
</TABLE>
The following table summarizes, as of December 31, 1999, on a pro forma
basis, the number of shares of stock purchased from us, including amounts paid
by purchasers of preferred stock, the total consideration paid to us and the
average price per share paid by existing stockholders, including the Series C
Preferred Stock stockholders and by new investors, based upon an assumed
initial public offering price of $15.00 per share for shares purchased in this
offering, before deducting the estimated underwriting discounts and
commissions and estimated offering expenses. This table illustrates that
although investors purchasing common stock in this offering will have
contributed about 73.5% of the total consideration paid to us for our
outstanding common stock, they will only own about 21.2% of our outstanding
common stock.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders as
of December 31, 1999... 15,577,455 66.1% $ 12,095,998 11.8% $ 0.78
Series C Preferred Stock
Stockholders........... 3,000,000 12.7% $ 14,975,000 14.7% $ 4.99
New investors........... 5,000,000 21.2% $ 75,000,000 73.5% $15.00
---------- ------ ------------ ------
Total................. 23,577,455 100.0% $102,070,998 100.0% $ 4.33
========== ====== ============ ======
</TABLE>
The above tables assume no exercise of any outstanding stock options or
warrants to purchase common stock. As of March 27, 2000, there were:
. 1,537,760 shares of common stock issuable upon the exercise of stock
options outstanding at a weighted average exercise price of $2.55 per
share; and
. 763,779 shares of common stock issuable upon the exercise of warrants
outstanding at a weighted average exercise price of $1.77 per share.
To the extent these options or warrants are exercised, there will be further
dilution to the new investors.
16
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for the period from inception (September
9, 1997) through December 31, 1997, and for 1998 and 1999 and the balance sheet
data as of December 31, 1998 and 1999 have been derived from our audited
financial statements beginning on page F-1 of this prospectus. The balance
sheet data as of December 31, 1997 have been derived from audited financial
statements that are not included in this prospectus. The historical results are
not necessarily indicative of the operating results to be expected in the
future. The selected financial data shown below should be read in conjunction
with our financial statements and the notes to those financial statements
beginning on page F-1 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 18 of this prospectus.
<TABLE>
<CAPTION>
Period from
Inception
(September Years Ended December
1997) to 31,
December 31, ------------------------
1997 1998 1999
------------ ----------- -----------
(in thousands, except per share
amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Collaborative research agreements..... $ -- $ 820 $ 2,052
Grant revenue......................... -- 51 145
---------- ----------- -----------
Total revenues....................... -- 871 2,197
Operating costs and expenses:
Research and development (excludes $0,
$0 and $88, respectively, of stock
based compensation).................. 71 3,641 7,528
Selling, general and administrative
(excludes $0, $6 and $112,
respectively, of stock based
compensation)........................ 149 1,524 4,714
Stock based compensation.............. -- 6 200
---------- ----------- -----------
Total operating costs and expenses... 220 5,171 12,442
---------- ----------- -----------
Loss from operations................... (220) (4,300) (10,245)
---------- ----------- -----------
Interest income (expense), net......... -- 10 (375)
---------- ----------- -----------
Net loss............................... $ (220) $ (4,290) $ (10,620)
========== =========== ===========
Net loss per share--basic and diluted.. $ (0.19) $ (1.14) $ (2.51)
========== =========== ===========
Weighted average common shares
outstanding--basic and diluted........ 1,160,958 3,750,036 4,236,409
========== =========== ===========
Pro forma net loss per share--basic and
diluted............................... $ (0.76)
===========
Pro forma weighted average common
shares outstanding--basic and
diluted............................... 14,046,759
===========
<CAPTION>
December 31,
-------------------------------------
1997 1998 1999
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments........................... $ 18 $ 3,455 $ 3,956
Working capital........................ (224) 1,148 (3,635)
Total assets........................... 63 7,435 14,225
Long-term debt, net of current
portion............................... -- 3,539 8,047
Preferred stock........................ -- 5,951 11,919
Accumulated deficit.................... (253) (4,543) (15,163)
Total stockholders' equity (deficit)... (216) 1,452 (2,827)
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that are based
upon current expectations. Our actual results and the timing of events could
differ materially from those anticipated in our forward-looking statements as a
result of many factors, including those set forth under "Risk Factors",
"Special Note Regarding Forward-Looking Statements" and elsewhere in this
prospectus.
You should read the following discussion and analysis in conjunction with
the "Selected Financial Data" financial statements and related notes included
elsewhere in this prospectus.
Overview
To date, we have generated revenues from a collaborative herbicide
discovery and commercialization agreement with Bayer and a grant from the U.S.
Department of Energy. The agreement with Bayer was signed in September 1998 and
generated substantially all of our revenues for fiscal years 1998 and 1999. In
November 1999, we signed a joint development and commercialization agreement
with Monsanto. This agreement will not contribute to our revenue until the
first quarter of fiscal year 2000.
We have invested heavily in establishing our GeneFunction Factory and in
our bioinformatics infrastructure. Our total number of employees increased from
four employees at December 31, 1997 to 47 employees at December 31, 1998 and to
92 employees at December 31, 1999. Of our total number of employees on December
31, 1999, 74% were engaged in research and development activities. Our research
and development efforts consisted of work performed under our collaborative
research agreements and our federal government grant and work advancing our own
core technologies.
We have incurred significant losses since our inception. As of December
31, 1999, our accumulated deficit was approximately $15.2 million and total
stockholders' deficit was approximately $2.8 million. Operating expenses
increased from approximately $220,000 during the period from inception through
December 31, 1997, to approximately $5.2 million in the year ended December 31,
1998 and to approximately $12.4 million in the year ended December 31, 1999. We
expect to incur additional operating losses over at least the next two years as
we continue to expand our research and development efforts on our core
technologies and establish the infrastructure necessary to support our
business.
Source of Revenue and Revenue Recognition Policy
We recognize revenues from collaborative research agreements, including
nonrefundable and refundable payments received at the initiation of these
agreements, on a percentage of completion basis in accordance with the
applicable performance requirements of each agreement. Revenues related to our
government grant are recognized as related research and development expenses
are incurred. Milestone payments under collaborative research agreements are
recognized when milestones have been achieved and acknowledged by the relevant
strategic partner. Payments received in excess of revenue recognized that are
related to future performance are deferred and recognized as revenue as
performance occurs. As of December 31, 1999, we had deferred revenues of
approximately $5.8 million. Our sources of potential revenue for the next two
years are likely to be payments under existing and possible future
collaborative research agreements, government research grants and milestone
payments received under collaborative research agreements.
18
<PAGE>
Results of Operations
Years Ended December 31, 1998 and 1999.
Revenues. Revenues are comprised of amounts recognized under a
collaborative research agreement and a grant from the U.S. Department of
Energy. Total revenues increased 152% from approximately $871,000 in 1998 to
approximately $2.2 million in 1999. This increase was primarily a result of our
signing a collaborative research agreement in September 1998 with Bayer for the
development of novel screening targets in the field of herbicides.
Revenues earned under collaborative research agreements increased 150%
from approximately $820,000 in 1998 to approximately $2.1 million in 1999. This
increase was the result of an increase in revenues earned under the Bayer
collaborative research agreement in 1999 as compared to 1998 due to the fact
that this agreement was not signed until September 1998. Substantially all of
our revenues during 1998 and 1999 relate to the collaborative research
agreement with Bayer. Assuming our collaborative research agreements are
continued for the full terms under those agreements, Bayer will contribute
future committed revenues of approximately $11.8 million in 2000 through 2001
and Monsanto will contribute future committed revenues of approximately $41.5
million in 2000 through 2005.
Grant revenues increased 187% from approximately $51,000 in 1998 to
approximately $145,000 in 1999. This increase was the result of the grant being
extended in 1999.
Research and Development Expenses. Research and development expenses
consist primarily of personnel costs, facility costs, cost of supplies and
depreciation of laboratory equipment. Research and development expenses
increased 107% from approximately $3.6 million in 1998 to approximately
$7.5 million in 1999. Of this increase, approximately $2.5 million was due to
an increased number of research and development staff, approximately $334,000
was due to higher facilities costs, and approximately $886,000 was due to
depreciation of additional laboratory equipment to support our collaborative
research agreements and development of our core technology. We expect to
continue to devote substantial resources to research and development. We also
expect that research and development expenses will continue to increase and
that net losses will continue as a result.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist primarily of personnel costs, facilities costs,
business development costs and professional expenses, such as legal and
accounting fees. Selling, general and administrative expenses increased 209%
from approximately $1.5 million in 1998 to approximately $4.7 million in 1999.
Of this increase, approximately $1.3 million was due to increased staffing
necessary to manage and support our growth, approximately $209,000 was due to
higher facilities costs, approximately $267,000 was due to an increase in
professional expenses and approximately $397,000 was due to increased
depreciation expenses. We expect that our selling, general and administrative
expenses will continue to increase as we expand our legal, accounting and
business development staff, add infrastructure, incur additional costs related
to being a public company, including directors' and officers' insurance
premiums, investor relations programs and increased professional fees and
continue to make commission payments related to our collaborative research
agreements.
Stock Based Compensation Expense. Stock based compensation expense
represents the amortization of deferred compensation related to stock options
granted to employees with an exercise price below the estimated fair value of
our common stock at the date of grant, as determined by our board of directors.
Deferred compensation is amortized over the vesting period of the related stock
options, which is generally four years. We recognized approximately $6,000 in
non-cash compensation expense related to amortization of deferred compensation
in 1998 as compared to approximately $200,000 in 1999.
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Deferred compensation for options granted to employees has been determined
as the difference between the estimated fair value for financial reporting
purposes of our common stock on the date the options were granted and the
exercise price. 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 equity instruments issued. In connection with the
grant of stock options to employees, we recorded deferred compensation of
approximately $3.4 million in 1999.
Net Interest Income (Expense). Net interest income (expense) represents
interest earned on our cash and cash equivalents and short-term investments
offset by interest expense on long-term debt and capital leases. Net interest
income was approximately $11,000 in 1998, as compared to net interest expense
of approximately $375,000 in 1999. This change was attributable to increases in
senior long-term debt and an increase in notes payable secured by capital
equipment purchases, partially offset by an increase in interest income.
The Period from Inception (September 9, 1997) through December 31, 1997, and
the Year Ended December 31, 1998.
Revenues. Total revenues increased from zero during 1997 to approximately
$871,000 in 1998. The revenues in 1998 were attributable primarily to the Bayer
collaborative research agreement.
Research and Development Expenses. Research and development expenses
increased from approximately $71,000 in 1997 to approximately $3.6 million in
1998. Of this increase approximately $1.3 million was due to an increase in the
number of our research and development staff, approximately $901,000 was due to
increases in the cost of supplies, approximately $250,000 was due to
depreciation of laboratory equipment and approximately $226,000 was due to
increases in facilities costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from approximately $149,000 in 1997 to
approximately $1.5 million in 1998. Of this increase, approximately $586,000
was due to an increase in the number of administrative staff necessary to
manage and support the growth of our business, approximately $251,000 was due
to increased business development activities related to the negotiation of our
collaboration agreement with Bayer and $160,000 was due to increased
professional expenses.
Net Interest Income (Expense). Net interest expense was de minimus in
1997, as compared to net interest income of approximately $11,000 in 1998. The
increase in net interest income was attributable to higher average cash
balances during 1998.
Liquidity and Capital Resources
We have historically financed our operations through the sale of preferred
stock, debt and capital lease financing and payments received from
collaborative research agreements and a government grant. From our inception
through December 31, 1999, we have raised approximately $11.9 million in net
cash proceeds from the sale of preferred stock.
We had cash, cash equivalents and short-term investments of approximately
$18,000 at December 31, 1997, compared to approximately $3.5 million at
December 31, 1998 and approximately $4.0 million at December 31, 1999.
We had a working capital deficit of approximately $224,000 at December 31,
1997, working capital of approximately $1.1 million at December 31, 1998 and a
working capital deficit of approximately $3.6 million at December 31, 1999. The
increase in working capital between 1997 and 1998 was primarily due to
borrowings and the issuance of convertible preferred stock in 1998. The
decrease in working capital between 1998 and 1999 was primarily due to
increases in deferred revenue from our strategic partners in 1999 with which we
financed part of our operations, expenditures for property and equipment and
funding of our operating loss partially offset by proceeds from sales of
preferred stock and issuance of notes payable.
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Assuming our collaborative research agreements with our strategic partners are
continued for their full terms, Bayer will contribute committed working capital
of approximately $8.0 million in 2000 through 2001 and Monsanto will contribute
committed working capital of approximately $39.5 million in 2000 through 2005.
Our operating activities used cash of approximately $233,000 in 1997,
approximately $2.1 million in 1998 and approximately $4.4 million in 1999. Cash
used in operating activities was primarily related to net operating losses.
Cash used by investing activities totaled approximately $4,000 in 1997,
approximately $6.1 million in 1998 and approximately $7.6 million in 1999.
Investing activities consist primarily of additions to property and equipment
and net purchases of short-term investments. We expect to continue to make
significant investments in the purchase of property and equipment to support
our expanding operations. A portion of our cash may be used to acquire or
invest in complementary businesses, products or technologies, or to obtain the
right to use such complementary technologies.
Financing activities provided cash of approximately $254,000 in 1997,
approximately $9.2 million in 1998 and approximately $11.5 million in 1999.
Cash provided by financing activities resulted from the receipt of
approximately $6.0 million in net proceeds from the sale of Series A Preferred
Stock in 1998, including $350,000 in proceeds from bridge loans which were
converted to Series A Preferred Stock and approximately $6.0 million in net
proceeds from the sale of Series B Preferred Stock in 1999. In addition, we had
net borrowings of approximately $250,000 in 1997, approximately $3.6 million in
1998 and approximately $5.5 million in 1999, from borrowings under our notes
payable for equipment financing of approximately $3.8 million and our senior
note payable of approximately $2.0 million.
In January 2000, we completed the sale of our Series C Preferred Stock for
gross proceeds of approximately $15.0 million and received approximately $9.0
million in payments under collaboration agreements.
Our forecast of the period of time through which our financial resources
will be adequate to support our operations is a forward-looking statement that
involves risks and uncertainties, and actual results could vary as a result of
a number of factors. We believe that our existing cash and investment
securities and anticipated cash flow from existing collaborations together with
the net proceeds of this offering will be sufficient to support our current
operating plan for at least the next two years. We have based this estimate on
assumptions that may prove to be wrong. Our future capital requirements will
depend on many factors, including:
. the number, breadth and progress of our research programs;
. the achievement of the milestones under certain of our existing
strategic alliances;
. our ability to establish additional and maintain current and
additional strategic alliances;
. our strategic partners' success in commercializing products developed
under our strategic alliances;
. our success in commercializing products to which we have retained the
rights under our strategic alliances;
. the costs incurred in enforcing and defending our patent claims and
other intellectual property rights; and
. the costs and timing of obtaining regulatory approvals for any of our
products.
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BUSINESS
Overview
We are industrializing the process of determining gene function to
generate information that will enable us to develop novel products in four
major sectors of the global economy: crop production, nutrition, human health
and industrial products. We have developed our GeneFunction Factory to
simultaneously study the functions of many genes in our selected plants and
fungi. We designed our GeneFunction Factory to be an integrated, rapid,
industrial scale laboratory through which we can discover and modify genes,
understand the consequences of the modifications and reliably determine the
function of those genes. Our assembly-line approach automates the measurement
of thousands of physical and chemical characteristics of a selected organism at
different times in the organism's life cycle using the following techniques:
. gene expression profiling, a process of determining the level of
activity of genes in an organism at a specific time;
. metabolic profiling, a process of determining the identity and
quantities of chemicals in an organism at a specific time; and
. phenotypic profiling, a process of measuring the physical and chemical
characteristics of an organism at a specific time.
The resulting large amounts of information are then fed into our FunctionFinder
bioinformatics system. Our GeneFunction Factory presently is capable of
determining the function of approximately 50 genes per week, and we believe
that it will be capable of determining the function of up to 200 genes per week
by the end of 2000.
To date, we have established strategic alliances with Bayer and Monsanto.
The Bayer alliance is focused on the development of new herbicides while the
Monsanto alliance is focused on the development of crop production and
nutrition products. Under these alliances, we have total committed funding of
approximately $56 million and have performance fees, milestone payments and
payments in connection with extension options that could generate as much as an
additional $133 million. We will also earn product development milestones and
sales royalties if products are commercialized from these alliances.
Background
Genes
The genes of an organism, whether animal, plant or microbe, determine its
physical and chemical characteristics. The entire genetic content of an
organism is called its genome. Genes consist of organized units of molecules
called deoxyribonucleic acid, or DNA, which in turn consist of four different
chemical bases, called nucleotides. Each nucleotide pairs with its
complementary nucleotide in the double helix structure of DNA, forming what
scientists call a base pair. The precise sequence of the nucleotides in a gene
determines the physical and chemical activity that the gene produces in an
organism. Each cell of an organism contains at least one complete copy of the
organism's genes, but each cell type expresses only those genes that are
necessary for the cell to perform its role. When a gene is expressed, it acts
alone or in combination with other expressed genes to synthesize structural
proteins and enzymes. The activity of these proteins causes the cell to perform
biological functions, which may influence the physical and chemical
characteristics of the organism. A modification in a gene sequence may lead to
the over- or under-production of a protein, modifying the normal biological
function of the cell, and potentially affecting the physical and chemical
characteristics of the entire organism.
The Industrialization of Gene Sequencing
In the early 1990s, a worldwide effort began to decipher the precise
sequence of the genomes of various organisms, including humans, pathogens and
agricultural crops. The search to identify genes and their encoded proteins
that are associated with both health and disease has fueled this effort.
Advances in
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DNA sequencing technology and instrumentation have allowed researchers to begin
to sequence genes on an industrial scale by creating "sequencing factories,"
instead of sequencing genes one at a time. During the last two decades, the
speed at which scientists can sequence the building blocks of genes, or base
pairs, has increased from hundreds per week to millions per week, while the
cost of sequencing a base pair has decreased proportionately. Large sequencing
centers at universities, research institutes and private companies produce tens
of thousands of gene sequences each week. To date, scientists have cataloged
the complete genomes of over forty species of bacteria, Baker's Yeast and a
nematode, which is a small worm-like organism. In an effort called the Human
Genome Project, scientists funded by the government, as well as several
foundations, have been systematically sequencing human DNA since the late
1980s. Industry experts anticipate that researchers will complete the
sequencing of the entire human genome, as well as the genome of the plant
Arabidopsis, by the end of the year 2000. Additionally, the government and
private industry are funding researchers attempting to complete the sequencing
of the entire genomes of several species of crops, such as rice, corn, tomato
and soybean, as well as bacteria, protists and fungi. Researchers expect that
the entire DNA sequences of these organisms will be determined in the near
future.
The gene sequence information that has been discovered to date provides a
vast and diverse starting point for gene function research. However, in the
absence of other information, a gene's sequence does not provide any clues to a
gene's function. Without understanding function, researchers will have a
limited ability to translate this gene sequence data into information necessary
to develop new commercial products.
Determining Gene Function
Historically, gene function determination has been a slow, labor intensive
and formulaic process, pursuant to which an investigator typically would take
the following steps:
. identify a gene;
. determine its sequence;
. gather information on how the gene was expressed in an organism's
tissues;
. determine the activity of the protein corresponding to the gene;
. isolate or create modifications in the gene; and
. investigate the impact of modifications on the organism.
Individual research laboratories in different locations have conducted most of
this type of genetic research using variations on the same techniques to study
different genes, one gene at a time. Researchers have only recently developed
methods to study the function of many genes at one time and in one place, using
one or more of the following techniques, each of which is explained in the
corresponding paragraphs below:
. gene annotation and homology determination;
. gene expression profiling; and
. model organism functional genomics.
Gene Annotation and Homology Determination
Researchers can use search and alignment algorithms to determine the
degree to which a newly discovered gene sequence is similar, or homologous, to
previously known sequences. Researchers can then examine any remarks, or
annotations, written by other scientists about the characteristics, activity or
function of the previously studied sequence, and draw inferences about the
function of the new gene sequence based on its structural similarity, or
homology, to the known gene sequence. It is possible to find similarities among
gene sequences from different species, because researchers find many gene
families in certain groups of organisms, and some are even found in all
organisms.
Although gene annotation and homology determination may provide insight
into the function of a newly discovered gene, researchers can infer only
information with limited value. First, even if researchers
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have studied a similar gene, very few of the studied genes have reliable
annotation about function. Second, of the genes researchers have currently
annotated for function, most annotations relate to fundamental processes, such
as respiration, which address only a fraction of the potential commercial
applications of functional genomics, which is the assignment of a function to a
gene. Third, genes with similar sequences often have very different functions.
Gene Expression Profiling
A gene expression profile provides a snapshot of genes that are expressed
in specific tissues of specific organisms at specific points in time. This
snapshot tells an investigator where, when and to what extent a particular gene
is expressed in a cell, tissue or organism and what physiological pathways are
active in the cell. Gene expression technology has progressed rapidly over the
past few years. Currently, investigators use various profiling technologies
such as gene chips to analyze the expression patterns of tens of thousands of
genes at once.
Although gene expression profiling may provide clues to a gene's function
in a particular process or pathway, it does not provide sufficient information
to conclusively determine a gene's function or its commercial value. A gene
expression profile shows that a gene was expressed in a cell at the time a
certain biological function occurred in the cell. However, the profile does not
show whether the expression of the gene was causally related to the cellular
activity, or how the gene interacted with other genes that were expressed at
the same time. Also, the profile does not show the chemical and physical
effects of changes in gene expression in an organism.
Model Organism Functional Genomics
We believe the most reliable way to determine a gene's precise function is
to study the effects of modified, or variant, forms of the gene on an organism.
The biology and genetics of certain organisms, which we call model organisms,
make them effective tools for investigating the function of genes of other
organisms with commercial value, which we refer to as target organisms.
Generally, model organisms must be similar enough to associated target
organisms to allow meaningful comparisons. They must also be easier, faster and
less costly to investigate. Model organisms may also serve as targets for gene
discovery when there is commercial potential for the model organism itself.
Researchers use model organisms to determine the function of a gene from a
target organism by comparing the physical and chemical characteristics produced
by normal and variant forms of a comparable gene from the model organism, and
extrapolating the results to the target organism. We refer to this process as
model organism functional genomics.
Companies utilizing model organism functional genomics face several
critical challenges. First, they must choose a model organism that is relevant
to target organisms with commercial value. Second, they must choose model
organisms with physical and chemical characteristics that make them efficient
research tools. Third, they must collect large amounts of information about a
small number of genes in a model in their normal and variant states. Fourth,
they must have powerful informatics tools to manage and analyze collected data.
However, even when these challenges are met, determination of gene function
using model organisms typically occurs on a small scale, with individual
investigators studying a small number of genes at a time.
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Our Approach to Industrializing Gene Function Discovery: Our GeneFunction
Factory
The existing approaches to determining gene function have produced limited
results, as evidenced by the fact that the functions of most genes are still
unknown. We believe that an inexpensive, rapid, large-scale approach to
determining gene function is necessary to address this problem. We have
responded to this need by developing our GeneFunction Factory to study gene
function for numerous genes simultaneously in our selected organisms. We
designed our GeneFunction Factory to be an integrated, rapid, reliable,
industrial scale laboratory through which we can discover and modify genes,
measure the consequences of the modifications and reliably determine the
function of those genes. We believe that by determining gene function we will
be able to develop novel products in our target markets. In effect, we are
industrializing the discovery of gene function.
GENEFUNCTION FACTORY CHART
Our GeneFunction Factory is organized as a series of steps. Each step
consists of one or more work stations designed to perform complex tasks
rapidly, efficiently, routinely and repetitively in an assembly-line manner.
Organisms and genetic material pass from station to station to be studied for
gene function. We can scale each step in the process to increase the number of
genes that move through our GeneFunction Factory. Scalability, speed and our
proprietary processes distinguish this method of gene function determination
from other methods. Our GeneFunction Factory presently is capable of
determining the function of approximately 50 genes per week, and we believe it
will be capable of determining the function of up to 200 genes per week by the
end of 2000.
In the steps of our GeneFunction Factory, we first identify genes and
produce organisms with modified forms of the genes, leading to an over- or
under-expression of the encoded protein. We then
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measure thousands of physical and chemical characteristics of the variant
organisms at different times of the organisms' life using gene expression,
metabolic and phenotype profiling. Next, we organize and store the data
associated with the measurements taken in the previous step. Finally, we
analyze the data to elucidate function of the genes.
Our Model and Target Organisms
We carefully select the organisms we study in our GeneFunction Factory.
Some researchers use yeast and the bacterium Escherichia coli as general model
organisms, and others use the mouse as a model for humans. Yeast and bacteria
are efficient model organisms, but are such simple organisms that extrapolating
information about gene function to more complex target organisms is often not
meaningful. Mice are more useful for annotating genes of higher organisms, but
have long life cycles and are expensive to maintain and study. We conduct our
research directly in target organisms when feasible, but when a model organism
is needed, we have chosen, and will likely continue to choose, those organisms
that are comparable to the target organism, are economical and efficient to
maintain and study, have short life cycles and whose genes are easy to modify.
The first eight organisms we have decided to study are a mustard plant known as
Arabidopsis, rice and six fungi.
Arabidopsis is a useful model organism because it is related to soybeans,
cotton, vegetables and oil seed crops. It is an efficient model organism
because it has a short life cycle of seven weeks and a small genome. Rice is an
important target and model organism because it is one of the world's most
important grains, and it is closely related to corn, wheat, barley, sugarcane,
oats and rye. We are currently studying three fungi that cause diseases in
cereals, rice and broadleaf plants. We intend to study three additional fungi
that have commercial value for fermentation, human fungal disease and natural
product discovery. We believe we can use our GeneFunction Factory to study the
function of essentially every gene in these organisms.
Gene Discovery and Variant Generation
One constraint in gene function discovery has been the time consuming
nature of constructing gene variants. In gene discovery, researchers construct
libraries of DNA fragments for an organism. The researchers sequence and alter
the DNA fragments to produce a gene variant. In plants, we produce two types of
variants: knock-out variants, in which we have modified the selected gene to
under-produce its encoded protein, and over-expression variants, in which we
have modified the selected gene to over-produce its protein. In fungi, we use
proprietary technology to activate or inactivate genes using specialized DNA
fragments that we can insert into genes to modify the gene. We then introduce
the modified gene into the fungal nucleus where it efficiently and precisely
replaces the normal gene. Using these proprietary technologies, we have
modified hundreds of plant genes and thousands of fungal genes.
Variant Analysis
Traditionally, the process of understanding the often-subtle difference
between a variant and normal organism has required years of experimentation. We
have solved this problem by rapidly and accurately collecting large volumes of
data for many different gene modifications with our automated workstations,
sample tracking and data collection software that constitute our GeneFunction
Factory. The three types of data that we collect for each variant are gene
expression profiles, metabolic profiles and phenotype profiles.
Gene Expression Profiling. Gene expression profiling provides a snapshot
of the genes expressed in an organism at a given time. By comparing gene
expression profiles of a variant organism to a normal organism, we gather
information about the function of the modified gene as well as the effect of
that gene on the expression of other normal genes. By determining how a
modified gene affects normal genes, we gain insight into biochemical pathways
of an organism.
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Metabolic Profiling. Metabolic profiling provides a snapshot of the
chemicals in an organism's cell, including vitamins, minerals and other
biochemicals, at a given time. We are collaborating to develop a proprietary
method for extracting chemicals from an organism, which has traditionally been
the most time-consuming step in the metabolic profiling process. We detect and
measure these extracted chemicals using combinations of mass spectroscopy,
which separates molecules by electrical charge and size, and chromatography,
which separates molecules by size and chemical properties.
Phenotype Profiling. Phenotype profiling is the measurement of physical
and chemical characteristics of an organism at one or more times during its
life cycle. Characteristics of our target and model organisms that we measure
include flowering time, plant height, plant weight, seed set, seed shape, leaf
shape, color reflectance, root density, nutrient utilization and appearance.
Different measurements, when taken at specified times, produce a phenotype
profile for a variant that we can compare to a phenotype profile for a normal
organism to help understand the function of the modified gene. We have
developed a proprietary method for obtaining a phenotype profile for an
organism that is an important part of our variant analysis.
Our FunctionFinder Bioinformatics System
Data Management. Laboratory researchers typically track and collect data
using notebooks, which makes it difficult to organize, store and access the
volumes of data generated. We are addressing the issue of data management by
developing a proprietary Laboratory Information Management System, or LIMS,
utilizing barcodes and other automated data collection devices to track samples
and store data. We have also developed technology to improve the organization,
formatting and storage of data collected from our variant analyses. Our LIMS
system allows us to record and manage the thousands of daily measurements
produced by our GeneFunction Factory.
Data Analysis. The challenge with the vast amounts of data that have been
collected and stored for so many genes is being able to retrieve and make sense
of relevant information to determine the function of genes. To meet this
challenge, we have developed our FunctionFinder bioinformatics system, which
incorporates information obtained from our variant analyses and from public
sources. FunctionFinder includes tools for storing, retrieving, analyzing and
mining data to create knowledge about genes. The FunctionFinder bioinformatics
system contains proprietary software that we have developed.
Market Opportunities
By determining the function of genes in Arabidopsis, rice and six
filamentous fungi, we believe that we and our strategic partners will be able
to develop novel products in four major sectors of the global economy. We have
focused our initial efforts on generating gene function information that can be
used to develop crop and nutrition products. In the future, we intend to use
our GeneFunction Factory to discover gene function information on an industrial
scale that we and our strategic partners can use to develop human health and
industrial products. Our target sectors and markets are:
<TABLE>
<CAPTION>
Crop
Production Nutrition Human Health Industrial Products
---------- --------- ------------ -------------------
<S> <C> <C> <C>
Herbicides Additives Anti-Fungals Fermentation
Fungicides Botanicals Nutraceuticals Fiber
Fertilizers Foods Pharmaceuticals Industrial Enzymes
Seeds Health Foods Vaccines Specialty Chemicals
Crop Outputs
</TABLE>
Our near-term strategy in these sectors is to establish strategic
alliances with leading companies in order to develop commercial products. To
date, we have entered into strategic alliances with Bayer to develop novel
herbicides and with Monsanto to develop crop outputs and nutritional and human
health products.
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Crop Production
The crop production sector consists of crop inputs and crop outputs.
Herbicides, fungicides, fertilizers and seeds are examples of crop inputs.
Harvested grain, vegetables and fiber are examples of crop outputs. We intend
to utilize the information derived from our GeneFunction Factory to develop
commercial products, independently or with strategic partners, in the following
areas:
Crop Inputs
Herbicides. Herbicides are chemicals that kill weeds that cause
substantial crop loss. The herbicide market is a mature market in which
innovative products have historically been introduced only about once per
decade. In 1998, global sales of herbicides were approximately $15 billion,
with Roundup(R) being the leading product. While there are many herbicides
on the market today, there is still a need for new types of products. For
example, there is a need for a herbicide that can be applied at the same
time seeds are planted, remains active in the field for several weeks, is
environmentally friendly and kills a broad spectrum of weeds quickly.
Conventionally, researchers have discovered new herbicide products by
spraying various chemicals on weeds in the hope of finding a chemical that
kills weeds without killing crops. Once a promising chemical is discovered,
researchers use labor-intensive genetics, physiology and biochemistry
techniques to determine the protein in the weed that the chemical affects.
This conventional approach is expensive and slow and has a low success
rate. Typically, researchers must screen 80,000 chemicals to find a
commercial product.
We believe our GeneFunction Factory may provide new herbicide targets
for chemical screening faster and more economically than the conventional
method. As part of our collaboration with Bayer, we use our GeneFunction
Factory to identify Arabidopsis genes that may be promising targets for new
herbicides. We then produce the proteins encoded by these promising genes
in quantities that are sufficient for large-scale high-throughput, or high
volume, chemical screening for herbicides. Finally, our assay group
produces assays, or test kits, containing those proteins that can be used
to screen for new herbicides. By narrowly focusing our discovery efforts on
finding chemicals that disable specific genes within weeds, we believe
that, together with our strategic partners, we may be able to discover
environmentally friendly herbicides more efficiently than our competition.
Fungicides. Fungal plant diseases impose greater costs upon food growers
than any other plant disease. Chemicals used to control these diseases are
called fungicides. The global market for fungicides, such as Tilt(R) and
Ridomil PC(R), was approximately $6 billion in 1998. There is a need for
better and safer fungicides, particularly those that treat currently
untreatable fungal diseases or fungal strains that become resistant to
existing fungicides.
As with herbicides, researchers conventionally have discovered
fungicides by spraying various chemicals on crops in the hope of finding a
chemical that inhibits fungal infections on crops without killing the crops
themselves. Until recently, researchers had not used an approach based upon
the determination of gene function for fungicide discovery. We believe our
GeneFunction Factory will provide potential new fungicide targets for
screening chemicals faster and more economically than the conventional
method. We are currently examining three filamentous fungi, including
Magnaporthe grisea, a rice pathogen, and Mycosphaerella graminicola, a
wheat pathogen. We plan to identify genes in these fungi that are essential
for the survival of the fungi, but not the crop. We believe that these
genes will provide promising targets for chemical screening using assays
that we or our strategic partners produce.
Fertilizers. Fertilizers are products that are applied to the soil to
provide crops with the nutrients needed to produce high yields. The primary
ingredients of most fertilizers are nitrogen, potassium and phosphorus. The
global market for fertilizers in 1998 was about $50 billion. In general,
current product
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discovery efforts for fertilizers are focused on blending or reformulating
known fertilizer compounds and reducing production costs. Plants are
limited in their ability to utilize fertilizers. Excess fertilizer enters
the environment either as run-off or ground water seepage, both of which
are major environmental concerns. We believe that products that enhance
fertilizer utilization will dramatically improve the economics and lessen
environmental concerns of crop production because growers will be able to
use less fertilizer to produce the same yields. We believe that our
GeneFunction Factory may allow us to identify genes in crops that improve
their ability to utilize fertilizer.
Seeds. Typical commercial seeds include hybrid corn seeds, registered
wheat seeds and vegetable seeds. The global market for commercial seeds in
1998 was over $15 billion. Currently, there is a need for new commercial
seeds that can increase crop yields and improve the quality of foods and
fibers. One commercial seed that has successfully increased crop yield
while reducing the use of pesticides is the Bollgard(TM) cottonseed. Its
developers inserted a microbial gene into cottonseed that encodes a protein
that kills the cotton budworm, a significant pest of cotton. The resulting
seed produces a high yield of cotton while avoiding both the cost and
negative environmental impact of budworm pesticide.
Historically, time-consuming plant breeding techniques have dominated
research in the seed industry. Recently, the seed industry has invested
heavily in the genetic modification of crops, which has resulted in a
number of commercialized products and products in development. The seed
industry now has the technology to efficiently insert genes into seeds, and
products such as the Bollgard cottonseed have demonstrated the commercial
viability of this technology. We believe that there is a market need for a
technology that can rapidly generate information about the function of a
large number of genes and identify those genes that code for commercially
valuable crop traits that the seed industry could then breed or insert into
crops. Examples of valuable crop traits are disease resistance, vitamin
content and resistance to herbicides and fungicides.
Crop Outputs
The output side of crop production consists of harvested crops. The
global value of harvested crops in 1998 was approximately $700 billion with
additional value created through crop processing. While there are more than
170 crops grown worldwide, only a few key crops, such as corn, soybean,
rice, wheat, potatoes and tomatoes, account for most of the value. Two
major market opportunities involve improving processing and product
attributes. An example of a processing improvement is a reduction in the
soluble fiber present in wheat. Pasta made from this type of wheat would be
faster drying than ordinary pasta and therefore companies could produce and
package pasta at a reduced cost. An example of an improved product
attribute is an increased amount of oil in each ton of processed canola. We
believe that our GeneFunction Factory may allow us to quickly and
efficiently identify novel genes that control processing and product
attributes.
Nutrition
We believe that advances in functional genomics will make it possible for
companies to enhance the nutritional content of foods and develop foods that
can reduce the risk of disease in consumers. The nutrition market includes
additives, botanicals, foods and health foods. Product examples include
cholesterol-reducing margarines and nutritionally enhanced breakfast cereals.
It has been estimated that the size of the market for enhanced nutrition foods
will reach $15 billion in 2000 and $500 billion by 2010. Some of these foods
will result from genetic variants, while companies will produce others through
methods that do not involve genetic variants. For example, functional genomics
can identify which plants have certain nutritional qualities and researchers
can isolate these qualities and add them to foods. Because many foods and
additives come from plants and microbes, we believe that we and our strategic
partners can use our GeneFunction Factory to develop food products with
improved nutritional content.
Food production companies are exploring ways to create foods with
pharmaceutical benefits. For example, in January 2000, DuPont's Protein
Technologies International and General Mills, Inc. announced
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plans to collaborate in developing and marketing functional foods containing
proprietary soy technology consistent with the FDA approved health claim that
there is an association between consumption of soy protein and the reduced risk
of coronary heart disease. According to General Mills, sales for soy foods are
expected to top $2.5 billion in 2000 and grow at a 15% to 20% compound annual
rate over the next five years.
We believe that our GeneFunction Factory may, in the future, generate gene
function information that companies could use to develop food products that
contain:
. elevated levels of vitamins and essential amino acids in foods;
. novel proteins useful in the prevention or treatment of medical
conditions;
. elevated levels of compounds that are present in plants and reduce
serum cholesterol levels; and
. reduced levels of saturated fats.
Human Health
We are focusing our efforts in the human health sector on the discovery of
novel anti-fungal targets for drug discovery and the use of our model organisms
and our FunctionFinder bioinformatics system to understand the genetic basis of
human disease. There is a need for novel anti-fungals to treat immune-
compromised individuals coping with AIDS, recovering from transplant surgery or
undergoing cancer therapy.
We believe that the model organisms that we are studying may be useful in
discovering novel gene targets for the prevention and treatment of human
disease. By using the sequence and function information of each gene in our
model organisms and identifying the similarity of these known genes to human
genes using our FunctionFinder bioinformatics system, we may provide a powerful
tool for human drug discovery.
Industrial Products
Within the industrial products sector, we are targeting the markets for
industrial enzymes, fermentation, fiber and specialty chemicals. Proteases for
laundry detergent, paper and plastic are examples of products from such
markets. These industries are capital intensive, and research has focused on
improving current products. There is a need for industrial products that are
novel, effective, inexpensive and environmentally friendly. To fill this need,
major companies in each of these industries have recently made significant
investments in biotechnology. For example, companies are developing a new
plastic made from natural plant chemicals that researchers expect to be as
versatile and strong as some common synthetic plastics, yet less expensive and
more biodegradable.
Since many industrial products are derived from biological sources, we
believe that by understanding how gene function dictates product
characteristics, we may be able to develop information that will significantly
reduce production costs as well as lead to the creation of novel products. We
believe that the use of our GeneFunction Factory may lead to the discovery of
gene function information useful for the development of various industrial
products, including:
. improved or novel fermentation products, such as enzymes and specialty
chemicals;
. improved fiber products such as wood, plastics, cotton and linen; and
. improved industrial processes such as wastewater treatment.
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Our Strategy
Our goal is to be the leading provider of gene function information to
accelerate the commercialization of improved applications in crop production,
nutrition, human health and industrial products. The key elements of our
strategy are to:
Determine the Function of Genes in Our Target and Model Organisms.
Using our GeneFunction Factory, we intend to determine the function of
essentially every gene in each of our target and model organisms and
incorporate this data into our FunctionFinder bioinformatics system. We intend
to establish our FunctionFinder bioinformatics system as the definitive source
of gene function information for these target and model organisms, as well as
other target organisms related to our model organisms.
Continue to Develop Our GeneFunction Factory.
In order to expand our capability in the industrialization of gene
function determination, we will continue to develop our GeneFunction Factory.
In addition to internal efforts to further streamline our industrialization
process, we plan to license and acquire technologies that complement our core
capabilities. We intend to utilize our partners' expertise and information to
expand our FunctionFinder bioinformatics system and improve the capabilities of
our GeneFunction Factory. In addition to expanding our technology, we plan to
expand our facilities, equipment and personnel in order to increase
productivity.
Develop Products Both with Strategic Partners and Internally.
We intend to establish additional strategic alliances with leading
companies in the crop production, nutrition, human health and industrial
products industries. We seek to receive short-term financial support to advance
our internal discovery and development efforts, as well as generate long-term
revenues from milestone and royalty payments on any commercialized products. We
also intend to develop products independently when opportunities arise.
Focus Our Development Efforts on Large Market Opportunities.
We intend to utilize our GeneFunction Factory to develop products in the
crop production, nutrition, human health and industrial products sectors. We
believe there are substantial opportunities in these sectors for novel products
that we and any of our future strategic partners can efficiently develop with
information from our GeneFunction Factory. We intend to focus our development
efforts on large opportunities within these sectors.
Pursue Intellectual Property Protection for Our GeneFunction Factory and Gene
Function Information.
We intend to continue to aggressively pursue patents for our discovery
methods, our research platform and aspects of our bioinformatics system.
Additionally, we intend to aggressively pursue patents on discoveries of novel
genes and gene functions. As of March 27, 2000, we have rights to 31 U.S.
patent applications, relating to our technologies and genes. We intend to
protect and build on our existing patent portfolio and also rely on trade
secrets to protect our proprietary technologies. Where necessary, we will seek
licenses to implement aspects of our research platform subject to ownership
rights of others.
Strategic Alliances
As part of our business strategy, we have established strategic alliances
with pharmaceutical and agricultural companies in the fields of herbicide
development, crop production and nutrition. To date, we have entered into
significant strategic alliances with Bayer and Monsanto.
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Bayer
In September 1998, we entered into a collaboration research agreement with
Bayer for the development of new chemical herbicides. Under the terms of the
agreement, we have agreed to use our GeneFunction Factory to identify
Arabidopsis genes that may be targets for herbicide discovery. We will provide
exclusively to Bayer assays based on these targets for use in high throughput
screening for herbicides, as well as access to customized Arabidopsis-based
releases of FunctionFinder for use in herbicide discovery. The collaboration
has an initial term of three years, ending in September 2001, unless Bayer
terminates it at an earlier date because we do not achieve specific milestones,
and Bayer has the option to extend it for two additional years. The agreement
provides that we are entitled to committed research funds, additional fees
based on the number of assays we deliver and our success in delivering
customized releases of FunctionFinder, and milestone and royalty payments for
any products that might emerge from the collaboration. Under the terms of the
agreement, Bayer is obligated to pay us approximately $14.7 million in
committed funding and as much as an additional $25 million in performance fees,
milestone payments and payments made in connection with the exercise of options
to extend the agreement. To date, we have received approximately $9.2 million
of this funding from Bayer pursuant to the agreement. We will also earn sales
royalties and product milestones in the event that our strategic alliance with
Bayer yields commercial products.
We have achieved three milestones in our collaboration research agreement
with Bayer. These milestones include the delivery of the first two assays for
high throughput screening and the delivery of the first release of a customized
FunctionFinder bioinformatics system for discovery of novel herbicide targets.
Monsanto
In November 1999, we entered into a collaboration agreement with Monsanto
to provide certain Arabidopsis-based gene function data for the development of
crop inputs and outputs. Under the terms of this agreement, Monsanto is to
provide us with thousands of genes from Arabidopsis and other organisms. We are
to perform a functional analysis of such genes for Monsanto using our
GeneFunction Factory. Monsanto will either own or have exclusive licenses to
certain patents that result from this project. The collaboration has an initial
term of six years, ending in November 2005, unless Monsanto terminates it at an
earlier date because we do not achieve specific milestones, and Monsanto has
the option to extend it for up to two years and nine months. Monsanto may
expand the collaboration either by increasing the number of genes that we are
to analyze in Arabidopsis or by requiring us to analyze gene function in a
second model, or both, for additional research and possible milestone payments.
The agreement provides that we are entitled to committed research funds,
additional fees based on the number of genes analyzed and royalty payments for
any products that might emerge from the collaboration. Under the terms of the
agreement, Monsanto is obligated to pay us approximately $41.5 million in
committed funding and as much as an additional $107.5 million in performance
fees, milestone payments and payments made in connection with the exercise of
options to extend the agreement. To date, we have received approximately $10.7
million of this funding from Monsanto pursuant to the agreement. We will also
earn sales royalties and product milestones in the event that our strategic
alliance with Monsanto yields commercial products.
LION bioscience
We have entered into a binding letter of intent with LION bioscience to
negotiate an agreement for the co-development and co-marketing of
bioinformatics software products for analyzing gene function. The companies
initially intend to focus on the development of metabolic profiling informatics
tools, and later develop improved phenotype profiling tools. We may not
successfully negotiate a definitive agreement with LION bioscience.
Research and Development
Our research and development efforts are directed towards the development
of our GeneFunction Factory, including our FunctionFinder bioinformatics system
and research activities in connection with our strategic alliances and our
government grant. We spent approximately $72,000 in 1997, approximately $3.6
million in 1998 and approximately $7.5 million in 1999 on our research and
development efforts.
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Competition
We face competition from functional genomics companies, including
Exelixis, Inc., CuraGen Corporation, Rosetta Inpharmatics, Inc. and Large Scale
Biology Corporation (formerly known as Biosource Technologies, Inc.). We expect
competition to intensify in genomics research as technology advances are made
and become widely known. Genomic technologies have undergone and are expected
to continue to undergo rapid and significant change. Our future success will
depend in large part on maintaining a competitive position in the genomics
field, and particularly in the functional genomics field. We or others may make
rapid technological development which may result in products or technologies
becoming obsolete or noncompetitive before we recover the expenses we incur in
connection with our development. Products that we or our strategic partners
offer could be made obsolete by less expensive or more effective crop
production, nutrition enhancement, human health and industrial application
product development technologies, including technologies that may be unrelated
to genomics. We may not be able to make the enhancements to our technology
necessary to compete successfully with newly emerging technologies.
Any products that we may develop alone or in collaboration with others
will compete in highly competitive markets. In the specific markets in which we
apply or intend to apply our FunctionFinder bioinformatics system, we face
competition from plant genomics, pharmaceutical, agrochemical and biotechnology
companies. Many of our existing and potential competitors have substantially
greater financial resources, research and development staffs, facilities,
manufacturing and marketing experience, distribution channels and human
resources than we do. Many of these competitors have achieved substantial
market penetration in the crop enhancement, nutrition, human health and
industrial product sectors. We have entered into strategic alliances with Bayer
and Monsanto in the crop production and nutrition sectors, but have not yet
entered into any strategic alliances or commenced development work in the human
health and industrial products sectors. Moreover, our competitors may obtain
patent protection or other intellectual property rights that could limit our
rights or our strategic partners' ability to use our technologies or
commercialize products in the crop production, nutrition, human health and
industrial products sectors.
Our ability to compete in the human health sector and the industrial
products sector may be limited by our exclusive use of plant and fungal model
organisms. We believe that our ability to compete in the human health sector
will depend on the degree to which information we develop on plant and fungal
gene and pathway function is useful in developing information about how similar
human genes and pathways code for human pathology. Although our models have
several advantages, competing companies that use model organisms with greater
similarities to human genes, such as mice, as well as companies that do direct
studies of human populations, may have a substantial advantage in developing
products for humans. Similarly, we believe that as it relates to industrial
products, our FunctionFinder bioinformatics system will only be useful in the
development of products that are plant or fungal based, such as enzymes and
alcohols.
Government Regulation
Regulation of Development and Commercialization of Agricultural Products
Federal, state, local and foreign government regulations and regulatory
agencies will govern our efforts, alone or together with our strategic
partners, to develop and commercialize genetically enhanced nutrition and crop
products. These regulations and agencies may prevent us and our strategic
partners from developing and marketing nutrition and crop product candidates in
a timely manner or under technically or commercially feasible conditions, and
may impose expenses, delays and other impediments to our efforts to develop
such product candidates.
The FDA has adopted the policy that it will apply the same regulatory
standards to genetically modified foods that it applies to foods developed
through traditional plant breeding. This means that a food or food ingredient
developed by genetic modification must meet the same rigorous safety standards
under the Federal Food, Drug, and Cosmetic Act as other food products. Under
this policy, the FDA will
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ordinarily only require premarket review of genetically modified foods if they
raise significant safety concerns, such as elevated levels of toxicants or the
presence of allergens, or if the FDA deems them to contain a food additive. The
FDA requires premarket approval as food additives for products from introduced
genes only if the product differs substantially in structure and function from
similar naturally occurring substances. Also, the FDA does not currently
require that genetically modified products be labeled as such, as long as they
are as safe and have the same nutritional characteristics as conventional
products. The FDA is considering the adoption of a Premarket Notification
procedure, pursuant to which our strategic partners and we would have to inform
the FDA when we intend to commercialize a genetically modified food product and
that our internal safety procedure is complete.
The USDA prohibits genetically modified plants from being grown and
transported except pursuant to an exemption or under special controls. In
general, companies apply for an exemption to facilitate product development
because the special controls are burdensome. However, we can not guarantee that
the products we develop will qualify for such an exemption.
Regulatory policies for genetically modified nutrition and crop products
vary widely, are currently the subject of intense political controversy, and
may change substantially in the near future. Accordingly, labeling, premarket
notification or other restrictions in foreign countries where we and our
strategic partners may want to develop and/or market genetically modified
product candidates may impose additional expenses and delays on such product
candidates or may make commercialization in such countries impracticable.
Our future nutrition and crop product candidates may also be subject to
other regulations and regulatory agencies, such as the Occupational Safety and
Health Act, the Toxic Substances Control Act, the National Environmental Policy
Act, other federal water, air and environmental quality statutes, import/export
control legislation and other laws. Any product candidates relating to
pesticides will be subject to the jurisdiction of the Environmental Production
Agency.
Regulation of Drug Development and Commercialization
Prior to the marketing of any new drug developed by us or our strategic
partners, that new drug must undergo an extensive regulatory review process in
the United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of any compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent marketing. We and our
strategic partners may also encounter delays or rejections based on changes in
government agency policies for drug review. Delays in obtaining marketing
clearance could delay the commercialization of any drugs or diagnostic products
developed by us or our strategic partners, impose costly procedures on our
strategic partners' activities, diminish any competitive advantages that our
strategic partners may attain and lessen our potential royalties.
Even if regulatory clearance is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, which could reduce our revenue sources and hurt our financial results.
No agency has approved any product resulting from the use of our
FunctionFinder bioinformatics system for commercialization in the United States
or elsewhere. In addition, we and our strategic partners have not submitted any
investigational new drug applications for any such product candidate. We cannot
be certain if or when we or our strategic partners will submit an application
for regulatory review, or whether we or our strategic partners will be able to
obtain marketing approval for any products on a timely basis, if at all. If we
and our strategic partners fail to obtain required governmental approvals, it
will prevent us from marketing drugs or diagnostic products. The occurrence of
any of these events may cause our business, financial condition and results of
operations to suffer.
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Environmental Regulation
Our research and development activities involve the controlled use of
hazardous materials and chemicals. We are subject to federal, state and local
laws and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. The risk of accidental contamination or
injury from these materials cannot be eliminated. In the event of an accident,
we could be held liable for any damages that result, and any liability could
exceed our resources.
Intellectual Property
We seek U.S. and foreign patent protection for major components of our
GeneFunction Factory. We also rely on trade secret protection for certain of
our confidential and proprietary information, and we use license agreements
both to access external technologies and assets and to convey certain
intellectual property rights to others. Our commercial success will be
dependent in part on our ability to obtain commercially valuable patent claims
and to protect our intellectual property portfolio. As of March 27, 2000, we
had filed 31 U.S. patent applications, which are subject to rights that we have
granted to various collaborators and development partners. We have filed 16
trademark applications in the United States and have received allowances on six
of them.
The patent positions of life science companies are generally uncertain and
involve complex legal and factual questions. Our business could be hurt by any
of the following:
. our pending patent applications may not result in issued patents;
. the claims of any issued patents may not provide meaningful
protection;
. we may be unsuccessful in developing additional proprietary
technologies that are patentable;
. our patents may not provide a basis for commercially viable products
or provide us with any competitive advantages and may be challenged by
third parties; and
. others may have patents that relate to our technology or business.
In addition, patent law relating to the scope of claims in the technology
field in which we operate is still evolving. The extent of future patent
protection is uncertain. In particular, we are aware of several groups that are
attempting to identify and patent gene fragments and full-length genes, both
characterized and uncharacterized. There is substantial uncertainty regarding
the possible patent protection for gene fragments or genes without known
function or correlation with specific functions. Furthermore, others may
independently develop similar or alternative technologies, duplicate any of our
technologies, and if patents are licensed or issued to us, design around the
patented technologies licensed to or developed by us. In addition, we could
incur substantial costs in litigation if we are required to defend ourselves in
patent suits brought by third parties or if we initiate such suits.
We are aware of a number of U.S. patents and patent applications and
related foreign patents and patent applications owned by third parties relating
to gene sequences and the analysis of gene function. These other technologies
may provide third parties with competitive advantages over us and may hurt our
business. In addition, some third party patent applications contain broad
claims, and it is not possible to determine whether or not applicants will
narrow such claims during prosecution or whether patent offices will allow and
issue patents on such claims, even if such claims appear to cover prior art or
have other defects. An owner or licensee of a patent in the field may threaten
or file an infringement action and we may or may not prevail in any such
action. The cost of defending an infringement action may be substantial, which
could significantly increase our expenses and increase our losses. Furthermore,
other patent holders may not grant us required licenses on commercially viable
terms, if at all. Failure to obtain any required license could prevent us from
utilizing or commercializing one or more of our technologies or gene-related
products.
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We have applied, and intend to make additional applications, for patent
protection for:
. methods relating to gene sequencing, phenotype analysis, gene
expression profiling, metabolic profiling and other methods for
determination of gene function;
. bioinformatic technologies;
. function specific patterns of gene expression we identify; and
. individual genes and targets we discover.
Such patents may include claims relating to novel genes and gene fragments and
to novel uses for known genes or gene fragments identified through our
discovery programs. We may not be able to obtain meaningful patent protection
for our discoveries; even if patents are issued, the scope of the coverage or
protection they would afford is uncertain. Failure to secure such meaningful
patent protection would endanger our competitive position.
With respect to proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce, we rely on trade secret
protection and confidentiality agreements to protect our interests, including
several elements of our FunctionFinder bioinformatics system. In addition, we
are developing a proprietary index of plant and fungal gene and gene fragment
sequences which we update on an ongoing basis. We will apply for patents on
some of this data, whereas we will maintain other data as proprietary trade
secret information. We have taken security measures to protect our proprietary
know-how and technologies and confidential data and continue to explore further
methods of protection. While we require all employees, consultants and
strategic partners to enter into confidentiality agreements, we cannot be
certain that others will not disclose proprietary information, or 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. In the case of arrangements with our
strategic partners that require the sharing of data, our policy is to make
available to our strategic partners only such data as is relevant to our
agreements with such strategic partners, under controlled circumstances, and
only during the contractual term of those agreements, and subject to a duty of
confidentiality on the part of our customer. However, such measures may not
adequately protect our data. Any material leak of confidential data into the
public domain or to third parties may harm our business.
We are a party to various license agreements that give us rights to use
technologies and biological materials in our research and development
processes. We may not be able to maintain such rights on commercially
reasonable terms, if at all. Failure by us to maintain such rights could harm
our business.
Employees
As of March 27, 2000, we had 118 full-time employees, of whom 33 hold
Ph.D. degrees. Of our total workforce, 92 are engaged in research and
development activities and 26 are engaged in business development, finance and
administration. None of our employees is represented by a collective bargaining
agreement. We believe that our relations with our employees are good.
Facilities
We currently lease an aggregate of approximately 48,000 square feet of
single-story office and laboratory facilities in Research Triangle Park, North
Carolina. The first building lease, for approximately 28,000 square feet on
Alexander Drive in Research Triangle Park, expires on April 30, 2000 but then
is automatically renewable on a month-to-month basis. The second building
lease, for approximately 20,000 square feet on S. Miami Boulevard in Durham,
expires August 31, 2002. We have the option to renew both leases.
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In July 1999, we entered into an agreement with a real estate investment
trust to develop and finance long-term laboratory and office facilities for us
on 11 acres adjacent to our current facilities in Research Triangle Park. Under
the terms of the agreement, the real estate investment trust has agreed to
develop a two-story laboratory and office complex covering approximately 54,000
square feet and a single-story plant facility incorporating growth rooms and
greenhouse space covering approximately 32,000 square feet. Both facilities are
scheduled to be completed by the end of 2000. We also have an option to require
the real estate investment trust to develop and finance an additional two-story
laboratory and office facility covering approximately 50,000 square feet on the
same site.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding our executive
officers and directors as of March 27, 2000.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John A. Ryals, Ph.D. ..... 45 Chief Executive Officer, President and Director
Henry P. Nowak, Esq. ..... 44 Vice President of Intellectual Property,
General Counsel and Secretary
Richard E. Kouri, Ph.D. .. 56 Vice President of Business Development
Ian A.W. Howes............ 41 Vice President of Finance and Operations,
Chief Financial Officer and Treasurer
Athanasios Maroglou,
Ph.D. ................... 41 Vice President of Project Management
Scott J. Uknes, Ph.D. .... 39 Vice President of Business Strategy
John Hamer, Ph.D. ........ 42 Vice President of Research
Craig Liddell, Ph.D. ..... 41 Vice President of Informatics
James D. Bucci............ 55 Vice President of Human Resources
G. Steven Burrill (1)..... 55 Director and Chairman of the Board
Dennis Dougherty (1)...... 52 Director
Robert Goodman, Ph.D.
(2)...................... 54 Director
Terrance McGuire (2)...... 43 Director
Michael Summers (2)....... 57 Director
Henri Zinsli, Ph.D. (1)... 58 Director
</TABLE>
- ------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
John A. Ryals, Ph.D. co-founded our company in September 1997 and has
served as our Chief Executive Officer and President since inception. From
October 1996 to September 1997, Dr. Ryals was Vice President of Research for
Novartis Crop Protection, Inc. and Head of the Biotechnology and Genomics
Center of Novartis in Research Triangle Park, North Carolina, where he was
responsible for worldwide biotechnology and genomics research and target-based
discovery. Dr. Ryals has 15 years of experience in agricultural biotechnology
working in various positions at the Agricultural Biotechnology Research Unit of
Ciba-Geigy Corporation, including Head of Agricultural Biotechnology Research
and Vice-President of Biotechnology at Ciba Seeds, a position which he held
from 1993 to 1996. Dr. Ryals received his Ph.D. in Molecular Biology from the
University of Texas at Dallas in 1982 and is an Adjunct Professor at North
Carolina State University.
Henry P. Nowak, Esq. has been our Vice President of Intellectual Property,
General Counsel and Secretary since May 1998. From March 1995 to April 1998,
Mr. Nowak served as the legal and patent counsel at Novartis Pharmaceuticals
and Systemix. Previously, he served as legal and patent counsel for Somatogen,
Amgen, Ciba-Geigy Agriculture and Schering-Plough. He is a member of three
state bars and the Federal Patent Bar. Mr. Nowak received his joint J.D./M.B.A.
degree from Florida State University in 1986 and a M.S. in Biochemistry from
Utah State University in 1981.
Richard E. Kouri, Ph.D. has served as our Vice President of Business
Development since June 1999. From January 1997 to January 1999, he was Senior
Vice President of Research at VIMRX Pharmaceuticals, Inc. and President and
Chief Executive Officer of VIMRX Genomics, Inc., a subsidiary of VIMRX
Pharmaceuticals, Inc. From June 1994 to January 1997, he was Chief Operating
Officer, Chief Technical Officer and Senior Vice President at Gene Logic, Inc.
Dr. Kouri received the Ph.D. degree in Radiation Biology from the University of
Tennessee and was a post-doctoral fellow at the Roche Institute of Molecular
Biology.
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Ian A. W. Howes has served as our Vice President of Finance and Operations
and Chief Financial Officer since January 1999. From February 1997 to December
1998, Mr. Howes was Chief Financial Officer at Analytika, Inc., a provider of
pharmaceutical data mining software and services. From October 1995 to January
1997, he was Chief Financial Officer at American Care Communities. From May
1991 to August 1995, Mr. Howes was Chief Financial Officer at EnSys, Inc., a
publicly traded biotechnology company. Mr. Howes received his M.B.A. from the
Kenan-Flagler Business School at the University of North Carolina at Chapel
Hill in 1997 and is a Chartered Accountant in England and Wales.
Athanasios Maroglou, Ph.D. has served as our Vice President of Project
Management since October 1999. From 1985 to 1999, Dr. Maroglou was Research and
Development Manager at E. I. DuPont De Nemours & Company. As Research and
Development Manager, he was responsible for discovery and commercialization of
new herbicides and for product support and renewal. In his 14 years at DuPont,
Dr. Maroglou also served as Process Development Manager, Operations Supply
Chain Manager and Manufacturing Area Manager. He received his Ph.D. in Chemical
Engineering at the University of Birmingham, England.
Scott J. Uknes, Ph.D. co-founded our company in September 1997 and has
served as our Vice President of Business Strategy since March 1999. From
inception to March 1999, he served as our Vice President of Fungal Research.
From 1990 to September 1997, Dr. Uknes held various positions at Ciba-Geigy
Corporation, including Research Director for the Seeds Disease Control
projects, where he led a research program aimed at meeting the market need for
disease resistant crops. Dr. Uknes is an adjunct professor at North Carolina
State University and serves on the Scientific Advisory Board of Biolex, Inc.
Dr. Uknes received his Ph.D. in Plant Molecular Biology from Washington
University, St. Louis, Missouri, in 1990.
John Hamer, Ph.D. has served as our Vice President of Research since
February 2000. From March 1999 to February 2000, Dr. Hamer served as our
Director of Microbial Research. From September 1998 to March 1999, he served as
our Director of Fungal Biology. From September 1989 to September 1998, Dr.
Hamer served as Professor of Biological Sciences and Adjunct Professor of
Microbiology and Immunology at Purdue University. While at Purdue, Dr. Hamer
was awarded the David and Lucille Packard Fellowship and the National Science
Foundation Presidential Faculty Fellowship. He is currently editor-in-chief of
the academic press journal Fungal Genetics and Biology and currently serves on
the NSF-Microbial Genetics Study Panel. Dr. Hamer received his Ph.D. in
Microbiology from the University of California, Davis in 1987.
Craig Liddell, Ph.D. has served as our Vice President of Informatics since
February 2000. Since July 1998 through February 2000, Dr. Liddell served as our
Director of Informatics. Dr. Liddell has been an Adjunct Professor of Plant
Pathology and since 1991 he has been a Principal Investigator at the Computing
Research Laboratory at New Mexico State University. From July 1996 to July
1998, Dr. Liddell was an Associate Professor of Plant Pathology and from 1989
to July 1996, Dr. Liddell was an Assistant Professor of Plant Pathology at New
Mexico State University. Dr. Liddell was a Postdoctoral Research Scientist in
the Departments of Plant Pathology at the University of California, Davis and
the University of Wisconsin - Madison. He is the senior editor of the journal
Phytopathology. Dr. Liddell received his Ph.D. in Plant Pathology from the
University of Sydney, Australia in 1986.
James Bucci has served as our Vice President of Human Resources since
February 2000. From November 1997 to February 2000, Mr. Bucci was Senior Vice
President of Human Resources for Suburban Hospital Healthcare Systems in
Bethesda, Maryland, a not-for-profit integrated healthcare provider. From April
1993 to October 1997, he served as Group Vice President of Human Resources at
First Citizens Bank in Raleigh, North Carolina, a closely held regional bank.
Mr. Bucci has prior senior level human resources experience at Hallmark Cards,
Inc. and Fidelity Investments. Mr. Bucci received his Masters degree in Human
Development in 1984 from the University of Rhode Island. His undergraduate
degree is from Brown University.
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G. Steven Burrill has been a member of our board of directors since March
1999, and has served as the chairman of our board of directors since December
1999. Mr. Burrill is the Chief Executive Officer of Burrill & Company, a
private merchant bank focused on life science companies, which he founded in
1996. Prior to starting Burrill & Company, Mr. Burrill spent 27 years with
Ernst & Young, including the last 17 years as partner of the firm. Mr. Burrill
received his BBA degree from the University of Wisconsin - Madison. Mr. Burrill
currently serves on the boards of directors of DepoMed, Inc. and Transgene SA.
Dennis Dougherty has been a member of our board of directors since
February 1998. Since October 1984, Mr. Dougherty has been a General Partner of
Intersouth Partners, a series of venture capital funds which invests in life
science and technology companies throughout the Mid-Atlantic and Southeast. Mr.
Dougherty currently serves on the boards of directors of six private life
science companies, which include Xanthon, Inc., Cogent Neuroscience, Inc.,
Biolex, Inc., Insmed Pharmaceuticals, Inc. and Encelle, Inc.
Terrance McGuire has been a member of our board of directors since
February 1998. Mr. McGuire is a founder and has been a general partner of
Polaris Venture Funds, Inc., a venture capital fund, since March 1996. Since
1992, he has served as a general partner of Burr, Eagan, Deleage and Co., a
venture capital firm, and since 1989 he has served as general partner of Beta
Partners, a venture capital firm. He is also a member of the board of directors
of Akamai Technologies, Inc., Aspect Medical Systems, Inc., Inspire
Pharmaceuticals, Inc., Wrenchead.com, Inc. and deCODE Genetics, Inc. Mr.
McGuire received his B.S. in Physics and Economics from Hobart College, his
M.S. in Engineering from Dartmouth College and his M.B.A. from the Harvard
Business School.
Michael Summers has been a member of our board of directors since March
1998. Since October 1990, Mr. Summers has been a managing partner of Summers
Associates, a specialized international business development organization. Mr.
Summers is also managing director of Floranova Limited. He received his B.S. in
Botany from the University of Exeter in 1964.
Robert M. Goodman, Ph.D. has been a member of our board of directors since
June 1998. Since September 1991, Dr. Goodman has been a Professor of Plant
Pathology at the University of Wisconsin-Madison. Dr. Goodman is also a member
of the Department of Microbiology graduate program, the interdepartmental
program in plant genetics and plant breeding, the Institute of Environmental
Studies, the graduate program in cellular and molecular biology and the
biotechnology training program. Dr. Goodman received a Ph.D. in plant virology
from Cornell University in 1973.
Henri Zinsli, Ph.D. has been a member of our board of directors since June
1998. Since 1997, Dr. Zinsli has served as the Chairman of Discovery
Technologies Ltd. in Allschwil, Switzerland, and since 1999, he has also served
as the Chief Executive Officer of Discovery Technologies Ltd. Since 1998, he
has served as the Chairman of Zeptosens Inc. in Witterswil, Switzerland. He is
also a non-executive Director of Plasmon, plc, in Royston, UK, a position which
he has held since 1996. Until 1996, he was the head of Corporate Business
Development at Ciba-Geigy Ltd. in Basel. Dr. Zinsli has over 30 years of
experience at Ciba-Geigy Ltd. He received his Ph.D. in economics at the
University of St. Gallen, Switzerland in 1968.
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers. No director has
a contractual right to serve as a member of our board of directors.
Scientific Advisory Board
The following individuals are members of our Scientific Advisory Board:
Michael Bevan, Ph.D. heads the Molecular Genetics Department at the John
Innes Institute in the United Kingdom. Dr. Bevan also leads the European arm of
the Arabidopsis genome sequencing effort.
Joseph R. Ecker, Ph.D. is Professor of Plant Biology at the Salk Institute
in La Jolla California. In addition, he leads the U.S. Arabidopsis genome
sequencing effort.
Luis Herrera-Estrella, Ph.D. is Professor of Plant Genetic Engineering in
the Department of Genetics, Centro de Investigacion y Estudios Avanzanidos del
I.P.N.
40
<PAGE>
Mark Johnston, Ph.D. is Professor of Genetics at Washington University
School of Medicine. Dr. Johnston led the U.S. effort to sequence the genome of
Baker's yeast.
Ingo Potrykus, Ph.D. is Professor of Plant Sciences at the Institute of
Plant Sciences, Swiss Federal Institute of Technology in Zurich, Switzerland.
A. Ian Scott, Ph.D. is Distinguished Professor of Chemistry at Texas A&M
University and is the C.J. Davidson Chair in Science. He is a Fellow of the
Royal Society and the American Association for the Advancement of Science.
Bruce C. Weir is the William Neal Reynolds Professor of Statistics and
Genetics at North Carolina State University.
Board Composition
Upon completion of this offering, our board of directors will consist of
seven members divided into three classes, with two members in two of the
classes and three members in the third class. Each year, the stockholders will
elect the members of one of the three classes to a three-year term of office.
Upon completion of this offering, Mr. McGuire and Mr. Dougherty will serve in
the class whose term will expire at the annual meeting of our stockholders in
2001; Mr. Summers and Dr. Zinsli will serve in the class whose term will expire
at the annual meeting of our stockholders in 2002; and Mr. Burrill, Dr. Ryals
and Dr. Goodman will serve in the class whose term will expire at the annual
meeting of our stockholders in 2003. In addition, our certificate of
incorporation provides that the authorized number of directors may be changed
only by resolution of the board of directors. This classification of the board
of directors may have the effect of delaying or preventing changes in control
or management of us.
Board Committees
Audit Committee. Our audit committee, consisting of Dr. Goodman, Mr.
McGuire and Mr. Summers, reviews our internal accounting procedures and the
services provided by our independent auditors.
Compensation Committee. Our compensation committee, consisting of Mr.
Burrill, Mr. Dougherty and Dr. Zinsli, reviews and recommends to our board of
directors the compensation and benefits of all our officers and executive
management and establishes and reviews general policies relating to
compensation and benefits of our employees.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been one
of our officers or employees. No member of the compensation committee serves a
member of the board of directors or compensation committee of any entity that
has an executive officer serving as a member of our board of directors or
compensation committee.
Compensation of Directors
Our directors who are also our employees receive no compensation for
serving on the board of directors. We provide cash compensation to our non-
employee directors of $2,000 per board meeting attended in person, $1,000 per
board meeting via telephone and $500 per committee meeting that does not occur
on the same day as a board meeting. We reimburse our non-employee directors for
reasonable expenses incurred in attending board and committee meetings. Our
non-employee directors also receive on the date of each annual meeting of our
stockholders non-qualified options to purchase 5,000 shares of our common
stock, which vest immediately and have an exercise price equal to the fair
market value of our common stock on the date of grant.
41
<PAGE>
In June 1998, Dr. Goodman, Mr. Summers and Dr. Zinsli each received
options to purchase 50,000 shares of our common stock at an exercise price of
$0.08 per share. In December 1999, Dr. Goodman, Mr. Summers and Dr. Zinsli each
received options to purchase 2,666 shares of our common stock at an exercise
price of $0.60 per share. These options vest ratably beginning on the grant
date of the option and extending through the next four years of service. In
March 2000, Mr. Burrill, Mr. Dougherty and Mr. McGuire each received options to
purchase 50,000 shares of our common stock, which vest ratably beginning on the
grant date of the option and extending through the next three years of service
and have an exercise price equal to the public offering price that appears on
the cover page of this prospectus. For more information, see "Benefit Plans--
1998 Stock Option Plan."
Limitations of Liability; Indemnification of Directors and Officers
The Delaware General Corporation Law authorizes corporations to limit or
eliminate, subject to certain conditions, the personal liability of directors
to corporations and their stockholders for monetary damages for breach of their
fiduciary duties. In connection with the consummation of this offering, we will
adopt and file a restated certificate of incorporation and amended and restated
bylaws. Our restated certificate of incorporation will limit the liability of
our directors to the fullest extent permitted by Delaware law.
Our restated certificate of incorporation and amended and restated bylaws
will also provide that we will indemnify any of our directors and officers who,
by reason of the fact that he or she is one of our officers or directors, is
involved in a legal proceeding of any nature. We will repay certain expenses
incurred by a director or officer in connection with any civil or criminal
action or proceeding, specifically including actions by us or in our name
(derivative suits). Such indemnifiable expenses include, to the maximum extent
permitted by law, attorney's fees, judgments, civil or criminal fines,
settlement amounts and other expenses customarily incurred in connection with
legal proceedings. A director or officer will not receive indemnification if he
or she is found not to have acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, our best interest.
Such limitation of liability and indemnification does not affect the
availability of equitable remedies. In addition, we have been advised that in
the opinion of the SEC, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the Securities Act and
is therefore unenforceable.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents in which indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
42
<PAGE>
Executive Compensation
The following table sets forth the total compensation, during the year
ended December 31, 1999, paid to or accrued by our Chief Executive Officer and
each of our four other most highly compensated executive officers whose total
salary and bonus for 1999 exceeded $100,000:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------------
Annual Number of
Compensation Securities
----------------- Underlying All Other
Name and Principal Position Salary Bonus Options Compensation
- --------------------------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C>
John A. Ryals, Ph.D. ............ $221,825 $ 58,438 77,917 $ 600(1)
Chief Executive Officer,
President and Director
Ian A.W. Howes................... 155,400 41,250 303,300 --
Vice President of Finance and
Operations, Chief Financial
Officer and Treasurer
Henry P. Nowak, Esq.............. 145,000 41,250 303,300 --
Vice President of Intellectual
Property, General Counsel and
Secretary
Scott J. Uknes, Ph.D. ........... 131,250 33,750 9,000 --
Vice President of Business
Strategy
John Hamer, Ph.D. ............... 142,500 37,500 167,500 5,000(2)
Vice President of Research
</TABLE>
- ------------------
(1) Represents life insurance premiums paid on behalf of Dr. Ryals.
(2) Represents reimbursements for moving expenses paid to Dr. Hamer.
Option Grants in 1999
The following table presents each grant of stock options during the fiscal
year ended December 31, 1999, to each of the individuals listed in the Summary
Compensation Table.
All options were granted under our 1998 Stock Option Plan. The following
options are immediately exercisable in full at the date of grant, but shares
purchased on exercise of unvested options are subject to a repurchase right in
our favor that entitles us to repurchase unvested shares at their original
exercise price on termination of the employee's services with us.
The potential realizable value is calculated based on the ten year term of
the option at the time of grant. Stock price appreciation of 0%, 5% and 10% is
assumed pursuant to the rules promulgated by the SEC and does not represent our
estimate of future stock price performance. The potential realizable value at
0%, 5% and 10% appreciation are calculated by:
. multiplying the number of shares of common stock under the option by
the assumed public offering price of $15.00 per share;
. assuming that the aggregate stock value derived from that calculation
compounds at the annual 0%, 5% or 10% rate shown in the table until
the expiration of the options; and
. subtracting from that result the aggregate option exercise price.
43
<PAGE>
Percentages shown under "Percentage of Total Options Granted to Employees
in 1999" are based in an aggregate of 1,633,119 options granted to our
employees and directors under our 1998 Stock Option Plan during 1999.
<TABLE>
<CAPTION>
Potential Realization
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
----------------------------------------------- ---------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted 1999 Share Date 0% 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
John A. Ryals, Ph.D. ... 77,917(1) 4.8% $0.60 12/14/2006 $1,122,005 $1,857,029 $ 2,984,699
Ian A.W. Howes.......... 270,300(2) 16.6% 0.08 12/07/2005 4,032,876 6,582,729 10,494,705
33,000(1) 2.0% 0.60 12/14/2006 475,200 786,503 1,264,103
Henry P. Nowak, Esq. ... 33,000(1) 2.0% 0.60 12/14/2006 475,200 786,503 1,264,103
Scott J. Uknes, Ph.D.... 9,000(1) 0.6% 0.60 12/14/2006 129,600 214,501 344,755
John Hamer, Ph.D........ 50,000(3) 3.1% 0.22 06/29/2006 739,000 1,210,671 1,934,307
17,500(1) 1.1% 0.60 12/14/2006 252,000 417,085 670,357
</TABLE>
- ------------------
(1) Our repurchase right lapses in equal monthly installments over the four
years commencing on the grant date.
(2) Includes 27,030 options as to which our repurchase right lapsed at the
grant date, 60,818 options as to which our repurchase right lapsed on the
first anniversary of the grant date, and 182,452 options as to which our
repurchase right will lapse in equal monthly installments over the 36
months following the first anniversary of the grant date.
(3) Includes 12,500 options as to which our repurchase right will lapse on the
first anniversary of the grant date and 37,500 options as to which our
repurchase right will lapse in equal monthly installments over the 36
months following the first anniversary of the grant date.
44
<PAGE>
Option Values at December 31, 1999
The following table presents the number and value of unexercised options
and securities issuable upon the exercise of options that were held by each of
the individuals listed in the Summary Compensation Table as of December 31,
1999.
These options are immediately exercisable in full at the grant date, but
shares purchased by exercise of unvested options are subject to a repurchase
right in our favor that entitles us to repurchase unvested shares at their
original exercise price on termination of the employee's services with us. The
value realized is based on the fair market value of the underlying securities
as of the date of exercise, minus the per share exercise price, multiplied by
the number of shares underlying the option. The value of unexercised in-the-
money options is based on a value of $4.50 per share, the fair market value of
our common stock on December 31, 1999 as determined in good faith by our board
of directors. Amounts reflected are based on the value of $4.50 per share,
minus the per share exercise price, multiplied by the number of shares
underlying the option.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Value
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at the-Money Options at
Shares December 31, 1999 December 31, 1999
Acquired Value -------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John A. Ryals, Ph.D. ... -- -- 77,919(1) -- 83,371 --
Ian A.W. Howes.......... 303,300 132,618 -- -- -- --
Henry P. Nowak, Esq. ... 270,300 97,308 33,000(1) -- 35,310 --
Scott J. Uknes, Ph.D. .. -- -- 9,000(1) -- 9,630 --
John Hamer, Ph.D. ...... 33,333 52,999 134,167(2) -- 197,226 --
</TABLE>
- ------------------
(1) As of December 31, 1999, our repurchase right had not lapsed as to any of
these options. Accordingly, these options were exercisable but not vested
on that date.
(2) As of December 31, 1999, our repurchase right had lapsed as to 33,333.
Accordingly, the remaining 134,167 options were exercisable, but not
vested, on that date.
Employment Agreements and Termination of Employment Agreements
At the time of commencement of employment, most of our employees sign
offer letters and employment agreements. These employment agreements provide
for employment at will and contain standard provisions relating to confidential
information and invention assignment by which the employee agrees not to
disclose any confidential information received during his or her employment
with us and that, with some exceptions, he or she will assign to us any and all
inventions conceived or developed during employment.
In February 1998, we entered into employment agreements with Dr. Ryals and
Dr. Uknes. Pursuant to these employment agreements, initial annual base
salaries were set at $180,000 for Dr. Ryals and $120,000 for Dr. Uknes. In
addition, each is entitled to receive annual bonuses of 25% of base salary to
be awarded on the basis of mutually agreed upon objectives and criteria between
each of Dr. Ryals and Dr. Uknes and us. The agreements provide that the
employment relationship may be terminated with or without cause at any time by
the individual or us. Furthermore, the agreements provide that, if we terminate
either of Dr. Ryals or Dr. Uknes with or without "cause", as defined in the
agreements, we have no obligation to pay severance beyond the individual's
accrued base salary and bonus up to the date of termination. However, if we
continue to pay either of Dr. Ryals or Dr. Uknes an amount equal to his current
monthly salary for a three month period following a termination without cause,
he shall be prohibited from competing with us for that three
45
<PAGE>
month period. Moreover, upon proper notice to Dr. Ryals or Dr. Uknes, we may
extend the non-compete period to a total of twelve months provided we continue
to pay him such amounts. If we terminate Dr. Ryals or Dr. Uknes for cause or if
either terminates his employment relationship, he shall be prohibited from
competing with us for a period of twelve months following the date of
termination. These employment agreements also provide that employment is
contingent upon execution of separate agreements pursuant to which Dr. Ryals or
Dr. Uknes agrees that he will not disclose any confidential information
received during his employment with us and, that, with some exceptions, he will
assign to us any and all inventions conceived or developed during his
employment with us. Termination for any reason other than for cause results in
accelerated vesting of all of their restricted stock.
Benefit Plans
2000 Employee, Director and Consultant Stock Option Plan
Our 2000 Employee, Director and Consultant Stock Option Plan was approved
by our board of directors in February 2000 and by our stockholders in March
2000. Under this plan, we may grant both incentive stock options and
nonqualified stock options. As of March 27, 2000, a total of 1,800,000 shares
of common stock have been reserved for issuance under this plan. No options
have been granted under this plan.
Our board of directors administers the 2000 plan. Our board of directors
may delegate authority to administer the 2000 plan to a committee of our board
of directors. Subject to the terms of the plan, our board of directors or its
authorized committee determines recipients and the terms of options granted
pursuant to this plan including:
. the exercise price and the number of shares subject to each option;
. the vesting schedule for options;
. the termination or cancellation provisions applicable to options; and
. the conditions relating to our right to reacquire shares subject to
options.
The maximum term of options granted under this plan is ten years.
If we are acquired, our board of directors or its designated committee
will provide that outstanding options under this plan shall be: (1) assumed by
the successor or acquiring company; (2) exercised within a specified number of
days or the options will terminate; or (3) terminated in exchange for a cash
payment equal to the value of the option at the time we are acquired. If we are
acquired, our board of directors or its designated committee may also provide
that all outstanding options fully vest.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was approved by our board of
directors in March 2000 and by our stockholders in April 2000. Under this plan,
we may issue up to a total of 500,000 shares of our common stock to
participating employees. All employees that work 20 hours or more per week and
who are employed as of the first day of an offering period are eligible to
participate in the plan. However, any employee who would own more than 5% of
the voting power of our stock immediately after a grant under the plan is not
eligible to participate and no participant may purchase more than $25,000 of
common stock, based on the undiscounted value of the common stock at the
beginning of each offering period, in any one calendar year.
The plan is implemented by a series of offering periods, with a new
offering period starting on June 1 and December 1 of each year (or such other
times as our board of directors may determine). To participate in the plan, an
eligible employee authorizes us to deduct a percentage of the employee's pay,
not to exceed $21,250 per year, beginning on the first day of each designated
offering period. On the first day of each offering period, each eligible
employee who has elected to participate in the plan is granted an option to
purchase shares of our common stock. Unless a participating employee withdraws
from the plan prior to the
46
<PAGE>
end of the offering period, on the last day of the offering period the employee
is deemed to have automatically exercised the option for the purchase of a
number of shares of our common stock determined by dividing the employee's
contributions during the offering period by the lesser of:
. 85% of the fair market value of the common stock on the first day of
the offering period; or
. 85% of the fair market value of the common stock on the last day of
the offering period.
Our board of directors may amend or terminate the plan at any time and in
any respect without shareholder approval unless applicable law requires
shareholder approval of the amendment. The plan will continue in effect for a
term of ten years, subject to the right of the board of directors to terminate
the plan at any earlier time.
In the event we are acquired, each option under the Plan may be assumed or
substituted with an equivalent option by the successor corporation. In lieu of
assumption or substitution, our board of directors in its discretion may
shorten the offering period in progress.
1998 Stock Option Plan
In October 1998, we adopted our 1998 Stock Option Plan. The stockholders
approved the plan in June 1999. We amended the 1998 Plan in November and
December 1999 to increase its number of options that could be issued. The 1998
Plan authorizes the issuance of up to 4,015,000 shares of common stock. Since
March 21, 2000, after our stockholders approved our new stock option plan, no
additional grants of stock options are being made under the 1998 Plan. As of
March 27, 2000, options to purchase an aggregate of 1,537,760 shares of common
stock at a weighted average exercise price of $2.55 per share were outstanding
under the 1998 Plan.
Options granted to purchase shares of our common stock under our 1998
Stock Option Plan are generally immediately exercisable by the optionee but are
subject to a right of repurchase pursuant to the vesting schedule of each
specific grant. In the event that a purchaser ceases to provide service to us
and our affiliates, we have the right to repurchase any of that person's
unvested shares of common stock at the original option exercise price.
Our board of directors or its designated committee may, in its sole
discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the 1998 Plan may be exercised. In
the event of a decline in the value of our common stock, our board of directors
or its designated committee has the authority to offer optionees the
opportunity to replace outstanding higher priced options with new options below
our priced options.
The maximum term of options granted under this plan is ten years.
If we are acquired, all our outstanding options under the plan either will
be assumed or substituted for by any surviving entity or our parent or
subsidiary corporation, if any. For stock options granted, if the surviving
entity or our parent or subsidiary corporation, if any, determines not to
assume or substitute the options, the board of directors shall provide for the
options to be fully exercisable for a period of 30 days from the date of
notice. If the board of directors makes the options fully exercisable for this
30-day period, the options will terminate at the end of this period.
401(k) Plan
We maintain a retirement and deferred savings plan for our employees that
is intended to qualify as a tax-qualified plan under the Internal Revenue Code.
The 401(k) Plan provides that each participant may contribute up to 15% of his
or her pre-tax compensation to the savings plan, subject to statutorily
prescribed annual limits, which is $10,500 in the calendar year 2000. Under
this plan each participant who makes pre-tax contributions is eligible to have
a matching contribution in cash made by us to his or her matching plan account
in an amount up to 25% of the participant's savings plan contribution with a
maximum annual employer contribution of 6% of each participant's annual salary,
subject to statutorily prescribed annual limits. The matching contributions
vest annually over a three year period. We may make additional discretionary
contributions for all participants to their matching plan accounts.
47
<PAGE>
CERTAIN TRANSACTIONS
The following executive officers, directors, founders or holders of more
than five percent of our voting securities purchased securities in the amounts
as set forth below. Each share of our Series A, Series B and Series C Preferred
Stock is convertible into one share of our common stock.
<TABLE>
<CAPTION>
Shares of Preferred Stock
-----------------------------
Common Stock Series A Series B Series C Warrants (10)
------------ --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers
John A. Ryals (1)....... 1,195,181
Henry P. Nowak (2)...... 271,300
Richard E. Kouri........
Ian A.W. Howes ......... 303,300
Athanasios Maroglou..... 165,000
Scott J. Uknes.......... 852,272
John Hamer (3).......... 39,333
Craig Liddell...........
G. Steven Burrill (4)... 1,395,349 400,000
Dennis Dougherty (5).... 2,687,500 516,389 200,000 250,000
Robert Goodman.......... 52,666
Terrance McGuire (6).... 1,875,000 329,610 1,800,000
Michael Summers.........
Henri Zinsli............ 50,000
Founders
Sandy Stewart........... 852,272
Jorn Gorlach............ 852,272
Five Percent
Stockholders
The Burrill AgBio
Capital Fund L.P. ..... 1,395,349 400,000
Intersouth Partners
(7).................... 2,687,500 516,389 200,000 250,000
Polaris Venture Funds
(8).................... 1,875,000 329,610 1,800,000
Innotech Investments
Limited (9)............ 2,937,500 549,350 200,000 187,500
</TABLE>
- ------------------
(1) Includes 2,000 shares held by Dr. Ryals' wife.
(2) Includes 1,000 shares held by Mr. Nowak's wife.
(3) Includes 6,000 shares held by Dr. Hamer's wife.
(4) Represents shares held of record by The Burrill AgBio Capital Fund L.P.
Mr. Burrill, the chairman of our board directors, is Chief Executive
Officer of Burrill & Company, the General Partner of Burrill AgBio Capital
Fund L.P.
(5) Represents shares and warrants held of record by Intersouth Partners IV,
L.P. and Intersouth Partners III, L.P. Mr. Dougherty, one of our
directors, is General Partner of Intersouth Partners IV, L.P. and
Intersouth Partners III, L.P.
(6) Represents shares held of record by Polaris Venture Partners III, L.P.,
Polaris Venture Partners Founders' Fund L.P. and Polaris Venture Partners
L.P. Mr. McGuire is a founding partner of Polaris Venture Partners
Founders' Fund L.P., Polaris Venture Partners, L.P. and Polaris Venture
Partners III, L.P.
(7) Represents shares and warrants held of record by Intersouth Partners IV,
L.P. and Intersouth Partners III, L.P.
(8) Represents shares held of record by Polaris Venture Partners L.P., Polaris
Venture Partners Founders' Fund L.P. and Polaris Venture Partners III,
L.P.
(9) Represents shares of our common stock and warrants to purchase shares of
our common stock held of record by Innotech Investments Limited, an
investment company incorporated in the United Kingdom which has investment
and voting power over the shares. All of the issued capital stock of
Innotech Investments Limited is owned by a Blind Trust, the sole Trustee
of which is Miss J S Portrait, who, as a result of her control of the
shares of Innotech, may be deemed to be the beneficial owner of the
Paradigm shares held by Innotech.
(10) Consists of warrants issued in connection with the Series A Preferred
Stock round. They are warrants to purchase shares of Series A Preferred
Stock at an exercise price of $0.80 per share. These warrants expire on
February 2008.
48
<PAGE>
We have entered into the following agreements and transactions with our
executive officers, directors and holders of more than five percent of our
voting securities:
We, our founders, including Drs. Ryals and Uknes, the preferred
stockholders listed above and other stockholders have entered into an Amended
and Restated Registration Rights Agreement. Under this Agreement, they will
have registration rights with respect to their shares of common stock following
this offering. See "Description of Capital Stock -- Registration Rights" on
page 53 for a more detailed description of the terms of this agreement.
In June 1998, Dr. Zinsli, Mr. Summers and Dr. Goodman each received
options to purchase a total of 50,000 shares at an exercise price of $0.08 per
share. In December 1999, Dr. Zinsli, Mr. Summers and Dr. Goodman each received
options to purchase a total of 2,666 shares of common stock at an exercise
price of $0.60 per share. In March 2000, Mr. Burrill, Mr. Dougherty and Mr.
McGuire each received options to purchase a total of 50,000 shares of our
common stock, which options vested immediately and have an exercise price equal
to the public offering price that appears on the cover page of this prospectus
.
In February 1998, we entered into Founder Stock Repurchase and Vesting
Agreements with our founders, including Drs. Ryals and Uknes, which we amended
in April 2000. Pursuant to the terms of these vesting agreements, we have the
right to repurchase unvested shares of common stock held by each of them at the
initial purchase price in the event that he ceases his employment with us.
These vesting agreements apply to 1,193,181 shares of common stock held by Dr.
Ryals and 852,272 shares of common stock held by Dr. Uknes. As of March 2000,
50% of the shares subject to these vesting agreements had vested, and the
remaining shares vest in equal monthly installments over the following 24
months. Our repurchase right with respect to these shares will terminate in the
event that the shares of common stock sold in this offering are sold at a price
of $6 per share or greater and at an aggregate public offering price of $20
million or greater.
In February 2000, the Company agreed to pay Deborah Ryals, the wife of Dr.
Ryals, $14,250 and agreed to grant to Mrs. Ryals stock options to purchase
6,000 shares of common stock in settlement of her prior employment with the
Company during the period from September 1997 to January 1998.
We believe that all of the transactions described above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and our affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested directors, and will continue to be on terms no less favorable to
us than could be obtained from unaffiliated third parties.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides summary information known to us regarding the
beneficial ownership of our outstanding common stock as of March 27, 2000, as
adjusted to reflect the sale of 5,000,000 shares of common stock in this
offering and the conversion of all outstanding shares of our convertible
preferred stock into shares of common stock, by:
. each person or group known to us who beneficially owns more than 5% of
outstanding our common stock;
. each of our directors and each named executive officer; and
. all of our directors and executive officers as a group.
Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission. Unless otherwise indicated, the persons
included in the table have sole voting and investment power with respect to all
shares beneficially owned, subject to community property laws, where
applicable.
Shares of common stock subject to options currently exercisable or
exercisable within 60 days of March 27, 2000 are treated as outstanding for the
purpose of computing the percentage ownership of the person holding such
options. However, these shares are not treated as outstanding for the purposes
of computing the percentage ownership of any other person. Applicable
percentage ownership in the following table is based on 18,911,254 shares of
common stock outstanding as of March 27, 2000, after giving effect to the
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering, and 23,911,254 shares of common stock outstanding
immediately following the completion of this offering. Unless otherwise
indicated, the address of each of the named individuals is c/o Paradigm
Genetics, Inc., 104 Alexander Drive, Research Triangle Park, North Carolina
27709. The percentages in the "After Offering" Column assumes that the
underwriters do not exercise their over-allotment option to purchase up to
750,000 shares.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially Owned
---------------------
Number of Shares Before After
Beneficial Owner Beneficially Owned Offering Offering
- ---------------- ------------------ --------- ---------
<S> <C> <C> <C>
Directors and Executive Officers
Terrance McGuire (1)................ 4,054,610 21.4% 16.9%
Dennis Dougherty (2)................ 3,703,889 19.3% 15.3%
G. Steven Burrill (3)............... 1,845,349 9.7% 7.7%
John A. Ryals (4)................... 1,279,195 6.7% 5.3%
Scott J. Uknes (5).................. 861,272 4.6% 3.6%
Henry P. Nowak (6).................. 304,300 1.6% 1.3%
Ian A.W. Howes (7).................. 280,300 1.5% 1.2%
Craig Liddell (8)................... 167,500 * *
John Hamer (9)...................... 183,700 * *
Robert Goodman (10)................. 52,666 * *
Michael Summers (11)................ 52,666 * *
Henri Zinsli (12)................... 52,666 * *
Richard E. Kouri (13)............... 290,725 1.5% 1.2%
Athanasios Maroglou (14)............ 170,260 * *
James D. Bucci (15)................. 100,000 * *
All executive officers and directors
as a group (15 persons)............ 13,399,098 66.3% 53.2%
Five Percent Stockholders
Polaris Venture Funds (1)........... 4,054,610 21.4% 16.9%
Innotech Investments Limited (16)... 3,874,350 20.3% 16.1%
Intersouth Partners (2)............. 3,703,889 19.3% 15.3%
The Burrill AgBio Capital Fund L.P.
(3)................................ 1,845,349 9.7% 7.7%
</TABLE>
- ------------------
* Less than one percent (1%).
(1) Represents shares held of record by Polaris Venture Partners III, L.P.,
Polaris Venture Partners Founders' Fund L.P. and Polaris Venture Partners
L.P. Mr. McGuire is a founding partner of each of those entities. Mr.
McGuire
50
<PAGE>
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in those entities. Includes 50,000 shares that are
subject to immediately exercisable stock options. As of March 27, 2000, we
had the right to repurchase 50,000 shares issuable upon exercise of these
options if Mr. McGuire ceases his directorship with us.
(2) Includes shares held of record by Intersouth Partners IV, L.P. and
Intersouth Partners III, L.P. Includes a warrant to purchase 31,250 shares
of common stock held by Intersouth Partners IV, L.P. and a warrant to
purchase 218,750 shares of common stock held by Intersouth Partners III,
L.P. Mr. Dougherty is General Partner of those entities. Mr. Dougherty
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in those entities. Includes 50,000 shares that are
subject to immediately exercisable stock options. As of March 27, 2000, we
had the right to repurchase 50,000 shares issuable upon exercise of these
options if Mr. Dougherty ceases his directorship with us.
(3) Represents shares held of record by The Burrill AgBio Capital Fund L.P.
Mr. Burrill is Chief Executive Officer of Burrill & Company, the General
Partner of Burrill Ag Bio Capital Fund L.P. Mr. Burrill disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in Burrill AgBio Capital Fund L.P. Includes 50,000 shares that
are subject to immediately exercisable stock options. As of March 27,
2000, we had the right to repurchase 50,000 shares issuable upon exercise
of these options if Mr. Burrill ceases his directorship with us.
(4) Includes 8,000 shares held by Dr. Ryals' wife and 77,917 shares that are
subject to immediately exercisable stock options. As of March 27, 2000, we
had the right to repurchase 73,047 shares issuable upon exercise of these
options if Dr. Ryals ceases his employment with us. Includes 1,193,181
shares of common stock subject to a vesting agreement described in
"Certain Transactions."
(5) Includes 9,000 shares which are subject to immediately exercisable
options. As of March 27, 2000, we had the right to repurchase 8,438 shares
issuable upon exercise of these options if Dr. Uknes ceases his employment
with us. Includes 852,272 shares of common stock subject to a vesting
agreement described in "Certain Transactions."
(6) Includes 1,000 shares held by Mr. Nowak's wife, 33,000 shares that are
subject to immediately exercisable stock options and 270,300 shares which
were issued upon the exercise of immediately exercisable stock options. As
of March 27, 2000, we had the right to repurchase 177,350 of the shares
issued or issuable upon exercise of these options if Mr. Nowak ceases his
employment with us.
(7) As of March 27, 2000, we had the right to repurchase 203,254 shares which
were issued upon exercise of options if Mr. Howes ceases his employment
with us.
(8) Includes options to purchase 167,500 shares that are subject to
immediately exercisable stock options. As of March 27, 2000, we had the
right to repurchase 114,323 shares issuable upon exercise of these options
if Dr. Liddell ceases his employment with us.
(9) Includes 6,000 shares which were issued upon the exercise of immediately
exercisable options and 10,200 immediately exercisable options held by Dr.
Hamer's wife. Also includes 33,333 shares of common stock that were issued
upon the exercise of immediately exercisable options and 134,167 shares
that are subject to immediately exercisable stock options held by Dr.
Hamer. As of March 27, 2000, we had the right to repurchase 126,823 shares
that are issuable upon exercise of Dr. Hamer's options if Dr. Hamer ceases
his employment with us.
(10) Consists of 52,666 shares subject to immediately exercisable options. As
of March 27, 2000, we had the right to repurchase 30,624 shares issued
upon exercise of options if Dr. Goodman ceases his directorship with us.
(11) Includes 52,666 shares that are subject to immediately exercisable stock
options. As of March 27, 2000, we had the right to repurchase 30,624
shares issuable upon exercise of these options if Mr. Summers ceases his
directorship with us.
(12) Includes 2,666 shares that are subject to immediately exercisable stock
options and 50,000 shares which were issued upon the exercise of stock
options. As of March 27, 2000, we had the right to repurchase 30,624 of
these shares issued or issuable upon exercise of these options if Dr.
Zinsli ceases his directorship with us.
(13) Includes 290,725 shares that are subject to immediately exercisable stock
options. As of March 27, 2000, we had the right to repurchase 289,874
shares issuable upon exercise of these options if Dr. Kouri ceases his
employment with us.
(14) Includes 5,260 shares that are subject to immediately exercisable options
and 165,000 shares that were issued upon the exercise of immediately
exercisable stock options. As of March 27, 2000, we had the right to
repurchase 170,041 of the shares issued or issuable upon exercise of these
options if Mr. Maroglou ceases his employment with us.
(15) Consists of options to purchase 100,000 shares that are subject to
immediately exercisable stock options. As of March 27, 2000, we had the
right to repurchase all of the shares issuable upon exercise of these
options if Mr. Bucci ceases his employment with us.
(16) Represents 3,686,850 shares of our common stock and warrants to purchase
187,500 shares of our common stock held of record by Innotech Investment
Limited, an investment company incorporated in the United Kingdom which
has investment and voting power over the shares. All of the issued capital
stock of Innotech Investment Limited is owned by a Blind Trust, the sole
Trustee of which is Miss J S Portrait, who as a result of her control of
the shares of Innotech, may be deemed to be the beneficial owner of the
Paradigm shares held by Innotech.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering and the filing of our restated
certificate of incorporation we will be authorized to issue 50 million shares
of common stock, $0.01 par value per share, and 5 million shares of preferred
stock, $0.01 par value per share, and there will be 23,911,254 shares of common
stock and no shares of preferred stock outstanding. Assuming the conversion of
our preferred stock, as of March 27, 2000, we had 18,911,254 shares of common
stock outstanding held of record by 148 stockholders, and there were
outstanding options to purchase 1,537,760 shares of common stock and
outstanding warrants to purchase 763,779 shares of common stock.
Common Stock
The holders of common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders, and do not
have cumulative voting rights. Subject to preferences that may be applicable to
any outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends, if any, as may be declared from time to time
by our board of directors out of funds legally available for dividend payments.
All outstanding shares of common stock are fully paid and nonassessable, and
the holders of common stock have no preferences or rights of conversion,
exchange or pre-emption. In the event of any liquidation, dissolution or
winding-up of our affairs, holders of common stock will be entitled to share
ratably in our assets that are remaining after payment or provision for payment
of all of our debts and obligations and after liquidation payments to holders
of outstanding shares of preferred stock, if any.
Preferred Stock
The preferred stock, if issued, would have priority over the common stock
with respect to dividends and other distributions, including the distribution
of assets upon liquidation. Our board of directors has the authority, without
further stockholder authorization, to issue from time to time shares of
preferred stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series. Although we have
no present plans to issue any shares of preferred stock, the issuance of shares
of preferred stock, or the issuance of rights to purchase such shares, could
decrease the amount of earnings and assets available for distribution to the
holders of common stock, could adversely affect the rights and powers,
including voting rights, of the common stock, and could have the effect of
delaying, deterring or preventing a change in control of us or an unsolicited
acquisition proposal.
Warrants
As of March 27, 2000 the following warrants were outstanding.
. Warrants to purchase 437,500 shares of Series A Preferred Stock at an
exercise price of $0.80 per share. These warrants expire five years
after the completion of this offering.
. A warrant to purchase 150,000 shares of our common stock at an
exercise price of $3.00 per share. The warrant expires five years
after the completion of this offering.
. A warrant to purchase 116,279 shares of our common stock at an
exercise price of $ 2.15 per share. The warrant expires in July 2006.
. A warrant to purchase 60,000 shares of our common stock at an exercise
price of $5.00 per share. The warrant expires January 2010. The
issuance of the warrant is subject to the terms of an escrow
agreement.
Each of these warrants contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon the exercise of
the warrant in the event of stock dividends, stock splits, reorganizations, and
reclassifications and consolidations.
52
<PAGE>
Registration Rights
The holders of the following shares of our common stock are entitled to
certain registration rights with respect to those shares. These registration
rights are subject to certain conditions and limitations, including the right
of the underwriters of an offering to limit the number of shares included in
any such registration under certain circumstances. All expenses incurred in
connection with registrations effected in connection with the following rights
will be borne by us.
Demand Rights. Beginning 180 days after completion of this offering, the
holders of 17,103,195 shares of common stock and 553,779 shares of common stock
issuable upon the exercise of outstanding warrants will have certain rights to
cause us to register those shares under the Securities Act. We may be required
to effect only one such registration. Stockholders with these registration
rights who are not part of an initial registration demand are entitled to
notice and are entitled to include their shares of common stock in the
registration.
Piggyback Rights. If at any time after this offering we propose to
register any of our equity securities under the Securities Act, other than in
connection with a registration relating solely to our stock option plans or
other employee benefit plans, or a registration relating solely to a business
combination or merger involving us, the holders of 17,103,195 shares of common
stock and 703,779 shares of common stock issuable upon the exercise of
outstanding warrants are entitled to notice of such registration and are
entitled to include their common stock in the registration.
S-3 Registration Rights. In addition, the holders of 17,103,195 shares of
common stock and 553,779 shares of common stock issuable upon the exercise of
outstanding warrants will have the right to cause us to register these shares
on a Form S-3, provided that we are eligible to use this form, subject to
certain limitations. We are not required to effect such a registration unless
the aggregate offering price of the shares to be registered, based on the then
current market price is at least $750,000. Also, we are only required to effect
one such registration during any 12-month period. Stockholders with these
registration rights who are not part of an initial registration demand are
entitled to notice and are entitled to include their shares of common stock in
the registration.
Delaware Law and Certain Charter and By-Law Provisions
Upon completion of this offering, the provisions of Delaware law and of
our restated certificate of incorporation and amended and restated by-laws
discussed below could discourage or make it more difficult to accomplish a
proxy contest or other change in our management or the acquisition of control
by a holder of a substantial amount of our voting stock. It is possible that
these provisions could make it more difficult to accomplish, or could deter,
transactions that stockholders may otherwise consider to be in their best
interests or the best interests of Paradigm Genetics.
Delaware Statutory Business Combinations Provision. In general, Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is, or the transaction in which
the person became an interested stockholder was, approved in a prescribed
manner or another prescribed exception applies. For purposes of Section 203, a
"business combination" is defined broadly to include a merger, asset sale or
other transaction resulting in a financial benefit to the interested
stockholder, and, subject to certain exceptions, an "interested stockholder" is
a person who, together with his or her affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock.
Classified Board of Directors. Upon completion of this offering, our board
of directors will be divided into three classes. Each year the stockholders
will elect the members of one of the three classes to a three-year term of
office.
53
<PAGE>
All directors elected to our classified board of directors will serve
until the election and qualification of their respective successors or their
earlier resignation or removal. Only the board of directors will be authorized
to create new directorships and to fill such positions so created and be
permitted to specify the class to which any such new position is assigned. The
person filling such position would serve for the term applicable to that class.
Only the board of directors (or its remaining members, even if less than a
quorum) will be empowered to fill vacancies on the board of directors occurring
for any reason for the remainder of the term of the class of directors in which
the vacancy occurred. Members of the board of directors will only be able to be
removed for cause. These provisions are likely to increase the time required
for stockholders to change the composition of the board of directors. For
example, in general, at least two annual meetings will be necessary for
stockholders to effect a change in a majority of the members of the board of
directors.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our amended and restated by-laws will provide that,
for nominations to the board of directors or for other business to be properly
brought by a stockholder before a meeting of stockholders, the stockholder must
first have given timely notice of the proposal in writing to our Secretary. For
an annual meeting, a stockholder's notice generally must be delivered not less
than 45 days nor more than 75 days prior to the anniversary of the mailing date
of the proxy statement for the previous year's annual meeting. For a special
meeting, the notice must generally be delivered by the later of 90 days prior
to the special meeting or ten days following the day on which public
announcement of the meeting is first made. Detailed requirements as to the form
of the notice and information required in the notice will be specified in the
by-laws. If it is determined that business was not properly brought before a
meeting in accordance with our by-law provisions, such business will not be
conducted at the meeting.
Special Meetings of Stockholders. Special meetings of the stockholders
will be able to be called only by our board of directors pursuant to a
resolution adopted by a majority of the total number of directors.
No Stockholder Action by Written Consent. Our restated certificate of
incorporation will not permit our stockholders to act by written consent. As a
result, any action to be effected by our stockholders must be effected at a
duly called annual or special meeting of the stockholders.
Super-Majority Stockholder Vote Required for Certain Actions. The Delaware
General Corporation Law provides generally that the affirmative vote of a
majority of the shares entitled to vote on any matter is required to amend a
corporation's certificate of incorporation or by-laws, unless the corporation's
certificate of incorporation or by-laws, as the case may be, requires a greater
percentage. Our restated certificate of incorporation will require the
affirmative vote of the holders of at least 80% of our outstanding voting stock
to amend or repeal any of the provisions discussed in this section of this
prospectus entitled "Delaware Law and Certain Charter and By-law Provisions".
This 80% stockholder vote would be in addition to any separate class vote that
might in the future be required pursuant to the terms of any preferred stock
that might then be outstanding. A 80% vote will also be required for any
amendment to, or repeal of, our by-laws by the stockholders. Our amended and
restated by-laws will be able to be amended or repealed by a simple majority
vote of the board of directors.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be American
Stock Transfer and Trust Company.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices. Furthermore, because
only a limited number of shares will be available for sale shortly after this
offering because of contractual and legal restrictions on resale as described
below, sales of substantial amounts of our common stock in the public market
could occur after these restrictions lapse. This may 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 23,911,254
shares of common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or warrants after March
27, 2000. Of these shares, the 5,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by affiliates. The remaining
18,911,254 shares of common stock held by existing stockholders are restricted
securities. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration described
below under Rules 144, 144(k) or 701 promulgated under the Securities Act.
As a result of the contractual 180 day lock-up period described below and
the provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<S> <C>
62,500 ............ On the date of this prospectus
16,550 ............ After 90 days from the date of this prospectus
16,535,983 ............ After 180 days from the date of this prospectus
(subject, in some cases, to volume limitations)
3,060,000 ............ After various times after 180 days from the date of
this prospectus (subject, in some cases, to volume
limitations)
</TABLE>
Lock-Up Agreements
We, our directors and executive officers and certain of our stockholders
and option holders have each agreed not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for common
stock, for a period of at least 180 days after the date of this prospectus,
without the prior written consent of Chase Securities Inc., subject to limited
exceptions. Chase Securities Inc., however, may in its sole discretion, at any
time without notice, release all or any portion of the shares subject to lock-
up agreements.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person, or persons whose shares are aggregated, who owns
shares that were purchased from us, or any affiliate, at least one year
previously, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of our then-outstanding shares of
common stock, which will equal about 239,113 shares immediately after this
offering, or the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks preceding the filing of a
notice of the sale on Form 144. Sales under Rule 144 are also subject to manner
of sale provisions, notice requirements and the availability of current public
information about us. Any person, or persons whose shares are aggregated, who
is not deemed to have been one of our affiliates at any time during the three
months preceding a sale, and who owns shares within the definition of
"restricted securities" under Rule 144 that were purchased from us,
55
<PAGE>
or any affiliate, at least two years previously, would be entitled to sell
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
Rule 701
Subject to limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers
or consultants prior to the date we become subject to the reporting
requirements of the Securities Exchange Act of 1934, or the Exchange Act, under
written compensatory benefit plans or written contracts relating to the
compensation of these persons. In addition, the Securities and Exchange
Commission 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 the 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.
Registration Rights
Upon completion of this offering, the holders of 17,103,195 shares of
common stock and 763,779 shares of common stock issuable upon the exercise of
and warrants or their transferees, will be entitled to various rights with
respect to the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration, except for shares
purchased by affiliates. See "Description of Capital Stock--Registration
Rights" on page 53 for a more complete description of these registration
rights.
Stock Options
As of March 27, 2000 options to purchase a total of 1,537,760 shares of
common stock under our stock option plans were outstanding and 1,537,760 were
exercisable. All of the shares subject to options are subject to lock-up
agreements. An additional 669,181 shares of common stock were available for
future option grants under our stock plans.
Upon completion of this offering, we intend to file a registration
statement under the Securities Act covering all shares of common stock subject
to outstanding options or issuable pursuant to our stock option and stock
purchase plans. Subject to Rule 144 volume limitations applicable to
affiliates, shares registered under any registration statements will be
available for sale in the open market, beginning 90 days after the date of the
prospectus, except to the extent that the shares are subject to vesting
restrictions with us or the contractual restrictions described above.
56
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. Chase Securities Inc., J.P. Morgan & Co., Incorporated, Pacific Growth
Equities, Inc. and Stephens Inc. are acting as representatives of the
underwriters.
The underwriting agreement provides for the purchase of a specific number
of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the
commitment of any other underwriter to purchase shares. Subject to the terms
and conditions of the underwriting agreement, each underwriter has severally
agreed to purchase the number of shares of common stock set forth opposite its
name below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Chase Securities Inc. ............................................
J.P. Morgan Securities Inc. ......................................
Pacific Growth Equities, Inc. ....................................
Stephens Inc. ....................................................
---------
Total........................................................... 5,000,000
=========
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other
than those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances. We have agreed to indemnify the underwriters against certain
civil liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of such liabilities.
The representatives have advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a
concession of $ per share. The underwriters may also allow to dealers, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the shares are released for sale to the public,
the representatives may change the offering price and other selling terms at
various times.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of 750,000 additional shares
from us to cover over-allotments. If the underwriters exercise all or part of
this option, they will purchase shares covered by the option at the public
offering price that appears on the cover page of this prospectus, less the
underwriting discount. If this option is exercised in full, the total price to
public will be $ million and our net proceeds will be approximately $
million. The underwriters have severally agreed that, to the extent the over-
allotment option is exercised, they will each purchase a number of additional
shares proportionate to the underwriter's initial amount reflected in the above
table.
57
<PAGE>
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us. Such amount is shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares.
UNDERWRITING DISCOUNT PAID BY US
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per Share ................................................ $ $
Total..................................................... $ $
</TABLE>
We estimate that the total expenses of the offering, excluding the
underwriting discount, will be approximately $1.0 million.
We have agreed to indemnify each underwriter against all liabilities to
which they may become subject under the federal securities laws or other law,
including reimbursement of expenses, arising out of any untrue statements or
alleged untrue statement of a material fact contained in the registration
statement, including the prospectus, or the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements not misleading, except that there is no indemnification for specific
information furnished by the underwriters. This includes contribution to any
payments which may be made by the underwriters in the event that
indemnification is not available.
Our executive officers, directors and certain of our stockholders, who
will own in the aggregate 17,173,448 shares of our common stock after the
offering, have agreed that they will not, without the prior written consent of
Chase Securities Inc., offer, sell, pledge or otherwise dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock owned by
them during the 180-day period following the effectiveness of the registration
statement. We have agreed that we will not, without the prior written consent
of Chase Securities Inc., offer, sell or otherwise dispose of any shares of
common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock during
the 180-day period following the date of this prospectus, except that we may
(1) issue shares upon the exercise of options granted prior to the date hereof
or upon the exercise of warrants outstanding as of the date hereof, (2) grant
additional options under our stock option plan, provided that, without prior
written consent of Chase Securities Inc., such additional options shall not be
exercisable during such period, (3) issue any shares of common stock or other
rights to acquire shares of common stock issued pursuant to equipment or lease
financing activities entered into in the ordinary course of our business and
(4) issue any shares of common stock or other rights to acquire shares of
common stock issued in connection with any strategic alliance, collaboration,
license, acquisition, marketing agreement, distribution agreement, advertising
arrangement, promotional arrangement or similar agreement, arrangement or
transaction, provided that the total amount of securities issued pursuant to
clauses (3) and (4) would not exceed 2 million shares of common stock or
securities exchangeable or convertible into shares of common stock and provided
further that securities may only be issued pursuant to clauses (3) and (4) to
the extent the recipient of such securities agrees to the same transfer
restrictions imposed on us by Chase Securities Inc. as set forth above.
The underwriters have reserved for sale up to 500,000 shares for
employees, directors and certain other persons associated with us. These
reserved shares will be sold at the public offering price that appears on the
cover of this prospectus. The number of shares available for sale to the
general public in the offering will be reduced to the extent reserved shares
are purchased by these persons. The underwriters will offer to the general
public, on the same terms as other shares offered by this prospectus, any
reserved shares that are not purchased by these persons.
58
<PAGE>
Prior to this offering, there has been no public market for the common
stock. Consequently, the offering price for the common stock will be determined
by negotiations between us and the underwriters and is not necessarily related
to our asset value, net worth or other established criteria of value. The
factors considered in these negotiations, in addition to prevailing market
conditions, will include the history of and prospects for the industry in which
we compete, an assessment of our management, our prospects, our capital
structures, prevailing market conditions, our results of operations in recent
periods and other factors as we deem relevant.
Rules of the SEC may limit the ability of the underwriters to bid for or
purchase shares before the distribution of the shares is completed. However,
the underwriters may engage in the following activities in accordance with the
rules:
. Stabilizing transactions. The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the price
of the shares, so long as stabilizing bids do not exceed a specified
maximum.
. Over-allotments and syndicate covering transactions. The underwriters
may create a short position in the shares by selling more shares than
are shown on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may
engage in syndicate covering transactions by purchasing shares in the
open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option.
. Penalty bids. If the representatives purchase shares in the open
market in a stabilizing transaction or syndicate covering transaction,
they may reclaim a selling concession from underwriters and selling
group members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of those transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market or
otherwise. If these transactions are commenced, they may be discontinued
without notice at any time.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such sale is made.
The representatives have informed us that they do not intend to confirm
the sales to discretionary accounts that exceed 5% of the total number of
shares of common stock offered by them.
One or more members of the underwriting selling group may make copies of
the preliminary prospectus available over the Internet to certain customers
through its or their websites. The representatives expect to allocate a limited
number of shares to that member or members of the selling group for sale to
brokerage account holders.
59
<PAGE>
LEGAL MATTERS
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center,
Boston, Massachusetts 02111 will provide us with an opinion as to the validity
of the common stock offered under this prospectus. Morgan, Lewis and Bockius
LLP, 101 Park Avenue, New York, New York 10178 will pass upon certain legal
matters related to this offering for the underwriters.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the
period from inception (September 9, 1997) to December 31, 1997 and for the
years ended December 31, 1998 and 1999 included in this prospectus have been so
included in reliance upon the report of PricewaterhouseCoopers LLP, independent
accountants, given as the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock offered under this prospectus. This prospectus does not
contain all of the information in the registration statement and the exhibits
and schedule to the registration statement. For further information with
respect to us and our common stock, we refer you to the registration statement
and to the exhibits and schedule to registration statement. Statements
contained in this prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance, we
refer you to the copy of the contract or other document filed as an exhibit to
the registration statement. Each of these statements is qualified in all
respects by this reference. You may inspect a copy of the registration
statement without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part of the registration statement may be obtained from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of fees prescribed by the SEC. The SEC maintains a
website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the web site is http://www.sec.gov. The SEC's toll free investor
information service can be reached at 1-800-SEC-0330. Information contained on
the web site does not constitute part of this prospectus.
Upon completion of this offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and
quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information. Our telephone number is
(919) 425-3000.
60
<PAGE>
PARADIGM GENETICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Equity (Deficit)................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Paradigm Genetics, Inc.
In our opinion, the accompanying balance sheets and related statements of
operations, of stockholders' equity (deficit), and of cash flows present
fairly, in all material respects, the financial position of Paradigm Genetics,
Inc. (the "Company") at December 31, 1998 and 1999, and the results of its
operations and its cash flows for the period from inception (September 9, 1997)
through December 31, 1997 and the years ended December 31, 1998 and 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 12, the Company has restated its financial statements
for the year ended December 31, 1999, to record additional deferred
compensation and stock based compensation expense.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 17, 2000 except as to Note 12,
which is as of April 24, 2000
F-2
<PAGE>
PARADIGM GENETICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31,
December 31, 1999
------------------------- (unaudited)
1998 1999 (Note 2)
----------- ------------ ------------
(restated)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 970,688 $ 468,342 $ 468,342
Short-term investments................ 2,484,132 3,488,108 3,488,108
Accounts receivable................... 89,025 256,844 256,844
Prepaid expenses...................... 48,166 1,157,851 1,157,851
----------- ------------ -----------
Total current assets................. 3,592,011 5,371,145 5,371,145
Property and equipment, net............ 3,822,293 8,816,665 8,816,665
Other assets, net...................... 20,667 37,494 37,494
----------- ------------ -----------
Total assets......................... $ 7,434,971 $ 14,225,304 $14,225,304
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................... $ 319,421 $ 1,327,423 $ 1,327,423
Accrued liabilities................... 222,462 571,184 571,184
Deferred revenue...................... 1,484,850 5,825,237 5,825,237
Long-term debt--current portion....... 327,244 1,182,456 1,182,456
Capital lease obligation--current
portion.............................. 90,365 100,075 100,075
----------- ------------ -----------
Total current liabilities............ 2,444,342 9,006,375 9,006,375
Long-term debt......................... 3,215,737 7,823,780 7,823,780
Capital lease obligation............... 322,925 222,850 222,850
----------- ------------ -----------
Total liabilities.................... 5,983,004 17,053,005 17,053,005
----------- ------------ -----------
Commitments (Note 11)
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par
value; 15,000,000 shares authorized:
Series A Convertible Preferred Stock,
8,000,000 shares designated;
7,562,500 shares issued and
outstanding as of December 31, 1998
and 1999, respectively; no shares
issued and outstanding pro forma.... 5,950,899 5,950,899 --
Series B Convertible Preferred Stock;
2,790,698 shares designated; -0- and
2,790,698 shares issued and
outstanding as of December 31, 1998
and 1999, respectively; no shares
issued and outstanding pro forma.... -- 5,967,819 --
Common Stock, $.01 par value;
30,000,000 shares authorized;
3,750,247 and 5,224,257 shares issued
and outstanding as of December 31,
1998 and 1999, respectively,
15,577,455 shares issued and
outstanding pro forma................ 37,502 52,242 155,775
Additional paid-in capital (restated).. 6,389 3,529,452 15,344,637
Deferred compensation (restated)....... -- (3,165,430) (3,165,430)
Accumulated deficit.................... (4,542,823) (15,162,683) (15,162,683)
----------- ------------ -----------
Total stockholders' equity
(deficit)........................... 1,451,967 (2,827,701) (2,827,701)
----------- ------------ -----------
Total liabilities and stockholders'
equity (deficit).................... $ 7,434,971 $ 14,225,304 $14,225,304
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PARADIGM GENETICS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
For the
Period from
Inception
(September 9,
1997) to
December 31,
1997 1998 1999
------------- ----------- ------------
(restated)
<S> <C> <C> <C>
Revenues:
Collaborative research agreements.... $ -- $ 820,150 $ 2,052,113
Grant revenues....................... -- 50,409 144,862
--------- ----------- ------------
Total revenues...................... -- 870,559 2,196,975
--------- ----------- ------------
Operating expenses:
Research and development (excludes
$0, $0 and $87,365, respectively, of
stock based compensation)........... 71,534 3,641,033 7,527,866
Selling, general and administrative
(excludes $0, $6,371 and $112,147,
respectively, of stock based
compensation)....................... 148,663 1,523,365 4,713,675
Stock based compensation (restated).. -- 6,371 199,512
--------- ----------- ------------
Total operating expenses............ 220,197 5,170,769 12,441,053
--------- ----------- ------------
Loss from operations.................. (220,197) (4,300,210) (10,244,078)
--------- ----------- ------------
Interest income (expense), net:
Interest income...................... -- 139,494 246,896
Interest expense..................... (13) (128,797) (622,678)
--------- ----------- ------------
Interest income (expense), net....... (13) 10,697 (375,782)
--------- ----------- ------------
Net loss.............................. $(220,210) $(4,289,513) $(10,619,860)
========= =========== ============
Net loss per share--basic and
diluted.............................. $ (0.19) $ (1.14) $ (2.51)
========= =========== ============
Weighted average Common shares
outstanding--basic and diluted....... 1,160,958 3,750,036 4,236,409
========= =========== ============
Pro forma net loss per share--basic
and diluted.......................... $ (0.76)
============
Pro forma weighted average Common
shares outstanding-- basic and
diluted.............................. 14,046,759
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PARADIGM GENETICS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock Additional
-------------------- -------------------- ----------------- Paid In Deferred Accumulated
Shares Amount Shares Amount Shares Amount Capital Compensation Deficit
--------- ---------- --------- ---------- --------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
inception
(September 9,
1997)........... -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of
Common Stock... -- -- -- -- 3,749,997 37,500 -- -- (33,100)
Net loss........ -- -- -- -- -- -- -- -- (220,210)
--------- ---------- --------- ---------- --------- ------- ---------- ----------- ------------
Balance at
December 31,
1997............ -- -- -- -- 3,749,997 37,500 -- -- (253,310)
Stock based
compensation... -- -- -- -- -- -- 6,371 -- --
Issuance of
Series A
Preferred
Stock.......... 7,125,000 5,600,899 -- -- -- -- -- -- --
Notes payable
converted to
Series A
Preferred
Stock.......... 437,500 350,000 -- -- -- -- -- -- --
Exercise of
stock options.. -- -- 250 2 18 -- --
Net loss........ -- -- -- -- -- -- -- -- (4,289,513)
--------- ---------- --------- ---------- --------- ------- ---------- ----------- ------------
Balance at
December 31,
1998............ 7,562,500 5,950,899 -- -- 3,750,247 37,502 6,389 -- (4,542,823)
Issuance of
Series B
Preferred
Stock.......... -- -- 2,790,698 5,967,819 -- -- -- -- --
Exercise of
stock options.. -- -- -- -- 1,474,010 14,740 158,121 -- --
Deferred
compensation
(restated) .... -- -- -- -- -- -- 3,364,942 (3,364,942) --
Amortization of
deferred
compensation
(restated)..... -- -- -- -- -- -- -- 199,512 --
Net loss........ -- -- -- -- -- -- -- -- (10,619,860)
--------- ---------- --------- ---------- --------- ------- ---------- ----------- ------------
Balance at
December 31,
1999............ 7,562,500 $5,950,899 2,790,698 $5,967,819 5,224,257 $52,242 $3,529,452 $(3,165,430) $(15,162,683)
========= ========== ========= ========== ========= ======= ========== =========== ============
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
--------------
<S> <C>
Balance at
inception
(September 9,
1997)........... $ --
Issuance of
Common Stock... 4,400
Net loss........ (220,210)
--------------
Balance at
December 31,
1997............ (215,810)
Stock based
compensation... 6,371
Issuance of
Series A
Preferred
Stock.......... 5,600,899
Notes payable
converted to
Series A
Preferred
Stock.......... 350,000
Exercise of
stock options.. 20
Net loss........ (4,289,513)
--------------
Balance at
December 31,
1998............ 1,451,967
Issuance of
Series B
Preferred
Stock.......... 5,967,819
Exercise of
stock options.. 172,861
Deferred
compensation
(restated) .... --
Amortization of
deferred
compensation
(restated)..... 199,512
Net loss........ (10,619,860)
--------------
Balance at
December 31,
1999............ $ (2,827,701)
==============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
PARADIGM GENETICS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period from
Inception
(September 9,
1997) to Year Ended December 31,
December 31, --------------------------
1997 1998 1999
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $(220,210) $ (4,289,513) $(10,619,860)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Deferred revenue.................... -- 1,484,850 4,340,387
Depreciation and amortization....... 312 299,044 1,588,762
Stock based compensation............ -- 6,371 199,512
Changes in operating assets and
liabilities
Accounts receivable................ (500) (88,525) (167,819)
Prepaid expenses................... (41,570) (27,263) (1,126,512)
Accounts payable................... 29,017 290,404 1,008,002
Accrued liabilities................ -- 222,462 348,722
--------- ------------ ------------
Net cash used in operating
activities....................... (232,951) (2,102,170) (4,428,806)
--------- ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment.. (3,741) (3,650,783) (6,583,134)
Purchase of investments............. -- (15,021,015) (26,214,499)
Maturities of investments........... -- 12,536,883 25,210,522
--------- ------------ ------------
Net cash used in investing
activities....................... (3,741) (6,134,915) (7,587,111)
--------- ------------ ------------
Cash flows from financing activities:
Borrowings under notes payable...... 250,000 3,682,506 5,765,761
Repayments of notes payable......... -- (39,525) (302,506)
Repayments of capital lease
obligations........................ -- (53,835) (90,364)
Proceeds from issuance of
convertible preferred stock, net... -- 5,600,899 5,967,819
Proceeds from issuance of Common
Stock.............................. 4,400 -- --
Proceeds from exercise of stock
options............................ -- 20 172,861
--------- ------------ ------------
Net cash provided by financing
activities....................... 254,400 9,190,065 11,513,571
--------- ------------ ------------
Net increase in cash and cash
equivalents......................... 17,708 952,980 (502,346)
Cash and cash equivalents, beginning
of period........................... -- 17,708 970,688
--------- ------------ ------------
Cash and cash equivalents, end of
period.............................. $ 17,708 $ 970,688 $ 468,342
========= ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company
Paradigm Genetics, Inc. (the "Company" or "Paradigm") was organized on
September 9, 1997 to discover the function of genes in plant and fungal
organisms. The Company is industrializing the process of determining gene
function by creating an assembly-line process to generate information that will
enable it to develop novel products in four major sectors of the global
economy: crop production, nutrition, human health and industrial products. The
Company has developed its GeneFunction Factory to simultaneously study the
functions of many genes in plants and fungi. The GeneFunction Factory is
designed to be an integrated, rapid, industrial-scale laboratory through which
it can discover and alter genes, understand the consequences of the
modifications and reliably determine the function of those genes. The Company
stores and annotates gene function information in its FunctionFinder
bioinformatics system. Paradigm generates revenues by licensing information
mined from the data in FunctionFinder for the development of products in crop
production, nutrition, human health and industrial applications. If the
Company's strategic partners commercialize products resulting from this
information, the Company is entitled to receive royalty payments based upon
product revenues.
2. Summary of Significant Accounting Policies
Unaudited Pro Forma Balance Sheet
The Board of Directors has authorized the Company to file a Registration
Statement with the Securities and Exchange Commission permitting the Company to
sell shares of Common Stock in an initial public offering ("IPO"). If the IPO
is consummated as presently anticipated, all shares of Series A and Series B
Preferred Stock will automatically convert into 10,353,198 shares of the
Company's Common Stock at a one-for-one conversion ratio. The unaudited pro
forma balance sheet reflects the subsequent conversion of the Series A and
Series B Preferred Shares into Common Stock as if such conversion had occurred
as of December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
Investments
The Company considers all investments in debt and equity securities
purchased with a maturity of between three months and one year from the balance
sheet date to be short-term investments. All investments are considered as
available for sale and are carried at fair value. Unrealized gains and losses
on investments are recognized as a component of other comprehensive income
(loss). At December 31, 1998 and 1999, the amortized costs of the Company's
investments approximated their fair value. Realized gains and losses on sales
of investments are determined using the specific identification method.
Realized gains and losses on sales of investments were not significant during
the period from inception (September 9, 1997) to December 31, 1997 or the years
ended December 31, 1998 and 1999.
F-7
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment is primarily comprised of laboratory equipment,
computer equipment, furniture, and leasehold improvements which are recorded at
cost and depreciated using the straight-line method over their estimated useful
lives which range from one to seven years. Expenditures for maintenance and
repairs are charged to operations as incurred; major expenditures for renewals
and betterments are capitalized and depreciated. Property and equipment
acquired under capital leases are being depreciated over their estimated useful
lives or the respective lease term, if shorter.
Other Assets
Other assets includes deposits for building leases which will be returned
to the Company upon the expiration of related leases.
Capitalized Software Costs
The Company accounts for the costs of development of software applications
to be sold to or used by third parties in accordance with Statement of
Financial Accounting Standards No. 86 "Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed." Software development costs
are required to be capitalized beginning when a product's technological
feasibility has been established and ending when a product is available for
general release.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, investments, accounts payable,
capital lease obligations and long-term debt, at December 31, 1998 and 1999
approximated their fair value due to the short term nature of these items.
Impairment of Long-Lived Assets
The Company evaluates the recoverability of its property and equipment and
other long-lived assets when circumstances indicate that an event of impairment
may have occurred in accordance with the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of'' ("SFAS No. 121"). SFAS No. 121 requires recognition of impairment
of long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets or the business to
which such assets relate. Impairment is measured based on the difference
between the carrying value of the related assets or businesses and the
discounted future cash flows of such assets or businesses. No impairment was
required to be recognized during the period from inception (September 9, 1997)
to December 31, 1997 or the years ended December 31, 1998 and 1999.
Income Taxes
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and for tax carryforwards at enacted statutory
rates in effect for the years in which the differences are expected to reverse.
The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. In addition, valuation
allowances are established where necessary to reduce deferred tax assets to the
amounts expected to be realized.
F-8
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Revenues are derived from collaborative research agreements with strategic
partners and from government grants. Revenues, including nonrefundable and
refundable payments received at the initiation of collaboration agreements, are
recognized under the collaborative research agreements on a percentage of
completion basis in accordance with the applicable performance requirements of
each collaboration agreement. Milestone payments under collaborative agreements
will be recognized as revenue when the applicable milestone has been achieved
and such achievement has been acknowledged by the other party to the
collaboration agreement. Revenues from government grants are recognized as
expenses are incurred over the period of each grant. Cash received in excess of
revenues recognized under collaborative agreements and grants is recorded as
deferred revenue. Payments received under the Company's collaborative
agreements and government grants are generally non-refundable regardless of the
outcome of the future research and development activities to be performed by
the Company under these arrangements. The Company is able to recognize
refundable payments as revenues using a percentage of completion method because
it has the ability to perform under its various agreements.
Research and Development
Research and development costs include expenses incurred by the Company to
develop its proprietary Gene Function Factory, perform required services under
collaborative research agreements and government grants and perform research
and development on internal projects. Research and development costs are
expensed as incurred.
Stock Based Compensation
The Company accounts for stock-based compensation based on the provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25") which states that no compensation expense
is recorded for stock options or other stock-based awards to employees that are
granted with an exercise price equal to or above the estimated fair value of
the Company's Common Stock on the grant date. In the event that stock options
are granted with an exercise price below the estimated fair value of the
Company's Common Stock at the grant date, the difference between the fair value
of the Company's Common Stock and the exercise price is recorded as deferred
compensation. The Company recognized deferred compensation of $3,364,942
(restated) to reflect the difference between the aggregate fair market value
and exercise price of all options granted during 1999 with an exercise price
below the fair market value of the Company's Common Stock at the date of grant.
Deferred compensation is amortized to compensation expense over the vesting
period of the related stock option. The Company recognized $199,512 (restated)
in non-cash compensation expense related to amortization of deferred
compensation during the year ended December 31, 1999. The Company did not
recognize any non-cash compensation expense for the year ended December 31,
1998 or the period from inception (September 9, 1997) through December 31, 1997
related to stock options granted to employees as no stock options were granted
to employees with an exercise price below the estimated fair value of the
Company's Common Stock until 1999. The Company has adopted the disclosure
requirements of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," ("SFAS 123") as it relates to stock options granted to
employees, which requires compensation expense to be disclosed based on the
fair value of the options granted at the date of grant. Stock options or
warrants granted to non-employees for services are accounted for in accordance
with SFAS 123, which requires that these options and warrants be valued using
the Black-Scholes model and the resulting charge is recognized as the related
services are performed.
F-9
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash Flow
The Company made cash payments for interest of $13, $128,797, and $622,678
for the period from inception (September 9, 1997) to December 31, 1997 and the
years ended December 31, 1998 and 1999, respectively.
The Company acquired property and equipment through the assumption of
capital lease obligations amounting to $467,125 for the year ended December 31,
1998.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of temporary cash and short-
term investments and trade receivables. The Company primarily places its
temporary cash and short-term investments with high-credit quality financial
institutions which invest primarily in U.S. Government securities, commercial
paper of prime quality and certificates of deposit guaranteed by banks which
are members of the FDIC. Cash deposits are all in financial institutions in the
United States. The Company performs ongoing credit evaluations to reduce credit
risk and requires no collateral from its customers. Management estimates the
allowance for uncollectible accounts based on their historical experience and
credit evaluation.
The Company has one strategic partner which accounted for 100% of the
Company's collaborative research revenues and 94% and 93% of total revenues for
the years ended December 31, 1998 and 1999, respectively (see Note 8).
Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display comprehensive income and its
components in the financial statements. Comprehensive income, as defined,
includes all changes in equity during a period from non-owner sources. The
Company had no items of other comprehensive income during the period from
inception (September 9, 1997) to December 31, 1997 or during the years ended
December 31, 1998 and 1999.
Net Income (Loss) Per Common Share
Historical
The Company computes net income (loss) per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the
provisions of SFAS 128 and SAB No. 98, basic net income (loss) per Common share
("Basic EPS") is computed by dividing net income (loss) by the weighted average
number of Common shares outstanding. Diluted net income (loss) per Common share
("Diluted EPS") is computed by dividing net income (loss) by the weighted
average number of Common shares and dilutive potential Common shares
equivalents then outstanding. Potential Common shares consist of shares
issuable upon the exercise of stock options and warrants and shares issuable
upon the conversion of outstanding convertible Preferred Stock. The calculation
of the net loss per share for the years ended December 31, 1998 and 1999 does
not include zero and 8,487,520 potential shares of Common Stock equivalents,
respectively, as their impact would be antidilutive.
Pro Forma (Unaudited)
Pro forma net income (loss) per common share is calculated assuming the
conversion of all convertible Preferred Stock which will convert automatically
upon the effectiveness of the Company's initial public offering into 10,353,198
shares of Common Stock (see Note 9) at January 1, 1999 or the date of issuance,
if later.
F-10
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Segment Reporting
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement requires companies to report information about
operating segments in interim and annual financial statements. It also requires
segment disclosures about products and services, geographic areas and major
customers. The Company adopted SFAS 131 effective for its year ended December
31, 1998. The Company has determined that it operates in only one segment as of
December 31, 1998 and 1999.
Internal Use Software
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Public Accountants ("AICPA"), issued Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP No. 98-1"), which provides guidance regarding
when software developed or obtained for internal use should be capitalized. The
Company adopted SOP No. 98-1 effective January 1, 1999. The Company accounts
for the development of software for internal uses only in accordance with SOP
No. 98-1. The adoption of SOP No. 98-1 did not have a material impact on the
Company's financial position or results of operations as the predominant
portion of the software applications used by the Company were purchased from
third parties.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as "derivatives"), and for hedging
activities. SFAS 133, as amended by SFAS 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company does not currently, nor does it intend in
the future, to use derivative instruments and therefore does not expect that
the adoption of SFAS 133 will have any impact on its financial position or the
results of operations.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Buildings.............................................. $ -- $ 408,079
Leasehold improvements................................. 240,923 2,700,467
Furniture and laboratory equipment..................... 1,974,561 4,513,141
Computer equipment..................................... 1,906,165 3,083,096
---------- -----------
Total costs.......................................... 4,121,649 10,704,783
Less accumulated depreciation.......................... (299,356) (1,888,118)
---------- -----------
Property and equipment, net.......................... $3,822,293 $ 8,816,665
========== ===========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1998 and 1999 was $299,044 and $1,588,762, respectively.
The Company leases certain equipment under capital lease agreements. The
cost of equipment under capital leases at December 31, 1998 and 1999 was
$467,125. The accumulated amortization for equipment under capital leases was
$116,701 at December 31, 1999.
F-11
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts payable and
accounts receivable at December 31, 1998 and 1999 approximated their fair value
due to the short-term nature of these items.
The fair value of the Company's short-term investments at December 31,
1998 and 1999 was determined based on quoted financial market prices and
approximated their carrying values as these investments were primarily in
short-term corporate obligations.
The historical carrying value of the Company's capital lease obligations
and long-term debt approximated their fair value because the interest rates on
these obligations approximate rates currently available to the Company.
5. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Payroll...................................................... $109,024 $539,184
Taxes other than income...................................... 50,000 --
Other........................................................ 63,438 32,000
-------- --------
$222,462 $571,184
======== ========
</TABLE>
6. Income Taxes
No provision for federal or state income taxes has been recorded as the
Company has incurred net operating losses since inception.
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1998 and 1999 consist of the following:
<TABLE>
<CAPTION>
1998 1999
Deferred tax assets: ----------- -----------
<S> <C> <C>
Domestic net operating loss carryforwards........... $ 1,265,198 $ 3,778,046
Deferred revenue.................................... 575,899 2,259,318
Stock based compensation............................ -- 79,852
Compensation accruals............................... 25,594 60,004
Other .............................................. 19,393 2,795
----------- -----------
Total deferred tax assets........................... 1,886,084 6,180,015
Valuation allowance for deferred tax assets......... (1,733,030) (5,831,327)
----------- -----------
Deferred tax assets, net ........................... 153,054 348,688
----------- -----------
Deferred tax liabilities:
Property and equipment.............................. 153,054 348,688
----------- -----------
Total deferred tax liabilities...................... 153,054 348,688
=========== ===========
Net deferred tax asset (liability).................. $ -- $ --
=========== ===========
</TABLE>
F-12
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1998 and 1999, the Company provided a full valuation
allowance against its net deferred tax assets since it could not be determined
that it was more likely than not that the Company would realize these deferred
tax assets. The increase in the valuation allowance in 1999 resulted primarily
from the additional net operating loss carryforward generated.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of $9,741,000. These net operating loss carryforwards begin
to expire in 2012. The utilization of the federal net operating loss
carryforwards is subject to an annual limitation of $1,569,000 under the rules
regarding a change in stock ownership as determined by the Internal Revenue
Code due to changes in ownership resulting from the Company's preferred stock
financings.
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ----------- -----------
<S> <C> <C> <C>
Effective Rate............................ 0% 0% 0%
-------- ----------- -----------
United States federal tax at statutory
rate..................................... $(74,871) $(1,458,434) $(3,610,752)
State taxes (net of federal benefit)...... (8,902) (203,635) (505,617)
Change in valuation allowance............. 82,460 1,650,571 4,098,297
Other nondeductible expenses.............. 1,313 11,498 18,072
-------- ----------- -----------
Provision for income taxes................ $ -- $ -- $ --
-------- ----------- -----------
</TABLE>
7. Long Term Debt
The Company's long term debt at December 31, 1998 and 1999 consists of the
following:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Senior note payable.................................... $ -- $ 2,000,000
Notes payable for equipment financing.................. 3,542,981 7,006,236
---------- -----------
Total Notes payable.................................. 3,542,981 9,006,236
Less current maturities................................ (327,244) (1,182,456)
---------- -----------
Long-term portion.................................... $3,215,737 $ 7,823,780
========== ===========
</TABLE>
In February 1998, a bridge loan in the amount of $250,000 was converted
into 312,500 shares of the Company's Series A Preferred Stock at a conversion
price of $0.80 per share in conjunction with the closing of the Company's
initial round of financing (See Note 9).
The equipment financing consists of several notes payable to two financial
institutions for the financing of equipment purchases made in 1998 and 1999.
The payment amount is specified in each note agreement and is approximately 1%
of the outstanding balance for the first twelve months and then increases to 3%
of the outstanding balance for the remaining 36 months. A balloon payment of
the remaining balance on the notes is due at the maturity date of the
respective notes. The stated interest rate ranges from 11.3% to 14.2%. The
notes are collateralized by the equipment pledged against these proceeds by the
Company.
Subsequent to December 31, 1999, the Company entered into an additional
equipment financing loan agreement for $3.5 million with an additional $3.5
million available upon completion of an initial public
F-13
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
offering. The loan term will commence upon delivery of equipment with a monthly
payment equal to 2.519% of original principal for a period of 48 months. No
additional borrowings will be available under this loan agreement after January
31, 2001.
During July 1999, the Company entered into a $2 million senior debt
agreement with a financial institution. The note has interest-only payments
until March 1, 2002, followed by six equal principal and interest payments. The
loan is collateralized by the Company's equipment, intellectual property and
receivables. In connection with the debt, Paradigm issued the financial
institution 116,279 warrants to purchase the Company's Common Stock at an
exercise price of $2.15. The Company did not record any debt discount related
to these warrants as their fair value as determined by the Black-Scholes
valuation method was deminimis. This loan agreement prohibits the payment of
any cash dividends until we have fully repaid this loan.
Annual maturities of the long-term debt for the years subsequent to
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000............................................................ $1,182,456
2001............................................................ 2,081,292
2002............................................................ 4,278,615
2003............................................................ 1,273,607
2004............................................................ 190,266
----------
Total....................................................... $9,006,236
==========
</TABLE>
8. Collaborative Agreements
In September 1998, Paradigm entered into a collaborative research
agreement with Bayer in which the Company is developing assays for the
development of new herbicides. If the collaborative agreement continues for the
full initial research term, the Company will receive a minimum of $14.7 million
in quarterly and up front payments during the three-year period from September
1998 through October 2001. If the agreement is extended and the Company meets
all of its milestones, the Company will receive up to a maximum of an
additional $25.1 million. The Company has recognized $2.9 million in cumulative
revenues from the collaboration agreement through December 31, 1999.
In addition, the Company is entitled to receive a royalty of the annual
net sales of herbicides developed by Bayer for a defined period of time.
In November 1999, Paradigm entered into a collaborative agreement with
another strategic partner for the development of crop products and nutrition
products. If the collaborative agreement continues for the full research term,
the Company will receive $41.5 million in quarterly and up front payments
during the six-year period from November 1999 through January 2006. The
strategic partner has options to extend the agreement. If the agreement is
extended and all the required milestones are met, the Company will also receive
up to an additional $107.5 million.
9. Stockholders' Equity (Deficit)
In September 1997, the Company issued 4,400 shares of Common Stock to the
founders of the Company for gross proceeds of $4,400. On February 12, 1998, the
Company issued a Common Stock dividend of 851.2727 shares for each issued and
outstanding share of Common Stock which increased the
F-14
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
number of shares of outstanding Common Stock to 3,749,997. All share amounts in
the accompanying financial statements for all periods presented prior to the
date of this dividend have been retroactively adjusted to reflect this
dividend.
During 1998, the Company's Articles of Incorporation were amended and
restated to authorize 20,000,000 shares of Common Stock with a par value of
$0.01 per share and 10,000,000 shares of Preferred Stock with a par value of
$0.01 per share, of which 9,275,000 shares were designated as Series A
Preferred Stock. The remaining 725,000 shares were undesignated.
In March 1999, the Company's Articles of Incorporation were amended and
restated to increase the number of authorized shares of Preferred Stock to
15,000,000, of which 8,000,000 shares were designated Series A Preferred Stock,
of which 7,562,500 shares were issued and outstanding at December 31, 1998 and
1999, and 2,790,698 shares were designated Series B Preferred Stock, of which
all were issued and outstanding as of December 31, 1999. The remaining
4,209,302 shares were undesignated. Also, in March 1999 the number of
authorized shares of Common Stock was increased to 30,000,000 shares, of which
3,750,247 and 5,224,257 shares were issued and outstanding at December 31, 1998
and 1999, respectively.
The Company is required at all times to reserve a number of shares of
unissued Common Stock for the purpose of effecting the conversion of the issued
and outstanding shares of the Series A and Series B Preferred Stock and the
exercise of all outstanding warrants and options to purchase the Company's
Common Stock. At December 31, 1999, the Company had 17,755,020 shares of Common
Stock reserved for this purpose.
In February 1998, the Company sold a total of 4,625,000 shares of Series A
Preferred Stock in a private placement transaction in exchange for gross
proceeds of $3,700,000 or $0.80 per share and issued 375,000 shares of Series A
Preferred Stock in exchange for the cancellation of notes payable of $300,000.
The notes payable were issued in the last quarter of 1997 and in January 1998.
Two of the purchasers of the Series A Preferred Stock each received 187,500
warrants for the purchase of Series A Preferred Stock with an exercise price of
$0.80 per share. Also, in consideration for being a lead investor, the Company
issued an additional 62,500 warrants in total to one of the two purchasers with
an exercise price of $0.80 per share. The Company did not record any additional
paid-in capital related to the value of these warrants, because the fair market
value of the warrants, as calculated using the Black-Scholes pricing model, was
de minimis.
In March 1998, 62,500 shares of Series A Preferred Stock were issued to an
investor for the cancellation of convertible debt of $50,000, which borrowing
was made in January 1998.
In May 1998, 2,500,000 shares of Series A Preferred Stock were sold to the
same group of purchasers in a second private placement transaction for gross
proceeds of $2,000,000 or $0.80 per share.
In March 1999, the Company sold 2,790,698 shares of Series B Preferred
Shares in a private placement transaction in exchange for gross proceeds of $
6,000,000 or $2.15 per share. The purchasers of the Series B Preferred Shares
were primarily the same as the holders of the Series A Preferred Stock. All of
the Series B Preferred Shares were issued at a price of $2.15. The rights and
preferences of the Series B Preferred Stock are essentially the same as the
Series A Preferred Stock with certain exceptions which are detailed below.
Rights, Preferences and Terms of Capital Stock
The following is a summary of the rights, preferences, and terms of the
Company's outstanding series of Common and Preferred Stock.
F-15
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Dividends
The holders of the Series A and Series B Preferred Stock shall be entitled
to receive in any fiscal year of the Company, when and if declared by the Board
of Directors, dividends payable in cash in an amount per share of Series A and
Series B Preferred Stock for such fiscal year at least equal to the product of
(a) the per share amount multiplied by (b) the number of whole shares of Common
Stock into which each such share of Series A and B Preferred Stock is
convertible immediately after the close of business on the record date fixed
for such dividend. No dividend shall be paid on Series A Preferred Stock unless
an equivalent dividend can be paid on the Series B Preferred Stock. The right
to such dividends shall not be cumulative, and no right shall accrue. Nor shall
any undeclared or unpaid dividend bear or accrue interest.
Liquidity
In the event of any liquidation, the holders of Series B Preferred Stock
shall be entitled to receive prior and in preference to any distribution of any
of the assets or surplus funds of the Company to the holders of Series A
Preferred Stock and Common Stock an amount equal to $2.15 per share plus all
accrued or declared but unpaid dividends. The holders of Series A Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Company to holders of Common Stock
and any series of Preferred Stock the terms of which specifically provide that
such series ranks junior and subordinate to the Series A Preferred Stock with
respect to distribution of assets upon any liquidation or deemed liquidation,
an amount equal to $0.80 per share, adjusted for any stock splits or dividends,
plus all accrued but unpaid dividends. After payment to the holders of the
Series A Preferred Stock, the entire remaining assets and funds of the Company
legally available for distribution shall be distributed among the holders of
the Common Stock in proportion to the shares of Common Stock then held by the
holders of the Common Stock.
Voting
Series A Preferred Stock and Series B Preferred Stock shall be voted
equally with shares of Common Stock at any annual or special meeting of
stockholders of the Company. As long as twenty percent of each series of
Preferred shares originally issued remain outstanding, the affirmative vote or
written consent of the holders of at least two-thirds of the outstanding shares
shall be required to approve all matters brought before the stockholders for
approval.
Conversion
Each share of Series A or Series B Preferred Stock shall be convertible,
at the option of the holder, into shares of the Company's Common Stock. The
initial conversion price per share of Series A Preferred Stock shall be $0.80.
The initial conversion price and value for the Series B Preferred Shares is
$2.15. Each share of Series A and Series B Preferred Stock shall automatically
be converted into a share of Common Stock at the then-effective conversion
rate, immediately upon the closing of the sale of the Company's Common Stock in
a firm commitment, underwritten public offering, at a public offering price
equal to or exceeding $6.00 per share of Common Stock and with aggregate gross
proceeds to the Company and any selling stockholders which equal or exceed
$20,000,000.
10. Stock Options and Warrants
In February 1998, the Company adopted the 1998 Stock Option Plan ("the
Plan") which provided for the grant of up to 1,765,000 employee stock options.
In March 1999, the Plan was amended to provide for the grant of up to 2,515,000
employee stock options. The board amended the Plan in November 1999 to
F-16
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
increase the options available for grant to 3,715,000. In December 1999, the
board authorized an additional 300,000 options for the Plan. Stock options
granted under the Plan are to have exercise periods not to exceed ten years.
Options granted under the Plan generally vest over a period of four years from
the date of grant. Option grants to new employees are generally made within 90
days of commencement of service with the Company and vest over a period of four
years retroactively from the date of hire. The Plan provides the right to
exercise options before they are vested into shares of Common Stock subject to
a repurchase right by the Company.
A summary of the status of the Plan as of December 31, 1999 and changes
during the years ended December 31, 1998 and 1999 presented below:
<TABLE>
<CAPTION>
Shares Underlying Weighted Average
Options Exercise Price
----------------- ----------------
<S> <C> <C>
Outstanding at December 31, 1997............. -- $ --
Granted.................................... 1,683,050 0.08
Forfeited.................................. (2,000) 0.08
Exercised.................................. (250) 0.08
---------- -----
Outstanding at December 31, 1998............. 1,680,800 0.08
Granted.................................... 1,362,819 0.33
Forfeited.................................. (95,823) 0.08
Exercised.................................. (1,474,010) 0.12
---------- -----
Outstanding at December 31, 1999............. 1,473,786 $0.28
========== =====
</TABLE>
As of December 31, 1999, the Company had 831,340 shares of Common Stock
outstanding which were subject to the Company's lapsing right of repurchase in
the event the holder's association with the Company terminates. These shares
are the result of the exercise of unvested stock options by employees. The
shares which relate to the exercise of unvested stock options generally vest
over the four year vesting period of the underlying exercised stock options.
There were no options granted during the period from inception (September
9, 1997) to December 31, 1997. All options granted during the year ended
December 31, 1998 were granted with an exercise price equal to the fair value
of the underlying Common Stock on the grant date, as determined by the board of
directors.
During 1999, the Company issued stock options to certain employees with
exercise prices below the deemed fair value of its Common Stock at the date of
grant. In accordance with the requirements of APB 25, the Company has recorded
deferred compensation and additional paid-in capital for the difference between
the exercise price of the stock options and the estimated fair value of the
Company's Common Stock at the date of grant. This deferred compensation is
amortized to stock based compensation expense over the period during which the
options or restricted Common Stock, subject to repurchase, vest using the
straight line method over a period which is generally four years. The Company
recognized $3,364,942 (restated) in deferred compensation related to 1999
option grants of which $199,512 (restated) was amortized to expense during the
year ended December 31, 1999.
F-17
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is an analysis of stock options granted to employees
subsequent to December 31, 1999 (unaudited):
<TABLE>
<CAPTION>
Options Exercise
Date of Grant Granted Price
------------- ------- ---------
<S> <C> <C>
January 17, 2000 57,052 $ 2.50
January 20, 2000 63,902 4.50
February 8, 2000 148,000 5.00
February 16, 2000 4,439 10.00
February 28, 2000 8,310 10.00
February 28, 2000 6,000 0.08
March 21, 2000 90 0.60
March 21, 2000 500 2.50
March 21, 2000 5,970 10.00
March 21, 2000 150,000 IPO Price
</TABLE>
The Company will record deferred compensation related to these option
grants in an amount of approximately $1,750,000, which represents the
difference between the estimated fair value of the Company's Common Stock and
the exercise price of these options at the respective dates of grant. In
addition, in February 2000 the Company granted 12,000 options with an exercise
price of $5.00 per share to members of its Scientific Advisory Board. The
Company will record a charge of $72,000 at the date of the grant which
represents the fair value of these options determined through use of the Black-
Scholes model.
The following table summarizes information about the Company's stock
options at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------
Weighted Average Weighted Average
Range of Exercise Prices Number Outstanding Contracted Life Exercise Price
- ------------------------ ------------------ ---------------- ----------------
<S> <C> <C> <C>
$ 0.08 533,817 8.6 $0.08
$ 0.22 581,149 9.5 $0.22
$ 0.60 306,320 10.0 $0.60
$ 1.00 52,500 10.0 $1.00
</TABLE>
At December 31, 1999, the Company had 437,500 warrants outstanding to
purchase the Company's Common Stock at a price of $0.80 which expire in
February 2008. The warrants were issued in connection with the Series A
Preferred Stock financing.
In July 1999, the Company entered into a senior debt agreement. In
connection with the agreement the Company issued 116,279 warrants to purchase
the Company's Common Stock with an exercise price of $2.15 which will expire in
July 2009. Also in July 1999, the Company entered into an operating lease
agreement for a new facility being constructed. In connection with the
agreement, the Company issued 150,000 warrants to purchase the Company's Common
Stock with an exercise price of $3.00 per share which will expire in July 2009.
The fair value of these warrants as determined using the Black-Scholes model in
accordance with SFAS 123 was de minimis.
F-18
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The activity for stock warrants is presented in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1998 1999
--------------------------- ---------------------------
Shares Weighted Average Shares Weighted Average
Underlying Exercise Price Underlying Exercise Price
Warrants Per Share Warrants Per Share
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- $ -- 437,500 $0.80
Issued.................. 437,500 0.80 266,279 2.63
Outstanding at end of
year................... 437,500 0.80 703,779 1.49
Exercisable at end of
year................... 437,500 0.80 703,779 1.49
</TABLE>
Subsequent to December 31, 1999, and in connection with an expansion of
the July 1999 operating lease agreement for a new facility, the Company issued
an additional 60,000 warrants to purchase the Company's Common Stock with an
exercise price of $5.00 per share. These warrants have an exercise period of 10
years. The fair value of these warrants at the date of grant was determined
using the Black-Scholes option-pricing model to be $361,000. This amount will
be deferred and recognized as an increase to rent expense over the life of the
related lease.
The Company continues to apply APB No. 25 and related interpretations in
accounting for the Plan. Had compensation costs for the Plan been determined
based on the fair value at the grant date for awards under the Plan consistent
with the methods of SFAS No. 123, the Company's net loss for the years ended
December 31, 1998 and 1999 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Net Loss Pro Forma
Per Share As Net Loss
As Reported Pro Forma Reported Per Share
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
1998 net loss................ $ (4,289,513) $ (4,293,951) $(1.14) $(1.15)
============ ============ ====== ======
1999 net loss................ $(10,619,860) $(11,288,414) $(2.51) $(2.66)
============ ============ ====== ======
</TABLE>
The per share weighted average fair value of stock options granted during
fiscal 1998 and 1999 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for 1998
and 1999: expected dividend yield of 0%; risk free interest rate of 6.0% in
1998 and 6.1% in 1999; an expected option life of approximately five years; and
a volatility factor of 0%.
F-19
<PAGE>
PARADIGM GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. Commitments
The Company leases software under a noncancellable capital lease and
leases office space and certain equipment under operating leases. Future
minimum lease payments required under the leases at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- ----------
<S> <C> <C>
2000.................................................. $ 128,560 $1,006,731
2001.................................................. 128,560 1,403,288
2002.................................................. 117,847 1,250,641
2003.................................................. 1,175,782
Thereafter............................................ 1,229,520
--------- ----------
Total minimum lease payments........................ 374,967 $6,065,962
==========
Less: amount representing interest.................... (52,042)
---------
Present value of net minimum lease payments......... 322,925
Less: current portion................................. (100,075)
---------
Long-term portion capital lease obligations......... $ 222,850
=========
</TABLE>
Rent expense under operating leases totaled $ 5,788, $282,206 and $604,418
for the period from inception (September 9, 1997) through December 31, 1997 and
the years ended December 31, 1998 and 1999, respectively.
In March 1998, the Company entered into an agreement with a consultant to
identify collaboration opportunities for the Company. The consultant will
receive a monthly fee for its services plus a success fee based on the amount
of funding received by the Company under collaboration agreements entered into
during the term of this consulting agreement.
Based on the amount of funds received by the Company from its
collaboration agreements through December 31, 1999, the Company has paid this
consultant success fees of approximately $296,000. If the Company receives the
maximum amount of funding under its existing collaboration agreements,
approximately an additional $1,900,000 in success fees will be required to be
paid to this consultant.
12. Deferred Compensation Adjustment
In the process of finalizing its Registration Statement on Form S-1, the
Company was required to restate its financial statements for the year ended
December 31, 1999, to record an additional $1,019,942 in deferred compensation
and an additional $133,300 in stock based compensation expense. An analysis of
the impact of these adjustments on the Company's 1999 financial statements are
as follows:
<TABLE>
<CAPTION>
Amount Amount After
Previously Recorded Restatement
------------------- ------------
<S> <C> <C>
Deferred compensation......................... $ 2,345,000 $ 3,369,942
Additional paid in capital.................... 2,509,510 3,529,452
Stock based compensation expense.............. 66,212 199,512
Net loss...................................... (10,486,560) (10,619,860)
Net loss per share............................ (2.48) (2.51)
Pro forma net loss per share.................. (0.75) (0.76)
</TABLE>
F-20
<PAGE>
13. Subsequent Events (unaudited)
In January 2000, the Company sold 3,000,000 shares of Series C Preferred
Stock to a group of investors for gross proceeds of $15,000,000 or $5.00 per
share. The Series C Preferred Stock automatically converts into shares of the
Company's Common Stock upon the effectiveness of a qualified initial public
offering at a one-to-one conversion ratio. The Company will record a beneficial
conversion feature charge of $12,000,000 to reflect the difference between the
estimated fair value of the Company's Series C Preferred Stock of $9.00 per
share and the $5.00 per share sales price of these shares.
On April 7, 2000, upon the consummation of the Company's reincorporation
as a Delaware corporation, the number of authorized shares of the Company's
Common Stock increased to 50,000,000 shares and an additional 5,000,000 shares
of Preferred Stock were authorized.
As part of the Company's initial public offering of the Common Stock, the
Company and its underwriters have determined to make available up to 500,000
shares at the initial public offering price for directors, employees, business
associates and related persons associated with the Company (the "directed share
program"). On February 28 and March 13, 2000, prior to effectiveness of the
Company's registration statement, the Company sent e-mail messages with respect
to the proposed directed share program to all of the Company's employees
setting forth procedural aspects for participating in the directed share
program and informing them about the administration of the program and that
their friends and families might have an opportunity to participate in the
proposed program. The Company did not deliver a preliminary prospectus prior to
distribution of the e-mails, and each e-mail may have constituted a non-
conforming prospectus under the Securities Act of 1933. As a result, the
Company may have a contingent liability under the Securities Act of 1933. Any
liability would depend upon the number of shares of our common stock purchased
by the recipients of the e-mails. The recipients of the e-mails who purchase
shares of our common stock in the initial public offering may have a right for
a period of one year from the date of the purchase to obtain recovery of the
consideration paid in connection with their purchase of shares of common stock
or, if they had already sold the stock, file a claim against the Company for
damages resulting from their purchase of the common shares. If any liability is
asserted with respect to the e-mails, the Company will vigorously contest the
matter. However, if all of the purchasers in the directed share program who
received the e-mails are awarded damages after an entire or substantial loss of
their investment, the damages could total up to approximately $4,500,000 plus
interest based on the initial public offering price of $15.00 per share and
based on the Company's intention to allocate up to 300,000 of the potential
500,000 shares to such persons. Although the Company does not intend to
allocate more than 300,000 shares to employees who received the e-mails, or
their friends and families, if a violation of the Securities Act were deemed to
apply to the entire allocation of 500,000 shares in the directed share program,
the damages could total up to approximately $7,500,000 plus interest based on
an assumed initial public offering price of $15.00 per share. Although there
can be no assurance as to the ultimate disposition of this matter, it is the
opinion of the Company's management, based upon the information available at
this time, that the expected outcome of this matter would not have a material
adverse effect on the results of operations or on the financial condition of
the Company.
F-21
<PAGE>
[inside back cover]
[Graphic: pictures representing our four target market
sectors: crop production, nutrition, human health and
industrial products. Text above the pictures states: "We
have created an assembly-line process to determine gene
function and generate information that we believe will
enable us to develop novel products in four major sectors
of the global economy: crop production, nutrition, human
health, and industrial products.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 Shares
[Paradigm Logo appears here]
Common Stock
----------------
PROSPECTUS
----------------
Chase H&Q
J.P. Morgan & Co.
Pacific Growth Equities, Inc.
Stephens Inc.
-------------
, 2000
-------------
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. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it
is unlawful. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
Until , 2000 (or 25 days after the date of this prospectus) all
dealers that buy, sell or trade Paradigm's common stock, whether or not
participating in this offering may be required to deliver a prospectus. The
delivery requirement is in addition to the dealers' obligation to deliver a
prospectus when serving as underwriters and with respect to their unsold
allotment or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 24,288
Nasdaq National Market Listing Fee............................. 90,000
----------
NASD Filing Fee................................................ 9,700
----------
Printing and Engraving Fees.................................... 150,000
----------
Legal Fees and Expenses........................................ 375,000
----------
Accounting Fees and Expenses................................... 325,000
----------
Blue Sky Fees and Expenses..................................... 10,000
----------
Transfer Agent and Registrar Fees.............................. 10,000
----------
Miscellaneous.................................................. 6,012
----------
Total...................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Upon completion of the offering, our restated certificate of incorporation
will provide that we shall indemnify, to the fullest extent authorized by the
Delaware General Corporation Law, each person who is involved in any litigation
or other proceeding because such person is or was a director or officer of
Paradigm Genetics, Inc. or is or was serving as an officer or director of
another entity at our request, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. Our amended and
restated certificate of incorporation will provide that the right to
indemnification includes the right to be paid expenses incurred in defending
any proceeding in advance of its final disposition, provided, however, that
such advance payment will only be made upon delivery to us of an undertaking,
by or on behalf of the director or officer, to repay all amounts so advanced if
it is ultimately determined that such director is not entitled to
indemnification. If we do not pay a proper claim for indemnification in full
within 60 days after we receive a written claim for such indemnification, our
bylaws authorize the claimant to bring an action against us and prescribes what
constitutes a defense to such action.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any director or officer of the corporation against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding brought by reason of the fact that such person is or was a director
or officer of the corporation, if such person acted in good faith and in a
manner that he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if he or she had no reason to believe his or her conduct was
unlawful. In a derivative action (i.e., one brought by or on behalf of the
corporation), indemnification may be provided only for expenses actually and
reasonably incurred by any director or officer in connection with the defense
or settlement of such an action or suit if such person acted in good faith and
in a manner that he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be
provided if such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
or suit was brought shall determine that the defendant is fairly and reasonably
entitled to indemnity for such expenses despite such adjudication of liability.
II-1
<PAGE>
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
Article Tenth of our amended and restated certificate of incorporation
eliminates the liability of a director to us or our stockholders for monetary
damages for such a breach of fiduciary duty as a director, except for
liabilities arising:
. from any breach of the director's duty of loyalty to us or our
stockholders;
. from acts or omissions that the director knew at the time of the
breach knew or believed were clearly in conflict with the best
interests of the corporation;
. under Section 174 of the Delaware General Corporation Law; and
. from any transaction from which the director derived an improper
personal benefit.
We carry insurance policies insuring our directors and officers against
certain liabilities that they may incur in their capacity as directors and
officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the underwriters of
Paradigm, our directors and officers who sign the Registration Statement and
persons who control Paradigm, under certain circumstances.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this Registration Statement, we
have sold the following securities that were not registered under the
Securities Act.
(a) Issuances of Capital Stock and Warrants
The sale and issuance of the securities described in paragraphs (1)
through (12) below were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) or Regulation D promulgated
thereunder.
(1) On September 9, 1997, we issued 4,400 shares of common stock the
founders of the Company for $1.00 per share.
(2) On February 12, 1998, we issued a common stock dividend of 851.2727
shares for each issued and outstanding share of common stock.
(3) On February 12, 1998, we sold and issued a total of 4,625,000 shares
of Series A Preferred Stock for $0.80 per share to two investors in a
private placement. Each share of Series A Preferred Stock is convertible
into one share of our common stock.
(4) On February 12, 1998, we issued warrants to purchase an aggregate of
437,500 shares of our Series A Preferred Stock at an exercise price of
$0.80 per share to two investors.
(5) On February 12, 1998, we issued 375,000 shares of Series A Preferred
Stock in exchange for the cancellation of notes payable of $300,000.
(6) On March 6, 1998, we issued a total of 62,500 shares of Series A
Preferred Stock in exchange for the cancellation of convertible debt of
$50,000.
(7) On May 29, 1998, we sold and issued a total of 2,500,000 shares of
Series A Preferred Stock for $0.80 per share to two investors in a private
placement.
II-2
<PAGE>
(8) On March 12, 1999, we sold and issued a total of 2,790,698 shares of
Series B Preferred Stock for $2.15 per share to four investors in a
private placement. Each share of our Series B Preferred Stock is
convertible into one share of our common stock.
(9) On July 20, 1999, we issued warrants to purchase an aggregate of
116,279 shares of common stock at an exercise price of $2.15 per share to
one investor.
(10) On July 27, 1999, we issued warrants to purchase an aggregate of
150,000 shares of common stock at an exercise price of $3.00 per share to
one investor.
(11) On January 19, 2000, we issued warrants to purchase an aggregate of
60,000 shares of common stock at an exercise price of $5.00 per share to
one investor.
(12) On January 21, 2000, we sold and issued a total of 3,000,000 shares
of Series C Convertible Preferred Stock for $5.00 per share to five
investors in a private placement. Each share of our Series C Convertible
Preferred Stock is convertible into one share of our common stock.
(b) Certain Grants and Exercises of Stock Options
The sale and issuance of the securities described below were deemed to be
exempt from registration under the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act, as transactions by an
issuer not involving a public offering or transactions pursuant to compensatory
benefit plans and contracts relating to compensation as provided under Rule
701.
Pursuant to our 1998 Stock Option Plan, we have issued options to purchase
an aggregate of 3,502,132 shares of common stock. Of these options:
. options to purchase 156,313 shares of common stock have been canceled
or lapsed without being exercised;
. options to purchase 1,808,059 shares of common stock have been
exercised; and
. options to purchase a total of 1,537,760 shares of common stock are
currently outstanding, at a weighted average exercise price of $2.55
per share.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Plan and Agreement of Merger between Paradigm Genetics, Inc., a
North Carolina corporation and Paradigm Genetics, Inc., a Delaware
corporation
**3.1 Restated Articles of Incorporation of the Registrant - North
Carolina
**3.1.1 Certificate of Incorporation of the Registrant - Delaware
3.1.2 Certificate of Amendment of the Certificate of Incorporation of the
Registrant - Delaware
3.1.3 Certificate of Retirement and Elimination of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock of the
Registrant - Delaware - to be filed upon completion of this offering
3.2 Restated Certificate of Incorporation of the Registrant - Delaware -
to be filed upon completion of this offering
**3.3 By-laws of the Registrant - North Carolina
**3.3.1 By-laws of the Registrant - Delaware
**3.4 Amended and Restated By-laws of the Registrant - Delaware - to be
effective upon completion of this offering
4.1 Form of Common Stock Certificate
5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
**10.1 Registrant's 1998 Stock Option Plan
**10.2 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and John A. Ryals
**10.3 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and Scott J. Uknes
**10.4 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and John A. Ryals
**10.5 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and Scott Uknes
**10.6 Amended and Restated Registration Rights Agreement, dated January
21, 2000, between the Registrant and certain Founders and Investors
10.6.1 First Amendment to the Amended and Restated Registration Rights
Agreement between the Registrant and certain Investors and Founders
**+10.7 Agreement by and between Bayer AG and the Registrant dated
September 22, 1998, as amended
**+10.8 Collaboration Agreement, dated November 17, 1999, by and between
The Monsanto Company and the Registrant
**10.9 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and Jorn Gorlach
**10.10 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and Sandy J. Stewart
**10.11 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and Jorn Gorlach
**10.12 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and Sandy J. Stewart
**10.13 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and John A. Ryals
10.13.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and John A. Ryals
**10.14 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and Jorn Gorlach
10.14.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and Jorn Gorlach
**10.15 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and Sandy J. Stewart
10.15.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and Sandy J. Stewart
**10.16 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and Scott Uknes
10.16.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and Scott Uknes
10.17 Employment Agreement between the Registrant and Ian Howes dated
January 14, 1999
10.18 Employment Agreement between the Registrant and Henry Nowak dated
May 18, 1998
10.19 Employment Agreement between the Registrant and John Hamer dated
October 4, 1998
**10.20 Agreement of Sublease, dated September 18, 1998, between the
Registrant and Integrated Energy Services
**10.21 Sublease Amendment Agreement and Assignment of Lease between the
Registrant and Integrated Energy Services
**10.22 Lease, dated September 7, 1999, as amended between the Registrant
and Parker-Raleigh Development XXXII, Limited Partnership
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
**10.23 Agreement of Lease between the Registrant and Triangle Service
Center, Inc.
**10.24 Amendment of Lease between the Registrant and Triangle Service
Center, Inc.
10.25 Lease Agreement between the Registrant and ARE-104 Alexander Road
LLC dated July 27, 1999
**10.26 Work Letter Agreement, dated July 27, 1999, between the Registrant
and ARE-104 Alexander Road LLC
**10.27 Cost Sharing Agreement, dated July 27, 1999, between the Registrant
and ARE-104 Alexander Road LLC
**10.28 Memorandum of Lease Agreement, dated July 27, 1999, between the
Registrant and ARE-104 Alexander Road LLC
**10.29 Tenant Certificate and Agreement, dated January 11, 2000, between
the Registrant and ING Investment Management, LLC
**10.30 Master Loan and Security Agreement, dated May 13, 1998, between the
Registrant and Transamerica Business Credit Corporation.
**10.31 Loan and Security Agreement, dated July 20, 1999, between the
Registrant and Transamerica Business Credit Corporation
**10.32 Intellectual Property Security Agreement, dated July 20, 1999,
between the Registrant and Transamerica Business Credit Corporation
**10.33 Promissory Note, dated July 23, 1999, issued by the Registrant to
Transamerica Business Credit Corporation
**10.34 Master Loan and Security Agreement, dated June 18, 1998, between
the Registrant and Oxford Venture Leasing LLC
10.35 Equipment Schedule No. 1 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.36 Equipment Schedule No. 2 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
10.37 Equipment Schedule No. 3 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.38 Equipment Schedule No. 4 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.39 Equipment Schedule No. 5 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.40 Equipment Schedule No. 6 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.41 Equipment Schedule No. 7 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
10.42 Acknowledgment of Assignment of Loan, dated December 7, 1999, by
Oxford Venture Finance Leasing LLC
**10.43 Warrant to Purchase Common Stock, dated July 27, 1999, issued by
the Registrant to ARE-104 Alexander Road LLC
10.43.1 First Amendment to Warrant to ARE-104 Alexander Road LLC
**10.44 Warrant to Purchase Common Stock, dated July 20, 1999, issued by
the Registrant to TBCC Funding Trust II
**10.45 Warrant to Purchase Common Stock, dated January 19, 2000, issued by
the Registrant to ARE-104 Alexander Road LLC, and Escrow Agreement
10.45.1 First Amendment to Warrant to ARE-104 Alexander Road LLC
**10.46 Warrants to Intersouth Partners III, LP and Intersouth Partners IV,
LP dated February 12, 1998
10.46.1 First Amendments to Warrants to Intersouth Partners III, LP and
Intersouth Partners IV, LP
**10.47 Warrant to Innotech Investments Limited dated February 12, 1998
10.47.1 First Amendment to Warrant to Innotech Investments Limited
**10.48 2000 Employee, Director and Consultant Stock Option Plan
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.49 2000 Employee Stock Purchase Plan
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1)
**24.1 Powers of Attorney
**27 Financial Data Schedule--1997 and 1998
**27.1 Financial Data Schedule--1999
</TABLE>
- ------------------
** Previously filed with the SEC.
+ Confidential Treatment requested as to certain provisions, which portions
have been omitted and filed separately with the SEC.
Financial Statement Schedules are omitted because the information is
included in our financial statements or notes to those financial statements.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment No. 3 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Boston, Massachusetts, on April 27, 2000.
PARADIGM GENETICS, INC.
By: /s/ John A. Ryals
-----------------------------------
John A. Ryals
Chief Executive Officer and
President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities held on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------- -------------------
<S> <C> <C>
/s/ John A. Ryals Chief Executive Officer, April 27, 2000
______________________________________ President and Director
John A. Ryals (principal executive
officer)
/s/ Ian A.W. Howes Vice President of Finance April 27, 2000
______________________________________ and Chief Financial
Ian A. W. Howes Officer (principal
financial and accounting
officer)
* Director April 27, 2000
______________________________________
G. Steven Burrill
* Director April 27, 2000
______________________________________
Dennis Dougherty
* Director April 27, 2000
______________________________________
Terrance McGuire
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------- -------------------
<S> <C> <C>
* Director April 27, 2000
______________________________________
Michael Summers
* Director April 27, 2000
______________________________________
Robert Goodman
* Director April 27, 2000
______________________________________
Henri Zinsli
</TABLE>
* By executing his name hereto on April 27, 2000, John A. Ryals is signing
this document on behalf of the persons indicated above pursuant to powers of
attorney duly executed by such persons and filed with the Securities and
Exchange Commission.
By: /s/ John A. Ryals
---------------------------
John A. Ryals
Attorney-in-fact
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Plan and Agreement of Merger between Paradigm Genetics, Inc., a
North Carolina corporation and Paradigm Genetics, Inc., a Delaware
corporation
**3.1 Restated Articles of Incorporation of the Registrant - North
Carolina
**3.1.1 Certificate of Incorporation of the Registrant - Delaware
3.1.2 Certificate of Amendment of the Certificate of Incorporation of the
Registrant - Delaware
3.1.3 Certificate of Retirement and Elimination of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock of the
Registrant - Delaware - to be filed upon completion of this offering
3.2 Restated Certificate of Incorporation of the Registrant - Delaware -
to be filed upon completion of this offering
**3.3 By-laws of the Registrant - North Carolina
**3.3.1 By-laws of the Registrant - Delaware
**3.4 Amended and Restated By-laws of the Registrant - Delaware - to be
effective upon completion of this offering
4.1 Form of Common Stock Certificate
5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
**10.1 Registrant's 1998 Stock Option Plan
**10.2 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and John A. Ryals
**10.3 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and Scott J. Uknes
**10.4 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and John A. Ryals
**10.5 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and Scott Uknes
**10.6 Amended and Restated Registration Rights Agreement, dated January
21, 2000, between the Registrant and certain Founders and Investors
10.6.1 First Amendment to the Amended and Restated Registration Rights
Agreement between the Registrant and certain Investors and Founders
**+10.7 Agreement by and between Bayer AG and the Registrant dated September
22, 1998, as amended
**+10.8 Collaboration Agreement, dated November 17, 1999, by and between The
Monsanto Company and the Registrant
**10.9 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and Jorn Gorlach
** 10.10 Founder Employment Agreement, dated February 12, 1998, between the
Registrant and Sandy J. Stewart
**10.11 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and Jorn Gorlach
**10.12 Founder Proprietary Information and Inventions Agreement, dated
February 12, 1998, between the Registrant and Sandy J. Stewart
**10.13 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and John A. Ryals
10.13.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and John A. Ryals
**10.14 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and Jorn Gorlach
10.14.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and Jorn Gorlach
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
**10.15 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and Sandy J. Stewart
10.15.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and Sandy J. Stewart
**10.16 Founder Stock Repurchase and Vesting Agreement, dated February 12,
1998, between the Registrant and Scott Uknes
10.16.1 Amendment to the Founder Stock Repurchase and Vesting Agreement
between the Registrant and Scott Uknes
10.17 Employment Agreement between the Registrant and Ian Howes dated
January 14, 1999
10.18 Employment Agreement between the Registrant and Henry Nowak dated
May 18, 1998
10.19 Employment Agreement between the Registrant and John Hamer dated
October 4, 1998
**10.20 Agreement of Sublease, dated September 18, 1998, between the
Registrant and Integrated Energy Services
**10.21 Sublease Amendment Agreement and Assignment of Lease between the
Registrant and Integrated Energy Services
**10.22 Lease, dated September 7, 1999, as amended between the Registrant
and Parker-Raleigh Development XXXII, Limited Partnership
**10.23 Agreement of Lease between the Registrant and Triangle Service
Center, Inc.
**10.24 Amendment of Lease between the Registrant and Triangle Service
Center, Inc.
10.25 Lease Agreement between the Registrant and ARE-104 Alexander Road
LLC dated July 27, 1999
**10.26 Work Letter Agreement, dated July 27, 1999, between the Registrant
and ARE-104 Alexander Road LLC
**10.27 Cost Sharing Agreement, dated July 27, 1999, between the Registrant
and ARE-104 Alexander Road LLC
**10.28 Memorandum of Lease Agreement, dated July 27, 1999, between the
Registrant and ARE-104 Alexander Road LLC
**10.29 Tenant Certificate and Agreement, dated January 11, 2000, between
the Registrant and ING Investment Management, LLC
**10.30 Master Loan and Security Agreement, dated May 13, 1998, between the
Registrant and Transamerica Business Credit Corporation.
**10.31 Loan and Security Agreement, dated July 20, 1999, between the
Registrant and Transamerica Business Credit Corporation
**10.32 Intellectual Property Security Agreement, dated July 20, 1999,
between the Registrant and Transamerica Business Credit Corporation
**10.33 Promissory Note, dated July 23, 1999, issued by the Registrant to
Transamerica Business Credit Corporation
**10.34 Master Loan and Security Agreement, dated June 18, 1998, between the
Registrant and Oxford Venture Leasing LLC
10.35 Equipment Schedule No. 1 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.36 Equipment Schedule No. 2 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
10.37 Equipment Schedule No. 3 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.38 Equipment Schedule No. 4 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.39 Equipment Schedule No. 5 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
**10.40 Equipment Schedule No. 6 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
**10.41 Equipment Schedule No. 7 to Master Loan and Security Agreement
between the Registrant and Oxford Venture Leasing LLC
10.42 Acknowledgment of Assignment of Loan, dated December 7, 1999, by
Oxford Venture Finance Leasing LLC
**10.43 Warrant to Purchase Common Stock, dated July 27, 1999, issued by
the Registrant to ARE-104 Alexander Road LLC
10.43.1 First Amendment to Warrant to ARE-104 Alexander Road LLC
**10.44 Warrant to Purchase Common Stock, dated July 20, 1999, issued by
the Registrant to TBCC Funding Trust II
**10.45 Warrant to Purchase Common Stock, dated January 19, 2000, issued by
the Registrant to ARE-104 Alexander Road LLC, and Escrow Agreement
10.45.1 First Amendment to Warrant to ARE-104 Alexander Road LLC
**10.46 Warrants to Intersouth Partners III, LP and Intersouth Partners IV,
LP dated February 12, 1998
10.46.1 First Amendments to Warrants to Intersouth Partners III, LP and
Intersouth Partners IV, LP
**10.47 Warrant to Innotech Investments Limited dated February 12, 1998
10.47.1 First Amendment to Warrant to Innotech Investments Limited
**10.48 2000 Employee, Director and Consultant Stock Option Plan
10.49 2000 Employee Stock Purchase Plan
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5.1)
**24.1 Powers of Attorney
**27 Financial Data Schedule--1997 and 1998
**27.1 Financial Data Schedule--1999
</TABLE>
- ------------------
** Previously filed with the SEC.
+ Confidential Treatment requested as to certain provisions, which portions
have been omitted and filed separately with the SEC.
<PAGE>
Exhibit 1.1
PARADIGM GENETICS, INC.
5,000,000 Shares/1/
Common Stock
UNDERWRITING AGREEMENT
----------------------
_____ __, 2000
Chase Securities Inc.
J.P. Morgan & Co., Incorporated
Pacific Growth Equities, Inc.
Stephens Inc.
c/o Chase Securities Inc.
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Paradigm Genetics, Inc., a Delaware corporation (herein called the
"Company"), proposes to issue and sell 5,000,000 shares of its authorized but
unissued Common Stock, $.001 par value (herein called the "Common Stock") (said
5,000,000 shares of Common Stock being herein called the "Underwritten Stock")
to the Underwriters named in Schedule I hereto. The Company proposes to grant
to the Underwriters (as hereinafter defined) an option to purchase up to 750,000
additional shares of Common Stock (herein called the "Option Stock" and with the
Underwritten Stock herein collectively called the "Stock"). The Common Stock is
more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Underwriters hereby agree with respect to the purchase
of the Stock by the several underwriters, for whom you are acting, named in
Schedule I hereto (herein collectively called the "Underwriters", which term
shall also include any underwriter purchasing Stock pursuant to Section 3(c)
hereof). You represent and warrant that you have been authorized by each of the
other Underwriters to enter into this Agreement on its behalf and to act for it
in the manner herein provided.
1. Registration Statement. The Company has filed with the Securities and
----------------------
Exchange Commission (herein called the "Commission") a registration statement on
Form S-1 (No. 333-30758), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
"Securities Act") of the Stock. Copies of such registration statement and of
each amendment thereto, if any, including the related preliminary prospectus
(meeting the requirements of Rule 430A of the rules and regulations of the
Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b)
- ------------------------
/1/ Plus an option to purchase from the Company up to 750,000 additional shares
to cover over-allotments.
<PAGE>
registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the "Effective
Date"), shall also mean (from and after the effectiveness of such amendment)
such registration statement as so amended (including any Rule 462(b)
registration statement). The term Prospectus as used in this Agreement shall
mean the prospectus relating to the Stock first filed with the Commission
pursuant to Rule 424(b) and Rule 430A (or if no such filing is required, as
included in the Registration Statement) and, in the event of any supplement or
amendment to such prospectus after the Effective Date, shall also mean (from and
after the filing with the Commission of such supplement or the effectiveness of
such amendment) such prospectus as so supplemented or amended. The term
Preliminary Prospectus as used in this Agreement shall mean each preliminary
prospectus included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants as follows:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and corporate authority to own or
lease its properties and conduct its business as described in the
Registration Statement and the Prospectus as being conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions
in which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where the
failure to be so qualified would not have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company (a "Material Adverse Effect")).
(b) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition or
results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in
the Registration Statement and the Prospectus, and since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement and the
Prospectus.
(c) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, on the Effective Date the Prospectus did not and, on the Closing Date
and any later date on which Option Stock is to be purchased, will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties in this subparagraph (iii)
shall apply to statements in, or omissions from, the Registration Statement
or the Prospectus made in reliance upon and in conformity with information
herein or otherwise furnished in writing to the Company by or on behalf of
the
-2-
<PAGE>
Underwriters for use in the Registration Statement or the Prospectus.
(d) As of the date of the Prospectus, the Company had an authorized
capitalization as set forth in the Prospectus and all of the issued shares of
capital stock of the Company have been duly and validly authorized and issued
in accordance with all applicable federal and state securities laws, rules
and regulations, are fully paid and non-assessable, are free of and were not
issued in violation of any preemptive or similar rights, and conform to the
description thereof contained in the Prospectus. The Prospectus accurately
sets forth, in all material respects, as of its date, all outstanding
options, warrants and other rights calling for the issuance of capital stock
of the Company and any security convertible into or exchangeable or
exercisable for capital stock of the Company. Except as described in the
Prospectus, there are no commitments to issue any shares of capital stock of
the Company and any security convertible into or exchangeable or exercisable
for capital stock of the Company. Except as described in the Prospectus, and
except with respect to rights that have been waived in writing, there is no
holder of any securities of the Company or any other person who has the
right, contractual or otherwise, to cause the Company to sell or otherwise
issue to him or her, or permit him or her to underwrite the sale of, any of
the Stock.
(e) The Stock has been duly and validly authorized and, when issued
and sold to the Underwriters as provided herein, will be duly and validly
issued, fully paid and non-assessable, will be free of and will not have been
issued in violation of any preemptive or other similar rights, and will
conform to the description thereof contained in the Prospectus. No further
approval or authority of any stockholder or the Board of Directors of the
Company will be required for the issuance and sale of the Stock as provided
herein.
(f) The Stock to be sold by the Company has been approved for
quotation by the Nasdaq National Market upon official notice of issuance.
(g) The issuance and sale of the Stock by the Company and the
compliance by the Company with all of the provisions of this Agreement and
the consummation of the transactions contemplated hereby (i) have been duly
authorized and approved by all requisite corporate action on the part of the
Company, (ii) do not and will not as of the Closing Date and any later date
on which Option Stock is to be purchased, conflict with, or result in a
breach or violation of, constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets
of the Company pursuant to, any of the terms and provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company or any of its properties
or assets are bound or affected (each, a "Conflict"), (iii) do not and will
not as of the Closing Date and any later date on which Option Stock is to be
purchased, result in the violation of any provision of the Certificate of
Incorporation or By-laws of the Company, (iv) will not result in the
violation of any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction of the Company or any of its
properties or assets (each, a "Violation"), and (v) do not and will not as of
the Closing Date and any later date on which Option Stock is to be purchased
require the consent, approval, authorization or other order of, or
registration, filing or qualification with, any such court or governmental
agency or body or other third party (each, a "Consent") except, (A) in the
case of clause (v) as may be required for the registration of the Stock under
the Securities Act and the Exchange Act and compliance with state securities
or Blue Sky laws and by the NASD, all of which have been or will be effected
in accordance with this Agreement and (B) in the case of clauses (ii) and
(iv) any such Conflict or Violation that would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect or
materially impair or materially delay the
-3-
<PAGE>
Company's ability to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding agreement of the Company, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium or similar laws, now or hereafter in effect affecting the rights
and remedies of creditors generally, and to equitable principles.
(h) The Company is not (i) in violation of its Certificate of
Incorporation or By-laws, or (ii) in violation of any statute, law,
ordinance, administrative or governmental rule or regulation applicable to
the Company or any judgment, injunction, order or decree of any court or
governmental agency or body having jurisdiction over the Company, except for
any such violation which would not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect and (iii) in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other material agreement or instrument to which it is a
party or by which it or any of its properties may be bound, including,
without limitation, the Monsanto Agreement and the Bayer Agreement, each as
hereinafter defined, except for any such default which would not, singly or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
(i) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party or to which
any property of the Company is the subject which, if determined adversely to
the Company, would individually or in the aggregate have a Material Adverse
Effect; and, to the Company's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others.
(j) The Company is not and, after giving effect to the sale of the
Stock and the application of the proceeds therefrom as described in the
Prospectus, will not be an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended.
(k) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and delivered their reports with respect to the
audited financial statements and schedules contained or incorporated by
reference in the Registration Statement and the Prospectus, are independent
public accountants as required by the Securities Act and Exchange Act and the
rules and regulations of the Commission thereunder.
(l) The financial statements and schedules of the Company and the
related notes thereto, included in the Registration Statement and the
Prospectus present fairly in all material aspects the financial position of
the Company as of the respective dates of such financial statements and
schedules, and the results of operations and changes in financial position of
the Company for the respective periods covered thereby. Such statements,
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and (where
audited) as certified by the independent accountants named in Section 2(k).
No other financial statements or schedules are required to be included in the
Registration Statement or the Prospectus. The summary and selected financial
data set forth in the Prospectus under the captions "Capitalization,"
"Summary Financial Data" and "Selected Financial Data" fairly present in all
material respects the information shown on the basis stated in Registration
Statement.
-4-
<PAGE>
(m) There are no contracts or other documents required to be described
in the Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement that have not been described or filed as
required by the Securities Act or the rules and regulations of the Commission
thereunder. The contracts so described in the Prospectus are in full force
and effect on the date hereof, and neither the Company nor, to the Company's
knowledge, any other party is in breach of or default under any of such
contracts where such breach or default, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect. The
descriptions of such contracts in the Registration Statement are true
summaries thereof and fairly presents in all material respects the
information required to be shown in all material respects.
(n) Except as disclosed in the Prospectus, the Company owns or has
obtained licenses for or other rights to sufficient and requisite trademarks,
trade names, patent rights, copyrights and licenses and approvals
("Intellectual Property Rights") to conduct its business as now conducted (as
described in the Prospectus). Without limiting the generality of the
foregoing, the Company is unaware of any limitations with respect to its
Intellectual Property Rights not described in the Prospectus that would
prevent it from (a) performing its obligations under the Monsanto Agreement
or Bayer Agreement (each, as hereinafter defined) or any other agreements
with third parties, and (b) engaging in its contemplated activities, as
described in the Prospectus. The Company does not have any Intellectual
Property Rights material to the operations of the Company's business except
as described in the Prospectus and such Intellectual Property Rights will not
expire earlier than as disclosed in the Prospectus. The Company has no
knowledge of any material infringement by it of Intellectual Property Rights
of others and, to its knowledge, there are no outstanding claims against the
Company regarding Intellectual Property Rights or other infringement which,
if adversely determined, could have a Material Adverse Effect. The Company
has no knowledge of any material infringement by others of its Intellectual
Property Rights.
(o) The Company has taken usual and customary measures for a company
of its size and resources and in its line of business to protect the secrecy,
confidentiality and value of all of its intellectual property (including the
Intellectual Property Rights and any trade secrets necessary or useful in the
conduct of its business) in all material respects.
(p) The Company possesses all certificates, authorizations, and
permits issued by the appropriate federal, state, or local regulatory
authorities necessary to conduct its business as presently conducted,
including without limitation, all such certificates, authorizations, and
permits required by the United States Food and Drug Administration ("FDA"),
United States Department of Agriculture ("USDA"), or any other federal,
state, or local agency or body engaged in the regulation of activities
related to our functional genomics system, genetically engineered
agricultural products, and related technologies, except where the failure to
possess such certificates, authorizations, and permits would not, singly or
in the aggregate, be reasonably expected to have a Material Adverse Effect;
and the Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization, or permit,
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling, or finding, would reasonably be expected to result in a Material
Adverse Effect.
(q) Without limiting the generality of (q) above, the Company: (i) is
in material compliance with any and all applicable foreign, United States,
state and local laws, rules, regulations, treaties, statutes and codes
promulgated by any and all governmental authorities relating to the
protection of human health and safety, the environment or toxic substances or
wastes, pollutants or contaminates ("Environmental Laws"); (ii) is in
material compliance with any and all applicable foreign, United States, state
and local laws,
-5-
<PAGE>
rules, regulations, treaties, statutes and codes promulgated by any and all
governmental authorities (including pursuant to the Occupational Health and
Safety Act) relating to the protection of human health and safety in the
workplace ("Occupational Laws" and, together with Environmental Laws,
"Environmental and Occupational Laws"); (iii) has received all material
permits, licenses or other approvals required of it under applicable
Environmental and Occupational Laws to conduct its business as currently
conducted; and (iv) is in compliance with all terms and conditions of such
permit, license or approval, except where, with respect to all such cases set
forth in subsections (i)-(iv) above, such noncompliance with the applicable
Environmental and Occupational Laws or failure to receive or act in
compliance with the required permit, license or other approval would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or, to the Company's knowledge, threatened
against the Company relating to Environmental and Occupational Laws or to the
Company's activities involving Hazardous Materials, which would reasonably be
expected to have a Material Adverse Effect. The term "Hazardous Materials" as
used in this Agreement means any material or substance that: (A) is
prohibited or regulated by any environmental law, rule, regulation, order,
treaty, statute or code promulgated by any governmental authority, or any
amendment or modification thereto; or (B) has been designated or regulated by
any governmental authority as radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment.
(r) The Company has filed on a timely basis all necessary tax returns
required to be filed with any taxing authority, which returns are complete
and correct in all material respects and, to the Company's knowledge, are not
the subject of any audit proceedings, and the Company is not in default in
the payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto, except for such taxes as are being
contested in good faith and as to which adequate reserves have been provided.
(s) The Company maintains insurance with insurers of recognized
financial responsibility of the types and in the amounts which it believes
are reasonable, all of which insurance is in full force and effect, and there
are no claims by the Company under any such policy or instrument as to which
any insurer is denying liability or defending under a reservation of rights
clause.
(t) Neither the Company nor, to the Company's knowledge, any agent or
employee of the Company has, at any time during the last five years, (a) made
any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (b) made any payment
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(u) Except for the e-mails dated February 28 and March 13, 2000,
transmitted by Henry Nowack to the employees of the Company, the Company has
not distributed and, prior to the later to occur of the Closing Date and
completion of the distribution of the Stock, will not distribute any offering
material in connection with the offering and sale of the Stock other than the
Registration Statement, the Preliminary Prospectus, the Prospectus or other
materials, if any, permitted by the Securities Act.
(v) The execution, delivery and performance by the Company of each of
(i) the Monsanto/Paradigm Genetics Collaboration Agreement, dated November
17, 1999, between the Company and Monsanto Company (the "Monsanto Agreement")
and (ii) the Agreement, dated September 22, 1998, between the Company and
Bayer AG, as amended
-6-
<PAGE>
(the "Bayer Agreement"), were duly authorized and approved by all requisite
corporate and other action on the part of the Company, and will not
constitute or give rise to a Conflict or Violation or require a Consent,
except where any such Conflict or Violation, or failure to obtain a Consent,
would not, individually or in the aggregate, have a Material Adverse Effect,
or materially impair or materially delay the Company's ability to consummate
the transactions contemplated thereby.
(w) There is (i) no significant unfair labor practice complaint
pending against the Company or, to its knowledge, threatened against it
before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against the Company or threatened against it, (ii) no labor dispute
in which the Company is involved nor is any labor dispute imminent, other
than routine disciplinary and grievance matters, and (iii) no union
representation question existing with respect to the employees of the Company
and no union organizing activities are taking place, except, in each case
singly or in the aggregate, such as would not have a Material Adverse Effect.
3. Purchase of the Stock by the Underwriters.
-----------------------------------------
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and
sell 750,000 shares of the Underwritten Stock to the several Underwriters
and each of the Underwriters agrees to purchase from the Company the
respective aggregate number of shares of Underwritten Stock set forth
opposite its name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and purchased by the
several Underwriters shall be $___ per share. In making this Agreement,
each Underwriter is contracting severally and not jointly; except as
provided in paragraphs (c) and (d) of this Section 3, the agreement of each
Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) It is understood that approximately _________ shares of the
Underwritten Stock ("Directed Shares") will initially be reserved by the
Underwriters for offer and sale to employees and persons having business
relationships with the Company ("Directed Share Participants") upon the
terms and conditions set forth in the Prospectus and in accordance with the
rules and regulations of the National Association of Securities Dealers,
Inc. (the "Directed Share Program"). Under no circumstances will Chase
Securities Inc. or any Underwriter be liable to the Company or to any
Directed Share Participant for any action taken or omitted to be taken in
good faith, without gross negligence or willful misconduct, in connection
with such Directed Share Program. To the extent that any Directed Shares
are not affirmatively reconfirmed for purchase by any Directed Share
Participant on or by the end of the first business day after the date of
this Agreement, such Directed Shares may be offered to the public as part
of the public offering contemplated hereby.
(c) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination
of this Agreement under the provisions of Section 8 or 9 hereof) to
purchase and pay for the number of shares of the Stock agreed to be
purchased by such Underwriter or Underwriters, upon the Company's awareness
of such failure or refusal, the Company shall immediately give notice
thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or
procure one or more other Underwriters to purchase, in such proportions as
may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, all or
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<PAGE>
any part of the shares of the Stock which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so
to make such arrangements with respect to all such shares and portion, the
number of shares of the Stock which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining shares and portion
which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be
obligated to purchase the shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate number of
such shares of the Stock exceeds 10% of the total number of shares of the
Stock which all Underwriters agreed to purchase hereunder. If the total
number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in
accordance with the two preceding sentences, the Company shall have the
right, within 24 hours next succeeding the 24-hour period above referred
to, to make arrangements with other underwriters or purchasers satisfactory
to you for purchase of such shares and portion on the terms herein set
forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for
not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor
the Company shall make arrangements within the 24-hour periods stated above
for the purchase of all the shares of the Stock which the defaulting
Underwriter or Underwriters agreed to purchase hereunder, this Agreement
shall be terminated without further act or deed and without any liability
on the part of the Company to any Underwriter and without any liability on
the part of any non-defaulting Underwriter to the Company. Nothing in this
paragraph (b), and no action taken hereunder, shall relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter
under this Agreement.
(d) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth,
the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to ____ shares in the aggregate of the Option
Stock from the Company at the same price per share as the Underwriters
shall pay for the Underwritten Stock. Said option may be exercised only to
cover over-allotments in the sale of the Underwritten Stock by the
Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the thirtieth day after the date of this
Agreement upon written or telegraphic notice by you to the Company setting
forth the aggregate number of shares of the Option Stock as to which the
several Underwriters are exercising the option. Delivery of certificates
for the shares of Option Stock, and payment therefor, shall be made as
provided in Section 5 hereof. The number of shares of the Option Stock to
be purchased by each Underwriter shall be the same percentage of the total
number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock,
as adjusted by you in such manner as you deem advisable to avoid fractional
shares.
4. Offering by Underwriters.
------------------------
(a) The terms of the initial public offering by the Underwriters of
the Stock to be purchased by them shall be as set forth in the Prospectus.
The Underwriters may from time to time change the public offering price
after the closing of the initial public offering and increase or decrease
the concessions and discounts to dealers as they may determine.
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(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any
Preliminary Prospectus and the Prospectus relating to the Stock filed by
the Company (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters in writing
to the Company for inclusion in the Registration Statement, any Preliminary
Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
5. Delivery of and Payment for the Stock.
-------------------------------------
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall
have been exercised not later than 10:00 A.M., New York time, on the date
two business days preceding the Closing Date), and payment therefor, shall
be made at the office of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New
York, New York 10178 at 10:00 a.m., New York time, on the fourth business
day after the date of this Agreement, or at such time on such other day,
not later than seven full business days after such fourth business day, as
shall be agreed upon in writing by the Company and you. The date and hour
of such delivery and payment (which may be postponed as provided in Section
3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(d) hereof shall be exercised
after 10:00 a.m., New York time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock,
and payment therefor, shall be made at the office of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178, at 10:00 a.m., New
York time, on the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order by one or more certified or official bank check or
checks in same day funds or, at the Company's request, by wire transfer of
immediately available funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the
several Underwriters against receipt therefor signed by you. Certificates
for the Stock to be delivered to you shall be registered in such name or
names and shall be in such denominations as you may request at least two
business day before the Closing Date, in the case of Underwritten Stock,
and at least two business day prior to the purchase thereof, in the case of
the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the
business day prior to the Closing Date or, in the case of the Option Stock,
by 3:00 p.m., New York time, on the business day preceding the date of
purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.
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6. Further Agreements of the Company. The Company covenants and agrees
---------------------------------
as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act
or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding
for that purpose, (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in any
jurisdiction or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company will make
every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal
thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of
the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time during the period in which
a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of
any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement
or amend the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser of the Stock, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended prospectus so
that the Prospectus as so supplemented or amended will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the
Stock by the Underwriters and during such period, the Underwriters shall
propose to
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vary the terms of offering thereof by reason of changes in general market
conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the
Company or of counsel for the Underwriters such proposed variation requires
that the Prospectus be supplemented or amended, the Company will forthwith
prepare and file with the Commission a supplement to the Prospectus or an
amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with
the applicable provisions of the Securities Act and the applicable rules
and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate in the qualification of the Stock for
offer and sale under the securities or blue sky laws of such jurisdictions
as you may designate and, during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, in keeping
such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. The
Company will, from time to time, prepare and file such statements, reports,
and other documents as are or may be required to continue such
qualifications in effect for so long a period as you may reasonably request
for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports
filed with the Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date,
the Company will make generally available to its security holders an
earning statement in accordance with Section 11(a) of the Securities Act
and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs
and expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to
be so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in paragraph
(d) of this Section 6, (v) the furnishing to you and the Underwriters of
the reports and information referred to in paragraph (g) of this Section 6,
(vi) the printing and issuance of stock certificates, including the
transfer agent's fees and (vii) all fees and disbursements incurred by the
Underwriters in connection with the Directed Share Program, including
counsel fees and any stamp duties or other taxes incurred by the
Underwriters in connection with the Directed Share Program.
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<PAGE>
(j) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky fees and related disbursements
(including counsel fees and disbursements and cost of printing memoranda
for the Underwriters) paid by or for the account of the Underwriters or
their counsel in qualifying the Stock under state securities or blue sky
laws and in the review of the offering by the NASD; provided, however,
-------- -------
counsel fees with respect to the review by the NASD shall not exceed
$15,000.
(k) The Company hereby agrees that, without the prior written consent
of Chase Securities Inc. on behalf of the Underwriters, the Company will
not, for a period of 180 days following the commencement of the public
offering of the Stock by the Underwriters, directly or indirectly, (i)
sell, offer, contract to sell, make any short sale, pledge, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences or ownership of Common
Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the Stock
to be sold to the Underwriters pursuant to this Agreement, (B) shares of
Common Stock issued by the Company upon the exercise of options granted
under the stock option or stock purchase plans of the Company granted prior
to the date of this Agreement (the "Option Plans") or upon the exercise of
warrants outstanding as of the date hereof in the Prospectus, (C) options
to purchase Common Stock granted under the Option Plans, provided that,
without prior written consent of Chase Securities Inc., such additional
options shall not be exercisable during such period, (D) any shares of
Common Stock or other rights to acquire shares of Common Stock issued
pursuant to equipment or lease financing activities entered into in the
ordinary course of the Company's business or (E) any securities issued in
connection with any strategic alliance, collaboration, license,
acquisition, marketing agreement, distribution agreement, advertising
arrangement, promotional arrangement or similar agreement, arrangement or
transaction, provided that the total amount of securities issued pursuant
to subsections (D) and (E), would not exceed 2 million shares of Common
Stock of the Company or securities exchangeable or convertible into shares
of Common Stock of the Company and provided further that securities may
only be issued pursuant to subsections (D) and (E) to the extent the
recipient of such securities agrees to the same transfer restrictions
imposed on the Company by the Underwriters under this section 6(k).
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(m) The Company is familiar with the Investment Company Act of 1940,
as amended, and has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was
not and will not be an
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<PAGE>
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, and
the rules and regulations thereunder.
7. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person (including each partner or officer thereof) who controls
any Underwriter within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become
subject under the Securities Act, the Securities Exchange Act of 1934, as
amended (herein called the Exchange Act), or the common law or otherwise,
and the Company agrees to reimburse each such Underwriter and controlling
person for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel)
reasonably incurred by the respective indemnified parties in connection
with defending against any such losses, claims, damages or liabilities or
in connection with any investigation or inquiry of, or other proceeding
which may be brought against, the respective indemnified parties, in each
case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule
462(b) registration statement), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus or the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
In connection with the offer and sale of the Directed Shares, the
Company agrees, promptly upon request in writing, to indemnify and hold
harmless Chase Securities Inc. and the other Underwriters from and against
any loss, claim, damage, expense, liability or action with (i) arises out
of, or is based upon, any untrue statement or alleged untrue statement of a
material fact contained in any material prepared by or with the approval of
the Company for distribution to Directed Share Participants in connection
with the Directed Share Program or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein no misleading, (ii) arises out of the failure
of any Directed Share Program participant to pay for and accept delivery of
Directed Shares that the Participant agreed to purchase or (iii) is
otherwise related to the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted directly from the bad faith or gross
negligence of Chase Securities Inc.
The indemnity agreements of the Company contained in the first two
paragraphs of this Section 7(a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement
thereto and (2) the indemnity agreement contained in this Section 7 (a)
with respect to any Preliminary Prospectus shall not inure to the benefit
of any Underwriter
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<PAGE>
from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof
(or to the benefit of any person controlling such Underwriter) if at or
prior to the written confirmation of the sale of such Stock a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material
fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented) unless the
failure is the result of noncompliance by the Company with paragraph (c) of
Section 6 hereof. The indemnity agreements of the Company contained in this
Section 7(a) and the representations and warranties of the Company
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the
Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on
his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities
Act, the Exchange Act, or the common law or otherwise and to reimburse each
of them for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection
with any investigation or inquiry of, or other proceeding which may be
brought against, the respective indemnified parties, in each case arising
out of or based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement (including the
Prospectus as part thereof and any Rule 462(b) registration statement) or
any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus or the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company
by or on behalf of such indemnifying Underwriter for use in the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained
in this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it
or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in
such paragraphs, it will promptly give written notice (herein called the
Notice) of such service or notification to the party or parties from whom
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<PAGE>
indemnification may be sought hereunder. No indemnification provided for
in such paragraphs shall be available to any party who shall fail so to
give the Notice if the party to whom such Notice was not given was unaware
of the action, suit, investigation, inquiry or proceeding to which the
Notice would have related and was prejudiced by the failure to give the
Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party
or parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of such indemnity
agreement. Any indemnifying party shall be entitled at its own expense to
participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt
of the Notice by giving written notice (herein called the Notice of
Defense) to the indemnified party, to assume (alone or in conjunction with
any other indemnifying party or parties) the entire defense of such action,
suit, investigation, inquiry or proceeding, in which event such defense
shall be conducted, at the expense of the indemnifying party or parties, by
counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that
(i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties
and of the indemnified party or parties in conducting the defense of such
action, suit, investigation, inquiry or proceeding or that there may be
legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or
parties, then counsel for the indemnified party or parties shall be
entitled to conduct the defense to the extent reasonably determined by such
counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties
participate in, but not conduct, the defense. If, within a reasonable time
after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a)
through (c) of this Section 7 for any legal or other expenses subsequently
incurred by the indemnified party or parties in connection with the defense
of the action, suit, investigation, inquiry or proceeding, except that (A)
the indemnifying party or parties shall bear the reasonable legal and other
expenses incurred in connection with the conduct of the defense as referred
to in clause (i) of the proviso to the preceding sentence and (B) the
indemnifying party or parties shall bear such other expenses as it or they
have authorized to be incurred by the indemnified party or parties. If, 30
days after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any reasonable legal
or other expenses incurred by the indemnified party or parties in
connection with the defense of the action, suit, investigation, inquiry or
proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in paragraph (a) or (b) of this
Section 7 (i) in such proportion as is appropriate to reflect the relative
benefits received by each indemnifying party from the offering of the Stock
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
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<PAGE>
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Underwriters shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Stock received by the
Company and the total underwriting discount received by the Underwriters,
as set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. 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 each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro
rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the first sentence of
this paragraph (d). The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities, or actions in respect thereof,
referred to in the first sentence of this paragraph (d) shall be deemed to
include any reasonable legal or other expenses reasonably incurred by such
indemnified party in connection with investigation, preparing to defend or
defending against any action or claim which is the subject of this
paragraph (d). Notwithstanding the provisions of this paragraph (d), no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such
Underwriter. 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. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly
give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in paragraph (c) of this Section
7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect
of which indemnification may be sought hereunder (whether or not such
Underwriter or any person who controls such Underwriter within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter
and each such controlling person from all liability arising out of such
claim, action, suit or proceeding.
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, if the
Underwriters, in their reasonable judgment, believe the offering or delivery of
the Stock is
-16-
<PAGE>
impracticable, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States would, in the
Underwriters' reasonable judgment, make the offering or delivery of the Stock
impracticable, (iii) suspension of trading in securities generally or a material
adverse decline in value of securities generally on the New York Stock Exchange,
the American Stock Exchange, The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company to the Underwriters
and no liability of the Underwriters to the Company; provided, however, that in
the event of any such termination the Company agrees to indemnify and hold
harmless the Underwriters from all costs or expenses incident to the performance
of the obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Morgan, Lewis & Bockius LLP, counsel for
the Underwriters.
(c) You shall have received from Mintz, Levin, Cohn, Ferris, Glovsky &
Popeo, P.C., counsel for the Company, and from ____________, patent counsel
for the Company, opinions, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A and Annex B hereto,
respectively, and if Option Stock is purchased at any date after the
Closing Date, additional opinions from each such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinions remain valid as of such
later date.
(d) (i) As of the Effective Date, the statements made in the
Registration Statement and the Prospectus were true and correct and neither
the Registration Statement nor the Prospectus omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein, respectively, not
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<PAGE>
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business, properties, financial condition or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, the Company does not have nor has it entered into any
material transaction not referred to in the Registration Statement in the
form in which it originally became effective and the Prospectus contained
therein, (iv) the Company does not have any material contingent obligations
which are not disclosed in the Registration Statement and the Prospectus,
(v) there are not any pending or known threatened legal proceedings to
which the Company is a party or of which property of the Company is the
subject which are material and which are not disclosed in the Registration
Statement and the Prospectus, (vi) there are not any franchises, contracts,
leases or other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required and (vii) the
representations and warranties of the Company herein are true and correct
in all material respects as of the Closing Date or any later date on which
Option Stock is to be purchased, as the case may be.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(f) You shall have received from PricewaterhouseCoopers LLC, a letter
or letters, addressed to the Underwriters and dated the Closing Date and
any later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting
the business or properties of the Company which, in your sole judgment,
makes it impractical or inadvisable to proceed with the public offering of
the Stock or the purchase of the Option Stock as contemplated by the
Prospectus.
(g) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
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<PAGE>
(h) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been approved for quotation on the Nasdaq National
Market upon official notice of issuance.
(i) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of more than 5% of the
outstanding Common Stock, agreements, in form reasonably satisfactory to
Chase Securities Inc., stating that without the prior written consent of
Chase Securities Inc. on behalf of the Underwriters, each such person or
entity will not, for a period of 180 days following the effective date of
the Registration Statement, directly or indirectly, sell, offer, contract
to sell, transfer the economic risk of ownership, make any short sale,
pledge or otherwise dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock or whether any such transaction is to be
settled by delivery of Common Stock or such other securities.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Morgan, Lewis & Bockius LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all out-of-pocket costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company to
perform in all material respects any agreement of the Company herein, to fulfill
in all material respects any of the conditions of the Company herein, or to
comply in all material respects with any provision hereof other than by reason
of a material breach or default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the transactions contemplated hereby.
10. Conditions of the Obligation of the Company. The obligation of the
-------------------------------------------
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective, (b) no stop order suspending
the effectiveness thereof shall be in effect and no proceedings therefor shall
be pending or threatened by the Commission and (c) you and the Underwriters
shall have performed all obligations hereunder.
In case the conditions specified in this Section 10 shall not be fulfilled,
this Agreement may be terminated by the Company by giving notice to you. Any
such termination shall be without liability of the Company to the Underwriters
and, except in the case of a breach of subsection (c), without liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all out-of-pockets costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
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<PAGE>
11. Reimbursement of Certain Expenses. In addition to its other
---------------------------------
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
----------------------------------------
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
-------
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Chase Securities Inc., One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, Paradigm Genetics, Inc., 104
Alexander Drive, Building 2, P.O. Box 14528, Research Triangle Park, NC 27709-
4528, Attention: John Ryals with a copy to Peter S. Lawrence at Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111.
All notices given by telegraph shall be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
-------------
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
-------- -------
Agreement is terminated prior to the Closing Date, the provisions of paragraph
(k) of Section 6 hereof shall be of no further force or effect.
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.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
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<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
PARADIGM GENETICS, INC.
By __________________________
Name:
Title:
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
CHASE SECURITIES INC.
J.P. MORGAN & CO., INCORPORATED
PACIFIC GROWTH EQUITIES, INC.
STEPHENS INC.
By: CHASE SECURITIES INC.
By _________________________
Name:
Title: Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
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<PAGE>
SCHEDULE I
UNDERWRITERS
Number of
Shares to be
Purchased
---------
Chase Securities Inc.
J.P. Morgan & Co., Incorporated
Pacific Growth Equities, Inc.
Stephens Inc.
Total. . . . . . . . . . . . . . . . . . . .
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<PAGE>
ANNEX A
Matters to be Covered in the Opinion of Mintz, Levin, Cohn, Ferris, Glovsky &
Popeo, P.C.,
Counsel for the Company
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good
standing in [insert states], and has full corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement;
(ii) the authorized capital stock of the Company consists of
____shares of Preferred Stock, of which there are no outstanding shares,
and ____ shares of Common Stock, $.001 par value; proper corporate
proceedings have been taken validly to authorize such authorized capital
stock; all of the outstanding shares of such capital stock have been duly
and validly issued, are nonassessable and, to such counsel's knowledge,
fully paid; the Underwritten Stock and Option Stock, if any, when issued
and delivered to and paid for by the Underwriters as provided in the
Underwriting Agreement, will have been duly and validly issued
nonassessable and, to such counsel's knowledge, fully paid; and no
preemptive rights of, or rights of refusal in favor of, stockholders exist
with respect to the Stock, or the issue and sale thereof, pursuant to the
Certificate of Incorporation or Bylaws of the Company and, to the knowledge
of such counsel, there are no contractual preemptive rights that have not
been waived, rights of first refusal or rights of co-sale which exist with
respect to the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for
that purpose have been instituted or are pending or contemplated by the
Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act
and with the rules and regulations of the Commission thereunder;
(v) the information required to be set forth in the Registration
Statement under the captions "Description of Capital Stock" and "Interests
of Named Experts and Counsel" (insofar as it relates to such counsel) and
under the caption "Legal Proceedings", to the best of such counsel's
knowledge in each case constitutes general summaries of the legal matters,
documents or proceedings referred to therein and fairly presents the
information set forth with respect thereto,
(vi) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion
of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
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<PAGE>
(vii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(viii) the issue and sale by the Company of the shares of Stock sold
by the Company as contemplated by the Underwriting Agreement will not
conflict with, or result in a breach of, (i) the Certificate of
Incorporation or By-laws of the Company or (ii) any agreement or instrument
known to such counsel to which the Company is a party or (iii) any
applicable law or regulation, or so far as is known to such counsel, any
order, writ, injunction or decree, of any jurisdiction, court or
governmental instrumentality, except with respect to clauses (ii) and
(iii), for any breach or conflict that would not reasonable be expected to
have a Material Adverse Effect;
(ix) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights
with respect to the offering of the Stock or such rights have expired by
reason of lapse of time following notification of the Company's intent to
file the Registration Statement;
(x) to such counsel's knowledge, no consent, approval, authorization
or order of any court or governmental agency or body is required for the
consummation of the transactions contemplated in the Underwriting
Agreement, except such as have been obtained under the Securities Act and
such as may be required under state securities or blue sky laws in
connection with the purchase and distribution of the Stock by the
Underwriters and by the NASD; and
(xi) the Stock issued and sold by the Company has been duly
authorized for quotation on the Nasdaq National Market upon official notice
of issuance.
____________________________________
Such counsel have no reason to believe that the Registration Statement
(except as to the financial statements and schedules and other financial
and statistical data contained or incorporated by reference therein, as to
which such counsel need not express any opinion or belief) at the Effective
Date contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel
need not express any opinion or belief) as of its date or at the Closing
Date (or any later date on which Option Stock is purchased), contained or
contains any untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
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<PAGE>
ANNEX B
Matters to be Covered in the Opinion of ______________,
Patent Counsel for the Company
Such counsel are familiar with the technology and intellectual property
used by the Company in its business and the manner of its use thereof and have
read the Registration Statement and the Prospectus, including particularly the
portions of the Registration Statement and the Prospectus referring to patents,
trade secrets, trademarks, service marks or other proprietary information or
materials and:
(i) such counsel have no reason to believe that the Registration Statement
or the Prospectus: (A) contains any untrue statement of a material fact
with respect to patents, trade secrets, trademarks, service marks or other
proprietary information or materials owned or used by the Company, or the
manner of its use thereof, or any allegation on the part of any person that
the Company is infringing any patent rights, trade secrets, trademarks,
service marks or other proprietary information or materials of any such
person; or (B) omits to state any material fact relating to patents, trade
secrets, trademarks, service marks or other proprietary information or
materials owned or used by the Company, or the manner of its use thereof,
or any allegation of which such counsel have knowledge, that is required to
be stated in the Registration Statement or the Prospectus or is necessary
to make the statements therein not misleading;
(ii) to the best of such counsel's knowledge, there are no actions, suits,
claims, or legal or governmental proceedings pending relating to patent
rights, trade secrets, trademarks, service marks or other proprietary
information or materials of the Company, and to the best of such counsel's
knowledge no such proceedings are threatened or contemplated by
governmental authorities or others;
(iii) to the best of such counsel's knowledge, there are no contracts or
other documents, relating to the Company's patents, trade secrets,
trademarks, service marks or other proprietary information or materials, of
a character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or the
Prospectus that are not filed or described as required;
(iv) to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any valid and enforceable patents, trade
secrets, trademarks, service marks or other proprietary information or
materials, of others, and to the best of such counsel's knowledge there are
no infringements by others of any of the Company's patents, trade secrets,
trademarks, service marks or other proprietary information or materials
which in the judgment of such counsel could affect materially the use
thereof by the Company;
(v) to the best of such counsel's knowledge, the Company owns or possesses
sufficient licenses or other rights to use all patents, trade secrets,
trademarks, service marks or other proprietary information or materials
necessary to conduct the business now being or proposed to be conducted by
the Company as described in the Prospectus;
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<PAGE>
(vi) to the best of such counsel's knowledge, the Company is identified in
the records of the U.S. Patent and Trademark Office (PTO) as the holder of
record of the patents, patent applications, trademark registrations and
trademark registration applications listed on an attached schedule; the
Company is similarly listed in the records of corresponding foreign
agencies with respect to the foreign counterparts of the foregoing; and
such patents and patent applications have been assigned by the inventors to
the Company;
(vii) to the best of such counsel's knowledge, there are no material
defects in form in the preparation and filing of the patents, patent
applications, trademark registrations and trademark registration
applications listed on the attached schedule; the Company has complied with
any applicable duties of disclosure at the PTO or elsewhere; and the
Company is pursuing and/or maintaining the patents, patent applications,
trademark registrations and trademark registration applications listed on
the attached schedule;
(viii) with respect to any patents, patent applications, trademark rights
or other proprietary information or materials licensed by the Company from
third parties (individually, a "Licensor"), to the best of such counsel's
knowledge, there is no reason why the Company would not have a valid
license from any such Licensor; and, specifically with respect to patents
and patent applications, such counsel is unaware of any facts that would
cause it to believe that any such Licensor has failed to comply with
applicable duties of disclosure at the PTO or elsewhere;
(ix) such counsel knows of no reason why the patents and trademark
registrations listed on the attached schedule or licensed by the Company
from a Licensor are invalid or unenforceable as issued or would not afford
the Company useful patent and trademark protection; and
(x) to the best of such counsel's knowledge, there are no claims of third
parties to any ownership interest or lien with respect to any of the
patents, patent applications, trademark rights or other proprietary
information or materials listed on the attached schedule or licensed by the
Company from a Licensor.
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<PAGE>
EXHIBIT 2.1
PARADIGM GENETICS, INC.
A NORTH CAROLINA CORPORATION
AND
PARADIGM GENETICS, INC.
A DELAWARE CORPORATION
PLAN AND AGREEMENT OF MERGER
----------------------------
This Plan and Agreement of Merger (the "Agreement") is entered into as of the
10th day of March, 2000, by and between PARADIGM GENETICS, INC., a North
Carolina corporation ("Paradigm North Carolina"), and PARADIGM GENETICS, INC., a
Delaware corporation ("Paradigm Delaware"). Paradigm North Carolina and
Paradigm Delaware are sometimes referred to herein as the "Constituent
Corporations."
WHEREAS, Paradigm North Carolina was incorporated under the laws of the State
of North Carolina on September 9, 1997, and has authorized capital stock of
30,000,000 shares of Common Stock, $0.01 par value per share, of which 5,479,181
shares are outstanding, 8,000,000 shares of Series A Preferred Stock, $0.01 par
value per share, of which 7,562,500 shares are outstanding, 2,790,698 shares of
Series B Preferred Stock, $0.01 par value per share, of which 2,790,698 shares
are outstanding, and 3,000,000 shares of Series C Preferred Stock, $0.01 par
value per share, of which 3,000,000 shares are outstanding, and 1,209,302 shares
of undesignated and unissued preferred stock, $0.01 par value per share; and
WHEREAS, Paradigm Delaware was incorporated under the laws of the State of
Delaware on March 10, 2000 and on the Effective Date (as defined below) will
have authorized capital stock of 50,000,000 shares of Common Stock, par value
$0.01 per share, of which one (1) share is outstanding, 7,562,500 shares of
Series A Preferred Stock, $0.01 par value per share, of which no shares are
outstanding, 2,790,698 shares of Series B Preferred Stock, $0.01 par value per
share, of which no shares are outstanding, 3,000,000 shares of Series C
Preferred Stock, $0.01 par value per share, of which no shares are outstanding
and 5,000,000 shares of undesignated and unissued preferred stock, $0.01 par
value per share; and
WHEREAS, the respective Boards of Directors of Paradigm North Carolina and
Paradigm Delaware deem it advisable and in the best interests of their
respective corporations that Paradigm North Carolina merge with and into
Paradigm Delaware (the "Merger") and to enter into and perform this Agreement
pursuant to the laws of North Carolina and Delaware, as applicable; and
<PAGE>
WHEREAS, the Board of Directors of Paradigm North Carolina have approved this
Agreement pursuant to Sections 55-11-01 and 55-11-03 of the North Carolina
Business Corporation Act ("N.C.B.C.A."); and
WHEREAS, the Board of Directors of Paradigm Delaware have approved this
Agreement pursuant to Sections 252 of the Delaware General Corporate Law
("D.G.C.L.").
NOW, THEREFORE, Paradigm North Carolina and Paradigm Delaware hereby agree as
follows:
1. Merger. Subject to the terms and conditions hereof, Paradigm North
------
Carolina shall be merged with and into Paradigm Delaware, the separate corporate
existence of Paradigm North Carolina will cease, Paradigm Delaware shall
continue as the surviving corporation under the laws of the State of Delaware
(the "Surviving Corporation"), and the issued and outstanding shares of Paradigm
North Carolina capital stock shall be converted into capital stock of Paradigm
Delaware as provided in Section 6 below, effective upon the date when the
Certificate of Merger evidencing this Agreement is filed with the Secretary of
State of the State of Delaware and Articles of Merger are filed with the
Secretary of State of the State of North Carolina (the "Effective Date").
2. Registered Office of Surviving Corporation. The registered office of the
------------------------------------------
Surviving Corporation after the Merger will be 1013 Centre Road, Wilmington,
County of New Castle, Delaware; and the name of the registered agent of the
Surviving Corporation in the State of Delaware after the Merger will be The
Prentice-Hall Corporation System, Inc.
3. Certificate of Incorporation. The Certificate of Incorporation of
----------------------------
Paradigm Delaware in effect immediately prior to the Merger will continue to be
the Certificate of Incorporation of the Surviving Corporation immediately after
the Merger.
4. By-Laws. The By-Laws of Paradigm Delaware in effect immediately prior to
-------
the Merger shall be the By-Laws of the Surviving Corporation immediately upon
and after the Merger, until amended as provided therein or by law.
5. Officers, Directors and Committees. Upon the Effective Date, the number
----------------------------------
of directors of the Surviving Corporation shall be fixed initially at seven (7)
directors and the officers, directors and committees of the Board of Directors
of Paradigm North Carolina immediately prior to the Merger shall be the
officers, directors and committees of the Board of Directors of the Surviving
Corporation immediately upon and after the Merger, until their respective
successors are duly elected and qualified in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
6. Conversion of Shares.
--------------------
(a) Upon the Effective Date and without any further action on the part of the
Constituent Corporations, the single share of Common Stock of the Surviving
Corporation that is issued and outstanding on the date hereof shall be
cancelled.
(b) Subject to Article 13 of the NCBCA, upon the Effective Date, by virtue of
the Merger and without any further action on the part of the Constituent
Corporations or their
<PAGE>
respective stockholders, (i) each share of Common Stock, $0.01 par value, of
Paradigm North Carolina issued and outstanding immediately prior to the Merger
shall automatically be converted into one fully paid and non-assessable share of
Common Stock, $0.01 par value per share, of Paradigm Delaware, (ii) each share
of Series A Preferred Stock, $0.01 par value, of Paradigm North Carolina issued
and outstanding immediately prior to the Merger shall automatically be converted
into one fully paid and non-assessable share of Series A Preferred Stock, $0.01
par value per share, of Paradigm Delaware, (iii) each share of Series B
Preferred Stock, $0.01 par value, of Paradigm North Carolina issued and
outstanding immediately prior to the Merger shall automatically be converted
into one fully paid and non-assessable share of Series B Preferred Stock, $0.01
par value per share, of Paradigm Delaware, and (iv) each share of Series C
Preferred Stock, $0.01 par value, of Paradigm North Carolina issued and
outstanding immediately prior to the Merger shall automatically be converted
into one fully paid and non-assessable share of Series C Preferred Stock, $.01
par value per share, of Paradigm Delaware.
7. Rights to Purchase Stock. Upon the Effective Date, each outstanding
------------------------
option and warrant to purchase shares of Common Stock or any series of Preferred
Stock of Paradigm North Carolina that is outstanding immediately prior to the
Effective Date shall be assumed by Paradigm Delaware and converted into and
become an option or warrant, as the case may be, to purchase the identical
number of shares of Common Stock or Preferred Stock of Paradigm Delaware, upon
the same terms and subject to the same conditions, as in effect on the Effective
Date, including such terms and conditions as are contained in the Paradigm North
Carolina 1998 Stock Option Plan. Such number of shares of Common Stock of
Paradigm Delaware shall be reserved for purposes of outstanding options or
warrants to purchase shares of Common Stock or Preferred Stock of Paradigm
Delaware as are equal to the number of shares of Common Stock or Preferred Stock
of Paradigm North Carolina so reserved as of the Effective Date. As of the
Effective Date, Paradigm Delaware hereby aXHIBIT 10.ssumes all obligations of
Paradigm North Carolina under all outstanding options and warrants to purchase
shares of Common Stock and Preferred Stock of Paradigm North Carolina.
Upon the Effective Date, by virtue of the Merger and without any further
action on the part of the Constituent Corporations or their respective
stockholders, the Paradigm North Carolina 1998 Stock Option Plan shall become
the Paradigm Delaware 1998 Stock Option Plan and the Paradigm North Carolina
2000 Employee, Director and Consultant Stock Option Plan shall become the
Paradigm Delaware 2000 Employee, Director and Consultant Stock Option Plan.
8. Stock Certificates. On and after the Effective Date, each holder of an
------------------
outstanding certificate representing shares of Paradigm North Carolina shall
surrender the same to Paradigm Delaware, and each holder shall be entitled upon
such surrender to receive certificates for the number of shares of Paradigm
Delaware stock on the basis provided herein. Until so surrendered, all of the
outstanding certificates which prior to the Effective Time represented shares of
the Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock of Paradigm North Carolina shall be deemed for all purposes to
evidence ownership of and to represent the shares of Paradigm Delaware into
which the shares of Paradigm North Carolina
<PAGE>
represented by such certificates have been converted as herein provided and
shall be so registered on the books and records of Paradigm Delaware or its
transfer agent. The registered owner of any such outstanding stock certificate
shall, until such certificate shall have been surrendered for exchange, transfer
or conversion or otherwise accounted for to Paradigm Delaware or its transfer
agent, have and be entitled to exercise any voting and other rights with respect
to and to receive any dividend and other distributions upon the shares of
Paradigm Delaware evidenced by such outstanding certificate as above provided.
9. Status and Rights of Surviving Corporation. Immediately after the Merger,
------------------------------------------
the Surviving Corporation shall possess all the rights, privileges and powers,
of a public as well as a private nature, of Paradigm North Carolina and all
property and assets of every type and nature, real, personal and mixed, whether
tangible or intangible, and all debts due to Paradigm North Carolina shall be
vested in the Surviving Corporation; and all and every other interest of
Paradigm North Carolina shall be thereafter the property or asset of the
Surviving Corporation as effectively as they were of Paradigm North Carolina,
and the title to any real estate, whether by deed or otherwise, vested in
Paradigm North Carolina or the Surviving Corporation, shall not revert or be in
any way impaired by reason of the Merger. Immediately after the Merger, all
rights of creditors and all liens upon any property of the parties hereto shall
be preserved unimpaired, and all debts, liabilities, obligations, and duties of
the parties hereto, including those under the Paradigm North Carolina 1998 Stock
Option Plan and 2000 Employee, Director and Consultant Stock Option Plan, shall
thenceforth attach to the Surviving Corporation, and may be enforced against the
Surviving Corporation to the same extent as if said debts, liabilities,
obligations and duties had been incurred or contracted by it.
10. Further Assurances. From time to time, as and when required by Paradigm
------------------
Delaware or by its successors and assigns including without limitation the
Surviving Corporation, there shall be executed and delivered on behalf of
Paradigm North Carolina such deeds and other instruments, and there shall be
taken or caused to be taken by it such further and other action, as shall be
appropriate or necessary in order to vest, perfect in, to conform of record or
otherwise in the Surviving Corporation the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of Paradigm North Carolina and otherwise to carry out the purposes
of this Agreement, and the officers and directors of Paradigm Delaware are fully
authorized in the name and on behalf of Paradigm North Carolina or otherwise to
take any and all such action and to execute and deliver any and all such deeds
and other instruments.
11. Termination. Notwithstanding the approval of this Agreement by the
-----------
stockholders of Paradigm North Carolina, this Agreement may be terminated by the
mutual consent of the Boards of Directors of the parties hereto at any time
prior to the filing of this Agreement or related Certificates of Merger or
Articles of Merger with the Secretary of State of either Delaware or North
Carolina.
12. Amendment. This Agreement may be amended by the mutual consent of the
---------
Boards of Directors of the parties hereto prior to the filing of this Agreement
or related Certificate
<PAGE>
or Articles of Merger, subject to the restrictions of Section 251(d) of the
D.G.C.L. and applicable North Carolina Law.
13. Miscellaneous. This Agreement may be executed in several counterparts,
-------------
each of which shall be deemed an original, and all of which shall constitute one
and the same document. This Agreement constitutes the entire agreement of the
parties which respect to the subject matter hereof and supersedes any prior or
contemporaneous agreements, oral or written, relating thereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this PLAN AND
AGREEMENT OF MERGER as of the date first written above.
Attest: PARADIGM GENETICS, INC.
a North Carolina corporation
By:
- ------------------- ----------------------------------------
Henry Nowak John Ryals,
Secretary Chief Executive Officer
(SEAL)
PARADIGM GENETICS, INC.
a Delaware corporation
By:
-------------------------------------------
John Ryals,
Chief Executive Officer
<PAGE>
EXHIBIT 3.1.2
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
OF
PARADIGM GENETICS, INC.
It is hereby certified that:
FIRST: The name of the corporation is Paradigm Genetics, Inc. (the
"Corporation").
SECOND: The Certificate of Incorporation of the Corporation is hereby amended by
striking out the paragraph (b) of Section (D)(4) of Article Fourth in
its entirety and by substituting in lieu thereof the following:
"(b) Automatic Conversion. Each share of Series Preferred Stock shall
automatically be converted into shares of Common Stock at the then-
effective Conversion Rate for such series, immediately upon the
closing of the sale of the Corporation's Common Stock in a firm
commitment, underwritten public offering registered under the
Securities Act of 1933, as amended (the "Securities Act"), at a public
offering price (prior to underwriters' discounts and expenses) equal
to or exceeding $6.00 per share of Common Stock (as adjusted for any
stock dividends, combinations or splits with respect to such shares)
and the aggregate gross proceeds to the Corporation and/or any selling
stockholders (before deduction for underwriters' discounts and
expenses relating to the issuance, including without limitation fees
of the Corporation's counsel) of which equal or exceed $20,000,000 (a
"Qualified Public Offering"). Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the
then-effective Conversion Rate for such series, immediately upon the
consent of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock. Each share of Series B Preferred
Stock shall automatically be converted into shares of Common Stock at
the then-effective Conversion Rate for such series, immediately upon
the consent of the holders of at least two-thirds of the outstanding
shares of Series B Preferred Stock. Each share of Series C Preferred
Stock shall automatically be converted into shares of Common Stock at
the then-effective Conversion Rate for such series, immediately upon
the consent of the holders of at least two-thirds of the outstanding
shares of Series C Preferred Stock."
THIRD: The Certificate of Incorporation of the Corporation is hereby amended
by striking out the Section (C) of Article Seventh in its entirety and
by substituting in lieu thereof the following:
<PAGE>
"C. Following the closing of the sale of the Corporation's Common
Stock in a firm commitment, underwritten public offering registered
under the Securities Act of 1933, as amended (the "Securities Act"),
at a public offering price (prior to underwriters' discounts and
expenses) equal to or exceeding $6.00 per share of Common Stock (as
adjusted for any stock dividends, combinations or splits with respect
to such shares) and the aggregate gross proceeds to the Corporation
and/or any selling stockholders (before deduction for underwriters'
discounts and expenses relating to the issuance, including without
limitation fees of the Corporation's counsel) of which equal or exceed
$20,000,000 (a "Qualified Public Offering"), any action required or
permitted to be taken by the stockholders of the Corporation may be
effected only at a duly called annual or special meeting of
stockholders of the Corporation and not by written consent."
In lieu of a meeting and vote of the stockholders, stockholders
representing at least two-thirds of the outstanding shares of the Preferred
Stock, voting together as a single class, in accordance with the Certificate of
Incorporation and a majority of the shares of Common Stock entitled to vote have
consented to said amendments in accordance with the provisions of Section 228(a)
and 242 of the General Corporation Law of the State of Delaware, and written
notice of the adoption of the amendments has been given as provided in Section
228 of the General Corporation Law of the State of Delaware to every stockholder
entitled to such notice, or notice thereof has been waived pursuant to Section
229 of the General Corporation Law of the State of Delaware.
The aforesaid amendments of the Certificate of Incorporation, as amended,
have been duly adopted in accordance with the applicable provisions of Section
242, 141(f) and 228 of the General Corporation Law of the State of Delaware.
[Remainder of page intentionally left blank.]
-2-
<PAGE>
EXECUTED, effective as of this 24th day of April 2000.
PARADIGM GENETICS, INC.
By: /s/ Henry Nowak
________________________
Henry Nowak
Secretary
-3-
<PAGE>
EXHIBIT 3.1.3
CERTIFICATE OF RETIREMENT AND ELIMINATION
OF
SERIES A PREFERRED STOCK, SERIES B PREFFERED STOCK
AND SERIES C PREFERRED STOCK
OF
PARADIGM GENETICS, INC.
(Pursuant to Section 243 of the General
Corporation Law of the State of Delaware)
Paradigm Genetics, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), certifies
as follows:
FIRST: Article Fourth of the Corporation's Restated Certificate of
-----
Incorporation authorizes the issuance of (i) 7,562,500 shares of Series A
Preferred Stock, par value $.01 per share (the "Series A Stock"), (ii) 2,790,698
shares of Series B Preferred Stock, par value $.01 per share (the "Series B
Stock") and (iii) 3,000,000 shares of Series C Preferred Stock, par value $.01
per share (the "Series C Stock").
SECOND: On _______, 2000, the Board of Directors of the Corporation,
------
by resolution, retired 7,562,500 shares of Series A Stock, which shares
constituted all of the authorized shares of Series A Stock, 2,790,698 shares of
Series B Stock, which shares constituted all of the authorized shares of Series
B Stock and 3,000,000 shares of Series C Stock, which shares constituted all of
the authorized shares of Series C Stock.
THIRD: Section 6 of Article Fourth of the Corporation's Certificate of
-----
Incorporation, prohibits the reissuance of such shares as Series A Stock, Series
B Stock and Series C Stock, respectively and requires their elimination from the
number of shares the Corporation is authorized to issue. Accordingly, pursuant
to the Certificate of Incorporation, 7,562,500 shares of Series A Stock,
2,790,698 shares of Series B Stock and 3,000,000 shares of Series C Stock will
be retired and eliminated.
FOURTH: Pursuant to the provisions of Section 243 of the General
------
Corporation Law of the State of Delaware, all references to Series A Stock,
Series B Stock and Series C Stock in the Restated Certificate of Incorporation
of the Corporation are hereby eliminated.
IN WITNESS WHEREOF, Paradigm Genetics, Inc. has caused this Certificate of
Retirement and Elimination to be signed by its duly authorized officer this
_____ day of April, 2000.
PARADIGM GENETICS, INC.
By:_____________________________________
Name: John A. Ryals
Title: President and Chief Executive Officer
<PAGE>
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
PARADIGM GENETICS, INC.
Adopted in accordance with the
provisions of Section 245
of the General Corporation Law of the State of Delaware
-------------------------------------------------------
Paradigm Genetics, Inc., a Delaware corporation, hereby certifies as follows:
1. The name of the corporation is Paradigm Genetics, Inc. The date of the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was March 10, 2000 and amended April 24, 2000.
2. This Restated Certificate of Incorporation restates and integrates and
does not further amend the provisions of the Certificate of Incorporation of
said corporation, there is no discrepancy between those provisions and the
provisions of this restated certificate of incorporation, and this restated
certificate of incorporation was duly adopted pursuant to resolutions adopted by
the Board of Directors and Stockholders of the corporation in accordance with
the provisions of Section 245 of the General Corporation Law of the State of
Delaware (the "Delaware General Corporation Law").
3. The text of the Certificate of Incorporation is hereby restated to read in
its entirety as follows:
FIRST: The name of the corporation (hereinafter called the "Corporation")
is
PARADIGM GENETICS, INC.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the Corporation in the State of Delaware is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business to be conducted and the purposes of the
Corporation are: to engage in any lawful act or activity or carry on any
business for which corporations may be organized under the Delaware General
Corporation Law or any successor statute.
FOURTH:
A. The total number of shares of all classes of stock which the Corporation
shall
1
<PAGE>
have authority to issue is Fifty Five Million Three Hundred Fifty Three Thousand
One Hundred Ninety Eight (55,000,000), consisting of:
(i) 50,000,000 shares of Common Stock, One Cent ($0.01) Par Value per
share (the "Common Stock");
(ii) 5,000,000 shares of Preferred Stock, One Cent ($0.01) Par Value per
share (the "Preferred Stock").
B. Common Stock. The holders of the Common Stock are entitled to one vote
------------
for each share held; provided, however, that, except as otherwise required by
-------- -------
law or set forth in any Preferred Stock designation, holders of Common Stock
shall not be entitled to vote on any amendment to this Certificate of
Incorporation (including any certificate of designation relating to Preferred
Stock) that relates solely to the terms of one or more outstanding series of
Preferred Stock if the holders of such affected series are entitled, either
separately or together as a class with the holders of one or more other such
series, to vote thereon by law or pursuant to this Certificate of Incorporation
(including any certificate of designation relating to Preferred Stock).
C. Preferred Stock. The shares of Preferred Stock may be issued from time
---------------
to time in one or more series, the shares of each series to have such
designations, preferences, relative rights, and powers, including voting powers
(or qualifications, limitations or restrictions thereof) as are stated in the
resolution or resolutions providing for the issuance of such series adopted by
the Board of Directors of the Corporation. This paragraph is intended to afford
to the Board of Directors the maximum authority permitted under Section 151(g)
of Delaware General Corporation Law.
1. INCREASING PREFERRED STOCK. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the Common Stock, without a vote of the holders of the Preferred
Stock, or of any series thereof, unless a vote of any such holders is required
pursuant to the terms of any Preferred Stock designation.
2. NO REISSUANCE OF SERIES PREFERRED STOCK. No share or shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
acquired by the Corporation by reason of redemption, purchase, conversion or
otherwise shall be reissued and all such shares shall be canceled, retired and
eliminated from the shares which the Corporation shall be authorized to issue.
FIFTH: Reserved.
SIXTH: Reserved.
SEVENTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition,
-2-
<PAGE>
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the By-Laws of the Corporation as in effect from time to time,
the directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the By-Laws so provide.
C. Any action required or permitted to be taken by the stockholders of the
Corporation may be effected only at a duly called annual or special meeting of
stockholders of the Corporation and not by written consent.
D. Special meetings of the stockholders may only be called by the Board of
Directors.
EIGHTH: A. Subject to the rights of the holders of shares of any series of
Preferred Stock then outstanding to elect additional directors under specified
circumstances, the number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Board of Directors.
B. Subject to the rights of the holders of shares of any series of
Preferred Stock then outstanding to elect additional directors under specified
circumstances, the Board of Directors of the Corporation shall be divided into
three classes, with the term of office of the first class to expire at the 2001
annual meeting of stockholders or any special meeting in lieu thereof, the term
of office of the second class to expire at the 2002 annual meeting of
stockholders or any special meeting in lieu thereof, and the term of office of
the third class to expire at the 2003 annual meeting of stockholders or any
special meeting in lieu thereof. At each annual meeting of stockholders or any
special meeting in lieu thereof, directors elected to succeed those directors
whose terms expire, other than directors elected by the holders of any series of
Preferred Stock, shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders or special meeting in lieu thereof
after their election and until their successors are duly elected and qualified.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director
and not by the stockholders.
-3-
<PAGE>
D. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the Corporation shall be given in the manner provided in the By-
Laws of the Corporation.
E. Subject to the rights of the holders of any series of Preferred Stock then
outstanding, any director, or the entire Board of Directors, may be removed from
office at any time only for cause and only by the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of all of the
outstanding shares of capital stock then entitled to vote at an election of the
directors. A director may be removed for cause only after a reasonable notice
and opportunity to be heard by the stockholders.
NINTH: The Board of Directors is expressly empowered to adopt, amend or
repeal By-Laws of the Corporation. Any adoption, amendment or repeal of the By-
Laws of the Corporation by the Board of Directors shall require the approval of
a majority of the entire Board of Directors. The stockholders shall also have
power to adopt, amend or repeal the By-Laws of the Corporation; provided, that
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Restated Certificate of Incorporation,
the affirmative vote of the holders of at least eighty percent (80%) of the
voting power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the stockholders to adopt,
amend or repeal any provision of the By-Laws of the Corporation.
TENTH: A. To the fullest extent permitted by the Delaware General
Corporation Law as the same now exists or may hereafter be amended, the
Corporation shall indemnify, and advance expenses to, its directors and officers
and to any person who is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, if such person was or is
made a party to or is threatened to be made a party to or is otherwise involved
(including, without limitation, as a witness) in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan; provided, that except with respect to proceedings to enforce rights to
indemnification or as is otherwise required by law, the Corporation shall not be
required to indemnify, and advance expenses to, any director, officer or other
person in connection with a proceeding (or part thereof) initiated by such
director, officer or other person, unless such proceeding (or part thereof) was
authorized by the Board of Directors.
B. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article TENTH shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or
-4-
<PAGE>
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office.
C. The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation, or of a
partnership, joint venture, trust or other enterprise, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under this
Article TENTH.
D. The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article TENTH shall, unless otherwise specified when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person. No repeal or amendment of this
Article TENTH shall adversely affect any rights of any person pursuant to this
Article TENTH which existed at the time of such repeal or amendment with respect
to acts or omissions occurring prior to such repeal or amendment.
ELEVENTH: No director shall be personally liable to the Corporation or its
stockholders for any monetary damages for breaches of fiduciary duty as a
director; provided that this provision shall not eliminate or limit the
liability of a director, to the extent that such liability is imposed by
applicable law, (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 or successor provisions of the Delaware General Corporation Law; or
(iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. All references in this Article ELEVENTH to a
director shall also be deemed to refer to any such director acting in his or her
capacity as a Continuing Director (as defined in Article THIRTEENTH).
TWELFTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
Delaware General Corporation Law and all rights conferred upon stockholders are
granted subject to this reservation; provided that, in addition to the vote of
--------
the holders of any class or series of stock of the Corporation required by law
or by this Certificate of Incorporation, the affirmative vote of the holders of
shares of voting stock of the Corporation representing at least eighty percent
(80%) of the voting power of all of the
-5-
<PAGE>
then outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend, alter or repeal, or adopt any provision to the
Corporation's Certificate of Incorporation, or any provision inconsistent with,
Articles SEVENTH, EIGHTH, NINTH, TENTH, ELEVENTH and this Article TWELFTH of
this Certificate of Incorporation.
THIRTEENTH: The Board of Directors is expressly authorized to cause the
Corporation to issue rights pursuant to Section 157 of the DGCL and, in that
connection, to enter into any agreements necessary or convenient for such
issuance, and to enter into other agreements necessary and convenient to the
conduct of the business of the Corporation. Any such agreement may include
provisions limiting, in certain circumstances, the ability of the Board of
Directors of the Corporation to redeem the securities issued pursuant thereto or
to take other action thereunder or in connection therewith unless there is a
specified number or percentage of Continuing Directors then in office. Pursuant
to Section 141(a) of the DGCL, the Continuing Directors shall have the power and
authority to make all decisions and determinations, and exercise or perform such
other acts, that any such agreement provides that such Continuing Directors
shall make, exercise or perform. For purposes of this Article THIRTEENTH and
any such agreement, the term, "Continuing Directors," shall mean (1) those
directors who were members of the Board of Directors of the Corporation at the
time the Corporation entered into such agreement and any director who
subsequently becomes a member of the Board of Directors, if such director's
nomination for election to the Board of Directors is recommended or approved by
the majority vote of the Continuing Directors then in office or (2) such members
of the Board of Directors designated in, or in the manner provided in, such
agreement as Continuing Directors.
-6-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by
its President and Chief Executive Officer this ____ day of April, 2000.
PARADIGM GENETICS, INC.
By: _____________________________________
John. A. Ryals
Its President and Chief Executive Officer
-7-
<PAGE>
EXHIBIT 4.1
PG
PARADIGM GENETICS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
PAR VALUE $0.01 PER SHARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 69900R 10 6
This Certifies That
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
PARADIGM GENETICS, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation by said owner in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed. The Corporation will furnish
without charge to each stockholder who so requests, a statement of the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. This certificate
and the shares represented hereby are issued and shall be held subject to all
the provisions of the Certificate of Incorporation and the By-laws of the
Corporation and all amendments thereto, copies of which are on file at the
office of the Transfer Agent, and the holder hereof, by acceptance of this
certificate, consents to and agrees to be bound by all of said provisions. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar. Witness, the facsimile seal of the Corporation and by
facsimile the signatures of its duly authorized officers.
Dated:
/s/ Henry P. Nowak
- ---------------------------------------
Henry P. Nowak
SECRETARY
/s/ John A. Ryals
- ---------------------------------------
John A. Ryals
PRESIDENT
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK)
Transfer Agent
and Registrar
By:
-----------------------------------
Authorized Signature
Paradigm Genetics, Inc.
Corporate Seal
2000
Delaware
<PAGE>
PARADIGM GENETICS, INC
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT- _________ Custodian __________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received_____________________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated________________________________
_________________________________________
NOTICE: The signature to this assignment
must correspond with the name as
written upon the face of the
certificate in every particular,
without alteration or enlargement
or any change whatever.
Signature(s) GUARANTEED:________________________________________________________
The signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock-brokers, savings and
loan associations and credit unions with membership in
an approved signature guarantee medallion program),
pursuant to S.E.C. rule 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
Exhibit 5.1
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
617 542 6000
617 542 2241 fax
April 13, 2000
Paradigm Genetics, Inc.
104 Alexandria Drive
Research Triangle Park, North Carolina 27709
Ladies and Gentlemen:
We have acted as counsel to Paradigm Genetics, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") of a Registration
Statement on Form S-1, Registration No. 333-30758 (the "Registration
Statement"), as amended, pursuant to which the Company is registering under the
Securities Act of 1933, as amended (the "Securities Act"), up to 5,750,000
shares (the "Shares") of its common stock, $.01 par value per share (the "Common
Stock"). As used herein, the term "Shares" shall include any additional shares
of Common Stock which may be registered pursuant to any subsequent registration
statement that the Company may file with the Commission pursuant to Rule 462(b)
under the Securities Act ("Rule 462(b)") in connection with the offering
contemplated by the Registration Statement. The Shares are to be sold to a
group of underwriters (the "Underwriters") who will be parties to an
Underwriting Agreement with the Company, the form of which Agreement will be
filed as an exhibit to the Registration Statement. The 5,750,000 shares of
Common Stock covered by the Registration Statement are being sold by the Company
and include 750,000 shares subject to an over-allotment option granted to the
Underwriters by the Company. All of the shares being registered pursuant to the
Registration Statement are being registered for sale to the Underwriters. This
opinion is being rendered in connection with the filing of the Registration
Statement. All capitalized terms used herein and not otherwise defined shall
have the respective meanings given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's Restated
Certificate of Incorporation and Amended and Restated Bylaws; the minutes of all
pertinent meetings of stockholders and directors of the Company relating to the
Registration Statement and the transactions contemplated thereby; such other
records of the corporate proceedings of the Company and certificates of the
Company's officers as we deemed relevant; and the Registration Statement and the
exhibits thereto filed with the Commission.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such copies.
<PAGE>
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Paradigm Genetics, Inc.
April 13, 2000
Page 2
Based upon the foregoing, and subject to the limitations set forth below,
we are of the opinion that the Shares, when issued by the Company and delivered
by the Company against payment therefor as contemplated by the Underwriting
Agreement, will be duly and validly issued, fully paid and non-assessable shares
of the Common Stock.
Our opinion is limited to the General Corporation Law of the State of
Delaware, and we express no opinion with respect to the laws of any other
jurisdiction. No opinion is expressed herein with respect to the qualification
of the Shares under the securities or blue sky laws of any state or any foreign
jurisdiction.
We understand that you wish to file this opinion as an exhibit to the
Registration Statement, and we hereby consent thereto. We hereby further
consent to the reference to us under the caption "Legal Matters" in the
prospectus included in the Registration Statement and in any abbreviated
registration statement pursuant to Rule 462(b).
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
-------------------------------------------------------
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
<PAGE>
EXHIBIT 10.6.1
FIRST AMENDMENT TO THE AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This FIRST AMENDMENT to the AMENDED and RESTATED REGISTRATION RIGHTS
AGREEMENT (the "First Amendment") is dated April __, 2000 by and among PARADIGM
GENETICS, INC., a DELAWARE corporation (the "Company"), BURRILL AGBIO CAPITAL
FUND, L.P.; INNOTECH INVESTMENTS LIMITED, INTERSOUTH PARTNERS III, L.P.,
INTERSOUTH PARTNERS IV, L.P., LION BIOSCIENCE AG, POLARIS VENTURE PARTNERS III,
L.P., POLARIS VENTURE PARTNERS, L.P., POLARIS VENTURE PARTNERS FOUNDERS' FUND,
L.P., BAY CITY CAPITAL FUND I, L.P., (collectively the "Investors") and JOHN A.
RYALS, JORN GORLACH, SANDY J. STEWART and SCOTT J. UKNES, (collectively the
"Founders").
WITNESSETH:
WHEREAS, certain of the Investors (the "Series A Investors") and the
Company entered into the Registration Rights Agreement dated as of February 12,
1998 and amended as of March 6, 1998 and May 29, 1998 (the "Original
Registration Rights Agreement") in connection with the Series A Preferred Stock
Purchase Agreement dated as of February 12, 1998;
WHEREAS, certain of the Investors (the "Series B Investors") and the
Company amended and restated the Original Registration Rights Agreement in its
entirety by entering into an Amended and Restated Registration Rights dated as
of March 12, 1999 (the "Restated Registration Rights Agreement") in connection
with the Series B Preferred Stock Purchase Agreement dated as of March 12, 1999;
WHEREAS, certain of the Investors (the "Series C Investors") and the
Company amended and restated the Restated Registration Rights Agreement in its
entirety by entering into an Amended and Restated Registration Rights dated as
of January 21, 2000 (the "Restated Registration Rights Agreement") in connection
with the Series C Preferred Stock Purchase Agreement dated as of January 21,
2000;
WHEREAS, the Founders are holders of Common Stock of the Company;
WHEREAS, the Company and the parties to the Amended and Restated
Registration Rights Agreement agree to further amend the Amended and Restated
Registration Rights Agreement in order to revise certain provisions therein; and
WHEREAS, the provisions of the Amended and Restated Registration Rights
Agreement may be amended, waived, discharged or terminated by approval of the
1
<PAGE>
holders of at least two-thirds of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock voting together as a single class
constitute such requisite percentage necessary to approve the amendments
contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the Amended and Restated Registration Rights
Agreement and agree as follows:
1. The conditions of "Termination of Registration Rights" set forth
specifically in Section 1.17(d) of Section 1 is hereby deleted and replaced
with the following:
(d) "three years after the closing of a firm commitment
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of the Company's Common Stock at a price per share of
not less than $6.00 (as adjusted for stock splits, dividends,
combinations and the like effected after the date of this Agreement)
and an aggregate price to the public of not less than $20,000,000.
Such three-year period shall not include any period of time during
which adequate current public information, as defined in Rule 144(c)
promulgated under the Securities Act, is not available with respect to
the Company."
2. The parties hereby ratify and confirm all of the provisions of the
Amended and Restated Registration Rights Agreement, as amended April ____,
2000 and as further amended hereby, and agree and acknowledge that the same
as so amended remains in full force and effect.
3. This First Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
its conflicts of law provisions.
This First Amendment may be executed in multiple counterparts and shall be
and constitute the valid agreement of all of the parties executing the same
(even if some of the persons or institutions whose names are reflected on the
signature pages attached to this First Amendment do not execute this First
Amendment) with respect to any one or more of the provisions of this First
Amendment set forth above at such time as this First Amendment has been executed
by those parties whose execution of this First Amendment is required under the
terms of the Amended and Restated Registration Rights Agreement, as amended, to
make such provisions effective.
Executed as of the date above written.
2
<PAGE>
COMPANY
- -------
PARADIGM GENETICS, INC.
By: _____________________________
Name: __________________________
Title: ___________________________
INVESTORS:
- ----------
THE BURRILL AGBIO CAPITAL FUND, L.P.
By: _____________________________
Name: __________________________
Title: ___________________________
INNOTECH INVESTMENTS LIMITED
By: _____________________________
Name: __________________________
Title: ___________________________
INTERSOUTH PARTNERS IV, L.P.
By: _____________________________
Name: __________________________
Title: ___________________________
INTERSOUTH PARTNERS III, L.P.
By: _____________________________
Name: __________________________
Title: ___________________________
LION BIOSCIENCE AG
By: _____________________________
Name: __________________________
Title: ___________________________
POLARIS VENTURE PARTNERS III, L.P.
By: _____________________________
Name: __________________________
Title: ___________________________
3
<PAGE>
POLARIS VENTURES FUND, L.P.
By: _____________________________
Name: __________________________
Title: ___________________________
POLARIS VENTURE PARTNERS FOUNDERS' FUND, L.P.
By: _____________________________
Name: __________________________
Title: ___________________________
THE BAY CITY CAPITAL FUND I, L.P.
By: _____________________________
Name: __________________________
Title: ___________________________
4
<PAGE>
EXHIBIT 10.13.1
AMENDMENT TO THE FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
This FIRST AMENDMENT to the FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
(the "First Amendment") is dated April __, 2000 by and among PARADIGM GENETICS,
INC., a DELAWARE corporation (the "Company"), and JOHN A. RYALS (the "Founder").
WITNESSETH:
WHEREAS, the Company and the Founder entered into the Founder Stock
Repurchase and Vesting Agreement dated as of February 12, 1998;
WHEREAS, the Company and the Founder agree to amend the Founder Stock
Repurchase and Vesting Agreement in order to revise certain provisions therein;
and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the Founder Stock Repurchase and Vesting
Agreement and agree as follows:
1. The conditions of "Termination of Repurchase Rights" set forth
specifically in Section 5.3(a)(iii) is hereby deleted and replaced with the
following:
"(iii) Upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the 1933 Act covering
the offer and sale of the Company's Common Stock at a price per share of
not less than $6.00 (as adjusted for stock splits and the like effected
after the date of this Agreement) and an aggregate offering price to the
public of not less than $20,000,000, the Founder shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, the
Unvested Shares as of such closing."
2. This First Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of law provisions.
This First Amendment may be executed in multiple counterparts.
1
<PAGE>
Executed as of the date above written.
PARADIGM GENETICS, INC.:
- ------------------------
By: _____________________________
Name: __________________________
Title: ___________________________
FOUNDER
- -------
_________________________________
John A. Ryals
2
<PAGE>
EXHIBIT 10.14.1
AMENDMENT TO THE FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
This FIRST AMENDMENT to the FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
(the "First Amendment") is dated April __, 2000 by and among PARADIGM GENETICS,
INC., a DELAWARE corporation (the "Company"), and JORN GORLACH (the "Founder").
WITNESSETH:
WHEREAS, the Company and the Founder entered into the Founder Stock
Repurchase and Vesting Agreement dated as of February 12, 1998;
WHEREAS, the Company and the Founder agree to amend the Founder Stock
Repurchase and Vesting Agreement in order to revise certain provisions therein;
and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the Founder Stock Repurchase and Vesting
Agreement and agree as follows:
1. The conditions of "Termination of Repurchase Rights" set forth
specifically in Section 5.3(a)(iii) is hereby deleted and replaced with the
following:
"(iii) Upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the 1933 Act covering
the offer and sale of the Company's Common Stock at a price per share of
not less than $6.00 (as adjusted for stock splits and the like effected
after the date of this Agreement) and an aggregate offering price to the
public of not less than $20,000,000, the Founder shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, the
Unvested Shares as of such closing."
2. This First Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of law provisions.
This First Amendment may be executed in multiple counterparts.
1
<PAGE>
Executed as of the date above written.
PARADIGM GENETICS, INC.:
- ------------------------
By: _____________________________
Name: __________________________
Title: ___________________________
FOUNDER
- -------
_________________________________
Jorn Gorlach
2
<PAGE>
EXHIBIT 10.15.1
AMENDMENT TO THE FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
This FIRST AMENDMENT to the FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
(the "First Amendment") is dated April __, 2000 by and among PARADIGM GENETICS,
INC., a DELAWARE corporation (the "Company"), and SANDY STEWART (the "Founder").
WITNESSETH:
WHEREAS, the Company and the Founder entered into the Founder Stock
Repurchase and Vesting Agreement dated as of February 12, 1998;
WHEREAS, the Company and the Founder agree to amend the Founder Stock
Repurchase and Vesting Agreement in order to revise certain provisions therein;
and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the Founder Stock Repurchase and Vesting
Agreement and agree as follows:
1. The conditions of "Termination of Repurchase Rights" set forth
specifically in Section 5.3(a)(iii) is hereby deleted and replaced with the
following:
"(iii) Upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the 1933 Act covering
the offer and sale of the Company's Common Stock at a price per share of
not less than $6.00 (as adjusted for stock splits and the like effected
after the date of this Agreement) and an aggregate offering price to the
public of not less than $20,000,000, the Founder shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, the
Unvested Shares as of such closing."
2. This First Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of law provisions.
This First Amendment may be executed in multiple counterparts.
1
<PAGE>
Executed as of the date above written.
PARADIGM GENETICS, INC.:
- ------------------------
By: _____________________________
Name: __________________________
Title: ___________________________
FOUNDER
- -------
_________________________________
Sandy Stewart
2
<PAGE>
EXHIBIT 10.16.1
AMENDMENT TO THE FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
This FIRST AMENDMENT to the FOUNDER STOCK REPURCHASE AND VESTING AGREEMENT
(the "First Amendment") is dated April __, 2000 by and among PARADIGM GENETICS,
INC., a DELAWARE corporation (the "Company"), and SCOTT UKNES (the "Founder").
WITNESSETH:
WHEREAS, the Company and the Founder entered into the Founder Stock
Repurchase and Vesting Agreement dated as of February 12, 1998;
WHEREAS, the Company and the Founder agree to amend the Founder Stock
Repurchase and Vesting Agreement in order to revise certain provisions therein;
and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the Founder Stock Repurchase and Vesting
Agreement and agree as follows:
1. The conditions of "Termination of Repurchase Rights" set forth
specifically in Section 5.3(a)(iii) is hereby deleted and replaced with the
following:
"(iii) Upon the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the 1933 Act covering
the offer and sale of the Company's Common Stock at a price per share of
not less than $6.00 (as adjusted for stock splits and the like effected
after the date of this Agreement) and an aggregate offering price to the
public of not less than $20,000,000, the Founder shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, the
Unvested Shares as of such closing."
2. This First Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of law provisions.
This First Amendment may be executed in multiple counterparts.
1
<PAGE>
Executed as of the date above written.
PARADIGM GENETICS, INC.:
- ------------------------
By: _____________________________
Name: __________________________
Title: ___________________________
FOUNDER
- -------
_________________________________
Scott Uknes
2
<PAGE>
EXHIBIT 10.17
AGREEMENT RELATED TO EMPLOYMENT
I, the undersigned employee, in consideration of my employment by Paradigm
Genetics, Inc., ("Paradigm") agree:
1. All improvements, discoveries, or inventions, whether or not
patentable, that are conceived, devised, made, developed or perfected by me
during the period of my employment and related in any way to the business of
Paradigm, including development and research, shall be promptly disclosed to and
become the property of Paradigm. Upon the request of Paradigm, I will execute
all documents deemed appropriate by Paradigm for obtaining the grant of patents,
both domestic and foreign, with respect to such improvements, discoveries or
inventions and for vesting title to such patents in Paradigm.
2. Any and all materials prepared by me for public disclosure to third
parties with respect to the business of Paradigm or its affiliates, including
publications, presentations, posters, the revision and updating of manuals and
textbooks and other public disclosures of Paradigm, shall become and remain the
property of Paradigm; and I hereby agree to assign my entire right, title and
interest in and to such materials including but not limited to, common law and
statutory rights, and Paradigm shall receive every legal protection that could
be afforded to me including the right to apply for Federal Copyright
Registration in its name as owner. This assignment shall extend for the full
term of the copyright in said materials and any renewal thereof, and I agree not
to use any portion of said materials or to disclose to any third parties other
than in the regular course of my employment, and only after receiving permission
from Paradigm.
3. Any improvements, discoveries or inventions (whether or not deemed
patentable) devised, made, developed or perfected and any materials prepared by
me for disclosure with respect to the business of Paradigm or its affiliates
after I leave the employ of Paradigm are within paragraph 1 and 2 if conceived
during such employment. Any such improvements, discoveries or inventions
devised, made, developed or perfected or materials prepared within six (6)
months after cessation of my employment shall be conclusively presumed to have
been conceived during my employment.
4. Paradigm will investigate any disclosures submitted by me and, if it
elects to file a patent application thereon, agrees:
(a) to pay all expenses in connection with the preparation and
prosecution of such patent application or applications which it may decide to
file in the United States of America or in foreign countries;
(b) to pay me an award, consistent with the policies and procedures of
Paradigm, upon issuance of a United States Letters Patent upon such invention or
improvement together with a formal assignment thereof to Paradigm:
5. All information of a business or technical nature imparted to or
learned by me in the course of my employment with respect to the business of
Paradigm or its affiliates or its existing or potential customers, vendors or
other business associates shall be deemed to be confidential and shall not be
disclosed by me to anyone outside the employ of Paradigm, unless
<PAGE>
such information has been made generally available to the trade. Such
information shall include, but not be limited to, information related to the
following:
(a) improvements, discoveries, inventions and materials described in
paragraphs 1 through 4 above;
(b) materials, compounds, formulations, cells and cell lines, reagents,
processes, techniques, methods, devices, apparatuses, plant and laboratory
facilities, operations, present and future business plans, all inventions,
material data, equipment design, experiments, tissue cultures, clonal material,
hybrids, embryos, genatio material or information, microorganism genetic
information, microorganism genetic material know-how, experience and trade
secrets, relating to Paradigm projects;
(c) contents of any database proprietary to Paradigm, including AgDB;
(d) any other research projects undertaken by Paradigm from time to time.
If I leave the employ of Paradigm, authorization to disclose information
obtained while employed by Paradigm must be obtained in writing, and I shall not
take with me any original or copies of any drawings, notebooks, lab records,
other documents, or developments of prereproduction models whether or not they
contain or disclose confidential information. I am aware that the business and
technical information developed and acquired by Paradigm is amongst its most
valuable assets, and its value may be unwittingly destroyed by casual
dissemination. I therefore agree to safeguard this information as carefully as
other property of Paradigm.
6. In my work for Paradigm, I will not use any information which I
understand to be confidential or proprietary information of my previous
employers. I have not disclosed to any employee of Paradigm, and will not in
the future disclose to any such person any information which I understand to be
confidential or proprietary information of my previous employers. I have not
disclosed to any employee of Paradigm, and will not in the future disclose to
any such person any information which I understand to be confidential or
proprietary information of my previous employers.
7. All my obligations under this agreement shall survive termination of
this agreement for any reason. I understand that my employment is at will and
that I may leave Paradigm at any time and that I may be terminated by Paradigm
at any time, with or without cause. Furthermore, I agree to abide by all
policies and procedures promulgated by Paradigm.
________________________________ ________________________________
(Signature) (Date)
Ian Howes
- --------------------------------
(Printed Name)
2
<PAGE>
PARADIGM GENETICS, INC.
By:_______________________
John A. Ryals
Chief Executive Officer and President
3
<PAGE>
EXHIBIT 10.18
AGREEMENT RELATED TO EMPLOYMENT
I, the undersigned employee, in consideration of my employment by Paradigm
Genetics, Inc., ("Paradigm") agree:
1. All improvements, discoveries, or inventions, whether or not
patentable, that are conceived, devised, made, developed or perfected by me
during the period of my employment and related in any way to the business of
Paradigm, including development and research, shall be promptly disclosed to and
become the property of Paradigm. Upon the request of Paradigm, I will execute
all documents deemed appropriate by Paradigm for obtaining the grant of patents,
both domestic and foreign, with respect to such improvements, discoveries or
inventions and for vesting title to such patents in Paradigm.
2. Any and all materials prepared by me for public disclosure to third
parties with respect to the business of Paradigm or its affiliates, including
publications, presentations, posters, the revision and updating of manuals and
textbooks and other public disclosures of Paradigm, shall become and remain the
property of Paradigm; and I hereby agree to assign my entire right, title and
interest in and to such materials including but not limited to, common law and
statutory rights, and Paradigm shall receive every legal protection that could
be afforded to me including the right to apply for Federal Copyright
Registration in its name as owner. This assignment shall extend for the full
term of the copyright in said materials and any renewal thereof, and I agree not
to use any portion of said materials or to disclose to any third parties other
than in the regular course of my employment, and only after receiving permission
from Paradigm.
3. Any improvements, discoveries or inventions (whether or not deemed
patentable) devised, made, developed or perfected and any materials prepared by
me for disclosure with respect to the business of Paradigm or its affiliates
after I leave the employ of Paradigm are within paragraph 1 and 2 if conceived
during such employment. Any such improvements, discoveries or inventions
devised, made, developed or perfected or materials prepared within six (6)
months after cessation of my employment shall be conclusively presumed to have
been conceived during my employment.
4. Paradigm will investigate any disclosures submitted by me and, if it
elects to file a patent application thereon, agrees:
(a) to pay all expenses in connection with the preparation and
prosecution of such patent application or applications which it may decide to
file in the United States of America or in foreign countries;
(b) to pay me an award, consistent with the policies and procedures of
Paradigm, upon issuance of a United States Letters Patent upon such invention or
improvement together with a formal assignment thereof to Paradigm:
5. All information of a business or technical nature imparted to or
learned by me in the course of my employment with respect to the business of
Paradigm or its affiliates or its existing or potential customers, vendors or
other business associates shall be deemed to be confidential and shall not be
disclosed by me to anyone outside the employ of Paradigm, unless
<PAGE>
such information has been made generally available to the trade. Such
information shall include, but not be limited to, information related to the
following:
(a) improvements, discoveries, inventions and materials described in
paragraphs 1 through 4 above;
(b) materials, compounds, formulations, cells and cell lines, reagents,
processes, techniques, methods, devices, apparatuses, plant and laboratory
facilities, operations, present and future business plans, all inventions,
material data, equipment design, experiments, tissue cultures, clonal material,
hybrids, embryos, genatio material or information, microorganism genetic
information, microorganism genetic material know-how, experience and trade
secrets, relating to Paradigm projects;
(c) contents of any database proprietary to Paradigm, including AgDB;
(d) any other research projects undertaken by Paradigm from time to
time.
If I leave the employ of Paradigm, authorization to disclose information
obtained while employed by Paradigm must be obtained in writing, and I shall not
take with me any original or copies of any drawings, notebooks, lab records,
other documents, or developments of prereproduction models whether or not they
contain or disclose confidential information. I am aware that the business and
technical information developed and acquired by Paradigm is amongst its most
valuable assets, and its value may be unwittingly destroyed by casual
dissemination. I therefore agree to safeguard this information as carefully as
other property of Paradigm.
6. In my work for Paradigm, I will not use any information which I
understand to be confidential or proprietary information of my previous
employers. I have not disclosed to any employee of Paradigm, and will not in
the future disclose to any such person any information which I understand to be
confidential or proprietary information of my previous employers. I have not
disclosed to any employee of Paradigm, and will not in the future disclose to
any such person any information which I understand to be confidential or
proprietary information of my previous employers.
7. All my obligations under this agreement shall survive termination of
this agreement for any reason. I understand that my employment is at will and
that I may leave Paradigm at any time and that I may be terminated by Paradigm
at any time, with or without cause. Furthermore, I agree to abide by all
policies and procedures promulgated by Paradigm.
___________________________ ___________________________
(Signature) (Date)
Henry Nowak
- ---------------------------
(Printed Name)
2
<PAGE>
PARADIGM GENETICS, INC.
By:________________________
John A. Ryals
Chief Executive Officer and President
3
<PAGE>
EXHIBIT 10.19
AGREEMENT RELATED TO EMPLOYMENT
I, the undersigned employee, in consideration of my employment by Paradigm
Genetics, Inc., ("Paradigm") agree:
1. All improvements, discoveries, or inventions, whether or not
patentable, that are conceived, devised, made, developed or perfected by me
during the period of my employment and related in any way to the business of
Paradigm, including development and research, shall be promptly disclosed to and
become the property of Paradigm. Upon the request of Paradigm, I will execute
all documents deemed appropriate by Paradigm for obtaining the grant of patents,
both domestic and foreign, with respect to such improvements, discoveries or
inventions and for vesting title to such patents in Paradigm.
2. Any and all materials prepared by me for public disclosure to third
parties with respect to the business of Paradigm or its affiliates, including
publications, presentations, posters, the revision and updating of manuals and
textbooks and other public disclosures of Paradigm, shall become and remain the
property of Paradigm; and I hereby agree to assign my entire right, title and
interest in and to such materials including but not limited to, common law and
statutory rights, and Paradigm shall receive every legal protection that could
be afforded to me including the right to apply for Federal Copyright
Registration in its name as owner. This assignment shall extend for the full
term of the copyright in said materials and any renewal thereof, and I agree not
to use any portion of said materials or to disclose to any third parties other
than in the regular course of my employment, and only after receiving permission
from Paradigm.
3. Any improvements, discoveries or inventions (whether or not deemed
patentable) devised, made, developed or perfected and any materials prepared by
me for disclosure with respect to the business of Paradigm or its affiliates
after I leave the employ of Paradigm are within paragraph 1 and 2 if conceived
during such employment. Any such improvements, discoveries or inventions
devised, made, developed or perfected or materials prepared within six (6)
months after cessation of my employment shall be conclusively presumed to have
been conceived during my employment.
4. Paradigm will investigate any disclosures submitted by me and, if it
elects to file a patent application thereon, agrees:
(a) to pay all expenses in connection with the preparation and
prosecution of such patent application or applications which it may decide to
file in the United States of America or in foreign countries;
(b) to pay me an award, consistent with the policies and procedures of
Paradigm, upon issuance of a United States Letters Patent upon such invention or
improvement together with a formal assignment thereof to Paradigm:
5. All information of a business or technical nature imparted to or
learned by me in the course of my employment with respect to the business of
Paradigm or its affiliates or its existing or potential customers, vendors or
other business associates shall be deemed to be confidential and shall not be
disclosed by me to anyone outside the employ of Paradigm, unless
<PAGE>
such information has been made generally available to the trade. Such
information shall include, but not be limited to, information related to the
following:
(a) improvements, discoveries, inventions and materials described in
paragraphs 1 through 4 above;
(b) materials, compounds, formulations, cells and cell lines,
reagents, processes, techniques, methods, devices, apparatuses, plant and
laboratory facilities, operations, present and future business plans, all
inventions, material data, equipment design, experiments, tissue cultures,
clonal material, hybrids, embryos, genatio material or information,
microorganism genetic information, microorganism genetic material know-how,
experience and trade secrets, relating to Paradigm projects;
(c) contents of any database proprietary to Paradigm, including AgDB;
(d) any other research projects undertaken by Paradigm from time to
time.
If I leave the employ of Paradigm, authorization to disclose information
obtained while employed by Paradigm must be obtained in writing, and I shall not
take with me any original or copies of any drawings, notebooks, lab records,
other documents, or developments of prereproduction models whether or not they
contain or disclose confidential information. I am aware that the business and
technical information developed and acquired by Paradigm is amongst its most
valuable assets, and its value may be unwittingly destroyed by casual
dissemination. I therefore agree to safeguard this information as carefully as
other property of Paradigm.
6. In my work for Paradigm, I will not use any information which I
understand to be confidential or proprietary information of my previous
employers. I have not disclosed to any employee of Paradigm, and will not in
the future disclose to any such person any information which I understand to be
confidential or proprietary information of my previous employers. I have not
disclosed to any employee of Paradigm, and will not in the future disclose to
any such person any information which I understand to be confidential or
proprietary information of my previous employers.
7. All my obligations under this agreement shall survive termination of
this agreement for any reason. I understand that my employment is at will and
that I may leave Paradigm at any time and that I may be terminated by Paradigm
at any time, with or without cause. Furthermore, I agree to abide by all
policies and procedures promulgated by Paradigm.
__________________________ __________________________
(Signature) (Date)
John Hamer
- --------------------------
(Printed Name)
2
<PAGE>
PARADIGM GENETICS, INC.
By:_______________________
John A. Ryals
Chief Executive Officer and President
3
<PAGE>
Exhibit 10.25
LEASE AGREEMENT
This LEASE AGREEMENT (this "Lease") is made this 27 day of July, 1999 (the
"Effective Date"), between ARE-104 ALEXANDER ROAD, LLC, a Delaware limited
liability company ("Landlord"), and PARADIGM GENETICS, INC., a North Carolina
corporation ("Tenant").
RECITALS
A. Landlord has entered into or is entering into a Ground Lease Agreement
(the "Ground Lease") with Triangle Service Center, Inc., a North Carolina
corporation ("Ground Lessor"), pursuant to which Landlord has ground leased or
is ground leasing approximately 6.084 acres of land more fully described in
Exhibit A-1 (the "Site"). The Site is part of the Triangle Park Research Center
- -----------
located within Research Triangle Park ("RTP"), Durham County, North Carolina.
B. In Section 2.d. of the Ground Lease, Ground Lessor grants Landlord an
option (the "Expansion Option") to ground lease approximately 4.916 additional
acres of land adjacent to the Site, as more fully described in Exhibit A-2 (the
-----------
"Additional Site"). Landlord may exercise the Expansion Option by delivering
written notice to Ground Lessor at any time prior to the 3/rd/ anniversary of
the "Rent Commencement Date" (as defined in the Ground Lease; hereafter, the
"Ground Lease Rent Commencement Date").
C. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord, certain improvements that Landlord is hereby agreeing to cause to be
constructed, or to permit to be constructed, on the Site, including, but not
limited to, a first-class scientific research and development building (the
"Building") and a commercial greenhouse, headhouse, and growth room facility
(the "Greenhouse").
BASIC LEASE PROVISIONS
Address: Fronting on T.W. Alexander Avenue, RTP, North Carolina
(numbered address to be obtained later)
Premises: The Building, containing approximately 53,750 rentable
square feet, and the Greenhouse, containing approximately
5,000 rentable square feet, as more fully described in
Exhibit B.
Base Rent: Equal monthly installments of base rent, such base rent to
be calculated using the formula set forth in Section 3(a)
------------
below, which formula is based on the incremental levels of
"Building Allowance" (as defined below) disbursed to Tenant
for use by Landlord in the construction of all portions of
the "Project" (as defined below) other than the Greenhouse
Rent Adjustment 5.00%
Percentage:
<PAGE>
Tenant's Share: 100.00%
Rentable Area of
Premises: Building: approximately 53,750 sq. ft.
Greenhouse: approximately 5,000 sq. ft.
Rentable Area of
Project: Building: approximately 53,750 sq. ft.
Greenhouse: approximately 5,000 sq. ft.
Target
Commencement Date: June 1, 2000
Security Deposit: An amount equal to the sum of 6 monthly payments of Base
Rent (estimated as of the date hereof as approximately
$560,000.00)
Term: 120 months from the 1/st/ day of the 1/st/ full month
following the month in which the Commencement Date occurs
Term Extensions: 2 options to extend the Term for 5 years each
Permitted Use: Scientific research and development facility, including
laboratory, commercial greenhouse, and related
administrative space
Landlord's Broker: None
Tenant's Broker: Goodman Segar
Address for Rent Payment: Landlord's Notice Address:
135 N. Los Robles Avenue, Suite 250 135 N. Los Robles Avenue, Suite 250
Pasadena, California 91101 Pasadena, California 91101
Attention: Accounts Receivable Attention: General Counsel
Tenant's Notice Address:
104 Alexander Dr., Building 2
RTP, North Carolina 27709
Attention: Mr. Ian Howes
Chief Financial Officer
2
<PAGE>
The following Exhibits are or will be attached hereto and are incorporated
herein by this reference:
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
[X] EXHIBIT A-I - DESCRIPTION OF SITE [X] EXHIBIT H - RULES AND REGULATIONS
[X] EXHIBIT A-2 - DESCRIPTION OF ADDL SITE [X] EXHIBIT I - TENANT'S PERSONAL PROPERTY
[X] EXHIBIT B - DESCRIPTION OF PREMISES [X] EXHIBIT J - ESTOPPEL CERTIFICATE
[X] EXHIBIT C - WORK LETTER [X] EXHIBIT K - LOAN SUBORDINATION AGMT
[ ] EXHIBIT D - COMMENCEMENT DATE; TERM [X] EXHIBIT L - LEASE SUBORDINATION AGMT
[ ] EXHIBIT E - BASE CONSTR COSTS; BLDG [X] EXHIBIT M - WARRANT AGREEMENT
ALLOWANCE; BASE RENT [X] EXHIBIT N - GREENHOUSE LOAN
DOCUMENTS
[ ] EXHIBIT F - GROUND LEASE RENT [X] EXHIBIT O - ENVIRONMENTAL INFORMATION
[ ] EXHIBIT G - ORIGINAL SECURITY AMOUNT
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Lease, the receipt and legal sufficiency of which are hereby
acknowledged by the parties hereto, Landlord and Tenant hereby agree as follows:
1. Lease of Premises. Landlord hereby leases the Premises to Tenant and
Tenant hereby leases the Premises from Landlord, effective as of the
"Commencement Date" (as defined below) for the Term set forth in the Basic Lease
Provisions, upon and subject to Landlord entering into the Ground Lease on or
before July 30, 1999, and to all of the terms and conditions hereof. The Site
and all improvements thereon and appurtenances thereto are collectively referred
to herein as the "Project", and the portions of the Project that are for the
non-exclusive use of Tenant and the guests, invitees, licensees, and other
authorized users of the Project (including, without limitation, the Ground
Lessor and any approved subtenants) are collectively referred to herein as the
"Common Areas" (all as more fully described in Exhibit B). Landlord reserves the
right to modify the Common Areas, provided that such modifications do not
materially adversely affect Tenant's use of the Premises for the Permitted Use.
2. Delivery; Commencement Date; Acceptance of Premises.
(a) Landlord shall use commercially reasonable efforts to deliver the
Premises to Tenant ("Deliver" or "Delivery") on or before the Target
Commencement Date, with "Landlord's Work" (as defined in the Work Letter
attached as Exhibit C (the "Work Letter")) "Substantially Completed" (as defined
---------
in the Work Letter). If Landlord Delivers the Premises Substantially Completed
before the Target Commencement Date, Tenant shall pay to Landlord, in addition
to any "Rent" (as defined in Section 3(c) below) then due under this Lease, a
------------
sum equal to 1/2 day of Rent for each day that such Delivery precedes the Target
Commencement Date. If Landlord fails to timely Deliver the Premises
Substantially Completed, Landlord shall not be liable to Tenant for any loss or
damage resulting therefrom, and this Lease shall not be void or voidable, except
as may be expressly provided otherwise herein.
3
<PAGE>
(i) Notwithstanding the foregoing, if Landlord does not Deliver the
Premises Substantially Completed by the Target Commencement Date and the
aggregate delay that is due solely to "Landlord Caused Delays" (as defined
below) exceeds 120 days, this Lease shall be voidable by Tenant by giving
Landlord "Notice" (as defined in Section 44(a) below) of Tenant's election to
-------------
void this Lease within 5 business days after such 120/th/ day, and if voided:
(A) the Security Deposit (if paid) shall be returned to Tenant, and (B) neither
Landlord nor Tenant shall have any further rights, duties, or obligations under
this Lease, except with respect to provisions that expressly survive termination
of this Lease (as provided in Section 28 below). Except as may be expressly
----------
provided otherwise herein, Tenant's right to void this Lease shall be Tenant's
sole and exclusive remedy at law, in equity, or otherwise for Landlord's failure
to timely Deliver the Premises Substantially Completed. If Tenant does not give
Landlord Notice of Tenant's election within the required 5 business days,
Tenant's right to void this Lease shall terminate and this Lease shall continue
in full force and effect. If Landlord Delivers the Premises Substantially
Completed after the Target Commencement Date but the aggregate delay that is due
solely to Landlord Caused Delays does not exceed 120 days, or the aggregate
delay that is due solely to Landlord Caused Delays exceeds 120 days but Tenant
does not timely elect to void this Lease, Tenant shall be entitled to an
abatement of Rent equal to 1 day of Rent for each day of the delay that is due
solely to Landlord Caused Delays. As used herein, the term "Landlord Caused
Delay" shall mean any delay for a reason other than a "Tenant Caused Delay" (as
defined in the Work Letter) or a "Force Majeure Delay" (as defined in the Work
Letter).
(ii) Notwithstanding the foregoing, (A) if Landlord Delivers the
Premises Substantially Completed after the Target Commencement Date and the
aggregate delay that is due solely to Force Majeure Delays does not exceed 120
days, Tenant shall not be entitled to any abatement of Rent for the delay that
is due solely to Force Majeure Delays, (B) if Landlord Delivers the Premises
Substantially Completed after the Target Commencement Date and the aggregate
delay that is due solely to Force Majeure Delays exceeds 120 days but does not
exceed 240 days, Tenant shall be entitled to an abatement of Rent equal to 1/2
day of Rent for each day of Force Majeure Delays in excess of 120 days, and (C)
if Landlord Delivers the Premises Substantially Completed after the Target
Commencement Date and the aggregate delay that is due solely to Force Majeure
Delays exceeds 240 days, Tenant shall be entitled to an abatement of Rent equal
to 1 day of Rent for each day of Force Majeure Delays in excess of 240 days;
provided, however, that, for purposes of this Section 2(a)(ii), Force Majeure
- -------- ------- ----------------
Delays shall not include any delays resulting from a "Force Majeure" (as defined
in Section 34 below) that is solely attributable to "Pre-Existing Contamination"
----------
(as defined in Section 19.a.xii. of the Ground Lease).
(b) The "Commencement Date" shall be earliest of: (i) the date Landlord
Delivers the Premises Substantially Completed; (ii) the date Landlord could have
Delivered the Premises Substantially Completed but for Tenant Caused Delays or
Force Majeure Delays; and (iii) the date Tenant conducts any business in any
part of the Premises; provided, however, that, for purposes of this Section2(b),
-------- ------- -----------
Force Majeure Delays shall not include any delays resulting from a Force
Majeure that is solely attributable to Pre-Existing Contamination. Upon either
party's request, the other party shall execute and deliver a written
acknowledgment of the Commencement Date and the expiration date of the Term,
when the same have been established, and shall attach the acknowledgment to this
Lease as Exhibit D; provided, however, either
---------
4
<PAGE>
party's failure to execute and deliver such acknowledgment shall not affect the
other party's rights hereunder.
(c) Except as may be expressly provided otherwise in the Work Letter,
Tenant shall accept the Premises in their condition as of the Commencement Date,
subject to all applicable laws, ordinances, regulations, covenants, and
restrictions. Neither Landlord nor any agent of Landlord has made or will make
any representation or warranty with respect to the condition of any or all of
the Premises or the Project and/or the suitability of the Premises for the
conduct of Tenant's business, and Tenant waives any implied warranty that the
Premises are suitable for Tenant's intended purposes. Except as may be
expressly provided otherwise in the Work Letter: (i) Landlord has no obligation
for any defects in the Premises; and (ii) Tenant's taking possession of the
Premises shall be conclusive evidence that Tenant accepts the Premises and that
the Premises were in good condition at the time possession was taken. Any
occupancy of the Premises by Tenant before the Commencement Date shall be
subject to all of the terms and conditions of this Lease, including the
obligation to pay Rent
3. Rent.
(a) Base Rent. As more fully described in the Work Letter, Landlord
is making available to Tenant an allowance (the "Building Allowance") to be used
by Tenant solely for the costs of designing and constructing all portions of the
Project other than the Greenhouse, which costs shall include, but not be limited
to, payments to surveyors, engineers, architects, consultants, contractors, sub-
contractors, and all other persons and laborers of every class providing
services, performing labor, or furnishing skill or other necessary services used
in or contributing to such construction, the cost of materials or equipment used
or consumed in such construction, the cost (including legal and engineering fees
and disbursements) of obtaining, maintaining, renewing, or revising permits,
licenses, approvals, certificates, or other entitlements, utility connection
fees, premiums and fees for all insurance maintained by Landlord in connection
with the construction, initial financing and debt service (including principal),
"land acquisition" costs (which shall include up to $20,000.00 of all
environmental, site evaluation, engineering, and title fees, premiums, and
disbursements, plus 50.00% of all legal fees and disbursements incurred by
Landlord in negotiating the Ground Lease and in performing due diligence in
connection therewith), all real estate brokerage commissions or fees, all
"Administrative Rent" (as defined in Section 7.1 of the Work Letter), and all
-----------
"Taxes" (as defined in Section 9 below) that become due and payable while
---------
construction is being performed (collectively, the "Base Construction Costs").
The maximum amount of the Building Allowance shall be $155.00 per rentable
square foot of the Building, provided that under no circumstances (including an
increase in the rentable square footage of the Building) shall the aggregate
amount of the Building Allowance exceed $8,331,250.00. For each incremental
level of Building Allowance disbursed to Tenant (adjusted for any amounts
--------
actually received by Landlord as reimbursement under Sections 19.b. or 19.d.
of the Ground Lease and retained by Landlord pursuant to the terms and condition
of a certain Cost Sharing Agreement of substantially even date herewith between
Landlord and Tenant (the "Cost Sharing Agreement")), Tenant shall pay to
Landlord the amount ("Base Rent") set forth for such increment on the following
schedule:
5
<PAGE>
- --------------------------------------------------------------------------------
Building Allowance Incremental Base Rent
(Per Rentable Square Foot) (Per Rentable Square Foot Per Month)
- --------------------------------------------------------------------------------
$0.00 to $ 55.00 $0.5500
- --------------------------------------------------------------------------------
$55.01 to $ 95.00 add $0.4334
- --------------------------------------------------------------------------------
$ 95.01 to $115.00 add $0.2334
- --------------------------------------------------------------------------------
$115.01 to $135.00 add $0.2500
- --------------------------------------------------------------------------------
$135.01 to $155.00 add $0.2667
- --------------------------------------------------------------------------------
For illustration purposes only, the aggregate monthly Base Rent will be $1.7335
per rentable square foot if the entire $155.00 per rentable square foot Building
Allowance is disbursed to Tenant. Upon either party's request, the other party
shall execute and deliver a written acknowledgment of the aggregate Base
Construction Costs, the aggregate Building Allowance actually disbursed to or
for the benefit of Tenant (adjusted for any amounts actually received by
--------
Landlord as reimbursement under Sections 19.b. or 19.d. of the Ground Lease
and retained by Landlord pursuant to the terms and condition of the Cost Sharing
Agreement), and the initial monthly Base Rent computed on such aggregate
Building Allowance (as adjusted), when the same have been established, and shall
attach the acknowledgment to this Lease as Exhibit E; provided, however, either
--------- -------- -------
party's failure to execute and deliver such acknowledgment shall not affect the
other party's rights hereunder. Tenant hereby acknowledges and agrees that the
aggregate Base Construction Costs may exceed the aggregate Building Allowance
and that Tenant may be responsible for any such excess, as provided in the Work
Letter (including, but not limited to, Section 7.2 thereof).
-----------
(b) Additional Rent. In addition to Base Rent, Tenant shall pay to
Landlord all of the following as additional rent ("Additional Rent"):
(i) Tenant's Share of "Operating Expenses" (as defined in Section 5
---------
below).
(ii) "Ground Lease Rent" (as defined below). Subject to the terms and
conditions of Section 38(b) below, Tenant shall pay to Landlord, in equal
-------------
monthly installments, an annual amount ("Ground Lease Rent") equal to the annual
rent payable by Landlord under the Ground Lease, as the same may be adjusted
from time to time pursuant to the terms and conditions of the Ground Lease, with
any such adjustment to be effective hereunder at the same time that such
adjustment is effective under the Ground Lease. Upon either party's request,
the other party shall execute and deliver a written acknowledgment of the Ground
Lease Rent payable hereunder, when the same has been established and whenever
such is adjusted, and shall attach the acknowledgment to this Lease as Exhibit
-------
F; provided, however, either party's failure to execute and deliver such
- - -------- -------
acknowledgment shall not affect the other party's rights hereunder. Ground
Lease Rent shall be payable commencing on the later of the Commencement Date or
the Ground Lease Rent Commencement Date, and all monthly installments of Ground
Lease Rent shall be paid in advance on or before the 3/rd/ business day prior to
the 1/st/ day of each calendar month during the Term and during any Term
Extension.
6
<PAGE>
(iii) Any and all other amounts Tenant assumes or agrees to pay
under the provisions of this Lease, including, without limitation, any and all
other sums that may become due by reason of any "Default" (as defined in Section
-------
20 below) or other failure to comply with the agreements, terms, covenants and
- --
conditions of this Lease to be performed by Tenant, after any applicable notice
and cure period.
(c) Rent. Base Rent and Additional Rent shall together be denominated
"Rent". All monthly installments of Rent other than Ground Lease Rent shall be
paid in advance on or before the 1/st/ day of each calendar month during the
Term and during any Term Extension. Payments of Rent for any fractional calendar
month shall be prorated and paid on the basis of a 30-day month. Tenant's
obligation to pay Rent and other sums to Landlord under this Lease and
Landlord's obligations under this Lease shall be separate and independent
obligations. Except to the extent, and only to the extent, expressly provided
otherwise in Sections 2(a)(i) and (ii) above, all Rent shall be paid to Landlord
----------------
without demand, abatement, reduction, deduction, or set-off, in lawful money of
the United States of America at the office of Landlord for payment of Rent set
forth in the Basic Lease Provisions, or to such other person or at such other
place as Landlord may from time to time designate in writing.
4. Rent Adjustments. Base Rent shall be increased on the 3rd annual
anniversary of the 1/st/ day of the 1/st/ full month during the Term, and on
each annual anniversary of such date thereafter during the remainder of the
Term, by multiplying the Base Rent payable immediately before such adjustment by
the Rent Adjustment Percentage and adding the resulting amounts to the Base Rent
payable immediately before such adjustment. Base Rent, as so adjusted, shall
thereafter be due as provided herein. Rent adjustments for any fractional
calendar month shall be prorated.
5. Operating Expense Payments. No later than 10 business days prior to
the 1/st/ day of the 1/st/ full month during the Term and no later than 30 days
prior to the 1/st/ day of each calendar year during the Term and any Term
Extension, Landlord shall deliver to Tenant a written estimate of Operating
Expenses for the remainder of the calendar year or for the following calendar
year, as the case may be (the "Annual Estimate"), which may be revised by
Landlord from time to time during the relevant calendar year. During each month
of the Term and any Term Extension, Tenant shall pay Landlord an amount equal to
1/12th of the annual cost, as reasonably estimated by Landlord from time to
time, of Tenant's Share (as set forth in the Basic Lease Provisions) of
Operating Expenses for the Project. The term "Operating Expenses" means all
reasonable costs and expenses of any kind or description whatsoever incurred or
accrued by Landlord with respect to the Project (including, without limitation,
maintenance and repair costs, insurance premiums (for the insurance described in
Section 17 below), Taxes, "Utilities" (as defined in Section 11 below), costs of
- ---------- ----------
capital repairs and improvements (amortized over the useful life of the
improvement, not to exceed 7 years), reasonable reserves consistent with good
business practice for future repairs and replacements, and administrative rent
for management services in the amount of 2.50% of the then applicable Base
Rent), excluding only:
(a) Base Construction Costs;
7
<PAGE>
(b) capital expenditures for expansion of the Project or for the
remodeling or refurbishment of the Project to a materially higher standard than
existed on the Commencement Date;
(c) costs directly and solely attributable to correcting a
"Construction Defect" (as defined in the Work Letter);
(d) interest and amortization of funds borrowed by Landlord, whether
secured or unsecured;
(e) depreciation of the Project (except for capital improvements the
cost of which are specifically includable in Operating Expenses);
(f) salaries, wages, or other compensation paid to officers and
employees of Landlord who are not assigned to the operation, management,
maintenance, or repair of the Project;
(g) any expenses otherwise includable within Operating Expenses to the
extent actually reimbursed by persons other than Tenant;
(h) legal expenses incurred in the negotiation of this Lease;
(i) costs relating to maintaining Landlord's existence, either as a
corporation, partnership, or other entity;
(j) costs (including "Legal Fees" (as defined in Section 44(k) below))
-------------
arising from the enforcement of this Lease or claims, disputes, or potential
disputes pertaining to Landlord and/or the Project;
(k) costs incurred by Landlord due to the violation by Landlord of the
terms and conditions of this Lease;
(l) costs incurred by Landlord due to the violation by Landlord of any
"Legal Requirements" (as defined in Section 7 below);
---------
(m) tax penalties incurred as a result of Landlord's negligence,
inability, or unwillingness to make payment and/or to file any tax or
informational returns when due;
(n) overhead or profit increment paid to Landlord or to subsidiaries
or affiliates of Landlord for the provision of goods and/or services in or to
the Project, but only to the extent the same exceeds the overhead or profit
increment that would be paid to unaffiliated third parties on a competitive
basis for providing the same goods and/or services;
(o) costs arising from Landlord's charitable or political
contributions;
(p) costs incurred in the sale or refinancing of the Project;
(q) net income, franchise, capital stock, estate, or inheritance
taxes; and
8
<PAGE>
(r) any costs of constructing, repairing, or maintaining any new
improvement within the Project, or of providing any new and recurring service,
where the new improvement or the new service is not requested or approved by
Tenant, and (i) there is or will be no material benefit to Tenant from the new
---
improvement or the new service, or (ii) regardless of the benefit to Tenant,
--
construction of the new improvement commences or the new service is first
provided in the final 12 months of the Term or the first Term Extension and
Tenant has elected not to exercise its then applicable Extension Right.
Within 120 days after the end of each calendar year, Landlord shall furnish
to Tenant a statement (an "Annual Statement") showing in reasonable detail: (i)
the total and Tenant's Share of actual Operating Expenses for the previous
calendar year, and (ii) the total of Tenant's payments in respect of Operating
Expenses for such year. If Tenant's Share of actual Operating Expenses for such
year exceeds Tenant's payments of Operating Expenses for such year, the excess
shall be immediately due and payable by Tenant as Rent. If Tenant's payments of
Operating Expenses for such year exceed Tenant's Share of actual Operating
Expenses for such year, Landlord shall, in its sole and absolute discretion,
either: (x) credit the excess amount to the next succeeding installments of
estimated Operating Expenses due hereunder, or (y) pay the excess to Tenant
within 30 days after delivery of such Annual Statement.
The Annual Statement shall be final and binding upon Tenant unless Tenant,
within 30 days after Tenant's receipt thereof, shall contest any item therein by
giving Notice to Landlord, specifying each item contested and the reason
therefor. If, during such 30-day period, Tenant reasonably and in good faith
questions or contests the correctness of Landlord's statement of Tenant's Share
of Operating Expenses, Landlord will provide Tenant access to Landlord's books
and records and such information as Landlord reasonably determines to be
responsive to Tenant's questions. If, after Tenant's review of such
information, Landlord and Tenant cannot agree upon the amount of Tenant's Share
of Operating Expenses, then Tenant shall have the right to have an independent
public accounting firm selected from among the 6 largest in the United States,
hired by Tenant (at Tenant's sole cost and expense) and approved by Landlord
(which approval shall not be unreasonably withheld or delayed), audit and/or
review such Landlord's books and records for the year in question (the
"Independent Review"). The results of any such Independent Review shall be
binding on Landlord and Tenant. If the Independent Review shows that Tenant's
pro rata share of the Operating Expenses actually paid by Tenant for the
calendar year in question exceeded Tenant's obligations for such calendar year,
Landlord shall at Landlord's option either (i) credit the excess amount to the
next succeeding installments of estimated Operating Expenses due hereunder, or
(ii) pay the excess to Tenant within 30 days after delivery of the results of
such Independent Review, except that after expiration or termination of the Term
or any Term Extension, Landlord shall pay the excess to Tenant after deducting
all other amounts due Landlord. If the Independent Review shows that Tenant's
payments of Tenant's Share of Operating Expenses for such calendar year were
less than Tenant's obligation for the calendar year, Tenant shall pay the
deficiency to Landlord within 30 days after delivery of the results of such
Independent Review. If the Independent Review shows that Tenant has overpaid
Tenant's pro rata share of Operating Expenses by more than 5.00%, then Landlord
shall reimburse Tenant for all costs incurred by Tenant for the Independent
Review. Operating Expenses for the calendar years in which Tenant's obligation
to share therein begins and ends shall be prorated.
9
<PAGE>
6. Security Deposit.
(a) Tenant shall deposit with Landlord on the Commencement Date
security for the performance of all of Tenant's obligations hereunder (the
"Security Deposit") in an amount equal to 6 monthly payments of Base Rent (the
"Original Security Amount"). Upon either party's request, the other party shall
execute and deliver a written acknowledgment of the Original Security Amount,
when the same has been established, and shall attach the acknowledgment to this
Lease as Exhibit G; provided, however, either party's failure to execute and
--------- -------- -------
deliver such acknowledgment shall not affect the other party's rights hereunder.
At least one-sixth of the Security Deposit shall be in cash and up to five-
sixths of the Security Deposit may be in the form of an unconditional and
irrevocable letter of credit (a "Letter of Credit"); provided, however, that the
-------- -------
entire Security Deposit may be in the form of a Letter of Credit at any time
after Tenant completes an initial public offering of Tenant's capital shares.
Landlord shall hold the cash portion of the Security Deposit in an interest
bearing account (which may contain Landlord's own funds), with any interest
accruing on such cash portion being for Tenant's benefit Any Letter of Credit
that constitutes a portion of the Security Deposit: (i) shall be in form and
substance satisfactory to Landlord, in Landlord's sole and absolute discretion;
(ii) shall name Landlord as sole beneficiary; (iii) shall not refer to this
Lease, the Project, or the Premises or any circumstances, factors, or rights
that might be related thereto, but shall expressly allow Landlord to draw upon
the Letter of Credit in any amount, and at any time and from time to time,
simply by delivering to the issuer a clean sight draft on the Letter of Credit,
without any other demand, statement, or other representation regarding
Landlord's rights under this Lease or with respect to the Letter of Credit; (iv)
shall be drawable on an FDIC-insured financial institution satisfactory to
Landlord, in Landlord's reasonable discretion, with any draws to be payable from
such financial institution's own immediately available funds; (v) shall be
drawable at the branch or office of the issuer that Landlord may choose, in
Landlord's sole and absolute discretion; and (vi) shall expressly allow Landlord
to draw the full amount of the Letter of Credit if Tenant does not provide
Landlord with a substitute Letter of Credit complying with all of the
requirements hereof at least 10 days before the stated expiration date of such
Letter of Credit.
(b) If, at any time during the Term or any Term Extension, Tenant
satisfies both the "Net Worth Test" (as defined below) and the "Profitability
Test" (as defined below) (each, a "Reduction Requirement" and collectively, the
"Reduction Requirements"), then the Original Security Amount shall be reduced to
an amount equal to 3 monthly payments of Base Rent (the "Reduced Security
Amount"). For purposes of this provision, the "Net Worth Test" shall be deemed
satisfied at any time that: (i) Tenant's stock is listed on either the New York
Stock Exchange or the NASDAQ stock market, and (ii) Tenant has maintained a net
---
worth of at least $100,000,000.00, using a market capitalization analysis based
on the daily closing trading price of Tenant's common stock, for the immediately
preceding consecutive 90 business days. For purposes of this provision, the
"Profitability Test" shall be deemed satisfied at any time that: (x) Tenant's
net revenues after taxes for the immediately preceding fiscal year exceed
$1,000,000.00, and (y) the aggregate amount of Tenant's "Liquid Assets" (as
---
defined below), as certified by a nationally recognized, independent public
accounting firm or as demonstrated in annual audited financial statements,
equals or exceeds Tenant's anticipated expenses for the shorter of (1) 30 months
and (2) the remainder of the Term. For purposes of the Profitability Test, (A)
"Liquid Assets" shall mean all cash, cash equivalents, liquid short term
investments, and short term accounts receivables from unrelated third parties,
and (B) the phrase "remainder
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<PAGE>
of the Term" shall include any period for which Tenant has an "Extension Right"
(as defined in Section 41(a) below), regardless of whether any such Extension
-------------
Right has been exercised, unless such Extension Right has been waived or
otherwise is no longer exercisable (provided, however, that under no
-------- -------
circumstances shall the "remainder of the Term" be fewer than 12 months, unless
there are fewer than 3 months actually remaining in the Term and any Term
Extension that may be available to Tenant, in which case the "remainder of the
Term" shall be deemed to be 6 months). Within 60 days after Tenant provides
Landlord with written evidence reasonably satisfactory to Landlord demonstrating
that Tenant then satisfies both of the Reduction Requirements, Landlord shall
pay to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest hereunder) any balance of the Security Deposit then held by Landlord
(including accrued interest, if any), less an amount equal to the Reduced
Security Amount (provided, however, that if any portion of the Security
-------- -------
Deposit is then in the form of a Letter of Credit, Landlord will return such
Letter of Credit to Tenant upon Tenant's delivery to Landlord of cash (if then
required hereunder) plus a substitute Letter of Credit complying with all of the
requirements hereof in an aggregate amount equal to the Reduced Security
Amount). The Reduced Security Amount shall be deemed to be the amount of the
"Security Deposit" for all purposes related to this Lease from and after the
date that Landlord returns to Tenant any portion of the Original Security Amount
in accordance with this provision. Notwithstanding the foregoing, the Security
Deposit shall be increased to the Original Security Amount if there is a Default
or if Tenant fails to continue to satisfy both of the Reduction Requirements.
Landlord shall have the right (not to be exercised more than twice each calendar
year) to request written evidence from Tenant demonstrating that Tenant
continues to meet both of the Reduction Requirements. Tenant shall pay to
Landlord the amount of the difference between the Reduced Security Amount and
the Original Security Amount within 15 days after Landlord gives Tenant written
demand to do so (provided, however, that if any portion of the Reduced Security
-------- -------
Amount is then in the form of a Letter of Credit, Landlord will return such
Letter of Credit to Tenant upon Tenant's delivery to Landlord of cash (if then
required hereunder) plus a substitute Letter of Credit complying with all of the
requirements hereof in an aggregate amount equal to the Original Security
Amount). The Original Security Amount shall be deemed to be the amount of the
"Security Deposit" for all purposes related to this Lease from and after the
date that Landlord gives Tenant written demand to increase the Reduced Security
Amount in accordance with this provision.
(c) Landlord shall hold the Security Deposit as security for the
performance of Tenant's obligations under this Lease. The Security Deposit is
not an advance rental deposit or a measure of Landlord's damages in case of a
Default. At any time that Landlord reasonably believes that a Default has
occurred and remains uncured, Landlord may use all or any part of the Security
Deposit to pay or perform any obligation of Tenant under this Lease or to
compensate Landlord for any loss or damage resulting from any Default, without
prejudice to any other remedy provided herein or provided by law. Upon any such
use of all or any portion of the Security Deposit, Tenant shall deposit with
Landlord, within 5 days after Landlord gives Tenant a written demand therefor,
cash (or, if appropriate, a substitute Letter of Credit complying with all of
the requirements hereof) in the amount that will restore the Security Deposit to
its required amount. Upon bankruptcy or other debtor-creditor proceedings
against Tenant, the Security Deposit shall be deemed to be applied first to the
payment of Rent and other charges due Landlord for periods prior to the filing
of such proceedings. Tenant hereby waives the provisions of any law, now or
hereafter in force, that provide that Landlord may claim from a
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<PAGE>
security deposit only those sums reasonably necessary to remedy defaults in the
payment of rent, to repair damage caused by Tenant, or to clean the leased
premises, it being agreed that Landlord may claim, in addition, those sums
reasonably necessary to compensate Landlord for any other loss or damage,
foreseeable or unforeseeable, caused by the act or omission of Tenant or any
officer, employee, agent or invitee of Tenant.
(d) If Landlord transfers its interest in the Project or this Lease,
Landlord shall either (i) transfer any balance of the Security Deposit then held
by Landlord (including accrued interest, if any) to a person or entity assuming
Landlord's obligations under this Section, or (ii) pay to Tenant any balance of
the Security Deposit then held by Landlord (including accrued interest, if any).
Upon the transfer to such transferee or the payment to Tenant, Landlord shall
have no further obligation with respect to the Security Deposit, and Tenant's
right to the Security Deposit shall apply solely against Landlord's transferee.
(e) Landlord's obligation with respect to the Security Deposit is that
of a debtor, not a trustee. The Security Deposit shall be the property of
Landlord, but shall be paid to Tenant when Tenant's obligations under this Lease
have been completely fulfilled. If Tenant and all assignees of Tenant's
interest hereunder fully perform every provision of this Lease to be performed
by Tenant and return the Premises to Landlord upon the expiration or earlier
termination of this Lease, Landlord shall pay to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest hereunder) any balance of the
Security Deposit then held by Landlord (including accrued interest, if any)
within 60 days after the expiration or earlier termination of this Lease.
7. Use. The Premises shall be used solely for the Permitted Use set
forth in the Basic Lease Provisions and for lawful purposes incidental thereto,
all in compliance with all laws, orders, judgments, ordinances, regulations,
codes, directives, permits, licenses, covenants and restrictions now or
hereafter applicable to the Premises, and the use and occupancy thereof
(collectively, "Legal Requirements"). Tenant, within 5 days' after Notice from
Landlord, shall cause to be discontinued any use of the Premises that is
declared by any governmental authority having jurisdiction to be a violation of
any Legal Requirement. Provided that Tenant has prior knowledge of the then
current terms of Landlord's insurance coverage with respect to the Project, (i)
Tenant will not use or permit the Premises to be used for any purpose or in any
manner that would void Tenant's or Landlord's insurance, increase the insurance
risk, or cause the disallowance of any sprinkler or other credits, and Tenant,
within 5 days' after Notice from Landlord, shall cause to be discontinued any
such use, and (ii) Tenant shall reimburse Landlord promptly upon demand for any
additional premium charged for any insurance policy maintained by Landlord as a
result of Tenant's failure to comply with the provisions of this Section. Tenant
will use the Premises in a careful, safe and proper manner and will not commit
waste, overload the floor or structure of the Premises, subject the Premises to
uses that would damage the Premises or obstruct or interfere with the rights of
Landlord or other guests, invitees, licensees, or other authorized users of the
Project, including conducting or giving notice of any auction, liquidation, or
going out of business sale on the Premises, or using or allowing the Premises to
be used for any unlawful purpose. Tenant shall cause any office equipment or
machinery to be installed in the Premises so as to reasonably prevent sounds or
vibrations therefrom from extending into Common Areas or other space in the
Project. Tenant shall not place any equipment weighing 500 pounds or more in or
upon the Premises or transport or move such
12
<PAGE>
items through the Common Areas of the Project or in the Project elevators
without the prior written consent of Landlord. Except as may be provided under
the Work Letter, Tenant, without the prior written consent of Landlord, shall
not use the Premises in any manner that will require ventilation, air exchange,
heating, gas, steam, electricity or water beyond the existing capacity of the
Project as proportionately allocated to the Premises and as usually furnished
for the Permitted Use.
Tenant, at its sole expense, shall make any alterations or modifications,
to the interior or the exterior of the Premises or the Project, that are
required by Legal Requirements (including, without limitation, compliance of the
Premises with the Americans With Disabilities Act, 42 U.S.C. (S) 12101 et seq.
(together with regulations promulgated pursuant thereto, "ADA")) related to
Tenant's use or occupancy of the Premises, provided that the foregoing
obligation shall not apply to the extent any non-compliance with Legal
Requirements is due to a Construction Defect. Notwithstanding any other
provision herein to the contrary, Tenant shall be responsible for any and all
demands, claims, liabilities, losses, costs, expenses, actions, causes of
action, damages or judgments, and all reasonable expenses incurred in
investigating or resisting the same (including, without limitation, Legal Fees)
(collectively, "Claims") arising out of or in connection with Legal Requirements
and Tenant shall indemnify, defend, hold and save Landlord harmless from and
against any and all Claims arising out of or in connection with any failure of
the Premises to comply with any Legal Requirement, except to the extent, and
only to the extent, a Claim is attributable to a Construction Defect or to the
gross negligence or willful misconduct of Landlord.
8. Holding Over. If, with Landlord's express written consent, Tenant
retains possession of the Premises after the expiration or earlier termination
of this Lease, such possession, unless otherwise agreed in writing, shall be
subject to immediate termination by Landlord at any time, and all of the other
terms and provisions of this Lease (including, without limitation, the
adjustment of Rent pursuant to Section 4 hereof but excluding any expansion or
---------
renewal option or other similar right or option) shall remain in full force and
effect during such holdover period, and in such case Tenant shall continue to
pay Rent in the amount payable upon the date of the expiration or earlier
termination of this Lease or such other amount as Landlord may indicate, in
Landlord's sole and absolute discretion, in such written consent. All other
payments shall continue under the terms of this Lease. If Tenant remains in
possession of the Premises after the expiration or earlier termination of this
Lease without the express written consent of Landlord, Tenant shall become a
tenant at sufferance upon the terms of this Lease except that the monthly rental
shall be equal to 150.00% of the Rent in effect during the last 30 days prior to
the expiration or earlier termination of this Lease. In addition, Tenant shall
be responsible for all damages suffered by Landlord resulting from or occasioned
by Tenant's holding over. No holding over by Tenant, whether with or without
consent of Landlord, shall operate to extend this Lease except as otherwise
expressly provided, and this Section shall not be construed as consent for
Tenant to retain possession of the Premises. Acceptance by Landlord of Rent
after the expiration or earlier termination of this Lease shall not result in a
renewal or reinstatement of this Lease.
9. Taxes. Tenant shall pay all taxes, levies, assessments and
governmental charges of any kind (collectively referred to as "Taxes") imposed
by any federal, state, regional, municipal, local, or other governmental
authority or agency, including, without limitation, quasi-
13
<PAGE>
public agencies (collectively, "Governmental Authority") in connection with the
Project and accruing during the Term and any Term Extension, including, without
limitation, all Taxes: (i) imposed on or measured by or based, in whole or in
part, on rent payable to Landlord under this Lease and/or from the rental by
Landlord of the Project, (ii) based on the square footage, assessed value or
other measure or evaluation of any kind of the Premises or the Project, (iii)
assessed or imposed by or on the operation or maintenance of the Premises or the
Project (including parking), (iv) assessed or imposed by, or at the direction
of, or resulting from statutes or regulations, or interpretations thereof,
promulgated by, any Governmental Authority, (v) assessed or imposed by reason of
the occurrence of certain specified events (including, but not limited to, the
construction of the Greenhouse), or (vi) imposed as a license or other fee on
Landlord's business of leasing space in the Project. Landlord shall cause all
Taxes to be billed directly to Tenant by the Governmental Authority, and
Landlord shall promptly forward to Tenant any bills for Taxes that Landlord
nevertheless may receive. All payments of Taxes shall be made at least 10
business days prior to delinquency, and Tenant shall promptly furnish Landlord
with satisfactory evidence that all Taxes have been so paid; provided, however,
-------- -------
that Tenant shall not be responsible for evidence of timely payment or for any
penalties, surcharges, or similar charges imposed upon delinquency if the
delinquency is due solely to any failure by Landlord to forward promptly to
Tenant any bills for Taxes that Landlord may receive. If any Taxes cover any
period of time beginning before the Commencement Date or ending after the
expiration or earlier termination of this Lease, Tenant's responsibility for
such Taxes shall be prorated to cover only that portion of such Taxes applicable
to the period that the Lease is in effect, and Landlord shall promptly reimburse
Tenant for any overpayment (provided that all Taxes that become due and payable
while construction is being performed shall still be included in and a part of
Base Construction Costs). Tenant may contest by appropriate legal proceedings
the amount, validity, or application of any Taxes or liens securing Taxes. Taxes
shall not include any of the following (except to the extent any of the
following are in substitution for any Taxes payable hereunder): (x) any net
income taxes that may be imposed on Landlord, or (y) any revenue taxes that may
be imposed on any sale of Landlord's interest in the Project. Tenant also shall
pay, prior to delinquency, any and all Taxes levied or assessed against any
personal property or trade fixtures placed by Tenant in the Premises, whether
levied or assessed against Landlord or Tenant. If Tenant fails to pay any Taxes,
Landlord shall have the right (but not the obligation) to pay the same, and any
amount actually so paid by Landlord shall be payable to Landlord on demand as
Additional Rent or includable by Landlord as an Operating Expense.
10. Parking. At no additional cost to Tenant, Tenant shall have a license
to use at least 140 parking spaces at the Site. Such license shall be effective
during the Term and any Term Extension, shall be revocable by Landlord upon the
expiration or earlier termination of this Lease, and shall be limited by and
subject to any changes mandated by Legal Requirements (including zoning
restrictions) that may be enacted or first effective after the Effective Date
and to any changes in the design of the Building requested or approved by Tenant
and made after the Effective Date.
11. Utilities; Services. Subject to the terms of this Section, Landlord
shall cause to be provided to the Project and the Premises, water, electricity,
gas, light, power, telephone, sewer, and other utilities (including fire
sprinklers) (collectively, "Utilities"). Tenant shall arrange for refuse and
trash collection and janitorial services provided to the Premises. Landlord
shall cause all Utilities to be charged directly to Tenant by the provider.
Tenant shall pay
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<PAGE>
directly to the Utility provider, prior to delinquency, all charges for
Utilities used on the Premises during the Term and any Term Extension, all
maintenance charges for Utilities, and any storm sewer charges or other similar
charges for Utilities imposed by any Governmental Authority or Utility provider,
and any taxes, penalties, surcharges, or similar charges thereon. If Tenant
fails to pay any Utilities in the manner required hereunder, Landlord shall have
the right (but not the obligation) to pay the same, and the amount thereof shall
be payable to Landlord on demand as Additional Rent or includable by Landlord as
an Operating Expense. No interruption or failure of Utilities, from any cause
whatsoever other than Landlord's willful misconduct, shall result in eviction or
constructive eviction of Tenant, termination of this Lease or the abatement of
Rent.
12. Alterations and Trade Fixtures. Any alterations, additions, or
improvements made to the Premises ("Alterations") by or on behalf of Tenant,
including additional locks or bolts of any kind or nature upon any doors or
windows in the Premises, but excluding installation, removal, or realignment of
furniture systems (other than removal of furniture systems owned or paid for by
Landlord) not involving any modifications to the structure or connections (other
then by ordinary plugs or jacks) to "Building Systems" (as defined in Section 13
----------
below) shall be subject to Landlord's prior written consent, which consent (i)
will not be unreasonably withheld or delayed with respect to non-structural
Alterations to the interior of the Premises that do not involve any Building
Systems or puncturing, relocating, or removing the roof or any existing load-
bearing walls (`Non-Structural Alterations"), and (ii) may be withheld, in
Landlord's sole and absolute discretion, with respect to all other Alterations.
Notwithstanding the foregoing, Landlord's prior consent will not be required
with respect to Non-Structural Alterations if the cost of each such Non-
----
Structural Alteration does not exceed $5,000.00 ("Permitted Non-Structural
Alterations"), the aggregate cost of all such Permitted Non-Structural
---
Alterations does not exceed $25,000.00 in any consecutive 12 month period, and
Tenant provides Landlord with Notice of each such Permitted Non-Structural
----
Alteration, accompanied by any plans, specifications, bid proposals, work
contracts, or other information concerning the nature and cost of each such
----
Permitted Non-Structural Alteration that Tenant may have in its possession or
control, including the identities and mailing addresses of all persons
performing work or supplying materials (collectively, "Alterations
Information"). If Landlord approves any Alterations, Landlord may impose such
conditions on Tenant in connection with the commencement, performance, and
completion of such Alterations as Landlord may deem appropriate (in Landlord's
reasonable discretion, with respect to Non-Structural Alterations, and in
Landlord's sole and absolute discretion, with respect to all other Alterations).
Any request for approval shall be in writing, delivered not less than 15
business days in advance of any proposed construction, and accompanied by such
Alterations Information as may be reasonably requested by Landlord. Landlord's
right to review plans and specifications and to monitor construction shall be
solely for its own benefit, and Landlord shall have no duty to see that such
plans and specifications or construction comply with applicable Legal
Requirements. Tenant, at its sole cost and expense, shall cause all Alterations
to comply with insurance requirements known to Tenant and Legal Requirements and
shall implement any alteration or modification required by Legal Requirements as
a result of any Alterations. Except as to Permitted Non-Structural Alterations,
Tenant shall pay to Landlord, on demand as Additional Rent, an amount equal to
5.00% of all charges incurred by Tenant or its contractors or agents in
connection with any Alterations to cover Landlord's overhead and expenses for
plan review, coordination, scheduling, and supervision. Tenant will give
Landlord Notice at least 5 days (or any longer
15
<PAGE>
period that may be required under the Ground Lease) before beginning any
Alterations so that Landlord may post on and about the Premises notices of non-
responsibility pursuant to applicable law. Tenant, at its sole cost and expense,
shall correct any faulty work or inadequate cleanup done by Tenant or its
contractors within 5 business days after Notice of the same from Landlord.
Tenant shall reimburse Landlord for, and indemnify and hold Landlord harmless
from, any reasonable and necessary expenses incurred by Landlord by reason of
such faulty work or inadequate cleanup or by reason of delays caused by the
same.
Tenant shall furnish security or make other arrangements satisfactory to
Landlord to assure payment for the completion of all work free and clear of
"Liens" (as defined in Section 15 below), and shall provide certificates of
----------
insurance for workers compensation and other coverage in amounts and from an
insurance company satisfactory to Landlord protecting Landlord against liability
for personal injury or property damage during construction (copies of such
certificates will suffice, so long as the original certificates are forwarded to
Landlord within 2 business days thereafter). Upon completion of any
Alterations, Tenant shall deliver to Landlord: (i) sworn statements setting
forth the names of all contractors and subcontractors who did the work and final
lien waivers from all such contractors and subcontractors; and (ii) as-built
plans for any such Alteration.
Other than the items, if any, listed on Exhibit 1 and any items agreed by
---------
Landlord in writing to be included on Exhibit 1 in the future ("Tenant's
---------
Property"), all Alterations and all equipment, fixtures, trade fixtures,
machinery, built-in furniture and cabinets, and other additions and improvements
attached to or built into the Premises, including, without limitation, fume
hoods that penetrate the roof or plenum area, built-in cold rooms, built-in warm
rooms, walk-in cold rooms, walk-in warm rooms, deionized water systems, glass
washing equipment, autoclaves, chillers, built-in plumbing, electrical and
mechanical equipment and systems, and any power generator and transfer switch
(collectively, "Installations"), shall be and shall remain the property of
Landlord during the Term and any Term Extension and following the expiration or
earlier termination of this Lease, shall not be removed by Tenant at any time
during the Term or any Term Extension, and shall remain upon and be surrendered
with the Premises as a part thereof following the expiration or earlier
termination of this Lease; provided, however, that Landlord, at the time its
-------- -------
approval of any Installation is requested, may elect to cause Tenant to remove
such Installation upon the expiration or earlier termination of this Lease. If
Landlord so elects, Tenant shall remove such Installation upon the expiration or
earlier termination of this Lease and restore any damage caused by or occasioned
as a result of such removal. During any such restoration period, Tenant shall
pay Rent to Landlord as provided herein as if Tenant otherwise occupied said
space.
13. Tenant's Repairs. During the Term and any Term Extension, Tenant
shall keep all components of the Premises and the Project in good order,
condition, and repair (to the extent the need for such repairs occurs as a
result of Tenant's use of the portion of the Premises or Project requiring
repairs), reasonable wear and tear and Construction Defects excluded, including,
but not limited to, all equipment or facilities, such as plumbing, heating,
ventilation, and air-conditioning ("HVAC"), electrical and lighting facilities,
boilers, pressure vessels, fire protection systems, fixtures, exterior and
interior walls, foundations, ceilings, roofs, floors, windows, doors, plate
glass, landscaping and irrigation systems, driveways and parking areas, fences,
retaining walls, signs, and sidewalks ("Building Systems"). Tenant's
obligations shall
16
<PAGE>
include restorations, replacements, or renewals when necessary. During the Term
and any Term Extension, Tenant also shall keep the exterior appearance of the
Building and the Greenhouse in a condition consistent with the exterior
appearance of other substantially similar facilities of comparable age and size
("Similar Facilities") located within the area commonly known as the "I-40/RTP
sub-market' (the "Sub-Market"), including, when necessary, the exterior sealing,
resealing, or repainting of the Building and/or the Greenhouse. Tenant, in
keeping the Premises and the Project in good order, condition, and repair, shall
exercise and perform good maintenance practices, specifically including the
procurement and maintenance of service contracts, with copies to Landlord, in
customary form and substance for, and with contractors specializing and
experienced in the maintenance of, the following Building Systems (the "Service
Contracts"): (i) HVAC, (ii) boilers and pressure vessels, (iii) fire protection
systems, (iv) landscaping and irrigation systems, (v) roof covering and drains,
(vi) driveways and parking areas, (vii) basic Utilities feeds to the perimeter
of the Building and the Greenhouse, and (viii) any other Building Systems
reasonably required by Landlord. Tenant's obligations under this Section shall
be at Tenant's sole cost and expense. If Tenant fails to repair or maintain any
portion of the Premises or the Project as required under this Section within 15
days after Landlord gives Tenant written demand to so repair or maintain,
Landlord may perform such work and the reasonable and necessary cost thereof
shall be payable to Landlord on demand as Additional Rent or includable by
Landlord as an Operating Expense.
Notwithstanding the foregoing, if any "Major Repair" (as hereinafter
defined) is required, Landlord shall be responsible for completing a
"Restoration" (as hereinafter defined). As used herein, the term "Major Repair"
shall mean the following: (a) during the final 12 months of the Term or any Term
Extension (provided that Tenant has elected not to exercise any then available
Extension Right or no Extension Right is then available) (the "Final 12
Months"), any repair to any Building System other than a "Tenant Specific
Building System" (as hereinafter defined) that will cost more than 60.00% of the
cost of replacing such Building System; and (b) at all other times, any repair
to any Building System that will cost more than 50.00% of the cost of replacing
such Building System. As used herein, the term "Tenant Specific Building
System" shall mean any Building System that is necessary only because of
Tenant's specific use of the Premises or the conduct of Tenant's specific
business operations on the Premises. As used herein, the term "Restoration"
shall mean the following: (x) during the Final 12 Months, repairing or replacing
--
the Building System in question, at Landlord's sole option; and (y) at all other
times, replacing the Building System in question. The cost of any Restoration
shall be includable by Landlord as an Operating Expense, provided that the cost
of any Restoration that involves replacing the Building System in question shall
be deemed a capital improvement and amortized over the useful life of the
improvement (not to exceed 7 years). Under all circumstances, Landlord shall
have no obligation with respect to any Building System to the extent any repair
of such Building System becomes necessary because of Tenant's failure to
exercise and perform adequate maintenance as required hereunder.
Notwithstanding the foregoing, substantial repairs to the Premises or the
Project required as the result of fire, earthquake, flood, vandalism, war, or
similar cause of damage or destruction shall be controlled by Section 18.
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14. Landlord's Repairs. It is intended by Landlord and Tenant that
Landlord shall have no obligation, in any manner whatsoever, to repair or
maintain the Premises or the Project
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(including, without limitation, the Building Systems), except to the extent, and
only to the extent, of any repairs that are necessary solely because of
Construction Defects, Landlord's gross negligence or willful misconduct, the
elements, or the age of the Premises or the Project. It is also intended by
Landlord and Tenant that the terms of this Lease shall govern their respective
obligations regarding repair and maintenance of the Premises and the Project,
and Tenant expressly waives the benefit of any state or local law now or
hereafter in effect to the extent any such law is inconsistent with the terms of
this Lease. Notwithstanding the foregoing, Landlord shall not be in default in
its obligations under this Section if:
(a) with respect to Construction Defects that Landlord reasonably
determines, in good faith, involve or may involve structural components of the
Premises or pose or may pose a significant risk of personal injury or
substantial property damage ("Serious Construction Defects"), the applicable
contractor, despite Landlord's reasonable efforts, fails to remedy such
Construction Defect within 30 days after Tenant gives Landlord Notice of such
Construction Defect, but Landlord, within 30 days thereafter, commences and
diligently and continuously prosecutes such remedial action to completion, at
Landlord's sole cost and expense;
(b) with respect to Construction Defects that Landlord reasonably
determines, in good faith, are not Serious Construction Defects or involve
Tenant's Property, the applicable contractor, despite Landlord's reasonable
efforts, fails to remedy such Construction Defect within 30 days after Tenant
gives Landlord Notice of such Construction Defect, in which case Landlord shall
have no further obligation with respect to such Construction Defect other than
to cooperate, at no cost to Landlord, with Tenant should Tenant elect to pursue
a claim against such contractor, provided that Tenant indemnifies and holds
Landlord harmless from and against any liability, loss, cost, damage, or expense
that may arise because Tenant's claim is denied or is determined to be baseless,
erroneous, faulty, groundless, improper, inappropriate, unfounded, or otherwise
unjustified or unwarranted; or
(c) with respect to any part of the Premises or the Project, any
action by Tenant has directly resulted in the invalidation of any otherwise
enforceable warranty or bond that would cover the cost of remedying such
Construction Defect.
Any determination made by Landlord pursuant to paragraph (a) or (b) above shall
be deemed reasonable and in good faith if based on advice received by Landlord
from an independent and duly licensed design or construction consultant (a
"Defect Consultant"). Tenant may ask a Defect Consultant to provide written
confirmation of the advice given Landlord in connection with a determination by
Landlord that a specific Construction Defect is not a Serious Construction
Defect if, and only if, (i) Tenant gives Landlord Notice of such desire within 3
business days after receiving Notice of Landlord's determination, and (ii)
Tenant is solely responsible for any fee, cost, charge, or other assessment
imposed by the Defect Consultant for providing such written confirmation;
provided, however, that Tenant understands and agrees that Landlord's waiver of
- -------- -------
the potential conflict of interest facing the Defect Consultant shall be
strictly limited to the advice, and only the advice, given Landlord in the
specific instance in question and shall not apply, under any circumstances, to
any other advice or matters that may be the subject of the services provided to
Landlord by the Defect Consultant.
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15. Liens. Tenant, at Tenant's sole cost and expense, shall pay for all
work performed for, materials furnished to, or obligations incurred by Tenant in
connection with the Premises or the Project, and shall keep the Premises and the
Project free from, and shall discharge, by bond or otherwise, any mechanic's or
materialmen's lien or claim of lien filed against the Premises or the Project
for work claimed to have been done for, materials claimed to have been furnished
to, or obligations claimed to have been incurred by, Tenant in connection with
the Premises or the Project (generally, "Liens"). Tenant shall discharge any
such Lien within 10 days after Tenant receives notice of such Lien. With
respect to any Alterations for which the estimated cost exceeds $15,000.00,
Landlord may require Tenant, at Tenant's sole cost and expense, to provide a
lien and completion bond in an amount equal to 150.00% of such estimated cost,
insuring Landlord against any liability for any Liens that may arise from such
Alterations. Should Tenant fail to discharge any Lien in the manner and at the
time provided herein, Landlord shall have the right, but not the obligation, to
pay such claim or post a bond or otherwise provide security to eliminate the
Lien as a claim against title to the Project and the cost thereof shall be
immediately due from Tenant as Additional Rent. If Tenant shall lease or
finance the acquisition of office equipment, furnishings, or other personal
property of a removable nature used by Tenant in the operation of Tenant's
business, Tenant warrants that any Uniform Commercial Code Financing Statement
executed by Tenant will on its face or by exhibit thereto indicate that such
Financing Statement is applicable only to removable personal property of Tenant
located within the Premises. In no event shall the address of the Project be
furnished on the statement without qualifying language as to applicability of
the lien only to removable personal property, located in an identified suite
held by Tenant.
16. Indemnification.
(a) Tenant hereby indemnifies and agrees to defend, save, and hold
Landlord harmless from and against any and all Claims for injury or death to
persons or damage to property occurring within or about the Premises or the
Project, arising directly or indirectly out of Tenant's use or occupancy of the
Premises or the Project or a breach or default by Tenant in the performance of
any of its obligations hereunder, except to the extent caused by the gross
negligence or willful misconduct of Landlord.
(b) Landlord hereby indemnifies and agrees to defend, save, and hold
Tenant harmless from and against any and all Claims for injury or death to
persons or damage to property occurring within or about the Premises or the
Project, to the extent, and only to the extent, caused by the gross negligence
or willful misconduct of Landlord. Under no circumstances, however, shall
Landlord be liable to Tenant for, and Tenant assumes all risk of, damage to
personal property (including, without limitation, loss of records kept within
the Premises). Further, Tenant waives any and all Claims for injury to Tenant's
business or loss of income relating to any such damage or destruction of
personal property (including, without limitation, any loss of records).
Finally, Landlord shall not be liable for any damages arising from any act,
omission, or neglect of any guests, invitees, licensees, and other authorized
users of the Project or of any other third party.
17. Insurance. Landlord shall maintain all insurance against any peril
generally included within the classification "Fire and Extended Coverage",
sprinkler damage (if applicable), vandalism and malicious mischief covering the
full replacement cost of the Project,
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as the same shall exist from time to time, or the amount required by the Ground
Lessor or any lender of Landlord holding a security interest in Landlord's
interest in the Project, but in no event more than the commercially reasonable
and available insurable value thereof. Landlord also may maintain, but is not
obligated to maintain, such other insurance and additional coverages as Landlord
may deem necessary, including, but not limited to, comprehensive public
liability, flood, environmental hazard, earthquake, loss or failure of building
equipment, and rental loss during periods of repair or rebuilding. The Project
may be included in a blanket policy (in which case the cost of such insurance
allocable to the Project will be determined by Landlord based upon the insurer's
cost calculations). Tenant hereby acknowledges that Tenant has been provided
with a written summary of the insurance coverage that Landlord will be
maintaining with respect to the Project as of the Commencement Date; Landlord
will be responsible for notifying Tenant of any material changes in such
insurance coverage made after the Commencement Date.
Tenant, at its sole expense, shall maintain during the Term and any Term
Extension: all risk property insurance covering the full replacement cost of all
property and improvements installed or placed in the Premises by Tenant;
worker's compensation insurance with no less than the minimum limits required by
law; employees liability insurance with such limits as required by law; and
comprehensive public liability insurance, with a minimum limit of not less than
$2,000,000 per occurrence for death or bodily injury and not less than
$1,000,000 for property damage with respect to the Premises. Landlord may from
time to time require reasonable increases in any such limits. The comprehensive
public liability insurance policies shall name Landlord, its officers,
directors, employees, managers, agents, invitees and contractors (collectively,
"Related Parties"), as additional insureds; insure on an occurrence and not a
claims-made basis; be issued by insurance companies that have a rating of not
less than policyholder rating of A and financial category rating of at least
Class XII in "Best's Insurance Guide"; shall not be cancelable unless 30 days
prior written notice shall have been given to Landlord from the insurer; contain
a hostile fire endorsement and a contractual liability endorsement; and provide
primary coverage to Landlord (any policy issued to Landlord providing duplicate
or similar coverage shall be deemed excess over Tenant's policies). Such
policies or certificates thereof shall be delivered to Landlord by Tenant upon
commencement of the Term and upon each renewal of said insurance (upon renewal,
copies of such policies or certificates will suffice, so long as the original
policies or certificates are forwarded to Landlord within 2 business days
thereafter). Tenant's policy may be a "blanket policy" which specifically
provides that the amount of insurance shall not be prejudiced by other losses
covered by the policy. Tenant shall, at least 20 days prior to the expiration
of such policies, furnish Landlord with renewals or binders. Tenant agrees that
if Tenant does not maintain such insurance, Landlord shall have the right (but
not the obligation) to procure said insurance on Tenant's behalf.
In each instance where insurance is to name Landlord as an additional
insured, Tenant, upon Landlord's written request, shall furnish certificates so
evidencing Landlord as additional insured to: (i) the Ground Lessor, (ii) any
lender of Landlord holding a security interest in any portion of the Project,
and/or (iii) any management company retained by Landlord to manage the Project.
Further, Tenant agrees that Landlord may require insurance policy limits to be
raised to conform to the requirements of the Ground Lessor and/or Landlord's
lender.
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The property insurance obtained by Landlord and Tenant shall include a
waiver of subrogation by the insurers and all rights based upon an assignment
from its insured, against Landlord or Tenant, and their respective Related
Parties, in connection with any loss or damage thereby insured against. Neither
party nor its respective Related Parties shall be liable to the other for loss
or damage caused by any risk insured against under property insurance required
to be maintained hereunder, and each party waives any claims against the other
party, and its respective Related Parties for such loss or damage. The failure
of a party to insure its property shall not void this waiver. Landlord and its
respective Related Parties shall not be liable for, and Tenant hereby waives all
claims against such parties for, business interruption and losses occasioned
thereby sustained by Tenant or any person claiming through Tenant resulting from
any accident or occurrence in or upon the Premises or the Project from any cause
whatsoever. If the foregoing waivers shall contravene any law with respect to
exculpatory agreements, the liability of Landlord or Tenant shall be deemed not
released but shall be secondary to the others Insurer.
The cost of any insurance procured and/or maintained by Landlord pursuant
to this Section shall be included as an Operating Expense.
Notwithstanding any provision of this Section, Landlord shall insure, and
shall bear all risk of loss with respect to, the Premises and the Project at all
times prior to the Commencement Date, with the exception of any acts or
omissions by Tenant or its agents or contractors.
18. Restoration. If at any time during the Term or any Term Extension the
Project or the Premises are damaged by a fire or other insured casualty,
Landlord shall notify Tenant within 45 days after discovery of such damage as to
the amount of time Landlord reasonably estimates it will take to restore the
Project or the Premises, as applicable. If the restoration time is estimated to
exceed 6 months, either party, by giving Notice to the other party, may elect to
terminate this Lease as of the date that is 75 days after the date of discovery
of such damage. Unless either party elects to terminate this Lease, Landlord,
subject to receipt of sufficient insurance proceeds, shall promptly restore the
Premises (excluding any Alterations installed by Tenant and any other
improvements installed by Landlord and paid for by Tenant after Substantial
Completion of the original Premises), subject to delays arising from the
collection of insurance proceeds, from Force Majeure events, or as needed to
obtain any license, clearance, or other authorization of any kind required to
enter into and restore the Premises issued by any Governmental Authority having
jurisdiction over the use, storage, release or removal of Hazardous Materials
in, on, or about the Premises (collectively referred to herein as "Hazardous
Materials Clearances"); provided, however, that if such repair or restoration of
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the Premises is not Substantially Complete within 9 months after the date of
discovery of the damage (to be extended by I day for each day that the
restoration time is estimated to exceed 6 months, provided that neither party
elected to terminate this Lease based on such estimate), either party, by giving
Notice to the other party, may elect not to proceed with such repair and
restoration, in which event Landlord shall be relieved of its obligations to
make such repairs or restoration and this Lease shall terminate effective as of
the date of such election.
Tenant, at its expense, shall promptly perform, subject to delays arising
from the collection of insurance proceeds, from Force Majeure events or to
obtain Hazardous Material Clearances, all repairs or restoration not required to
be done by Landlord and, as soon as
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<PAGE>
reasonably practicable, shall re-enter the Premises and commence doing business
in accordance with this Lease. Notwithstanding the foregoing, Landlord may
terminate this Lease if the Premises are damaged during the last 18 months of
the Term or of any Term Extension and Landlord reasonably estimates that it will
take more than 60 days to repair such damage, or if insurance proceeds are not
available for such restoration. Rent shall be abated from the date all required
Hazardous Material Clearances are obtained until the Premises are repaired and
restored, in the proportion that the area of the Premises that is not usable by
Tenant, if any, bears to the total area of the Premises, unless Landlord
provides Tenant with other space during the period of repair that is suitable,
in Tenant's reasonable discretion, for the temporary conduct of Tenant's
business. Such abatement shall be Tenant's sole and exclusive remedy at law, in
equity, or otherwise, and except as provided herein, Tenant waives any right to
terminate the Lease by reason of damage or casualty loss.
The provisions of this Lease, including this Section, constitute an express
agreement between Landlord and Tenant with respect to any and all damage to, or
destruction of, all or any part of the Premises, or any other portion of the
Project, and any statute or regulation that is now or may hereafter be in
effect, shall have no application to this Lease or any damage or destruction to
all or any part of the Premises or any other portion of the Project, the parties
hereto expressly agreeing this Section sets forth their entire understanding and
agreement with respect to such matters.
19. Condemnation. If any part of the Premises or the Project is taken for
any public or quasi-public use under any governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would, in Tenant's judgment,
prevent or materially interfere with Tenant's use of the Premises for the
Permitted Use or, in Landlord's judgment, materially interfere with or impair
Landlord's ownership or operation of the Project, then upon Notice by either
party to the other party this Lease shall terminate and Rent shall be
apportioned as of said date. If part of the Premises shall be Taken, and this
Lease is not terminated as provided above, Landlord shall promptly restore the
Premises and the Project as nearly as is commercially reasonable under the
circumstances to their condition prior to such partial taking and the Rent
payable hereunder during the unexpired portion of the Term or any Term Extension
shall be reduced to such extent as may be fair and reasonable under the
circumstances. Upon any such Taking, Landlord shall be entitled to receive the
entire price or award from any such Taking without any payment to Tenant, and
Tenant hereby assigns to Landlord Tenant's interest, if any, in such award.
Tenant shall have the right, to the extent that same shall not diminish
Landlord's award, to make a separate claim against the condemning authority (but
not Landlord) for such compensation as may be separately awarded or recoverable
by Tenant for moving expenses and damage to Tenant's Trade Fixtures, if a
separate award for such items is made to Tenant. Tenant hereby waives any and
all rights it might otherwise have pursuant to any provision of state law to
terminate this Lease upon a partial Taking of the Premises or the Project
20. Events of Default. Each of the following events shall be a default
("Default") by Tenant under this Lease:
(a) Payment Defaults. Tenant shall fail to pay any installment of
Rent or any other payment hereunder when due; provided, however, that Landlord
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will give Tenant Notice
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<PAGE>
and an opportunity to cure any failure to pay Rent within 3 days of any such
Notice not more than once in any 12 month period and Tenant agrees that such
Notice shall be in lieu of and not in addition to any notice required by law.
(b) Insurance. (i) Any insurance required to be maintained by Tenant
pursuant to this Lease shall be canceled or terminated or shall expire or shall
be reduced or materially changed, or Landlord shall receive a notice of
nonrenewal of any such insurance and (ii) Tenant shall fail to obtain
replacement insurance at least 20 days before the expiration of the current
coverage.
(c) Abandonment. Tenant shall abandon the Premises.
(d) Improper Transfer. Tenant shall assign, sublease or otherwise
transfer or attempt to transfer all or any portion of Tenant's interest in this
Lease or the Premises except as expressly permitted herein, or Tenant's interest
in this Lease shall be attached, executed upon, or otherwise judicially seized
and such action is not released within 90 days of the action.
(e) Liens. Tenant shall fail to satisfy its obligations under Section
-------
15.
- --
(f) Insolvency Events. Tenant or any guarantor or surety of Tenant's
obligations hereunder shall: (i) make a general assignment for the benefit of
creditors; (ii) commence any case, proceeding or other action seeking to have an
order for relief entered on its behalf as a debtor or to adjudicate it bankrupt
or insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or of
any substantial part of its property (collectively a "Proceeding for Relief');
(iii) become the subject of any Proceeding for Relief that is not dismissed
within 90 days of its filing or entry; or (iv) die or suffer a legal disability
(if Tenant, guarantor, or surety is an individual) or be dissolved or otherwise
fail to maintain its legal existence (if Tenant, guarantor or surety is a
corporation, partnership or other entity).
(g) Estoppel Certificate or Subordination Agreement. Tenant fails to
execute any document required from Tenant under Sections 23, 27, or 38 within 10
----------- -- --
days after a second Notice requesting such document
(h) Greenhouse Loan. Tenant is in breach of, in default under, or
otherwise has failed to comply with the agreements, terms, covenants and
conditions to be performed by Tenant in connection with the "Greenhouse Loan" or
pursuant to any of the "Greenhouse Loan Documents" (as such terms are defined in
Section 42 below), after any applicable notice and cure periods.
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(i) Warrant Agreement. Tenant is in breach of, in default under, or
otherwise has failed to comply with the agreements, terms, covenants and
conditions to be performed by Tenant in connection with the `Warrant Agreement"
(as defined in Section 43 below), after any applicable notice and cure periods.
----------
(j) Other Defaults. Tenant shall fail to comply with any provision of
this Lease other than those specifically referred to in this Section, and except
as otherwise expressly
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provided herein, such failure shall continue for a period of 30 days after
Notice thereof from Landlord to Tenant.
Any Notice given under Section 20(g) or (j) hereof, shall: (i) specify the
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alleged default, (ii) demand that Tenant cure such default, (iii) be in lieu of,
and not in addition to, or be deemed to be, any notice required under any
provision of applicable law, and (iv) not be deemed a forfeiture or a
termination of this Lease unless Landlord elects otherwise in such Notice;
provided, however, that if the nature of Tenant's default is such that it cannot
- -------- -------
be cured by the payment of money and reasonably requires more than 30 days to
cure, then Tenant shall not be deemed to be in default if Tenant commences such
cure within said 30-day period and thereafter diligently prosecutes the same to
completion; provided further, however, that such cure shall be completed no
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later than 60 days from the date of Landlord's Notice.
21. Landlord's Remedies.
(a) Payment By Landlord; Interest. Upon a Default by Tenant
hereunder, Landlord, without waiving or releasing any obligation of Tenant
hereunder, may make such payment or perform such act. All sums so paid or
incurred by Landlord, together with interest thereon, from the date such sums
were paid or incurred, at the annual rate equal to 12.00% per annum or the
highest rate permitted by law, whichever is less (the "Default Rate"), shall be
payable to Landlord on demand as Additional Rent. Nothing herein shall be
construed to create or impose a duty on Landlord to mitigate any damages
resulting from Tenant's Default hereunder.
(b) Late Payment Rent. Late payment by Tenant to Landlord of Rent and
other sums due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult and impracticable to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges that may be
imposed on Landlord under any "Mortgage" (as defined in Section 27 below)
----------
covering the Premises. Therefore, if Landlord does not receive any installment
of Rent due from Tenant within 5 days after the date such payment is due, Tenant
shall pay to Landlord an additional sum of 6.00% of the overdue Rent as a late
charge. In addition to the late charge, Rent not paid when due shall bear
interest at the Default Rate from the 5th day after the date due until paid.
Provided there is no other Default by Tenant hereunder, the foregoing late
charge and interest at the Default Rate will not be payable until the 2nd late
payment of Rent in any 12 month period. Tenant agrees that the foregoing late
charge and interest at the Default Rate represent a fair and reasonable estimate
of the costs Landlord will incur by reason of late payment by Tenant. Tenant
also acknowledges that Landlord is entitled to use reasonable methods to deter
delinquent payments by Tenant and agrees that, under the circumstances in
existence as of the date of this Lease, the foregoing late charge and interest
at the Default Rate are reasonable, as evidenced by the fact that, among other
things, (i) Landlord and Tenant have comparatively equal bargaining power, (ii)
this Lease is not a pre-printed form document, and (iii) Tenant's principals are
well experienced in leasing properties, were represented by counsel in the
negotiation and documentation of this Lease, and bargained at arms length and
without duress for all of the terms and conditions of this Lease, including this
provision.
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(c) Remedies. Upon the occurrence of a Default, Landlord, at its option,
without further Notice to or demand on Tenant, shall have the option, in
addition to all other rights and remedies provided in this Lease, at law or in
equity, to pursue any one or more of the following remedies, each and all of
which shall be cumulative and nonexclusive, without any Notice or demand
whatsoever.
(i) Terminate this Lease, or at Landlord's option, Tenant's right
to possession only, in which event Tenant shall immediately surrender the
Premises to Landlord, and if Tenant fails to do so, Landlord may, in accordance
with applicable law and without prejudice to any other remedy that it may have
for possession or arrearages in rent, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
the Premises or any part thereof, without being liable for prosecution or any
claim or damages therefor;
(ii) Upon any termination of this Lease, whether pursuant to the
foregoing Section 21 (c)(i) or otherwise, Landlord may recover from Tenant the
-----------------
following:
(A) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(B) The worth at the time of award of the amount by which
the unpaid rent that would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(C) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Term or Term Extension (as the case may
be) after the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
(D) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, specifically including, but not limited to,
brokerage commissions and advertising expenses incurred and the expenses of
remodeling the Premises or any portion thereof for a new tenant, whether for the
same or a different use, and any special concessions made to obtain a new
tenant; and
(E) At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section shall be deemed to be and to mean all
sums of every nature required to be paid by Tenant pursuant to the terms of this
Lease, whether to Landlord or to others. As used in Sections 21 (c)(ii)(A) and
----------------------
(B), above, the "worth at the time of award" shall be computed by allowing
- ---
interest at the Default Rate. As used in Section 21(c)(ii)(C) above, the "worth
--------------------
at the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus 1.00%.
(iii) Landlord may continue this Lease in effect after
Tenant's Default and recover rent as it becomes due. Accordingly, if Landlord
does not elect to terminate this
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Lease following a Default by Tenant, Landlord may, from time to time, without
terminating this Lease, enforce all of its rights and remedies hereunder,
including the right to recover all Rent as it becomes due.
(iv) Whether or not Landlord elects to terminate this Lease
following a Default by Tenant, Landlord shall have the right to terminate any
and all subleases, licenses, concessions or other consensual arrangements for
possession entered into by Tenant and affecting the Premises or may, in
Landlord's sole and absolute discretion, succeed to Tenant's interest in such
subleases, licenses, concessions or arrangements. Upon Landlord's election to
succeed to Tenant's interest in any such subleases, licenses, concessions or
arrangements, Tenant shall, as of the date of Notice by Landlord of such
election, have no further right to or interest in the rent or other
consideration receivable thereunder.
(d) Effect of Exercise. Exercise by Landlord of any remedies
hereunder or otherwise available shall not be deemed to be an acceptance of
surrender of the Premises and/or a termination of this Lease by Landlord, it
being understood that such surrender and/or termination can be effected only by
the express written agreement of Landlord and Tenant. Any law, usage, or custom
to the contrary notwithstanding, Landlord shall have the right at all times to
enforce the provisions of this Lease in strict accordance with the terms hereof;
and the failure of Landlord at any time to enforce its rights under this Lease
strictly in accordance with same shall not be construed as having created a
custom in any way or manner contrary to the specific terms, provisions, and
covenants of this Lease or as having modified the same and shall not be deemed a
waiver of Landlord's right to enforce one or more of its rights in connection
with any subsequent default. A receipt by Landlord of Rent or other payment with
knowledge of the breach of any covenant hereof shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord. To
the greatest extent permitted by law, Tenant waives the service of notice of
Landlord's intention to re-enter, re-take or otherwise obtain possession of the
premises as provided in any statute, or to institute legal proceedings to that
end, and also waives all right of redemption in case Tenant shall be
dispossessed by a judgment or by warrant of any court or judge. Any reletting of
the Premises or any portion thereof shall be on such terms and conditions as
Landlord in its sole and absolute discretion may determine. Landlord shall not
be liable, nor shall Tenant's obligations hereunder be diminished because of,
Landlord's failure to relet the Premises or collect rent due in respect of such
reletting or otherwise to mitigate any damages arising by reason of Tenant's
Default.
22. Assignment and Subletting.
(a) General Prohibition. Without Landlord's prior written consent,
Tenant shall not, directly or indirectly, voluntarily or by operation of law,
assign this Lease or sublease the Premises or any part thereof or mortgage,
pledge, or hypothecate its leasehold interest or grant any concession or license
within the Premises and any attempt to do any of the foregoing shall be void and
of no effect. For purposes of this Section, a transfer of ownership interests
controlling Tenant shall be deemed an assignment of this Lease unless such
ownership interests are publicly traded.
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(b) Permitted Transfers. If Tenant desires to assign, sublease,
hypothecate or otherwise transfer this Lease or sublet the Premises (generally,
a "Transfer"), then at least 15 business days, but not more than 30 business
days, before the date Tenant desires the Transfer to be effective (the
"Assignment Date"), Tenant shall give Landlord a Notice (the "Assignment
Notice") containing such information about the proposed transferee, including
the proposed use of the Premises and any Hazardous Materials proposed to be used
or stored in the Premises, the Assignment Date, any relationship between Tenant
and the proposed transferee, and all material terms and conditions of the
proposed Transfer, and such other information as Landlord may deem reasonably
necessary or appropriate to its consideration whether to grant its consent.
Landlord may, by giving Notice to Tenant within 15 business days after receipt
of the Assignment Notice: (i) grant or refuse such consent, in its sole and
absolute discretion, with respect to any Transfer other than a straightforward
sublease of not more than 5,000 square feet of the Premises (a "Minor
Sublease"), or grant or refuse such consent, in its reasonable discretion, with
respect to such a Minor Sublease, or (ii) terminate this Lease with respect to
the space described in the Assignment Notice, as of the Assignment Date (an
"Assignment Termination"). If Landlord elects an Assignment Termination, Tenant
shall have the right to withdraw its Assignment Notice by Notice to Landlord of
such election within 5 days after Landlord's Notice electing to exercise the
Assignment Termination. If Tenant withdraws such Assignment Notice, this Lease
shall continue in full force and effect. If Tenant does not withdraw such
Assignment Notice, this Lease, and the term and estate herein granted, shall
terminate as of the Assignment Date with respect to the space described in such
Assignment Notice. No failure of Landlord to exercise any such option to
terminate this Lease shall be deemed to be Landlord's consent to the proposed
Transfer. Tenant shall reimburse Landlord for all reasonable out-of-pocket
expenses, up to a maximum of $1,000.00, incurred by Landlord in connection with
its consideration of any Assignment Notice.
(c) Additional Conditions. As a condition to any such Transfer,
Landlord may require:
(i) that any transferee agree, in writing at the time of such
Transfer, that if Landlord gives such third party notice that Tenant is in
default under this Lease, such third party shall thereafter make all payments
otherwise due Tenant directly to Landlord, which payments will be received by
Landlord without any liability except to credit such payment against those due
under this Lease, and any such third party shall agree to attorn to Landlord or
its successors and assigns should this Lease be terminated for any reason;
provided, however, in no event shall Landlord or its successors or assigns be
- -------- -------
obligated to accept such attornment; and
(ii) A list of Hazardous Materials, certified by the proposed
transferee to be true and correct, which the proposed transferee intends to use
or store in the Premises together with the "Documents" (as defined in Section
-------
30(b) below) with respect to such proposed transferee.
- -----
(d) No Release of Tenant. Notwithstanding any Transfer, Tenant and
any guarantor or surety of Tenant's obligations under this Lease shall at all
times remain fully and primarily responsible and liable for the payment of Rent
and for compliance with all of Tenant's other obligations under this Lease. If
the Rent due and payable by a transferee (or a combination of the rental payable
under such Transfer plus any bonus or other consideration therefor or
27
<PAGE>
incident thereto) exceeds the rental payable under this Lease, then Tenant shall
be bound and obligated to pay Landlord as Additional Rent hereunder all such
excess rental and other excess consideration within 10 days following receipt
thereof by Tenant. If Tenant shall sublet the Premises or any part thereof,
Tenant hereby immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any such subletting and
Landlord, as assignee, or a receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of a Default, Tenant shall
have the right to collect such rent.
(e) No Waiver. The consent by Landlord to a Transfer shall not
relieve Tenant or any transferee from obtaining the consent of Landlord to any
further Transfer nor shall it release Tenant or any transferee from full and
primary liability under the Lease. The acceptance of Rent hereunder, or the
acceptance of performance of any other term, covenant, or condition thereof,
from any other person or entity shall not be deemed to be a waiver of any of the
provisions of this Lease or a consent to any Transfer.
23. Estoppel Certificate. Tenant shall within 15 business days of Notice
from Landlord, execute, acknowledge and deliver a statement in writing
substantially in the form attached to this Lease as Exhibit J with the blanks
---------
filled in, and on any other form reasonably requested by a proposed lender or
purchaser, (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease as so modified is in full force and effect) and the dates to
which the rental and other charges are paid in advance, if any, (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed,
and (iii) setting forth such further information with respect to the status of
this Lease or the Premises as may be reasonably requested thereon. Any such
statement may be relied upon by any prospective purchaser or encumbrancer of all
or any portion of the real property of which the Premises are a part. Tenant's
failure to deliver such statement within such time shall, at the option of
Landlord, constitute a Default under this Lease, and, in any event, shall be
conclusive upon Tenant that the Lease is in full force and effect and without
modification except as may be represented by Landlord in any certificate
prepared by Landlord and delivered to Tenant for execution.
24. Quiet Enjoyment. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, at all times
during the Term and any Term Extension, have peaceful and quiet enjoyment of the
Premises and the Project against any person claiming by, through, or under
Landlord.
25. Prorations. All prorations required or permitted to be made hereunder
shall be made on the basis of a 360-day year and 30-day months.
26. Rules and Regulations. Tenant shall, at all times during the Term and
any Term Extension, comply with all reasonable rules and regulations at any time
or from time to time established by Landlord covering the use of the Premises
and the Project and delivered to Tenant at least 30 days prior to their
effective date. The current rules and regulations are attached hereto as
Exhibit H. If there is any conflict between said rules and regulations and
- ---------
other provisions of this Lease, the terms and provisions of this Lease shall
control. Landlord shall not have any
28
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obligation to enforce any rules or regulations against, and shall have no
liability for the breach of any rules or regulations by, other tenants in the
Project. If Landlord chooses to enforce any rules or regulations against other
tenants in the Project, Landlord shall do so in a non-discriminatory manner.
27. Subordination. This Lease and Tenant's interest and rights hereunder
are and shall be subject and subordinate at all times to the lien of any first
mortgage, now existing or hereafter created on or against the Project or the
Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancings, assignments and extensions thereof (collectively,
a "Mortgage"), without the necessity of any further instrument or act on the
part of Tenant; provided, however, that so long as there is no Default
-------- -------
hereunder, Tenant's receipt of a fully executed instrument containing
appropriate non-disturbance provisions assuring Tenant's quiet enjoyment of the
Premises as set forth in Section 24 hereof shall be a condition precedent to the
----------
subordination of Tenant's interest and rights hereunder and Tenant's right to
possession of the Premises shall not be disturbed by the holder of any such
Mortgage (a "Holder"). Tenant agrees, at the election of any Holder, to attorn
to any such Holder. Tenant agrees, upon demand, to execute, acknowledge and
deliver a Subordination, Non-Disturbance and Attornment Agreement substantially
in the form attached hereto as Exhibit K (the "Loan Subordination Agreement) or
---------
such other instruments, confirming such subordination and such instruments of
attornment as shall be reasonably requested by any Holder, provided any such
instruments contain the appropriate non-disturbance provisions described above.
Notwithstanding the foregoing, any Holder may at any time subordinate its
Mortgage to this Lease, without Tenant's consent, by written notice to Tenant,
and thereupon this Lease shall be deemed prior to such Mortgage without regard
to their respective dates of execution, delivery, or recording and in that event
such Holder shall have the same rights with respect to this Lease as though this
Lease had been executed prior to the execution, delivery, and recording of such
Mortgage and had been assigned to such Holder. Landlord shall use commercially
reasonable efforts to obtain an express agreement from the Holder of any
Mortgage that the lien of such Mortgage does not apply or attach to any property
that, by operation of the terms of this Lease, is deemed to be Tenant's separate
property, whether or not such property is, has been, or will become affixed to
the Premises. The term "Mortgage" whenever used in this Lease shall be deemed
to include deeds of trust, security assignments and any other encumbrances given
for value, and any reference to the "Holder" of a mortgage shall be deemed to
include the beneficiary under a deed of trust.
28. Surrender. Upon expiration or earlier termination of Tenant's right
of possession, Tenant may, subject to the exercise of any remedies by Landlord,
remove Tenant's Property and shall surrender the Premises to Landlord in
substantially the same condition as received, broom clean, ordinary wear and
tear, approved Alterations, and casualty loss and condemnation covered by
Sections 18 and 19 excepted, and shall return to Landlord all keys to offices
and restrooms furnished to, or otherwise procured by, Tenant. If any such key
is lost, Tenant shall pay to Landlord, at Landlord's election, either the cost
of replacing such lost key or the cost of changing the lock or locks opened by
such lost key. Any Trade Fixtures, Alterations, and property not so removed by
Tenant as permitted or required herein shall be deemed abandoned and may be
stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant
waives all claims against Landlord for any damages resulting from Landlord's
retention and/or disposition of such property. All obligations of either party
that have arisen and/or become binding hereunder but
29
<PAGE>
have not been fully satisfied as of the expiration or earlier termination of
this Lease shall survive such expiration or earlier termination, including
without limitation, indemnity obligations, payment obligations (including Rent),
obligations concerning the condition and repair of the Premises, and the
obligation to obtain all required Hazardous Materials Clearances. Without
limiting the generality of the foregoing, the following provisions shall survive
the expiration or earlier termination of this Lease: (a) the indemnity
obligations contained in Sections 7, 12, 14(b), 16(a), 16(b), 30(a), 30(d), 35
---------- -- ----- ----- ----- ----- ----- --
and 38(b); (b) the payment obligations contained in Sections 3, 5, 6, 8, 9, 11,
----- ---------- - - - - --
15, 21(a), 21(b) and 22(d); (c) the maintenance, repair, and/or restoration
- -- ----- ----- -----
obligations contained in Sections 12, 13, and 18; (d) the obligation to obtain
----------- -- --
Hazardous Materials Clearances contained in Section 18; and (e) the agreements
----------
contained in Sections 29, 36, and 44.
----------- -- --
29. WAIVER OF JURY TRIAL. TENANT AND LANDLORD EACH AGREE NOT TO ELECT A
TRIAL BY JURY, AND WAIVE ANY RIGHT TO A TRIAL BY JURY OR TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER
INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR THE TRANSACTIONS RELATED HERETO. THIS WAIVER IS GIVEN KNOWINGLY AND
VOLUNTARILY, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE AS TO
WHICH THE RIGHT TO TRIAL BY JURY OTHERWISE WOULD ACCRUE. TENANT AND LANDLORD
EACH AGREE THAT THIS PROVISION CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL
BY JURY, AND EACH PARTY AUTHORIZES THE OTHER PARTY TO FILE A COPY OF THIS
PROVISION, IN ANY PROCEEDING, AS CONCLUSIVE EVIDENCE OF THIS CONSENT TO WAIVER.
30. Environmental Requirements.
(a) Prohibition Compliance. Landlord has provided Tenant with copies
of all environmental tests, reports, inspections, surveys, samples, studies, and
other analyses of the Site and the Additional Site that are in Landlord's
possession or control or that Landlord, through the exercise of commercially
reasonable efforts, has been able to obtain from various Governmental
Authorities having jurisdiction over "Hazardous Materials" (as hereinafter
defined) that may be present at the Site or the Additional Site (collectively,
the "Environmental Information") A list of the documents containing the
Environmental Information is attached hereto as Exhibit O. Tenant may request
---------
additional environmental testing of the Site at any time during the first 6
months after the Effective Date and, if permitted by the Ground Lessor and
actually performed, the information obtained from such additional testing shall
be deemed a part of the Environmental Information. Except to the extent payable
by a third party (including, without limitation, the Ground Lessor or any
previous tenant of the Site), the cost of any additional environmental testing
of the Site shall be amortized over a period of 7 years and shall be includable
by Landlord as an Operating Expense. Landlord shall not be responsible, and
Tenant hereby waives any right to assert any claim against Landlord, for any
Pre-Existing Contamination. In addition to the forgoing, Tenant shall not cause
or permit any Hazardous Materials to be brought upon, kept, or used in or about
the Premises, the Project, or the Site in violation of applicable law. If
Tenant breaches the obligation stated in the preceding sentence, if the presence
of Hazardous Materials permitted by Tenant results in contamination of the
Premises, the Project, the Site, or any adjacent property (including the
Additional Site), or if any contamination of the Premises,
30
<PAGE>
Project, Site, or any adjacent property (including the Additional Site) that is
not expressly identified in the Environmental Information ("Previously Unknown
Contamination") is discovered during the Term or any Term Extension or renewal
hereof or holding over hereunder and Tenant cannot demonstrate that such
Previously Unknown Contamination was present at the Site before the Effective
Date or is attributable solely to the actions or omissions of a person or entity
other than Tenant, Tenant shall indemnify, defend, and hold Landlord, its
officers, directors, employees, agents and contractors harmless from any and all
claims, judgments, damages, penalties, fines, costs, liabilities, or losses
(including, without limitation, diminution in value of the Premises or any
portion of the Project, damages for the loss or restriction on use of rentable
or usable space or of any amenity of the Premises or the Project, damages
arising from any adverse impact on marketing of space in the Premises or the
Project, increase in the cost of designing, constructing, or permitting any
additional improvements within the Project, and sums paid in settlement of
claims and Legal Fees) that arise before or after the expiration or earlier
termination of this Lease as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any cleanup,
remedial, removal, or restoration work required by any Governmental Authority
because of Hazardous Materials present in the air, soil, or ground water above,
on, or under the Premises, the Project, the Site, or any adjacent property
(including the Additional Site). Without limiting the foregoing, if the presence
of any Hazardous Materials within the Premises, the Project, the Site, or any
adjacent property (including the Additional Site) caused or permitted by Tenant
results in any contamination of the Premises, the Project, the Site, or any
adjacent property (including the Additional Site), Tenant shall promptly take
all actions at its sole expense as are necessary to return the Premises, the
Project, the Site, or any adjacent property (including the Additional Site) to
the condition existing prior to the time of such contamination, provided that
Landlord's approval of such action shall first be obtained, which approval shall
not unreasonably be withheld so long as such actions would not potentially have
any material adverse long-term or short-term effect on the Premises, the
Project, or the Site.
(b) Business. Landlord acknowledges that it is not the intent of this
Section to prohibit Tenant from operating its business as described in Section 7
---------
above. Tenant may operate its business according to the custom of the industry
so long as the use or presence of Hazardous Materials is strictly and properly
monitored according to all applicable governmental requirements. As a material
inducement to Landlord to allow Tenant to use Hazardous Materials in connection
with its business, Tenant agrees to deliver to Landlord prior to the
Commencement Date a list identifying each type of Hazardous Materials to be
present on the Premises, the Project, or the Site and setting forth any and all
governmental approvals or permits required in connection with the presence of
such Hazardous Materials on the Premises, the Project, or the Site ("Hazardous
Materials List"). Tenant shall deliver to Landlord an updated Hazardous
Materials List at least once a year and shall also deliver an updated list
before any new Hazardous Materials are brought onto the Premises, the Project,
or the Site. Tenant shall deliver to Landlord true and correct copies of the
following documents (the "Documents") relating to the handling, storage,
disposal, and emission of Hazardous Materials prior to the Commencement Date, or
if unavailable at that time, concurrent with the receipt from or submission to a
Governmental Authority: permits; approvals; reports, and correspondence; storage
and management plans, notice of violations of any laws; plans relating to the
installation of any storage tanks to be installed in or under the Premises, the
Project, or the Site (provided said installation of tanks shall only be
permitted after Landlord has given Tenant its written
31
<PAGE>
consent to do so, which consent may be withheld in Landlord's sole and absolute
discretion); and all closure plans or any other documents required by any and
all Governmental Authorities for any storage tanks installed in, on, or under
the Premises, the Project, or the Site for the closure of any such tanks. Tenant
is not required, however, to provide Landlord with any portion(s) of the
Documents containing information of a proprietary nature that, in and of
themselves, do not contain a reference to any Hazardous Materials or hazardous
activities, it being understood and agreed that it is not the intent of this
Section to provide Landlord with information that could be detrimental to
Tenant's business should such information become possessed by Tenant's
competitors. Accordingly, Landlord, except as may be provided otherwise herein
or required by law, shall (i) keep confidential the information contained in the
Documents, and (ii) disclose such information only to Landlord's officers,
directors, employees, or consultants with a need to know in connection with
Landlord's management of the Project, provided that Landlord shall inform all
non-affiliated recipients of such information of the confidentiality requirement
and (to the extent within Landlord's control) cause such confidence to be
maintained; provided, however, that disclosure of such information by Landlord
-------- -------
shall not be prohibited if that disclosure is of information that is a matter of
public record or public knowledge or was obtained by Landlord from sources other
than Tenant. Tenant agrees that it shall, at its own expense, and upon the
written request of Landlord, establish and maintain a separate area of the
Premises classified under the North Carolina State Building Code (as adopted by
the City of Durham) as an "H" occupancy area (i.e., the classification denoting
----
a hazardous materials occupancy area) for the use and storage of Hazardous
Materials.
(c) Termination of Lease. Notwithstanding the provisions of Section
-------
30(a) above, if (i) Tenant or any proposed transferee of Tenant has been
- -----
required by any prior landlord, lender, or Governmental Authority to take
remedial action in connection with Hazardous Materials contaminating a property
if the contamination resulted from such party's action or use of the property in
question, or (ii) Tenant or any proposed transferee of Tenant is adjudicated
guilty or responsible under an enforcement order issued by any Governmental
Authority in connection with the use, disposal, or storage of a Hazardous
Materials, Landlord shall have the right to terminate this Lease in Landlord's
sole and absolute discretion (with respect to any such matter involving Tenant)
and it shall not be unreasonable for Landlord to withhold its consent to any
proposed Transfer (with respect to any such matter involving a proposed
transferee).
(d) Testing. Landlord shall have the right to conduct annual tests of
the Premises (each, an "Annual Test" and collectively, "Annual Tests") to
determine whether any contamination has occurred as a result of Tenant's use.
Tenant shall be required to pay up to $2,000.00 of the cost of each such Annual
Test; provided, however, if Tenant conducts its own tests of the Premises using
-------- -------
third party contractors and test procedures acceptable to Landlord, which tests
are certified to Landlord, Landlord shall accept such tests in lieu of the
Annual Tests to be paid for by Tenant. In addition, at any time, and from time
to time, prior to the expiration or earlier termination of this Lease, Landlord
shall have the right to conduct additional appropriate tests of the Premises,
the Project, and the Site to determine whether contamination has occurred as a
result of Tenant's use of the Premises, the Project, or the Site. If
contamination has occurred for which Tenant is liable under this Section, Tenant
shall pay all costs to conduct such tests. If no such contamination is found,
Landlord shall pay the costs of such tests (which shall not constitute an
Operating Expense). Landlord shall provide Tenant with a copy of all reports
and tests of the Premises made by or on behalf of Landlord. Tenant shall be
solely
32
<PAGE>
responsible for and shall defend, indemnify, and hold Landlord and its agents
and contractors harmless from and against any and all claims, costs and
liabilities (including actual Legal Fees) arising out of or in connection with
any removal, clean up, restoration and materials required hereunder to return
the Premises, the Project, the Site, and any other property of whatever nature
to their condition existing prior to the time of any such contamination.
Landlord's receipt of or satisfaction with any environmental assessment in no
way waives any rights that Landlord holds against Tenant.
(e) Underground Tanks. If underground or other storage tanks storing
Hazardous Materials are located on the Premises, the Project, or the Site or are
hereafter placed on the Premises, the Project, or the Site by any party at
Tenant's request, Tenant shall monitor the storage tanks, maintain appropriate
records, implement reporting procedures, properly close any underground storage
tanks, and take or cause to be taken all other steps necessary or required under
applicable state and federal law, as such now exists or may hereafter be adopted
or amended.
(f) Tenant's Obligations. Each party's obligations under this Section
shall survive the expiration or earlier termination of the Lease. During any
period of time after the expiration or earlier termination of this Lease
required by Tenant or Landlord to complete the removal from the Premises of any
Hazardous Materials and the release and termination of any licenses or permits
restricting the use of the Premises, Tenant shall continue to pay the full Rent
in accordance with this Lease, which Rent shall be prorated daily.
(g) Definition of "Hazardous Materials". As used herein, the term
"Hazardous Materials" means any hazardous or toxic substance, material or waste
that is or becomes regulated by any Governmental Authority and includes, without
limitation, any material or substance that is (i) petroleum, (ii) asbestos,
(iii) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. Section 1317), (iv) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903),
-- ---
(v) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Section 9601 et seq. (42 U.S.C. Section 9601), (vi) defined as "hazardous
-- ---
waste, "extremely hazardous waste" or "restricted hazardous waste" under any
applicable state law, or (vii) defined as a "hazardous material" or "hazardous
substance" under any applicable state law.
31. Tenant's Remedies/Limitation of Liability. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after Notice from Tenant specifying such failure
(unless such performance will, due to the nature of the obligation, reasonably
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). Upon any default by Landlord, Tenant shall give
notice by registered or certified mail to the Ground Lessor and to any Holder of
a Mortgage covering the Premises or the Project and Tenant shall offer all such
persons a reasonable opportunity to cure the default, including time to obtain
possession of the Premises or the Project by power of sale or a judicial action
if such should prove necessary to effect a cure; provided Landlord shall have
--------
furnished to Tenant in writing the names and addresses of all such persons who
are to receive such notices. All obligations of Landlord hereunder shall be
construed as covenants, not
33
<PAGE>
conditions; and, except as may be otherwise expressly provided in this Lease,
Tenant may not terminate this Lease for breach of Landlord's obligations
hereunder. All obligations of Landlord under this Lease will be binding upon
Landlord only during the period of its ownership of the ground lessee's interest
under the Ground Lease and not thereafter. The term "Landlord" in this Lease
shall mean only the owner, for the time being, of the ground lessee's interest
under the Ground Lease, and upon the transfer by such owner of such ground
lessee's interest under the Ground Lease, such owner shall thereupon be released
and discharged from all obligations of Landlord thereafter accruing, but such
obligations shall be binding during the Term and any Term Extension upon each
new owner for the duration of such owner's ownership. Any liability of Landlord
under this Lease shall be limited solely to its interest in the Project, and in
no event shall any personal liability be asserted against Landlord in connection
with this Lease nor shall any recourse be had to any other property or assets of
Landlord or any of Landlord's officers, employees, agents, or contractors. Under
no circumstances shall Landlord or any of Landlord's officers, employees, agents
or contractors be liable for injury to Tenant's business or for any loss of
income or profit therefrom.
32. Inspection and Access. During business hours on not less than 48
hours advance Notice (except in the case of emergencies in which case no such
Notice shall be required and such entry may be at any time), Landlord and its
agents, representatives, and contractors may enter the Premises at any
reasonable time to inspect the Premises and to make such repairs as may be
required or permitted pursuant to this Lease and for any other business purpose,
including, without limitation, for the purpose of showing the Premises to
prospective purchasers and, during the last year of the Term or any Term
Extension (as the case may be), to prospective tenants, and Landlord may erect a
suitable sign on the Premises stating the Premises are available to let or that
the Project is available for sale. Landlord shall use commercially reasonable
efforts to minimize any loss, injury, inconvenience to or interference with
Tenant's business, or loss of occupancy or quiet enjoyment of the Premises
occasioned by Landlord entering the Premises pursuant to this Section. Landlord
also may grant easements, make public dedications, designate common areas and
create restrictions on or about the Premises, provided, however, that no sign or
-------- -------
easement, dedication, designation, or restriction materially adversely
interferes with Tenant's use or occupancy of the Premises. At Landlord's
request, Tenant shall execute such instruments as may be necessary for such
easements, dedications, or restrictions.
33. Security. Tenant acknowledges and agrees that security devices and
services, if any, while intended to deter crime may not in given instances
prevent theft or other criminal acts and that Landlord is not providing any
security services with respect to the Premises. Tenant agrees that Landlord
shall not be liable to Tenant for, and Tenant waives any claim against Landlord
with respect to, any loss by theft or any other damage suffered or incurred by
Tenant in connection with any unauthorized entry into the Premises or any other
breach of security with respect to the Premises. Tenant shall be solely
responsible for the personal safety of Tenant's officers, employees, agents,
contractors, guests and invitees while any such person is in, on or about the
Premises and/or the Project. Tenant shall at Tenant's cost obtain insurance
coverage to the extent Tenant desires protection against such criminal acts.
34. Force Majeure. Except for the payment of Rent, neither party shall be
held responsible for delays in the performance of its obligations hereunder when
caused by strikes, lockouts, labor disputes, acts of God, inability to obtain
labor or materials or reasonable
34
<PAGE>
substitutes therefor, governmental restrictions, governmental regulations,
governmental controls, delay in issuance of permits, enemy or hostile
governmental action, civil commotion, fire or other casualty, and other causes
beyond the reasonable control of Landlord ("Force Majeure").
35. Brokers; Entire Agreement; Amendment. Landlord shall pay Tenant's
Broker the commission agreed upon by Tenant and Tenant's Broker pursuant to
their separate agreement, as reviewed and approved by Landlord. Landlord and
Tenant each represent and warrant that it has not dealt with any broker, agent
or other person (collectively, "Broker") in connection with this transaction and
that no Broker brought about this transaction, other than Tenant's Broker.
Landlord and Tenant each hereby agree to indemnify and hold the other harmless
from and against any claims by any other Broker claiming a commission or other
form of compensation by virtue of having dealt with Tenant or Landlord, as
applicable, with regard to this leasing transaction. This Lease constitutes the
complete agreement of Landlord and Tenant with respect to the subject matter
hereof. No representations, inducements, promises or agreements, oral or
written, have been made by Landlord or Tenant, or anyone acting on behalf of
Landlord or Tenant, including any Brokers representing either Landlord or
Tenant, that are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. Tenant
represents and warrants that no broker or agent has made any representation or
warranty relied upon by Tenant in Tenant's decision to enter into this Lease.
Landlord in executing this Lease does so in reliance upon Tenant's
representations and warranties contained herein. This Lease may not be amended
except by an instrument in writing signed by both parties hereto.
36. Limitation On Landlord's Liability. NOTWITHSTANDING ANYTHING SET
FORTH HEREIN OR IN ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT TO THE
CONTRARY: (A) LANDLORD SHALL NOT BE LIABLE TO TENANT OR ANY OTHER PERSON FOR
(AND TENANT AND EACH SUCH OTHER PERSON ASSUME ALL RISK OF) LOSS, DAMAGE OR
INJURY, WHETHER ACTUAL OR CONSEQUENTIAL TO: TENANT'S PERSONAL PROPERTY OF EVERY
KIND AND DESCRIPTION, INCLUDING, WITHOUT LIMITATION TRADE FIXTURES, EQUIPMENT,
INVENTORY, SCIENTIFIC RESEARCH, SCIENTIFIC EXPERIMENTS, LABORATORY ANIMALS,
PRODUCT, SPECIMENS, SAMPLES, AND/OR SCIENTIFIC, BUSINESS, ACCOUNTING AND OTHER
RECORDS OF EVERY KIND AND DESCRIPTION KEPT AT THE PREMISES AND ANY AND ALL
INCOME DERIVED OR DERIVABLE THEREFROM; (B) THERE SHALL BE NO PERSONAL RECOURSE
TO LANDLORD FOR ANY ACT OR OCCURRENCE IN, ON OR ABOUT THE PREMISES OR ARISING IN
ANY WAY UNDER THIS LEASE OR ANY OTHER AGREEMENT BETWEEN LANDLORD AND TENANT WITH
RESPECT TO THE SUBJECT MATTER HEREOF AND ANY LIABILITY OF LANDLORD HEREUNDER
SHALL BE STRICTLY LIMITED TO LANDLORD'S INTEREST IN THE PROPERTY OF WHICH THE
PREMISES ARE A PART.
37. Severability. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to
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such illegal, invalid or unenforceable clause or provision as may be possible
and be legal, valid and enforceable.
38. Ground Lease.
(a) Tenant acknowledges that the Premises, the Project, and this Lease
are and shall remain subject and subordinate to the Ground Lease and the rights
of the Ground Lessor thereunder, and to all amendments, restatements, renewals,
modifications, assignments, and extensions thereof, without the necessity of any
further instrument or act on the part of Tenant; provided, however, that so long
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as there is no Default hereunder, Tenant's receipt from the Ground Lessor (or
any successor or assignee thereof, as appropriate) of a fully executed
instrument containing appropriate non-disturbance provisions assuring Tenant's
quiet enjoyment of the Premises as set forth in Section 24 hereof shall be a
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condition precedent to the subordination of Tenant's interest and rights
hereunder and Tenant's interest and rights hereunder shall not be disturbed by
the Ground Lessor. Tenant agrees, at the election of the Ground Lessor, to
attorn to the Ground Lessor. Tenant agrees, upon demand, to execute,
acknowledge and deliver a Subordination, Non-Disturbance and Attornment
Agreement substantially in the form attached hereto as Exhibit L (the "Lease
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Subordination Agreement") or such other instruments, confirming such
subordination and instruments of attornment as shall be reasonably requested by
the Ground Lessor, provided any such instruments contain the appropriate non-
disturbance provisions described above. Tenant acknowledges that, among other
things, notwithstanding the terms of this Lease, (i) the final design and
aesthetic of the Premises and the Project, (ii) any Transfer, (iii) any
financing to be secured by Tenant's interest in this Lease, and (iv) the
"Expansion Right" (as defined in Section 40(a) below), may be subject to the
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requirements of the Ground Lease and/or the approval of the Ground Lessor.
(b) Tenant shall be responsible for, and hereby covenants to satisfy
in a timely fashion, any and all obligations, covenants, responsibilities,
and/or indemnities binding on Landlord as holder of the ground lessee's interest
under the Ground Lease (collectively, the "Ground Lease Obligations"),
including, without limitation, the payment of the annual rent provided for in
the Ground Lease (at the times and in the manner specified in Section 3(b)(ii)
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above) and the payment or reimbursement of all expenses to be paid or reimbursed
by Landlord under the Ground Lease; provided, however, that the terms and
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conditions of this Lease shall control to the extent the responsibility for
satisfying any Ground Lease Obligation is expressly conferred on Landlord and/or
allocated between Landlord and Tenant herein. For illustration purposes only,
Sections 13 and 14 hereof allocate between Landlord and Tenant all maintenance
- ----------- --
and repair obligations with respect to the Premises and the Project and,
therefore, such provisions control. If Tenant fails to satisfy, in a timely
fashion, any of the Ground Lease Obligations in the manner required hereunder,
Landlord shall have the right (but not the obligation) to satisfy the same, and
any cost incurred by Landlord in doing so shall be payable to Landlord on demand
as Additional Rent or includable by Landlord as an Operating Expense. Further,
Tenant shall indemnify, defend, hold, and save Landlord harmless from and
against any and all Claims arising out of or in connection with any such failure
by Tenant. Conversely, if Tenant gives Landlord Notice requesting Landlord to
take affirmative action to enforce any of Landlord's rights as ground lessee
under the Ground Lease or to enforce any obligation, covenant, responsibility,
and/or indemnity of the Ground Lessor under the Ground Lease (collectively, the
"Ground Lease Rights") and Landlord elects not to do so, Tenant shall have the
right, at Tenant's sole
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cost and expense, to take affirmative action to enforce any such Ground Lease
Rights, and for such purpose Landlord, effective as of Landlord's election not
to take affirmative action, appoints Tenant attorney-in-fact for Landlord (such
power of attorney being coupled with an interest); provided, however, that,
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notwithstanding the foregoing, the exercise of any Ground Lease Rights that
relate to Hazardous Materials (as provided in Section 30(a) hereof) shall be
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subject to compliance with Section 3 of the Cost Sharing Agreement. Tenant shall
indemnify, defend, hold, and save Landlord harmless from and against any and all
Claims arising out of or in connection with any affirmative action taken by
Tenant to enforce any Ground Lease Rights. Tenant's rights and obligations under
this Section shall terminate and be of no further force or effect as of the
expiration or earlier termination of this Lease, provided that all obligations
that have arisen and/or become binding hereunder but have not been fully
satisfied as of the expiration or earlier termination of this Lease shall
survive such expiration or earlier termination.
39. Signs; Exterior Appearance. Tenant shall not, without the prior
written consent of Landlord, which shall not be unreasonably withheld or
delayed: (i) attach any awnings, exterior lights, decorations, balloons, flags,
pennants, banners, painting, or other projection to any outside wall of any part
of the Premises or the Project, (ii) store any equipment, furniture, or other
items of personal property on any exterior balcony, or (iii) paint, affix, or
exhibit on any part of the Premises or the Project any signs, notices, window or
door lettering, placards, decorations, or advertising media of any type that can
be viewed from the exterior of the Premises. Interior signs on doors shall be
inscribed, painted or affixed for Tenant by Landlord at the sole cost and
expense of Tenant, and shall be of a size, color and type acceptable to
Landlord. Nothing may be placed on the exterior of corridor walls or corridor
doors other than Landlord's standard lettering. Notwithstanding the foregoing,
Landlord hereby reserves the right to install a sign or placard (of up to 2 feet
by 2 feet) that can be viewed from the exterior of the Premises and that
identifies the Project as an asset of Alexander Real Estate Equities, Inc.
40. Right to Expand.
(a) Generally. Subject to any necessary permits, licenses, approvals,
certificates, or other entitlements required by any Governmental Authority
exercising or having jurisdiction, Landlord and Tenant reasonably believe that
approximately 50,000 square feet of additional office/research and development
space (the "Additional Building") can be constructed on the Additional Site.
Tenant shall have the right (the "Expansion Right"), but not the obligation, at
any time between the Commencement Date and 20 business days prior to the 3rd
anniversary of the Ground Lease Rent Commencement Date (the "Expansion Right
Expiration Date"), to give Landlord Notice (the "Expansion Notice") requesting
that Landlord exercise the Expansion Option (if not previously exercised) and
design, permit, and construct the Additional Building on the Additional Site
(generally, the "Expansion"). Tenant shall reimburse Landlord for all reasonable
out-of-pocket expenses, up to a maximum of $1,000.00, incurred by Landlord in
connection with its consideration of any Expansion Notice. Notwithstanding the
foregoing, Landlord may exercise the Expansion Option at any time before the
3/rd/ anniversary of the Ground Lease Rent Commencement Date (the "Expansion
Option Expiration Date"), regardless of whether Tenant ever gives Landlord an
Expansion Notice, provided that Landlord may not construct any improvements on
the Additional Site for lease to other tenants unless and until the Expansion
Right expires or is terminated in accordance with the terms and conditions of
this Section.
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(b) Before July 1, 2001. Landlord shall exercise the Expansion Option (if
not previously exercised) and proceed with the Expansion if Tenant gives
Landlord the Expansion Notice at any time before July 1, 2001 and all of the
---
requirements described below are satisfied (each, an "Expansion Requirement" and
collectively, the "Expansion Requirements"):
(i) Tenant has entered into binding, third-party contracts that
provide, in the aggregate, at least the following guaranteed minimum economic
benefits to Tenant, subject only to contractual targets, requirements, goals,
milestones, and/or deliverables that Tenant is reasonably capable of meeting (as
reasonably determined by Landlord, in good faith):
A. net revenues to Tenant (before taxes) of $30,000,000.00 over
a 3-year period beginning not more than 3 months after the date Landlord
receives Tenant's Expansion Notice; and
---
B. net revenues to Tenant (before taxes) of $75,000,000.00 over
a 5-year period beginning not more than 6 months after the date Landlord
receives Tenant's Expansion Notice; and
(ii) Landlord reasonably determines, in good faith, that there has
been no material, adverse change since the Effective Date in Tenant's financial
position (including, without limitation, Tenant's net worth, profitability, or
liquidity).
If Tenant does not satisfy all of the Expansion Requirements, Landlord may elect
---
to exercise the Expansion Option (if not previously exercised) and to proceed
with the Expansion or may elect not to exercise the Expansion Option (if not
previously exercised) or to proceed with the Expansion by giving Notice to
Tenant of such election within 30 days after receipt of the Expansion Notice.
If Landlord elects not to exercise the Expansion Option (if not previously
exercised) or to proceed with the Expansion, this Lease shall continue in full
force and effect without any changes in the rights and obligations of the
parties.
(c) From July 1, 2001, through Expansion Right Expiration Date. If Tenant
gives Landlord the Expansion Notice at any time from July 1, 2001, through the
Expansion Right Expiration Date, Landlord may elect to exercise the Expansion
Option (if not previously exercised) and to proceed with the Expansion or may
elect not to exercise the Expansion Option (if not previously exercised) or to
proceed with the Expansion by giving Notice to Tenant of such election within 10
business days after receipt of the Expansion Notice. If Landlord elects not to
exercise the Expansion Option (if not previously exercised) or to proceed with
the Expansion, Landlord and Tenant shall negotiate regarding the Expansion in
good faith for a reasonable period of time not to exceed 10 business days
(provided that such negotiations must conclude at least 5 business days prior to
the Expansion Option Expiration Date). Only if Landlord and Tenant cannot reach
an agreement regarding the Expansion after such good faith negotiations and
Tenant gives Landlord Notice that Tenant still elects to proceed with the
Expansion, (i) Landlord shall assign to Tenant all of Landlord's rights in
connection with the Expansion Option, (ii) Tenant, at Tenant's sole cost and
expense, may exercise the Expansion Option and design, permit, and construct the
Expansion (provided that all rights in connection with the Expansion Option
shall automatically revert to Landlord if Tenant does not exercise the Expansion
Option within 3 business days after its assignment to Tenant), and (iii)
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Landlord shall reasonably cooperate with Tenant's efforts to design, permit, and
construct the Expansion. If Landlord and Tenant cannot reach an agreement
regarding the Expansion after good faith negotiations and Tenant elects not to
proceed with the Expansion, this Lease shall continue in full force and effect
without any changes in the rights and obligations of the parties except that the
Expansion Right shall terminate.
(d) Expansion Lease. If the parties jointly proceed with the
Expansion as a result of the operation of the foregoing provisions, Landlord and
Tenant shall enter into a separate lease agreement covering the Expansion (the
"Expansion Lease"). Under all circumstances, the term of the Expansion Lease
shall be at least 10 years and shall be adjusted as necessary to make the
Expansion Lease expire at the same time as this Lease expires, provided that
Tenant shall be deemed to have exercised any Extension Rights that may be
necessary in order for this Lease to expire no less than 10 years after the
commencement date of the Expansion Lease. If the Expansion occurs as a result
of the operation of paragraph (b) above, the Expansion Lease shall be on the
same legal and economic terms as this Lease (including the Work Letter but
excluding the Greenhouse). If the Expansion occurs as a result of the operation
of paragraph (c) above, the Expansion Lease shall be on the same legal terms as
this Lease (including the Work Letter but excluding the Greenhouse) and on such
economic terms as shall be mutually determined by the parties after negotiating
in good faith for a reasonable period of time, provided, however, that if
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Landlord and Tenant cannot reach an agreement regarding the economic terms of
the Expansion Lease after negotiating in good faith for a reasonable period of
time, Tenant may elect, at Tenant's sole cost and expense, to unilaterally
design, build, and pay for the Additional Building. If Tenant elects to do so,
Tenant shall provide to Landlord, for Landlord's written approval (which
approval may not be unreasonably withheld or delayed), copies of any plans,
specifications, bid proposals, work contracts, or other information concerning
the nature and cost of the Additional Building that Tenant may have in its
possession or control, including the identities and mailing addresses of all
persons performing work or supplying materials (collectively, "Additional
Building Information"). If Landlord approves the Additional Building
Information, Landlord may impose such conditions on Tenant in connection with
the commencement, performance, and completion of the Additional Building as
Landlord may deem appropriate (in Landlord's reasonable discretion). Any
request for approval of the Additional Building Information shall be in writing
and delivered to Landlord not less than 15 business days before construction is
scheduled to begin. Landlord's right to review the Additional Building
Information and to monitor construction shall be solely for its own benefit, and
Landlord shall have no duty to see that either the Additional Building
Information or the construction complies with applicable Legal Requirements.
Tenant, at its sole cost and expense, shall cause the Additional Building to
comply with insurance requirements known to Tenant and with applicable Legal
Requirements. Tenant will give Landlord Notice at least 5 days (or any longer
period that may be required under the Ground Lease) before beginning
construction on the Additional Building so that Landlord may post on and about
the Premises and the Additional Site notices of non-responsibility pursuant to
applicable law. Tenant, at its sole cost and expense, shall correct any faulty
work or inadequate cleanup done by Tenant or its contractors within 5 business
days after Notice of the same from Landlord, and Tenant shall reimburse Landlord
for, and indemnify and hold Landlord harmless from, any reasonable and necessary
expenses incurred by Landlord by reason of such faulty work or inadequate
cleanup or by reason of delays caused by the same.
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(e) Exceptions. Notwithstanding the above, the Expansion Right shall
not be in effect and may not be exercised by Tenant:
(i) during any period of time that Tenant is in Default under
any provision of this Lease; or
(ii) if Tenant has been in Default under any provision of this
Lease 3 or more times, whether or not the Defaults are cured, during the 12
consecutive month period prior to the date on which Tenant seeks to exercise the
Expansion Right.
(f) Termination. Landlord, in Landlord's sole and absolute
discretion, may terminate the Expansion Right, even after Tenant's due and
timely exercise of the Expansion Right, if, after such exercise, but prior to
the commencement date of the Expansion Lease, (i) Tenant fails to timely cure
any Default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more
times during the period from the date of the exercise of the Expansion Right to
the date of the commencement of the Expansion Lease, whether or not such
Defaults are cured.
(g) Rights Personal. The Expansion Right is personal to Tenant and is
not assignable separate and apart from this Lease, except that it may be
assigned in connection with any Approved Transfer, as defined in Section 22.
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41. Right to Extend Term. Tenant shall have the right to extend the Term
upon the following terms and conditions:
(a) Extension Rights. Tenant shall have 2 consecutive rights (each,
an "Extension Right"} to extend the term of this Lease for 5 years each (each, a
"Term Extension") on the same terms and conditions as this Lease by giving
Notice to Landlord of Tenant's election to exercise each Extension Right at
least 12 months prior to the expiration of the Term or the expiration of any
prior Term Extension. During any Term Extension, Base Rent shall be payable at
the "Market Rate" (as defined below), but in no event less than the Base Rent
payable as of the date immediately preceding the commencement of such Term
Extension. Base Rent shall be adjusted on the commencement of each Term
Extension and on each annual anniversary of the commencement of such Term
Extension shall be increased by a percentage determined by Landlord and Tenant
at the time the Market Rate is determined (the "Extension Rent Adjustment
Percentage"). As used herein, "Market Rate" shall mean the then market rental
rate as determined by Landlord and Tenant, taking into account the base rent
then payable at Similar Facilities. If, on or before the date that is 180 days
prior to the expiration of the Term or the expiration of any prior Term
Extension, Tenant has not agreed with Landlord's determination of the Market
Rate and the Extension Rent Adjustment Percentage during such subsequent Term
Extension after negotiating in good faith, Tenant may elect arbitration as
described in Section 41(b) below. If Tenant does not elect such arbitration,
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Tenant shall be deemed to have waived any right to extend, or further extend,
the Term and all of the remaining Extension Rights shall terminate.
(b) Arbitration.
(i) Within 10 business days of Tenant's election to arbitrate
the Market Rate and the Extension Rent Percentage Adjustment, each party shall
deliver to the other
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a proposal containing the Market Rate and the Extension Rent Percentage
Adjustment that the submitting party believes to be correct ("Extension
Proposal"). If either party fails to timely submit an Extension Proposal, the
other party's Extension Proposal shall determine the Base Rent and the Extension
Rent Percentage Adjustment for the Term Extension. If both parties submit
Extension Proposals, then Landlord and Tenant shall meet within 7 business days
after delivery of the last Extension Proposal and make a good faith attempt to
mutually appoint a single "Arbitrator" (as defined below) to determine the
Market Rate and the Extension Rent Percentage Adjustment. If Landlord and Tenant
are unable to agree upon a single Arbitrator, then each shall, by Notice
delivered to the other within 10 business days after the meeting, select an
Arbitrator. If either party fails to timely give Notice of its selection for an
Arbitrator, the other party's Extension Proposal shall determine the Base Rent
and the Extension Rent Percentage Adjustment for the Term Extension. The 2
Arbitrators so appointed shall, within 5 business days after their appointment,
appoint a 3rd Arbitrator. If the 2 Arbitrators so selected cannot agree on the
selection of the 3rd Arbitrator within the time above specified, then either
party, on behalf of both parties, may request such appointment of such 3rd
Arbitrator by application to any Judge of the trial level court in the
jurisdiction in which the Project is located, upon 10 days prior Notice to the
other party of such intent.
(ii) The authority of the Arbitrator(s) shall be limited strictly to
a selection of either Landlord's Extension Proposal in its entirety or Tenant's
Extension Proposal in its entirety as the Extension Proposal that most closely
approximates the Market Rate and the Extension Rent Percentage Adjustment. The
Arbitrator(s) shall have no authority to create an independent structure of the
Market Rate and the Extension Rent Percentage Adjustment, combine elements of
both Extension Proposals to create a third, or compromise or alter in any way
any of the components of the Extension Proposals submitted by the parties. The
sole decision to be made shall be which of the parties' Extension Proposals in
its entirety shall determine the Market Rate and the Extension Rent Percentage
Adjustment for the Term Extension.
(iii) The decision of the Arbitrator(s) shall be made within 30 days
after the appointment of a single Arbitrator or the 3rd Arbitrator, as
applicable. The decision of the single Arbitrator or majority of the 3
Arbitrators shall be final and binding upon the parties. Each party shall pay
the fees and expenses of the Arbitrator appointed by or on behalf of such party
and the fees and expenses of the 3rd Arbitrator shall be borne equally by both
parties. If the Market Rate and the Extension Rent Percentage Adjustment are
not determined by the first day of the Term Extension, then Tenant shall pay
Landlord Base Rent in an amount equal to the Base Rent in effect immediately
prior to the Term Extension until such determination is made. After the
determination of the Market Rate and the Extension Rent Percentage Adjustment,
the parties shall make any necessary adjustments to such payments made by
Tenant. Landlord and Tenant shall then execute an amendment recognizing the
Market Rate and the Extension Rent Percentage Adjustment for the Term Extension.
(iv) An "Arbitrator" shall be any person appointed by or on behalf
of either party or appointed pursuant to the provisions hereof and: (i) shall be
(A) a member of the American Institute of Real Estate Appraisers with not less
than 10 years of experience in the appraisal of improved office and high tech
industrial real estate in the Sub-Market, or (B) a licensed commercial real
estate broker with not less than 15 years experience representing
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landlords and/or tenants in the leasing of high tech or life sciences space in
the Sub-Market, (ii) devoting substantially all of their time to professional
appraisal or brokerage work, as applicable, at the time of appointment and (iii)
be in all respects impartial and disinterested.
(c) Rights Personal. The Extension Rights are personal to Tenant and
are not assignable separate and apart from this Lease, except that they may be
assigned in connection with any Approved Transfer, as defined in Section 22 of
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this Lease.
(d) Exceptions. Notwithstanding anything set forth above to the
contrary, Extension Rights shall not be in effect and Tenant may not exercise
any of the Extension Rights:
(i) during any period of time that Tenant is in Default under
any provision of this Lease; or
(ii) if Tenant has been in Default under any provision of this
Lease 3 or more times, whether or not the Defaults are cured, during the 12
consecutive month period immediately prior to the date that Tenant intends to
exercise an Extension Right, whether or not the Defaults are cured.
(e) No Extensions. The period of time within which any Extension
Rights may be exercised shall not be extended or enlarged by reason of the
Tenant's inability to exercise the Expansion Rights.
(f) Termination. Landlord, in Landlord's sole and absolute
discretion, may terminate the Extension Rights, even after Tenant's due and
timely exercise of an Extension Right, if, after such exercise, but prior to the
commencement date of a Term Extension, (i) Tenant fails to timely cure any
Default by Tenant under this Lease; or (ii) Tenant has Defaulted 3 or more times
during the period from the date of the exercise of an Extension Right to the
date of the commencement of the Term Extension, whether or not such Defaults are
cured.
42. Greenhouse. Landlord shall make available to Tenant a loan in the
maximum amount of $1,200,000.00 to be used by Tenant solely for the construction
of the Greenhouse (the "Greenhouse Loan"). Tenant shall be solely responsible
for (x) any amount that the cost of constructing the Greenhouse exceeds the
amount of the Greenhouse Loan, and (y) all maintenance, repairs, and other costs
and expenses related to the Greenhouse. Landlord shall make the Greenhouse Loan
to Tenant by the date that is 30 days after Landlord's approval of the designs
and plans for the Greenhouse submitted by Tenant, on the terms and conditions
set forth in the various loan documents evidencing, securing, and pertaining to
the Greenhouse Loan, which loan documents shall be substantially in the forms
attached to this Lease as Exhibit N, with the blanks filled in, together with
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any other forms reasonably requested by Landlord and agreed to by Tenant (the
"Greenhouse Loan Documents"). The terms and conditions of the Greenhouse Loan
shall include, without limitation: (i) an interest rate of 11.50% per annum;
(ii) full amortization of principal and interest over 10 years, with monthly
payments of principal and interest ("Greenhouse Loan Payments") due on the first
day of each month; (iii) a lien in favor of Landlord on all structural
components of the Greenhouse; (iv) additional security in favor of Landlord in
the form of a cash deposit given to Landlord by Tenant in an amount
approximately equal to the sum of 6 Greenhouse Loan Payments (Landlord shall
hold such cash in an interest
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bearing account (which may contain Landlord's own funds), with any interest
accruing on such cash being for Tenant's benefit), and (v) a provision
permitting Landlord to declare a default under the Greenhouse Loan upon the
occurrence of a Default by Tenant under this Lease. The Greenhouse Loan
Documents shall include all documents deemed reasonably necessary by, and
otherwise shall be in form and substance reasonably required by, Landlord and
Landlord's legal counsel, and shall contain representations and warranties,
affirmative and negative covenants, rights and remedies upon default, and other
standard provisions customary for loans of similar type and amount.
Subject to any necessary permits, licenses, approvals, certificates, or
other entitlements required by any Governmental Authority exercising or having
jurisdiction, Landlord and Tenant reasonably believe that an additional
approximately 5,300 square feet of commercial greenhouse space (the "Additional
Greenhouse") can be constructed on the Site. Tenant, at Tenant's sole cost and
expense, may design, permit, and construct the Additional Greenhouse, which
Additional Greenhouse shall comply with the terms and conditions of Section 12
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above that are applicable to Alterations other than Non-Structural Alterations.
During the Term and any Term Extension, Tenant shall retain fee title to
the Greenhouse and, if constructed, the Additional Greenhouse (collectively, the
"Greenhouses"). Upon the expiration or earlier termination of this Lease,
Tenant, at Landlord's election, shall (a) transfer to Landlord all of Tenant's
right, title, and interest in either or both of the Greenhouses and the
Greenhouses so transferred shall remain at the Project, or (b) remove either or
both of the Greenhouses and restore the Site substantially to the condition that
existed prior to the construction of the Greenhouses being removed. Landlord
shall notify Tenant of Landlord's election within 30 days of the expiration or
earlier termination of this Lease or, in the event Tenant elects not to exercise
any Extension Right, within 3 months after Tenant's notification to Landlord of
such election by Tenant. If Landlord elects to have Tenant transfer to Landlord
all of Tenant's right, title, and interest in either or both of the Greenhouses,
Landlord shall give Tenant Notice before soliciting or accepting from any person
or entity other than an existing or new tenant of the Project any offers to
purchase or otherwise acquire the Greenhouses so transferred and Tenant shall
have the right to make the first offer to purchase any such Greenhouses by
giving Landlord Notice of the terms of such offer within 10 business days after
receiving Landlord's Notice.
43. Warrant Agreement. Concurrently with the execution of this Lease,
Landlord and Tenant shall execute and deliver the Warrant Agreement attached
hereto as Exhibit M.
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44. Miscellaneous.
(a) Notices. Any communication, notice, or demand of any kind
whatsoever that either party may be required or may desire to give to or serve
on the other party (a "Notice") shall be in writing and shall be deemed duly
given if delivered in person or sent by reputable overnight guaranty courier,
addressed to the parties at their addresses set forth in the Basic Lease
Provisions. Either party may designate from time to time a new address for
receipt of future Notices by giving the other party Notice of such new address
at least 5 days prior to the effective date of such new address.
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(b) Joint and Several Liability. If and when included within the term
"Tenant," as used in this instrument, there is more than one person, firm or
corporation, each shall be jointly and severally liable for the obligations of
Tenant.
(c) Landlord Consents. Except as otherwise expressly provided in this
Lease or as otherwise required by law, Landlord retains the absolute right to
withhold any consent or approval. Further, regardless of any standard that may
be applicable to any consent or approval rights given to Landlord hereunder,
Landlord shall be justified in withholding, and shall not incur any liability
for so withholding, any consent or approval to any action, document, or matter
that Landlord determines, in its sole and absolute discretion, will or might
adversely affect Landlord's status as a "real estate investment trust".
(d) Financial Information. During the Term and any Term Extension,
Tenant shall provide Landlord with the following financial information or
business related reports:
(i) Unaudited quarterly financial statements within 30 days
after the end of each of Tenant's fiscal quarters;
(ii) Audited annual financial statements within 90 days after
the end of each of Tenant's fiscal years; and
(iii) Updates to Tenant's business plan no less than once every
12 months and otherwise within 30 days after the completion and/or submittal of
any such update to Tenant's board of directors.
(e) Recordation. This Lease shall not be recorded or filed by or on
behalf of Tenant in any public record. Notwithstanding the foregoing, upon
Tenant's request and at Tenant's sole cost and expense, Landlord shall prepare,
execute, and cause to be recorded or filed a memorandum of this Lease, which
memorandum shall contain only the following information and any other additional
information that may be required by applicable law: (i) the names of the parties
to this Lease, (ii) a description of the Site and the Premises, (iii) the
Commencement Date, (iv) the Term, and (v) the Extension Rights.
(f) Interpretation. The normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Lease or any exhibits or amendments
hereto. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way define, limit or
otherwise describe the scope or intent of this Lease, or any provision hereof,
or in any way affect the interpretation of this Lease.
(g) Not Binding Until Executed. The submission by Landlord to Tenant
of this Lease shall have no binding force or effect, shall not constitute an
option for the leasing of the Premises, nor confer any right or impose any
obligations upon either party until execution of this Lease by both parties.
44
<PAGE>
(h) Limitations on Interest. It is expressly the intent of Landlord
and Tenant at all times to comply with applicable law governing the maximum rate
or amount of any interest payable on or in connection with this Lease. If
applicable law is ever judicially interpreted so as to render usurious any
interest called for under this Lease, or contracted for, charged, taken,
reserved, or received with respect to this Lease, then it is Landlord's and
Tenant's express intent that all excess amounts theretofore collected by
Landlord be credited on the applicable obligation (or, if the obligation has
been or would thereby be paid in full, refunded to Tenant), and the provisions
of this Lease immediately shall be deemed reformed and the amounts thereafter
collectible hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder.
(i) Choice of Law. Construction and interpretation of this Lease
shall be governed by and construed and enforced in accordance with the internal
laws of the state in which the Premises are located, without regard to choice of
law principles of such state.
(j) Time. Time is of the essence as to the performance of each
party's obligations under this Lease.
(k) Attorneys Fees. If either Landlord or Tenant reasonably seeks
legal services with respect to' the proper interpretation or enforcement of this
Lease, the party receiving substantially the result it sought or defended (the
"Prevailing Party"), whether by award, judgment, stipulation, settlement,
workout, default, or otherwise and whether or not any legal action may have been
instituted or instituted and then voluntarily dismissed, shall be entitled to
recover from the adverse party all reasonable fees and costs incurred by the
Prevailing Party in connection with such legal services ("Legal Fees"). Legal
Fees include, without limitation, (i) fees, costs, and expenses of any
engineers, accountants, appraisers, consultants, brokers, and other
professionals or experts retained or consulted by the Prevailing Party, and
other costs and expenses of investigation or analysis incurred by the Prevailing
Party in support of its position, and (ii) all such fees, costs, and expenses
incurred in any aspect of the legal process, whether out-of-court negotiations,
mediation, arbitration, commencement of suit, discovery, law and motion, trial,
appellate proceedings, or any action or participation in, or in connection with,
any case or proceeding under Chapter 7, 11, or 13 of the Bankruptcy Code, 11
U.S.C. Section 101 et seq., or any successor statutes.
-- ---
(l) No Third Party Benefits. Landlord and Tenant do not intend by any
provision of this Lease to confer any right, remedy, or benefit upon any third
party, and no third party shall be entitled to enforce, or otherwise shall
acquire any right, remedy, or benefit by reason of, any provision of this Lease.
(m) Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original and all of which, taken
together, shall constitute a single agreement with the same effect as if all
parties had signed the same signature page. Any signature page from any
counterpart of this Lease, signed only by one party, may be detached from such
counterpart and re-attached to any other counterpart of this Lease that has a
signature page signed only by the other party.
45
<PAGE>
(n) Integration. This Lease and all exhibits and addenda attached
hereto constitute the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous oral or
written representations, statements, documents, understandings, and agreements
with respect thereto.
(o) Successors and Assigns. without limiting in any way the
provisions of Section 22, this Lease shall be binding upon, and inure to the
benefit of, the parties hereto and their respective permitted successors and
assigns.
(p) No Waiver; Remedies Cumulative. No purported waiver of any
provision of this Lease shall be binding unless such waiver is in writing and
signed by the party to be bound. In addition, no waiver of any provision of
this Lease shall be deemed, or shall constitute, a waiver of any other provision
of this Lease, whether or not similar, nor shall any waiver constitute a
continuing waiver. Further, no failure to exercise and no delay in exercising
any power, right, remedy, or privilege under this Lease shall impair such power,
right, remedy, or privilege or shall be deemed, or shall constitute, a waiver of
any default under this Lease or acquiescence therein, nor shall any single or
partial exercise of any such power, right, remedy, or privilege preclude any
other or further exercise thereof or of any other power, right, remedy, or
privilege. Finally, all powers, rights, remedies, and privileges existing under
this Lease are cumulative, in addition to, and not exclusive of any other
powers, rights, remedies, or privileges otherwise available to the parties to
this Lease.
(q) Incorporation by Reference. All exhibits and addenda attached
hereto are hereby incorporated into this Lease and made a part hereof. Except
to the extent expressly provided otherwise herein, if there is any conflict
between such exhibits or addenda and the terms of this Lease, such exhibits or
addenda shall control.
[Signatures on Next Page]
46
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease Agreement
as of the day and year first above written.
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By:_____________________________
Its:____________________________
ATTEST: ___________________
Its:______________Secretary
[CORPORATE SEAL]
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC,
(SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
(SEAL)
a Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By: __________________________________
Its: __________________________________
ATTEST: ___________________
Its ___________________ Secretary
[CORPORATE SEAL]
47
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease Agreement
as of the day and year first above written.
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By __________________________________________
Its: __________________________________________
ATTEST: __________________
Its __________________ Secretary
[CORPORATE SEAL]
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P.,
(SEAL)
a Delaware limited partnership, managing member
By: ARE - QRS CORP., (SEAL)
a Maryland corporation, general partner
By:______________________________________
Its:_____________________________________
ATTEST:_________________________
Its __________________ Secretary
[CORPORATE SEAL]
48
<PAGE>
EXHIBIT A-I
DESCRIPTION OF SITE
Being a particular tract or tracts of land located in Durham County, Triangle
Township, Research Triangle Park, North Carolina and being further described
below:
BEGINNING at a point, said point being located the following courses from NC
Geodetic Monument "Triad", said NC Geodetic Monument bearing NC Grid Coordinates
NAD 83 of N:238,772.801 Meters, E:620,488.448 Meters; Thence from said monument,
South 0103412611 West a ground distance of 3,011.37 feet to an existing R/W
Monument set in the westerly right-of-way of T.W. Alexander Drive; Thence with
said right-of-way along a curve to the right having a radius of 2846.41 feet, an
arc length of 153.75 feet and being subtended by a chord bearing and distance of
South 0204311511 West, 153.73 feet to an existing concrete R/W Monument set in
the westerly right-of-way of T.W. Alexander Drive; Thence leaving said right-
of-way, North 8702014411 West a distance of 142.69 feet to a point, said point
being the POINT AND PLACE OF BEGINNING.
Thence, from the POINT AND PLACE OF BEGINNING South 02(degree)44'10l" West a
distance of 100.85 feet to a point; Thence, North 8904912511 West a distance of
85.25 feet to a point; Thence, South 0203310111 West a distance of 80.34 feet to
a point; Thence, North 8904912511 West a distance of 157.55 feet to a point;
Thence, South 0202612411 West a distance of 88.04 feet to a point; Thence, North
8904912511 West a distance of 52.18 feet to a point; Thence, South 0202612411
West a distance of 336.73 feet to a point; Thence, North 8804312911 West a
distance of 276.76 feet to an existing concrete monument; Thence, North
0101612411 East a distance of 330.28 feet to an existing concrete monument;
Thence, North 8800312911 West a distance of 22.85 feet to a new iron pipe;
Thence, North 8405113311 West a distance of 150.08 feet to an existing concrete
monument; Thence, North 05010l14 East a distance of 235.37 feet to a new iron
pipe; Thence, South 8703611411 East a distance of 150.23 feet to a new iron
pipe; Thence, North 0500914611 East a distance of 16.45 feet to a new iron pipe;
Thence, South 8703611411 East a distance of 105.32 feet to a new iron pipe;
Thence, North 0203911611 East a distance of 36.22 feet to a new iron pipe;
Thence, South 8702014411 East a distance of 483.95 feet to the POINT AND PLACE
OF BEGINNING and containing 265,020.77 sq. ft. (6.084 acres), and being shown
on a particular survey or plat entitled "ALTAIACSM Property Survey - 104 T.W.
Alexander Drive", project number 98321.01, prepared by Barbara H. Mulkey
Engineering, Inc., dated 04/30/99 and revised 07/21/99.
49
<PAGE>
EXHIBIT A-2
DESCRIPTION OF ADDITIONAL SITE
Being a particular tract or tracts of land located in Durham County, Triangle
Township, Research Triangle Park, North Carolina and being further described
below:
BEGINNING at a point, said point being located the following courses from NC
Geodetic Monument "Triad", said NC Geodetic Monument bearing NC Grid Coordinates
NAD 83 of N:238,772.801 Meters, E:620,488.448 Meters; Thence from said monument,
South 01(degree)34'26" West a ground distance of 3,011.37 feet to an existing
RJW Monument set in the westerly right-of-way of T.W. Alexander Drive; Thence
with said right-of-way along a curve to the right having a radius of 2846.41
feet, an arc length of 153.75 feet and being subtended by a chord bearing and
distance of South 02o43I159l West, 153.73 feet to an existing concrete R/W
Monument set in the westerly right-of-way of T.W. Alexander Drive, said monument
being the
POINT AND PLACE OF BEGINNING.
Thence, from the POINT AND PLACE OF BEGINNING along the right-of-way of T.W.
Alexander Drive with a curve to the right having a radius of 2846.41 feet, an
arc length of 610.47 feet and being subtended by a chord bearing and distance of
South 04o58l14I West, 609.30 feet to an existing concrete monument; Thence,
North 88o4329" West a distance of 411.30 feet to a point; Thence, North
020262411 East a distance of 336.73 feet to a point; Thence, South 89o4925 East
a distance of 52.18 feet to a point; Thence North 02o26l24I East a distance of
88.04 feet to a point; Thence, South 89o4925I East a distance of 157.55 feet to
a point; Thence, North 02033l01" East a distance of 80.34 feet to a point;
Thence, South 89049 25lI East a distance of 85.25 feet to a point; Thence North
0204411011 East a distance of 100.85 feet to a point; Thence, South 87o20I44 I
East a distance of 142.69 feet to the POINT AND PLACE OF BEGINNING and
containing 214,139.28 sq. ft. (4.916 acres), and being shown on a particular
survey or plat entitled "ALTA/ACSM Property Survey -104 T.W. Alexander Drive",
prepared by Barbara H. Mulkey Engineering, Inc., dated 04/30/99 and revised
07/21/99.
50
<PAGE>
EXHIBIT B
DESCRIPTION OF PREMISES
51
<PAGE>
EXHIBIT A
Description of Property
Being a particular tract or tracts of land located in Durham County, Triangle
Township, Research Triangle Park, North Carolina and being further described
below:
BEGINNING at a point, said point being located the following courses from NC
Geodetic Monument "Triad", said NC Geodetic Monument bearing NC Grid Coordinates
NAD 83 of N:238,772.801 Meters, E:620,488.448 Meters; Thence from said monument,
South 01(degree)34'26" West a ground distance of 3,011.37 feet to an existing
RIVV Monument set in the westerly right-of-way of T.W. Alexander Drive; Thence
with said right-of-way along a curve to the right having a radius of 2846.41
feet, an arc length of 153.75 feet and being subtended by a chord bearing and
distance of South 020431591 West, 153.73 feet to an existing concrete RN'!
Monument set in the westerly right-of-way of T.W. Alexander Drive; Thence
leaving said right-of-way, North 870209441 West a distance of 142.69 feet to a
point, said point being the POINT AND PLACE OF BEGINNING.
Thence, from the POINT AND PLACE OF BEGINNING South 02(degree)44'10" West a
distance of 100.85 feet to a point; Thence, North 89(degree)49'25" West a
distance of 85.25 feet to a point; Thence, South 02(degree)33'01" West a
distance of 80.34 feet to a point; Thence, North 89(degree)49'25" West a
distance of 157.55 feet to a point; Thence, South 02(degree)26'24" West a
distance of 88.04 feet to a point; Thence, North 89(degree)49'25" West a
distance of 52.18 feet to a point; Thence, South 02(degree)26'24" West a
distance of 336.73 feet to a point; Thence, North 88(degree)43'29" West a
distance of 276.76 feet to an existing concrete monument; Thence, North
01(degree)16'24" East a distance of 330.28 feet to an existing concrete
monument; Thence, North 88(degree)03'29" West a distance of 22.85 feet to a new
iron pipe; Thence, North 84(degree)51'33" West a distance of 150.08 feet to an
existing concrete monument; Thence, North 05(degree)10'14" East a distance of
235.37 feet to a new iron pipe; Thence, South 8703691499 East a distance of
150.23 feet to a new iron pipe; Thence, North 05(degree)09'46" East a distance
of 16.45 feet to a new iron pipe; Thence, South 87(degree)36'14" East a distance
of 105.32 feet to a new iron pipe; Thence, North 02(degree)39'16" East a
distance of 36.22 feet to a new iron pipe; Thence, South 87(degree)20'44" East a
distance of 483.95 feet to the POINT AND PLACE OF BEGINNING and containing
265,020.77 sq. ft. (6.084 acres), and being shown on a particular survey or plat
entitled "ALTA/ACSM Property Survey - 104 T.W. Alexander Drive", project number
98321.01, prepared by Barbara H. Mulkey Engineering, Inc., dated 04/30/99 and
revised 07/21/99.
52
<PAGE>
Greenhouse; (ii) other Greenhouse Costs; and (iii) costs and expenses incurred
in connection with the Loan and Borrower's undertaking hereunder and under the
Loan Documents, which proceeds shall be disbursed in accordance with the
following terms and conditions:
(i) Notice of Advance. Lender shall furnish to Borrower, with respect
-----------------
to each proposed Construction Holdback Advance, a notice of advance ("Notice of
Advance"), on forms approved by Lender and Borrower, with all blanks
appropriately filled in, setting forth such details concerning construction of
the Greenhouse as Lender may deem necessary or appropriate, including, without
limitation, (a) a certificate or statement completed and duly executed by the
Contractor and the Architect with respect to the status of construction of the
Greenhouse and the amount of the Construction Holdback Advance in the form of
the Application and Certificate for Payment (AIA documents G702 and G703), which
certificate or statement shall include a detailed breakdown of the applicable
percentages of completion and costs of the various phases of construction of the
Greenhouse, showing the amounts expended to date for such construction, the
amounts then due and unpaid, and an itemized estimate of the amount necessary to
complete construction of the Greenhouse in its entirety; and (b) if not
previously provided by Borrower, receipted invoices, bills of sale, or other
written evidence of payment by Borrower of any costs or expenses that Borrower
has agreed to pay separately from funds other than the proceeds of the Loan
(e.g, payments of amounts due to the Architect). The foregoing requirements for
---
each Notice of Advance are based on the guaranty of lien-free completion plus
the bonding requirements contained in the Construction Contract. Lender hereby
reserves the right to require, in Lender's reasonable discretion, receipted
invoices or bills of sale and conditional partial releases of lien (on forms
approved by Lender and Borrower (e.g., the forms set forth on Exhibit C attached
---------
hereto and made a part hereof)) from each materials dealer, laborer, and
subcontractor who has done work or furnished materials for construction of the
portion of the Greenhouse covered by each prior Notice of Advance theretofore
funded by Lender, it being understood and agreed that the failure to obtain such
unconditional releases as to any Construction Holdback Advance as of the next
succeeding Construction Holdback Advance shall entitle Lender, in its reasonable
discretion, to withhold all further Construction Holdback Advances until such
time as unconditional releases of lien have been received from each materials
dealer, laborer, and subcontractor who has theretofore done work or furnished
materials for construction of the Greenhouse.
(ii) Additional Disbursement Conditions Applicable To All Advances.
-------------------------------------------------------------
Subject to the provisions of this Note, Lender shall disburse Construction
Holdback Advances directly to Contractor or to any subcontractor within 10
business days after (1) Lender has received all required supporting
documentation for the Notice of Advance, completed to Lender's reasonable
satisfaction, and (2) all of the following conditions have been satisfied with
respect to such Construction Holdback Advance:
(a) Loan Balancing. As agreed in Section 7.8 of the Work Letter,
-------------- -----------
Lender is under no obligation to bear any portion of the Greenhouse Costs and
has only the obligation to disburse proceeds of the Loan in accordance with the
terms and conditions of the Loan Documents. Lender shall not be obligated to
disburse any Construction Holdback Advance if Lender reasonably determines at
that time that the Loan is not "in balance" i.e, the remaining Greenhouse Costs
----
exceed the remaining undisbursed proceeds of the Loan. The Loan shall be "in
balance" only at such times as Borrower has invested sufficient funds into the
payment of
53
<PAGE>
Greenhouse Costs so that, in Lender's reasonable judgment, the undisbursed
portion of the Holdback for Construction (including any previously unallocated
contingency funds, if any) shall be sufficient to complete construction of and
maintain the Greenhouse and pay all Greenhouse Costs until repayment in full of
the Loan. The determination as to whether the Loan is "in balance" may be made
by Lender at any time, including with each Notice of Advance. Upon at least five
Business Days' written notice from Lender that the Loan is not "in balance",
Borrower shall either (x) deposit with Lender, in cash or cash equivalents, the
amount that Lender, in its reasonable opinion, deems necessary to put the Loan
"in balance" or (y) furnish Lender with paid invoices, bills, and receipts
indicating that Borrower has paid, from Borrower's own funds, for the Greenhouse
Costs in a sufficient amount to put the Loan "in balance". Any amounts that are
deposited with Lender to put the Loan "in balance" shall be the next funds
disbursed by Lender, subject to the terms and conditions of this Note. Lender
shall pay no interest on such deposited funds. Any failure or refusal by
Borrower to comply with the provisions of this subparagraph shall be deemed a
material default under this Note and an Event of Default under the Loan
Documents. If upon substantial completion of the Greenhouse and the payment of
all sums due in connection therewith there remain any undisbursed proceeds of
the Loan, Borrower shall be entitled to such undisbursed proceeds solely to the
extent of any deposits that Borrower actually made with Lender in order to put
the Loan "in balance".
(b) Supporting Documentation. Borrower shall provide or cause to be
------------------------
provided all of the following supporting documentation within five Business Days
after receiving each Notice of Advance: (i) a certification by Borrower that no
Potential Default or Event of Default has occurred and is continuing, and that
all representations made by Borrower in any of the Loan Documents are correct in
all material respects as of the date of the Notice of Advance (ii) if not
previously furnished to Lender, evidence of all insurance required by the Loan
Documents and construction bonding required hereunder; and (iii) such other
documents and information relating to the construction of the Greenhouse as
Lender may reasonably request.
(c) Completion of Greenhouse. The progress of construction shall be,
------------------------
in Lender's reasonable estimation, sufficient so that the Greenhouse shall be
completed on or prior to the Completion Date. Subject to the terms and
conditions of the Loan Documents, any damage to the Greenhouse shall have been
promptly repaired or restored to its condition prior to such damage, reasonable
wear and tear excepted, in accordance with the Loan Documents.
(d) Eminent Domain. There shall have been no action taken against the
--------------
Greenhouse or Borrower's interest in the Project with regard to the powers of
eminent domain.
(e) Bankruptcy. There shall have been no filing by or against
----------
Borrower of any petition for bankruptcy, for reorganization, for the appointment
of a receiver or trustee, or for the making of an assignment for the benefit of
creditor, which petition is not withdrawn or dismissed, or which appointment or
assignment is not canceled and terminated prior to the funding of such
Construction Holdback Advance. The parties acknowledge and agree that this Note
is a contract to make a loan (extend debt financing or finance accommodations)
within the meaning of the Bankruptcy Code, 11 U.S.C. Section 365(c)(2) and
Section 365(e)(2)(B).
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<PAGE>
(f) Modifications To Sources and Uses Schedule. Lender shall have
------------------------------------------
received and approved any modifications to the Sources and Uses Schedule.
(g) Payment of Greenhouse Costs. Lender shall have received evidence
---------------------------
that either (i) all Greenhouse Costs have been paid in full (including, but not
limited to, copies of paid invoices and unconditional lien releases), or (ii)
unpaid Greenhouse Costs shall be paid from the proceeds of the requested
Construction Holdback Advance (including, but not limited to, copies of invoices
and conditional lien releases).
(h) Lender's Inspector. Throughout the course of construction of the
------------------
Greenhouse, Lender shall have the right to employ, at Lender's sole cost and
expense, a third-party construction consultant ("Lender's Inspector") to review
as agent for Lender all construction activities undertaken in regard to the
Greenhouse, which inspector shall certify or otherwise indicate to Lender the
progress of the construction of the Greenhouse to the date of each Notice of
Advance and that such construction complies with the Plans and the Sources and
Uses Schedule, with such certificate and indication from Lender's Inspector to
be a further condition precedent to Lender's disbursement of each Advance.
(i) Construction Schedule. A schedule for completion of the
---------------------
Greenhouse, updated monthly with each Notice of Advance, initialed by Architect
and Contractor.
(iii) Change Orders. Neither Borrower nor Contractor shall permit
-------------
any amendments or modifications of the Plans, the Construction Contract, or any
Major Subcontracts, or the performance of any work pursuant to such amendments
or modifications, except in accordance with the terms and conditions of the Work
Letter (including, but not limited to, Sections 6, 6.1 and 6.2).
(iv) Interest on Construction Holdback Advance. Each Construction
-----------------------------------------
Holdback Advance shall include specific requested amounts for interest payable
hereunder for the remaining portion of the calendar month in which the Advance
is made, plus any fees, costs, expenses, and other amounts payable to Lender
pursuant to this Note or the Loan Agreement in connection with such Advance;
provided, however, that with respect to any Notice of Advance that complies with
- -------- -------
the requirements hereof but does not include such additional amounts, Lender may
determine, but shall not be obligated to determine, the amount of such interest,
fees, costs, expenses, and other amounts due or payable to Lender and increase
the amount of the Construction Holdback Advance, and upon Lender's delivery of
written notice of such determination to Borrower, the subject Notice of Advance
shall be deemed to have been amended to increase its amount by the amount of
such additional items and amounts.
(v) Final Construction Holdback Advances. Subject to the provisions
------------------------------------
of the Loan Documents, and so long as there is no Potential Default or Event of
Default, a disbursement of the Loan proceeds totaling 10.00% of the amount of
the Construction Contract, comprising the Contractor's final draw request
thereunder, will be disbursed upon the satisfaction of the following: (a) the
Greenhouse shall have been completed substantially in accordance with the terms
of the Work Letter, and (b) Lender shall have received or waived the receipt of
(i) unconditional lien releases covering all previously disbursed Construction
Holdback Advances together with conditional lien releases covering the final
Construction Holdback Advance, (ii) a
55
<PAGE>
certificate of occupancy acceptable to Lender covering the Greenhouse, and (iii)
the Architect's written certification that the Greenhouse has been completed
substantially in accordance with the Plans therefor, that all utility
connections for the Greenhouse have been completed, and that the Greenhouse is
otherwise fully operational and fully ready for the occupancy and use
contemplated in the Lease.
EXHIBIT A-1
DESCRIPTION OF SITE
-------------------
Being a particular tract or tracts of land located in Durham County, Triangle
Township, Research Triangle Park, North Carolina and being further described
below:
BEGINNING at a point, said point being located the following courses from NC
Geodetic Monument "Triad", said NC Geodetic Monument bearing NC Grid Coordinates
NAD 83 of N:238,772.801 Meters, E:620,488.448 Meters; Thence from said monument,
South 01(degree)34'26" West a ground distance of 3,011.37 feet to an existing
R/W Monument set in the westerly right-of-way of T.W. Alexander Drive; Thence
with said right-of-way along a curve to the right having a radius of 2846.41
feet, an arc length of 153.75 feet and being subtended by a chord bearing and
distance of South 02(degree)43'15" West, 153.73 feet to an existing concrete R/W
Monument set in the westerly right-of-way of T.W. Alexander Drive; Thence
leaving said right-of-way, North 87(degree)20'44" West a distance of 142.69 feet
to a point, said point being the POINT AND PLACE OF BEGINNING.
Thence, from the POINT AND PLACE OF BEGINNING South 02(degree)44'10" West a
distance of 100.85 feet to a point; Thence, North 89(degree)49'25" West a
distance of 85.25 feet to a point; Thence, South 02(degree)33'01" West a
distance of 80.34 feet to a point; Thence, North 89(degree)49'25" West a
distance of 157.55 feet to a point; Thence, South 02(degree)26'24" West a
distance of 88.04 feet to a point; Thence, North 89(degree)49'25" West a
distance of 52.18 feet to a point; Thence, South 02(degree)26'24" West a
distance of 336.73 feet to a point; Thence, North 88(degree)43'29" West a
distance of 276.76 feet to an existing concrete monument; Thence, North
01(degree)16'24" East a distance of 330.28 feet to an existing concrete
monument; Thence, North 88(degree)03'29" West a distance of 22.85 feet to a new
iron pipe; Thence, North 84(degree)51'33" West a distance of 150.08 feet to an
existing concrete monument; Thence, North 05(degree)10'14" East a distance of
235.37 feet to a new iron pipe; Thence, South 87(degree)36'14" East a distance
of 150.23 feet to a new iron pipe; Thence, North 05(degree)09'46" East a
distance of 16.45 feet to a new iron pipe; Thence, South 87(degree)36'14" East a
distance of 105.32 feet to a new iron pipe; Thence, North 02(degree)39'16" East
a distance of 36.22 feet to a new iron pipe; Thence, South 87(degree)20'44" East
a distance of 483.95 feet to the POINT AND PLACE OF BEGINNING and containing
265,020.77 sq. ft. (6.084 acres), and being shown on a particular survey or plat
entitled "ALTA/ACSM Property Survey - 104 T.W. Alexander Drive", project number
98321.01, prepared by Barbara H. Mulkey Engineering, Inc., dated 04/30/99 and
revised 07/21/99.
56
<PAGE>
EXHIBIT A-2
DESCRIPTION OF ADDITIONAL SITE
------------------------------
Being a particular tract or tracts of land located in Durham County, Triangle
Township, Research Triangle Park, North Carolina and being further described
below:
BEGINNING at a point, said point being located the following courses from NC
Geodetic Monument "Triad", said NC Geodetic Monument bearing NC Grid Coordinates
NAD 83 of N:238,772.801 Meters, E:620,488.448 Meters; Thence from said monument,
South 01 (degrees) 34'26" West a ground distance of 3,011.37 feet to an existing
R/W Monument set in the westerly right-of-way of T.W. Alexander Drive; Thence
with said right-of-way along a curve to the right having a radius of 2846.41
feet, an arc length of 153.75 feet and being subtended by a chord bearing and
distance of South 02 (degrees) 43'15" West, 153.73 feet to an existing concrete
R/W Monument set in the westerly right-of-way of T.W. Alexander Drive, said
monument being the POINT AND PLACE OF BEGINNING.
Thence, from the POINT AND PLACE OF BEGINNING along the right-of-way of T.W.
Alexander Drive with a curve to the right having a radius of 2846.41 feet, an
arc length of 610.47 feet and being subtended by a chord bearing and distance of
South 04 (degrees) 58'14" West, 609.30 feet to an existing concrete monument;
Thence, North 88 (degrees) 43'29" West a distance of 411.30 feet to a point;
Thence, North 02 (degrees) 26'24" East a distance of 336.73 feet to a point;
Thence, South 89 (degrees) 49'25" East a distance of 52.18 feet to a point;
Thence North 02 (degrees) 26'24" East a distance of 88.04 feet to a point;
Thence, South 89 (degrees) 49'25" East a distance of 157.55 feet to a point;
Thence, North 02 (degrees) 33'01" East a distance of 80.34 feet to a point;
Thence, South 89 (degrees) 49'25" East a distance of 85.25 feet to a point;
Thence North 02 (degrees) 44'10" East a distance of 100.85 feet to a point;
Thence, South 87 (degrees) 20'44" East a distance of 142.69 feet to the POINT
AND PLACE OF BEGINNING and containing 214,139.28 sq. ft. (4.916 acres), and
being shown on a particular survey or plat entitled "ALTA/ACSM Property Survey -
104 T.W. Alexander Drive", prepared by Barbara H. Mulkey Engineering, Inc.,
dated 04/30/99 and revised 07/21/99.
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EXHIBIT B
DESCRIPTION OF PREMISES
-----------------------
58
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EXHIBIT C
WORK LETTER
-----------
This WORK LETTER, dated July _____,1999 (this "Work Letter"), is made and
entered into by and between ARE-104 ALEXANDER ROAD, LLC, a Delaware limited
liability company ("Landlord"), and PARADIGM GENETICS, INC., a North Carolina
corporation ("Tenant"), and is attached to and made a part of the Lease
Agreement dated July _____, 1999 (the "Lease"), by and between Landlord and
Tenant. Any initially capitalized terms used but not defined herein shall have
the meanings given them in the Lease.
RECITALS
A. Landlord has entered into or is entering into a Ground Lease Agreement
(the "Ground Lease") with Triangle Service Center, Inc., a North Carolina
corporation ("Ground Lessor'), pursuant to which Landlord has leased or is
leasing approximately 6.084 acres of land more fully described in Exhibit A-1
-----------
attached to the Lease (the "Site"). Pursuant to the Ground Lease, the Site will
be cleared and graded prior to the commencement of the term of the Ground Lease.
B. Subject to the terms and conditions of the Lease, Landlord has agreed
to cause to be constructed on the Site, or to permit to be constructed on the
Site, certain improvements including, but not limited to, a first-class
scientific research and development building containing approximately 53,750
rentable square feet (the "Building") and a commercial greenhouse, headhouse,
and growth room facility containing approximately 5,000 rentable square feet
(the "Greenhouse").
C. This Work Letter contains the agreements of the parties with respect to
the design and construction of the shell and core of the Building, the site
improvements appurtenant to the Building, all fixed and permanent improvements
to the Building (commonly referred to as the "tenant improvements"), and all
components of the Greenhouse.
AGREEMENT
1. General Requirements.
--------------------
1.1. Tenant's Authorized Representative. Tenant designates Larry
----------------------------------
Daquioag and Stanford White & Associates (collectively, "Tenant's
Representative") as the only persons authorized to initial or approve plans,
drawings, or change orders or otherwise to act for Tenant pursuant to this Work
Letter. Stanford White & Associates shall act for Tenant during any period that
Mr. Daquioag is not available. Landlord shall not be obligated to respond to or
act upon any request, approval, inquiry, or other communication
("Communication") from or on behalf of Tenant in connection with this Work
Letter unless such Communication is in writing and has been initialed or
approved in writing by Tenant's Representative. Tenant may change Tenant's
Representative at any time upon not less than 5 business days advance Notice to
Landlord. No period set forth herein for any approval of any matter by Tenant
shall be extended by reason of any change in Tenant's Representative. Neither
Tenant nor Tenant's Representative
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shall be authorized to direct Landlord's contractors in the performance of
"Landlord's Work" (as hereinafter defined) except as may be expressly provided
otherwise herein.
1.2. Development Schedule. The schedule for design and development of the
--------------------
"Base Building Work" (as defined below), the "Tenant Improvements" (as defined
below), and the Greenhouse, including, without limitation, the time periods for
preparation, delivery, review, and approval of construction documents and
performance pursuant to such documents, shall be in accordance with the
Development Schedule attached hereto as Schedule A, subject to adjustment as
----------
mutually agreed by the parties in writing or as provided in this Work Letter
(the "Development Schedule").
1.3. Architects, Consultants and Contractors. The architect (the "Project
---------------------------------------
Architect"), engineers, designers, and general contractor (the "Project
Contractor") responsible for the design, development, and construction of the
Base Building Work and other components of the Project as a whole (collectively,
the "Project Work"), the architect (the "TI Architect"), engineers, designers,
and general contractor (the "TI Contractor") responsible for the design,
development, and construction of the Tenant Improvements, and the general
contractor (the "Greenhouse Contractor") responsible for the construction of the
Greenhouse, shall be selected by Landlord, subject to Tenant's approval, which
approval shall not be unreasonably withheld, conditioned, or delayed. The
architect (the "Greenhouse Architect"), engineers, and designers responsible for
the design and development of the Greenhouse shall be selected by Tenant,
subject to Landlord's approval, which approval shall not be unreasonably
withheld, conditioned, or delayed. The Project Contractor shall select all
subcontractors to be used for the Project Work, the TI Contractor shall select
all subcontractors to be used for the Tenant Improvements, and the Greenhouse
Contractor shall select all subcontractors to be used for the Greenhouse,
provided that any subcontractors ("Major Subcontractors") under subcontracts in
excess of $100,000.00 ("Major Subcontracts") shall be subject to the mutual
approval of Landlord and Tenant. The TI Architect, the TI Contractor, the
Greenhouse Architect, and the Greenhouse Contractor shall coordinate with the
Project Architect in a manner reasonably satisfactory to Landlord. Landlord and
Tenant hereby acknowledge and agree that: (i) O'Brien Atkins & Associates has
been pre-approved as the Project Architect and the TI Architect; (ii) Miller
Building Corporation has been pre-approved as the Project Contractor, the TI
Contractor, and the Greenhouse Contractor; and (iii) Bartholomew Associates,
Inc. has been pre-approved as the Greenhouse Architect. For purposes of this
Work Letter, the Project Architect and the TI Architect may be referred to
collectively as the "Primary Architects", the Project Architect, the TI
Architect, and the Greenhouse Architect may be referred to collectively as the
"Architects", the Project Contractor, the TI Contractor, and the Greenhouse
Contractor may be referred to collectively as the "Contractors", and the
Architects and the Contractors may be referred to generally as "Developers".
2. Building Work.
-------------
2.1. Base Building Work Defined. As used herein, "Base Building
--------------------------
Work" shall mean all of the work required to design and construct, in their
entirety, the improvements described on Schedule B attached hereto, and shall
----------
include on-site surface parking of not less than 140 spaces (as may be limited
by, and subject to, any changes mandated by Legal Requirements (including zoning
restrictions) that may be enacted or first effective after the
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<PAGE>
Effective Date and to any changes in the design of the Building requested or
approved by Tenant and made after the Effective Date).
2.2. Tenant Improvements Defined. As used herein, "Tenant
---------------------------
Improvements" shall mean all improvements to the Building desired by Tenant of a
fixed and permanent nature, exclusive of the Base Building Work. Other than the
Base Building Work and the Tenant Improvements (collectively, the "Building
Work") and the Greenhouse, Landlord shall have no obligation whatsoever with
respect to the finishing, outfitting, equipping, or furnishing of the Premises
for Tenant's use and occupancy.
2.3. Building Design Program. Within 5 business days after the
-----------------------
mutual execution of this Work Letter, Tenant shall prepare and deliver to
Landlord and the Primary Architects outline specifications detailing Tenant's
requirements for the Building Work (the "Building Design Program"). Within 5
business days after Landlord's and the Primary Architects' receipt of the
Building Design Program, Landlord shall deliver to Tenant any written
objections, questions, and/or comments (generally, "Comments") that Landlord
and/or the Primary Architects may have regarding such Building Design Program.
Within 5 business days after Tenant's receipt of any such Comments, Tenant shall
cause the Building Design Program to be revised to address such Comments and to
be resubmitted to Landlord and the Primary Architects for approval. Any disputes
in connection with such Comments shall be resolved in accordance with Section 4.
---------
2.4. Building Schematic Plans. Within 15 business days after the
------------------------
Building Design Program has been approved, Landlord shall cause the Primary
Architects to prepare and submit to Tenant for Tenant's review and comment
schematic drawings for the development of the Building Work (the "Building
Schematic Plans"). Tenant shall be solely responsible for ensuring that the
Building Schematic Plans reflect Tenant's requirements for the Building Work.
Within 5 business days after Tenant's receipt of the Building Schematic Plans,
Tenant shall deliver to Landlord and the Primary Architects any Comments that
Tenant may have regarding the Building Schematic Plans; provided, however, that
-------- -------
Tenant may not disapprove any matter that is substantially consistent with the
Building Design Program without submitting a "Change Request" (as defined in
Section 6.1). Within 10 business days after Landlord's and the Primary
- -----------
Architects' receipt of any such Comments, Landlord and the Primary Architects
shall consider all such Comments in good faith and shall notify Tenant how
Landlord proposes to respond to such Comments. Any disputes in connection with
such Comments shall be resolved in accordance with Section 4.
---------
2.5. Building Design Development Plans. Within 15 business days
---------------------------------
after the Building Schematic Plans have been approved, Landlord shall cause the
Primary Architects to prepare and submit to Tenant for Tenant's review and
comment design development plans and specifications for the development of the
Building Work (the "Building Design Development Plans"). Tenant shall be solely
responsible for ensuring that the Building Design Development Plans reflect
Tenant's requirements for the Building Work. Within 5 business days after
Tenant's receipt of the Building Design Development Plans, Tenant shall deliver
to Landlord and the Primary Architects any Comments that Tenant may have
regarding the Building Design Development Plans; provided, however, that Tenant
-------- -------
may not disapprove any matter that is substantially consistent with the Building
Schematic Plans without submitting a Change Request.
61
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Within 10 business days after Landlord's and the Primary Architects' receipt of
any such Comments, Landlord and the Primary Architects shall consider all such
Comments in good faith and shall notify Tenant how Landlord proposes to respond
to such Comments. Any disputes in connection with such Comments shall be
resolved in accordance with Section 4.
---------
2.6. Building Construction Drawings. Within 45 business days after
------------------------------
the Building Design Development Plans have been approved, Landlord shall cause
the Primary Architects to prepare and deliver to Tenant for Tenant's review and
comment construction plans, specifications, and drawings for the Building Work
("Building Construction Drawings"), which Building Construction Drawings shall
be prepared substantially in accordance with the Building Design Development
Plans. Tenant shall be solely responsible for ensuring that the Building
Construction Drawings reflect Tenant's requirements for the Building Work.
Within 5 business days after Tenant's receipt of the Building Construction
Drawings, Tenant shall deliver to Landlord and the Primary Architects any
Comments that Tenant may have regarding the Building Construction Drawings;
provided, however, that Tenant may not disapprove any matter that is
- -------- -------
substantially consistent with the Building Design Development Plans without
submitting a Change Request. Within 10 business days after Landlord's and the
Primary Architects' receipt of any such Comments, Landlord and the Primary
Architects shall consider all such Comments in good faith and shall notify
Tenant how Landlord proposes to respond to such Comments. Any disputes in
connection with such Comments shall be resolved in accordance with Section 4.
---------
Once approved by Tenant, Landlord shall not materially modify the Building
Construction Drawings except as may be reasonably required in connection with
the issuance of any of the "Permits" (as defined in Section 5.2). Landlord will
-----------
give Tenant prompt Notice of any such material modifications.
3. Greenhouse.
----------
3.1. Greenhouse Design Program. Within 5 business days after the
-------------------------
mutual execution of this Work Letter, Tenant shall prepare and deliver to
Landlord and the Greenhouse Architect outline specifications detailing Tenant's
requirements for the Greenhouse (the "Greenhouse Design Program"). Within 5
business days after Landlord's and the Greenhouse Architect's receipt of the
Greenhouse Design Program, Landlord shall deliver to Tenant any Comments that
Landlord may have regarding such Greenhouse Design Program. Within 5 business
days after Tenant's receipt of any such Comments, Tenant shall cause the
Greenhouse Design Program to be revised to address such Comments and to be
resubmitted to Landlord and the Greenhouse Architect for approval. Any disputes
in connection with such Comments shall be resolved in accordance with Section 4.
---------
3.2. Greenhouse Schematic Plans. Within 15 business days after the
--------------------------
Greenhouse Design Program has been approved, Tenant shall cause the Greenhouse
Architect to prepare and submit to Landlord for Landlord's review and comment
schematic drawings for the development of the Greenhouse (the "Greenhouse
Schematic Plans"). Tenant shall be solely responsible for ensuring that the
Greenhouse Schematic Plans reflect Tenant's requirements for the Greenhouse.
Within 5 business days after Landlord's receipt of the Greenhouse Schematic
Plans, Landlord shall deliver to Tenant and the Greenhouse Architect any
Comments that Landlord may have regarding the Greenhouse Schematic Plans;
provided, however, that Landlord may not disapprove any matter that is
- -------- -------
substantially consistent with the Greenhouse
62
<PAGE>
Design Program. Within 10 business days after Tenant's and the Greenhouse
Architect's receipt of any such Comments, Tenant and the Greenhouse Architect
shall consider all such Comments in good faith and shall notify Landlord how
Tenant proposes to respond to such Comments. Any disputes in connection with
such Comments shall be resolved in accordance with Section 4. The cost of any
changes to the Building Construction Drawings that become necessary because of
any changes to the Greenhouse Schematic Plans requested by Landlord shall be
payable by Landlord.
3.3. Greenhouse Design Development Plans. Within 15 business days
-----------------------------------
after the Greenhouse Schematic Plans have been approved, Tenant shall cause the
Greenhouse Architect to prepare and submit to Landlord for Landlord's review and
comment design development plans and specifications for the development of the
Greenhouse (the "Greenhouse Design Development Plans"). Tenant shall be solely
responsible for ensuring that the Greenhouse Design Development Plans reflect
Tenant's requirements for the Greenhouse. Within 5 business days after
Landlord's receipt of the Greenhouse Design Development Plans, Landlord shall
deliver to Tenant and the Greenhouse Architect any Comments that Landlord may
have regarding the Greenhouse Design Development Plans; provided, however, that
-------- -------
Landlord may not disapprove any matter that is substantially consistent with the
Greenhouse Schematic Plans. Within 10 business days after Tenant's and the
Greenhouse Architect's receipt of any such Comments, Tenant and the Greenhouse
Architect shall consider all such Comments in good faith and shall notify
Landlord how Tenant proposes to respond to such Comments. Any disputes in
connection with such Comments shall be resolved in accordance with Section 4.
---------
The cost of any changes to the Building Construction Drawings that become
necessary because of any changes to the Greenhouse Design Development Plans
requested by Landlord shall be payable by Landlord.
3.4. Greenhouse Construction Drawings. Within 45 business days after
--------------------------------
the Greenhouse Design Development Plans have been approved, Tenant shall cause
the Greenhouse Architect to prepare and deliver to Landlord for Landlord's
review and comment construction plans, specifications, and drawings for the
Greenhouse ("Greenhouse Construction Drawings"), which Greenhouse Construction
Drawings shall be prepared substantially in accordance with the Greenhouse
Design Development Plans. Tenant shall be solely responsible for ensuring that
the Greenhouse Construction Drawings reflect Tenant's requirements for the
Greenhouse. Within 10 business days after Landlord's receipt of the Greenhouse
Construction Drawings, Landlord shall deliver to Tenant and the Greenhouse
Architect any Comments that Landlord may have regarding the Greenhouse
Construction Drawings; provided, however, that Landlord may not disapprove any
-------- -------
matter that is substantially consistent with the Greenhouse Design Development
Plans. Within 10 business days after Tenant's and the Greenhouse Architect's
receipt of any such Comments, Tenant and the Greenhouse Architect shall consider
all such Comments in good faith and shall notify Landlord how Tenant proposes to
respond to such Comments. Any disputes in connection with such Comments shall
be resolved in accordance with Section 4. The cost of any changes to the
---------
Building Construction Drawings that become necessary because of any changes to
the Greenhouse Construction Drawings requested by Landlord shall be payable by
Landlord. Once approved by Landlord, Tenant shall not materially modify the
Greenhouse Construction Drawings except as may be reasonably required in
connection with the issuance of any of the Permits. Tenant will give Landlord
prompt Notice of any such material modifications.
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4. Approval and Completion. Landlord and Tenant hereby acknowledge
-----------------------
that (i) the Building Construction Drawings must be completed and approved not
later than December 31, 1999, in order for the Building Work to be
"Substantially Complete" (as defined in Section 5.3) by the Target Commencement
-----------
Date, and (ii) the Greenhouse Construction Drawings must be completed and
approved not later than December 31, 1999, in order for the Greenhouse to be
Substantially Complete by the Target Commencement Date (the Building
Construction Drawings and the Greenhouse Construction Drawings may be referred
to collectively as the "Construction Drawings"). If there is any dispute
regarding the design of the Building Work or the Greenhouse that is not settled
within 5 business days after Notice of such dispute is delivered by one party to
the other, (x) Landlord shall have the right to make the final decision if the
dispute concerns the design of the Base Building Work, provided Landlord acts
reasonably and such final decision is either consistent with or a reasonable
compromise between Landlord's and Tenant's positions with respect to such
dispute, and (y) Tenant shall have the right to make the final decision if the
dispute concerns the design of the Tenant Improvements or the Greenhouse,
provided Tenant acts reasonably and such final decision is either consistent
with or a reasonable compromise between Landlord's and Tenant's positions with
respect to such dispute. All costs and expenses resulting from any final
decision with respect to the Building Work shall be payable out of the "Building
Fund" (as defined in Section 7.5) and resulting from any final decision with
-----------
respect to the Greenhouse shall be payable out of the "Greenhouse Fund" (as
defined in Section 7.8). Any changes to the Construction Drawings requested by
-----------
Tenant following Landlord's and Tenant's approval of same shall be processed as
provided in Section 6 hereof.
---------
5. Performance of Landlord's Work.
-------------------------------
5.1. Definition of Landlord's Work. As used herein, "Landlord's
-----------------------------
Work" shall mean the work of constructing the Building Work and the Greenhouse.
5.2. Permitting and Commencement of Landlord's Work. Once the
----------------------------------------------
Building Construction Drawings have been approved, Landlord shall commence
construction of the Base Building Work upon obtaining a building permit
authorizing the construction of the Base Building Work as contemplated in this
Work Letter (the "Base Building Permit"). Tenant shall cooperate and assist
Landlord in obtaining the Base Building Permit, the cost of which shall be
payable from the Building Fund. Thereafter, Landlord shall commence construction
of the Tenant Improvements upon the later of (a) the date that Landlord obtains
a building permit authorizing the construction of the Tenant Improvements as
contemplated in this Work Letter (the "TI Permit"), and (b) the date that the
Base Building Work has been sufficiently completed such that the work of
constructing the Tenant Improvements can be efficiently performed. Tenant shall
cooperate and assist Landlord in obtaining the TI Permit, the cost of which
shall be payable from the Building Fund. Once the Greenhouse Construction
Drawings have been approved, Landlord shall commence construction of the
Greenhouse upon the later of (x) the date that Landlord obtains a building
permit authorizing the construction of the Greenhouse as contemplated in this
Work Letter (the "Greenhouse Permit"), and (y) the date that the Base Building
Work has been sufficiently completed such that the work of constructing the
Greenhouse can be efficiently performed. Tenant shall cooperate and assist
Landlord in obtaining the Greenhouse Permit, the cost of which shall be payable
from the Greenhouse Fund. If any governmental or quasi-governmental authorities
having jurisdiction over the performance of any portion of Landlord's Work (a
"Governmental Authority") or any permit license, or
64
<PAGE>
approval required in connection therewith shall impose terms or conditions on
the Base Building Permit, the TI Permit, or the Greenhouse Permit (which may be
referred to collectively as the "Permits") that: (i) are inconsistent with
Landlord's obligations under this Work Letter; (ii) are substantially
inconsistent with any of the Construction Drawings; (iii) materially increase
the cost of performing Landlord's Work; or (iv) will materially delay the
performance of Landlord's Work, Landlord and Tenant shall reasonably and in good
faith seek means by which to mitigate or eliminate any such adverse terms or
conditions.
5.3. Completion of Landlord's Work. In recognition and consideration
-----------------------------
of the fact that the Building, the Tenant Improvements, and the Greenhouse are
yet to be designed and/or constructed, the parties to this Work Letter hereby
agree that Landlord may make "Minor Variations" (as defined below) in the size,
design, engineering, configuration, and placement of any portion of Landlord's
Work, and such Minor Variations shall not render the Lease void or voidable nor
give Tenant the right to any reduction or abatement in Rent, notwithstanding
anything contained in this Work Letter or any rule of law or equity to the
contrary. On or before the Commencement Date (subject only to "Tenant Caused
Delays" (as defined in Section 5.6) and delays cause by Force Majeure ("Force
-----------
Majeure Delays")), Landlord shall substantially complete or cause to be
substantially completed Landlord's Work in accordance with the Permits, and
shall obtain at least a temporary certificate of occupancy for the Building and
the Greenhouse that will allow Tenant to use and occupy such Building and
Greenhouse for substantially the purposes contemplated in the Permitted Use
(collectively, the "Temporary Certificate"), subject to Minor Variations and
customary "punch list" items of a non-material nature that do not adversely
affect Tenant's use or occupancy of the Building and the Greenhouse for
substantially the purposes contemplated in the Permitted Use or the validity of
the Temporary Certificate ("Substantially Complete" or "Substantial
Completion"); provided, however, that Landlord shall have no obligation to
-------- -------
obtain or maintain, and shall not obtain or maintain, any permits, licenses,
approvals, certificates, or other entitlements necessary or appropriate to
Tenant's specific use of the Premises or the conduct of Tenant's specific
business operations on the Premises. Upon the Substantial Completion of
Landlord's Work, each Architect shall be required to execute and deliver, for
the benefit of Tenant and Landlord, a Certificate of Substantial Completion in
the form of the American Institute of Architects document G704. For purposes of
this Work Letter, "Minor Variations" shall mean any modifications reasonably
required: (i) to comply with all applicable Legal Requirements (including the
North Carolina State Building Code, as adopted by the City of Durham (the
"Code")) and/or to obtain or to comply with any required permit (including the
Permits); (ii) to comply with any request by the Tenant for modifications to
Landlord's Work; (iii) to make reasonable, but minor, adjustments in order to
comport with good design, engineering, and construction practices; or (iv) to
make reasonable adjustments for field deviations or conditions encountered
during the performance of Landlord's Work.
5.4. Selection of Materials, Etc. Where more than one type of
---------------------------
material or structure is indicated on any of the Construction Drawings approved
by Landlord and Tenant, the option will be within Landlord's reasonable
discretion as to the Building Work and the option will be within Tenant's
reasonable discretion as to the Greenhouse. As to all building materials and
equipment that Landlord is obligated to supply under this Work Letter, Landlord
shall select the manufacturer thereof in Landlord's reasonable discretion.
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55. Delivery of the Premises. When Landlord's Work is Substantially
------------------------
Complete, subject to the remaining terms and provisions of this Section, Tenant
shall accept the Premises in their then existing condition. Tenant's taking
possession and acceptance of the Premises shall not constitute a waiver of: (i)
any warranty, including those with respect to workmanship (including
installation of equipment) or material (exclusive of equipment provided directly
to Tenant by manufacturers), (ii) any non-compliance of Landlord's Work with
Legal Requirements (including the Code), or (iii) any claim that Landlord's Work
was not completed substantially in accordance with any of the Construction
Drawings (subject to Minor Variations and such other changes as are permitted
hereunder) (collectively, a "Construction Defect"). Tenant shall have 1 year
after Substantial Completion within which to notify Landlord of any such
Construction Defect discovered by Tenant, and Landlord shall use reasonable
efforts to remedy or cause the responsible contractor to remedy any such
Construction Defect within 30 days thereafter. Notwithstanding the foregoing,
Landlord shall not be in default under the Lease if:
(a) with respect to Construction Defects that Landlord reasonably
determines, in good faith involve or may involve structural components of the
Premises or pose or may pose a significant risk of personal injury or
substantial property damage ("Serious Construction Defects"), the applicable
contractor, despite Landlord's reasonable efforts, fails to remedy such
Construction Defect within such 30-day period, but Landlord, within 30 days
thereafter, commences and diligently and continuously pursues such remedial
action to completion, at Landlord's sole cost and expense;
(b) with respect to Construction Defects that Landlord reasonably
determines, in good faith, are not Serious Construction Defects or involve
Tenant's Property, the applicable contractor, despite Landlord's reasonable
efforts, fails to remedy such Construction Defect within such 30-day period, in
which case Landlord shall have no further obligation with respect to such
Construction Defect other than to cooperate, at no cost to Landlord, with Tenant
should Tenant elect to pursue a claim against such contractor, provided that
Tenant indemnifies and holds Landlord harmless from and against any liability,
loss, cost, damage or expense in connection with any such claim; or
(c) with respect to any part of Landlord's Work, any action by
Tenant to the extent such action results in the invalidation of any otherwise
enforceable warranty or bond that would cover the cost of remedying such
Construction Defect.
Any determination made by Landlord pursuant to paragraph (a) or (b) above shall
be deemed reasonable and in good faith if based on advice received by Landlord
from an independent and duly licensed design or construction consultant (a
"Defect Consultant"). Tenant may ask a Defect Consultant to provide written
confirmation of the advice given Landlord in connection with a determination by
Landlord that a specific Construction Defect is not a Serious Construction
Defect if, and only if, (i) Tenant gives Landlord Notice of such desire within 3
business days after receiving Notice of Landlord's determination, and (ii)
Tenant is solely responsible for any fee, cost, charge, or other assessment
imposed by the Defect Consultant for providing such written confirmation;
provided, however, that Tenant understands and agrees that Landlord's waiver of
- -------- -------
the potential conflict of interest facing the Defect Consultant shall be
strictly limited to the advice, and only the advice, given Landlord in the
specific instance in
66
<PAGE>
question and shall not apply, under any circumstances, to any other advice or
matters that may be the subject of the services provided to Landlord by the
Defect Consultant.
Landlord shall use commercially reasonable efforts to cause the following to be
included in the agreements ("Development Agreements") entered into with each
Developer other than the Greenhouse Architect, and Tenant shall use commercially
reasonable efforts to cause the following to be included in the Development
Agreement entered into with the Greenhouse Architect: (i) an express statement
or agreement by each such Developer that Tenant (if Landlord is the contracting
party) or Landlord (if Tenant is the contracting party) is an "intended third
party beneficiary" with respect to all express representations and warranties
contained in such Developer's Development Agreement and with respect to all
warranties implied, at law or in equity, from the relationship created by such
Developer's Development Agreement or from the work performed by or on behalf of
such Developer pursuant to such Developer's Development Agreement; (ii) express
representations and warranties from each Developer that are "industry standard"
for such professionals when providing services to Similar Facilities in the Sub-
Market, which representations and warranties also shall be expressly assignable
to Tenant (if Landlord is the contracting party) or Landlord (if Tenant is the
contracting party) and, as to each Architect, shall include, but not be limited
to, a representation or warranty that the Construction Drawings prepared by or
on behalf of such Architect comply with all applicable Legal Requirements
(including the Code), subject to Minor Variations and such other changes as are
permitted hereunder; (iii) as to the Project Architect, an express requirement
that the Project Architect obtain and/or maintain errors and omissions insurance
with a minimum limit of not less than $2,000,000.00; (iv) as to each Developer,
an express requirement that Tenant (if Landlord is the contracting party) or
Landlord (if Tenant is the contracting party) be added as an additional insured
under any insurance for which the contracting party is to be named an additional
insured; and (v) as to each Contractor, an express requirement that such
Contractor direct all manufacturers supplying equipment to be installed in the
Building or the Greenhouse to name both Landlord and Tenant as the parties
entitled to the benefits of the manufacturers' equipment warranties. In all
events, Tenant shall be entitled to receive the benefit of all design and
construction warranties and all manufacturers' equipment warranties for
equipment installed in the Building or the Greenhouse, and Landlord, if
requested by Tenant, will cooperate with Tenant in obtaining the benefit of all
such warranties (subject to the limitations described in paragraphs (a), (b),
and (c) above). If requested by Tenant, Landlord shall use commercially
reasonable efforts to obtain extended warranties from the manufacturers and
suppliers of any equipment to be installed in the Building or the Greenhouse,
provided that the cost of any such extended warranties shall be subject to
Tenant's approval and, unless paid directly by Tenant, at Tenant's option, shall
be paid solely out of the Building Fund for equipment installed in the Building
and shall be paid solely out of the Greenhouse Fund for equipment installed in
the Greenhouse. Within 5 days after receiving Notice from Tenant identifying
punch list items, Landlord shall undertake the correction of such punch list
items and shall complete, or cause to be completed, the correction of all punch
list items within 20 days thereafter; provided, however, if the nature of the
-------- -------
punch list items are such that they reasonably require more than 20 days to
correct, then Landlord shall not be deemed to be in default hereunder if
Landlord commences such correction within said 20-day period and thereafter
diligently pursues the same to completion; provided further, however, that such
-------- ------- -------
correction shall be completed no later than 45 days from the date of Tenant's
Notice regarding punch list items (subject to Force Majeure Delays).
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5.6. Commencement Date Delay. The Commencement Date shall occur when
-----------------------
Landlord's Work has been Substantially Completed (the "Completion Date"), except
to the extent that completion of Landlord's Work shall have been actually
delayed by any one or more of the following causes (a "Tenant Caused Delay"):
(a) Tenant's Representative was not available to give or receive
any Communication (in the manner required under the notice provisions
contained in Section 44(a) of the Lease) or to take any other action
------- -----
required to be taken by Tenant hereunder;
(b) Any Change Request, whether or not the Change that is the
subject of the Change Request is actually performed;
(c) Construction of any Change;
(d) Tenant's request for materials, finishes, or installations
requiring unusually long lead times
(e) Tenant's delay in reviewing, revising, providing Comments,
or approving specifications, plans, drawings, or other materials beyond the
periods set forth herein;
(f) Tenant's delay in providing information critical to the
normal progression of Landlord's Work (Tenant shall provide such
information as soon as reasonably possible, but in no event longer than 1
week after receipt of any request for such information from Landlord that
is transmitted in the manner required under the notice provisions contained
in Section 44(a) of the Lease);
-------------
(g) Tenant's delay in making payments to Landlord for "Excess
Building Costs" (as defined in Section 7.5) or "Excess Greenhouse Costs"
-----------
(as defined in Section 7.8) or
-----------
(h) Any other act or omission by Tenant or its agents,
contractors, or persons employed by any of such persons.
If the Commencement Date is delayed for any of the foregoing reasons, then
Landlord shall cause the Project Architect (with respect to the Base Building
Work), the TI Architect (with respect to the Tenant Improvements), and the
Greenhouse Architect (with respect to the Greenhouse) to certify the date on
which Landlord's Work would have been Substantially Completed but for such
Tenant Caused Delay and such certified date shall be the Commencement Date under
the Lease.
6. Changes. Any changes requested by Tenant to Landlord's Work
-------
("Changes") after the mutual approval of any of the Construction Drawings shall
be requested and instituted in accordance with the provisions of this Section
and shall be subject to the written approval of Landlord and the appropriate
Architect, such approval not to be unreasonably withheld, conditioned, or
delayed.
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<PAGE>
6.1. Tenant's Right to Request Changes. Tenant shall request Changes,
---------------------------------
if any, by giving Notice to Landlord in substantially the same form as the AIA
standard change order form (a "Change Request"), which Change Request shall
detail the nature and extent of any such Change. Tenant's Representative must
sign such Change Request. Landlord, before proceeding with any Change, shall use
commercially reasonable efforts to respond to Tenant as soon as reasonably
possible with an estimate of: (i) the period of time, if any, that the Change
will extend the date on which Landlord's Work will be Substantially Complete;
and (ii) the architectural and engineering fees and costs that will be incurred
to analyze such Change Request. Within 10 business days after Landlord's receipt
of the Change Request (or such longer period of time as is reasonably required
depending on the extent of the Change Request), Landlord shall submit to Tenant
a written analysis of the additional cost or savings involved, including,
without limitation, architectural and engineering costs and the period of time,
if any, that the Change will extend the date on which Landlord's Work will be
Substantially Complete. Any such delay in the completion of Landlord's Work
caused by a Change, including any suspension of Landlord's Work while any such
Change is being evaluated and/or designed, shall be a Tenant Caused Delay.
Notwithstanding the foregoing, Landlord's Work may not be suspended as a result
of any Change Request unless specifically approved by Tenant.
6.2. Implementation of Changes. If Tenant: (i) approves in writing
-------------------------
the cost or savings and the estimated extension in the time for completion of
Landlord's Work, if any, and (ii) deposits with Landlord any Excess Building
Costs required in connection with any Change of the Building Work or any Excess
Greenhouse Costs required in connection with any Change of the Greenhouse,
Landlord shall cause the approved Change to be instituted. Notwithstanding any
approval or disapproval by Tenant of any estimate of the delay caused by such
proposed Change, the appropriate Architect's determination of the amount of
Tenant Caused Delay in connection with such Change shall be final and binding on
Landlord and Tenant.
7. Costs.
-----
7.1. Budget for Landlord's Work. Before commencing Landlord's Work,
--------------------------
Landlord shall obtain a detailed budget (the "Budget"), by trade, of the costs
incurred or that will be incurred in connection with the design, permitting, and
construction of the Building Work (the "Building Costs"), and the design,
permitting, and construction of the Greenhouse (the "Greenhouse Costs"). The
Budget shall be based upon the Construction Drawings and shall include a payment
to Landlord of administrative rent ("Administrative Rent") equal to 2.50% of the
Building Costs and the Greenhouse Costs (collectively, "Project Costs") for
administering, monitoring, and inspecting Landlord's Work, which sum shall be
payable from the Building Fund and/or the Greenhouse Fund. Such Administrative
Rent shall include, without limitation, all out-of-pocket costs, expenses, and
fees incurred by or on behalf of Landlord arising from, out of, or in connection
with, such administration, monitoring, and inspection of Landlord's Work.
Landlord shall have the right (but not the obligation) to engage a project or
development manager to assist in performing such administration, monitoring, and
inspection of Landlord's Work and any payments to any such manager (excluding
payments for any services performed by such manager at Tenant's direct request
or direction) shall be payable from Administrative Rent.
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<PAGE>
7.2. Excess Line Item Costs. If at any time and from time-to-time
----------------------
Landlord reasonably determines that the actual cost of certain services or
materials required for the Building Work will exceed the line item in the Budget
for such services or materials, Landlord shall give Notice to Tenant of same and
Tenant thereafter either shall approve or disapprove the excess line item cost
within 5 business days after Landlord's Notice. If Tenant approves the excess
line item cost, Landlord shall proceed with the Building Work and the excess
line item cost will be included in "Base Construction Costs" (as defined in
Section 3(a) of the Lease). If Tenant disapproves the excess line item cost,
- ------------
Landlord and Tenant shall reasonably and in good faith seek means by which to
mitigate or eliminate such excess line item cost. Any excess line item cost not
approved by Tenant shall not be included in Base Construction Costs.
7.3. Building Allowance. Landlord shall provide to Tenant a building
------------------
allowance ("Building Allowance") of not more than $155.00 (in increments of
$10.00) per rentable square foot of the Building, provided that under no
circumstances (including an increase in the rentable square footage of the
Building) shall the aggregate amount of the Building Allowance exceed
$8,331,250.00. Within 10 business days after Tenant's receipt of the Budget
from Landlord, Tenant shall give Landlord Notice of how much of the Building
Allowance Tenant has elected to receive from Landlord. Such election shall be
final and binding on Tenant, and may not thereafter be modified without
Landlord's consent, which may be granted or withheld in Landlord's sole and
absolute discretion. If the Budget for the Building Work is greater than the
Building Allowance, Tenant shall deposit with Landlord the difference, in cash,
prior to the commencement of Landlord's Work, for disbursement by Landlord to
pay Building Costs.
7.4. Costs Includable in Building Allowance. The Building Allowance
--------------------------------------
shall be used solely for the payment of design, permitting, and construction
costs in connection with the construction of the Building Work, including,
without limitation, the cost of preparing the Building Design Program, the
Building Schematic Plans, the Building Design Development Plans, and the
Building Construction Drawings, all costs set forth in the Budget, including
Administrative Rent and Landlord's out-of-pocket expenses and other costs
resulting from Tenant Caused Delays and the cost of Changes, to the extent of
the Building Allowance. The items that may be paid for using the Building
Allowance include, without limitation, the shell and core of the Building, the
site improvements appurtenant to the Building, HVAC systems, utility
distribution systems, laboratory benches and casework, and hazardous waste
containment equipment. Notwithstanding anything to the contrary contained
herein, the Building Allowance shall not be used to pay for trade fixtures,
emergency generators or related emergency power equipment, furniture, personal
property, or other non-building system materials or equipment, including, but
not be limited to, biological safety cabinets and other scientific equipment not
incorporated into the Building.
7.5. Excess Building Costs. It is understood and agreed that
---------------------
Landlord is under no obligation to bear any portion of the cost of any of the
Building Work except to the extent of the Building Allowance. If at any time
and from time-to-time Landlord reasonably determines that the remaining Building
Costs under the Budget exceed the remaining unexpended Building Allowance,
Landlord shall give Notice to Tenant of same and Tenant thereafter shall deposit
with Landlord, as a condition precedent to Landlord's obligation to complete the
Building Work, 100% of the then current Building Costs in excess of the
remaining Building Allowance
70
<PAGE>
("Excess Building Costs"). If Tenant fails to deposit with Landlord, or deposits
with Landlord after the date demanded in Landlord's Notice (which shall not be
less than 5 business days after Landlord's Notice), the amount of any Excess
Building Costs, Landlord may suspend Landlord's Work until the required deposit
has been made and shall have all of the rights and remedies set forth in the
Lease for nonpayment of Rent (including, but not limited to, the right to
interest at the Default Rate and the right to assess a late charge), and for
purposes of any litigation instituted with regard to such amounts the same will
be considered Rent. Such deposits of Excess Building Costs, together with the
proceeds of the Building Allowance, are herein referred to as the "Building
Fund". Funds so deposited by Tenant shall be the first thereafter disbursed to
pay Building Costs. Notwithstanding anything to the contrary set forth in this
Section, Tenant shall be fully and solely liable for Building Costs and the cost
of Minor Variations in excess of the Building Allowance (except as may be
provided otherwise in Section 7.2 above). If upon Substantial Completion of the
-----------
Building Work and the payment of all sums due in connection therewith there
remains any undisbursed Building Allowance, Tenant shall be entitled to such
undisbursed Building Allowance solely to the extent of any deposits of Excess
Building Costs that Tenant has actually made with Landlord.
7.6. Greenhouse Loan. Pursuant to Section 42 of the Lease and in
--------------- ----------
accordance with the Greenhouse Loan Documents, Landlord is making a loan to
Tenant in the maximum amount of $1,200,000.00 to be used by Tenant solely for
the construction of the Greenhouse (the "Greenhouse Loan").
7.7. Costs Includable in Greenhouse Loan. The Greenhouse Loan shall
-----------------------------------
be used solely for the payment of design, permitting, and construction costs in
connection with the construction of the Greenhouse, including, without
limitation, the cost of preparing the Greenhouse Design Program, the Greenhouse
Schematic Plans, the Greenhouse Design Development Plans, and the Greenhouse
Construction Drawings, all other costs set forth in the Budget, including
Administrative Rent and Landlord's out-of-pocket expenses and other costs
resulting from Tenant Caused Delays and the cost of Changes. Notwithstanding
anything to the contrary contained herein, the Greenhouse Loan shall not be used
to pay for trade fixtures, emergency generators or related emergency power
equipment, furniture, personal property, or other non-building system materials
or equipment, including, but not be limited to, biological safety cabinets and
other scientific equipment not incorporated into the Greenhouse.
7.8. Excess Greenhouse Costs. It is understood and agreed that
-----------------------
Landlord is under no obligation to bear any portion of the cost of the
Greenhouse, and has only the obligation to disburse proceeds of the Greenhouse
Loan in accordance with the terms and conditions of the Greenhouse Loan
Documents. If at any time and from time-to-time Landlord reasonably determines
that the remaining Greenhouse Costs under the Budget exceed the remaining
undisbursed proceeds of the Greenhouse Loan, Landlord shall give Notice to
Tenant of same and Tenant thereafter shall deposit with Landlord, as a condition
precedent to Landlord's obligation to complete the Greenhouse, 100% of the then
current Greenhouse Costs in excess of the remaining undisbursed proceeds of the
Greenhouse Loan ("Excess Greenhouse Costs"). If Tenant fails to deposit with
Landlord, or deposits with Landlord after the date demanded in Landlord's Notice
(which shall not be less than 5 business days after Landlord's Notice), the
amount of any Excess Greenhouse Costs, Landlord may suspend Landlord's Work
until the required deposit has been made and shall have all of the rights and
remedies set forth in the
71
<PAGE>
Greenhouse Loan Documents for nonpayment of principal, interest, and other
monies due in connection with the Greenhouse Loan (including, but not limited
to, the right to interest at the "Default Interest Rate" (as defined in the
Greenhouse Loan Documents) and the right to assess a late charge). Such deposit
of Excess Greenhouse Costs, together with the proceeds of the Greenhouse Loan,
are herein referred to as the "Greenhouse Fund". Funds so deposited by Tenant
shall be the first thereafter disbursed to pay Greenhouse Costs. Notwithstanding
anything to the contrary set forth in this Section, Tenant shall be fully and
solely liable for Greenhouse Costs and the cost of Minor Variations in excess of
the amount of the Greenhouse Loan. If upon Substantial Completion of the
Greenhouse and the payment of all sums due in connection therewith there remains
any undisbursed proceeds of the Greenhouse Loan, Tenant shall be entitled to
such undisbursed proceeds solely to the extent of any deposits of Excess
Greenhouse Costs that Tenant has actually made with Landlord.
8. Tenant Access.
-------------
8.1. Tenant's Access Rights. Landlord hereby agrees to permit Tenant
----------------------
access to the Building at Tenant's sole risk and expense, (i) 30 days prior to
the Commencement Date to perform any work ("Tenant's Work") required by Tenant
other than Landlord's Work (including, as examples only, installation of
telephones, cables, and, to the extent reasonably practical, trade fixtures and
furniture), provided that such Tenant's Work is coordinated with the TI
Architect and the TI Contractor and complies with the Lease and all other
reasonable restrictions and conditions Landlord may impose, and (ii) prior to
the completion of Landlord's Work, to inspect and observe work in process; all
such access shall be during normal business hours or at such other times as are
reasonably designated by Landlord. Notwithstanding the foregoing, Tenant shall
have no right to enter onto the Premises or the Building unless and until Tenant
shall deliver to Landlord evidence reasonably satisfactory to Landlord
demonstrating that any insurance reasonably required by Landlord in connection
with such pre-commencement access (including, but not limited to, any insurance
that Landlord may require pursuant to the Lease) is in full force and effect.
8.2. No Interference. Neither Tenant nor its employees, consultants,
---------------
agents, contractors, and suppliers shall interfere with the performance of
Landlord's Work, nor with any inspections or issuance of final approvals by
Durham County, North Carolina, or the City of Durham, and upon any such
interference, Landlord shall have the right to exclude Tenant and Tenant's
employees, consultants, agents, contractors, and suppliers from the Premises and
the Building until Substantial Completion of Landlord's Work.
8.3. No Acceptance of Premises. So long as Tenant engages only in
-------------------------
the activities enumerated in Section 8.1, the fact that Tenant, with Landlord's
-----------
consent, may enter the Building prior to the date Landlord's Work is
Substantially Complete shall not be deemed an acceptance by Tenant of possession
of the Premises, but in such event Tenant shall indemnify and hold Landlord
harmless from any loss of or damage to Tenant property, completed work,
fixtures, equipment, materials or merchandise, and from liability for death of,
or injury to, any person, caused by the willful misconduct or negligence of
Tenant or its agents.
9. Notification of Delays. Not less than once each calendar month from
----------------------
the date of this Work Letter through the Commencement Date, Landlord shall
deliver to Tenant written
72
<PAGE>
notification of the number of days during the immediately preceding calendar
month Landlord's performance under this Work Letter or the Lease was delayed as
a result of Tenant Caused Delays or Force Majeure Delays, which written
notification shall also include a description of the nature of such Tenant
Caused Delay or Force Majeure Delay.
10. Miscellaneous
-------------
10.1. Consents. Whenever consent or approval of either party is
--------
required under this Work Letter, that party shall not unreasonably withhold,
condition, or delay such consent or approval, except as may be expressly set
forth herein to the contrary. Notwithstanding the foregoing, and regardless of
any standard that may be applicable to any consent or approval rights given to
Landlord hereunder, Landlord shall be justified in withholding, and shall not
incur any liability for so withholding, any consent or approval to any action,
document, or matter that Landlord determines, in its sole and absolute
discretion, will or might adversely affect Landlord's status as a "real estate
investment trust".
10.2. Modification. No modification, waiver, or amendment of this
------------
Work Letter or of any of its conditions or provisions shall be binding upon
Landlord or Tenant unless in writing signed by Landlord and Tenant.
10.3. Counterparts. This Work Letter may be executed in any number
------------
of counterparts, each of which shall be deemed an original and all of which,
taken together, shall constitute a single agreement with the same effect as if
all parties had signed the same signature page. Any signature page from any
counterpart of this Work Letter, signed only by one party, may be detached from
such counterpart and re-attached to any other counterpart of this Work Letter
that has a signature page signed only by the other party.
10.4. Governing Law. This Work Letter shall be governed by,
-------------
construed and enforced in accordance with the internal laws of the state in
which the Premises are located, without regard to choice of law principles of
such State.
10.5. Time of the Essence. Time is of the essence of this Work
-------------------
Letter and of each and all provisions thereof.
10.6. Severability. If any term or provision of this Work Letter is
------------
declared invalid or unenforceable, the remainder of this Work Letter shall not
be affected by such determination and shall continue to be valid and
enforceable.
10.7. Merger. All understandings and agreements, oral or written,
------
heretofore made between the parties hereto and relating to Landlord's Work are
merged in this Work Letter, which alone (but inclusive of provisions of the
Lease incorporated herein and the final approved constructions drawings and
specifications prepared pursuant hereto) fully and completely expresses the
agreement between Landlord and Tenant with regard to the matters set forth in
this Work Letter.
10.8. Interpretation. The normal rule of construction to the effect
--------------
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Work Letter or any schedules or
amendments hereto. Words of any gender
73
<PAGE>
used in this Lease shall be held and construed to include any other gender, and
words in the singular number shall be held to include the plural, unless the
context otherwise requires. The captions inserted in this Work Letter are for
convenience only and in no way define, limit or otherwise describe the scope or
intent of this Work Letter, or any provision hereof, or in any way affect the
interpretation of this Work Letter.
10.9. Attorneys Fees. If either Landlord or Tenant reasonably seeks
--------------
legal services with respect to the proper interpretation or enforcement of this
Work Letter, the party receiving substantially the result it sought or defended
(the "Prevailing Party"), whether by award, judgment, stipulation, settlement,
workout, default, or otherwise and whether or not any legal action may have been
instituted or instituted and then voluntarily dismissed, shall be entitled to
recover from the adverse party all reasonable fees and costs incurred by the
Prevailing Party in connection with such legal services ("Legal Fees"). Legal
Fees include, without limitation, (i) fees, costs, and expenses of any
engineers, accountants, appraisers, consultants, brokers, and other
professionals or experts retained or consulted by the Prevailing Party, and
other costs and expenses of investigation or analysis incurred by the Prevailing
Party in support of its position, and (ii) all such fees, costs, and expenses
incurred in any aspect of the legal process, whether out-of-court negotiations,
mediation, arbitration, commencement of suit, discovery, law and motion, trial,
appellate proceedings, or any action or participation in, or in connection with,
any case or proceeding under Chapter 7, 11, or 13 of the Bankruptcy Code, 11
U.S.C. Section 101 et seq., or any successor statutes.
-- ---
10.10. No Third Party Benefits. Landlord and Tenant do not intend by
-----------------------
any provision of this Work Letter to confer any right, remedy, or benefit upon
any third party, and no third party shall be entitled to enforce, or otherwise
shall acquire any right, remedy, or benefit by reason of, any provision of this
Work Letter.
10.11. No Waiver: Remedies Cumulative. No purported waiver of any
------------------------------
provision of this Work Letter shall be binding unless such waiver is in writing
and signed by the party to be bound. In addition, no waiver of any provision of
this Work Letter shall be deemed, or shall constitute, a waiver of any other
provision of this Work Letter, whether or not similar, nor shall any waiver
constitute a continuing waiver. Further, no failure to exercise and no delay in
exercising any power, right, remedy, or privilege under this Work Letter shall
impair such power, right, remedy, or privilege or shall be deemed, or shall
constitute, a waiver of any default under this Work Letter or acquiescence
therein, nor shall any single or partial exercise of any such power, right,
remedy, or privilege preclude any other or further exercise thereof or of any
other power, right, remedy, or privilege. Finally, all powers, rights,
remedies, and privileges existing under this Work Letter are cumulative, in
addition to, and not exclusive of any other powers, rights, remedies, or
privileges otherwise available to the parties to this Work Letter.
10.12. Incorporation by Reference. All schedules attached hereto are
--------------------------
hereby incorporated into this Lease and made a part hereof. If there is any
conflict between such schedules and the terms of this Work Letter, such
schedules shall control.
10.13. Entire Agreement. This Work Letter is made as a part of and
----------------
pursuant to the Lease and, together with the Lease, constitutes the entire
agreement of the parties with respect to the subject matter hereof. This Work
Letter is subject to all of the terms and limitation
74
<PAGE>
set forth in the Lease, and neither party shall have any rights or remedies
under this Work Letter separate and apart from their respective remedies
pursuant to the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter to be
effective on the date first above written.
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By:______________________________________________
Its:_____________________________________________
ATTEST: __________________
Its ____________________ Secretary
[CORPORATE SEAL]
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL)
a Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By:____________________________________
Its:___________________________________
ATTEST: __________________
Its ____________________ Secretary
[CORPORATE SEAL]
75
<PAGE>
Schedule A to Work Letter
Development Schedule
--------------------
Event Date
-----------------------------------------------------------------
Execution of Ground Lease 07/__/99
Execution of Lease 07/__/99
Naming of Tenant's Representative 07/__/99
Delivery of specifications for Building 07/__/99
Design Program pursuant to Section 2.3
-----------
Delivery of specifications for Greenhouse 07/__/99
Design Program pursuant to Section 3.1
-----------
Delivery of final Building 12/15/99
Construction Drawings to Tenant
Final approval of Building Construction 12/31/99
Drawings pursuant to Section 4(i)
------------
Final approval of Greenhouse Construction 12/31/99
Drawings pursuant to Section 4(ii)
-------------
Issuance of Base Building Permit 01/01/00
Commencement of 01/01/00
construction of Base Building Work
Issuance of TI Permit 01/01/00
Issuance of Greenhouse Permit 01/01/00
Commencement of 01/01/00
construction of Tenant Improvements
Commencement of 01/01/00
construction of Greenhouse
Substantial Completion of Landlord's Work 06/01/00
Issuance of Temporary Certificate of Occupancy 06/01/00
76
<PAGE>
Schedule B to Work Letter
Base Building Work
------------------
________________________________________________________________________________
Description of Base Building Work - Shell and Core*
. Concrete Foundations and Floors
. Structural/Steel Frame
. Exterior Walls/Facade/Windows
. Exterior Doors
. Exterior Painting
. Roofing/Fireproofing/Caulking and Sealant
. Roof Hatch
. Shell and Core Mechanical/Plumbing
(Includes roof drains, hose bibs, main service backflow
preventer, garage exhaust (if req'd by Code))
. Shell and Core Electrical
(Main electrical switch gear req'd by Code to service shell only, incl
req'd life safety improvements)
. Shell and Core Fire Sprinklers
(Fire riser to shell for Ordinary Group 2 fire system)
. Loading Area/Dock Bumpers
. Exit Stairs
(As req'd by Code)
. Related Shell Architectural/Engineering Fees; Building
Permit and Inspection Fees
. Builder's Risk Insurance Premiums
________________________________________________________________________________
Description of Base Building Work - Site Improvements *
. Finished Grading
. Finished Landscape and Hardscape Features
. Irrigation Systems
. Surface Parking and Striping
(Parking provided at or near a ratio of 3 spaces per
1,000 rentable sq. ft., or as req'd by Code)
. Exterior Lighting
(Parking and landscaped areas)
. Trash Enclosure
. Utilities Stubbed to the Building
(Sewer, water, natural gas, and electricity)
77
<PAGE>
. Fire Hydrants
. ADA Access and Other Improvements Required by Code
. Concrete Pad for Tenant's Emergency Generator
. Monument Signage
(Tenant responsible for its lettering and graphics)
* All materials and labor shall comply with Code and be "industry standard" for
the Sub-Market
78
<PAGE>
EXHIBIT D
COMMENCEMENT DATE; TERM
-----------------------
This Acknowledgment, dated ________________, 2000, is given by ARE-104
ALEXANDER ROAD, LLC, a Delaware limited liability company ("Landlord"), and
PARADIGM GENETICS, INC., a North Carolina corporation ("Tenant"), and is
attached to and made a part of the Lease Agreement dated July ___, 1999 (the
"Lease"), between Landlord and Tenant. Any initially capitalized terms used but
not defined herein shall have the meanings given them in the Lease.
Tenant and Landlord hereby acknowledge and agree that, for all purposes
related to the Lease, the "Commencement Date" shall be ________________, 2000,
and the initial "Term" shall expire on _______________, 2010.
IN WITNESS WHEREOF, Tenant and Landlord have executed this Acknowledgment
as of the date first above written.
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By:______________________________
Its:_____________________________
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL) a
Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By:___________________
Its:__________________
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<PAGE>
EXHIBIT E
BASE CONSTRUCTION COSTS; BUILDING ALLOWANCE; BASE RENT
------------------------------------------------------
This Acknowledgment, dated ________________, 2000, is given by ARE-104
ALEXANDER ROAD, LLC, a Delaware limited liability company ("Landlord"), and
PARADIGM GENETICS, INC., a North Carolina corporation ("Tenant"), and is
attached to and made a part of the Lease Agreement dated July ___, 1999 (the
"Lease"), between Landlord and Tenant. Any initially capitalized terms used but
not defined herein shall have the meanings given them in the Lease.
Tenant and Landlord hereby acknowledge and agree that, for all purposes
related to the Lease, the aggregate "Base Construction Costs" shall be
$_________, the aggregate "Building Allowance" actually disbursed to or for the
benefit of Tenant shall be $__________, and the initial monthly "Base Rent"
shall be $___________.
IN WITNESS WHEREOF, Tenant and Landlord have executed this Acknowledgment
as of the date first above written.
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By:_____________________________
Its:____________________________
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL)
a Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By:_________________________
Its:________________________
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<PAGE>
EXHIBIT F
GROUND LEASE RENT
-----------------
This Acknowledgment, dated ________________, 2000, is given by ARE-104
ALEXANDER ROAD, LLC, a Delaware limited liability company ("Landlord"), and
PARADIGM GENETICS, INC., a North Carolina corporation ("Tenant"), and is
attached to and made a part of the Lease Agreement dated July ___, 1999 (the
"Lease"), between Landlord and Tenant. Any initially capitalized terms used but
not defined herein shall have the meanings given them in the Lease.
Tenant and Landlord hereby acknowledge and agree that, for all purposes
related to the Lease, the initial annual "Ground Lease Rent" shall be
$__________.
IN WITNESS WHEREOF, Tenant and Landlord have executed this Acknowledgment
as of the date first above written.
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By: ____________________________________
Its:____________________________________
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL)
a Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By:____________________________
Its:___________________________
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EXHIBIT G
ORIGINAL SECURITY AMOUNT
------------------------
This Acknowledgment, dated ________________, 2000, is given by ARE-104
ALEXANDER ROAD, LLC, a Delaware limited liability company ("Landlord"), and
PARADIGM GENETICS, INC., a North Carolina corporation ("Tenant"), and is
attached to and made a part of the Lease Agreement dated July,1999 (the
"Lease"), between Landlord and Tenant. Any initially capitalized terms used but
not defined herein shall have the meanings given them in the Lease.
Tenant and Landlord hereby acknowledge and agree that, for all purposes
related to the Lease, the "Original Security Amount" shall be $___________.
IN WITNESS WHEREOF, Tenant and Landlord have executed this Acknowledgment
as of the date first above written.
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By: ___________________________________
Its:___________________________________
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL)
a Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By:________________________
Its:_______________________
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EXHIBIT H
RULES AND REGULATIONS
---------------------
(a) The sidewalk, entries, and driveways of the Project shall not be
obstructed by Tenant, or its agents, or used by them for any purpose other than
ingress and egress to and from the Premises.
(b) Tenant shall not place any objects, including antennas, outdoor
furniture, etc., in the parking areas, landscaped areas or other areas outside
of its Premises, or on the roof of the Project.
(c) No animals shall be allowed in the offices, halls, or corridors in
the Project, except for seeing-eye dogs and any other animals that may be
reasonably necessary to the Permitted Use.
(d) Tenant shall not disturb the occupants of the Project or adjoining
buildings by the use of any radio or musical instrument or by the making of loud
or improper noises.
(e) If Tenant desires telegraphic, telephonic or other electric
connections in the Premises, Landlord or its agent will direct the electrician
as to where and how the wires may be introduced; and, without such direction, no
boring or cutting of wires will be permitted. Any such installation or
connection shall be made at Tenant's expense.
(f) Tenant shall not install or operate any steam or gas engine or
boiler, or other mechanical apparatus in the Premises, except as specifically
approved in the Lease. The use of oil, gas or inflammable liquids for heating,
lighting or any other purpose is expressly prohibited. Explosives or other
articles deemed extra hazardous shall not be brought into the Project.
(g) Parking any type of recreational vehicles is specifically
prohibited on or about the Project. Except for the overnight parking of
operative vehicles, no vehicle of any type shall be stored in the parking areas
at any time. In the event that a vehicle is disabled, it shall be removed
within 48 hours. There shall be no "For Sale" or other advertising signs on or
about any parked vehicle. All vehicles shall be parked in the designated
parking areas in conformity with all signs and other markings. All parking will
be open parking, and no reserved parking, numbering or lettering of individual
spaces will be permitted except as specified by Landlord.
(h) Tenant shall maintain the Premises free from
rodents, insects and other pests.
(i) Landlord reserves the right to exclude or expel from the Project
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs or who shall in any manner do any act in violation
of the Rules and Regulations of the Project.
(j) Tenant shall not cause any unnecessary labor by reason of Tenant's
carelessness or indifference in the preservation of good order and cleanliness.
Landlord shall not be
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responsible to Tenant for any loss of property on the Premises, however
occurring, or for any damage done to the effects of Tenant by the janitors or
any other employee or person.
(k) Tenant shall give Landlord prompt Notice of any defects in the
water, lawn sprinkler, sewage, gas pipes, electrical lights and fixtures,
heating apparatus, or any other service equipment affecting the Premises.
(l) Tenant shall not permit storage outside the Premises, including
without limitation, outside storage of trucks and other vehicles, or dumping of
waste or refuse or permit any harmful materials to be placed in any drainage
system or sanitary system in or about the Premises.
(m) All moveable trash receptacles provided by the trash disposal firm
for the Premises must be kept in the trash enclosure areas, if any, provided for
that purpose.
(n) No auction, public or private, will be permitted on the Premises
or the Project.
(o) No awnings shall be placed over the windows in the Premises except
with the prior written consent of Landlord.
(p) The Premises shall not be used for lodging, sleeping, or cooking
(except to the extent contemplated in the plans and specifications for the
Premises approved by Landlord) or for any immoral or illegal purposes or for any
purpose other than that specified in the Lease. No gaming devices shall be
operated in the Premises.
(q) Tenant shall ascertain from Landlord the maximum amount of
electrical current that can safely be used in the Premises, taking into account
the capacity of the electrical wiring in the Project and the Premises and the
needs of other tenants, and shall not use more than such safe capacity.
Landlord's consent to the installation of electric equipment shall not relieve
Tenant from the obligation not to use more electricity than such safe capacity.
(r) Tenant shall not install or operate on the Premises any machinery
or mechanical devices of a nature not directly related to Tenant's ordinary use
of the Premises and shall keep all such machinery free of vibration, noise and
air waves which may be transmitted beyond the Premises.
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EXHIBIT I
TENANT'S PERSONAL PROPERTY
--------------------------
Emergency diesel generator(s)
De-ionized water system pumps, tanks, and fixtures [point of use systems only]
Nitrogen gas system manifolds and LN2 storage tanks
Uninterruptable Power Supply [UPS] with battery array
Computer Disk arrays and support equipment
Modular Plant Growth Rooms
Modular (0-56C) environmental rooms
Autoclaves with internal steam supply [stand alone, movable, and not built in
only]
Glassware washer and dryer [stand alone, movable, and not built in only]
All incubators
All biological safety cabinets [non-ducted]
All laminar flow hoods [non-ducted]
Non-HVAC monitoring and control systems
Non-sprinkler Fire Suppression Systems
All Telephone-LAN-Video Communications Systems
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EXHIBIT J
ESTOPPEL CERTIFICATE
--------------------
This TENANT ESTOPPEL CERTIFICATE ("Certificate"), dated as of ___________,
_____, is executed by PARADIGM GENETICS, INC., a North Carolina corporation
("Tenant"), in favor of _______________________________________, a
___________________________, together with its nominees, designees and assigns
(collectively, "Buyer), and in favor of _____________________________________,
a ___________________________ together with its nominees, designees and assigns
(collectively, "Lender).
RECITALS
--------
A. Buyer and ARE-104 ALEXANDER ROAD, LLC, a Delaware limited
liability company ("Landlord"), have entered into that certain Purchase and Sale
Agreement and Joint Escrow Instructions, dated as of ___________, _____ (the
"Purchase Agreement"), whereby Buyer has agreed to purchase, among other things,
the improved real property located in the City of Durham, County of Durham,
State of North Carolina, more particularly described on Exhibit A attached to
---------
the Purchase Agreement (the "Property").
B. Tenant and Landlord have entered into that certain Lease Agreement,
dated as of July ___, 1999 (together with all amendments, modifications,
supplements, guarantees and restatements thereof, the "Lease"), for a portion of
the Property.
C. Pursuant to the Lease, Tenant has agreed that upon the request of
Landlord, Tenant would execute and deliver an estoppel certificate certifying
the status of the Lease.
D. In connection with the Purchase Agreement, Landlord has requested that
Tenant execute this Certificate with an understanding that Lender will rely on
the representations and agreements below in granting to Buyer a loan.
NOW, THEREFORE, Tenant certifies, warrants, and represents to Buyer and
Lender as follows:
Section 1. Lease.
Attached hereto as Exhibit B is a true, correct and complete copy of the Lease,
---------
including the following amendments, modifications, supplements, guarantees and
restatements thereof, which together represent all of the amendments,
modifications, supplements, guarantees and restatements thereof:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(If none, please state "None.")
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Section 2. Leased Premises.
Pursuant to the Lease, Tenant leases those certain premises (the "Leased
Premises") consisting of approximately ________________ rentable square feet
within the Property, as more particularly described in the Lease. In addition,
pursuant to the terms of the Lease, Tenant has the [non-exclusive] right to use
[_____ parking spaces/the parking area] located on the Property during the term
of the Lease. [Please cross-out the preceding sentence or portions thereof if
inapplicable.]
Section 3. Full Force of Lease.
The Lease has been duly authorized, executed and delivered by Tenant,
is in full force and effect, has not been terminated, and constitutes a legally
valid instrument, binding and enforceable against Tenant in accordance with its
terms, subject only to applicable limitations imposed by laws relating to
bankruptcy and creditor's rights.
Section 4. Complete Agreement.
The Lease constitutes the complete agreement between Landlord and
Tenant for the Leased Premises and the Property, and except as modified by the
Lease amendments noted above (if any), has not been modified, altered or
amended.
Section 5. Acceptance of Leased Premises.
Tenant has accepted possession and is currently occupying the Leased
Premises.
Section 6. Lease Term.
The term of the Lease commenced on ___________, ______,and ends on
___________, ______,subject to the following options to extend:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(If none, please state "None.")
Section 7. Purchase Rights.
Tenant has no option, right of first refusal, right of first offer, or other
right to acquire ,or purchase all or any portion of the Leased Premises or all
or any portion of, or interest in, the Property, except as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(If none, please state "None.")
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Section 8. Rights of Tenant.
Except as expressly stated in this Certificate, Tenant:
(a) has no right to renew or extend the term of the Lease;
(b) has no option or other right to purchase all or any part of the
Leased Premises or all or any part of the Property;
(c) has no right, title, or interest in the Leased Premises, other
than as Tenant under the Lease.
Section 9. Rent.
(a) The obligation to pay rent under the Lease commenced on
___________. The rent under the Lease is current, and Tenant is not in default
in the performance of any of its obligations under the Lease.
(b) Tenant is currently paying base rent under the Lease in the
amount of $___________ per month. Tenant has not received and is not presently
entitled to any abatement, refunds, rebates, concessions or forgiveness of base
rent or other charges, free rent, partial rent, or credits, offsets or
reductions in base rent, except as follows:
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
(If none, please state "None.")
(c) Tenant is currently paying ground lease rent under the Lease in
the amount of $___________ per month. Tenant has not received and is not
presently entitled to any abatement, refunds, rebates, concessions or
forgiveness of ground lease rent or other charges, free rent, partial rent, or
credits, offsets or reductions in ground lease rent, except as follows:
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________.
(If none, please state "None.")
(d) Tenant is currently paying building improvement rent under the
Lease in the amount of $___________ per month. Tenant has not received and is
not presently entitled to any abatement, refunds, rebates, concessions or
forgiveness of building improvement rent or other charges, free rent, partial
rent, or credits, offsets or reductions in building improvement rent, except as
follows:
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________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________.
(If none, please state "None.")
(e) Tenant's estimated share of operating expenses, common area charges,
insurance, real estate taxes and administrative and overhead expenses is ______%
and is currently being paid at the rate of $___________ per month, payable to:
____________________; there currently are no existing defenses or offsets
against rent due or to become due under the terms of the Lease, and, to the best
of Tenant's knowledge, there currently is no default or other wrongful act or
omission by Landlord under the Lease or otherwise in connection with Tenant's
occupancy of the Leased Premises, nor is there a state of facts that, with the
passage of time or the giving of notice or both, could ripen into a default on
the part of Tenant, or to the best knowledge of Tenant, could ripen into a
default on the part of Landlord under the Lease, except as follows:
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________.
(If none, please state "None.")
Section 10. Security Deposit.
The amount of Tenant's security deposit held by Landlord under the
Lease is $____.
Section 11. Prepaid Rent.
The amount of prepaid rent, separate from the security deposit, is
$___________, covering the period from ___________, ______ to ___________,
_____.
Section 12. Insurance.
All insurance, if any, that Tenant is required to maintain under the
Lease is presently in effect.
Section 13. Pending Actions.
There is not pending or, to the knowledge of Tenant, threatened
against or contemplated by the Tenant, any petition in bankruptcy, whether
voluntary or otherwise, any assignment for the benefit of creditors, or any
petition seeking reorganization or arrangement under the federal bankruptcy laws
or those of any state.
Section 14. Landlord's Performance.
As of the date of this Certificate, to the best of Tenant's knowledge, Landlord
has performed all obligations required of Landlord pursuant to the Lease; no
offsets, counterclaims, or defenses of Tenant under the Lease exist against
Landlord; and no events have occurred that, with the
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passage of time or the giving of notice, would constitute a basis for offsets,
counterclaims, or defenses against Landlord, except as follows:
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________.
(If none, please state "None.")
Section 15. Assignments by Landlord.
Tenant has received no notice of any assignment, hypothecation or
pledge of the Lease or rentals under the Lease by Landlord. Tenant hereby
consents to an assignment of the Lease and rents to be executed by Landlord to
Buyer or Lender in connection with the Loan and acknowledges that said
assignment does not violate the provisions of the Lease. Tenant acknowledges
that the interest of the Landlord under the Lease is to be assigned to Buyer or
Lender solely as security for the purposes specified in said assignment and
Buyer or Lender shall have no duty, liability or obligation whatsoever under the
Lease or any extension or renewal thereof, either by virtue of said assignment
or by any subsequent receipt or collection of rents thereunder, unless Buyer or
Lender shall specifically undertake such liability in writing. Tenant agrees
that upon receipt of a written notice from Buyer or Lender of a default by
Landlord under the Loan, Tenant will thereafter pay rent to Buyer or Lender in
accordance with the terms of the Lease.
Section 16. Assignments by Tenant.
Tenant has not sublet or assigned the Leased Premises or the Lease or
any portion thereof to any sublessee or assignee. No one except Tenant and its
employees will occupy the Leased Premises. The address for notices to be sent
to Tenant is as set forth in the Lease.
Section 17. Environmental Matters.
The operation and use of the Leased Premises does not involve the
generation, treatment, storage, disposal or release into the environment of any
hazardous materials, regulated materials and/or solid waste, except those used
in the ordinary course of operating a scientific research and development
facility (including laboratory, commercial greenhouse, and related
administrative space) or otherwise used in accordance with all applicable laws.
Section 18. Succession of Interest.
Tenant agrees that, in the event Buyer or Lender succeeds to the
interest of Landlord under the Lease:
(a) Buyer or Lender shall not be liable for any act or omission of any
prior landlord (including Landlord);
(b) Buyer or Lender shall not be liable for the return of any security
deposit;
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(c) Buyer or Lender shall not be bound by any rent or additional rent
which Tenant might have prepaid under the Lease for more than the current month;
(d) Buyer or Lender shall not be bound by any amendments or
modifications of the Lease made without prior consent of Buyer or Lender;
(e) Buyer or Lender shall not be subject to any offsets or defenses
which Tenant might have against any prior landlord (including Landlord); or
(f) Buyer or Lender shall not be liable under the Lease to Tenant for
the performance of Landlord's obligations under the Lease beyond Buyer or
Lender's interest in the Property.
Section 19. Notice of Default.
Tenant agrees to give Buyer and Lender a copy of any notice of default
under the Lease served upon Landlord at the same time as such notice is given to
Landlord. Tenant further agrees that if Landlord shall fail to cure such
default within the applicable grace period, if any, provided in the Lease, then
Buyer or Lender shall have an additional 30 days within which to cure such
default, or if such default cannot be cured within such 30-day period, such 30-
day period shall be extended so long as Buyer or Lender has commenced and is
diligently pursuing the remedies necessary to cure such default including, but
not limited to, commencement of foreclosure proceedings, if necessary to effect
such cure, in which event the Lease shall not be terminated while such remedies
are being pursued.
Section 20. Notification by Tenant.
From the date of this Certificate and continuing until ___________,
______, Tenant agrees to immediately notify Buyer and Lender, in writing by
registered or certified mail, return receipt requested, at the following
addresses, on the occurrence of any event or the discovery of any fact that
would make any representation contained in this Certificate inaccurate:
If to Buyer: If to Lender:
________________________ ________________________
________________________ ________________________
________________________ ________________________
With a copy to: With a copy to:
________________________ ________________________
________________________ ________________________
________________________ ________________________
Tenant makes this Certificate with the knowledge that it will be
relied upon by Buyer in agreeing to purchase the Property and by Lender in
agreeing to provide financing for such purchase.
Tenant has executed this Certificate as of the date first written
above by the person named below, who is duly authorized to do so.
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TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By:_________________________________
Its:________________________________
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Exhibit A
Legal Description
-----------------
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Exhibit B
Copy of Lease
-------------
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EXHIBIT K
SUBORDINATION. NON-DISTURBANCE AND ATTORNMENT AGREEMENT
--------------------------------------------------------
This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT is made and entered
into as of ________________, _____ ("Agreement"), by and between ARE-104
ALEXANDER ROAD, LLC, a Delaware limited liability company, together with its
nominees, designees and assigns (collectively, "Landlord"), PARADIGM GENETICS,
INC., a North Carolina corporation ("Tenant"), and ___________________________,
a _________________________ ("Mortgagee").
WHEREAS, Mortgagee is making a loan to Landlord and others evidenced
by a certain promissory note ("Note"), and secured by, among other things, a
deed of trust/mortgage to be recorded prior hereto in the public records of the
City of Durham, County of Durham, State of North Carolina ("Mortgage")
constituting a lien upon the real property interests described in Exhibit A
---------
hereto (the "Property"); and
WHEREAS, Landlord and Tenant have entered into a Lease Agreement dated
as of July ___, 1999 ("Lease"), for certain leased premises located in the
Triangle Park Research Center in Research Triangle Park, Durham County, North
Carolina, containing or intended to contain a building with approximately 53,750
net rentable square feet and a greenhouse with approximately 5,000 net rentable
square feet (hereinafter collectively referred to as "Premises"); and
WHEREAS, the Lease is subordinate to the Mortgage and to the right, title,
and interests of Mortgagee thereto and thereunder; and
WHEREAS, Mortgagee wishes to obtain from Tenant certain assurances
that Tenant will attorn to Mortgagee in the event of a foreclosure by Mortgagee
or the exercise of other rights under the Mortgage; and
WHEREAS, Tenant wishes to obtain from Mortgagee certain assurances
that Tenant's possession of the Premises will not, subject to the terms and
conditions of this Agreement, be disturbed by reason of a foreclosure of the
lien of the Mortgage on the Property; and
WHEREAS, Tenant and Mortgagee are both willing to provide such
assurances to each other upon and subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the above, the mutual promises
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto mutually
agree as follows:
1. Affirmation. Tenant hereby agrees that the
-----------
Lease now is and shall be subject and subordinate in all respects to the
Mortgage and to all renewals, modifications and extensions thereof until such
time that the Mortgage is released, satisfied or otherwise discharged, subject
to the terms and conditions of this Agreement. Landlord and Tenant hereby
affirm that the Lease is in full force and effect and that the Lease has not
been modified or amended. Mortgagee hereby
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confirms that it is the holder of the Note and the beneficiary of the Mortgage
and has full power and authority to enter into this Agreement.
2. Attornment and Non-Disturbance.
-------------------------------
(a) So long as Tenant is not in default under the Lease (beyond
Tenant's receipt of notice from Landlord and any grace period granted Tenant
under the Lease to cure such default) as would entitle the Landlord to terminate
the Lease or would cause without any further action of the Landlord, the
termination of the Lease or would entitle the Landlord to dispossess Tenant
thereunder, then Mortgagee agrees with Tenant that, in the event the interest of
Landlord shall be acquired by Mortgagee or in the event Mortgagee comes into
possession of or acquires title to the Property by reason of foreclosure or
foreclosure sale or the enforcement of the Mortgage or the Note or other
obligation secured thereby or by a conveyance in lieu thereof, or as a result of
any other means, then:
(i) Subject to the provisions of this Agreement, Tenant's
occupancy and possession of the Premises and Tenant's rights and privileges
under the Lease or any extensions, modifications or renewals thereof or
substitutions therefor (in accordance with the Lease and the Mortgage) shall not
be disturbed, diminished or interfered with by Mortgagee during the term of the
Lease (or any extensions or renewals thereof provided for in the Lease);
(ii) Mortgagee will not join Tenant as a party defendant in any
action or proceeding for the purpose of terminating Tenant's interest and estate
under the Lease because of any default under the Mortgage; and
(iii) The Lease shall continue in full force and effect and shall
not be terminated except in accordance with the terms of the Lease.
(b) Tenant shall be bound to Mortgagee under all of the terms,
covenants and conditions of the Lease for the balance of the term thereof
remaining (and any extensions or renewals thereof which may be effected in
accordance with any option contained in the Lease) with the same force and
effect as if Mortgagee were the landlord under the Lease, and Tenant does hereby
agree to attorn to Mortgagee as its landlord, said attornment to be effective
and self-operative without the execution of any other instruments on the part of
either party hereto immediately upon Mortgagee's succeeding to the interest of
Landlord under the Lease. Upon request of Lender or such Purchaser, Tenant
shall execute and deliver to Lender or such Purchaser an agreement reaffirming
such attornment. Tenant hereby agrees that any right of first refusal or right
of first offer to purchase the Property that Tenant may have pursuant to the
terms of the Lease (generally, a "Purchase Right") shall not be applicable to,
and shall not block, prevent or delay, Mortgagee's or any Purchaser's
acquisition of the Property by foreclosure, deed in lieu of foreclosure, other
transaction related thereto or in substitution thereof, trustee sale, or other
similar statutory conveyance; provided, however, that any Purchase Right shall
-------- -------
survive, remain valid, and be exercisable by Tenant in accordance with the terms
of the Lease at any time after any such acquisition by Mortgagee or any
Purchaser.
(c) In the event that the Mortgage is foreclosed and any party
("Purchaser") other than Mortgagee purchases the Premises and succeeds to the
interest of Landlord under the
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Lease, Tenant shall likewise be bound to Purchaser and Tenant hereby covenants
and agrees to attorn to Purchaser in accordance with all of the provisions of
this Agreement; provided, however, that Purchaser shall have transmitted to
-------- -------
Tenant a written document in recordable form, whereby Purchaser agrees to
recognize Tenant as its lessee under the Lease and agrees to be directly bound
to Tenant for the performance and observance of all the terms and conditions of
the Lease required to be performed or observed by Landlord thereunder, subject
to and in accordance with the terms of this Agreement.
(d) Mortgagee agrees that if Mortgagee shall succeed to the interest
of Landlord under the Lease as above provided, Mortgagee shall be bound to
Tenant under all of the terms, covenants, and conditions of this Lease, and
Tenant shall, from and after Mortgagee's succession to the interest of Landlord
under the Lease, have the same remedies against Mortgagee that Tenant might have
had under the Lease against Landlord if Mortgagee had not succeeded to the
interest of Landlord; provided, however, that Mortgagee (and Purchaser, as the
-------- -------
case may be) shall not be:
(i) liable for any act or omission of any prior lessor
(including Landlord) occurring prior to the date that Mortgagee or
Purchaser acquired title to the Premises; provided, however, no
inference shall be drawn from this clause that Mortgagee or Purchaser
would not be liable for the same or similar act or omission occurring
after the date that Mortgagee or Purchaser acquired title to the
Premises; or
(ii) subject to any offsets, counterclaims, or defenses that
Tenant might have solely against any prior lessor (including Landlord); or
(iii) bound by any previous payment of rent or additional rent
for a period greater than 1 month unless such prepayment shall have been
consented to in writing by Mortgagee; or
(iv) bound by any amendment or modification of the Lease made
after the date hereof without Mortgagee's written consent; or
(v) liable to Tenant for any loss of business or any other
indirect or consequential damages from whatever cause; provided, however, no
-------- -------
inference shall be drawn from this clause that Tenant would otherwise be
entitled (or not entitled) to recover for loss of business or any other indirect
or consequential damages; or
(vi) liable for the return of any security deposit unless such
deposit has been paid over to the Mortgagee.
The foregoing shall not be construed to modify or limit any right Tenant may
have at law or in equity against Landlord or any other prior owner of the
Property.
3. Notices. All notices required or permitted to be given pursuant to
-------
this Agreement shall be in writing and shall be sent postage prepaid, by
certified mail, return receipt requested or other nationally utilized overnight
delivery service. All notices shall be deemed delivered when received or
refused. Rejection or other refusal to accept or inability to deliver because of
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changed address of which no notice has been given shall constitute receipt of
the notice, demand or request sent. Any such notice if given to Tenant shall be
addressed as follows:
Paradigm Genetics, Inc.,
104 Alexander Dr., Building 2
Research Triangle Park, NC 27709
Attention: Mr. Ian Howes
Chief Financial Officer
if given to Landlord shall be addressed as follows:
Alexandria Real Estate Equities, Inc.
135 N. Los Robles Ave., Suite 250
Pasadena, California 91101
Attention: General Counsel
if given to Mortgagee shall be addressed as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
4. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties hereto and their respective successors and
assigns. The words "foreclosure" and "foreclosure sale" as used herein shall be
deemed to also include the acquisition of Landlord's estate in the Property by
voluntary deed, assignment or other conveyance or transfer in lieu of
foreclosure.
5. Modifications to Lease. Tenant shall not modify or amend the Lease or
----------------------
terminate the same without Mortgagee's prior written consent. If Mortgagee fails
to provide Tenant with a written approval of the proposed modification,
amendment or termination within 10 business days after notice to Mortgagee of
such proposal, then Mortgagee shall be deemed to have rejected such proposal.
6. Additional Agreements. Tenant agrees that:
---------------------
(a) it shall give Mortgagee copies of all notices of default and
requests for approval or consent by Landlord that Tenant gives to Landlord
pursuant to the Lease in the same manner as they are given to Landlord and no
such notice or other communication shall be deemed to be effective until a copy
is given to Mortgagee;
(b) whenever any consent or approval by Landlord is required to be
obtained by Tenant or is requested by Tenant such consent or approval shall not
be effective until it is also confirmed by or obtained from Mortgagee, provided
that Mortgagee shall respond within 30 days after Mortgagee's receipt of
Tenant's request;
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(c) in all provisions of the Lease where Landlord is indemnified, the
reference to Landlord as an indemnitee shall be deemed to include Mortgagee and
any Purchaser and such agreement of indemnification shall survive the repayment
of the loan secured by the Mortgage and, to the extent provided in the Lease,
the expiration or termination of the Lease;
(d) Tenant shall name Mortgagee and any Purchaser as additional
insureds and loss payees, as applicable and appropriate, on all insurance
policies required by the Lease; and
(e) this Agreement satisfies any condition or requirement in the Lease
relating to the granting of a non-disturbance agreement by Mortgagee, and in the
event that there are inconsistencies between the terms and provisions of this
Agreement and the terms and provisions of the Lease dealing with non-disturbance
by Mortgagee, the terms and provisions hereof shall be controlling; and
(f) Mortgagee shall have no liability under the Lease until Mortgagee
succeeds to the rights of the Landlord under the Lease, and then only during
such period as Mortgagee is the Landlord. At all times during which Mortgagee
is liable under the Lease, Mortgagee's liability shall be limited to Mortgagee's
interest in the Property.
7. Mortgagee Cure Rights. If Landlord shall have failed to cure any
---------------------
default within the time period provided for in the Lease (including any
applicable notice and grace periods), and thereafter Tenant exercises any right
to terminate the Lease, Mortgagee shall have an additional 30 days within which
to cure such default, or if such default cannot be cured by the payment of money
or reasonably requires more than 30 days to cure, then Mortgagee shall have such
additional time as may be reasonably necessary to complete such a cure
(including, if necessary, sufficient time to complete foreclosure proceedings)
provided that Mortgagee commences such cure within such 30-day period, Mortgagee
thereafter diligently prosecutes the same to completion, and Mortgagee completes
such cure no more than 60 days after the expiration of such 30-day period. The
Lease shall not be terminated (i) while such remedies are being diligently
pursued or (ii) based upon a default that is personal to Landlord and therefore
not susceptible to cure by Mortgagee or that requires possession of the Premises
to cure. Mortgagee shall in no event be obligated to cure any such default by
Landlord unless it forecloses. Nothing in this Section 7 shall affect any of
---------
Tenant's termination rights under the Lease due to casualty or condemnation.
8. Direction to Pay. Landlord hereby directs Tenant and Tenant agrees to
----------------
make all payments of amounts owed by Tenant under the Lease directly to
Mortgagee from and after receipt by Tenant of notice from Mortgagee directing
Tenant to make such payments to Mortgagee. (As between Landlord and Mortgagee,
the foregoing provision shall not be construed to modify any rights of Landlord
under or any provisions of the Mortgage or any other instrument securing the
Note).
9. Conditional Assignment. With reference to any assignment by Landlord
----------------------
of Landlord's interest in the Lease, or the rents payable thereunder,
conditional in nature or otherwise, which assignment is made to Mortgagee,
Tenant agrees that the execution thereof by Landlord, and the acceptance thereof
by Mortgagee shall never be treated as an assumption by
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Mortgagee of any of the obligations of Landlord under the Lease unless and until
Mortgagee shall have succeeded to the interest of Landlord. The foregoing
sentence shall not affect any of Tenant's rights against Landlord under the
Lease.
[Signatures on next page]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be properly executed by their duly authorized representatives as of the date
first above written.
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL)
a Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By: _______________________________
Its: ______________________________
TENANT:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By: ___________________________________
Its: __________________________________
MORTGAGEE:
_______________________________________
a _____________________________________
By: __________________________________
Its: __________________________________
100
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Exhibit A
Legal Description
-----------------
101
<PAGE>
EXHIBIT L
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
This SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT is made
and entered into as of ________________, ______ ("Agreement"), by and among ARE-
104 ALEXANDER ROAD, LLC, a Delaware limited liability company, together with its
nominees, designees, and assigns (collectively, "Landlord"), PARADIGM GENETICS,
INC., a North Carolina corporation ("Tenant"), and TRIANGLE SERVICE CENTER,
INC., a North Carolina corporation ("Ground Lessor").
WHEREAS, Landlord has entered into or is entering into a Ground Lease
Agreement (the "Ground Lease") with Ground Lessor pursuant to which Landlord has
leased or is leasing approximately 5.5 acres of land more fully described in
Exhibit A (the "Site"); and
- ---------
WHEREAS, Landlord and Tenant have entered into or are entering into a
Lease Agreement dated as of July _______,1999 ("Lease"), for certain premises to
be built on the Site containing or intended to contain a building with
approximately 53,750 net rentable square feet and a greenhouse with
approximately 5,000 net rentable square feet (hereinafter collectively referred
to as "Premises"); and
WHEREAS, the Lease is intended to be subordinate to the Ground Lease
and to the right, title, and interests of Ground Lessor thereunder; and
WHEREAS, Ground Lessor wishes to obtain from Tenant certain assurances
that Tenant will attorn to Ground Lessor in the event Ground Lessor terminates
the Ground Lease or exercises other rights under the Ground Lease; and
WHEREAS, Tenant wishes to obtain from Ground Lessor certain assurances
that Tenant's possession of the Premises will not, subject to the terms and
conditions of this Agreement, be disturbed by reason of the termination of the
Ground Lease or the exercise of any other rights under the Ground Lease; and
WHEREAS, Tenant and Ground Lessor are willing to provide such
assurances to each other upon and subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the above, the mutual promises
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto mutually
agree as follows:
1. Affirmation. Tenant hereby agrees that the Lease now is and shall
-----------
be subject and subordinate in all respects to the Ground Lease and to all
renewals, modifications and extensions thereof, subject to the terms and
conditions of this Agreement. Landlord and Tenant hereby affirm that the Lease
is in full force and effect and that the Lease has not been modified or amended.
Ground Lessor hereby confirms that it is the holder of the ground lessor's
interest under the Ground Lease and has full power and authority to enter into
this Agreement.
2. Attornment and Non-Disturbance.
------------------------------
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(a) So long as Tenant is not in default under the Lease (beyond
Tenant's receipt of notice from Landlord and any grace period granted Tenant
under the Lease to cure such default) as would entitle the Landlord to terminate
the Lease or would cause without any further action of the Landlord, the
termination of the Lease or would entitle the Landlord to dispossess Tenant
thereunder, then Ground Lessor agrees with Tenant that, in the event Ground
Lessor terminates the Ground Lease or exercises other rights under the Ground
Lease that permit Ground Lessor to acquire Landlord's interest under the Lease,
then:
(i) Subject to the provisions of this Agreement, Tenant's occupancy
and possession of the Premises and Tenant's rights and privileges under the
Lease or any extensions, modifications or renewals thereof or substitutions
therefor (in accordance with the Lease and the Ground Lease) shall not be
disturbed, diminished or interfered with by Ground Lessor during the term of the
Lease (or any extensions or renewals thereof provided for in the Lease);
(ii) Ground Lessor will not join Tenant as a party defendant in any
action or proceeding for the purpose of terminating Tenant's interest and estate
under the Lease because of any default under the Ground Lease; and
(iii) The Lease shall continue in full force and effect and shall not
be terminated except in accordance with the terms of the Lease.
(b) Tenant shall be bound to Ground Lessor under all of the terms,
covenants and conditions of the Lease for the balance of the term thereof
remaining (and any extensions or renewals thereof which may be effected in
accordance with any option contained in the Lease) with the same force and
effect as if Ground Lessor were the landlord under the Lease, and Tenant does
hereby agree to attorn to Ground Lessor as its landlord, said attornment to be
effective and self-operative without the execution of any other instruments on
the part of either party hereto immediately upon Ground Lessor's succeeding to
the interest of Landlord under the Lease. Upon the request of Ground Lessor,
Tenant shall execute and deliver to Ground Lessor an agreement reaffirming such
attornment. Tenant hereby agrees that any right of first refusal or right of
first offer to purchase Landlord's interest under the Ground Lease that Tenant
may have pursuant to the terms of the Lease (generally, a "Purchase Right")
shall not be applicable to, and shall not block, prevent or delay, Ground
Lessor's acquisition of Landlord's interest under the Lease; provided, however,
-------- -------
that any Purchase Right shall survive, remain valid, and be exercisable by
Tenant in accordance with the terms of the Lease at any time after any such
acquisition by Ground Lessor.
(c) Ground Lessor agrees that if Ground Lessor shall succeed to the
interest of Landlord under the Lease as above provided, Ground Lessor shall be
bound to Tenant under all of the terms, covenants, and conditions of the Lease,
and Tenant shall, from and after Ground Lessor's succession to the interest of
Landlord under the Lease, have the same remedies against Ground Lessor that
Tenant might have had under the Lease against Landlord if Ground Lessor had not
succeeded to the interest of Landlord; provided, however, that Ground Lessor
-------- -------
shall not be:
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<PAGE>
(i) liable for any act or omission of any prior lessor (including
Landlord) occurring prior to the date that Ground Lessor succeeded to the
interest of Landlord under the Lease; provided, however, no inference shall be
-------- -------
drawn from this clause that Ground Lessor would not be liable for the same or
similar act or omission occurring after the date that Ground Lessor succeeded to
the interest of Landlord under the Lease; or
(ii) subject to any offsets, counterclaims or defenses that Tenant
might have solely against any prior lessor (including Landlord); or
(iii) bound by any previous payment of rent, however denominated, for
a period greater than 1 month unless such prepayment shall have been consented
to in writing by Ground Lessor; or
(iv) bound by any amendment or modification of the Lease made after
the date hereof without Ground Lessor's written consent; or
(v) liable to Tenant for any loss of business or any other
indirect or consequential damages from whatever cause; provided, however, no
-------- -------
inference shall be drawn from this clause that Tenant would otherwise be
entitled (or not entitled) to recover for loss of business or any other indirect
or consequential damages; or
(vi) liable for the return of any security deposit unless such deposit
has been paid over to the Ground Lessor.
The foregoing shall not be construed to modify or limit any right Tenant may
have at law or in equity against Landlord or any other prior owner of the
Property.
(d) Ground Lessor hereby acknowledges that Section 38(b) of the Lease
-------------
contains the following terms and conditions, and hereby agrees to accept
performance of the "Ground Lease Obligations" (as defined therein) from Tenant,
and to permit Tenant to enforce the "Ground Lease Rights" (as defined therein),
at the times and in the manner described therein:
Tenant shall be responsible for, and hereby covenants to satisfy in a
timely fashion, any and all obligations, covenants, responsibilities,
and/or indemnities binding on Landlord as holder of the ground lessee's
interest under the Ground Lease (collectively, the "Ground Lease
Obligations"), including, without limitation, the payment of the annual
rent provided for in the Ground Lease (at the times and in the manner
specified in Section 3(b)(ii) [of the Lease]) and the payment or
--------
reimbursement of all expenses to be paid or reimbursed by Landlord under
the Ground Lease; provided, however, that the terms and conditions of this
-------- -------
Lease shall control to the extent the responsibility for satisfying any
Ground Lease Obligation is expressly conferred on Landlord and/or allocated
between Landlord and Tenant herein. For illustration purposes only,
Sections 13 and 14 [of the Lease] allocate between Landlord and Tenant all
----------- --
maintenance and repair obligations with respect to the Premises and the
Project and, therefore, such provisions control. If Tenant fails to
satisfy, in a timely fashion, any of the Ground Lease Obligations in the
manner required hereunder, Landlord shall have the right (but not the
obligation) to satisfy the same, and any cost incurred by
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<PAGE>
Landlord in doing so shall be payable to Landlord on demand as Additional
Rent or includable by Landlord as an Operating Expense. Further, Tenant
shall indemnify,defend, hold, and save Landlord harmless from and against
any and all Claims arising out of or in connection with any such failure
by Tenant. Conversely, if Tenant gives Landlord Notice requesting Landlord
to take affirmative action to enforce any of Landlord's rights as ground
lessee under the Ground Lease or to enforce any obligation, covenant,
responsibility, and/or indemnity of the Ground Lessor under the Ground
Lease (collectively, the "Ground Lease Rights") and Landlord elects not to
do so, Tenant shall have the right, at Tenant's sole cost and expense, to
take affirmative action to enforce any such Ground Lease Rights, and for
such purpose Landlord, effective as of Landlord's election not to take
affirmative action, appoints Tenant attorney-in-fact for Landlord (such
power of attorney being coupled with an interest); provided, however, that,
-------- -------
notwithstanding the foregoing, the exercise of any Ground Lease Rights that
relate to Hazardous Materials (as provided in Section 30(a) [of the Lease])
------- -----
shall be subject to compliance with Section 3 of [a separate] Cost Sharing
Agreement. Tenant shall indemnify, defend, hold, and save Landlord
harmless from and against any and all Claims arising out of or in
connection with any affirmative action taken by Tenant to enforce any
Ground Lease Rights. Tenant's rights and obligations under this Section
shall terminate and be of no further force or effect as of the expiration
or earlier termination of this Lease, provided that all obligations that
have arisen and/or become binding hereunder but have not been fully
satisfied as of the expiration or earlier termination of this Lease shall
survive such expiration or earlier termination.
3. Notices. All notices required or permitted to be given pursuant to
-------
this Agreement shall be in writing and shall be sent postage prepaid, by
certified mail, return receipt requested or other nationally utilized overnight
delivery service. All notices shall be deemed delivered when received or
refused. Rejection or other refusal to accept or inability to deliver because of
changed address of which no notice has been given shall constitute receipt of
the notice, demand or request sent. Any such notice if given to Tenant shall be
addressed as follows:
Paradigm Genetics, Inc.,
104 Alexander Dr., Building 2
Research Triangle Park, NC 27709
Attention: Mr. Ian Howes
Chief Financial Officer
if given to Landlord shall be addressed as follows:
Alexandria Real Estate Equities, Inc.
135 N. Los Robles Ave., Suite 250
Pasadena, California 91101
Attention: General Counsel
if given to Ground Lessor shall be addressed as follows:
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<PAGE>
Triangle Service Center, Inc.
2 Hanes Drive
Research Triangle Park, NC 27709
Attention: Mr. James Roberson
4. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties hereto and their respective successors and
assigns.
5. Additional Agreements. Tenant agrees that:
---------------------
(a) it shall give Ground Lessor copies of all notices of default by
Landlord that Tenant gives to Landlord pursuant to the Lease in the same manner
as they are given to Landlord;
(b) in all provisions of the Lease where Landlord is indemnified, the
reference to Landlord as an indemnitee shall be deemed to include Ground Lessor;
(c) this Agreement satisfies any condition or requirement in the Lease
relating to the granting of a non-disturbance agreement by Ground Lessor, and in
the event that there are inconsistencies between the terms and provisions of
this Agreement and the terms and provisions of the Lease dealing with non-
disturbance by Ground Lessor, the terms and provisions hereof shall be
controlling; and
(d) Ground Lessor shall have no liability under the Lease until Ground
Lessor succeeds to the rights of the Landlord under the Lease, and then only
during such period as Ground Lessor is the landlord thereunder. At all times
during which Ground Lessor is liable under the Lease, Ground Lessor's liability
shall be limited to Ground Lessor's interest in the Property.
6. Direction to Pay. Landlord hereby directs Tenant and Tenant agrees to
----------------
make all payments of amounts owed by Tenant under the Lease directly to Ground
Lessor from and after receipt by Tenant of notice from Ground Lessor directing
Tenant to make such payments to Ground Lessor. (As between Landlord and Ground
Lessor, the foregoing provision shall not be construed to modify any rights of
Landlord under or any provisions of the Ground Lease).
[Signatures on next page]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be properly executed by their duly authorized representatives as of the date
first above written.
LANDLORD:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL)
a Delaware limited partnership, managing member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By: ________________________________________
Its:________________________________________
TENANT:
PARADIGM GENETICS, INC, (SEAL)
a North Carolina corporation
By: _____________________________________________
Its:_____________________________________________
GROUND LESSOR:
TRIANGLE SERVICE CENTER, INC. (SEAL)
a North Carolina corporation
By: _____________________________________________
Its: _____________________________________________
107
<PAGE>
EXHIBIT A
Legal Description
-----------------
108
<PAGE>
EXHIBIT M
WARRANT AGREEMENT
-----------------
[See Following Pages]
109
<PAGE>
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN EXEMPTION TO SUCH
ACT.
Void After ________________,2009 (the Tenth Anniversary of the Date Hereof)
WARRANT FOR THE
PURCHASE OF SHARES OF COMMON STOCK
of
PARADIGM GENETICS INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NORTH CAROLINA
THIS CERTIFIES THAT, for value received, ARE-104 Alexander Road, LLC,
a Delaware limited liability company, together with its successors and assigns
(the "Investor"), is initially entitled to purchase up to One Hundred Fifty
Thousand (150,000) duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (the "Common Stock") of Paradigm Genetics Inc., a North
Carolina corporation (the "Company"), at the per share purchase price described
in Section 1.3 below, subject to the provisions and upon the terms and
conditions hereinafter set forth.
1. Exercise of Warrant. The terms and conditions upon which this Warrant
-------------------
may be exercised, and the Common Stock covered hereby (the "Warrant Stock") may
be purchased, are as follows:
1.1 Term. The purchase right represented by this Warrant may be
----
exercised in whole or in part at any time and from time to time from and after
the date hereof and on or before the earlier of (i) _______________, 2009 (the
tenth anniversary of the date hereof) or (ii) the fifth anniversary of the date
of the consummation of a bona fide, underwritten initial public offering of
Common Stock, at a public offering price equal to or exceeding $10.00 per share
(as adjusted for any stock dividends, combinations, splits or the like with
respect to such shares) and an aggregate offering price to the public of not
less than $20,000,000; provided that, if the last day on which this Warrant
--------
may be exercised is a Sunday or a legal holiday or a day on which banking
institutions doing business in the State of North Carolina are authorized by law
to close, this Warrant may be exercised prior to 5:00 p.m. local time on the
next succeeding full business day with the same force and effect as if exercised
on such last day specified herein.
1.2 Number of Shares. This Warrant is initially exercisable for One
----------------
Hundred Fifty Thousand (150,000) shares of Common Stock, subject to adjustment
pursuant to Section 2 of this Warrant.
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<PAGE>
1.3 Purchase Price. The initial per share purchase price for the shares
--------------
of Common Stock to be issued upon exercise of this Warrant shall be $3.00,
subject to adjustment as provided herein (the "Warrant Price").
1.4 Method of Exercise. The exercise of the purchase rights evidenced by
------------------
this Warrant shall be effected by (a) the surrender of the Warrant, together
with a duly executed copy of the form of a subscription attached hereto, to the
Company at its principal offices and (b) the delivery of the purchase price (i)
by check or bank draft payable to the Company's order or by wire transfer to the
Company's account for the number of shares for which the purchase rights
hereunder are being exercised or (ii) pursuant to the procedure set forth in
Section 1.5. Any such exercise of this Warrant may be made contingent upon the
closing of a public offering, merger, recapitalization or similar transaction.
Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided herein or at such latter
date as may be specified in the executed form of subscription, and at such time
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such exercise as provided herein
shall be deemed to have become the holder or holders of record thereof.
1.5 Cashless Exercise. In addition to and without limiting the rights
-----------------
of the holder hereof under the terms hereof, at the holder's option this Warrant
may be exercised in whole or in part at any time or from time to time prior to
its expiration for a number of shares of Common Stock having an aggregate fair
market value on the date of such exercise equal to the difference between (a)
the fair market value of the number of shares of Common Stock subject to this
Warrant designated for exercise by the holder hereof on the date of the exercise
and (b) the aggregate Warrant Price for such shares in effect at such time.
The "fair market value" of shares of Common Stock shall be calculated
on the basis of (a) if the Common Stock is then traded on a securities exchange
or the Nasdaq National Market, the average of the closing prices of the Common
Stock on such exchange or market over the 20 trading day period ending three (3)
trading days prior to the date of exercise, (b) if the Common Stock is then
regularly traded over-the-counter, the average of the sale prices or secondarily
the closing bid of the Common Stock over the 20 trading day period ending three
(3) trading days prior to the date of exercise, or (c) if there is no active
public market for the Common Stock, the fair market value thereof shall be the
price per share that the Company could obtain from a willing buyer for shares
sold by the Company from authorized but unissued shares, as determined in good
faith by the Company's Board of Directors. If the holder of this Warrant
exercises this Warrant contingent upon the closing of a public offering, the
"fair market value" of a share of Common Stock on the date of exercise shall be
equal to the initial price to the public specified in the final prospectus with
respect to such public offering.
No payment of any cash or other consideration to the Company shall be
required from the holder of this Warrant in connection with any exercise of this
Warrant pursuant to this Section 1.5. Such exercise shall be effective upon the
date of receipt by the Company of the original Warrant surrendered for
cancellation and a written request from the holder hereof that
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<PAGE>
the exercise pursuant to this Section 1.5 be made, or at such later date as may
be specified in such request.
1.6 Issuance of Shares. As soon as reasonably practicable after each
------------------
exercise of this Warrant, in whole or in part, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, (a) a
certificate or certificates for the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock to which such holder shall
be entitled upon such exercise, and (b) in case such exercise is in part only, a
new Warrant or Warrants of like tenor, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment thereof) to the number of such shares called for on the
face of this Warrant minus the number of such shares designated by the holder
upon such exercise as provided herein.
2. Certain Adjustments.
-------------------
2.1 Mergers Consolidations or Sale of Assets. If after the date
----------------------------------------
hereof there shall be a capital reorganization (other than a combination or
subdivision of Common Stock otherwise provided for herein), or spin-off, or a
merger or consolidation of the Company with or into another corporation, or the
sale of all or substantially all of the Company's properties and assets to any
other person, then, as a part of such transaction, lawful provision shall be
made so that the Investor shall thereafter be entitled to receive upon exercise
of this Warrant, during the period specified in this Warrant and upon payment of
the purchase price, the number of shares of stock or other securities, cash or
property of the Company or the successor corporation resulting from such
transaction, to which a holder of the Common Stock deliverable upon exercise of
this Warrant would have been entitled under the provisions of the agreement in
such transaction if this Warrant had been exercised immediately before such
transaction. In any such case, appropriate adjustment (as determined reasonably
and in good faith by the Company's Board of Directors) shall be made in the
application of the provisions of this Warrant with respect to the rights and
interests of the Investor after such transaction to the end that the provisions
of this Warrant (including adjustment of the purchase price then in effect and
the number of shares of Common Stock issuable upon exercise hereof) shall be
applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant.
2.2 Splits and Subdivisions Dividends. If the Company should effect
---------------------------------
or fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of the holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or warrants, options or other rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such distribution, split
or subdivision if no record date is fixed), the per share purchase price shall
be appropriately decreased and the number of shares of Common Stock issuable
upon
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<PAGE>
exercise hereof shall be appropriately increased in proportion to such
increase of outstanding shares.
2.3 Combination of Shares. If the number of shares of Common Stock
---------------------
outstanding at any time after the date hereof is decreased by a combination of
the outstanding shares of Common Stock, the per share purchase price shall be
appropriately increased and the number of shares of Common Stock issuable upon
exercise hereof shall be appropriately decreased in proportion to such decrease
in outstanding shares.
2.4 Adjustments for Other Distributions. In the event the Company
-----------------------------------
shall declare a distribution payable in securities of the Company (other than
Common Stock Equivalents) or other persons, evidences of indebtedness issued by
the Company or other persons, assets (including cash dividends) or options or
rights not referred to in Section 2.2, then, in each such case for purposes of
this Section 2.4, upon exercise of this Warrant the holder hereof shall be
entitled to a proportionate share of any such distribution as though such holder
was the holder of the number of shares of Common Stock of the Company into which
this Warrant may be exercised as of the record date fixed for the determination
of the holders of Common Stock of the Company entitled to receive such
distribution.
2.5 Issuance of Additional Common Stock
-----------------------------------
(a) If, after the date hereof, the Company shall issue
or sell
(i) Additional Shares (defined below) without consideration
or for a consideration per share less than the Warrant Price, or
(ii) Common Stock Equivalents exercisable for Additional
Shares with a minimum exercise or exchange price less than the Warrant Price.
Then, and in each such case, the Warrant Price shall be reduced, concurrently
with such issue or sale, to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Warrant Price by a fraction:
(i) the numerator of which shall be (A) the number of shares
of Common Stock outstanding immediately prior to such issue or sale plus (B) the
number of shares of Common Stock that the aggregate consideration received by
the Company upon such issuance or sale (or, in the case of Common Stock
Equivalents exercisable for Additional Shares, receivable by the Company upon
exercise or exchange) would purchase at such Warrant Price, and
(ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale (or, in the case
of Common Stock Equivalents exercisable for Additional Shares, assuming exercise
or exchange thereof).
(b) For the purposes of this Section 2.5, the consideration for
the issue or sale of Additional Shares shall, irrespective of the accounting
treatment of such consideration, (i) insofar as it consists of cash, be computed
at the net amount of cash received by the Company, and (ii) insofar as it
consists of property (including securities) other than cash, be
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computed at the fair value thereof at the time of such issue or sale as
determined in good faith by the Board of Directors.
(c) Notwithstanding anything contained herein to the contrary, the
consideration for any Common Stock Equivalents shall be the total amount of
consideration received by the Company for the issuance of such Common Stock
Equivalents plus the minimum amount of consideration payable to the Company upon
exercise, conversion or exchange of Common Stock Equivalents (the "Net
Consideration") determined as of the date of issuance of such Common Stock
Equivalents. Any obligation, agreement or understanding to issue Common Stock
Equivalents at any time in the future shall be deemed to be an issuance at the
time such obligation or agreement is made or arises. No adjustment of the
Warrant Price shall be made under this Section 2.5 upon the issuance of any
shares of Common Stock which are issued pursuant to the exercise, conversion or
exchange of any Common Stock Equivalents if any adjustment shall previously have
been made upon the issuance of any such Common Stock Equivalents.
Should the Net Consideration for any such Common Stock
Equivalents be increased or decreased from time to time, then, upon the
effectiveness of such change, the Warrant Price will be that which would have
been obtained (i) had the adjustments made upon the issuance of such Common
Stock Equivalents been made upon the basis of the actual Net Consideration (as
so increased or decreased) of such Common Stock Equivalents, and (ii) had
adjustments to such Warrant Price since the date of issuance of such Common
Stock Equivalents been made to such Warrant Price as adjusted pursuant to (i)
above. Any adjustment of the Warrant Price with respect to this paragraph which
relates to Common Stock Equivalents shall be disregarded if, as, and when all of
such Common Stock Equivalents expire or are canceled without being exercised, so
that the Warrant Price effective immediately upon cancellation or expiration
shall be equal to the Warrant Price in effect at the time of the issuance of the
expired or canceled Common Stock Equivalents, with such additional adjustments
as would have been made to such Warrant Price had the expired or canceled Common
Stock Equivalents not been issued.
(d) "Additional Shares" means all shares of Common Stock, whether or
not subsequently reacquired or retired by the Company other than shares of
Common Stock issued or to be issued to directors, officers, employees and
consultants of the Company or any subsidiary pursuant to any bona fide qualified
or non-qualified stock option plan or agreement, stock purchase plan or
agreement, stock restriction agreement, employee stock ownership plan (ESOP) or
other stock incentive plans or arrangements.
(e) The number of shares of Common Stock that the holder of this
Warrant shall be entitled to receive upon each exercise hereof after any
adjustment pursuant to this Section 2.5 shall be determined by multiplying (i)
the number of shares of Common Stock that were issuable immediately prior to
such adjustment, by (ii) the fraction of which (A) the numerator is the Warrant
Price immediately prior to such adjustment and (B) the denominator is the
Warrant Price immediately following such adjustment.
2.6 Certificate as to Adjustments. In the case of each adjustment or
-----------------------------
readjustment of the Warrant Price pursuant to this Section 2, the Company at its
expense will
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promptly compute such adjustment or readjustment in accordance with the terms
hereof and cause a certificate, signed by the Company's Chief Financial Officer,
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based to be delivered to the
holder of this Warrant. The Company will furnish or cause to be furnished to
such holder a certificate setting forth (a) such adjustments and readjustments,
(b) the Warrant Price at the time in effect and how it was calculated and (c)
the number of shares of Common Stock issuable upon exercise hereof and the
amount, if any, of other property at the time receivable upon the exercise of
the Warrant.
2.7 Other Dilutive Events. If any event shall occur as to which the
---------------------
provisions of Section 2 are not strictly applicable but the failure to make any
adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles of such sections,
then, in each such case, the Board of Directors of the Company shall make such
adjustment, if any, on a basis consistent with the essential intent and
principles established in Section 2, necessary to preserve, without dilution,
the purchase rights represented by this Warrant. The Company will promptly
notify the Investor of any such adjustments and shall make the suggested
adjustments.
2.8 No Dilution or Impairment. The Company will not, by amendment
-------------------------
of its Certificate of Incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) will
not permit the par value of any shares of stock receivable upon the exercise of
this Warrant to exceed the amount payable therefor upon such exercise, (b) will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of the Warrants from time to time outstanding; and (c)
will not take any action which results in any adjustments of the Warrant Price
if the total number of shares of Common Stock issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock then authorized by the Company's certificate of incorporation and
available for the purpose of issue upon such exercise.
2.9 Notices of Record Date etc. In the event of:
--------------------------
(a) any taking by the Company of a record of the holders of any class
of securities of the Company for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend payable out
of earned surplus at the same rate as that of the last such cash dividend
theretofore paid) or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right;
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all of
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the assets of the Company to any other person or any consolidation or merger
involving the Company; or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company, the Company will mail to the holder of this Warrant at least
thirty (30) days prior to the earliest date specified below, a notice
specifying: (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right; and (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding-up is expected to become effective and the record date
for determining stockholders entitled to vote thereon and the time, if any such
time is to be fixed, as of which the holders of record of Common Stock shall be
entitled to exchange their shares of Common Stock for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up.
3. Fractional Shares. No fractional shares shall be issued in connection
-----------------
with any exercise of this Warrant. In lieu of the issuance of such fractional
share, the Company shall make a cash payment equal to the then fair market value
of such fractional share as determined in accordance with Section 1.5 hereof.
4. Representations and Warranties of the Company.
---------------------------------------------
4.1 Authorization. The Company has full power and authority to enter
-------------
into this Warrant. This Warrant has been duly authorized, executed and delivered
by the Company and constitutes its valid and legally binding obligation,
enforceable in accordance with its terms.
4.2 Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, such
number of its shares of Common Stock, free from preemptive rights, as shall from
time to time be sufficient to effect the exercise of this Warrant, and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the exercise of the entire Warrant, in addition to such
other remedies as shall be available to the holder of this Warrant, the Company
will take such action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes. If any shares of its Common Stock to be reserved for the
purpose of issuance upon exercise of the Warrants require registration with or
approval of any governmental authority under any applicable law (other than
registration of the Common Stock under the Act) before such shares of Common
Stock may be validly issued or delivered, then it shall secure such registration
or approval, as the case may be, and maintain such registration or approval in
effect so long as so required.
4.3 Adjustment in Number of Shares Issuable and Purchase Price. There
----------------------------------------------------------
has not been nor will there be any adjustment to the number of shares issuable
or the purchase price payable upon the exercise of any securities of the Company
convertible into or exchangeable for shares of Common Stock resulting from the
issuance or exercise of this Warrant.
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4.4 Valid Issuance. This Warrant, when issued and delivered in
--------------
accordance with the terms hereof will be duly authorized and validly issued, and
the Common Stock issuable upon the exercise hereof, when issued pursuant to the
terms hereof and upon payment of the exercise price, shall, upon such issuance,
be duly authorized, validly issued, fully paid and nonassessable.
5. Privilege of Stock Ownership. Prior to the exercise of this Warrant, the
----------------------------
Investor shall not be entitled, by virtue of holding this Warrant, to any rights
of a stockholder of the Company, including (without limitation) the right to
vote, receive dividends or other distributions, exercise preemptive rights or be
notified of stockholder meetings, and such holder shall not be entitled to any
notice or other communication concerning the business or affairs of the Company.
Nothing in this Section 5, however, shall limit the right of the Investor to be
provided the notices described in Section 2 hereof or to participate in
distributions described in Section 2 hereof if the Investor ultimately exercises
this Warrant.
6. Limitation of Liability. Except as otherwise provided herein, in the
-----------------------
absence of affirmative action by the holder hereof to purchase the Common Stock
in accordance herewith, no mere enumeration herein of the rights or privileges
of the holder hereof shall give rise to an obligation on such holder to purchase
any securities or any liability of such holder for the purchase price or as a
stockholder of the Company, whether such obligation or liability is asserted by
the Company or by creditors of the Company.
7. Representations and Warranties of the Investor. The Investor represents
----------------------------------------------
and warrants to the Company as follows:
7.1 Investment Experience. The Investor represents that it can bear
---------------------
the economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Warrant and the Common Stock issuable upon
exercise hereof. The Investor also represents it has not been organized solely
for the purpose of acquiring the Warrant or the Common Stock issuable upon
exercise hereof.
7.2 Restricted Securities. The Investor understands that the Warrant
---------------------
being issued hereunder and the Common Stock issuable upon exercise hereof are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and have not been registered under the Act nor
qualified under applicable state securities laws and that under such laws and
applicable regulations such securities may not be resold without registration
under the Act, except in certain limited circumstances. In this connection, the
Investor represents that it is familiar with Rule 144 promulgated under the Act
("Rule 144"), as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
7.3 Accredited Investor. The Investor is an "accredited investor"
-------------------
within the meaning of Rule 501 of Regulation D promulgated under the Act.
7.4 Legends. It is understood that the certificates evidencing the
-------
Common Stock issuable upon exercise hereof may bear the following legend:
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"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN EXEMPTION TO SUCH ACT"
8. Transfers and Exchanges.
-----------------------
8.1 The Investor agrees not to sell, hypothecate, pledge or
otherwise dispose of any interest in the Warrant or the Common Stock issuable
upon exercise hereof in the United States, its territories, possessions or any
area subject to its jurisdiction, or to any person who is a national thereof or
resident therein (including any estate of such person), or any corporation,
partnership or other entity created or organized therein, other than in
accordance with the Act. With respect to any offer, sale or other disposition of
this Warrant, or any shares of Common Stock acquired pursuant to the exercise of
this Warrant prior to registration of such shares, the holder hereof and each
subsequent holder of the Warrant agrees to give written notice to the Company
prior thereto, describing briefly the manner thereof, together with a written
opinion of such holder's counsel, if reasonably requested by the Company, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state law then in effect) of this Warrant or such shares of Common Stock and
indicating whether or not under the Act certificates for this Warrant or such
shares of Common Stock to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
insure compliance with the Act; provided, however, that the holder may transfer
or assign this Warrant, or any shares of Common Stock acquired pursuant to the
exercise of this Warrant prior to registration of such shares to Alexandria Real
Estate Equities, Inc., a Maryland corporation ("Alexandria") or to another
wholly-owned subsidiary of Alexandria without written notice to the Company or
an opinion of holder's counsel. Each certificate representing this Warrant or
the shares of Common Stock thus transferred (except a transfer pursuant to Rule
144) shall bear a legend as to the applicable restrictions on transferability in
order to insure compliance with the Act, unless in the aforesaid opinion of
counsel for the holder, such legend is not required in order to insure
compliance with the Act. The Company may issue stop transfer instructions to its
transfer agent in connection with the foregoing restrictions.
8.2 Upon presentation to the Company of the form of Assignment
attached hereto, a new Warrant shall be issued to the new holder hereof. New
Warrants issued in connection with transfers or exchanges shall not require the
signature of the new holder hereof and shall be identical in form and provision
to this Warrant except as to the number of shares.
8.3 Each certificate evidencing the shares of Common Stock issued
upon exercise of this Warrant, or upon any transfer of such shares (other than a
transfer registered under the Act or any subsequent transfer of shares so
registered) shall, at the option of the Company, contain a legend, in form and
substance reasonably satisfactory to the Company and its counsel, restricting
the transfer of such shares to sales or other dispositions exempt from the
requirements of the Act.
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8.4 Ownership of Warrants. The Company may treat the person in whose
---------------------
name any Warrant is registered on the register kept at the office of the Company
as the owner and holder thereof for all purposes, notwithstanding any notice to
the contrary, except that, if and when any Warrant is properly assigned in
blank, the Company may (but shall not be obligated to) treat the bearer thereof
as the owner of such Warrant for all purposes, notwithstanding any notice to the
contrary. A Warrant, if properly assigned, may be exercised by a new holder
without a new Warrant first having been issued.
8.5 Transfer and Exchange of Warrants. Upon the surrender of any
---------------------------------
Warrant, properly endorsed, for registration of transfer or for exchange, the
Company at its expense will execute and deliver to or upon the order of the
holder thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
9. Successors and Assigns. The terms and provisions of this Warrant
----------------------
shall be binding upon the Company and the Investor and their respective
successors and assigns, subject at all times to the restrictions set forth
herein.
10. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
-------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
---------------------------------
taking of any action or the expiration of any right required or granted herein
shall be a Saturday or Sunday or shall be a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a legal
holiday.
12. Amendments and Waivers. Any term of this Warrant may be amended
----------------------
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor. Any such amendment or
waiver shall be binding on the parties.
13. Governing Law. The terms and conditions of this Warrant shall be
-------------
governed by and construed in accordance with North Carolina law, without regard
to conflict of law provisions.
14. Notices. Except as otherwise provided in this Warrant, any requirement
-------
for a notice, demand or request under this Warrant will be satisfied by a
writing (a) hand delivered with receipt; (b) mailed by United States registered
or certified mail or Express Mail, return receipt requested, postage prepaid; or
(c) sent by Federal Express or any other nationally recognized overnight courier
service, and addressed as follows: if to the holder, at its address as
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shown on the books of the Company; and if to the Company, at the address
indicated on the signature page of this Warrant, Attn:
Chief Financial Officer, with a copy to Gerald F. Roach, Esq., Smith, Anderson,
Blount, Dorsett, Mitchell & Jernigan, L.L.P., 2500 First Union Capital Center,
Raleigh, North Carolina 27601. All notices that are sent in accordance with
this Section 14 will be deemed received by the holder or the Company on the
earliest of the following applicable time periods: (i) the date the return
receipt is executed; or (ii) the date delivered as documented by the overnight
courier service or the hand delivery receipt. Either the holder or the Company
may designate a change of address by written notice to the other party.
15. Registration Rights.
-------------------
(a) The shares of Common Stock issued or issuable upon the exercise
hereof shall constitute "Registrable Securities" for purposes of this Warrant;
provided, that Registrable Securities shall not include any shares of Common
Stock that have been sold to the public either pursuant to a registration
statement or the exemption from registration under the Securities Act provided
by Rule 144.
(b) If at any time the Company proposes to file a registration
statement under the Act with respect to an offering of equity securities by the
Company for its own account or for the account of any securityholders of any
class of its equity securities (other than (i) a registration statement on Form
S-4 or S-8 (or any substitute form that may be adopted by the Securities and
Exchange Commission (the "Commission")) or (ii) a registration statement filed
in connection with an exchange offer or offering of securities solely to the
Company's existing securityholders) or a registration on any registration form
that does not permit secondary sales, then the Company shall give written notice
of such proposed filing to the Investor as soon as practicable (but in no event
less than 20 days before the anticipated filing date), and such notice shall
offer such Investor the opportunity to register such number of shares of
Registrable Securities as each such Investor may request in writing within 15
days after such notice from the Company (which request shall specify the
Registrable Securities intended to be disposed of and the intended method of
distribution thereof) (a "Piggy-Back Registration").
The Company shall use its best efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten public offering to permit
the Registrable Securities requested by the Investor thereof to be included in a
Piggy-Back Registration on the same terms and conditions as any similar
securities of the Company or any other securityholder included therein and to
permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. The Investor shall
have the right to withdraw its request for inclusion of its Registrable
Securities in any registration statement pursuant to this Section 15 by giving
written notice to the Company of its request to withdraw. The Company may
withdraw a Piggy-Back Registration at any time prior to the time it becomes
effective; provided that the Company shall reimburse the Investor for all
--------
reasonable out-of-pocket expenses (including counsel fees and expenses) incurred
prior to such withdrawal. Notwithstanding the foregoing, if the representative
of the underwriters advises the Company in writing that market factors require a
limitation on the number of shares to be underwritten, the representative may
reduce the number of Registrable Securities to be included in the registration
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and underwriting (to zero, if necessary) on a pro rata basis (based on number of
--- ----
shares owned) with all other secondary shares sought to be included therein.
No failure to effect a registration under Section 15(b) and to complete the
sale of Registrable Securities in connection therewith shall relieve the Company
of any other obligation under this Agreement (including, without limitation, the
Company's obligations under Sections 15(d) and 15(e)).
(c) In the case of a Piggy-Back Registration:
(1) The Company will, as expeditiously as possible:
(A) prepare and file with the Commission such amendments
and post-effective amendments to the applicable registration statement as may be
necessary to keep the registration statement effective for as long as such
registration is required to remain effective pursuant to the terms hereof, cause
the prospectus to be supplemented by any required prospectus supplement, and, as
so supplemented, to be filed pursuant to Rule 424 under the Act;
(B) furnish to the Investor at least one signed copy of
the registration statement and any post-effective amendment thereto, as soon as
such documents become available to the Company, and such number of conformed
copies thereof and such number of copies of the prospectus (including each
preliminary prospectus) and any amendments or supplements thereto, and any
documents incorporated by reference therein, as the Investor may reasonably
request as soon as such documents become available to the Company;
(C) on or prior to the date on which the registration
statement is declared effective, qualify such Registrable Securities requested
to be included under such other securities or blue sky laws of such
jurisdictions as the Investor reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable the Investor
to consummate the disposition in such jurisdictions of such Registrable
Securities; provided, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify, (ii) subject itself to general taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(D) notify the Investor at any time when a prospectus
relating to such Registrable Securities is required to be delivered under the
Act of the happening of any event as a result of which the prospectus included
in such registration statement contains 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 prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(E) notify the Investor of any stop order or other
suspension of effectiveness of the registration statement; and obtain the
withdrawal of any order suspending the effectiveness of the registration
statement at the earliest possible time;
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(F) enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions in connection therewith (including
those requested by the managing underwriters, if any, or the Investor) in order
to expedite or facilitate the disposition of such Registrable Securities and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, (i) make such
representations and warranties to the Investor and the underwriters, if any,
with respect to the business of the Company and its subsidiaries, the
registration statement, prospectus and documents incorporated by reference or
deemed incorporated by reference, if any, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested; (ii) obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the Investor addressed to the Investor and each of the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and underwriters, including without limitation the
matters referred to clause (i) above; (iii) obtain "cold comfort" letters and
updates thereof from the independent certified public accountants of the Company
(and, if necessary, any other certified public accountants of any subsidiary of
the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
registration statement), addressed to the Investor and each of the underwriters,
if any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with underwritten
offerings; and (iv) deliver such documents and certificates as may be requested
by the Investor, its counsel and the managing underwriters, if any, to evidence
the continued validity of the representations and warranties of the Company and
its subsidiaries made pursuant to clause (i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company; and notify the Investor promptly of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Warrant and/or Common Stock for sale in any jurisdiction;
and
(G) take all other steps reasonably necessary to effect
the registration of the Registrable Securities contemplated hereby.
(2) The Company will otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, and make available
to its securityholders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(3) The Company will use its best efforts (i) to cause any
class of Registrable Securities to be listed on a national securities exchange
(if such shares are not already so listed) and on each additional national
securities exchange on which similar securities issued by the Company are then
listed (if any), if the listing of such Registrable Securities is then permitted
under the rules of such exchange or (ii) to secure designation of all such
Registrable Securities covered by such registration statement as a NASDAQ
"national market system
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security" within the meaning of Rule 1 lAa2-1 of the Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities.
(d) The Company shall keep effective and maintain any
registration, qualification, approval or listing specified in this Section 15
for a period of 180 days plus the term of any lock-up or until the holders have
completed the distribution described in the registration statement, whichever
occurs first, and from time to time shall amend or supplement the prospectus
used in connection therewith to the extent necessary in order to comply with
applicable law. All expenses, disbursements and fees in connection with any
action to be taken hereunder (including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses and fees and expenses of counsel for the Company and its
independent certified public accountants and all reasonable fees and expenses of
the Investor and one Investor's counsel and appropriate local counsel (all such
expenses being herein called "Registration Expenses") will be borne by the
Company; provided that in no event shall Registration Expenses include any
underwriting discounts, sales commissions or similar fees or transfer taxes
attributable to the sale of Registrable Securities.
(e) The rights to cause the Company to register securities
granted to a holder under this Section 15 may be transferred or assigned by a
holder only to (i) an affiliate of such holder or (ii) a transferee or assignee
of not less than 20% of such holder's Registrable Securities (as determined on
the date of this Warrant and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits, and the like), provided that, in either
case (A) the Company is given written notice at the time of or within 30 days
after transfer or assignment, stating the name and address of the transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, (B) the transferee or assignee of such
rights assumes in writing the obligations of such holder under this Section 15
and (C) in the reasonable opinion of the Company, the transferee is neither a
competitor to the Company nor a party who is demonstrably hostile to the
Company.
(f) If requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, an Investor shall not sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by such Investor (other than those included in the registration)
during a period not to exceed 180 days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company and holders of at least five
percent of the Company's voting securities are bound by and have entered into
similar agreements. The Company may impose stop-transfer instructions with
respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of such 180 day period.
(g) The holders under this Warrant agree that, upon receipt of
any notice from the Company of the existence of any state of facts or the
occurrence of any event (including, without limitation, pending negotiations
relating to, or the consummation of, a transaction or the occurrence of any
event which, in the reasonable opinion of the Company, might require additional
disclosure of material, non-public information by the Company in any
registration statement provided for in this Warrant as to which the Company
believes in good faith that it has a bona fide business purpose for preserving
confidentiality or which renders the Company unable to comply with the published
rules and regulations of the Commission promulgated under the
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Securities Act or the Exchange Act, as in effect at any relevant time) which
might reasonably result in (A) such registration statement, any amendment or
post-effective amendment thereto, or any document incorporated therein by
reference containing an untrue statement of a material fact or omitting to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (B) the prospectus issued under such
registration statement, any prospectus supplement, or any document incorporated
therein by reference including an untrue statement of material fact or omitting
to state a material fact necessary in order the make the statements therein, in
light of the circumstances under which they were made, not misleading, the
holders will forthwith discontinue disposition of the Registrable Securities
pursuant to such registration statement for a period which is the shorter of (i)
30 calendar days from the Company's notice to such holders or (ii) until the
holders receive copies of prospectus supplements or amendments prepared by or on
behalf of the Company. If so directed by the Company, the holders will deliver
to the Company all copies in their possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. The
Company shall not be permitted to require the suspension of the disposition of
Registrable Securities for a period in excess of 90 calendar days in any 12
month period.
(h) The rights to request registration of any Company securities
pursuant to this Section 15 shall terminate as to any holder who holds
Registrable Securities upon the earlier of (i) when a holder holds one percent
or less of the Company's Common Stock on an as-converted basis; (ii) when all of
a holder's Registrable Securities may be sold during a single three-month period
under Rule 144; (iii) when a holder's Registrable Securities may be transferred
under Rule 144(k) unless such holder later becomes an affiliate of the Company
(as defined in Rule 144), in which case such holder's rights to request
registration shall be revived until such holder's rights otherwise terminate
under this subsection (h); and (iv) three years after the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of the Company's
Common Stock at a price per share of not less than $10.00 (as adjusted for stock
splits, dividends, combinations and the like) and an aggregate offering price to
the public of not less than $20,000,000. Such three-year period shall not
include any period of time during which adequate current public information, as
defined in Rule 144(c) promulgated under the Securities Act, is not available
with respect to the Company.
(i) The Company hereby indemnifies, to the fullest extent permitted by
law, the Investor or each person, if any, who controls Investor within the
meaning of Section 15 of the Act, and the directors, officers, employees, agents
and representatives of each of them, against all losses, claims, damages,
liabilities, costs and expenses (including, without limitation, fees and
expenses of counsel), as incurred, arising out of, relating to, or caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus (or any amendment
or supplement thereto) or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any untrue statement contained in, or
omission from, information furnished in writing to the Company by Investor
expressly for use therein. In connection with any registration statement in
which Investor is participating, Investor will furnish to the Company in writing
such information as shall reasonably be requested by the Company for use in any
such registration statement or prospectus and will indemnify, to the extent
permitted by
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law, the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of the Act against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the registration statement or prospectus
or necessary to make the statements therein not misleading, but only to the
extent that such untrue statement of a material fact is contained in, or such
material fact is omitted from, information so furnished in writing by such
Investor expressly for use therein.
(j) For purposes of this Section 15, the Investor shall include any
transferee of the Investor if such transfer is made in accordance herewith.
16. Remedies. The Company acknowledges and agrees that irreparable harm,
--------
for which there may be no adequate remedy at law and for which the ascertainment
of damages would be difficult, would occur in the event any of the provisions of
this Warrant were not performed in accordance with its specific terms or were
otherwise breached. The Company accordingly agrees that the holders shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Warrant and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, in each
instance without being required to post bond or other security and in addition
to, and without having to prove the inadequacy of other remedies at law.
17. Securities Matters.
------------------
At such time as the Company becomes subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and at
all times thereafter, the Company agrees to deliver to the Investor all such
reports, information and other documents as it shall be required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act within 15-
days after the date it is required to file such reports with the Commission.
Prior to such time as the Company becomes subject to the reporting requirements
of the Exchange Act, and in order to make available the benefits of certain
rules and regulations of the Commission which may at any time permit the sale of
the shares of Common Stock issuable upon exercise of the Warrant to the public
without registration, the Company agrees to deliver to the Investor all such
reports, information and other documents as it may be required to provide to any
lender or other creditor. From and after the time the Company files a
registration statement with the Commission with respect to the Warrants or the
shares of Common Stock issuable thereunder, the Company shall file such
information with the Commission; provided, that the Company shall not be in
default of the provisions of this Section 17 for any failure to file reports
with the Commission solely by refusal by the Commission to accept the same for
filing.
[Remainder of page intentionally left blank]
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[Warrant for the Purchase of Shares of Common Stock of Paradigm Genetics Inc.]
PARADIGM GENETICS INC.,
a North Carolina corporation
Address: 104 Alexander Drive By: ___________________________________
Building 2 Name:
Research Triangle Park, NC 27709 Title:
Dated:
ACCEPTED AND AGREED:
ARE-104 ALEXANDER ROAD, LLC,
a Delaware limited liability company
By: Alexandria Real Estate Equities, L.P.,
a Delaware limited partnership,
Its Managing Member
By: ARE-QRS Corp.,
a Maryland corporation,
Its General Partner
By: ________________________
Name:
Title:
Dated:
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<PAGE>
SUBSCRIPTION
------------
Paradigm Genetics Inc.
104 Alexander Drive
Building 2
Research Triangle Park, North Carolina 27709
Ladies and Gentlemen:
The undersigned, ____________________, hereby elects to purchase, pursuant
to the provisions of the Warrant dated ________ , 1999 held by the undersigned,
_________shares of the Common Stock of Paradigm Genetics Inc., a North Carolina
corporation, and tenders herewith payment of the purchase price of such shares
in full.
In exercising its rights to purchase such Common Stock, the undersigned
hereby confirms the investment representations made in Section 7.
Dated: ____________, ________.
_____________________________________
By _________________________________
Address: _____________________________________
_____________________________________
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<PAGE>
[FORM OF ASSIGNMENT]
The undersigned hereby assigns this Warrant to
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
_____________________________
and irrevocably appoints ___________________ as agent to transfer this Warrant
on the books of the Company. The agent may substitute another to act for him or
it.
Dated:___________________ Signed:_____________________
______________________________________________________________________________
(Sign exactly as name appears on the front of this Warrant)
Dated:___________________ Signed:_____________________
Name:_______________________
Title:______________________
128
<PAGE>
EXHIBIT N
GREENHOUSE LOAN DOCUMENTS
-------------------------
[See Following Pages]
129
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
This LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of
______________,1999, by and between ARE-104 ALEXANDER ROAD, LLC, a Delaware
limited liability company ("Lender"), and PARADIGM GENETICS, INC., a North
Carolina corporation ("Borrower"):
RECITALS
--------
A. Lender has entered into a Ground Lease Agreement dated as of July
____,1999 (the "Ground Lease"), with Research Triangle Service Center, Inc., a
North Carolina corporation ("Ground Lessor"), pursuant to which Lender has
leased approximately 6.084 acres of land more fully described in Exhibit A (the
---------
"Property"). The Property is part of the Triangle Park Research Center located
within Research Triangle Park ("RTP"), Durham County, North Carolina.
B. Lender and Borrower have entered into a Lease Agreement dated as of
July , 1999 (the "Lease"), pursuant to which Tenant is leasing the Property
from Lender and Lender is causing or permitting certain improvements to be
constructed on the Property for Tenant's use and occupancy, including, but not
limited to, a first-class scientific research and development building
containing approximately 53,750 rentable square feet (the "Building") and a
commercial greenhouse, headhouse, and growth room facility containing
approximately 5,000 rentable square feet (the "Greenhouse"). The Property,
together with the Building and the Greenhouse, shall be collectively referred to
herein as the "Project".
C. The agreements of the parties with respect to the design, permitting,
and construction of the Greenhouse is contained in a Work Letter dated as of
July , 1999, that is attached to and made a part of the Lease (the "Work
Letter"). In accordance with the Work Letter, (i) Borrower has the right to
select, retain, and direct (subject to the approval rights given to Lender in
the Work Letter) the "Architect" (as defined in Section 1.03 below), and (ii)
------------
Lender has the right to select, retain, and direct (subject to the approval
rights given to Borrower in the Work Letter), the "Contractor" (as defined in
Section 1.11 below).
- ------------
D. In accordance with Section 42 of the Lease, Borrower desires to borrow
----------
from Lender, and Lender is willing to loan to Borrower, a loan in the maximum
principal amount of $1,200,000.00 (the "Loan") to be used solely for the
construction of the Greenhouse, upon the terms set forth herein and in the Work
Letter.
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
GENERAL DEFINITIONS
-------------------
When used herein, the following initially-capitalized terms shall have the
following meanings:
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1.01 "Affiliate" means, with respect to any Person, any other Person that
controls, is controlled by, or is under common control with the Person in
question. For the purposes of the foregoing definition, "controls" (and its
correlative terms "controlled by" and "under common control with") means
possession by the applicable Person of the power to direct or cause the
direction of the management and policies thereof, whether through the ownership
of voting securities, by contract, or otherwise.
1.02 "Agreement" means this Loan and Security Agreement, together with all
supplements, amendments, and modifications hereto and all extensions and
renewals hereof.
1.03 "Architect" means (i) Bartholomew Associates, Inc. or (ii) such other
architect for the design of the Greenhouse as may be selected by Borrower and
approved by Lender in accordance with the terms and conditions of the Work
Letter.
1.04 "Assignment of Architect's Agreement" is defined in Section 3.01.
------------
1.05 "Attorneys' Fees", "Attorneys' Fees and Costs", "attorneys' fees",
and "attorneys' fees and costs" (whether or not modified by the word
"reasonable") mean the actual fees and expenses (without statutory presumption)
incurred by the applicable parties to the Loan Documents for legal services,
which may include, without limitation, (i) fees, costs, and expenses of any
engineers, accountants, appraisers, consultants, brokers, and other
professionals or experts retained or consulted by the parties, and other costs
and expenses of investigation or analysis incurred by the parties in support of
their legal position, and (ii) all such fees, costs, and expenses incurred in
any aspect of the legal process, whether out-of-court negotiations, mediation,
arbitration, commencement of suit, discovery, law and motion, trial, appellate
proceedings, post-judgment proceedings to collect any judgment, or any action or
participation in, or in connection with, any insolvency, bankruptcy,
reorganization, arrangement, or other similar case or proceeding, including any
case or proceeding under Chapter 7, 11, or 13 of the Bankruptcy Code, 11 U.S.C.
Section 101 et seq., or any successor statutes, involving Borrower or any of the
-- ---
Principals that in any way affect the exercise by Lender of its rights and
remedies hereunder, under any of the other Loan Documents, at law, or in equity.
The recovery of post-judgment attorneys' fees and costs is separate and several
and shall survive the merger of the applicable Loan Documents into any judgment.
1.06 "Bankruptcy Code" means Title 11 of the U.S. Code, as applicable, or
any similar federal or state laws for the relief of debtors, each as hereafter
amended.
1.07 "Business Day" means any day other than a Saturday, a Sunday, a legal
holiday under the laws of the State of North Carolina or a day on which
commercial banks in such state are authorized or required by law or other
governmental action to be closed.
1.08 "Cash Collateral" means the sum of $100,000.00 (or approximately
equal to the estimated total of 6 Monthly Amortization Installments), which
Borrower shall deposit in an interest bearing account (the "Account") maintained
with an FDIC-insured financial institution satisfactory to Lender, in Lender's
reasonable discretion. Borrower shall grant Lender a security interest in and
to all-funds held in the Account from time to time, and Borrower shall execute
and deliver such further documents or instruments that may be necessary or
appropriate to
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<PAGE>
perfect or maintain such security interest or to ensure that the financial
institution at which the Account is maintained is subject to such security
interest. No funds may be disbursed from the Account without joint instructions
from Borrower and Lender.
1.09 "Closing Date" means the date of the recordation of the Fixture
Filing in the Public Registry of the County in which the Property is situated,
but in no event later than the Termination Date.
1.10 "Collateral" is defined in the Fixture Filing.
1.11 "Contractor" means (i) Miller Building Corporation or (ii) such other
general contractor for the construction of the Greenhouse as may be selected by
Borrower and by Lender in accordance with the terms and conditions of the Work
Letter.
1.12 "Contractual Obligation" as applied to any Person means any provision
of any instrument, document, or security issued by that Person or of any
indenture, mortgage, deed of trust, contract, undertaking, agreement, or other
instrument to which that Person is a party or by which any of its properties is
bound or to which it or any of its properties is subject.
1.13 "Default Interest Rate" is defined in the Note.
1.14 "Environmental Laws" means any and all present and future federal,
state, and local laws, ordinances, regulations, policies, and any other
requirements of any Governmental Agency relating to health, safety, the
environment, or to any Hazardous Substances, including without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), the Resource Conservation Recovery Act (RCRA), the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Endangered Species Act,
the Clean Water Act, and the Occupational Safety and Health Act, each as
hereafter amended from time to time, and the present and future rules, and
regulations promulgated under any of the foregoing.
1.15 "Event of Default" means any of the events specified in Section 8.01.
------------
1.16 "Fixture Filing" means a Fixture Filing (or Form UCC-1 Financing
Statement, as Lender may determine) of even date herewith executed by Borrower,
as debtor, in favor of Lender, as secured party, to be recorded on the Closing
Date in the Public Registry of the County in which the Property is situated.
1.17 "Formation Documents" means (a) as to any corporation, its articles
of incorporation and bylaws, (b) as to any limited partnership, its certificate
of limited partnership and partnership agreement, (c) as to any general
partnership or joint venture, its assumed name certificate and partnership
agreement, (d) as to any limited liability company, its articles or certificate
of organization and operating agreement, and (e) as to any trust, its trust
agreement and a certification of the current trustees thereof, each of the
foregoing together with all supplements, amendments and modifications.
1.18 "General Partner" or "general partner" means the general partners of
the partnership in question, together with any constituent general partners of
such general partners.
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1.19 "Governmental Agency" means any federal, state, municipal or other
governmental or quasi-governmental court, agency, authority or district.
1.20 "Greenhouse Documents" means (a) all agreements now or hereafter in
effect with any contractor, architect, or engineer in connection with the
Greenhouse, including, without limitation, any design architect, landscape
architect, civil engineer, electrical engineer, environmental engineer, soils
engineer, or mechanical engineer; (b) all other agreements now or hereafter in
effect with any property manager or broker with respect to the management or
operation of the Greenhouse; (c) all as-built plans and specifications and
surveys for the Greenhouse; (d) all Permits; and (e) all renewals,
substitutions, extensions, modifications, or replacements of any of the
foregoing.
1.21 "Hazardous Substances" means (a) any chemical, compound, material,
mixture or substance that is now or hereafter defined or listed in, or otherwise
classified pursuant to, any Environmental Laws as a "hazardous substance",
"hazardous material", "hazardous waste", "extremely hazardous waste", "acutely
hazardous waste", "radioactive waste", "infectious waste", "biohazardous waste",
"toxic substance", "pollutant", "toxic pollutant", "contaminant" as well as any
formulation not mentioned herein intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "EP
toxicity", or "TCLP toxicity"; (b) petroleum, natural gas, natural gas liquids,
liquefied natural gas, synthetic gas usable for fuel (or mixtures of natural gas
and such synthetic gas) and ash produced by a resource recovery facility
utilizing a municipal solid waste stream, and drilling fluids, produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas, or geothermal resources; (c) asbestos in any form; (d)
urea formaldehyde foam insulation; (e) polychlorinated biphenyls (PCBs); (f)
radon; and (g) any other chemical, material, or substance exposure to which is
limited or regulated by any Governmental Agency because of its quantity,
concentration, or physical or chemical characteristics, or that poses a
significant present or potential hazard to human health or safety or to the
environment if released into the workplace or the environment. "Hazardous
Substances" shall not include ordinary office supplies and repair, maintenance,
and cleaning supplies used or maintained in connection with the Greenhouse in
reasonable and necessary quantities and used in substantial accordance with
(and, if necessary to avoid the imposition of a fine or penalty or the creation
of a Lien or other rights, in strict accordance with) all Environmental Laws.
1.22 "Improvements" is defined in the Fixture Filing.
1.23 "Indemnitees" means, collectively and individually, Lender, its
Affiliates and its and their directors, officers, agents, employees, successors
and assigns.
1.24 "Laws" means all federal, state, county, municipal, and other
governmental and quasi-governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees, and injunctions affecting the development,
operation, ownership, occupancy, or use of any portion of the Greenhouse,
whether now or hereafter enacted and in force including, without limitation, the
Americans With Disabilities Act, 42 U.S.C. (S)(S) 12101-12213 (1991) and all
Environmental Laws, any zoning or other land use entitlements, and all Permits.
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<PAGE>
1.25 "Lien" means any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, charge, or claim of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof, and/or the filing of any fixture filing or
financing statement under the Uniform Commercial Code of any jurisdiction) with
respect to any portion of or interest in the Collateral or the Cash Collateral.
1.26 "Loan Amount" means $1,200,000.00.
1.27 "Loan Documents" means the documents described in Section 3.01, and
------------
all other documents securing, or executed in connection with, the Loan, together
with all renewals, substitutions, extensions, modifications, or replacements
thereof.
1.28 "Loan Year" shall mean the 12-months period commencing on the first
day of the month following the Closing Date and each 12-months period
thereafter.
1.29 "Maturity Date" means the date upon which the entire principal amount
of the Loan, together with all other amounts owing to Lender under the Loan
Documents, shall be due and payable, which date shall be 1st calendar day of the
1st calendar month after the 10th anniversary of the Closing Date.
1.30 "Note" means that certain Secured Promissory Note of even date
herewith that evidences the Loan, and any and all modifications, extensions,
renewals, and replacements thereof, which Note shall be in a principal amount
equal to the Loan Amount and executed by Borrower, as maker, in favor of Lender,
as holder.
1.31 "Permits" means all permits, licenses, franchises, approvals,
variances, and land use entitlements necessary for the occupancy, operation,
ownership, and use of the Greenhouse.
1.32 "Person" means and includes natural persons, corporations, limited
liability companies, limited liability partnerships, limited partnerships,
general partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts, real
estate investment trusts, or other organizations, whether or not legal entities,
and governments and agencies and political subdivisions thereof.
1.33 "Potential Default" means a condition or event that, with the giving
of notice or passage of time, or both, would constitute an Event of Default
under any of the Loan Documents.
1.34 "Principals" means individually and collectively Borrower and its
major shareholders, as applicable, and each of such parties' constituent general
partners, managing members, and major shareholders, as applicable.
1.35 "Related Parties" means Borrower, Principals, any Affiliate of
Borrower or Principals, any partnership of which Borrower or any Principal is a
general partner, and any limited liability company of which Borrower or any
Principal is a manager or managing member.
1.36 "Secured Obligations" is defined in the Fixture Filing.
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<PAGE>
1.37 "Tax Identification Number" means Borrower's employer identification
number or social security number, which is _______________.
1.38 "Termination Date" means the date before which all of the conditions
precedent set forth in Section 3.01 must be satisfied and the Closing Date for
------------
the Loan must occur, which date shall be ___________________, 1999.
1.39 "Underwriting Information" means all financial statements and other
written information submitted to Lender in connection with the negotiations for
the Loan and Lender's decision to make the Loan.
ARTICLE II
LOAN TERMS
----------
2.01 Loan and Disbursements of Loan Proceeds. Subject to the terms and
---------------------------------------
conditions of this Agreement, and in reliance upon the representations and
warranties of Borrower set forth in the Loan Documents, Lender agrees to make
the Loan to Borrower. Lender shall disburse the Loan proceeds as provided in
Section 2.06 of the Note and Sections 7.6, 7.7, and 7.8 of the Work Letter.
- ------------ -------- --- --- ---
2.02 Evidence of Indebtedness and Maturity. Borrower shall execute the
-------------------------------------
Note and deliver the same to Lender on or before the Closing Date. Borrower
agrees to repay the indebtedness evidenced by the Note in accordance with the
terms thereof and the terms hereof. The outstanding principal balance of the
Loan, together with accrued and unpaid interest thereon and all other amounts
payable by Borrower with respect to the Loan under the Loan Documents, shall be
due and payable on the Maturity Date.
2.03 Interest Rate. The Loan shall bear interest at 11.50% per annum, as
-------------
specified in the Note.
2.04 Recourse. The provisions of Section 4.11 of the Note, regarding the
-------- ------------
limitations on Lender's recourse under the Loan Documents with respect to
Borrower's obligations under the Loan, are hereby incorporated herein as if set
forth in full herein with respect to such obligations.
2.05 Prepayment. Borrower may prepay the outstanding principal balance of
----------
Loan in whole or in part at any time in accordance with the provisions of the
Note.
ARTICLE III
CONDITIONS TO LOAN
------------------
3.01 Condition Precedent to Closing of Loan. As a condition precedent to
--------------------------------------
Lender's obligation to close the Loan and disburse any Loan proceeds, Borrower
must satisfy and fulfill each of the following conditions precedent to closing,
to the satisfaction of Lender, on or before the Closing Date:
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<PAGE>
A. Loan Documents. Borrower shall deliver to Lender the following
documents, each duly executed and acknowledged by a notary public where
necessary, and in form and substance satisfactory to Lender:
(i) This Agreement;
(ii) The Note;
(iii) The Fixture Filing;
(iv) A North Carolina UCC-1 Financing Statement relating to the
Collateral and the Cash Collateral, to be filed with the North Carolina
Secretary of State, together with UCC-1 Financing Statements for recordation in
such other counties and States as may be reasonably required by Lender; and
(v) An assignment of all agreements between Borrower, any Principal or
any agent or nominee thereof, and each Architect, executed by Borrower and each
Architect (the "Assignment of Architect's Agreement").
B. Truth of Representations and Warranties. The representations and
warranties contained herein and in the other Loan Documents shall be true,
correct, and complete in all material respects on the Closing Date.
C. No Default. As of the Closing Date, no event shall have occurred or
shall result from the funding of the Loan that would constitute a Potential
Default or an Event of Default.
3.02 Termination of Agreement. Lender's obligation to make the Loan and
------------------------
perform any of its other obligations under the Loan Documents shall terminate
unless all of the conditions precedent set forth in Section 3.01 have been
------------
satisfied, and the Closing Date for the Loan has occurred, on or before the
Termination Date.
ARTICLE IV
ASSIGNMENT OF GREENHOUSE DOCUMENTS
----------------------------------
4.01 Assignment of Documents.
-----------------------
A. As security for the payment and performance of the Secured
Obligations, Borrower, subject to Section 4.01(B) below, hereby grants, conveys,
---------------
assigns, and transfers to Lender all of Borrower's rights and interests under
the Greenhouse Documents, together with the immediate and continuing right to
collect and receive all sums that are now or hereafter due to Borrower
thereunder or in connection therewith, and all of Borrower's rights to receive
the proceeds of any insurance, indemnity, warranty, or guaranty with respect to
any of the Greenhouse Documents. The parties expressly acknowledge and agree
that Lender does not hereby assume any of Borrower's obligations with respect to
any of the Greenhouse Documents, including, without limitation, any obligation
to pay for any work done pursuant thereto, unless Lender expressly assumes such
obligations in accordance with Section 4.01(B). At Lender's
---------------
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<PAGE>
request from time to time, Borrower shall deliver copies of the Greenhouse
Documents to Lender as well as any consents that are required in connection with
this assignment.
B. Lender shall not exercise its rights under this Section 4.01 until
------------
the occurrence of an Event of Default. Upon the occurrence of an Event of
Default under any of the Loan Documents, Lender, at its option in its sole
discretion and without any obligation, may exercise any or all of its rights and
remedies under Section 8.04 and/or upon written notice to Borrower and the other
------------
parties to any or all of the Greenhouse Documents, exercise or enforce any or
all of the rights and remedies granted to Borrower under such Greenhouse
Documents as if Lender had been a party to or recipient of such Greenhouse
Documents (and Borrower hereby irrevocably constitutes and appoints Lender as
its attorney-in-fact, which power is coupled with an interest, to do so). Upon
giving such notice Lender may elect to assume all of the obligations of Borrower
thereafter accruing under any or all of the Greenhouse Documents; provided that
in no event shall Lender be responsible for any default by Borrower or any other
party occurring prior to any election by Lender to assume such obligations.
C. The acceptance by Lender of the assignment contained in this
Section 4.01 and the exercise of any rights granted to Lender hereunder and
- ------------
under Section 8.04 shall not obligate Lender, prior to Lender's assumption of
------------
the obligations under the Greenhouse Documents as provided in Section 4.01(B),
---------------
to assume any obligation or liability under the Greenhouse Documents, to expend
any money or incur any expense in connection with the Greenhouse Documents, or
to perform any undertaking or covenant under any of the Greenhouse Documents.
4.02 Performance Under Greenhouse Documents. At all times prior to the
--------------------------------------
date if ever, that Lender assumes the obligations under the Greenhouse Documents
(as provided in Section 4.01 (B) above), Borrower shall perform and discharge
----------------
each of its obligations under the Greenhouse Documents, diligently enforce its
rights under the Greenhouse Documents unless otherwise agreed by Lender, and, at
Borrower's sole cost and expense, appear in and defend Lender in any action or
proceeding in any way related to any of the Greenhouse Documents. Borrower,
within 10 days after demand by Lender, shall pay all reasonable costs and
expenses incurred by Lender in connection with any such action or proceeding,
including, without limitation, reasonable attorneys' fees and costs.
4.03 Indemnification. Borrower hereby indemnifies and agrees to defend
---------------
and hold the Indemnitees harmless from all expenses, losses, claims, damages, or
liabilities that the Indemnitees incur under any of the Greenhouse Documents
under or by reason of the assignment set forth in Section 4.01 or by reason of
------------
any alleged obligation or undertaking on Lender's part to perform or discharge
any covenants or agreements contained in any of the Greenhouse Documents;
provided that such indemnity shall not apply to expenses, losses, claims,
- --------
damages, or liabilities to the extent the same arise from an Indemnitee's gross
negligence or willful misconduct or arise after the date, if ever, that Lender
assumes the obligations under the Greenhouse Documents as provided in Section
-------
4.01(B).
- -------
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ARTICLE V
SECURITY AGREEMENT
------------------
5.01 Grant of Security Interest. As security for the payment and
--------------------------
performance of the Secured Obligations, Borrower hereby assigns, transfers, and
grants to Lender, and there is hereby created in favor of Lender, a security
interest under the North Carolina Uniform Commercial Code in and to the
Collateral and the Cash Collateral, whether now owned or hereafter acquired, and
in all proceeds thereof (and proceeds of proceeds) in whatever form. This
Agreement shall constitute a security agreement pursuant to the North Carolina
Uniform Commercial Code with respect to the Collateral, the Cash Collateral, and
the proceeds of either, with Borrower the "debtor" and Lender the "secured
party" as such terms are used therein.
5.02 Representations, Agreements, and Covenants Regarding Collateral. In
---------------------------------------------------------------
order to induce Lender to enter into this Agreement and make the Loan, Borrower
represents, warrants, and covenants as follows:
A. Except for the security interest in favor of Lender, Borrower is,
and as to any of the Collateral acquired after the date hereof will be, the sole
owner of the Collateral, free from any adverse Lien. Upon gaining knowledge
thereof, Borrower shall promptly notify Lender of and, except as may be
expressly permitted otherwise hereunder, shall defend the Collateral and the
Cash Collateral against all claims and demands of all persons at any time
claiming any interest therein adverse to the interest of Borrower or Lender
therein.
B. Borrower will keep the Collateral in good condition and repair,
and will not misuse, abuse, allow to deteriorate, waste, or destroy the
Collateral or any part thereof, except for ordinary wear and tear resulting from
normal and expected use in the ordinary course of Borrower's business, which
shall be promptly replaced by Borrower (unless obsolete) with property of
similar nature and of equal or greater value.
C. Borrower, without the prior written consent of Lender, will not
sell, offer to sell or otherwise transfer, exchange, or dispose of the
Collateral or any interest therein, unless in the normal course of business such
Collateral is being replaced by collateral of similar nature and quality. If
the Collateral or any part thereof is sold, transferred, exchanged, or otherwise
disposed of (either with or without the written consent of Lender), the security
interest of Lender shall extend to the proceeds of such sale, transfer,
exchange, or other disposition and, at Lender's request, Borrower will transfer
such proceeds to Lender.
D. The Collateral will be kept on or at the Property and Borrower,
without the prior written consent of Lender, will not remove such Collateral
therefrom except such portions or items of Collateral that are consumed or worn
out in ordinary usage, which shall be promptly replaced by Borrower as provided
in Section 5.02(B).
---------------
E. Borrower will immediately notify Lender in writing of any change
in its place of business or the adoption or change of any trade name or
fictitious business name, and, within 10 Business Days after Lender's request,
will execute any additional financing statements or other certificates
reasonably requested by Lender to reflect such change.
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F. Lender may examine and inspect the Collateral at any reasonable
time, wherever located, upon reasonable prior notice to Borrower (except in the
event of an emergency, in which event prior notice shall not be required).
5.03 Affixed Collateral. The inclusion in Section 5.01 of any
------------------ ------------
Improvements that may now be or hereafter become affixed to or in any manner
attached to or incorporated in any portion of the Greenhouse shall be without
prejudice to Lender's right under the terms and conditions of the Lease to claim
that such Improvements are or have become a part of or an accession to the
Project and, therefore, subject to the terms and conditions of the Lease
regarding the ownership thereof. This Section is not intended to modify any
terms or conditions of the Lease.
5.04 Further Security Agreements. Borrower agrees to take such actions
---------------------------
and, within 10 days after Lender's request, to execute, deliver, and file and/or
record such documents, agreements, and financing statements or fixture filings
as may be reasonably necessary to create, evidence, and/or perfect the security
interest set forth in Section 5.01,to establish the priority thereof, and/or to
------------
carry out the intent and purpose of this Article 5.
---------
ARTICLE VI
BORROWER'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
As an inducement to Lender to execute this Agreement and make the Loan,
Borrower represents and warrants to Lender as follows.
6.01 Organization, Power, Good Standing, and Business. Borrower is a
------------------------------------------------
corporation duly formed, validly existing and in good standing under the Laws of
the State of North Carolina. Borrower has the full corporate power and
authority to own and operate its properties, to carry on its business as now
conducted and as contemplated in the Lease, to enter into each Loan Document and
the Environmental Indemnity, and to carry out the transactions contemplated
hereby and thereby. Borrower does not do business under any trade name or
fictitious business name other than " ". Borrower has delivered to Lender true,
correct, and complete copies of its Formation Documents and such Formation
Documents have not been amended or modified except pursuant to agreements
delivered to Lender prior to the date hereof.
6.02 Authorization of Borrowing, Etc.
--------------------------------
A. Authorization of Borrowing. The execution, delivery, and performance
of the Loan Documents and the Environmental Indemnity and the issuance,
delivery, and payment of the Note have been duly authorized by all necessary
corporate action of Borrower.
B. No Conflict. The execution, delivery, and performance by Borrower of
each Loan Document and the Environmental Indemnity does not and will not (i)
violate in any material respect any Law applicable to Borrower, Borrower's
Formation Documents, or any order, judgment, or decree of any court or other
Governmental Agency binding on Borrower; (ii) conflict with, result in a
material breach of, or constitute (with the giving of notice or the passage of
time or both) a material default under any Contractual Obligation of Borrower;
(iii) result in or require the creation or imposition of any Lien of any nature
on Borrower's properties or assets
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other than the Liens in favor of Lender under the Loan Documents; or (iv)
require any approval or consent of any Person under any Contractual Obligation
of Borrower.
C. Governmental Consents. The execution, delivery, and performance by
Borrower of each applicable Loan Document and the Environmental Indemnity does
not and will not require any registration with, consent or approval of, notice
to, or other action to, with, or by, any Governmental Agency or other Person.
D. Binding Obligation. The Note and the other Loan Documents are the
legally valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating
to or limiting creditors' rights generally. The Environmental Indemnity is the
legally valid and binding obligation of each of the parties thereto, enforceable
against such parties in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
6.03 Actions. There is no action, suit, proceeding, or arbitration,
-------
before or by any Governmental Agency or other Person, pending or, to Borrower's
best knowledge, threatened against or affecting Borrower, any of the Principals,
or any properties or rights of Borrower or any of the Principals, and there are
no outstanding judgments against any of the Related Parties or their property
that might materially adversely affect Lender's rights or remedies under the
Loan Documents or the Environmental Indemnity or the business, assets,
operations, or financial condition of any Borrower or its ability to perform its
obligations under the Loan Documents or the Environmental Indemnity. As of the
date hereof, there are no outstanding judgments against Borrower, any of the
Principals, or their property in excess of $25,000 as to any individual judgment
or $50,000 in the aggregate.
6.04 Financial Position.
------------------
A. Financial Information. The Underwriting Information and all financial
statements and financial data delivered to Lender in connection with the Loan
and/or relating to Borrower and the Principals are true, correct, and complete
in all material respects and accurately present the financial position of such
parties as of the date thereof. No material adverse change has occurred in the
financial position disclosed by the Underwriting Information or in any other
financial statements or financial data delivered to Lender.
B. Bankruptcy and Insolvency. Neither Borrower nor any of the Related
Parties has filed or been the subject of any bankruptcy, insolvency,
reorganization, dissolution, or similar proceeding or any proceeding for the
appointment of a receiver or trustee for all or any substantial part of their
respective property. Neither Borrower nor any of the Related Parties has
admitted in writing its inability to pay its debts when due, made an assignment
for the benefit of creditors, or taken other similar action.
C. Other Borrowing. Except for the Loan, no borrowings have been made
by Borrower that are or will be secured by any portion of the Greenhouse or that
might give rise to any Lien other than the Liens created by the Loan Documents.
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<PAGE>
6.05 Liens. Borrower is the sole tenant of the Project and the sole owner
-----
of the Collateral free from any adverse Liens, except for Liens in favor of
Lender. No previous assignment, sale, pledge, encumbrance, or other
hypothecation of the Greenhouse Documents has been made (except for pledges and
encumbrances that have been released in full prior to the date hereof or will be
released in full concurrently with the funding of the Loan).
6.06 No Defaults. No Potential Default or Event of Default exists under
-----------
this Agreement or any of the other Loan Documents. No material default by
Borrower exists under any Contractual Obligation that would have a material
adverse effect on Borrower's ability to repay the Loan or to perform its
obligations under any of the Loan Documents or under the Environmental
Indemnity.
6.07 Disclosure. No representation or warranty of Borrower contained in
----------
this Agreement, any Loan Document, or any Underwriting Information contains any
untrue statement of a material fact or omits any material fact necessary in
order to make the statements contained herein or therein not misleading.
ARTICLE VII
BORROWER'S COVENANTS
--------------------
Borrower covenants and agrees that, until the Loan and all other amounts
owing to Lender under the Loan Documents have been paid in full and all Secured
Obligations have been satisfied, Borrower shall perform all of the covenants in
this Article 7.
---------
7.01 No Liens. Except as may be expressly provided otherwise in any of
--------
the Loan Documents, Borrower shall not permit any Lien to be made or filed.
Borrower shall be the sole owner of the Collateral, free from any adverse Liens,
except for Liens in favor of Lender. Borrower shall not assign, sell, pledge,
encumber, or otherwise hypothecate all or any portion of the Greenhouse
Documents.
7.02 Compliance With Laws. Borrower will substantially comply with (and,
--------------------
if necessary to avoid the imposition of a fine or penalty or the creation of a
Lien or other rights, will strictly comply with) all Laws.
7.03 Inspection. Borrower will comply with all of the terms and
----------
conditions of Section 32 of the Lease (which governs Borrower's rights and
-----------
obligations with respect to Lender's access to the Project) and Section 9 of the
Work Letter (which governs Borrower's rights and obligations with respect to
Borrower's access to the Project during construction).
7.04 Leasing of Space. Borrower will comply with all of the terms and
----------------
conditions of Section 22 of the Lease (which governs Borrower's rights and
----------
obligations with respect to assignments of the Lease or subleases of portions of
the Project).
7.05 Environmental Matters. Borrower will comply with all of the terms
---------------------
and conditions of Section 30 of the Lease (which governs Borrower's rights and
----------
obligations with respect to Environmental Matters affecting the Project).
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<PAGE>
7.06 Notice of Proceeding. Borrower will promptly notify Lender of any
--------------------
action, suit, proceeding, or arbitration (including, without limitation, any
judicial or nonjudicial foreclosure proceeding, any voluntary or involuntary
bankruptcy proceeding, or any proceeding for the appointment of a receiver),
commenced or, to Borrower's knowledge, threatened against Borrower, any of the
Principals, or any portion of or interest in the Collateral. Borrower shall
deliver to Lender copies of all notices and other information in connection with
any action, suit, proceeding or arbitration promptly upon receipt or transmittal
thereof.
7.07 Financial and Other Information. Borrower shall maintain full and
-------------------------------
complete books of account and other records reflecting the results of operations
of the Project in accordance with generally accepted accounting principles
consistently applied (or such other accounting method approved in writing by
Lender). Borrower shall furnish or cause to be furnished to Lender the
financial information described in Section 44(d) of the Lease.
-------------
7.08 Representations and Warranties. Until repayment of the Loan and all
------------------------------
other amounts owing to Lender under the Loan Documents and the satisfaction of
all other Secured Obligations, the representations and warranties set forth in
Article 6 shall remain true and complete.
- ---------
7.09 Further Assurances. Borrower shall execute and deliver from time to
------------------
time, within 10 Business Days after any request by Lender, any and all
instruments, agreements, and documents and shall take such other action as may
be reasonably necessary or desirable in the reasonable opinion of Lender to
maintain, perfect, or insure Lender's security provided for herein and in the
other Loan Documents, including, without limitation, the execution of UCC-1
renewal statements and the execution of such amendments to the Fixture Filing
and the other Loan Documents, all as Lender shall reasonably require, and shall
pay all fees and expenses (including reasonable attorney's fees) related
thereto.
7.10 Distribution of Assets. From and after the occurrence of an Event of
----------------------
Default or Potential Default and during the continuance thereof, Borrower shall
not make any distribution of its assets, directly or indirectly, to its
shareholders or other owners. As used herein, the distribution of assets shall
include, without limitation, the repayment of any Loan made to Borrower or any
interest or other charges payable in connection therewith, the return of capital
contributions and distributions upon the termination, liquidation, or
dissolution of Borrower and the payment of fees, including management, leasing,
brokerage, and other fees to the extent such fees exceed the amounts payable in
arms' length transactions with third parties. Borrower shall maintain and
preserve its existence and all rights and franchises material to its business.
ARTICLE VIII
EVENTS OF DEFAULT: REMEDIES
---------------------------
8.01 Events of Default. The occurrence of any of the following events
-----------------
shall constitute an Event of Default under this Agreement and the other Loan
Documents:
A. Failure to Make Payments When Due. Borrower's failure to pay any
principal, interest or other monies due under this Agreement or any of the other
Loan Documents within 10 days after such amount is due; provided, however, that
-------- -------
Lender will give Borrower written notice
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<PAGE>
and an opportunity to cure any such failure within 3 days of any such notice not
more than once in any 12 month period and Borrower agrees that such notice shall
be in lieu of and not in addition to any notice required by law.
B. Breach of Certain Covenants. Borrower's failure to perform or comply
with any term, obligation, or condition contained in this Agreement or any of
the other Loan Documents, other than those terms, obligations, and conditions
otherwise referred to in this Section 8.01, within 30 days after the delivery of
------------
written notice from Lender of such failure; provided that if such default is not
--------
reasonably capable of being cured within such 30 day period, such failure shall
not constitute an Event of Default so long as Borrower commences the cure of
such default within such 30 day period and diligently prosecutes such cure to
completion within 60 days after such written notice from Lender.
C. Breach of Warranty. Any representation, warranty, certification, or
other statement made by Borrower or any of the Principals herein or in any other
Loan Document or in any statement or certificate at any time given by Borrower
or any of the Principals to Lender in writing in connection with the Loan shall
be materially false or misleading.
D. Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) A court having proper jurisdiction shall enter a decree or order for
relief with respect to Borrower or any of the Principals in an involuntary case
under the Bankruptcy Code or any applicable bankruptcy, insolvency, or other
similar law now or hereafter in effect, which decree or order is not stayed
within 60 days after entry and dismissed within 120 days after the entry of such
order; or any other similar relief shall be granted under any applicable federal
or state law; or
(ii) An involuntary case is commenced against Borrower or any of the
Principals, under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect; or a decree or order of a court for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian, or other officer having
similar powers over Borrower or any of the Principals or over all or a
substantial part of their respective property, shall be entered; or the
involuntary appointment of an interim receiver, trustee or other custodian of
Borrower or any of the Principals, for all or a substantial part of their
respective property; or the issuance of a warrant of attachment, execution or
similar process against any substantial part of the respective property of
Borrower or any of the Principals, and the continuance of any such event in this
clause (ii) for 120 days unless dismissed or discharged.
E. Voluntary Bankruptcy; Appointment of Receiver, Etc.
(i) Borrower or any of the Principals shall have an order for relief
entered with respect to them or commence a voluntary case under the Bankruptcy
Code or any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee, or other custodian for all or a substantial
part of their respective property;
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<PAGE>
the making by Borrower or any of the Principals of any assignment for the
benefit of creditors; or
(ii) The inability or failure of Borrower or any of the Principals, or the
admission by Borrower or any of the Principals in writing of its inability, to
pay their respective debts as such debts become due.
F. Lien Priority. Lender fails to have a legal, valid, binding, and
enforceable first priority Lien on the Collateral.
G. Other Liens. Without limiting the provisions of Section 7.01 of this
------------
Agreement, Borrower is in default, after giving effect to any notice and/or cure
rights, under any Lien (other than the Liens created by the Loan Documents), or
foreclosure or other proceedings are commenced to enforce any Lien (other than
the Liens created by the Loan Documents).
H. Other Loan Documents. The occurrence of an "Event of Default" under
any of the other Loan Documents (as "Event of Default" is defined therein,
including any notice and/or cure rights).
I. Cessation of Construction. The cessation of work on construction of
the Greenhouse other than in accordance with the Work Letter.
J. Lease; Work Letter. Borrower is in breach of, in default under, or
otherwise has failed to comply with the agreements, terms, covenants, and
conditions to be performed by Borrower under the Lease and/or the Work Letter,
after any applicable notice and cure periods.
8.02 General Remedies. Notwithstanding anything to the contrary contained
----------------
herein or in any of the other Loan Documents, upon the occurrence of any Event
of Default (i) automatically without notice to Borrower as to Sections 8.01 (D),
-----------------
(E) and (H), and otherwise at the option of Lender upon written notice to
- --- ---
Borrower as to any other Event of Default, the unpaid principal amount of the
applicable Loan, all accrued and unpaid interest, and all other Secured
Obligations shall become immediately due and payable, without presentment,
demand, protest, further notice or other requirements of any kind, all of which
are hereby expressly waived by Borrower, (ii) Lender shall have the rights and
remedies of a secured party under the North Carolina Uniform Commercial Code,
and under any other applicable law, (iii) Lender may pursue all of its rights
and remedies hereunder, under the other Loan Documents, at law, in equity or
otherwise, [(iv) Lender may pursue any remedies available to it pursuant to
North Carolina General Statutes Sections 1-339.1 et. seq. and/or Sections 45-
--- ---
21.1 et. seq.,] (iv)[(v)] all outstanding indebtedness and all other amounts
--- ----
owing to Lender under the Loan Documents shall bear interest at the Default
Interest Rate, and (v)[(vi)] Lender shall have no further obligation to disburse
Loan proceeds to Borrower.
8.03 Specific Performance. Upon the occurrence of an Event of Default,
--------------------
Lender may commence and maintain an action in any court of competent
jurisdiction for specific performance of any of the covenants and agreements
contained herein or in any of the other Loan Documents, may obtain the aid and
direction of the court in the performance of any of the covenants and agreements
contained herein or therein, and may obtain orders or decrees
144
<PAGE>
directing the same and, in the case of any sale of the Collateral under the
Fixture Filing, directing, confirming, or approving Lender's actions.
8.04 Remedies as to Greenhouse Documents. Upon the occurrence of an Event
-----------------------------------
of Default, Lender shall have the right (and Borrower hereby irrevocably
constitutes and appoints Lender as its attorney-in-fact, which power is coupled
with an interest, to do so) to (a) demand, receive, and enforce Borrower's
rights with respect to the Greenhouse Documents, (b) give appropriate receipts,
releases, and satisfactions for and on behalf of Borrower with respect to any of
the Greenhouse Documents, (c) do any and all acts in the name of Borrower or in
the name of Lender with the same force and effect as Borrower could do if the
assignment in Article 4 had not been made, and (d) perform and discharge each
---------
and every obligation, covenant, condition and agreement of Borrower under the
Greenhouse Documents.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
9.01 Assignments of Loan and Note. Lender may assign its rights and
----------------------------
delegate its obligations under this Agreement or any of the other Loan Documents
to any person or entity that acquires Lender's interests under the Ground Lease
and the Lease, all without notice to or the consent of Borrower. To the extent
of any such assignment, Lender shall be relieved of its obligations with respect
to the Loan and the assignee shall have the same rights, benefits, and
obligations as it would if it were Lender hereunder and a holder of the Note.
Lender may furnish any information (including, without limitation, financial
information) concerning the Project, Borrower, Principals, and any of their
assets to any such assignee.
9.02 Expenses. Borrower agrees to pay, within 30 days after demand by
--------
Lender, all reasonable costs and expenses (including, without limitation,
attorneys' fees and costs, fees of any consultants, and fees for any
environmental audits, appraisal, inspections, or other review required by
Lender) incurred by Lender in connection with the Loan, the enforcement of any
of the Secured Obligations, the enforcement of any of Lender's rights and
remedies under the Loan Documents, the collection of any payments owing to
Lender hereunder or under any of the other Loan Documents, whether or not such
enforcement and collection includes the filing of a lawsuit, or the retaking,
holding, preparing for sale, or selling of the security for the Loan or any
portion thereof or any interest therein. Notwithstanding the foregoing,
Borrower shall not be required to pay any portion of Lender's costs and expenses
in excess of $5,000.00 incurred in connection with the Loan prior to the Closing
Date.
9.03 Joint and Several Obligations. If Borrower is or becomes comprised
-----------------------------
of more than one Person, the liability of each constituent Person under this
Agreement and under each of the other Loan Documents shall be joint and several.
9.04 Indemnity. Without in any way limiting the indemnities contained in
---------
the Lease (including, but not limited to, Section 16(a)), Borrower hereby
-------------
indemnifies and agrees to defend and hold harmless the Indemnitees from and
against any and all expenses, losses, claims, damages, or liabilities,
including, without limitation, attorneys' fees and costs, by reason of:
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(a) any Lien or claim that may be alleged to have arisen on or against the
Collateral or any part thereof or any liability asserted against Lender with
respect thereto, (b) any tax attributable to the execution, delivery, filing, or
recording of any of the Loan Documents, or (c) any default under the Note or the
other Loan Documents.
9.05 Waiver of Offset. All sums payable by Borrower pursuant to any of
----------------
the Loan Documents shall be paid without notice, demand, counterclaim, setoff,
deduction, or defense and without abatement, suspension, deferment, diminution,
or reduction, and the obligations and liabilities of Borrower under the Loan
Documents shall in no way be released, discharged, or otherwise affected (except
as expressly provided in the Loan Documents) by reason of: (a) any damage to or
destruction of any part of the Collateral or any taking of any part of the
Collateral for any public or quasi-public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof; (b) any restriction or prevention of or interference by any
third party with any use of the Greenhouse or any part thereof; (c) any title
defect or encumbrance or any eviction from the Project or any part thereof by
title paramount or otherwise; (d) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation, or other like proceeding
relating to Lender, or any action taken with respect to any of the Loan
Documents by any trustee or receiver of Lender, or by any court, in any such
proceeding; (e) any claim that Borrower has or might have against Lender; or (f)
any other occurrence whatsoever, whether similar or dissimilar to the foregoing.
Except as expressly provided herein, Borrower waives all rights now or hereafter
conferred by statute or otherwise to any abatement, suspension, deferment,
diminution, or reduction of any of the Secured Obligations.
9.06 Amendments and Waivers. This Agreement and the other Loan Documents
----------------------
may only be modified in writing signed by all of the parties hereto or thereto
or their respective successors and assigns. No waiver of any provision of this
Agreement or of any of the other Loan Documents, or consent to any departure by
Borrower therefrom, shall in any event be effective without the written
agreement of Lender. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. Except
as expressly required by the terms of the Loan Documents, no notice to or demand
on Borrower in any case shall entitle Borrower to any other or further notice or
demand in similar or other circumstances.
9.07 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH AGREE NOT TO ELECT A
--------------------
TRIAL BY JURY, AND WAIVE ANY RIGHT TO A TRIAL BY JURY OR TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN BORROWER AND LENDER ARISING OUT OF THIS AGREEMENT, ANY OF THE
OTHER LOAN DOCUMENTS, ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR
ACTIONS OF EITHER PARTY IN CONNECTION THEREWITH. THIS WAIVER IS GIVEN KNOWINGLY
AND VOLUNTARILY, AND IS INTENDED TO ENCOMPASS EACH INSTANCE AND EACH ISSUE AS TO
WHICH THE RIGHT TO TRIAL BY JURY OTHERWISE WOULD ACCRUE. BORROWER AND LENDER
EACH AGREE THAT THIS PROVISION CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL
BY JURY, AND EACH PARTY
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<PAGE>
AUTHORIZES THE OTHER PARTY TO FILE A COPY OF THIS PROVISION, IN ANY PROCEEDING,
AS CONCLUSIVE EVIDENCE OF THIS CONSENT TO WAIVER.
9.08 Submission of Loan Documents. The submission of this Agreement, any
----------------------------
of the other Loan Documents, or the Environmental Indemnity to Borrower or its
agents or attorneys for review or signature does not constitute a commitment by
Lender to make the Loan to Borrower, and this Agreement, the other Loan
Documents, and the Environmental Indemnity shall have no binding force or effect
unless and until they are executed and delivered by Borrower and Lender and all
of the conditions set forth in Section 3.01 have been satisfied.
------------
9.09 Notices. Any notice, or other document or demand required or
-------
permitted under this Agreement or any of the other Loan Documents shall be in
writing addressed to the appropriate address set forth below and shall be deemed
delivered upon the earliest of (a) actual receipt, (b) the next Business Day
after the date when sent by recognized overnight courier, or (c) the third
Business Day after the date when sent by registered or certified mail, postage
prepaid. Any party may, from time to time, change the address at which such
written notice or other documents or demands are to be sent, by giving the other
party written notice of such change in the manner hereinabove provided.
To Borrower: 104 Alexander Dr., Building 2
RTP, North Carolina 27709
Attention: Mr. Ian Howes
Chief Financial Officer
To Lender: 135 N. Los Robles Avenue, Suite 250
Pasadena, California 91101
Attention: General Counsel
9.10 Survival of Warranties and Certain Agreements. All agreements,
---------------------------------------------
indemnities, representations, and warranties made herein and in the other Loan
Documents shall survive the execution and delivery of this Agreement, the making
of the Loan hereunder, and the execution and delivery of the Note. All
representations and warranties made in this Agreement or in any of the other
Loan Documents shall further survive any and all investigations and inquiries
made by Lender, shall remain true, correct, and complete in all material
respects, and shall remain continuing obligations so long as any portion of the
Secured Obligations remains outstanding or unsatisfied. Notwithstanding
anything in this Agreement or the other Loan Documents or implied by law to the
contrary, any indemnities made by Borrower in the Loan Documents shall survive
the payment of the Loan, the satisfaction of the Secured Obligations, the
termination of this Agreement or the other Loan Documents, and/or the
foreclosure of the lien of the Fixture Filing or acceptance of any transfer in
lieu or in aid thereof.
9.11 Failure or Indulgence Not Waiver: Remedies Cumulative. No failure or
-----------------------------------------------------
delay on the part of Lender or any holder of the Note or portion thereof in the
exercise of any power, right, or privilege hereunder or under the Note shall
impair such power, right, or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right, or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing under this
Agreement and the
147
<PAGE>
other Loan Documents are separate, distinct and cumulative to, and not exclusive
of, any rights or remedies otherwise available at law or in equity. No act of
Lender under any of the Loan Documents shall be construed as an election to
proceed under any one provision to the exclusion of any other provision,
notwithstanding anything in the Loan Documents to the contrary. Borrower
expressly waives all right to the benefit of any moratorium, reinstatement,
marshaling, forbearance, extension, redemption, or appraisement now or hereafter
provided by federal or state law, as a defense to any demand against Borrower to
the fullest extent permitted by law.
9.12 Survival of Obligations Upon Termination of Agreement. No termination
-----------------------------------------------------
termination or cancellation (regardless of cause or procedure) of this Agreement
or any of the other Loan Documents shall in any way affect or impair the powers,
obligations, duties, rights, and liabilities of Borrower or Lender relating to
(a) any transaction or event occurring prior to such termination or
cancellation, or (b) any of the undertakings, agreements, covenants,
indemnities, warranties, and representations of Borrower or Lender contained in
this Agreement or any of the other Loan Documents.
9.13 Disbursements in Excess of Loan Amount. In the event the total
--------------------------------------
disbursements by Lender exceed the amount of the Loan set forth herein, the
total of all disbursements shall, to the extent permitted by the laws of the
State of North Carolina, constitute part of the Secured Obligations and be
secured by the Loan Documents. All other sums expended by Lender pursuant to
this Agreement or any of the other Loan Documents shall be deemed to have been
paid to Borrower and shall be secured by the Loan Documents.
9.14 Severability. If any term of this Agreement or any of the other Loan
------------
Documents or the application thereof to any person or circumstances, shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement or
other Loan Document or the application of such term to persons or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each term of this Agreement or other Loan Document shall
be valid and enforceable to the fullest extent.
9.15 Rules of Construction. Where the identity of the parties to this
---------------------
Agreement or any of the other Loan Documents or the circumstances make it
appropriate, the masculine gender includes the feminine and/or neuter, and the
singular number includes the plural. Article and Section headings in this
Agreement and the other Loan Documents are included for convenience of reference
only and shall not constitute a part of this Agreement or such other Loan
Documents for any other purpose or be given any substantive effect. The
recitals to this Agreement and to each of the other Loan Documents are
incorporated herein and therein and made a part hereof and thereof.
9.16 Applicable Law. This Agreement and the other Loan Documents shall be
--------------
governed by, and construed and enforced in accordance with, the laws of the
State of North Carolina.
9.17 Successors and Assigns. This Agreement shall be binding upon an
----------------------
shall inure to the benefit of the parties hereto and their respective permitted
successors and assigns. Except as may be expressly provided otherwise in any of
the Loan Documents, Borrower's rights and obligations or any interest hereunder
or under any of the other Loan Documents may not be
148
<PAGE>
assigned, including, without limitation, assigned for security purposes, without
the prior written consent of Lender, which may be withheld in Lender's sole
discretion, and any purported assignment shall be null and void ab initio. As
-- ------
used herein, and in the other Loan Documents, "Lender" (or similar references to
the lender) shall include all holders of the Note, whether or not named herein
or therein. In exercising any rights hereunder or under any of the other Loan
Documents or taking any actions provided for herein or therein, Lender may act
through its employees, agents, or independent contractors authorized by Lender.
9.18 Counterparts. This Agreement and the other Loan Documents may be
------------
executed in any number of 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 but one and the same instrument. Signature and, if
applicable, acknowledgment pages may be detached from the counterparts and
attached to a single copy of the applicable document to physically form one
document, which may be recorded if applicable.
9.19 Entire Agreement. The Loan Documents set forth the entire
----------------
understanding between Borrower and Lender relative to the Loan and the same
supersede all prior agreements and understandings relating to the subject matter
hereof or thereof.
9.20 Inconsistencies. In the event it is impossible to simultaneously
---------------
comply with the terms of this Agreement and any of the terms of any other Loan
Document, the terms of this Agreement shall control over any inconsistent term
of any other Loan Document.
9.21 Time is of the Essence. Time is strictly of the essence of this
----------------------
Agreement and the other Loan Documents.
9.22 No Third Party Beneficiaries. This Agreement and the other Loan
----------------------------
Documents are made and entered into for the sole protection and benefit of the
parties hereto, and, except as provided in Section 9.17, no other person or
------------
entity shall be a direct or indirect beneficiary of, or shall have any direct or
indirect cause of action or claim in connection with, this Agreement or any of
the other Loan Documents.
9.23 Insurance Requirements. The terms and conditions of the Lease
----------------------
(including, but not limited to, Section 17) and the Work Letter will govern any
----------
insurance obtained and maintained in connection with the Project.
9.24 Casualty Matters. The terms and conditions of the Lease (including,
----------------
but not limited to, Section 18) will govern any restoration of the Greenhouse if
----------
damaged by fire or other casualty, provided that casualty insurance proceeds
applicable to damage to the Greenhouse shall be applied to pay the outstanding
balance of the Loan to the extent, and only to the extent, the Lease does not
----------------------
require such proceeds to be used for (and such proceeds are not actually used
for) the restoration of the Greenhouse or for the payment of any other sums due
under the Lease.
9.25 Condemnation Matters. The terms and conditions of the Lease
--------------------
(including, but not limited to, Section 19) will govern any taking of any part
----------
of the Collateral for any public or quasi-public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or by private purchase
in lieu thereof.
149
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
Borrower and Lender under seal as of the date first above written.
BORROWER:
PARADIGM GENETICS, INC., (SEAL)
a North Carolina corporation
By: ___________________________________
Its: ___________________________________
ATTEST: ___________________
Its ___________________ Secretary
[CORPORATE SEAL]
LENDER:
ARE-104 ALEXANDER ROAD, LLC, (SEAL)
a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., (SEAL)
a Delaware limited partnership, managing
member
By: ARE-QRS CORP., (SEAL)
a Maryland corporation, general partner
By:__________________________
Its:__________________________
ATTEST: __________________
Its___________________ Secretary
[CORPORATE SEAL]
150
<PAGE>
EXHIBIT O
ENVIRONMENTAL INFORMATION
-------------------------
1. Leak Detection Test Report dated June 4,1993, prepared by Advanced
--------------------------
Tank Certification, Inc., regarding 20,000 gallon fuel oil tank test results.
2. UST Closure Report National Institute of Environmental Health Sciences
----------------------------------------------------------------------
dated June 27, 1993, prepared by Triangle Environmental, Inc., regarding 1000
gallon gasoline UST.
3. Report of Environmental Services dated March 30, 1994, prepared by Law
--------------------------------
Engineering, Inc. regarding NIEHS Facility, North Campus, Phase II Research
Triangle Park, North Carolina.
4. Letter dated April 13, 1994, from Law Engineering, Inc., to Mr.
------
William Few regarding observations of underground storage tank closure at NIEHS
Facility in Research Triangle Park, North Carolina.
5. Letter dated April 25, 1994, from State of North Carolina Department
------
of Environment, Health and Natural Resources ("DEHNR"), to Brian L. Hayes at
Southwestern Environmental Audits, Inc. regarding Well Construction Permit No.
31-0444-WM-0259.
6. Letter dated May 23, 1994, from Southeastern Environmental Audits,
------
Inc., together with UST Closure Assessment Report dated May 10, 1994, prepared
-----------------------------
by Southwestern Environmental Audit, Inc. regarding 20,000 gallon fuel oil UST.
7. Application dated June 14, 1994, from McCarthy Associates to DEHNR
-----------
regarding Leaking Petroleum Underground Storage Tank Cleanup Funds.
8. Comprehensive Site Assessment dated July 6, 1994, prepared by
-----------------------------
Southeastern Environmental Audits, Inc.
9. Pollution Incidental/UST Leak Reporting Form dated August 15, 1994,
--------------------------------------------
prepared by NIEHS regarding 1,000 gallon gasoline UST and incident on May 6,
1993.
10. Letter dated October 27, 1994, from DEHNR to McCarthy & Associates
------
regarding assignment of facility identification number for one 20,000 gallon
UST.
11. Facsimile Cover Sheet dated December 18, 1995, from Nettie Lowery at
---------------------
DEHNR, to Jay Zimmerman at Raleigh Regional Office regarding denial letters,
together with Memorandum dated December 15, 1995, from DEHNR regarding Trust
----------
Fund Eligibility Denial.
12. Facsimile Cover Sheet dated January 11, 1996, from Sean Boyles of
---------------------
DEHNR to Fay Sweat, enclosing Pollution Incident/U.S.T. Leak Reporting Form
----------------------------------------------
dated January 10, 1996, regarding March 11, 1994, incident at NIEHS North
Campus, together with North Carolina Ground Water Contamination Incident
--------------------------------------------------
Management Site Priority Ranking
- --------------------------------
151
<PAGE>
System dated January 10, 1996, regarding March 11, 1994, incident at NIEHS North
- ------
Campus.
13. Memorandum dated January 18, 1996, from DEHNR regarding TF
----------
Eligibility Denial NIEHS North Campus Incident #14941.
14. Letter dated February 15, 1996, from DEHNR to McCarthy Associates
------
regarding Cleanup Funds for NIEHS North Campus Site.
15. Letter dated February 26,1996, from Manning, Fulton & Skinner, P.A.,
------
counsel for McCarthy Associates, to Ms. Liz Rooks at Research Triangle
Foundation of North Carolina regarding NPDES Permit issued to McCarthy
Associates for groundwater remediation at NIEHS North Campus.
16. Report dated August, 1996, prepared by Turner Environmental
------
Consultants, P.C., regarding Free Product Recovery and Groundwater Monitoring
Report -Former NIEHS North Campus Facility 110 TW Alexander Drive, Research
Triangle Park, NC.
17. Letter dated November 5,1996, from Manning, Fulton & Skinner, P.A.
------
counsel for McCarthy Associates, to Ms. Elizabeth Rooks at Research Triangle
Foundation of North Carolina regarding leaking from underground storage tank at
former NIEHS North Campus Facility.
18. Letter dated December 9, 1996, from Manning, Fulton & Skinner, P.A.,
------
counsel for McCarthy Associates, to Ms. Elizabeth Rooks at Research Triangle
Foundation of North Carolina enclosing Free Product Delineation and Recovery
-------------------------------------
Plan dated December 3, 1996, prepared by Turner Environmental Consultants, P.C.
- ----
regarding former NIEHS North Campus Facility.
19. Letter dated May21, 1997, from Manning, Fulton & Skinner, P.A.,
------
counsel for McCarthy Associates, to Ms. Elizabeth Rooks at Research Triangle
Foundation of North Carolina enclosing Letter dated May 16, 1997, from Prescott
------
Environmental Associates, Inc. enclosing Letter dated May 14, 1997, from Turner
------
Environmental Consultants, P.C. regarding Free Product Recovery Plan
Implementation.
20. Letter dated September 23, 1997, from by Department of Health & Human
------
Services, to DEHNR regarding contaminated soil from the NIEHS South Campus,
------
enclosing Letter dated September 12, 1997, from Prescott Environmental
Associates, Inc. to DEHNR regarding disposal of soil from the former NIEHS North
Campus Facility, together with Form #GW-71.
-----------
21. Letter dated May 4,1998, from Manning, Fulton & Skinner, P.A., counsel
------
for McCarthy Associates, to Ms. Elizabeth Rooks at Research Triangle Foundation
of North Carolina enclosing Letter dated April 30, 1998, prepared by Prescott
------
Environmental Associates, Inc. regarding Free Product Recovery.
152
<PAGE>
22. Letter dated August 4,1998, from Manning, Fulton & Skinner, P.A.,
------
counsel for McCarthy Associates to Ms. Elizabeth Rooks at Research Triangle
Foundation of North Carolina enclosing Letter Report dated July 24, 1998,
-------------
prepared by Prescott Environmental Associates, Inc. regarding free product
recovery activities at the former NIEHS North Campus Facility.
23. Letter dated August 4,1998, from Manning, Fulton & Skinner, P.A.,
------
counsel for McCarthy Associates to Ms. Elizabeth Rooks at Research Triangle
Foundation of North Carolina enclosing Letter dated August 2, 1998, from
------
Prescott Environmental Associates to NC DEHNR, enclosing Letter Report dated
-------------
July 24, 1998, prepared by Prescott Environmental Associates, Inc. regarding
free product recovery activities at the former NIEHS North Campus Facility.
24. Letter dated November 2, 1998, from Manning, Fulton & Skinner, P.A.
------
counsel for McCarthy Associates, to Ms. Elizabeth Rooks at Research Triangle
Foundation of North Carolina, enclosing Letter Report dated October 27, 1998
-------------
prepared by Prescott Environmental Associates, Inc. regarding free product
recovery activities at the former NIEHS North Campus Facility.
25. Letter dated January 12,1999, from Prescott Environmental Associates,
------
Inc., to NC DEHNR, Raleigh Regional Office regarding former NIEHS N. Campus
Site.
26. Letter dated January 27, 1999, from NC DEHNR to Prescott Environmental
------
Associates, Inc. regarding proposed abandonment of monitoring wells at NIEHS
North Campus Site.
27. Draft Phase I Environmental Site Assessment dated April 29, 1999,
-------------------------------------------
prepared by Dames & Moore NC.
153
<PAGE>
EXHIBIT 10.35
OXFORD VENTURE LEASING, LLC.
8180 GREENSBORO DRIVE, SUITE 1000
McLEAN, VA 07854
203-855-0030 (PHONE) 203-866-3593 (FAX)
June 18, 1998
Paradigm Genetics, Inc.
106 Alexander Dr. Bldg 6
Research Triangle Park, NC 27709
RE: Master Loan and Security Agreement No. 7237 and Schedule No. 1 both
dated June 18, 1998 and Promissory Note thereto,
Ladies and Gentlemen:
Oxford Venture Leasing, LLC requires insurance coverage with companies and in
form satisfactory to it as one of the conditions to enter into the above
described lease or loan with your Company covering the Equipment listed on the
attached schedule or exhibit. This insurance must be carried throughout the
term of the lease/loan. Please sign and return this letter. Please forward a
copy of this letter to your insurance company to process a certificate with the
following requirements:
PROPERTY COVERAGE:
- ------------------
* Covering all risks of physical loss, damage, destruction or theft of the
Equipment, with extended coverage.
* Loss payable to OXFORD VENTURE LEASING, LLC. AND ITS ASSIGNS.
* In an amount equal to not less than the Equipment's full replacement value
of [$398,913.07_].
LIABILITY COVERAGE:
- -------------------
* $5,000,000.00 combined single limit for each occurrence general liability
------------ ---------------
coverage.
* Naming OXFORD VENTURE LEASING, LLC. AND ITS ASSIGNS as Additional Insured
PROPERTY AND LIABILITY COVERAGE:
- --------------------------------
* The Equipment should be described specifically or by reference to an
attached schedule or exhibit or by reference to the above lease or loan and
account number.
* Carrier should be rated A-, VIII (or better) by A.M. Best Company.
* Notices to Oxford Venture Leasing, LLC are to be sent to 8180 Greensboro
Drive, suite 1000, McLean, Virginia 22102.
Attached is a sample insurance certificate. Additional provisions may be
required for vehicles or other specialized collateral or if otherwise applicable
to the transaction.
<PAGE>
ADDITIONAL POLICY PROVISIONS:
- -----------------------------
* The policies must provide that they will not be canceled or altered without
thirty (30) days prior written notice to OXFORD VENTURE LEASING, LLC.
* The policies insuring against loss, damage, destruction or theft must
provide that the coverage will not be invalidated against OXFORD VENTURE
LEASING, LLC. AND ITS ASSIGNS because of any violation of any condition or
warranty contained in any policy or application therefor by the insured or
others.
Please feel free to contact or have your insurance agent contact [name of
Phoenixcor documentation person] at your earliest convenience. Please be aware
that failure to have an insurance certificate in effect that meets the above
requirements will delay the commencement and/or funding of the above lease or
loan.
Very truly yours, AGREED TO AND ACCEPTED BY:
OXFORD VENTURE LEASING, LLC. PARADIGM GENETICS, INC.
BY:_____________________________
TITLE:__________________________
2
<PAGE>
EXHIBIT A
LIST OF EQUIPMENT
The following list and description of Equipment supplements and forms a part of
Equipment Schedule No. 1 dated June 18, 1998 to Master Loan and Security
Agreement No. 7237 between Lender and Customer and may be attached to said
Equipment Schedule and any related UCC Financing Statements, or other document
relating to the Master Loan and Security Agreement the Equipment Schedule or any
other document describing the Equipment.
See Attached Equipment list
Description:
Supplier:
Model No.:
Serial No.:
Equipment Description:
Quantity:
Equipment Location:
All property listed above, together with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and a right to use license for any software related to any of the
foregoing now or hereafter acquired and all proceeds, in the form of goods,
accounts, chattel paper, documents, instruments and insurance proceeds.
OXFORD VENTURE LEASING, LLC PARADIGNM GENETICS, INC.
(LENDER) (CUSTOMER)
By:___________________________ By:___________________________
Name:_________________________ Name:_________________________
Title:________________________ Title:________________________
3
<PAGE>
ACKNOWLEDGMENT OF ASSIGNMENT
----------------------------
TO: PHOENIXCOR, INC.
65 WATER STREET
SOUTH NORWALK, CONNECTICUT 06854
RE: ASSIGNMENT OF LOAN WITH OXFORD VENTURE LEASING, LLC
Ladies and Gentlemen:
Reference is made to the annexed Master Loan and Security Agreement No.
7237 dated June 18, 1998 (the "Loan Agreement") between Oxford Venture Leasing,
LCC ("Lender") and the undersigned Paradigm Genetics, Inc. ("Borrower"),
covering the collateral described in the Loan Agreement (the "Collateral"). We
consent to Lender's assignment of the Loan Agreement to you, acknowledge receipt
of notice of such assignment and in consideration of your advancement of funds
to the Lender with respect to the Loan Agreement, we hereby acknowledge and
agree that:
1. The Loan Agreement is in full force and effect and constitutes our
valid and binding obligation, enforceable in accordance with their terms. We
have not entered into any agreement with any person modifying the provisions of
the Loan Agreement and we cannot make any future modification, termination or
settlement of amounts due under the Loan Agreement except with the consent of
you or your assigns.
2. The Loan Agreement describes the entire agreement between Lender and us
regarding our use of and rights and obligations with respect to the Collateral
except: (none). There are no "side letters" or verbal understandings between us
and Lender modifying the provisions of the Loan Agreement or otherwise affecting
our obligations to make the payments thereunder.
3. The Collateral was just delivered to our premises located at 106
Alexander Drive, Building 6, Research Triangle Park, NC 27709 on or after the
invoke dates set forth on the attached Equipment Schedule Exhibit A and has been
unconditionally accepted by us and is in satisfactory working order on the date
hereof. We agree to make no claim against you with respect to the Collateral. We
further agree that you may inspect the Collateral on reasonable prior verbal or
written notice to us.
4. Lender has assigned to you all of its right, title and interest in the
Loan Agreement but none of its obligations and you are the Lender of record
under the Loan Agreement. We remit to you all of the forty-nine (49) successive
monthly installments consisting of twelve (12) payments of $4,238.45, followed
by thirty-six payments of $12,324.42, followed by one final payment of
$39,891.31 commencing on the funding date on or about July 8, 1998 and
continuing
4
<PAGE>
on the same day of every month thereafter. We will have no obligation to you and
you will have no obligation to us with respect to any installments under the
Note due or paid to Lender prior to such date. We agree to make all the
installments to you or your assigns unconditionally without defense, setoff or
counterclaim. However, we preserve all our rights against Lender. We agree to
make all payments due and to give all notices and information required under the
Loan Agreement to you at your above address or to any revised address of which
you or your assigns may advise us.
5. We have received no notice of a prior sale, transfer, assignment,
hypothecation or pledge of the Loan Agreement, the amounts payable thereunder or
the Collateral.
6. No event of default (or that which would constitute an event of default
under the Loan Agreement with the passage of time, giving of no notice, or both)
on our part, or to our knowledge, on the part of Lender, has occurred in the
performance of each such party's obligations under the Loan Agreement.
7. This Acknowledgment of Assignment shall inure to the benefit of your
successors and assigns.
8. We acknowledge that the Loan and all related documents are governed by
the laws of the State of Connecticut and were entered into with the
understanding that they where to be assigned to you and you require that the
laws of Connecticut govern your transactions so that the documents will be
applied and interpreted uniformly. We agree that such laws bear a reasonable
relationship to the Loan and related documents.
DATED: June 18, 1998
Very truly yours,
PARADIGM GENETICS, INC.
By:___________________________
Title:________________________
ACKNOWLEDGEMENT OF LENDER
-------------------------
The undersigned Lender under the Loan Agreement defined in the foregoing
Acknowledgment of Assignment hereby consents to the foregoing and confirms that
it has assigned all remaining installments under the Loan Agreement to
Phoenixcor, Inc. as specified in the Acknowledgment of Assignment.
DATED: June 18, 1998
OXFORD VENTURE LEASING, LLC
5
<PAGE>
(LENDER),
BY:_______________________________
TITLE:____________________________
6
<PAGE>
PROMISSORY NOTE TO: MASTER LOAN AND SECURITY AGREEMENT NO.
7237 Dated June 18, 1998
EQUIPMENT SCHEDULE NO. 1
U.S. $398,913.07 McLean, Virginia
Dated: ________________
FOR VALUE RECEIVED, Paradigm Genetics. Inc., a North Carolina corporation
(the "Borrower"), hereby promises to pay to the order of OXFORD VENTURE LEASING,
LLC. or its successors or assigns (the "Payee") at its offices located at 8180
Greensboro Drive, suite 1000, McLean, Virginia 22102 or at such other place as
the Payee or any holder hereof may from time to time designate, the principal
amount of U.S. three hundred ninety eight thousand nine hundred thirteen and
07/100 DOLLARS ($398,913.07), with interest (based on a year of 360 days and 30
day months) on the principal amount hereof remaining from time to time unpaid,
such principal and interest to be paid in consecutive monthly installments until
fully paid in the manner and at a rate of interest per annum as determined and
provided in the Loan Agreement. Anything in this Note to the contrary
notwithstanding, in the event that any payment of interest hereunder shall
exceed the legal limit, such amount in excess of such limit shall be deemed a
payment of principal hereunder.
This Note evidences a loan by the Payee to the undersigned pursuant to the Loan
Agreement indicated above between the undersigned and the Payee as from time to
time may be amended restated, replaced, supplemented, substituted for or
renewed, and the holder of this Note is entitled to the benefits thereof,
including without limitation, the security interest in the Equipment granted
therein. Each term defined in the Loan Agreement and not otherwise defined
herein shall have the same definition when used herein.
The principal hereof and accrued interest hereon shall become forthwith due and
payable as provided in the Loan Agreement Payments hereunder not made when due
shall accrue late charges as provided in the Loan Agreement. This Note may not
be prepaid in whole or in part except as otherwise specifically provided in the
Loan Agreement.
The Borrower hereby waives diligence, demand, presentment, protest and notice of
any kind, and assents to extensions of the time of payment, release, surrender
or substitution of security, or forbearance or other indulgence, without notice.
No act or omission of the Payee, including without limitation any failure to
exercise any right, remedy or recourse, shall be deemed to be a waiver or
release of such right remedy or recourse. Any waiver or release may be effected
only by a written document executed by Payee and then only to the extent
specified therein. The undersigned hereby promises to pay all Attorneys Fees
and Expenses that may be incurred in connection with the enforcement and/or
collection of this Note.
The undersigned authorizes the Payee to insert above as the date of the Note,
the date on which Payee disburses funds pursuant to the Loan Agreement.
7
<PAGE>
This Note is freely assignable by the Payee, in whole or in part, and from time
to rime. All of the terms and provisions of this Note inure to and are binding
upon the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties. None of the rights or
obligations of the Borrower hereunder may be assigned or otherwise transferred
without the prior written consent of the Payee.
THIS NOTE AND THE LEGAL RELATIONS OF THE PARTIES HERETO SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CONNECTICUT, / WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF CONNECTICUT AND THE FEDERAL DISTRICT COURT FOR THE
DISTRICT OF CONNECTICUT FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF ITS OBLIGATIONS HEREUNDER AND EXPRESSLY WAIVES ANY OBJECTIONS
THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS. BORROWER HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS
NOTE. Any action by Borrower against Payee for any cause of action under this
Note shall be brought within one year after any such cause of action first
arises. If requested by Payee, Borrower agrees that prior to the commencement
of any litigation regarding the terms and conditions of this Note, the parties
hereto shall subject themselves to non-binding mediation with a qualified
mediator mutually satisfactory to both parties.
IN WITNESS WHEREOF, the Borrower by its duly authorized officer has
executed and delivered this Note as of the date first above written.
Paradigm Genetics, Inc.
Borrower
By:_______________________________
Name:_____________________________
Title:____________________________
8
<PAGE>
RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT
RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT (this "Rider") to the Promissory Note
dated June 18, 1998 (the "Note") lined in connection with the Master Loan and
Security Agreement No. 7237 dated June 18,1998 and the Equipment Schedule No. 01
dated June 18, 1998 (collectively, the "Loan Agreement"), between Paradigm
Genetics, Inc., as borrower (the "Customer") and OXFORD VENTURE LEASING, LLC, as
Lender ("Oxford"). This Rider is entered into pursuant to and incorporates by
this reference all of the terms and provisions of the Loan Agreement and Note.
By its execution and delivery of this Rider, Customer hereby reaffirms all of
the representations and warranties and covenants contained in the Loan Agreement
and the Note as of the date hereof and further represents and warrants to Lender
that no Default has occurred and is continuing as of the date hereof.
1. Purpose. This Rider amends and restates the terms of the payments set forth
in the Note.
2. Definitions. The following terms shall have the following meanings herein:
(a) "Adjustment Date" shall mean the date Oxford disburses any portion of the
proceeds of the Loan Agreement.
(b) "Final T-Note Average" shall mean the average of the yields on U.S.
Treasury Notes maturing in four years, as published by the Dow Jones Telerate
Access Service, Page 19901, for the close of business on each business day of
the two full calendar weeks immediately preceding the week containing the
Adjustment Date.
(c) "Preliminary Payments" shall mean the payments set forth in the Equipment
Schedule and the Note, consisting of $4,238.45 due upon execution (the "Advance
Payment") followed by eleven (11) consecutive monthly payments of $4,238.45,
followed by thirty-six (36) consecutive monthly payments of $12,324.42, followed
by one (1) final payment of $39,891.31.
(d) "Preliminary T-Note Avenge" shall mean 5.615%.
3. Adjustment of Payments. The Preliminary Payments were calculated based on a
spread over the Preliminary T-Note Average. Should the Final T-Note Average
differ from the Preliminary T-Note Average, then the Preliminary Payments shall
be revised. For each increase or decrease of one (1) basis point (i.e., 1/100 of
1%) in the Final T-Note Average above or below the Preliminary T-Note Average,
the Preliminary Payments shall he revised as follows (complete below as
applicable):
The Advance Payment, due upon execution of the Equipment Schedule, and the next
eleven payments shall remain unchanged.
Each of the payments for the months number 13-48 initially scheduled in the
amount of $12,324.42 shall increase or decrease by $3.19.
9
<PAGE>
THE CALCULATION OF THE CONTRACT PAYMENTS UNDER THIS RIDER WILL SUPERSEDE ANY
PRIOR PROPOSAL OR QUOTATION. CUSTOMER HEREBY ACKNOWLEDGES AND AGREES TO TUE
CALCULATION OP TIE PAYMENT SCHEDULE SET FORTH HEREIN.
4. Oxford's Requirements. The commencement of the Loan Agreement is subject to
satisfaction of all documention and credit requirements of Oxford. If such
requirements are not satisfied by the Adjustment Date, then Oxford may, at its
sole option, declare that the Adjustment Date shall be the date when such
requirements are satisfied.
Dated as of June 18, 1998
OXFORD VENTURE LEASING, LLC PARADIGM GENETICS, INC.
By:____________________________ By:____________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
10
<PAGE>
TAX ACKNOWLEDGEMENT AND INDEMNIFICATION
Oxford Venture Leasing, LLC
8180 Greensboro Drive, suite 1000
McLean, VA 22102
This Tax Acknowledgment and Indemnification ("Acknowledgment") is attached
to and made a part of that certain Loan Schedule No. 01 (the "Loan Schedule"),
to Master Loan and Security Agreement No. 7237, dated as of June 18, 1998 (the
"Loan Agreement"), by and between Oxford Venture Leasing, LLC and the
undersigned.
Notwithstanding any provision to the contrary in the Loan Agreement, we
hereby confirm our understanding and acknowledgment of the following:
1. While you normally bill us for taxes, if any, payable on the rentals
(sales/use taxes), you will not bill us for or furnish any advice with respect
to any taxes on the Equipment ("Taxes"), including personal property, ad valorem
or other taxes imposed by any state, federal, local or foreign government in
connection with the purchase, possession, ownership or operation of the
Equipment.
2. It is our obligation to and we shall timely submit such reports,
declarations, inventories and other documentation, file such returns, and pay
the applicable Taxes when due in connection with the Equipment. If local law
prohibits us from making direct payment or filing the applicable report or
return it is our responsibility to and we shall immediately advise you in
writing to such effect and furnish you with the forms, data and information as
will enable you to make and file the return or report, along with our payment
for the Tax due. Any accrual of interest and penalties resulting from our
failure to comply with the foregoing, or otherwise, is and shall be our
responsibility.
3. Upon your request, we shall provide you with copies of satisfactory
documentation and proof of payment of such Taxes. We shall indemnify you and
hold you harmless from and against any such Taxes, and any penalties and
interest thereon, and any other liabilities and damages that you may incur
arising out of our failure to pay when due such Taxes. The indemnity and
covenants set forth herein shall continue in full force and effect and shall
survive the expiration or earlier termination of the Loan Agreement or the Loan
Schedule.
11
<PAGE>
All capitalized terms used herein and not defined herein shall have the
meanings set forth or referred to in the Loan Schedule. Except as specifically
set forth herein, all of the terms and conditions of the Loan Agreement and the
Loan Schedule shall remain in full force and effect and are hereby ratified and
affirmed. To the extent that the provisions of this Acknowledgment conflict
with any provisions contained in the Loan Agreement or the Loan Schedule, the
provisions of this Acknowledgment shall control.
Very truly yours,
PARADIGM GENETICS, INC.
By:_______________________________
Title:____________________________
Date:_____________________________
12
<PAGE>
EXHIBIT 10.37
EQUIPMENT SCHEDULE
TO
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT NO. 7237 DATED: June 18,1998
EQUIPMENT SCHEDULE NO. 03
LENDER: CUSTOMER:
OXFORD VENTURE LEASING, LLC PARADIGM GENETICS, INC.
8180 GREENSBORO DRIVE, STE l000 106 ALEXANDER DRIVE, BLG 6
McLEAN, VA 22102 RESEARCH TRIANGLE PARK, NC 27709
LENDER AND CUSTOMER HAVE ENTERED INTO MASTER LOAN AND SECURITY AGREEMENT NO.
7237 DATED JUNE 18,1998 (THE "AGREEMENT") WHICH IS INCORPORATED HEREIN. THIS IS
AN EQUIPMENT SCHEDULE TO THE AGREEMENT. ALL WORDS AND TERMS USED HEREIN AND NOT
SPECIFICALLY DEFINED HEREIN SHALL HAVE THE SAME MEANINGS AS SET FORTH N THE
AGREEMENT.
1. EQUIPMENT LOCATION (if other than above address of Customer): none
2. EQUIPMENT: (See attached Exhibit A)
3. ACQUISITION COST OF THE EQUIPMENT: $539,626.43
4. SUPPLIER(S): (See attached Exhibit A)
5. THE LOAN AND LOAN AGREEMENT REPAYMENT. As requested by Customer
pursuant to the Agreement, Lender agrees to lend to Customer the sum of five
hundred thirty-nine thousand six hundred twenty-six and 43/100 dollars. Customer
agrees to repay the Loan Agreement in successive installments (which installment
payments are inclusive of interest) as set forth in the following Schedule:
SCHEDULE
Advance Payment Amount: $5,733.53
Number of Installments (Exclusive of Advance Payment): 48
Payment Period:
__ X __Monthly ______ Quarterly
Periodic Installment Payment Amount Per Period: $5,733.53 for the next
eleven (11) months, followed by $16,676.08 for thirty-six months,
followed by one payment of $53,962.64.
Commencement Date: __________________
Special Provisions (if any): none
<PAGE>
6. SECURITY DEPOSIT: None
7. DISBURSEMENT OF PROCEEDS. Customer hereby authorizes Lender to disburse
the $539,626.43 proceeds as follows:
(a) $539,626.43 to: Paradigm Genetics, Inc.
$539,626.43 TOTAL PROCEEDS
Customer may direct the Lender in writing to withhold payments from Supplier(s),
either now or in the future. Lender shall be entitled to rely on such written
direction of Customer as being conclusive as to the intent of the Customer with
regard to withheld payments.
Customer hereby acknowledges and agrees that it shall constitute an additional
Event of Default under the Loan Agreement if, for any reason, the Acquisition
Cost of the Equipment has not been fully paid to the appropriate Supplier(s)
thereof within ten (10) days after demand therefor by Lender. Customer hereby
that agrees to indemnify, and hold harmless Lender from and against any
liability, claim, loss or damage, including Attorneys' Fees and Expenses, that
may be incurred by Lender as a result of any amounts to be withheld hereunder,
including any claims of the Supplier(s) therefor.
8. ADJUSTMENTS: Customer acknowledges that payments under the Loan
Agreement herein are based upon the Acquisition Cost of the Equipment set forth
above, and as a result of authorized changes to the Equipment, the final
Acquisition Cost of the Equipment may increase or decrease by up to 10%. In such
event, the Loan Payments shall be adjusted accordingly, and Customer authorizes
Lender to correct the Loan Agreement (and all related documentation) to reflect
such changes and Customer, if requested by Lender, shall confirm such changes to
Lender in writing.
9. SUPPLY CONTRACT: Customer acknowledges either that (a) Customer has
reviewed and approved any written purchase agreement or purchase order covering
the Equipment ("Supply Contract") purchased from Supplier, or (b) Lender has
informed or advised Customer, in writing, either previously or by the Loan
Agreement, of the following. (i) the identity of the Supplier, (ii) that
Customer may have rights under the Supply Contract and (iii) that Customer may
contact the Supplier for a description of any such rights Customer may have
under the Supply Contract If Customer has entered into a written Supply
Contract, then Customer hereby assigns to Lender all of Customer's rights and
interests in and to the Equipment and the Supply Contract If requested by
Lender, Customer shall obtain any consent required for such assignment. If
Customer has not entered into any such Supply Contract, Customer authorizes
Lender to (and Lender may at its option) act on behalf of Customer to obtain a
Supply Contract from Supplier. Except for the obligation to pay Supplier for the
Equipment, if (and only if) the Equipment is accepted by Customer under the Loan
Agreement, such assignment shall not include any of Customer's obligations under
such Supply Contract and Customer shall at all times remain liable to perform
all of its duties and obligations under the Supply Contract to the same extent
as if an assignment has not occurred. Customer hereby represents and warrants
that:
<PAGE>
(i) Customer has delivered herewith a true and correct copy of the Supply
Contract, neither Supplier nor Customer is in default under the Supply Contract
and it shall not be amended without Lender's prior written consent and (ii) the
Supply Contract is free from all claims, security interests, liens and
encumbrances, except for the interest being conveyed by the Loan Agreement.
Customer indemnifies and holds Lender harmless with respect to any and all
claims relating to the performance of Customer's obligations under the Supply
Contract.
10. SEE RATE ADJUSTMENT RIDER ATTACHED AND INCORPORATED BY REFERENCE.
By execution hereof, the signer certifies that he/she is a duly authorized
officer, partner or proprietor of Customer and that he/she has read, accepted
and duly executed this Equipment Schedule to the Master Loan and Security
Agreement on behalf of Customer.
ACCEPTED AT LESSOR'S OFFICE AT McLEAN, VIRGINIA
OXFORD VENTURE LEASING, LLC PARADIGM GENETICS, INC.
(LENDER) (CUSTOMER)
By:____________________________ By:______________________________
Name: J.A. Philbrick Name: John Ryals
------------------------- ----------------------------
Title: President Title: CEO/President
------------------------ --------------------------
Date: 7/29/98 Date: 7/29/98
-------------------------- ---------------------------
<PAGE>
EXHIBIT A
LIST OF EQUIPMENT
The following list and description of Equipment supplements and forms a part of
Equipment Schedule No. 03 to Master Loan and Security Agreement No. 7237 dated
June 18,1998 between Lender and Customer and may be attached to said Equipment
Schedule and any related UCC Financing Statements, or other document relating to
the Master Loan and Security Agreement, the Equipment Schedule or any other
document describing the Equipment.
SEE ATTACHED EQUIPMENT SCHEDULE EXHIBIT A ATTACHED
All property listed above, together with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and a right to use license for any software related to any of the
foregoing now or hereafter acquired and all proceeds, in the form of goods,
accounts, chattel paper, documents, instruments and insurance proceeds.
OXFORD VENTURE LEASING, LLC PARADIGM GENETICS, INC.
(LENDER) (CUSTOMER)
By:____________________________ By:______________________________
Name: J. A. Philbrick Name: John Ryals
------------------------- ---------------------------
Title: President Title: President
------------------------- ___________________________
<PAGE>
PROMISSORY NOTE TO: MASTER LOAN AND SECURITY AGREEMENT NO. 7237
Dated June 18, 1998
EQUIPMENT SCHEDULE NO. 03
U.S. $539,626.43 McLean, Virginia
Dated:________________
FOR VALUE RECEIVED, Paradigm Genetics, Inc., a North Carolina corporation
(the "Borrower"), hereby promises to pay to the order of OXFORD VENTURE LEASING,
LLC. or its successors or assigns (the "Payee") at its offices located at 8180
Greensboro Drive, suite 1000, McLean, Virginia 22102, or at such other place as
the Payee or any holder hereof may from time to time designate, the principal
amount of U.S. five hundred thirty-nine thousand six hundred twenty-six and
43/100 dollars ($539,626.43), with interest (based on a year of 360 days and 30
day months) on the principal amount hereof remaining from time to time unpaid,
such principal and interest to be paid in consecutive monthly installments until
fully paid, in the manner and at a rate of interest per annum as determined and
provided in the Loan Agreement. Anything in this Note to the contrary
notwithstanding, in the event that any payment of interest hereunder shall
exceed the legal limit, such amount in excess of such limit shall be deemed a
payment of principal hereunder.
This Note evidences a loan by the Payee to the undersigned pursuant to the
Loan Agreement indicated above between the undersigned and the Payee as from
time to time may be amended, restated, replaced, supplemented, substituted for
or renewed, and the holder of this Note is entitled to the benefits thereof,
including without limitation, the security interest in the Equipment granted
therein. Each term defined in the Loan Agreement and not otherwise defined
herein shall have the same definition when used herein.
The principal hereof and accrued interest hereon shall become forthwith due
and payable as provided in the Loan Agreement. Payments hereunder not made when
due shall accrue late charges as provided in the Loan Agreement. This Note may
not be prepaid in whole or in part except as otherwise specifically provided in
the Loan Agreement.
The Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice. No act or omission of the Payee, including without limitation
any failure to exercise any right, remedy or recourse, shall be deemed to be a
waiver or release of such right, remedy or recourse. Any waiver or release may
be effected only by a written document executed by Payee and then only to the
extent specified therein. The undersigned hereby promises to pay all Attorneys
Fees and Expenses that may be incurred in connection with the enforcement and/or
collection of this Note.
The undersigned authorizes the Payee to insert above as the date of the
Note, the date on which Payee disburses fluids pursuant to the Loan Agreement.
<PAGE>
This Note is freely assignable by the Payee, in whole or in part, and from
time to time. All of the terms and provisions of this Note inure to and are
binding upon the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties. None of the rights or
obligations of the Borrower hereunder may be assigned or otherwise transferred
without the prior written consent of the Payee.
THIS NOTE AND THE LEGAL RELATIONS OF THE PARTIES HERETO SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CONNECTICUT, WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW. BORROWER
HEREBY CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF CONNECTICUT AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF
CONNECTICUT FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES ANY OBJECTIONS THAT IT MAY
HAVE TO THE VENUE OF SUCH COURTS. BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS NOTE. Any action
by Borrower against Payee for any cause of action under this Note shall be
brought within one year after any such cause of action first arises. If
requested by Payee, Borrower agrees that prior to the commencement of any
litigation regarding the terms and conditions of this Note, the parties hereto
shall subject themselves to non-binding mediation with a qualified mediator
mutually satisfactory to both parties.
IN WITNESS WHEREOF, the Borrower by its duly authorized officer has
executed and delivered this Note as of the date first above written.
PARADIGM GENETICS, INC.
Borrower
By:_________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE>
ACKNOWLEDGMENT OF ASSIGNMENT
----------------------------
TO: PHOENIXCOR, INC.
65 WATER STREET
SOUTH NORWALK, CONNECTICUT 06854
RE: ASSIGNMENT OF LOAN WITH OXFORD VENTURE LEASING,LLC
Ladies and Gentlemen:
Reference is made to the annexed Master Loan and Security Agreement No.
7237 dated June 18, 1998 with Equipment Schedule 03 (the "Loan Agreement")
between Oxford Venture Leasing, LLC ("Lender") and the undersigned Paradigm
Genetics, Inc. ("Borrower"), covering the collateral described in the Loan
Agreement (the "Collateral"). We consent to Lender's assignment of the Loan
Agreement to you, acknowledge receipt of notice of such assignment and in
consideration of your advancement of funds to the Lender with respect to the
Loan Agreement, we hereby acknowledge and agree that
1. 'The Loan Agreement is in full force and effect and constitutes our
valid and binding obligation, enforceable in accordance with their terms. We
have not entered into any agreement with any person modifying the provisions of
the Loan Agreement and we cannot make any future modification, termination or
settlement of amounts due under the Loan Agreement except with the consent of
you or your assigns.
2. The Loan Agreement describes the entire agreement between Lender and us
regarding our use of and rights and obligations with respect to the Collateral
except: (none). There are no "side letters" or verbal understandings between us
and Lender modifying the provisions of the Loan Agreement or otherwise affecting
our obligations to make the payments thereunder.
3. The Collateral was first delivered to our premises located at 106
Alexander Drive, Building 6, Research Triangle Park, NC 27709 on or after the
invoice dates set forth on the attached Equipment Schedule Exhibit A and has
been unconditionally accepted by us and is in satisfactory working order on the
date hereof. We agree to make no claim against you with respect to the
Collateral. We further agree that you may inspect the Collateral on reasonable
prior verbal or written notice to us.
4. Lender has assigned to you all of its right, title and interest in the
Loan Agreement but none of its obligations and you are the Lender of record
under the Loan Agreement. We remit to you all of the forty-nine (49) successive
monthly installments consisting of twelve (12) payments of $5,733.53, followed
by thirty-six payments of $16,676.08, followed by one final payment of
$53,962.64 commencing on the funding date on or about July 30, 1998 and
continuing on the same day of every month thereafter. We will have no obligation
to you and you will have no obligation to us with respect to any installments
under the Note due or paid to
<PAGE>
Lender prior to such date. We agree to pay all the installments to you or your
assigns unconditionally without defense, setoff or counterclaim. However, we
preserve all our rights against Lender. We agree to make all payments due and to
give all notices and information required under the Loan Agreement to you at
your above address or to any revised address of which you or your assigns may
advise us.
5. We have received no notice of a prior sale, transfer, assignment,
hypothecation or pledge of the Loan Agreement, the amounts payable thereunder or
the Collateral.
6. No event of default (or that which would constitute an event of default
under the Loan Agreement with the passage of time, giving of no notice, or both)
on our part, or to our knowledge, on the part of Lender, has occurred in the
performance of each such party's obligations under the Loan Agreement.
7. This Acknowledgment of Assignment shall inure to the benefit of your
successors and assigns.
8. We acknowledge that the Loan and all related documents are governed by
the laws of Connecticut govern your transactions so that the documents will be
applied and interpreted uniformly. We agree that such laws bear a reasonable
relationship to the Loan and related documents.
DATED: July 29, 1998
Very truly yours,
PARADIGM GENETICS, INC.
By:_________________________________________
Title:______________________________________
<PAGE>
ACKNOWLEDGMENT OF LENDER
------------------------
The undersigned Lender under the Loan Agreement defined in the foregoing
Acknowledgment of Assignment hereby consents to the foregoing and confirms that
it has assigned all remaining installments under the Loan Agreement to
Phoenixcor, Inc. as specified in the Acknowledgment of Assignment.
DATED: July 29, 1998
OXFORD VENTURE LEASING, LLC
(LENDER)
By:__________________________
Title:_______________________
<PAGE>
TAX ACKNOWLEDGMENT AND INDEMNIFICATION
Oxford Venture Leasing, LLC
8180 Greensboro Drive, suite 1000
McLean, VA 22102
This Tax Acknowledgment and Indemnification ("Acknowledgment") is attached to
and made a part of that certain Loan Schedule No. 03 (the "Loan Schedule"), to
Master Loan and Security Agreement No. 7237, dated as of June 18, 1998 (the
"Loan Agreement"), by and between Oxford Venture Leasing, LLC and the
undersigned.
Notwithstanding any provision to the contrary in the Loan Agreement, we hereby
confirm our understanding and acknowledgment of the following:
1. While you normally bill us for taxes, if any, payable on the rentals
(sales/use taxes), you will not bill us for or furnish any advice with respect
to any taxes on the Equipment ("Taxes"), including personal property, ad valorem
or other taxes imposed by any state, federal, local or foreign government in
connection with the purchase, possession, ownership or operation of the
Equipment.
2. It is our obligation to and we shall timely submit such reports,
declarations, inventories and other documentation, file such returns, and pay
the applicable Taxes when due in connection with the Equipment. If local law
prohibits us from making direct payment or filing the applicable report or
return it is our responsibility to and we shall immediately advise you in
writing to such effect and furnish you with the forms, data and information as
will enable you to make and file the return or report, along with our payment
for the Tax due. Any accrual of interest and penalties resulting from our
failure to comply with the foregoing, or otherwise, is and shall be our
responsibility.
3. Upon your request, we shall provide you with copies of satisfactory
documentation and proof of payment of such Taxes. We shall indemnify you and
hold you harmless from and against any such Taxes, and any penalties and
interest thereon, and any other liabilities and damages that you may incur
arising out of our failure to pay when due such Taxes. The indemnity and
covenants set forth herein shall continue in full force and effect and shall
survive the expiration or earlier termination of the Loan Agreement or the Loan
Schedule.
All capitalized terms used herein and not defined herein shall have the
meanings set forth or referred to in the Loan Schedule. Except as specifically
set forth herein, all of the terms and conditions of the Loan Agreement and the
Loan Schedule shall remain in full force and effect and are hereby ratified and
affirmed. To the extent that the provisions of this Acknowledgment conflict with
any provisions contained in the Loan Agreement or the Loan Schedule, the
provisions of this Acknowledgment shall control.
<PAGE>
Very truly yours,
PARADIGM GENETICS, INC.
By:_______________________________
Title:____________________________
Date:_____________________________
<PAGE>
EXHIBIT 10.42
ACKNOWLEDGEMENT OF ASSIGNMENT
-----------------------------
TO: PHOENIXCOR, INC.
65 WATER STREET
SOUTH NORWALK, CONNECTICUT 06854
RE: ASSIGNMENT OF LOAN WITH OXFORD VENTURE LEASING, LLC
Ladies and Gentlemen:
Reference is made to the annexed Master Loan and Security Agreement No.
7237 dated June 18, 1998 (the "Loan Agreement") between Oxford Venture Leasing,
LLC ("Lender") and the undersigned Paradigm Genetics, Inc. ("Borrower"),
covering the collateral described in the Loan Agreement (the "Collateral"). We
consent to Lender's assignment of the Loan Agreement to you, acknowledge receipt
of notice of such assignment and in consideration of your advancement of funds
to the Lender with respect to the Loan Agreement, we hereby acknowledge and
agree that:
1. The Loan Agreement is in full force and effect and constitutes our
valid and binding obligation, enforceable in accordance with their terms. We
have not entered into any agreement with any person modifying the provisions of
the Loan Agreement and we cannot make any future modification, termination or
settlement of amounts due under the Loan Agreement except with the consent of
your or your assigns.
2. The Loan Agreement describes the entire agreement between Lender and us
regarding our use of and rights and obligations with respect to the Collateral
except: (none). There are no "side letters" or verbal understandings between
us and Lender modifying the provisions of the Loan Agreement or otherwise
affecting our obligations to make the payments thereunder.
3. The Collateral was first delivered to our premises located at 106
Alexander Drive, Building 6, Research Triangle Park, NC 27709 on or after the
invoice dates set forth on the attached Equipment Schedule Exhibit A and has
been unconditionally accepted by us and is in satisfactory working order on the
date hereof. We agree to make no claim against you with respect to the
Collateral. We further agree that you may inspect the Collateral on reasonable
prior verbal or written notice to us.
4. Lender has assigned to you all of its right, title and interest in the
Loan Agreement but none of its obligations and you are the Lender of record
under the Loan Agreement. We remit to you all of the forty-nine (49) successive
monthly installments consisting of twelve (12) payments of $4,238.45, followed
by thirty-six payments of $12,324.42, followed by one final payment of
$39,891.31 commencing on the funding date on or about July 8, 1998 and
continuing
<PAGE>
on the same day of every month thereafter. We will have no
obligation to you and you will have no obligation to us with respect to any
installments under the Note due or paid to Lender prior to such date. We agree
to pay all the installments to you or your assigns unconditionally without
defense, setoff or counterclaim. However, we preserve all our rights against
Lender. We agree to make all payments due and to give all notices and
information required under the Loan Agreement to you at your above address or to
any revised address of which you or your assigns may advise us.
5. We have received no notice of a prior sale, transfer, assignment,
hypothecation or pledge of the Loan Agreement, the amounts payable thereunder or
the Collateral.
6. No event of default (or that which would constitute an event of default
under the Loan Agreement with the passage of time, giving of no notice, or both)
on our part, or to our knowledge, on the part of Lender, has occurred in the
performance of each such party's obligations under the Loan Agreement.
7. This Acknowledgement of Assignment shall inure to the benefit of your
successors and assigns.
8. We acknowledge that the Loan and all related documents are governed by
the laws of the State of Connecticut and were entered into with the
understanding that they where to be assigned to you and you require that the
laws of Connecticut govern your transactions so that the documents will be
applied and interpreted uniformly. We agree that such laws bear a reasonable
relationship to the Loan and related documents.
2
<PAGE>
DATED: June 18, 1998
Very truly yours,
PARADIGM GENETICS,INC.
By:__________________________________
Title:_______________________________
ACKNOWLEDGEMENT OF LENDER
-------------------------
The undersigned Lender under the Loan Agreement defined in the foregoing
Acknowledgment of Assignment hereby consents to the foregoing and confirms that
it has assigned all remaining installments under the Loan Agreement to
Phoenixcor, Inc. as specified in the Acknowledgment of Assignment.
DATED: June 18, 1998
OXFORD VENTURE LEASING, LLC
(LENDER)
BY:_________________________
TITLE:PRESIDENT
----------------------
TRADOCS:1311487.2(s3y702!.DOC)
3
<PAGE>
Exhibit 10.43.1
FIRST AMENDMENT TO PARADIGM GENETICS INC. WARRANT TO PURCHASE
-------------------------------------------------------------
SHARES OF COMMMON STOCK
-----------------------
Void After July 27, 2009
This FIRST AMENDMENT (the "First Amendment") to the Warrant to Purchase
Shares of Common Stock issued by PARADIGM GENETICS, INC., a DELAWARE corporation
(the "Company"), to ARE-104 ALEXANDER ROAD, LLC ("ARE"), (the "WARRANT"), is
dated April __, 2000.
WITNESSETH:
WHEREAS, the Company issued to ARE the WARRANT to purchase One Hundred
Fifty Thousand (150,000) shares of Common Stock on July 27, 1999;
WHEREAS, the Company and ARE agree to amend the WARRANT in order to revise
certain provisions therein; and
WHEREAS, the provisions of the WARRANT may be modified by the party against
which enforcement is sought and the signatory hereto constitute the requisite
party to approve the amendments contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the WARRANT and agree as follows:
1. The "Term" set forth specifically in Section 1.1 is hereby deleted and
----
replaced with the following:
"1.1 Term. The purchase right represented by this Warrant may be
----
exercised in whole or in part at any time and from time to time from and after
the date hereof and on or before the earlier of (i) July 27, 2009 (the tenth
anniversary of the date hereof) or (ii) the fifth anniversary of the date of the
consummation of a bona fide, underwritten initial public offering of Common
Stock, at a public offering price equal to or exceeding $6.00 per share (as
adjusted for any stock dividends, combinations, splits or the like with respect
to such shares) and an aggregate offering price to the public of not less than
$20,000,000; provided that, if the last day on which this Warrant may be
--------
exercised is a Sunday or a legal holiday or a day on which banking institutions
doing business in the State of North Carolina are authorized by law to close,
this Warrant may be exercised
<PAGE>
prior to 5:00 p.m. local time) on the next succeeding full business day with the
same force and effect as if exercised on such last day specified herein."
2. The conditions of termination of rights to request registration as set
forth specifically in clause (iv) of subsection (h) of Section 15 is hereby
deleted and replaced with the following:
"(iv) three years after the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of the Company's Common Stock at a
price per share of not less than $6.00 (as adjusted for stock splits, dividends,
combinations and the like) and an aggregate offering price to the public of not
less than $20,000,000. Such three-year period shall not include any period of
time during which adequate current public information, as defined in Rule 144(c)
promulgated under the Securities Act, is not available with respect to the
Company."
3. This First Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of law provisions.
This First Amendment may be executed in multiple counterparts and shall be
and constitute the valid agreement of the parties executing the same with
respect to any one or more of the provisions of this First Amendment set forth
above at such time as this First Amendment has been executed by those parties
whose execution of this First Amendment is required to under the terms of the
WARRANT to make such provisions effective.
Executed as of the date above written.
[Remainder of this page intentionally left blank]
<PAGE>
COMPANY:
- --------
PARADIGM GENETICS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
WARRANTHOLDER:
- --------------
ARE-104 ALEXANDER ROAD, LLC,
a Delaware limited liability company
By: Alexander Real Estate Equities, L.P.,
a Delaware limited partnership
Its Managing Member
By: ARE-QRS Corp.,
a Maryland Corporation
Its General Partner
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
EXHIBIT 10.45.1
FIRST AMENDMENT TO PARADIGM GENETICS INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
VOID AFTER JANUARY 19, 2010
This FIRST AMENDMENT (the "First Amendment") to the Warrant to Purchase
Shares of Common Stock issued by PARADIGM GENETICS, INC., a DELAWARE corporation
(the "Company"), to ARE-104 ALEXANDER ROAD, LLC ("ARE") subject to the Escrow
Agreement entered into by the Company and ARE on January 19, 2000, (the
"WARRANT") is dated April __, 2000.
WITNESSETH:
WHEREAS, the Company issued to ARE the WARRANT to purchase Sixty Thousand
(60,000) shares of Common Stock subject to the Escrow Agreement entered into by
the Company and ARE on January 19, 2000;
WHEREAS, the Company and ARE agree to amend the WARRANT in order to revise
certain provisions therein; and
WHEREAS, the provisions of the WARRANT may be modified by the party against
which enforcement is sought and the signatory hereto constitute the requisite
party to approve the amendments contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the WARRANT and agree as follows:
1. The "Term" set forth specifically in Section 1.1 is hereby deleted
and replaced with the following:
"1.1 Term. The purchase right represented by this Warrant may be
exercised in whole or in part at any time and from time to time from
and after the date hereof and on or before the earlier of (i) January
19, 2010 (the tenth anniversary of the date hereof) or (ii) the fifth
anniversary of the date of the consummation of a bona fide,
underwritten initial public offering of Common Stock, at a public
offering price equal to or exceeding $6.00 per share (as adjusted for
any stock dividends, combinations, splits or the like with respect to
such shares) and an aggregate offering price to the public of not less
than $20,000,000; provided that, if the last day on which this Warrant
may be exercised is a Sunday or a legal holiday or a day on which
banking institutions doing business in the State of North Carolina are
authorized by law to close, this Warrant may be exercised
<PAGE>
prior to 5:00 p.m. local time) on the next succeeding full business
day with the same force and effect as if exercised on such last day
specified herein.
2. The conditions of termination of rights to request registration as
set forth specifically in clause (iv) of subsection (h) of Section 15 is
hereby deleted and replaced with the following:
"(iv) three years after the closing of a firm commitment
underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of the
Company's Common Stock at a price per share of not less than $6.00 (as
adjusted for stock splits, dividends, combinations and the like) and
an aggregate offering price to the public of not less than
$20,000,000. Such three-year period shall not include any period of
time during which adequate current public information, as defined in
Rule 144(c) promulgated under the Securities Act, is not available
with respect to the Company."
3. This First Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
its conflicts of law provisions.
This First Amendment may be executed in multiple counterparts and shall be
and constitute the valid agreement of the parties executing the same with
respect to any one or more of the provisions of this First Amendment set forth
above at such time as this First Amendment has been executed by those parties
whose execution of this First Amendment is required to under the terms of the
WARRANT to make such provisions effective.
Executed as of the date above written.
[Remainder of this page intentionally left blank]
2
<PAGE>
COMPANY:
- --------
PARADIGM GENETICS, INC.
By: _____________________________
Name: __________________________
Title: ___________________________
WARRANTHOLDER:
- --------------
ARE-104 ALEXANDER ROAD, LLC,
a Delaware limited liability company
By: Alexander Real Estate Equities, L.P.,
a Delaware limited partnership
Its Managing Member
By: ARE-QRS Corp.,
a Maryland Corporation
Its General Partner
By: _____________________________
Name: __________________________
Title: ___________________________
3
<PAGE>
EXHIBIT 10.46.1
FIRST AMENDMENT TO PARADIGM GENETICS INC. WARRANT TO PURCHASE
-------------------------------------------------------------
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
----------------------------------------------
EXPIRES FEBRUARY 12, 2008
This FIRST AMENDMENT (the "First Amendment") to the Warrant to Purchase
Shares of Series A Convertible Preferred Stock issued by PARADIGM GENETICS,
INC., a DELAWARE corporation (the "Company"), to INTERSOUTH PARTNERS III, L.P.
("Intersouth") on February 12, 1998, (the "WARRANT"), is dated April __, 2000.
WITNESSETH:
WHEREAS, the Company issued to Intersouth the WARRANT to purchase Thirty
One Thousand Two Hundred Fifty (31,250) shares of Series A Preferred Stock on
February 12, 1998;
WHEREAS, the Company and Intersouth agree to amend the WARRANT in order to
revise certain provisions therein; and
WHEREAS, the provisions of the WARRANT may be modified by the party against
which enforcement is sought and the signatory hereto constitute the requisite
party to approve the amendments contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the WARRANT and agree as follows:
1. The "Term" set forth specifically in Section 1 is hereby deleted and
----
replaced with the following:
"1. Term. The purchase right represented by this Warrant is exercisable, in
----
whole or in part, at any time and from time to time from and after the Grant
Date and prior to the earlier of the tenth annual anniversary date of the Grant
Date or the fifth annual anniversary of the consummation of the Company's
initial public of its Common Stock, at a public offering price equal to or
exceeding $6.00 per share (as adjusted for any stock dividends, combinations,
splits or the like with respect to such shares) and the aggregate gross proceeds
to the Company and/or any selling stockholders of which equal or exceed
$20,000,000."
2. This First Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of law provisions.
<PAGE>
This First Amendment may be executed in multiple counterparts and shall be
and constitute the valid agreement of the parties executing the same with
respect to any one or more of the provisions of this First Amendment set forth
above at such time as this First Amendment has been executed by those parties
whose execution of this First Amendment is required to under the terms of the
WARRANT to make such provisions effective.
Executed as of the date above written.
[Remainder of this page intentionally left blank]
<PAGE>
COMPANY:
- --------
PARADIGM GENETICS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
WARRANTHOLDER:
- --------------
INTERSOUTH PARTNERS III, L.P.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
EXHIBIT 10.47.1
FIRST AMENDMENT TO PARADIGM GENETICS INC. WARRANT TO PURCHASE
-------------------------------------------------------------
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
----------------------------------------------
EXPIRES FEBRUARY 12, 2008
This FIRST AMENDMENT (the "First Amendment") to the Warrant to Purchase
Shares of Series A Convertible Preferred Stock issued by PARADIGM GENETICS,
INC., a DELAWARE corporation (the "Company"), to INNOTECH INVESTMENTS LIMITED
("Innotech") on February 12, 1998, (the "WARRANT") is dated April __, 2000.
WITNESSETH:
WHEREAS, the Company issued to Intersouth the WARRANT to purchase One
Hundred Eighty-Seven Thousand Five Hundred (187,500) shares of Series A
Preferred Stock on February 12, 1998;
WHEREAS, the Company and Innotech agree to amend the WARRANT in order to
revise certain provisions therein; and
WHEREAS, the provisions of the WARRANT may be modified by the party against
which enforcement is sought and the signatory hereto constitute the requisite
party to approve the amendments contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby amend the WARRANT and agree as follows:
1. The "Term" set forth specifically in Section 1 is hereby deleted and
----
replaced with the following:
"1. Term. The purchase right represented by this Warrant is exercisable, in
----
whole or in part, at any time and from time to time from and after the Grant
Date and prior to the earlier of the tenth annual anniversary date of the Grant
Date or the fifth annual anniversary of the consummation of the Company's
initial public of its Common Stock, at a public offering price equal to or
exceeding $6.00 per share (as adjusted for any stock dividends, combinations,
splits or the like with respect to such shares) and the aggregate gross proceeds
to the Company and/or any selling stockholders of which equal or exceed
$20,000,000."
<PAGE>
2. This First Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to its conflicts
of law provisions.
This First Amendment may be executed in multiple counterparts and shall be
and constitute the valid agreement of the parties executing the same with
respect to any one or more of the provisions of this First Amendment set forth
above at such time as this First Amendment has been executed by those parties
whose execution of this First Amendment is required to under the terms of the
WARRANT to make such provisions effective.
Executed as of the date above written.
[Remainder of this page intentionally left blank]
<PAGE>
COMPANY:
- --------
PARADIGM GENETICS, INC.
By: _____________________________
Name: __________________________
Title: ___________________________
WARRANTHOLDER:
- --------------
INNOTECH INVESTMENTS LIMITED
By: _____________________________
Name: __________________________
Title: ___________________________
<PAGE>
EXHIBIT 10.49
PARADIGM GENETICS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan (the "Plan") of PARADIGM GENETICS, INC. (the "Company").
1. Purpose. The purpose of the Plan is to provide Employees of the Company
-------
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company. It is the intention of the Company to have the Plan qualify as an
"Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of
1986, as amended. The provisions of the Plan shall, accordingly, be construed
so as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company, or a committee
-----
of the Board of Directors named by the Board to administer the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock, $.01 par value, of the
------------
Company.
(d) "Company" shall mean PARADIGM GENETICS, INC., a Delaware corporation.
-------
(e) "Compensation" shall mean all compensation that is taxable income for
------------
federal income tax purposes, including, payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses, commissions and other
compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
EXHIBIT 10.agreed to in writing by the Company, provided that such leave is for
a period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(i) "Employee" shall mean any person, including an officer, who is customarily
--------
employed for at least 20 hours per week and more than five months in a calendar
year by the Company or one of its Designated Subsidiaries.
(j) "Exercise Date" shall mean the last day of each Offering Period of the
-------------
Plan.
(k) "Offering Date" shall mean the first business day of each Offering Period
-------------
of the Plan, except that in the case of an individual who becomes an eligible
Employee after the first business day of
<PAGE>
an Offering Period but on or prior to the first business day of the fourth
calendar month within such Offering Period the term "Offering Date" shall mean
the first business day of such fourth calendar month coinciding with or next
succeeding the day on which that individual becomes an eligible Employee.
Options granted after the first business day of an Offering Period will be
subject to the same terms as the options granted on the first business day of
such Offering Period except that they will have a different grant date (thus,
potentially, a different exercise price) and, because they expire at the same
time as the options granted on the first business day of such Offering Period, a
shorter term.
(l) "Offering Period" shall mean a period of six months commencing on December
----------------
1 and June 1 of each calendar year, other than the first Offering Period as
set forth in Section 4.
(m) "Plan" shall mean this PARADIGM GENETICS, INC. 2000 Employee Stock
------
Purchase Plan.
(n) "Subsidiary" shall mean a corporation, domestic or foreign, of which not
------------
less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is employed as an Employee on the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, provided that such person was not eligible to participate in
such Offering Period as of any prior Offering Date, and further, subject to the
requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of
the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any Subsidiary of the Company, (ii) which permits his or her
rights to purchase stock under all employee stock purchase plans (described in
Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate
which exceeds $25,000 of fair market value of such stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding at any time, or (iii) to purchase more than 5000 shares of Common
Stock in any one Offering Period. Any option granted under the Plan shall be
deemed to be modified to the extent necessary to satisfy this paragraph (b).
4. Offering Periods. The Plan shall be implemented by a series of Offering
----------------
Periods, with a new Offering Period commencing on June 1 and December 1 of each
year (or at such other time or times as may be determined by the Board of
Directors). The initial Offering Period shall commence at a time to be
determined by the Board and continue until November 30, 2000. The Plan shall
continue until terminated in accordance with paragraph 19 hereof. The Board of
Directors of the Company shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least 15 days prior to the
scheduled beginning of the first Offering Period to be affected.
2
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing an Enrollment Form provided by the Company and filing it with the
Company prior to the applicable Offering Date, unless a later time for filing
the Enrollment Form is set by the Board for all eligible Employees with respect
to a given Offering Period. The Enrollment Form and their submission may be
electronic, as directed by the Company. The Enrollment Form shall set forth the
percentage of the participant's Compensation as elected by the participant to be
paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following the
Offering Date, unless a later time is set by the Board with respect to a given
Offering Period, and shall end on the last payroll paid on or prior to the
Exercise Date of the Offering Periods to which the Enrollment Form is
applicable, unless sooner terminated by the participant as provided in paragraph
10.
6. Method of Payment of Contributions.
----------------------------------
(a) The participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount equal to a percentage of such
participant's Compensation on each such payday. All payroll deductions made by a
participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan as
provided in paragraph 10, or, on one occasion only during the Offering Period,
may decrease, but may not increase, the rate of his or her Contributions during
the Offering Period by completing and filing with the Company a new Enrollment
Form authorizing a change in the deduction rate. The change in rate shall be
effective as of the beginning of the next payroll period following the date of
the filing of such new Enrollment Form, if the Enrollment Form is completed at
least five (5) business days prior to such date, and, if not, as of the
beginning of the next succeeding payroll period.
(c) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and paragraph 3(b) hereof, a participant's payroll
deductions may be decreased to 0% at such time and for so long as the aggregate
of all payroll deductions accumulated with respect to the current Offering
Period and any other Offering Period ending within the current calendar year
equals $21,250. Payroll deductions shall recommence at the rate provided in such
participant's Enrollment Form at the beginning of the first Offering Period
which is scheduled to end in the following calendar year, unless terminated by
the participant as provided in paragraph 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to purchase on
the Exercise Date of such Offering Period a number of shares of the Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Exercise Date and retained in the participant's account as of the Exercise Date
by the lower of (i) 85% of the fair market value of a share of Common Stock on
the Offering Date, or (ii) 85% of the fair market value of a share of the Common
Stock on the Exercise Date; provided however, that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof. The fair
market value of a share of the Common Stock shall be determined as provided in
Section 7(b) herein.
3
<PAGE>
(b) The option price per share of the shares offered in a given Offering
Period shall be the lower of (i) 85% of the fair market value of a share of the
Common Stock on the Offering Date, or (ii) 85% of the fair market value of a
share of the Common Stock on the Exercise Date. The fair market value of the
Common Stock on a given date shall be determined by the Board in its discretion
based on the closing or last sale price of the Common Stock for such date (or,
in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market System or, if
such price is not reported, the mean of the bid and asked prices per share of
the Common Stock at the close of trading as reported by NASDAQ or, in the event
the Common Stock is listed on a stock exchange, the fair market value per share
shall be the closing sale price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal. Notwithstanding the
foregoing, if the First Offering Date coincides with the effective date of a
Registration Statement on Form S-1 for the initial public offering of the Common
Stock, the fair market value of a share of the Common Stock shall be the price
to the public as set forth in the final prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as
amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date of the Offering Period, and the
maximum number of full shares subject to option will be purchased for him or her
at the applicable option price with the accumulated Contributions in his or her
account. If a fractional number of shares results, then such number shall be
rounded down to the next whole number and any unapplied cash shall be carried
forward to the next Exercise Date, unless the participant requests a cash
payment. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Exercise Date. During a
participant's lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her.
9. Delivery. Upon the written request of a participant, certificates
--------
representing the shares purchased upon exercise of an option will be issued as
promptly as practicable after the Exercise Date of each Offering Period to
participants who wish to hold their shares in certificate form. Any cash
remaining in a participant's account under the Plan after a purchase by him or
her of shares at the termination of each Offering Period shall be carried
forward to the next Exercise Date unless the participant requests a cash
payment.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the Contributions
credited to his or her account under the Plan at any time prior to the Exercise
Date of the Offering Period by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Exercise Date of the Offering Period for any reason, including
retirement or death, the Contributions credited to his or her account will be
returned to him or her or, in the case of his or her death, to the person or
persons entitled thereto under paragraph 14 hereof, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an
Employee for at least 20 hours per week during the Offering Period in which the
Employee is a participant, he or she will be
4
<PAGE>
deemed to have elected to withdraw from the Plan and the Contributions credited
to his or her account will be returned to him or her and his or her option
terminated.
(d) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a participant
--------
in the Plan.
12. Stock.
-----
(a) The maximum number of shares of Common Stock which shall be made available
for sale under the Plan shall be 500,000 shares, subject to adjustment upon
changes in capitalization of the Company as provided in paragraph 18. If the
total number of shares which would otherwise be subject to options granted
pursuant to Section 7(a) hereof on the Offering Date of an Offering Period
exceeds the number of shares then available under the Plan (after deduction of
all shares for which options have been exercised or are then outstanding), the
Company shall make a pro rata allocation of the shares remaining available for
option grants in as uniform a manner as shall be practicable and as it shall
determine to be equitable. Any amounts remaining in an Employee's account not
applied to the purchase of stock pursuant to this Section 12 shall be refunded
on or promptly after the Exercise Date. In such event, the Company shall give
written notice of such reduction of the number of shares subject to the option
to each Employee affected thereby and shall similarly reduce the rate of
Contributions, if necessary.
(b) The participant will have no interest or voting right in shares covered by
his or her option until such option has been exercised.
13. Administration. The Board shall supervise and administer the Plan and
--------------
shall have full power to adopt, amend and rescind any rules deemed desirable and
appropriate for the administration of the Plan and not inconsistent with the
Plan, to construe and interpret the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Exercise Date of the Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant (and his
or her spouse, if any) at any time by written notice. In the event of the death
of a participant and in the absence of a beneficiary validly designated under
the Plan who is living at the time of such participant's death, the Company
shall deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more dependents
or relatives of the participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
5
<PAGE>
15. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in paragraph 14 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with paragraph 10 hereof.
16. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant in
-------
the Plan. Statements of account will be given to participating Employees
promptly following the Exercise Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization. Subject to any required
-------------------------------------------
action by the stockholders of the Company, the number of shares of Common Stock
covered by unexercised options under the Plan and the number of shares of Common
Stock which have been authorized for issuance under the Plan but are not yet
subject to options (collectively, the "Reserves"), the maximum number of shares
of Common Stock that may be purchased by a Participant in an Offering Period, as
well as the price per share of Common Stock covered by each unexercised option
under the Plan, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.
In the event of the proposed dissolution or liquidation of the Company, an
Offering Period then in progress will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
In the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, each
option outstanding under the Plan shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date (the "New
Exercise Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten days prior to
the New Exercise Date, that the Exercise Date for his or her option has been
changed to the New Exercise Date and that his or her option will be exercised
automatically on the New Exercise Date, unless prior to such date he or she has
withdrawn from the Offering Period as provided in paragraph 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of Common Stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of
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consideration chosen by the holders of a majority of the outstanding shares of
Common Stock); provided, however, that if such consideration received in the
sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock in the sale of
assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination. The Board may at any time terminate or amend
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the Plan. Except as provided in paragraph 18 hereof, no such termination may
affect options previously granted, nor may an amendment make any change in any
option theretofore granted which adversely affects the rights of any
participant. In addition, to the extent necessary to comply with Section 423 of
the Code (or any successor rule or provision or any applicable law or
regulation), the Company shall obtain stockholder approval in such a manner and
to such a degree as so required.
20. Notices. All notices or other communications by a participant to the
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Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Right to Terminate Employment. Nothing in the Plan or in any agreement
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entered into pursuant to the Plan shall confer upon any Employee or other
optionee the right to continue in the employment of the Company or any
Subsidiary, or affect any right which the Company or any Subsidiary may have to
terminate the employment of such Employee or other optionee.
23. Rights as a Stockholder. Neither the granting of an option nor a
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deduction from payroll shall constitute an Employee the owner of shares covered
by an option. No optionee shall have any right as a stockholder unless and
until an option has been exercised, and the shares underlying the option have
been registered in the Company's share register.
24. Term of Plan. The Plan became effective upon its adoption by the Board
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of Directors on March 21, 2000 and shall continue in effect for a term of ten
(10) years unless sooner terminated under paragraph 19 hereof.
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25. Applicable Law. This Plan shall be governed in accordance with the laws
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of State of Delaware, applied without giving effect to any conflict-of-law
principles.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 to the Registration
Statement on Form S-1 of Paradigm Genetics, Inc. of our report dated February
17, 2000, except as to Note 12 which is as of April 24, 2000, relating to the
financial statements of Paradigm Genetics, Inc. which appear in such
Registration Statement. We also consent to the references to us under the
heading "Experts" in such Registration Statements.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
April 24, 2000
