<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LEXICON GENETICS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 76-0474169
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
4000 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381
(281) 364-0100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ARTHUR T. SANDS, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
4000 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381
(281) 364-0100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
DAVID P. OELMAN GERALD S. TANENBAUM
ANDREWS & KURTH L.L.P. CAHILL GORDON & REINDEL
600 TRAVIS, SUITE 4200 80 PINE STREET
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10005
(713) 220-4200 (212) 701-3000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM
TITLE OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $0.001.............................. $100,000,000 $26,400
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act.
------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION
DATED FEBRUARY 9, 2000
PROSPECTUS
Shares
[LEXICON LOGO]
LEXICON GENETICS INCORPORATED
Common Stock
Lexicon Genetics Incorporated is selling all of the shares of common stock in
this offering. This is our initial public offering. We estimate that the initial
offering price will be between $ and $ per share.
We have applied to have our shares of common stock listed on the Nasdaq National
Market under the symbol "LEXG".
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT LEXICON
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<S> <C> <C> <C>
Per Share $ $ $
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Total $ $ $
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</TABLE>
We have granted the underwriters the rights to purchase up to an additional
shares of common stock to cover over-allotments.
J.P. MORGAN & CO. CREDIT SUISSE FIRST BOSTON
DAIN RAUSCHER WESSELS PUNK, ZIEGEL & COMPANY
, 2000
<PAGE> 3
[SCHEMATIC DEPICTING THE GENE DISCOVERY PROCESS, WEB PAGES FROM LEXGEN.COM, DNA
SEQUENCERS AND OMNIBANK LIQUID NITROGEN FREEZER AND VAULT ROOM]
<PAGE> 4
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of its delivery or of any
sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Special Note Regarding Forward-Looking
Statements............................... 15
Use of Proceeds............................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 17
Selected Financial Data.................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 22
Management................................. 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Transactions With Executive Officers,
Directors and Five Percent
Stockholders............................. 42
Principal Stockholders..................... 43
Description of Capital Stock............... 45
Material U.S. Federal Tax Considerations
for
Non-U.S. Holders of Common Stock......... 47
Shares Eligible for Future Sale............ 49
Underwriting............................... 50
Legal Matters.............................. 52
Experts.................................... 52
Where You Can Find More Information........ 52
Index to Financial Statements.............. F-1
</TABLE>
-------------------------
Until , 2000, all dealers that effect transactions in the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligations to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
-------------------------
We own or have rights to various copyrights, trademarks and trade names used in
our business, including the Lexicon Genetics name and logo, OmniBank(R),
LexGene(TM), Lexgen.com(TM), Internet Now(TM), Internet Universal(TM), S-T-V(TM)
and e-Biology(TM).
<PAGE> 5
PROSPECTUS SUMMARY
In this prospectus, "Lexicon," "we," "us" and "our" refer to Lexicon Genetics
Incorporated. This summary highlights information contained elsewhere in this
prospectus. This summary does not contain all of the information you should
consider before buying shares of our common stock. You should read the entire
prospectus carefully.
LEXICON GENETICS INCORPORATED
We are a leading genomics company using proprietary gene trapping technology to
discover thousands of novel genes and to expand our OmniBank library of tens of
thousands of knockout mouse clones for drug discovery. We have established an
Internet exchange, Lexgen.com, to enable researchers worldwide to access our
OmniBank library and to form collaborations with us to discover pharmaceutical
products based on genes and knowledge of their function. Through our ongoing
collaborations with pharmaceutical companies, biotechnology companies and
academic researchers, we receive fees and may obtain royalties and milestone
payments from commercialization of pharmaceutical products developed using our
genomics technologies. We believe that providing global access to our OmniBank
library through the Internet will significantly accelerate genomics research and
will enable us to establish a leadership position in drug target and therapeutic
protein discovery.
Our proprietary gene trapping technology captures gene sequence information and
enables us to:
- obtain DNA sequences of rarely expressed genes;
- identify genes contained within the DNA sequence of the chromosome;
- obtain DNA sequence of genes throughout the human genome at a fraction of
the cost of traditional approaches; and
- create a genome-wide knockout mouse library for discovery of gene
function.
We have created three key gene discovery and functional genomics resources,
which we are continuing to expand for drug discovery:
- Our Human Gene Trap database, which presently contains DNA sequence from
approximately 50,000 human genes that we have rapidly and efficiently
trapped from human chromosomes and analyzed in a relational database. We
believe that, at present, approximately 50% of the gene sequences
contained in our Human Gene Trap database are not represented in public
contiguous gene sequence databases. We are using this resource to obtain
full-length gene sequence information for drug discovery.
- Our OmniBank database and mouse clone library, which presently contains
more than 60,000 embryonic stem (ES) cell clones stored in liquid
nitrogen freezers and identified by DNA sequence in a relational
database. Each OmniBank ES cell clone can be grown into a knockout
mouse -- a mouse whose DNA has been altered to disrupt, or "knock out,"
the function of a specified gene.
- Lexgen.com, a genomics Internet exchange through which researchers at
pharmaceutical and biotechnology companies and academic institutions
worldwide subscribe to our OmniBank database to conduct web-based,
bioinformatics mining of genes, acquire knockout mouse clones and
determine the function of genes with us under e-Biology collaborations.
We believe that collaborations are an effective way to conduct research and
development of pharmaceutical product opportunities created by our proprietary
genomics technologies. Our collaborations are typically non-exclusive
arrangements, and we retain the ability to pursue future applications of our
technologies. Since September 1999, we have established collaborations with,
among others, Millennium Pharmaceuticals, Inc., the R.W. Johnson Pharmaceutical
Research Institute (a subsidiary of Johnson & Johnson), G.D. Searle & Co. and
N.V. Organon. We may also pursue development of selected drug targets and
therapeutic proteins on our own.
GENOMICS: CHALLENGE AND OPPORTUNITY
Genomics represents an opportunity for the development of drugs that address
medical needs for which there are presently no effective treatments, as well as
drugs that are more effective or have fewer side effects than the treatments
that are currently available. Most drugs on the market today interact with a
total of about 500 specific protein targets, each of which is encoded by a gene.
While estimates of the total number of potential drug targets encoded within the
human genome vary, many experts believe that genomics research could discover
between 5,000 and 15,000 new targets for pharmaceutical development.
3
<PAGE> 6
Consequently, genomics represents a significant opportunity for those companies
with the key technologies that can efficiently discover the most promising genes
for drug discovery.
Large numbers of genes with little functional information can present a major
challenge to traditional drug discovery research. We believe that the solution
to this challenge requires redefining the drug discovery paradigm in the
genomics era by systematically determining the function of large numbers of
genes in animal models to discover novel drug targets and therapeutic proteins.
We believe our integrated, rapid gene discovery, functional genomics and
e-Biology collaboration platform provides a significant opportunity for us and
our collaborators to discover and develop drugs more successfully than those
companies that utilize traditional methods.
STRATEGY
Our principal objective is to establish a leadership position in drug target and
therapeutic protein discovery. The key elements of our strategy include the
following:
- discover and obtain proprietary rights to a substantial number of human
genes using our gene trapping technology;
- expand our genome-wide library of knockout mice using our proprietary
gene trapping technology and create custom knockout mice using our gene
targeting technology;
- use the Internet to establish gene function discovery collaborations
based on knockout mice with researchers at pharmaceutical companies,
biotechnology companies and academic institutions;
- discover the functions of large numbers of genes that encode potential
drug targets and therapeutic proteins through internal research programs
using knockout mice;
- develop promising drug candidates through collaborations or with our own
resources.
CORPORATE INFORMATION
Lexicon Genetics was incorporated in Delaware in July 1995, and commenced
operations in September 1995. Our corporate headquarters are located at 4000
Research Forest Drive, The Woodlands, Texas 77381, and our telephone number is
(281) 364-0100. Our Internet exchange is located at www.Lexgen.com and our
corporate website is located at www.lexicon-genetics.com. Information found on
our Internet exchange and our website is not part of this prospectus.
4
<PAGE> 7
THE OFFERING
The following information reflects 8,184,567 shares of common stock outstanding
as of February 8, 2000 and the conversion of all our outstanding convertible
preferred stock into 4,244,664 shares of common stock upon the closing of this
offering. The number of outstanding shares of common stock does not include:
2,901,089 shares issuable on the exercise of stock options outstanding as of
February 8, 2000 at a weighted average exercise price of $5.94 per share;
330,000 shares that may be issued upon exercise of warrants outstanding as of
February 8, 2000 at an exercise price of $7.50 per share; or 1,009,742
additional shares that we could issue under our stock option plans.
Unless otherwise indicated, information in this prospectus assumes the
following: the filing of our amended and restated certificate of incorporation
and the adoption of amended and restated bylaws immediately prior to the closing
of this offering; no exercise of the underwriters' over-allotment option; and an
initial public offering price of $ per share, the midpoint of the range
shown on the cover of this prospectus.
COMMON STOCK OFFERED................. shares
COMMON STOCK TO BE OUTSTANDING AFTER
THIS OFFERING........................ shares
USE OF PROCEEDS...................... We expect to use the net proceeds to:
- increase our functional genomics
research efforts;
- expand our Human Gene Trap database and
OmniBank database and library;
- generate full-length gene sequences for
potential drug targets and therapeutic
proteins; and
- fund working capital, capital
expenditures and other general corporate
purposes.
Please read "Use of Proceeds."
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL............................... "LEXG"
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<PAGE> 8
SUMMARY FINANCIAL DATA
The following table summarizes our statements of operations data for the period
from our inception on July 7, 1995 through December 31, 1995 and the years ended
December 31, 1996, 1997, 1998 and 1999 and our balance sheet data as of December
31, 1999. The pro forma net loss per share data reflect the conversion of our
outstanding convertible preferred stock upon the closing of this offering. The
pro forma as adjusted balance sheet data reflect that conversion and also
reflect the sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share after deducting underwriting
discounts and estimated offering expenses. The following data should be read
with our financial statements, including the accompanying notes, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. Because all of our
outstanding convertible preferred stock will be converted at the closing of this
offering, we will no longer recognize accretion on our redeemable convertible
preferred stock.
<TABLE>
<CAPTION>
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PERIOD FROM
INCEPTION
(JULY 7, 1995)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------------------
1995 1996 1997 1998 1999
-------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
In thousands, except share data
STATEMENTS OF OPERATIONS DATA
Revenues........................................... $ -- $ 306 $ 968 $ 2,242 $ 4,738
Operating expenses
Research and development......................... 445 2,409 4,970 8,410 14,646
General and administrative....................... 236 764 1,473 2,024 2,913
--------- --------- --------- --------- ----------
Total operating expenses................. 681 3,173 6,443 10,434 17,559
--------- --------- --------- --------- ----------
Loss from operations............................... (681) (2,867) (5,476) (8,192) (12,821)
Interest income (expense), net..................... 9 (12) 74 711 346
--------- --------- --------- --------- ----------
Net loss........................................... (672) (2,879) (5,402) (7,481) (12,475)
--------- --------- --------- --------- ----------
Accretion on redeemable convertible preferred
stock............................................ -- -- -- (357) (535)
--------- --------- --------- --------- ----------
Net loss attributable to common stockholders....... $ (672) $(2,879) $(5,402) $(7,838) $(13,011)
========= ========= ========= ========= ==========
Net loss per common share, basic and diluted....... $(0.20) $ (0.50) $ (0.68) $ (0.96) $ (1.59)
========= ========= ========= ========= ==========
Shares used in computing net loss per common share,
basic and diluted................................ 3,287,099 5,782,076 7,996,323 8,148,474 8,176,809
Pro forma net loss per common share, basic and
diluted.......................................... $ (1.00)
Shares used in computing pro forma net loss per
common share, basic and diluted.................. 12,421,473
</TABLE>
<TABLE>
<CAPTION>
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AS OF DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
<S> <C> <C>
In thousands
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities............ $ 9,156 $
Working capital............................................. 2,021
Total assets................................................ 22,295
Long-term obligations, net of current portion............... 3,577 3,577
Redeemable convertible preferred stock...................... 30,050 --
Accumulated deficit......................................... (29,801) (29,801)
Total stockholders' equity (deficit)........................ (21,936)
</TABLE>
6
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. If any of the
following risks actually occurs, we may not be able to conduct our business as
currently planned and our financial condition and operating results could be
seriously harmed. In addition, the trading price of our common stock could
decline due to the occurrence of any of these risks, and you may lose all or
part of your investment. Please read "Special Note Regarding Forward-Looking
Statements."
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES
AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY
We have incurred net losses since our inception, including a net loss of
approximately $12.5 million for the year ended December 31, 1999. As of December
31, 1999, we had an accumulated deficit of approximately $29.8 million. We are
unsure when we will become profitable, if at all. The size of our net losses
will depend, in part, on the rate of growth, if any, in our revenues and on the
level of our expenses.
We derive substantially all of our revenues from subscriptions to our databases,
collaborations for the development and, in some cases, analysis of knockout mice
and government grants, and will continue to do so for the foreseeable future.
Revenues from database subscriptions, collaborations and grants are uncertain
because our existing agreements have fixed terms or relate to specific projects
of limited duration. Our ability to secure future agreements will depend upon
our ability to address the needs of our potential future subscribers and
collaborators.
A large portion of our expenses are fixed, including expenses related to
facilities, equipment and personnel. In addition, we expect to spend significant
amounts to fund research and development and to enhance our core technologies.
As a result, we expect that our operating expenses will increase significantly
in the near term and, consequently, we will need to generate significant
additional revenues to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
WE ARE AN EARLY-STAGE COMPANY WITH AN UNPROVEN BUSINESS STRATEGY
Our strategy of using our gene sequence databases and knockout mice to select
promising candidates for drug target or therapeutic protein development is
unproven. We have generated limited revenues to date from subscriptions to our
databases and collaborations for the development and, in some cases, analysis of
knockout mice. Our success will depend upon our ability to enter into additional
subscription and collaboration agreements on favorable terms, determine which
genes have potential value and select an appropriate commercialization strategy
for each potential product we or our collaborators choose to pursue.
Biotechnology and pharmaceutical companies have successfully developed and
commercialized only a limited number of gene-based products to date. We have not
proven our ability to identify gene-based drugs or drug targets with commercial
potential, or to develop or commercialize drugs or drug targets that we do
identify. We cannot assure you that we will successfully select those genes with
the most potential for commercial development, or that any products based on
genes that we discover can be successfully commercialized. In addition, we may
experience unforeseen technical complications in the processes we use to
generate our gene sequence database and functional genomics resources. These
complications could materially delay or limit the use of those databases and
resources, substantially increase the anticipated cost of generating them or
prevent us from implementing our processes at appropriate quality and throughput
levels.
WE FACE SUBSTANTIAL COMPETITION IN THE DISCOVERY OF THE DNA SEQUENCES OF GENES
AND THEIR FUNCTIONS
There are a finite number of genes in the human genome, and we believe that the
majority of such genes have been identified by us or others conducting genomic
research and that virtually all will be identified within the next few years. We
face significant competition in our efforts to discover and patent the sequence
and other information derived from such genes from entities using
high-throughput expressed sequence tag, or EST, and genomic sequencing
approaches for the same purpose. We also face competition from entities using
more traditional methods to discover genes related to particular diseases. Many
of these entities have substantially greater financial, scientific and human
resources than we do. A large number of universities and other not-for-profit
institutions, many of which are funded by the U.S. and foreign governments, are
also conducting research to discover genes. A substantial portion of this
research is being conducted under the international Human Genome Project, a
multi-billion dollar program funded by the U.S. government and The Wellcome
Trust. The Human Genome Project's initial rough draft of the human genome is
expected to be completed and released this year. Any one or more of these
entities may discover and establish a patent position in one or more of the
genes that we wish to study.
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<PAGE> 10
We also face significant competition from entities using traditional knockout
mouse technology and other functional genomics technologies. Outside of the
United States, our ability to use our patent rights to prevent competition in
the creation and use of knockout mice is limited. Competitors could discover and
establish patents in genes or gene products that we or our collaborators
identify as a drug target or therapeutic protein. Numerous companies are in the
business of determining the function of genes and gene products. Furthermore, we
cannot assure you that other methods for conducting functional genomics research
will not ultimately prove superior, in some or all respects, to the use of
knockout mice. In addition, we cannot assure you that a technology more advanced
than or superior to our gene trapping technology will not be developed, thereby
rendering our gene trapping technology obsolete.
WE FACE SUBSTANTIAL COMPETITION IN OUR DRUG DISCOVERY AND PRODUCT DEVELOPMENT
EFFORTS FROM PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES, UNIVERSITIES AND OTHER
NOT-FOR-PROFIT INSTITUTIONS
We face competition in drug discovery and product development from entities that
have substantially greater research and product development capabilities and
financial, scientific, marketing and human resources than we do. We expect that
competition in drug discovery and development will intensify. Our competitors
may succeed in:
- developing products earlier than we do;
- obtaining approvals from the U.S. Food and Drug Administration, or FDA,
or other regulatory agencies for such products more rapidly than we do;
or
- developing products that are more effective than those we develop or
propose to develop.
WE RELY HEAVILY ON COLLABORATORS TO DEVELOP AND COMMERCIALIZE PRODUCTS BASED ON
GENES THAT WE IDENTIFY AS PROMISING CANDIDATES FOR DEVELOPMENT AS DRUG TARGETS
Since we do not currently possess the resources necessary to develop, obtain
approvals for or commercialize potential products based on genes contained in
our databases or genes that we identify as promising candidates for development
as drug targets or therapeutic proteins, we must enter into collaborative
arrangements to develop and commercialize these products. We will have limited
or no control over the resources that any collaborator may devote to this
effort. Any of our present or future collaborators may not perform their
obligations as expected. These collaborators may breach or terminate their
agreements with us or otherwise fail to conduct product discovery, development
or commercialization activities successfully or in a timely manner. Further, our
collaborators may elect not to develop products arising out of our collaborative
arrangements or may not devote sufficient resources to the development,
approval, manufacture, marketing or sale of these products. If any of these
events occurs, we may not be able to develop or commercialize potential
products.
Some of our agreements provide us with rights to participate in the commercial
development of compounds or therapeutic approaches derived from our
collaborations or access to our databases, technology or intellectual property.
We cannot assure you that we will be able to obtain such rights in future
collaborations or agreements. Our ability to obtain such rights depends in part
on the validity of our intellectual property, the advantages and novelty of our
technologies and databases and our negotiating position relative to each
potential collaborator or customer. Previous attempts by others in the industry
to obtain these rights with respect to the development of knockout mice and
related technologies have generated considerable controversy, especially in the
academic community.
ANY CANCELLATION BY OR CONFLICTS WITH OUR COLLABORATORS COULD HARM OUR BUSINESS
Our collaboration agreements may not be renewed and may be terminated in the
event either party fails to fulfill its obligations under these agreements. The
loss of revenues associated with a failure to renew or cancellation by a
collaborator could have an adverse effect on our results of operations. In 1999,
Millennium Pharmaceuticals, Inc. accounted for greater than 10% of our revenues,
and if our collaboration agreement with Millennium were to be terminated, our
revenues would be materially adversely affected.
In addition, we may pursue opportunities in fields that could conflict with
those of our collaborators. Moreover, disagreements could arise with our
collaborators over rights to our intellectual property or our rights to share in
any of the future revenues of compounds or therapeutic approaches developed by
our collaborators. These kinds of disagreements could result in costly and
time-consuming litigation. Any conflict with our collaborators could reduce our
ability to obtain future collaboration agreements and could have a negative
impact on our relationship with existing collaborators, adversely affecting our
business and revenues. Some of our collaborators could also become competitors
in the future. Our collaborators could develop competing products, preclude us
from entering into collaborations with their competitors or terminate their
agreements with us prematurely. Any of these developments could harm our product
development efforts.
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<PAGE> 11
WE HAVE NO EXPERIENCE IN DEVELOPING AND COMMERCIALIZING PRODUCTS ON OUR OWN
Our ability to develop and commercialize products on our own will depend on our
ability to internally develop preclinical, clinical, regulatory and sales and
marketing capabilities, or enter into arrangements with third parties to provide
those functions. We cannot assure you that we will be successful in developing
these capabilities or entering into agreements with third parties on favorable
terms, or at all. Further, our reliance upon third parties for these
capabilities could reduce our control over such activities and could make us
dependent upon these parties. Our inability to develop or contract for these
capabilities would have a material adverse effect on our business.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH, WHICH COULD INCREASE OUR
LOSSES
We have experienced a period of rapid growth that has placed and, if this growth
continues, will continue to place a strain on our human and capital resources.
If we are unable to manage our growth effectively, our losses could increase.
The number of our employees increased from 57 at December 31, 1997 to 93 at
December 31, 1998 and 122 at December 31, 1999. We intend to increase the number
of our employees significantly in 2000. Our ability to manage our operations and
growth effectively requires us to continue to expend funds to improve our
operational, financial and management controls, reporting systems and
procedures. If we are unable to successfully implement improvements to our
management information and control systems in an efficient or timely manner, or
if we encounter deficiencies in existing systems and controls, our management
may not have adequate information to manage our day-to-day operations.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, WE MAY BE UNABLE TO PURSUE COLLABORATIONS OR DEVELOP OUR OWN PRODUCTS
We are highly dependent on Arthur T. Sands, M.D., Ph.D., our president and chief
executive officer, as well as other principal members of our management and
scientific staff. The loss of any of these personnel would have a material
adverse effect on our business, financial condition or results of operations and
could inhibit our product development and commercialization efforts. Although we
have entered into employment agreements with some of our key personnel,
including Dr. Sands, these employment agreements are for a limited period of
time and not all key personnel have employment agreements.
We do not currently have sufficient executive management personnel to fully
execute our business plan. There is currently a shortage of skilled executives,
which is likely to continue and intensify. In addition, recruiting and retaining
qualified scientific personnel to perform future research and development work
will be critical to our success. Competition for experienced scientists is high.
Failure to recruit and retain executive management and scientific personnel on
acceptable terms would prevent us from achieving our business objectives.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE AND, IF IT IS NOT AVAILABLE, WE
WILL HAVE TO CURTAIL OR CEASE OPERATIONS
Our future capital requirements will be substantial and will depend on many
factors, including our ability to obtain database subscription and collaboration
agreements and government grants, the amount and timing of payments under such
agreements and grants, the level and timing of our research and development
expenditures, market acceptance of our products, the resources we devote to
developing and supporting our products and other factors.
We anticipate that the net proceeds of this offering and interest earned thereon
will enable us to maintain our currently planned operations for at least two
years. However, changes may occur that would consume available capital resources
significantly sooner than we expect. If our capital resources are insufficient
to meet future capital requirements, we will have to raise additional funds to
continue the development of our technologies and complete the commercialization
of products, if any, resulting from our technologies, which could adversely
affect the price of our common stock. We may be unable to raise sufficient
additional capital; if so, we will have to curtail or cease operations.
BECAUSE OUR ENTIRE OMNIBANK MOUSE CLONE LIBRARY IS LOCATED AT A SINGLE FACILITY,
THE OCCURRENCE OF A DISASTER COULD SIGNIFICANTLY DISRUPT OUR BUSINESS
Our OmniBank mouse clone library and its back-up are stored in liquid nitrogen
freezers located at our facility in The Woodlands, Texas. If a disaster such as
a fire, flood, hurricane, tornado or similar event significantly damages or
destroys the facility in which our mouse clone library and back-up are stored,
our business could be disrupted until we could regenerate the library and, as a
result, our stock price could decline. Our business interruption insurance may
not be sufficient to compensate us in the event of a major interruption due to
such a disaster.
9
<PAGE> 12
RISKS RELATED TO OUR INDUSTRY
OUR ABILITY TO PATENT OUR DISCOVERIES IS UNCERTAIN BECAUSE PATENT LAWS AND THEIR
INTERPRETATION ARE HIGHLY UNCERTAIN AND SUBJECT TO CHANGE
The patent positions of biotechnology firms generally are highly uncertain and
involve complex legal and factual questions that will determine who has the
right to develop a particular product. No clear policy has emerged regarding the
breadth of claims covered in biotechnology patents. The biotechnology patent
situation outside the United States is even more uncertain and is currently
undergoing review and revision in many countries. Changes in, or different
interpretations of, patent laws in the United States and other countries might
allow others to use our discoveries or to develop and commercialize our products
without any compensation to us.
OUR PATENT APPLICATIONS MAY NOT RESULT IN ENFORCEABLE PATENT RIGHTS
Our disclosures in our patent applications may not be sufficient to meet the
statutory requirements for patentability in all cases. Additionally, our patent
applications will cover many genes. As a result, we cannot predict which of our
patent applications will result in the granting of patents or the timing of the
granting of our patents. In addition, the Human Genome Project, as well as many
companies and institutions, have identified genes and deposited those partial
sequences in public databases and are continuing to do so. These public
disclosures might limit the scope of our claims or make unpatentable subsequent
patent applications on full-length genes.
Other companies or institutions have filed and will file patent applications
that attempt to patent genes or gene sequences that may be similar to our patent
applications. The Patent and Trademark Office would decide competing patent
claims in an interference proceeding. Any such proceeding would be costly, and
we provide no assurance that we would prevail. In addition, patent applications
filed by third parties may have priority over patent applications we file. In
this event, the third party may require us or our collaborators to stop pursuing
a potential product or to negotiate a royalty arrangement to pursue the
potential product.
Some court decisions indicate that disclosure of a partial sequence may not be
sufficient to support the patentability of a full-length sequence. We believe
that these court decisions and the uncertain position of the Patent and
Trademark Office present a significant risk that the Patent and Trademark Office
will not issue patents based on patent disclosures limited to partial gene
sequences, like those represented in the Human Gene Trap database. In addition,
we are uncertain about the scope of the coverage, enforceability and commercial
protection provided by any patents issued on the basis of partial gene
sequences.
IF OTHER COMPANIES AND INSTITUTIONS OBTAIN PATENTS CLAIMING THE FUNCTIONAL USES
OF GENES AND GENE PRODUCTS BASED UPON GENE SEQUENCE INFORMATION AND PREDICTIONS
OF GENE FUNCTION, WE MAY BE UNABLE TO OBTAIN PATENTS FOR OUR DISCOVERIES OF
BIOLOGICAL FUNCTION IN KNOCKOUT MICE
We intend to pursue patent protection covering the novel uses and functions of
new and known genes and proteins in mammalian physiology and disease states.
While an actual description of the biological function of a gene or protein
should enhance a patent position, we cannot assure you that such information
will increase the probability of issuance of any patents. Further, many other
entities are currently filing patents on genes based primarily on gene sequence
information alone. Many such applications seek to protect partial human gene
sequences, full-length gene sequences and the deduced protein products encoded
by the sequences. In general, such applications attempt to prophetically assign
biologic function to the DNA sequences based on computer predictions. While we
believe that patents covering gene function based on speculation and prediction
will not be issued, there is the significant possibility that patents claiming
the functional uses of genes and gene products will be issued to our competitors
based on such information.
IF OUR POTENTIAL PRODUCTS CONFLICT WITH PATENTS THAT COMPETITORS, UNIVERSITIES
OR OTHERS HAVE OBTAINED, THEN WE MAY BE UNABLE TO COMMERCIALIZE THOSE PRODUCTS
Our potential products and those of our collaborators may give rise to claims
that they infringe the patents of others. This risk will increase as the
biotechnology industry expands and as other companies obtain more patents and
attempt to discover genes through the use of high-speed sequencers. Other
companies or institutions could bring legal actions against us or our
collaborators for damages or to stop manufacturing and marketing the affected
products. If any of these actions are successful, in addition to potential
liability for damages, these persons may require us or our collaborators to
obtain a license in order to continue to manufacture or market the affected
products or may force us to terminate manufacturing or marketing efforts. We
believe that there will continue to be significant litigation in our industry
regarding patent and other intellectual property rights. Certain of our
competitors have and are continuing to expend significant amounts of time, money
and management
10
<PAGE> 13
resources on intellectual property litigation. If we become involved in
litigation, it could consume a substantial portion of our resources and could
adversely affect our business, financial condition and results of operations.
ISSUED PATENTS MAY NOT FULLY PROTECT OUR DISCOVERIES, AND OUR COMPETITORS MAY BE
ABLE TO COMMERCIALIZE PRODUCTS SIMILAR TO THOSE COVERED BY OUR ISSUED PATENTS
Issued patents may not provide commercially-meaningful protection against
competitors. Other companies or institutions may challenge our or our
collaborators' patents or independently develop similar products that could
result in an interference proceeding in the Patent and Trademark Office or a
legal action. In the event any single researcher or institution infringes upon
our or our collaborators' patent rights, enforcing these rights may be difficult
and can be time consuming. Others may be able to design around these patents or
develop unique products providing effects similar to our products. In addition,
others may discover uses for genes or proteins other than those uses covered in
our patents, and these other uses may be separately patentable. Even if we have
a patent claim on a particular gene, the holder of a patent covering the use of
that gene could exclude us from selling a product that is based on the same use
of that gene. In addition, with respect to certain of our patentable inventions,
we have decided not to pursue patent protection outside the United States, both
because we do not believe it is cost effective and because of confidentiality
concerns. Accordingly, our international competitors could develop, and receive
foreign patent protection for gene sequences and functions for which we are
seeking U.S. patent protection.
OUR RIGHTS TO THE USE OF TECHNOLOGIES LICENSED BY THIRD PARTIES ARE NOT WITHIN
OUR CONTROL
We rely, in part, on licenses to use certain technologies which are material to
our business. We do not own the patents which underly these licenses. Our rights
to use these technologies and practice the inventions claimed in the licensed
patents are subject to our licensors abiding by the terms of those licenses and
not terminating them. In many cases, we do not control the prosecution or filing
of the patents to which we hold licenses. We rely upon our licensors to prevent
infringement of those patents. Certain of the licenses under which we have
rights provide us with exclusive rights in specified fields, but we cannot
assure you that the scope of our rights under these and other licenses will not
be subject to dispute by our licensors or third parties.
WE MAY BE UNABLE TO PROTECT OUR TRADE SECRETS
While we have entered into confidentiality agreements with employees and
collaborators, we may not be able to prevent the disclosure of our trade
secrets. In addition, other companies or institutions may independently develop
substantially equivalent information and techniques.
WE AND OUR COLLABORATORS ARE SUBJECT TO EXTENSIVE AND UNCERTAIN GOVERNMENT
REGULATORY REQUIREMENTS, WHICH COULD INCREASE OUR OPERATING COSTS OR ADVERSELY
AFFECT OUR ABILITY TO OBTAIN GOVERNMENT APPROVAL OF PRODUCTS BASED ON GENES THAT
WE IDENTIFY IN A TIMELY MANNER OR AT ALL
The Animal Welfare Act, or AWA, is the only federal law that covers animals in
laboratories. It applies to institutions or facilities using any regulated live
animals for research, testing, teaching or experimentation, including diagnostic
laboratories and private companies in the pharmaceutical and biotechnology
industries. The AWA currently applies only to dogs, cats, primates, rabbits,
pigs, sheep and other farm animals and does not cover rats or mice. However, we
cannot assure you that the federal government will continue to monitor only
those animals currently regulated under the AWA. If the reach of the AWA was
expanded to cover mice, we would be subject to inspections and reporting
requirements. Compliance with the AWA may be expensive, and current or future
regulations could impair our research or production efforts.
Drugs and diagnostic products are subject to an extensive and uncertain
regulatory approval process by the FDA and comparable agencies in other
countries. The regulation of new products is extensive, and the required process
of laboratory testing and human studies is lengthy and expensive. The burden of
these regulations will fall on us to the extent we are developing proprietary
products on our own. If the products are the result of a collaboration effort,
these burdens may fall on our collaborating partner or may be shared with us. We
may not be able to obtain FDA approvals for those products in a timely manner,
or at all. We may encounter significant delays or excessive costs in our efforts
to secure necessary approvals or licenses. Even if we obtain FDA regulatory
approvals, the FDA extensively regulates manufacturing, labeling, distributing,
marketing, promotion and advertising after product approval. Moreover, several
of our product development areas may involve relatively new technology and have
not been the subject of extensive product testing in humans. The regulatory
requirements governing these products and related clinical procedures remain
uncertain. In addition, these products may be subject to substantial review by
foreign governmental regulatory authorities that could prevent or delay approval
in those countries.
11
<PAGE> 14
Regulatory requirements ultimately imposed on our products could limit our
ability to test, manufacture and, ultimately, commercialize our products and
thereby could adversely affect our financial condition and results of
operations.
SECURITY RISKS IN ELECTRONIC COMMERCE OR UNFAVORABLE INTERNET REGULATION MAY
DETER FUTURE USE OF OUR PRODUCTS AND SERVICES
We provide access to our databases and the opportunity to acquire our knockout
mice on the Internet. A fundamental requirement to conduct Internet-based,
business-to-business electronic commerce is the secure transmission of
confidential information over public networks. Failure to prevent security
breaches affecting our Internet exchange Lexgen.com, or the Internet in general
could significantly harm our business, operating results and financial
condition. Advances in computer capabilities, new discoveries in the field of
cryptography or other developments may result in a compromise or breach of the
algorithms we use to protect content and transactions on Lexgen.com or
proprietary information in our OmniBank database. Anyone who is able to
circumvent our security measures could misappropriate our proprietary
information, confidential customer information or cause interruptions in our
operations. We may be required to incur significant costs to protect against
security breaches or to alleviate problems caused by breaches. Further, a
well-publicized compromise of security could deter people from using the
Internet to conduct transactions that involve transmitting confidential
information.
Because of the growth in electronic commerce, Congress has held hearings on
whether to regulate providers of services and transactions in the electronic
commerce market, and federal or state authorities could enact laws, rules or
regulations affecting our business or operations. If enacted and applied to our
business, these laws, rules or regulations could render our business or
operations more costly, burdensome, less efficient or impracticable, any of
which could have a material adverse effect on our business.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS; ANY DISPUTES RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF
THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY
Our research and development processes involve the use of hazardous materials,
including chemicals and radioactive and biological materials. Our operations
also produce hazardous waste products. We cannot eliminate the risk of
accidental contamination or discharge or any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials. We could be
subject to civil damages in the event of an improper or unauthorized release of,
or exposure of individuals to, these hazardous materials. In addition, claimants
may sue us for injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our total assets.
Compliance with environmental laws and regulations may be expensive, and current
or future environmental regulations may impair our research, development or
production efforts.
WE MAY BE SUED FOR PRODUCT LIABILITY
We or our collaborators may be held liable if any product we or our
collaborators develop, or any product which is made with the use or
incorporation of any of our technologies, causes injury or is found otherwise
unsuitable during product testing, manufacturing, marketing or sale. Although we
currently have and intend to maintain product liability insurance, this
insurance may become prohibitively expensive, or may not fully cover our
potential liabilities. Inability to obtain sufficient insurance coverage at an
acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of products developed by
us or our collaborators. If we are sued for any injury caused by our or our
collaborators' products, our liability could exceed our total assets.
HEALTHCARE REFORM AND RESTRICTIONS ON REIMBURSEMENTS MAY LIMIT OUR FINANCIAL
RETURNS ON PRODUCTS BASED ON GENES THAT WE IDENTIFY AS PROMISING CANDIDATES FOR
DEVELOPMENT AS DRUGS OR DRUG TARGETS
Our ability and that of our collaborators to commercialize drugs and diagnostic
products may depend in part on the extent to which reimbursement for the cost of
these products will be available from government health administration
authorities, private health insurers and other organizations. These third
parties are increasingly challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
pharmaceutical products, and we cannot assure you that adequate third party
coverage will be available for any product to enable us to maintain price levels
sufficient to realize an appropriate return on our investment in research and
product development.
12
<PAGE> 15
PUBLIC PERCEPTION OF ETHICAL AND SOCIAL ISSUES MAY LIMIT OR DISCOURAGE THE USE
OF OUR TECHNOLOGIES, WHICH COULD REDUCE OUR REVENUES
Our success will depend in part upon our ability to develop products discovered
through our gene trapping and knockout mouse technologies. Governmental
authorities could, for social or other purposes, limit the use of genetic
processes or prohibit the practice of our gene trapping and knockout mouse
technologies. Claims that genetically engineered products are unsafe for
consumption or pose a danger to the environment may influence public attitudes.
The subject of genetically modified organisms, like knockout mice, has received
negative publicity and aroused public debate in some countries. Ethical and
other concerns about our technologies, particularly the use of genes from nature
for commercial purposes and the products resulting from this use, could
adversely affect our market acceptance.
RISKS RELATED TO THIS OFFERING
WE HAVE BROAD DISCRETION IN THE USE OF THE NET PROCEEDS FROM THIS OFFERING AND
MAY NOT USE THEM EFFECTIVELY
As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds we will receive from this offering.
Management will have broad discretion in the application of the net proceeds.
Management currently intends to use the net proceeds as described in "Use of
Proceeds." The failure by our management to apply these funds effectively could
have a material adverse effect on our business.
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL
YOUR SHARES AT OR ABOVE THE INITIAL OFFERING PRICE
Prior to this offering, there has been no public market for shares of our common
stock. An active trading market may not develop following completion of this
offering, and if it develops, may not be maintained. The initial public offering
price for the shares will be determined by negotiations between us and
representatives of the underwriters. This price may not be indicative of prices
that may 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 such as ours and companies whose
businesses are dependent on the Internet, have been highly volatile. In
addition, broad market and industry fluctuations that are not within our control
may adversely affect the trading price of our common stock. You may not be able
to resell your shares at or above the initial public offering price.
In addition, our quarterly operating results have fluctuated in the past and are
likely to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. In addition to the risks and uncertainties
described in this section, some of the factors that could cause our operating
results to fluctuate include:
- expiration of database subscriptions or research contracts with
collaborators or government research grants, which may not be renewed or
replaced;
- the success rate of our discovery efforts leading to milestones and
royalties;
- the timing and willingness of collaborators to commercialize products
which would result in royalties;
- general and industry-specific economic conditions, which may affect our
and our collaborators' research and development expenditures; and
- the timing and content of information released by the Human Genome
Project.
Due to the possibility of fluctuations in our revenues and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. Our operating results in some quarters may
not meet the expectations of stock market analysts and investors. In that case,
our stock price would probably decline.
In the past, stockholders have often instituted securities class action
litigation after periods of volatility in the market price of a company's
securities. If a stockholder files a securities class action suit against us, we
would incur substantial legal fees and our management's attention and resources
would be diverted from operating our business in order to respond to the
litigation.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
The initial public offering price will be substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will incur immediate dilution of $ in net tangible book value per
share of common stock, based on an assumed public offering price of $ per
share.
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<PAGE> 16
CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS ENABLES THEM TO COLLECTIVELY CONTROL ALL SIGNIFICANT
CORPORATE DECISIONS
Following this offering our directors, entities affiliated with our directors
and our executive officers will beneficially own, in the aggregate,
approximately % of our outstanding common stock. These stockholders as a
group will be able to elect our directors and officers, control the management
and affairs of our company and will be able to control most matters requiring
the approval of our stockholders, including any merger, consolidation or sale of
all or substantially all of our assets and any other significant corporate
transaction. The concentration of ownership will also prevent a change of
control of our company at a premium price if these stockholders oppose it.
Please read "Principal Stockholders" for details on our stock ownership.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER,
WHICH COULD NEGATIVELY AFFECT OUR STOCK PRICE
Provisions in our amended and restated charter and bylaws and applicable
provisions of the Delaware General Corporation Law may make it more difficult
for a third party to acquire control of us without the approval of our board of
directors. These provisions may make it more difficult or expensive for a third
party to acquire a majority of our outstanding voting common stock or delay,
prevent or deter a merger, acquisition, tender offer or proxy contest, which may
negatively affect our stock price.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK
Sales of a substantial number of shares of our common stock in the public market
following this offering could cause the market price of our common stock to
decline. Upon completion of this offering, we will have outstanding an aggregate
of shares of common stock, assuming no exercise of outstanding options or
warrants. Of these shares, all of the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act of 1933, or the Securities Act, unless these shares are purchased by
affiliates. The remaining 12,429,231 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 under the Securities Act.
Our executive officers, directors and certain stockholders have agreed pursuant
to "lock-up" agreements that, for a period of 180 days from the date of this
prospectus, they will not sell any shares of common stock without the prior
written consent of J.P. Morgan Securities Inc.
As a result of these "lock-up" agreements and the rules under the Securities
Act, the restricted shares will be available for sale in the public market,
subject to certain volume and other restrictions, as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DAYS AFTER THE NUMBER OF SHARES
EFFECTIVE DATE ELIGIBLE FOR SALE COMMENT
-------------- ----------------- -------
<S> <C> <C>
Upon effectiveness -- Shares not locked-up and eligible for sale under Rule 144
90 days -- Shares not locked-up and eligible for sale under Rules 144 and 701
180 days 12,139,231 Lock-up released; shares eligible for sale under Rules 144 and 701
</TABLE>
Additionally, of the 2,901,089 shares that may be issued upon the exercise of
options outstanding as of February 8, 2000, approximately 1,364,387 shares are
subject to options which will be vested and exercisable 180 days after the date
of this prospectus.
On the date 180 days after the closing date of this offering, the holders of
12,390,062 shares of our common stock and warrants exercisable for 246,667
additional shares of common stock will have rights to require us to register
their shares under the Securities Act. Upon the effectiveness of a registration
statement covering these shares, these shares would become freely tradable.
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering approximately 3,910,831 shares of common stock
reserved for issuance under our stock option plans. We expect the registration
statement to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under such registration
statement will be available for sale in the open market upon the effectiveness
of the registration statement unless they are held by persons that have signed a
"lock-up" agreement.
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<PAGE> 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate to
future events or our future financial performance. We have attempted to identify
forward-looking statements by terminology including "anticipate," "believe,"
"can," "continue," "could," "estimate," "expect," "intend," "may," "plan,"
"potential," "predict," "should" or "will" or the negative of these terms or
other comparable terminology. These statements are only predictions and involve
known and unknown risks, uncertainties and other factors, including the risks
and uncertainties outlined under "Risk Factors," that may cause our or our
industry's actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are not under any duty to update any
of the forward-looking statements after the date of this prospectus to conform
these statements to actual results, unless required by law.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock we are
offering, at an assumed initial public offering price of $ per share, are
estimated to be approximately $ million after deducting underwriting
discounts and estimated offering expenses payable by us. We expect to use the
net proceeds to:
- increase functional genomics research using knockout mice to define the
functions of genes that encode potential drug targets and therapeutic
proteins;
- expand our Human Gene Trap database and OmniBank database and library;
- generate full-length sequences of a prioritized set of genes that appear
by bioinformatics analysis to encode potential drug targets and
therapeutic proteins; and
- fund working capital, capital expenditures and other general corporate
purposes.
The amounts and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development and commercialization
efforts, the amount of proceeds actually raised in this offering, the amount of
cash generated by our operations, competition and sales and marketing
activities. We may also use a portion of the proceeds for the acquisition of, or
investment in, companies, technologies or assets that complement our business.
However, we have no present understandings, commitments or agreements to enter
into any potential acquisitions or investments. Further, we have not determined
the amounts we plan to spend on any of the areas listed above or the timing of
these expenditures. As a result, our management will have broad discretion to
allocate the net proceeds from this offering. Pending application of the net
proceeds as described above, we intend to invest the net proceeds of the
offering in short-term investment grade and U.S. government securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock or any other securities.
We anticipate that we will retain all of our future earnings, if any, for use in
the expansion and operation of our business and do not anticipate paying cash
dividends in the foreseeable future.
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<PAGE> 18
CAPITALIZATION
The following table summarizes as of December 31, 1999 our cash, cash
equivalents and marketable securities and our capitalization:
- on an actual basis; and
- on a pro forma as adjusted basis to reflect the conversion of all our
outstanding convertible preferred stock into 4,244,664 shares of common
stock upon the closing of this offering and the sale of shares of
common stock at an assumed initial public offering price of $ per
share, less estimated underwriting discounts and estimated offering
expenses.
This table does not include: 1,857,487 shares issuable on the exercise of stock
options outstanding as of December 31, 1999 at a weighted average exercise price
of $5.05 per share; 334,500 shares issuable upon exercise of warrants
outstanding as of December 31, 1999 at an exercise price of $7.50 per share; or
142,513 additional shares that we could have issued under our stock option plan
as of such date.
This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
-----------------------
DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
In thousands, except share data
Cash, cash equivalents and marketable securities............ $ 9,156 $
======== ========
Long-term obligations, net of current portion............... $ 3,577 $ 3,577
Redeemable convertible preferred stock, $0.01 par value;
4,244,664 shares authorized, 4,244,664 shares issued and
outstanding, actual; no shares authorized or outstanding,
pro forma as adjusted..................................... 30,050 --
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 5,755,336 shares
authorized, no shares issued and outstanding, actual;
5,000,000 shares authorized, no shares issued and
outstanding, pro forma as adjusted.................... -- --
Common stock, $0.001 par value; 25,000,000 shares
authorized, 8,180,067 shares issued and outstanding,
actual; 70,000,000 shares authorized, shares issued
and outstanding, pro forma as adjusted................ 8
Additional paid-in capital............................. 8,772
Deferred stock compensation............................ (915) (915)
Accumulated deficit.................................... (29,801) (29,801)
-------- --------
Total stockholders' equity (deficit).............. (21,936)
-------- --------
Total capitalization.............................. $ 11,691 $
======== ========
</TABLE>
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<PAGE> 19
DILUTION
The pro forma net tangible book value of our common stock on December 31, 1999,
reflecting the conversion of all outstanding shares of convertible preferred
stock into shares of common stock upon the closing of this offering, was
approximately $8.1 million, or approximately $0.65 per share. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities divided by the number of shares of common stock
outstanding. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. Assuming the sale of shares of our
common stock offered by this prospectus at an assumed initial public offering
price of $ per share, and after deducting estimated underwriting discounts
and estimated offering expenses, our adjusted pro forma net tangible book value
at December 31, 1999 would have been approximately $ million, or
approximately $ per share. This represents an immediate decrease in net
tangible book value of $ per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution on
a per share basis.
<TABLE>
<CAPTION>
----------------
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at December
31, 1999.............................................. $0.65
Increase per share attributable to new investors.......
-----
Adjusted pro forma net tangible book value per share after
this offering.............................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The foregoing discussion and table assume no exercise of any outstanding stock
options or warrants. The exercise of all options and warrants outstanding as of
December 31, 1999 having an exercise price less than the initial public offering
price would increase the dilutive effect to new investors to $ per share.
The following table summarizes, on a pro forma basis, as of December 31, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares in this offering. We
have assumed an initial public offering price of $ per share, and we have
not deducted estimated underwriting discounts and estimated offering expenses in
our calculations.
<TABLE>
<CAPTION>
------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ 12,424,731 % $36,716,508 % $2.96
New investors....................................
---------- ----- ----------- ------
Total............................................ 100.0% $ 100.0%
========== ===== =========== ======
</TABLE>
17
<PAGE> 20
SELECTED FINANCIAL DATA
The statements of operations data for each of the years ended December 31, 1997,
1998 and 1999, and the balance sheet data as of December 31, 1998 and 1999, have
been derived from our audited financial statements included elsewhere in this
prospectus that have been audited by Arthur Andersen LLP, independent public
accountants. The statements of operations data for the period from our inception
on July 7, 1995 through December 31, 1995 and for the year ended December 31,
1996, and the balance sheet data at December 31, 1995, 1996 and 1997, have been
derived from our audited financial statements not included in this prospectus.
The pro forma net loss per share data reflect the conversion of our outstanding
convertible preferred stock upon closing of this offering. Our historical
results are not necessarily indicative of results to be expected for any future
period. The data presented below have been derived from financial statements
that have been prepared in accordance with generally accepted accounting
principles and should be read with our financial statements, including the
accompanying notes, and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PERIOD FROM
INCEPTION
(JULY 7, 1995)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------------------
1995 1996 1997 1998 1999
-------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
In thousands, except share data
STATEMENTS OF OPERATIONS DATA
Revenues.................................. $ -- $ 306 $ 968 $ 2,242 $ 4,738
Operating expenses
Research and development................ 445 2,409 4,970 8,410 14,646
General and administrative.............. 236 764 1,473 2,024 2,913
------------ ---------- ---------- ---------- -----------
Total operating expenses........ 681 3,173 6,443 10,434 17,559
------------ ---------- ---------- ---------- -----------
Loss from operations...................... (681) (2,867) (5,476) (8,192) (12,821)
Interest income (expense), net............ 9 (12) 74 711 346
------------ ---------- ---------- ---------- -----------
Net loss.................................. (672) (2,879) (5,402) (7,481) (12,475)
------------ ---------- ---------- ---------- -----------
Accretion on redeemable convertible
preferred stock......................... -- -- -- (357) (535)
------------ ---------- ---------- ---------- -----------
Net loss attributable to common
stockholders............................ $ (672) $(2,879) $(5,402) $(7,838) $(13,011)
============ ========== ========== ========== ===========
Net loss per common share, basic and
diluted................................. $(0.20) $ (0.50) $ (0.68) $ (0.96) $ (1.59)
============ ========== ========== ========== ===========
Shares used in computing net loss per
common share, basic and diluted......... 3,287,099 5,782,076 7,996,323 8,148,474 8,176,809
Pro forma net loss per common share, basic
and diluted............................. $ (1.00)
Shares used in computing pro forma net
loss per common share, basic and
diluted................................. 12,421,473
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------
AS OF DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1998 1999
----- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities........... $ 340 $ -- $ 1,980 $ 19,422 $ 9,156
Working capital............................................ 9 (303) 1,009 18,102 2,021
Total assets............................................... 721 1,090 4,917 28,516 22,295
Long-term obligations, net of current portion.............. -- 81 5,268 5,024 3,577
Redeemable convertible preferred stock..................... -- -- -- 29,515 30,050
Accumulated deficit........................................ (672) (3,551) (8,953) (16,790) (29,801)
Total stockholders' equity (deficit)....................... 340 521 (1,931) (9,034) (21,936)
</TABLE>
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read with "Selected Financial
Data" and our financial statements and notes included elsewhere in this
prospectus. The discussion in this prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary statements made
in this prospectus regarding forward-looking statements should be read as
applying to all related forward-looking statements wherever they appear in this
prospectus. Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to these differences include those
discussed in "Risk Factors," as well as those discussed elsewhere in this
prospectus. Please read "Risk Factors" and "Special Note Regarding
Forward-Looking Statements."
OVERVIEW
We are a leading genomics company using proprietary gene trapping technology to
discover thousands of novel genes and to expand our OmniBank library of tens of
thousands of knockout mouse clones for drug discovery. We have established an
Internet exchange, Lexgen.com, to enable researchers worldwide to access our
OmniBank library and to form collaborations with us to discover pharmaceutical
products based on genes and knowledge of their function. Through our ongoing
collaborations with pharmaceutical companies, biotechnology companies and
academic researchers, we receive fees and may obtain royalties and milestone
payments from commercialization of pharmaceutical products developed using our
genomics technologies. We believe that providing global access to our OmniBank
library through the Internet will significantly accelerate genomics research and
will enable us to establish a leadership position in drug target and therapeutic
protein discovery.
We derive substantially all of our revenues from subscriptions to our databases,
collaborations for the development and, in some cases, analysis of knockout mice
and from government grants. To date, we have generated a substantial portion of
our revenues from a limited number of sources.
Since our inception, we have incurred significant losses and, as of December 31,
1999, we had an accumulated deficit of $29.8 million, which includes $892,362 of
accretion on redeemable convertible preferred stock. Our losses have resulted
principally from costs incurred in research and development and from general and
administrative costs associated with our operations. Research and development
expenses consist primarily of salaries and related personnel costs, material
costs, legal expenses resulting from intellectual property prosecution and other
expenses related to the generation of our Human Gene Trap database, OmniBank
database and library and the development of knockout mice. We expense our
research and development costs as they are incurred. General and administrative
expenses consist primarily of salaries and related expenses for executive,
finance and other administrative personnel, professional fees and other
corporate expenses including business development and general legal activities.
In connection with the expansion of our Human Gene Trap database, OmniBank
database and library and functional genomics research efforts, we expect to
incur increasing research and development and general and administrative costs.
As a result, we will need to generate significantly higher revenues to achieve
profitability.
Our quarterly operating results will depend upon many factors, including
expiration of research contracts with collaborators or government research
grants, the success rate of our discovery efforts leading to milestones and
royalties, the timing and willingness of collaborators to commercialize products
which would result in royalties, general and industry-specific economic
conditions which may affect research and development expenditures and the timing
and content of information released by the Human Genome Project. As a
consequence, our quarterly operating results have fluctuated in the past and are
likely to do so in the future.
During 1999, we recorded deferred stock compensation of $1.0 million. Deferred
stock compensation represents the difference between the deemed fair value of
our common stock for accounting purposes and the exercise price of options at
the date of grant. We anticipate that additional deferred compensation totaling
approximately $23.2 million will be recorded for options granted in the first
quarter of 2000. These amounts are being amortized over the respective vesting
periods of the individual stock options. We recorded amortization of deferred
compensation of $85,633 for 1999. We expect to record amortization expense for
deferred compensation as follows: $9.7 million during 2000, $4.3 million during
2001, $4.3 million during 2002, $4.3 million during 2003 and $600,000 during
2004. The amount of deferred compensation expense to be recorded in future
periods may decrease if unvested options for which deferred compensation has
been recorded are subsequently canceled.
As of December 31, 1999, we had net operating loss carryforwards of
approximately $27.0 million. We also had research and development tax credit
carryforwards of approximately $671,000. The net operating loss and credit
carryforwards will expire at various dates beginning in 2011, if not utilized.
Utilization of the net operating losses and credits may be substantially limited
19
<PAGE> 22
due to the change in ownership provisions of the Internal Revenue Code of 1986
and similar state provisions. The annual limitation may result in the expiration
of net operating losses and credits before utilization.
RESULTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
Revenues. Total revenues increased 111% to $4.7 million in 1999 from $2.2
million in 1998. Of the $2.5 million increase, $1.4 million was derived from
increased database subscription and license fees and $1.1 million was derived
from increased fees for the development of knockout mice.
Research and Development Expenses. Research and development expenses increased
74% to $14.6 million in 1999 from $8.4 million for 1998. The increase of $6.2
million was attributable to continued growth of research and development
activities, including $2.6 million related to increased personnel and laboratory
supply costs to support the generation of our Human Gene Trap database, OmniBank
database and library and the development of knockout mice and $2.9 million
related to higher operating expenses as a result of the completion of our new
animal facility in January 1999, with the remainder due to expansion in
operating activities. As of December 31, 1999, production costs incurred in the
development of knockout mice for commercial sale have not been significant.
General and Administrative Expenses. General and administrative expenses
increased 44% to $2.9 million during 1999 from $2.0 million for 1998. The
increase of $888,799 was due to $720,694 related to compensation for business
development, finance and administrative personnel, with the remainder due to
overall expansion in our operations.
Interest Income and Interest Expense. Interest income decreased 23% to $648,906
in 1999 from $838,110 in 1998. This decrease resulted from a declining cash and
investment balance due to cash used in operating activities. Interest expense
increased 139% to $302,802 in 1999 from interest expense of $126,665 in 1998.
This increase resulted from higher debt obligation balances in 1999.
Years Ended December 31, 1998 and 1997
Revenues. Total revenues increased 132% to $2.2 million in 1998 from $967,742
in 1997. Of the $1.3 million increase, $425,075 was derived from increased
database subscription and license fees and $585,789 was derived from increased
fees from the development of knockout mice.
Research and Development Expenses. Our research and development expenses
increased 69% to $8.4 million in 1998 from $5.0 million in 1997. The increase of
$3.4 million was due to $1.1 million related to compensation for additional
scientific personnel and $1.7 million due to additional laboratory supply costs,
with the remainder due to expansion in our operating activities.
General and Administrative Expenses. General and administrative expenses
increased 37% to $2.0 million in 1998 from $1.5 million in 1997. The increase
was due to hiring of additional personnel to support our growing business
activities.
Interest Income and Interest Expense. Interest income increased 530% to
$838,110 in 1998 from interest income of $133,004 for 1997. This increase was
due to increases in cash and investment balances as a result of our $31.8
million redeemable convertible Series A preferred stock equity financing in May
1998. Interest expense increased 115% to $126,665 in 1998 from interest expense
of $58,861 for 1997. This increase resulted from higher average capital lease
and debt obligation balances in 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through private sales
of common and preferred stock, contract and milestone payments to us under our
database subscription and collaboration agreements and equipment financing
arrangements. As of December 31, 1999, we had received net proceeds of $36.7
million from issuances of common and preferred stock. In addition, from our
inception through December 31, 1999, we received $13.1 million in cash payments
from database subscription and license fees, fees for the development of
knockout mice, sales of products related to the generation of knockout mice and
government grants, of which $8.3 million had been recognized as revenues through
December 31, 1999.
As of December 31, 1999, we had $9.2 million in cash, cash equivalents and
marketable securities, as compared to $19.4 million as of December 31, 1998. We
used $9.6 million for operations in the year ended December 31, 1999. This
consisted of the net loss for the period of $12.5 million offset in part by
non-cash charges of $1.9 million related to depreciation expense. We received
$5.2 million from investing activities for the year ended December 31, 1999,
which
20
<PAGE> 23
consisted principally of net proceeds from the sale of marketable securities of
$9.3 million offset by purchases of property and equipment of $4.1 million.
In June 1999, we entered into a $5.0 million financing arrangement for the
purchase of property and equipment. As of December 31, 1999, we had drawn down
approximately $4.2 million and had $831,940 remaining available under this
arrangement. As of December 31, 1999, $3.7 million of the amount outstanding was
secured by the equipment financed. This facility accrues interest at a
weighted-average rate of approximately 11.7% and is due in monthly installments
through 2003. In addition, as of December 31, 1999, we had $133,398 in
capitalized lease obligations outstanding compared to $303,199 at December 31,
1998.
Our capital requirements depend on numerous factors, including our ability to
obtain database subscription and collaboration agreements and government grants,
the amount and timing of payments under such agreements and grants, the level
and timing of our research and development expenditures, market acceptance of
our products, the resources we devote to developing and supporting our products
and other factors. We expect to devote substantial capital resources to continue
our research and development efforts, to expand our support and product
development activities, and for other general corporate activities. We believe
that our current cash balances, together with the net proceeds of this offering
and revenues to be derived from subscriptions to our databases, collaborations
for the development and, in some cases, analysis of knockout mice and government
grants, will be sufficient to fund our operations for at least two years. During
or after this period, if cash generated by operations is insufficient to satisfy
our liquidity requirements, we may need to sell additional equity or debt
securities or obtain additional credit arrangements. Additional financing may
not be available on terms acceptable to us or at all. The sale of additional
equity or convertible debt securities may result in additional dilution to our
stockholders.
IMPACT OF INFLATION
The effect of inflation and changing prices on our operations was not
significant during the periods presented.
DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk is confined to our cash and cash equivalents which
have maturities of less than three months. We maintain an investment portfolio
of depository accounts, master notes and liquidity optimized investment
contracts. The securities in our investment portfolio are not leveraged, are
classified as available-for-sale and are, due to their very short-term nature,
subject to minimal interest rate risk. We currently do not hedge interest rate
exposure. Because of the short-term maturities of our investments, we do not
believe that an increase in market rates would have any negative impact on the
realized value of our investment portfolio.
We have operated primarily in the United States and all sales to date have been
made in U.S. dollars. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.
21
<PAGE> 24
BUSINESS
COMPANY OVERVIEW
We are a leading genomics company using proprietary gene trapping technology to
discover thousands of novel genes and to expand our OmniBank library of tens of
thousands of knockout mouse clones for drug discovery. We have established an
Internet exchange, Lexgen.com, to enable researchers worldwide to access our
OmniBank library and to form collaborations with us to discover pharmaceutical
products based on genes and knowledge of their function. Through our ongoing
collaborations with pharmaceutical companies, biotechnology companies and
academic researchers, we receive fees and may obtain royalties and milestone
payments from commercialization of pharmaceutical products developed using our
genomics technologies. We believe that providing global access to our OmniBank
library through the Internet will significantly accelerate genomics research and
will enable us to establish a leadership position in drug target and therapeutic
protein discovery.
Our proprietary gene trapping technology captures gene sequence information and
enables us to:
- obtain DNA sequences of rarely expressed genes;
- identify genes contained within the DNA sequence of the chromosome;
- obtain DNA sequence of genes throughout the human genome at a fraction of
the cost of traditional approaches; and
- create a genome-wide knockout mouse library for discovery of gene
function.
We have created three key gene discovery and functional genomics resources,
which we are continuing to expand for drug discovery:
- Our Human Gene Trap database, which presently contains DNA sequence from
approximately 50,000 human genes that we have rapidly and efficiently
trapped from human chromosomes and analyzed in a relational database. We
believe that, at present, approximately 50% of the gene sequences
contained in our Human Gene Trap database are not represented in public
contiguous gene sequence databases. We are using this resource to obtain
full-length gene sequence information for drug discovery.
- Our OmniBank database and mouse clone library, which presently contains
more than 60,000 embryonic stem (ES) cell clones stored in liquid
nitrogen freezers and identified by DNA sequence in a relational
database. Each OmniBank ES cell clone can be grown into a knockout
mouse -- a mouse whose DNA has been altered to disrupt, or "knock out,"
the function of a specified gene.
- Lexgen.com, a genomics Internet exchange through which researchers at
pharmaceutical and biotechnology companies and academic institutions
worldwide subscribe to our OmniBank database to conduct web-based,
bioinformatics mining of genes, acquire knockout mouse clones and
determine the function of genes with us under e-Biology collaborations.
STRATEGY
Our principal objective is to establish a leadership position in drug target and
therapeutic protein discovery. The key elements of our strategy include the
following:
Discover and Obtain Proprietary Rights to a Substantial Number of Human
Genes. We plan to continue the development of our Human Gene Trap database
until we have substantially covered, or saturated, the human genome using our
proprietary gene-trapping technology. We intend to continue our efforts to
obtain full-length sequences of a prioritized set of genes that appear by
bioinformatics analysis to encode potential drug targets and therapeutic
proteins.
Expand OmniBank and Develop Custom Knockout Mice for Selected Genes. OmniBank
currently contains over 60,000 knockout mouse clones. We plan to expand our
OmniBank library until we have saturated the mouse genome using our proprietary
gene trapping technology. We intend to use our patented gene targeting
technology as a complement to OmniBank to generate custom knockout mice to
discover the functions of specific genes.
Use the Internet to Establish Gene Function Discovery Collaborations. Through
Lexgen.com, our genomics Internet exchange, we plan to expand our efforts to use
OmniBank knockout mouse clones to establish e-Biology gene function discovery
collaborations with researchers at pharmaceutical and biotechnology companies
and academic institutions worldwide. We believe that we can harvest high-value
information on gene function for drug discovery through our e-Biology
collaborations.
Discover the Functions of Large Numbers of Genes that Encode Potential Drug
Targets and Therapeutic Proteins. We plan to conduct internal research programs
using a large number of knockout mice to discover the physiologic, cellular and
22
<PAGE> 25
biochemical functions of a prioritized set of genes. Our goal is to identify the
most promising candidate genes for development as drug targets or therapeutic
proteins. We plan to use functional genomics information obtained from our
e-Biology collaborations to complement our internal research efforts.
Develop Promising Drug Candidates through Collaborations or with Our Own
Resources. We have and will continue to establish drug discovery collaborations
with pharmaceutical and biotechnology companies for the identification and
development of promising drug target and therapeutic protein candidates. We will
continue to seek combinations of research funding, licensing fees, milestone
payments, royalties and co-promotion rights in connection with these
collaborative agreements. Although we generally expect to rely on our
collaborators for clinical development and commercialization of products, we may
elect to pursue the research and clinical development of drug candidates on our
own.
THE GENOME
The body is composed of specialized cells that perform different functions and
are organized into tissues and organs. Cells in the body contain approximately
100,000 genes, referred to as the genome. Approximately 10% of the total number
of genes are expressed in an individual cell, and different subsets of genes are
expressed at significantly different levels in distinct cell types. Most genes
direct the production of specific proteins, resulting in the production of
approximately 10,000 different proteins in a typical cell. Proteins, such as
peptide hormones, enzymes and receptors, carry out and regulate critical
physiological functions in the body. The genome encodes the proteins made by
cells of the body.
The human genome is comprised of complementary strands of deoxyribonucleic acid,
or DNA, molecules organized into 23 pairs of chromosomes. These DNA molecules
consist of long chains of nucleotide bases that pair to form a twisted ladder-
like structure known as the double helix. There are four types of nucleotides in
DNA, adenine, cytosine, guanine and thymine, which are often abbreviated by
their first letters A, C, G and T. The entire human genome contains
approximately 3.5 billion nucleotide base pairs.
Genes carry the specific information, or code, necessary to construct, or
express, proteins that regulate human physiology. Genes make up approximately
three to five percent of chromosomes and are structurally defined by the
sequence of nucleotide bases contained in DNA. The remaining 95% to 97% of DNA
in chromosomes does not code for protein. Genes are composed of segments called
exons that are separated by non-coding DNA known as introns. Taken together, the
coding and non-coding DNA is commonly referred to as genomic DNA or chromosomal
DNA.
The information contained in genes is used to express proteins via a two-step
process. The first step in protein expression is called transcription, in which
the DNA sequence of a gene is copied into a molecule known as ribonucleic acid,
or RNA. A splicing process within the cell then removes the introns, or
non-coding segments, from the transcript, thereby creating a messenger RNA, or
mRNA. The mRNA contains only the exons of the transcribed gene. In the second
step, the mRNA directs the assembly of the protein product of the gene in a
process called translation.
Genomics: Gene Sequence Discovery
The Human Genome Project and other publicly and privately-funded DNA sequencing
efforts have invested considerable resources to sequence the genes in the human
genome. Most of these resources have been invested in high-throughput sequencing
projects using two approaches: EST and genomic DNA sequencing.
EST sequencing uses mRNA from transcription of genes that has been converted
artificially, or in vitro, to form complementary DNA, or cDNA. High-throughput
EST sequencing obtains partial DNA sequence from the ends of the cDNA molecules.
It is generally believed that more than one-half of all human genes have been at
least partially sequenced using the EST approach.
Obtaining a complete set of human gene sequences requires the sequencing of
cDNAs from many different cell types and tissues. Since EST sequencing relies on
cDNA from mRNAs, it can, at best, identify the 10% of genes that are typically
expressed in the tissue or cell type from which the mRNA was obtained. EST
sequencing is further complicated by the fact that many genes are expressed at
thousands of times the levels of other genes, leading to thousands more copies
of certain mRNAs as compared to mRNAs from rarely expressed genes. Using current
EST technology, mRNAs expressed at very low levels are rarely detected. This has
significant implications for genomics-based drug discovery since rare mRNAs are
thought to encode key regulatory proteins that are enriched for potential drug
targets or therapeutic proteins.
The Human Genome Project and certain other high-throughput genomic DNA
sequencing efforts have employed a second approach involving the sequencing of
genomic DNA or entire chromosomes. It is expected that the Human Genome Project
will release a "working draft" of sequence from the human genome in the spring
of 2000. Genomic sequencing efforts obtain the sequence of whole chromosomes,
including the 95% to 97% of non-coding DNA.
23
<PAGE> 26
Genomic sequencing of entire chromosomes is an expensive and inefficient way to
determine gene sequence because the exons that represent a gene are separated by
large regions of non-coding intron DNA sequence. A significant amount of
analysis and additional information is required to identify the exons within the
genomic sequence and to determine how those exons splice together to form mRNAs
from genes.
Functional Genomics: Defining Gene Function
Gene sequencing permits identification of the nucleotide sequence of the gene
but by itself does not predict the function of a gene in physiology and disease.
The growing databases of gene sequences are analagous to a dictionary containing
thousands of words, with only a handful of definitions.
Researchers use a variety of methods to obtain clues about gene function, like
gathering information about where a gene's transcript is found and where the
corresponding protein is expressed in the cell. Experiments are also conducted
using cell culture, biochemical studies and non-mammalian organisms. While these
methods may provide useful information about gene function at the biochemical
and cellular levels, their ability to provide information about how genes
control mammalian physiology is significantly limited.
The preferred method of determining a gene's function in mammals is to disrupt,
or knock out, the gene in a mouse and then assess the physiological and
biochemical consequences in the whole animal. The results of such an analysis
can determine the function and disease relevance of a particular gene. Since
mice and humans are mammals, the mouse has advantages over non-mammalian model
organisms for defining the function and disease relevance of human genes:
- The human and mouse genomes bear a high degree of similarity; large
regions of the two genomes contain similar genes in a similar order.
- The mouse is the only mammal for which ES cell cloning technology has
been well-established, and it is also the only mammal that can be
genetically engineered on a large scale.
- The mouse is one of the most widely-used animal model systems in the
pharmaceutical industry because it has similar organ systems and
physiology to humans.
The value of knockout mice as models for defining the function and disease
relevance of human genes is further evidenced by the Mouse Genome Project
recently initiated by the National Institute of Health. This project is the only
large-scale mammalian genome sequencing project funded by the U.S. government
other than the Human Genome Project itself.
While gene-targeting experiments in ES cells have led to substantial successes
in identifying gene function, traditional methods of producing knockout mice are
slow, labor-intensive and often unpredictable. These impediments have limited
the rate at which knockout mice may be produced. In addition, only genes that
are cloned and partially sequenced can be knocked out. This procedure requires
highly-skilled scientific personnel and often requires a year or more of work.
We estimate that, to date, knockout mice for fewer than five percent of genes
have been made by traditional gene-targeting technology, indicating that
substantial opportunities exist for high-throughput methodologies to create
knockout mice to define gene function.
LEXICON GENETICS TECHNOLOGY
Gene Trapping
We believe that our proprietary gene trapping technology represents a
significant advance in the discovery of genes and their function and an equally
significant departure from traditional mechanisms of drug discovery. Our
proprietary gene trapping technology uses a type of virus called a retrovirus
that has been genetically engineered. These retroviruses infect cells in vitro,
integrate into the chromosome of the cell and deliver molecular traps for genes.
Our gene traps stimulate transcription and use the cell's own splicing machinery
to extract a transcript of a gene from the chromosome for automated DNA
sequencing. Additionally, when we introduce our gene traps in mouse ES cells,
they disrupt the function of the trapped genes and allow for the production of
knockout mice.
[Graphic depicting our gene trapping technology, including gene trap insertion
into target chromosomes, consequent gene function and sequence discovery]
24
<PAGE> 27
Gene Sequence Discovery. We believe that our proprietary gene trapping
technology is able to identify genes largely independent of mRNA expression
levels in any given cell type. This ability allows us to identify rarely
expressed genes, which are thought to encode classes of proteins that are
enriched for important drug targets and therapeutic proteins. The same ability
also allows us to obtain DNA sequence of genes throughout the human genome at a
fraction of the cost of EST or genomic sequencing approaches. As a result, we
believe that our gene-trapping technology gives us a significant competitive
advantage in the race to identify novel genes, overcoming many of the
limitations of other gene discovery technologies.
COMPARISON OF GENE SEQUENCE DISCOVERY TECHNOLOGY
<TABLE>
<CAPTION>
LEXICON GENE TRAPPING EST SEQUENCING CHROMOSOME SEQUENCING
--------------------- -------------- ---------------------
<S> <C> <C>
- - Trapped genes include rarely - Bias toward sequencing highly - Only 3% - 5% of sequence contains
expressed genes expressed genes genes
- - High rate of novel gene discovery - Difficult to obtain any more novel - Difficult to identify novel genes
genes reliably
- - High-throughput gene function - Lacking functional genomics - Lacking functional genomics
discovery capability capability
</TABLE>
We have also conducted pilot programs in which we have demonstrated the utility
of gene trapping in several agriculturally important animals and companion
animals, and believe that our technology represents a superior method to capture
gene sequences from the genomes of such animals.
We believe that our scientists are the first in the world to automate the
high-throughput production and analysis of gene trap events. We have also
implemented integrated and automated procedures using computers and robotics to
perform most of the DNA sequencing tasks, including robotic preparation of
templates for sequencing and automated sequence reactions using high-throughput,
fluorescent DNA sequencers. This integrated approach allows our scientists to
move from human gene trap template or mouse ES cell clone to DNA sequence with
speed and efficiency. We have also implemented a rapid method to clone and
sequence full-length human genes from cDNA libraries that are discovered through
our gene trapping technology.
Defining Gene Function. Mouse ES cells are cells that may be genetically
manipulated using our gene trapping and gene targeting technologies. When the
desired genetic changes have been introduced into the ES cells, clones of cells
containing specific alterations in genes are selected and grown as colonies in
vitro. These colonies each represent a new mouse clone with a defined alteration
in a specific gene and can be grown into knockout mice with the desired
alteration. In this form, ES cell clones may be stored indefinitely in liquid
nitrogen freezers.
We use our gene trap retroviral vectors in a high-throughput, automated process
to rapidly and cost-effectively create knockout mouse clones. Our OmniBank
library presently contains more than 60,000 frozen ES cell clones identified by
DNA sequence in a relational database. Importantly, our gene trapping vectors
are designed to trap genes in a manner largely independent of their levels of
expression, permitting even very rare gene transcripts to be included in our
OmniBank database and library. We estimate that OmniBank currently contains
genes that represent approximately one-third of the mammalian genome.
[Figure which depicts growth of ES cell clones, storage in
OmniBank liquid nitrogen freezers, and production of knockout mice]
We are currently generating approximately 1,000 genetically engineered knockout
ES cell clones per week using our technology. Our current weekly production
significantly exceeds the estimated annual production of knockout mice made by
traditional methods, and at a fraction of the cost. Our OmniBank library permits
researchers to analyze gene function even without prior knowledge of the DNA
sequence of the gene, permitting analysis of large numbers of knockout mice in
order to discover those genes that are responsible for particular biological
functions. We believe that this combination of high-
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<PAGE> 28
throughput gene trapping and large-scale ES cell cloning of the mouse will
enable us and our collaborators to more rapidly discover those genes that are
the most promising for development as drug targets and therapeutic proteins.
The following chart lists examples of OmniBank knockout mice that we have
developed to identify the function of specific genes. These knockout mice have
been developed as part of our agreement with Merck Genome Research Institute.
Please read "--Commercialization--Collaborators, Customers and Programs" for a
description of this agreement.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OMNIBANK GENE KNOCKOUT POTENTIAL AREA OF BIOLOGICAL IMPORTANCE
- ---------------------- ---------------------------------------
<S> <C>
Anf-R (atrial natriuretic factor receptor)........... acts as the receptor for atrial natriuretic peptide, a
peptide known to function as a diuretic and vasodilator
that can affect blood pressure
Bendless............................................. first identified as a fly protein critical for the
formation of proper connections between nerves
Dystonin............................................. a protein that when mutated causes a progressive loss of
muscular control with similarities to the progressive
loss of ability to control movement seen in Parkinson's
or Lou Gehrig's disease
Endobrevin........................................... important for relaying signals at nerve junctions
FKBP12............................................... a potential target of immunosuppressive drugs such as
FK506 and cyclosporin A, which are given to organ
transplant patients to prevent rejection
Grg4 (groucho-related gene 4)........................ related to a fly gene that is part of a pathway that has
been implicated in embryological development, cancer and
Alzheimer's disease in humans
MIP (lens major intrinsic protein)................... a major component of the lens and when it functions
improperly can result in cataracts
Secretogranin III.................................... a member of a family of proteins that play a role in
regulated secretory pathways involved in the secretion of
hormones and neuropeptides
Thrombospondin-3..................................... a member of a family of secreted proteins thought to play
a role in blood vessel formation; regulation of blood
vessel formation is critical for processes such as wound
healing but also for growth of large tumors
PECAM (platelet-endothelial cell adhesion
molecule)............................................ an adhesion molecule expressed in several cell types and
thought to play a role in blood vessel formation,
inflammation and white blood cell movement to areas of
infection
psp94 (prostate secretory protein of 94 amino
acids)............................................... has been shown to inhibit the growth of a prostate cancer
cell line by causing programmed cell death
Raidd................................................ thought to play a role in programmed cell death, a
process critical for proper development as well as the
destruction of cancer cells
VEGF-C (vascular endothelial growth factor C)........ part of the secreted vascular endothelial growth factor
family and thought to play a role in formation of blood
vessels and lymphatic tissue important for the transfer
of disease fighting white blood cells
</TABLE>
Complementing our OmniBank genome-wide knockout approach, we use technologies of
gene targeting by homologous recombination to generate custom knockout mice for
the study of the functions of specific genes. These highly specific methods
enable us to alter interesting genes for our focused drug discovery projects. We
have implemented a yeast vector technology to more rapidly generate a wide
variety of gene targeting vectors for such projects. In addition, we generate
conditional knockout mice using Cre/lox recombinase technology to allow for
selective disruption of gene function in certain tissues of the mouse. This
conditional regulation of gene activity may closely model the pharmacological
action of drugs that interact with specific targets.
We have developed a Seek-Target-Validation system to rapidly analyze large
numbers of knockout mice to discover the function of genes. This sophisticated
series of tests is structured in three levels: primary biological analysis,
organ and physiological
26
<PAGE> 29
systems analysis, and pathway discovery and analysis. These tests are stratified
according to level of complexity required to obtain information regarding a
particular function. Results obtained from tests at one level can serve to focus
the types of tests applied at the next level of analysis. We apply these tests
to specific knockout mice in a systematic fashion in order to reveal
physiological, cellular and biochemical consequences of a specific gene
knockout, thereby defining the function of the gene and the protein it encodes.
Diseases and conditions that are being surveyed under this program for
prioritized genes include obesity, anemia, immune disorders, inflammation, heart
disease, diabetes, cancer, neurological diseases and behavioral defects.
COMMERCIALIZATION
Our commercialization strategy is to:
- expand our efforts to establish additional subscription agreements for
access to our Human Gene Trap database and OmniBank database and library;
- enter into collaborations for the development and analysis of custom and
OmniBank knockout mice;
- expand our e-Biology collaborations through Lexgen.com; and
- establish drug discovery and development collaborations with leading
pharmaceutical and biotechnology companies.
Drug Target and Therapeutic Protein Discovery
Most human disease is associated with alterations in physiological processes
controlled by genes and the proteins they encode. Virtually all drugs interact
with proteins, commonly referred to as the drug's target. Some drugs, such as
insulin and erythropoetin, are themselves protein products of genes. The
discovery of genes within the human genome that encode novel proteins,
therefore, represents an opportunity for the discovery and development of novel
drug targets and therapeutic proteins that address medical needs for which there
presently may be no effective treatment.
Drugs on the market today interact with a total of about 500 specific protein
targets, each of which is encoded by the sequence of a gene. While estimates of
the total number of potential drug targets encoded within the human genome vary
widely, many experts believe that there may be between 5,000 and 15,000 such
targets. The emergence of genomics, therefore, presents an opportunity for
pharmaceutical companies to significantly expand the number of new targets
available for drug discovery.
We believe our genomics and functional genomics resources will enable the
discovery of a wide spectrum of potential pharmaceutical products. We are using
these resources both to provide products and services to our collaborators and
to drive our own discovery efforts. These efforts involve the following
elements:
- computer analyses of our proprietary Human Gene Trap and OmniBank
databases to prioritize genes for functional analysis;
- sophisticated bioinformatics analyses and expression surveys to
prioritize a set of genes for full-length sequencing;
- internal and collaborative research programs analyzing the physiologic,
cellular and biochemical consequences of the knockout of selected genes
in mice; and
- identification of certain genes and encoded proteins as promising drug
targets or therapeutic proteins.
We anticipate that most of our pharmaceutical products may be developed and
marketed in collaborative arrangements with pharmaceutical and biotechnology
companies. We may, however, independently develop a select group of
pharmaceutical products. We believe that the genes we identify and the gene
functions we define have the potential to be valuable in the discovery and
development of therapeutic proteins, antibody, small molecule and gene therapy
drugs, diagnostics, and pharmacology, toxicology and pharmacogenomics
applications.
Collaborators, Customers and Programs
Millennium Pharmaceuticals, Inc. We established a collaboration for our Human
Gene Trap and OmniBank databases with Millennium Pharmaceuticals, Inc. in
October 1999. Under the agreement with Millennium, we are providing Millennium
with non-exclusive access to our Human Gene Trap and OmniBank databases. We
receive annual subscription fees for database
27
<PAGE> 30
access, and may receive license fees for full-length genes, validated drug
targets and protein therapeutics. Additionally, we may receive milestone and
royalty payments for products developed using our Human Gene Trap and OmniBank
databases. The database agreement was our second collaboration agreement with
Millennium. We entered into a separate multi-year agreement in July 1999 for the
creation of custom knockout mice for use by Millennium in the validation of
potential drug targets identified and selected by Millennium.
Merck Genome Research Institute. We established an agreement for access to our
OmniBank database and library with Merck Genome Research Institute in March
1997. We have agreed to develop 150 lines of knockout mice from OmniBank for
payments totaling $8.0 million, of which $4.0 million has already been paid. The
OmniBank mice produced under the agreement will be made available to researchers
worldwide through one or more not-for-profit distributors selected by MGRI for
that purpose. A committee of leading scientists appointed by MGRI selects the
lines of OmniBank mice produced under the agreement. To date, the committee has
selected 75 of the 150 lines of knockout mice to be produced under the
agreement.
OmniBank Internet Universal Program. The OmniBank Internet Universal program
allows pharmaceutical and biotechnology companies to obtain non-exclusive access
to our OmniBank database through the Internet. In addition, these agreements
allow collaborators to obtain OmniBank and custom knockout mice under predefined
terms. Pharmaceutical and biotechnology companies that identify drug targets of
interest through either OmniBank or custom knockout mice also have the option to
engage us to analyze those mice through our Seek-Target-Validation program. We
receive annual subscription fees and fees for knockout mice with annual minimum
commitments and may receive royalties on products developed using novel genes
discovered in OmniBank. We have entered into agreements with the following
companies under this program:
<TABLE>
<CAPTION>
COMPANY DATE OF AGREEMENT
- ------- -----------------
<S> <C>
G.D. Searle & Co. January 2000
(a subsidiary of Monsanto Company)
The R.W. Johnson Pharmaceutical Research Institute* December 1999
(a subsidiary of Johnson & Johnson)
N.V. Organon December 1999
(a subsidiary of Akzo Nobel)
DuPont Pharmaceuticals Company July 1998
(a subsidiary of E.I. du Pont de Nemours and Company)
ZymoGenetics, Inc. December 1997
(a subsidiary of Novo Nordisk A/S)
</TABLE>
- -------------------------
* includes Seek-Target-Validation analysis of knockout mice produced under this
agreement
Lexgen.com and the e-Biology Global Collaboration Program. Finding the best
targets for drug discovery among the estimated 100,000 genes contained in the
human genome is a task of such complexity and scale that it will require the
combined efforts of leading research scientists worldwide. The identification of
drug targets and therapeutic proteins using our technology will require the
application of in-depth scientific and medical knowledge to prioritize genes for
functional studies and to execute those studies. Therefore, we believe that the
magnitude of our OmniBank functional genomics resource uniquely enables global
collaboration through the Internet to accelerate the discovery of gene function.
[Figure depicting Lexgen.com Internet exchange site]
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<PAGE> 31
Through Lexgen.com, our genomics Internet exchange, researchers at
pharmaceutical companies, biotechnology companies and academic institutions
worldwide subscribe to our OmniBank database. Lexgen.com allows subscribers to
mine our OmniBank database for interesting genes and knockout mice through the
use of our bioinformatics software. Our software uses a web interface to provide
access in a relational database to OmniBank gene sequence information with
similarity to publicly-available known genes, gene names and associated
substance names. Our bioinformatics software also includes a powerful abstract
navigator that allows users to search through knockout mouse clones based on
keywords and substance names that derive from the abstracts of relevant medical
and scientific articles regarding genes with high similarity to OmniBank clones.
For internal use, we also apply a wide variety of sophisticated bioinformatics
algorithms to identify DNA sequence motifs that can yield clues as to gene
function.
Subscribers to Lexgen.com can acquire OmniBank knockout mice on a non-exclusive
basis and determine the function of genes under our e-Biology Global
Collaboration program. In this program, we receive fees for OmniBank knockout
mice and, with participating institutions, certain rights to license inventions
or to receive royalties on pharmaceutical products discovered using our mice. In
cases where we do not obtain such rights, our e-Biology collaborations leverage
the value of OmniBank since we may also elect to pursue any clone acquired
through that program for gene function research either on our own or with a
commercial partner. We believe that Lexgen.com and our e-Biology collaborations
will allow us to harvest high-value functional genomics information for
application in drug discovery and facilitate collaborations between us and
pharmaceutical and biotechnology companies. We have entered into agreements
under our e-Biology Collaboration Program with researchers at the following
institutions:
- - Beth Israel Deaconess Hospital
- - Brigham & Women's Hospital
- - The Burnham Institute
- - Catholic University (Belgium)
- - Cedars-Sinai Medical Center
- - Center for Blood Research
- - Children's Hospital, Cincinnati
- - Children's Hospital Research Foundation
- - Copenhagen University (Denmark)
- - DIBIT, H. San FaFaele (Italy)
- - Emory University
- - Georgetown University
- - Harvard Medical School
- - Indiana University
- - Institute for Genetic Medicine (Italy)
- - Max-Planck Institute (Germany)
- - Mt. Sinai School of Medicine
- - New York University
- - Odense University (Denmark)
- - Osaka University (Japan)
- - Sung Kyun Kwan University (Korea)
- - Telethon Institute of Genetics and Medicine (Italy)
- - Tohoku University (Japan)
- - University of Bordeaux (France)
- - University of British Columbia (Canada)
- - University College London (U.K.)
- - Uniformed Services University
- - University of Texas Southwestern Medical Center
- - University of Utah
- - Washington University, St. Louis
- - Yale University
Custom Knockout Mouse Program. The Custom Knockout Mouse program involves our
use of proprietary gene targeting technologies and our yeast vector technology
to rapidly produce custom knockout mice and conditional knockout mice for
specific genes. We receive research fees for the creation of knockout mice under
this program and, with participating institutions, certain rights to license
inventions or royalties on products discovered using such mice. We have
generated custom mice for or currently have custom mouse projects under contract
with the following pharmaceutical and biotechnology companies and academic
institutions:
- - BASF Bioresearch Corporation
- - Bayer Corporation
- - Baylor College of Medicine
- - Blood Research Institute of Wisconsin
- - Cedars-Sinai Medical Center
- - Cephalon Inc.
- - Children's Hospital Research Foundation
- - Elan Pharmaceuticals, Inc.
- - Genetics Institute (American Home Products)
- - Harvard University
- - H. Lundbeck A/S
- - Indiana University School of Medicine
- - Johns Hopkins University School of Medicine
- - Merck & Co.
- - Millennium Pharmaceuticals, Inc.
- - Parke-Davis (Warner-Lambert)
- - Quark Biotech, Inc.
- - Roche BioSciences
- - Max Planck Institute
- - New England Medical Center
- - Peptide Research Institute
- - Pennsylvania State University
- - Rockefeller University
- - Mount Sinai School of Medicine
- - Stanford University
- - Scripps Research Institute
- - Temple University
- - Tufts University School of Medicine
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<PAGE> 32
- - University of California at Los Angeles
- - University of Florida
- - University of Marborg
- - University of Pennsylvania
- - University of Rochester
- - University of Southern California
- - University of Texas Medical Branch-Galveston
- - University of Virginia
- - Virginia Commonwealth University
- - Wyeth-Ayerst (American Home Products)
PATENTS AND PROPRIETARY RIGHTS
We seek patent protection for the genes, proteins and drug targets that we
discover. Specifically, we seek patent protection for:
- the partial gene sequences contained in our Human Gene Trap and OmniBank
databases that we believe to be novel;
- the sequences of full-length genes that we believe to be novel, the
proteins they encode and their predicted utility as a drug target or
therapeutic protein;
- the utility of genes and the proteins they encode using knockout mice to
discover drug targets or therapeutic proteins based on our definition of
their biological functions; and
- various enabling technologies in the fields of mutagenesis, ES cell
manipulation and transgenic or knockout mice.
We own or have licenses to patents and patent applications in the fields of gene
targeting, gene trapping and genetic manipulation of mouse ES cells. These
include patents covering Cre/lox technology and the use of positive-negative
selection and other methods of efficient homologous recombination.
All of our employees, consultants and advisors are required to execute a
confidentiality agreement upon the commencement of employment or consultation.
In general, the agreement provides that all inventions conceived by the employee
or consultant, and all confidential information developed or made known to the
individual during the term of the agreement, shall be our exclusive property and
shall be kept confidential, with disclosure to third parties allowed only in
specified circumstances. We cannot assure you, however, that these agreements
will provide useful protection of our proprietary information in the event of
unauthorized use or disclosure of such information.
COMPETITION
The biotechnology and pharmaceutical industries are highly competitive and
characterized by rapid technological change. We face significant competition in
each of the aspects of our business from for-profit companies such as Human
Genome Sciences, Inc., Incyte Pharmaceuticals, Inc., Millennium Pharmaceuticals,
Inc., Deltagen, Inc., DNX (a subsidiary of Phoenix International Life Sciences,
Inc.) and Celera Genomics, among others, many of which have substantially
greater financial, scientific and human resources than we do. In addition, the
Human Genome Project and a large number of universities and other not-for-profit
institutions, many of which are funded by the U.S. and foreign governments, are
also conducting research to discover genes.
We face significant competition in our efforts to discover and patent genes from
entities using high-throughput EST and genomic sequencing approaches, as well as
from entities using more traditional methods to discover genes related to
particular diseases. In addition, several genomics and bioinformatics companies,
including Double Twist, Inc. (through its doubletwist.com Internet portal) and
Hyseq Inc. (through its GeneSolutions.com website), provide
bioinformatics-related products and services through the Internet which
indirectly compete with the bioinformatics and gene discovery resources
available through Lexgen.com.
While we are not aware of any other commercial or not-for-profit entity that is
developing large-scale gene trap mutagenesis in ES cells, we face significant
competition from entities using traditional knockout mouse technology and other
technologies. Several companies and a large number of academic institutions
create knockout mice for third parties using these methods, and a number of
companies create knockout mice for use in their own research.
Many of our competitors in drug discovery and development have substantially
greater research and product development capabilities and financial, scientific,
marketing and human resources than we have. As a result, our competitors may
succeed in developing products earlier than we do, obtaining approvals from the
FDA or other regulatory agencies for those products more rapidly than we do, or
developing products that are more effective than those we propose to develop.
Similarly, our collaborators face similar competition from other competitors who
may succeed in developing products more quickly, or developing products that are
more effective, than those developed by our collaborators. We expect that
competition in this field will intensify.
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<PAGE> 33
GOVERNMENT REGULATION
Regulation of Pharmaceutical Products
The development, production and marketing of any pharmaceutical products
developed by us or our collaborators will be subject to extensive regulation by
United States and foreign governmental authorities. In the United States, new
drugs are subject to regulation under the Federal Food, Drug and Cosmetic Act
and biological products are subject to regulation both under certain provisions
of that Act and under the Public Health Services Act. The FDA regulates, among
other things, the development, testing, manufacture, safety, efficacy, record
keeping, labeling, storage, approval, advertising, promotion, sale and
distribution of biologics and new drugs. The process of obtaining FDA approval
has historically been costly and time-consuming.
The standard process required by the FDA before a pharmaceutical agent may be
marketed in the United States includes:
- preclinical tests;
- submission to the FDA of an Investigational New Drug application, or IND,
which must become effective before human clinical trials may commence;
- adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug or biologic in our intended application;
- for drugs, submission of a New Drug Application, or NDA, or a Biologic
License Application, or BLA, with the FDA; and
- FDA approval of the NDA or BLA prior to any commercial sale or shipment
of the drug.
In addition to obtaining FDA approval for each product, each drug manufacturing
establishment must be inspected and approved by the FDA. All manufacturing
establishments are subject to inspections by the FDA and by other federal, state
and local agencies and must comply with current Good Manufacturing Practices
requirements.
The preclinical studies can take several years to complete, and there is no
guarantee that an IND based on those studies will become effective to even
permit clinical testing to begin. Once clinical trials are initiated, they
generally take two to five years, but may take longer, to complete. After
completion of clinical trials of a new drug or biologic product, FDA marketing
approval of the NDA or BLA must be obtained. This process requires substantial
time and effort and there is no assurance that the FDA will accept the NDA or
BLA for filing and, even if filed, that approval will be granted. In the past,
the FDA's approval of the NDA or BLA has taken, on average, two to five years;
if questions arise, approval can take more than five years.
In addition to regulatory approvals that must be obtained in the United States,
a drug product is also subject to regulatory approval in other countries in
which it is marketed, although the requirements governing the conduct of
clinical trials, product licensing, pricing, and reimbursement vary widely from
country to country. No action can be taken to market any drug product in a
country until an appropriate application has been approved by the regulatory
authorities in that country. FDA approval does not assure approval by other
regulatory authorities. The current approval process varies from country to
country, and the time spent in gaining approval varies from that required for
FDA approval. In some countries, the sale price of a drug product must also be
approved. The pricing review period often begins after market approval is
granted. Even if a foreign regulatory authority approves a drug product, it may
not approve satisfactory prices for the product.
Other Regulations
In addition to the foregoing, our business is and will be subject to regulation
under various state and federal environmental laws, including the Occupational
Safety and Health Act, the Resource Conservation and Recovery Act and the Toxic
Substances Control Act. These and other laws govern our use, handling and
disposal of various biological, chemical and radioactive substances used in and
wastes generated by our operations. We believe that we are in material
compliance with applicable environmental laws and that our continued compliance
with these laws will not have a material adverse effect on our business. We
cannot predict, however, whether new regulatory restrictions on the production,
handling and marketing of biotechnology products will be imposed by state or
federal regulators and agencies or whether existing laws and regulations will
not adversely affect us in the future.
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<PAGE> 34
PROPERTIES
We currently lease approximately 63,000 square feet of space for our corporate
offices and laboratories in a building located at 4000 Research Forest Drive in
The Woodlands, Texas, a suburb of Houston, Texas. Our facilities at this
location include a 28,000 square foot state-of-the art animal facility completed
in January 1999. We believe this is one of the largest facilities in the world
dedicated to the generation and analysis of knockout mice. Pursuant to the
lease, monthly payments of $98,000, increasing over time, are required for base
rent through the expiration of the lease in 2013. We have options to lease
additional property that is contiguous to our existing location. We intend to
exercise these options as appropriate to accommodate our anticipated growth.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
EMPLOYEES AND CONSULTANTS
We believe that our success will be based on, among other things, achieving and
retaining scientific and technological superiority and identifying and retaining
capable management. We have assembled a highly qualified team of scientists as
well as executives with extensive experience in the biotechnology industry.
As of January 31, 2000, we employed 124 persons, of whom 22 hold M.D., Ph.D. or
D.V.M. degrees and 14 hold other advanced degrees. We believe that our
relationship with our employees is good.
SCIENTIFIC ADVISORY PANEL MEMBERS
We have consulting relationships with a number of scientific advisors, organized
into panels focused on specific human diseases or conditions. At our request,
these advisors review the feasibility of product development programs under
consideration, provide advice concerning advances in areas related to our
technology and aid in recruiting personnel. Most of these advisors receive cash
and stock-based compensation for their services, as well as access to our
OmniBank database and mice from our OmniBank library. All of the advisors are
employed by academic institutions or other entities and may have commitments to
or advisory agreements with other entities that may limit their availability to
us. Our advisors are required to disclose and assign to us any ideas,
discoveries and inventions they develop in the course of providing consulting
services to us. We also use consultants for various administrative needs. None
of our consultants or advisors is otherwise affiliated with us. Our scientific
advisors and consultants include the following persons:
<TABLE>
<CAPTION>
NAME AFFILIATION TITLE
- ---- ----------- -----
<S> <C> <C>
AGING AND CANCER PANEL
Carlo M. Croce, M.D. Thomas Jefferson University Director, Kimmel Cancer Center
Richard Fishel Thomas Jefferson University Professor of Microbiology and
Immunology
H. Earl Ruley Vanderbilt University Professor, Department of
Microbiology and Immunology
METABOLISM, DIABETES AND OBESITY
Qais Al-Awqati, M.D. Columbia University Professor of Medicine and
Physiology
David Powell, M.D. Baylor College of Medicine Professor, Pediatrics Renal
Tom Coffman, M.D. Duke University Medical Center Professor of Medicine
Dr. Oliver Smithies University of North Carolina at Excellence Professor, Department
Chapel Hill of Pathology and Laboratory
Medicine
Kenneth Heskel Gabbay, M.D. Baylor College of Medicine Head, Section of Molecular
Diabetes and Metabolism,
Department of Pediatrics
</TABLE>
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<PAGE> 35
<TABLE>
<CAPTION>
NAME AFFILIATION TITLE
- ---- ----------- -----
<S> <C> <C>
GENOMICS AND BIOINFORMATICS
Eric Douglas Green, M.D., Ph.D. National Human Genome Research Chief, Genome Technology Branch
Institute
Gregory D. Schuler, Ph.D. National Center for Biotechnology Staff Scientist
Information
Steven R. Gullans, Ph.D. Harvard Institutes of Medicine Associate Professor of Medicine
Paul S. Meltzer, M.D., Ph.D. National Human Genome Research Head, Section of Molecular
Institute Genetics, Cancer Genetics Branch
William R. Pearson, Ph.D. University of Virginia Professor of Biochemistry
NEUROLOGY AND DEGENERATIVE
DISORDERS
Robert Edwards, M.D. University of California San Professor, Departments of
Francisco Neurology and Physiology
Rudolph E. Tanzi, Ph.D. Harvard Medical School Associate Professor of Neurology
(Neuroscience)
Jeffrey L. Noebels, M.D., Ph.D. Baylor College of Medicine Professor, Department of
Neurology
Laurence Tecott, M.D., Ph.D. University of California San Assistant Professor, Department
Francisco of Psychiatry
</TABLE>
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<PAGE> 36
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arthur T. Sands, M.D., Ph.D...................... 38 President and Chief Executive Officer and
Director
Julia P. Gregory................................. 47 Executive Vice President and Chief Financial
Officer
Jeffrey L. Wade, J.D............................. 35 Executive Vice President and General Counsel
James R. Piggott, Ph.D........................... 45 Senior Vice President of Pharmaceutical Biology
Randall B. Riggs................................. 33 Senior Vice President of Business Development
Brian P. Zambrowicz, Ph.D........................ 37 Senior Vice President of Genomics
Lance K. Ishimoto, J.D., Ph.D.................... 40 Vice President of Intellectual Property
Christophe Person................................ 33 Vice President of Informatics
Ray B. Webb...................................... 54 Vice President of Finance and Administration
William A. McMinn................................ 69 Chairman of the Board of Directors
Stephen J. Banks................................. 59 Director
Gordon A. Cain................................... 87 Director
Patricia M. Cloherty............................. 57 Director
Paul Haycock, M.D................................ 53 Director
</TABLE>
Arthur T. Sands, M.D., Ph.D. co-founded our company and has been our President
and Chief Executive Officer and a director since September 1995. From 1992 to
September 1995, Dr. Sands served as an American Cancer Society postdoctoral
fellow in the Department of Human and Molecular Genetics at Baylor College of
Medicine, where he studied the function of the p53 gene in cancer formation and
created the XPC knockout mouse, a model for skin cancer. He received his B.A. in
Economics and Political Science from Yale University and his M.D. and Ph.D. from
Baylor College of Medicine.
Julia P. Gregory has been our Executive Vice President and Chief Financial
Officer since February 2000. Since 1998, Ms. Gregory has served as the Head of
Investment Banking for Punk, Ziegel & Company, L.P. and since 1996, the Head of
the firm's Life Sciences practice. From 1980 to 1996, Ms. Gregory was an
investment banker with Prime Charter Ltd. and then Dillon, Read & Co., Inc. She
has represented life sciences companies since 1986. Ms. Gregory is a member of
the Executive Committee of the Lauder Foundation's Institute for the Study of
Aging, Inc. She received her B.A. in International Affairs from George
Washington University and her M.B.A. from the Wharton School of the University
of Pennsylvania.
Jeffrey L. Wade, J.D. has been our Executive Vice President and General Counsel
since February 2000 and was our Senior Vice President and Chief Financial
Officer from January 1999 to February 2000. From 1988 through December 1998, Mr.
Wade was a corporate securities and finance attorney with the law firm of
Andrews & Kurth L.L.P., for the last two years as a partner, where he
represented companies in the biotechnology, information technology and energy
industries. Mr. Wade is a member of the boards of directors of the Texas
Healthcare and Bioscience Institute and the Texas Life Sciences Foundation. He
received his B.A. and J.D. from The University of Texas.
James R. Piggott, Ph.D. has been our Senior Vice President of Pharmaceutical
Biology since January 2000. From 1990 through October 1999, Dr. Piggott worked
for ZymoGenetics, Inc., a subsidiary of Novo Nordisk, most recently as Senior
Vice President--Research Biology. Dr. Piggott's pharmaceutical research
experience also includes service at the Smith Kline & French Laboratories Ltd.
unit of SmithKline Beecham plc and the G.D. Searle & Co. unit of Monsanto
Company. Dr. Piggott received his B.A. and Ph.D. from Trinity College, Dublin.
Randall B. Riggs has been our Senior Vice President of Business Development
since February 2000 and served as our Vice President of Business Development
from December 1998 to February 2000. From January through November 1998, Mr.
Riggs was director of Business Development for the Infectious Disease Business
Unit of GENEMEDICINE, INC. From 1992 to January 1998, Mr. Riggs was employed by
Eli Lilly and Company, for the last two years as Manager, Corporate Business
Development at Eli Lilly's Indianapolis, Indiana headquarters. Before joining
Eli Lilly, Mr. Riggs' experience included service as a business analyst for the
National Aeronautics and Space Administration and a subsidiary of Amoco
Production Company. He received his B.B.A. from Texas A&M University and his
M.B.A. from The University of Houston.
Brian P. Zambrowicz, Ph.D. has been our Senior Vice President of Genomics since
February 2000. Dr. Zambrowicz served as our Vice President of Research from
January 1998 to February 2000 and as Senior Scientist from April 1996 to January
1998. From 1993 to April 1996, Dr. Zambrowicz served as an NIH postdoctoral
fellow at The Fred Hutchinson Cancer Center in Seattle, Washington, where he
studied gene trapping and gene targeting technology. Dr. Zambrowicz received his
B.S. in
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<PAGE> 37
Biochemistry from the University of Wisconsin. He received his Ph.D. from the
University of Washington, where he studied tissue-specific gene regulation using
transgenic mice.
Lance K. Ishimoto, J.D., Ph.D. has been our Vice President of Intellectual
Property since July 1998. From 1994 to July 1998, Dr. Ishimoto was a
biotechnology patent attorney at the Palo Alto, California office of Pennie &
Edmonds LLP. Dr. Ishimoto received his B.A. and Ph.D. from U.C.L.A., where he
studied molecular mechanisms of virus assembly and the regulation of virus
ultrastructure. After receiving his Ph.D., Dr. Ishimoto served as an NIH
postdoctoral fellow at University of Washington School of Medicine. He received
his J.D. from Stanford University.
Christophe Person has been our Vice President of Informatics since November 1999
and served as our Director of Informatics from May 1997 to November 1999. From
1994 to May 1997, Mr. Person was the Senior Scientific Programmer for the Center
for Theoretical Neurosciences at Baylor College of Medicine. From 1990 to 1994,
Mr. Person was the CEPH Database Manager at the Human Polymorphism Studies
Center in Paris, France. Mr. Person received his degree in Electrical
Engineering from Groupe ESTE/ESIEE (Ecole Superieure de Technologie
Electronique/Ecole Superieure d'Ingenieurs en Electrotechnique et Electronique).
Ray B. Webb has been our Vice President of Finance and Administration since
January 1998 and was Director of Finance and Administration from September 1995
to January 1998. Before joining us, Mr. Webb was Director of Finance and
Administration of Triplex Pharmaceutical Corporation, a biotechnology company
founded out of Baylor College of Medicine, from 1989 until its merger with
Aronex Pharmaceuticals, Inc. in 1995. He received his B.A. in Economics and
Political Science from Brigham Young University.
William A. McMinn has been the Chairman of our board of directors since July
1999 and a director since September 1997. Mr. McMinn has served as Chairman of
the Board of Texas Petrochemicals Corporation since 1996. He was Corporate Vice
President and Manager of the Industrial Chemical Group of FMC Corporation, a
manufacturer of machinery and chemical products, from 1973 through 1985. He
became President and Chief Executive Officer of Cain Chemical Inc. in 1987, and
served in that capacity until its acquisition by Occidental Petroleum in May
1988. He became Chairman of the board of directors of Arcadian Corporation in
August 1990 and served in that capacity until it was sold in April 1997. Mr.
McMinn received his B.S. from Vanderbilt University.
Stephen J. Banks has been a director since our inception in September 1995. Mr.
Banks has served as President of BCM Technologies, Inc., Baylor College of
Medicine's technology transfer subsidiary, since January 1988. Mr. Banks was
employed with The Hillman Company from 1969 to 1987 and was Vice President from
1980 to 1987, with responsibility for venture capital activities. He is a
director of BCM Technologies, several private companies and Lark Technologies,
Inc., a publicly-held company. He also serves as an Adjunct Professor of
Administration at Rice University. Mr. Banks received his B.S. in Physics from
Massachusetts Institute of Technology and his M.B.A. from Harvard Graduate
School of Business Administration.
Gordon A. Cain has been a director since September 1995 and served as Chairman
of our board of directors from September 1995 until July 1999. Mr. Cain also
serves as Chairman of the Board of Agennix Inc., another biotechnology company
in which he is a principal investor. From August 1982 until his retirement in
December 1992, he was Chairman of the Board of The Sterling Group, Inc. Mr. Cain
was the Chairman of the Board of Sterling Chemicals, Inc. from 1986 until it was
sold in August 1996 and was a member of the board of directors of Arcadian
Corporation from May 1989 until it was sold in April 1997. Prior to organizing
The Sterling Group, Mr. Cain was involved in the purchase of a variety of
businesses and provided consulting services to these and other companies. Mr.
Cain was also Chairman of the Board of UltraAir, Inc. from 1991 to 1994,
Chairman of the Board of Cain Chemical Inc. from its organization in March 1987
until its acquisition by Occidental Petroleum Corporation in May 1988 and the
Chairman of the Board of Vista Chemical Company from 1984 until 1986. Mr. Cain
presently serves as a director of Texas Petrochemicals Corporation. He received
a B.S. in Chemical Engineering from Louisiana State University.
Patricia M. Cloherty has been a director since May 1998. Ms. Cloherty is a
Special Limited Partner of Patricof & Co. Ventures, Inc., a venture capital
company. From 1988 through 1999, she was General Partner and, successively,
Senior Vice President, President and Co-Chairman of that company. Ms. Cloherty
served as deputy administrator of the U.S. Small Business Administration from
1977 to 1978 and has served as Chairman of the U.S. Russia Investment Fund since
1995. She is past president and chairman of the National Venture Capital
Association. Ms. Cloherty serves as a director of Diversa Corporation and
several private companies. She holds a B.A. from the San Francisco College for
Women and an M.A. and an M.I.A. from Columbia University.
Paul Haycock, M.D. has been a director since May 1998. Dr. Haycock has been a
director of Apax Partners & Co., a U.K. venture investment company since 1996.
From January 1992 to October 1996, Dr. Haycock was Chief Executive of Cantab
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<PAGE> 38
Pharmaceuticals, a public biotechnology company quoted on Nasdaq and the London
Stock Exchange. Prior to such time, Dr. Haycock held various positions in the
pharmaceutical and biotechnology industries, including the managing
directorships of Duphar Laboratories and Novo-Laboratories U.K. and senior
medical and management positions in Europe and the United States with
NovoIndustri A/S and Squibb-Novo Inc. Dr. Haycock graduated in medicine from
London University and completed post-graduate studies at the University of
British Columbia, and holds a diploma in pharmaceutical medicine and an M.B.A.
from the Cranfield School of Management.
BOARD COMPOSITION
We currently have six directors. Upon the closing of this offering the terms of
office of the board of directors will be divided into three classes. As a
result, a portion of our board of directors will be elected each year. The
division of the three classes, the initial directors and their respective
election dates are as follows:
- the class I directors will be Stephen J. Banks and Paul Haycock, M.D. and
their term will expire at the annual meeting of stockholders to be held
in 2001;
- the class II directors will be Patricia M. Cloherty and Gordon A. Cain
and their term will expire at the annual meeting of stockholders to be
held in 2002; and
- the class III directors will be William A. McMinn and Arthur T. Sands,
M.D., Ph.D. and their term will expire at the annual meeting of
stockholders to be held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms are to expire will be elected to serve from
the time of election and qualification until the third annual meeting following
election. The authorized number of directors may be changed only by resolution
of the board of directors. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
directors. This classification of the board of directors may have the effect of
delaying or preventing changes in control or management of our company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Paul Haycock, M.D., Stephen J. Banks and Patricia M. Cloherty
served as members of the compensation committee of our board of directors. No
member of the compensation committee serves as a member of the board of
directors or compensation committee of any other entity that has one or more
executive officers serving as a member of our board of directors or compensation
committee. Prior to the formation of the compensation committee in January 1999,
our board of directors as a whole made decisions relating to compensation of our
executive officers.
BOARD COMMITTEES
Audit Committee. Our audit committee reviews our internal accounting procedures
and consults with, and reviews the services provided by, our independent public
accountants. Current members of our audit committee are William A. McMinn,
Stephen J. Banks and Patricia M. Cloherty.
Compensation Committee. Our compensation committee reviews and recommends to
the board of directors the compensation and benefits of all our officers and
reviews general policy relating to compensation and benefits of our employees.
The compensation committee also administers the issuance of stock options and
other awards under our stock plans. Current members of the compensation
committee are Paul Haycock, M.D., Stephen J. Banks and Patricia M. Cloherty.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation from us for their services as
members of the board or for attendance at committee meetings. Directors may be
reimbursed for expenses in connection with attendance at board of directors and
committee meetings.
In February 2000, we adopted the 2000 non-employee directors' stock option plan
to provide for the automatic grant of options to purchase shares of common stock
to our directors who are not employees of us or of any of our affiliates. Any
non-employee director elected after the closing of this offering will receive an
initial option to purchase 10,000 shares of common stock. Starting at the annual
stockholder meeting in 2001, all non-employee directors will receive an annual
option to purchase 2,000 shares of common stock. All options granted under the
non-employee directors' plan will have an exercise price equal to the
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<PAGE> 39
fair market value of our common stock on the date of grant. See "--Employee
Benefit Plans--2000 Non-Employee Directors' Stock Option Plan" for a more
detailed explanation of the terms of these stock options.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Our amended and restated certificate of incorporation and bylaws provide that we
will indemnify our directors and officers and may indemnify our other employees
and other agents to the fullest extent permitted by Delaware law. We may also
enter into indemnification contracts with our directors and officers and
purchase insurance on behalf of any person we are required or permitted to
indemnify. We have entered into indemnification agreements with each of our
directors and officers.
We intend to obtain officer and director liability insurance to cover
liabilities our officers and directors may incur in connection with their
services to us, including matters arising under the federal securities laws. In
addition, our amended and restated certificate of incorporation provides that,
to the fullest extent permitted by Delaware law, our directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to us and our stockholders. This provision does not eliminate the duty of care,
and in appropriate circumstances, equitable remedies including an injunction or
other forms of non-monetary relief would remain available under Delaware law.
Under current Delaware law, a director's liability to us or our stockholders may
not be limited:
- for any breach of the director's duty of loyalty to our company or our
stockholders;
- for acts or omissions not in good faith or involving intentional
misconduct;
- for knowing violations of law;
- for any transaction from which the director derived an improper personal
benefit;
- for improper transactions between the director and our company; or
- for improper distributions to stockholders and loans to directors and
officers.
This provision also does not affect a director's responsibilities under any
other laws, including the federal securities laws and state and federal
environmental laws.
There is no pending litigation or proceeding involving any of our directors or
officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
EXECUTIVE COMPENSATION
The following table presents summary information for the year ended December 31,
1999, regarding the compensation of each of our most highly compensated
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
------------------------------------------
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND POSITION YEAR SALARY BONUS OPTIONS
- ----------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Arthur T. Sands, M.D., Ph.D................................. 1999.. $200,000 $50,000 --
President, Chief Executive Officer and Director
Jeffrey L. Wade, J.D........................................ 1999.. $170,000 $25,000 130,000
Executive Vice President and General Counsel
Randall B. Riggs............................................ 1999.. $160,000 -- 90,000
Senior Vice President of Business Development
Brian P. Zambrowicz, Ph.D................................... 1999.. $175,000 -- --
Senior Vice President of Genomics
Lance K. Ishimoto, J.D., Ph.D............................... 1999 $160,000.. -- --
Vice President of Intellectual Property
</TABLE>
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<PAGE> 40
Option Grants in 1999
The following table presents each grant of stock options in 1999 to each of the
individuals listed in the summary compensation table.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE ANNUAL RATES OF STOCK
SECURITIES OF TOTAL EXERCISE PRICE APPRECIATION FOR
UNDERLYING OPTIONS PRICE OPTION TERM
OPTIONS GRANTED IN PER EXPIRATION -----------------------
NAME GRANTED 1999 SHARE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arthur Sands, M.D., Ph.D.................. -- -- -- -- -- --
Jeffrey L. Wade, J.D...................... 130,000 36.2% $7.50 1/13/2009 $269,375 $595,247
Randall B. Riggs.......................... 90,000 25.1% $7.50 1/13/2009 $186,490 $412,094
Brian P. Zambrowicz, Ph.D................. -- -- -- -- -- --
Lance K. Ishimoto, J.D., Ph.D............. -- -- -- -- -- --
</TABLE>
The exercise price of each option was equal to the fair market value of our
common stock as determined by the board of directors on the date of grant. In
determining the fair market value of our common stock on the date of grant our
board of directors considered many factors, including:
- the option grants involved illiquid securities in a nonpublic company;
- prices of preferred stock issued by us to outside investors in
arm's-length transactions;
- the rights, preferences and privileges of the preferred stock over the
common stock;
- our performance and operating results at the time of grant;
- our stage of development and business strategy; and
- the likelihood of achieving a liquidity event for the shares of common
stock underlying these options, such as an initial public offering or a
sale of our company.
The exercise price for each option may be paid in cash, promissory notes, in
shares of our common stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving a same-day sale of the purchased
shares.
The potential realizable value of these options is calculated based on the
ten-year term of the option at the time of grant. Stock price appreciation of 5%
and 10% is assumed pursuant to rules promulgated by the SEC and does not
represent our prediction of our stock price performance.
Percentages shown under "Percentage of Total Options Granted in 1999" are based
on an aggregate of 358,400 options granted to our employees, consultants and
directors under our stock option plans during 1999.
Option Values at December 31, 1999
The following table presents the number and value of securities underlying
unexercised options that are held by each of the individuals listed in the
Summary Compensation Table as of December 31, 1999. No shares were acquired on
the exercise of stock options by these individuals during the year ended
December 31, 1999.
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<PAGE> 41
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1999" are based on the assumed initial public offering price of
$ , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the exercise price payable for these shares.
<TABLE>
<CAPTION>
---------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Arthur T. Sands, M.D., Ph.D............................. 398,345 241,655
Jeffrey L. Wade, J.D. .................................. 32,500 97,500
Randall B. Riggs........................................ 22,500 67,500
Brian P. Zambrowicz, Ph.D............................... 108,548 121,462
Lance K. Ishimoto, J.D., Ph.D........................... 12,397 22,603
</TABLE>
EMPLOYMENT AGREEMENTS
In October 1999, we entered into an employment agreement with Arthur T. Sands,
M.D., Ph.D., our President and Chief Executive Officer. Under the agreement, Dr.
Sands receives a base salary of $200,000 a year, subject to adjustment, with an
annual discretionary bonus based upon specific objectives to be determined by
the compensation committee. Dr. Sands' current annual salary is $250,000. The
employment agreement is at-will and contains a non-competition agreement. The
agreement also provides that if we terminate Dr. Sands' employment without cause
or Dr. Sands voluntarily terminates his employment for good reason, we will pay
him his then-current salary for 12 months.
In February 2000, we entered into an employment agreement with Julia P. Gregory
to serve as our Executive Vice President and Chief Financial Officer starting in
February 2000. Under the agreement, Ms. Gregory receives a base salary of
$200,000 a year, subject to adjustment, with an annual discretionary bonus based
upon specific objectives to be determined by the compensation committee. The
employment agreement is at-will and contains a non-competition agreement. The
agreement also provides that during the first year, if we terminate Ms.
Gregory's employment without cause or Ms. Gregory voluntarily terminates her
employment for good reason, we will pay her then-current salary for twelve
months; if we terminate Ms. Gregory's employment without cause or Ms. Gregory
voluntarily terminates her employment for good reason after such time, we will
pay her then-current salary for six months. If any such termination follows a
change in control of our company, we will pay Ms. Gregory her then-current
salary for 12 months.
In December 1998, we entered into an employment agreement Jeffrey L. Wade, J.D.
to serve as our Senior Vice President and Chief Financial Officer starting in
January 1999. In February 2000, Mr. Wade was named Executive Vice President and
General Counsel. Under the agreement, Mr. Wade receives a base salary of
$170,000 a year, subject to adjustment, with an annual discretionary bonus based
upon specific objectives to be determined by the compensation committee. Mr.
Wade's current annual salary is $190,000. The employment agreement is at-will
and contains a non-competition agreement. The agreement also provides that if we
terminate Mr. Wade's employment without cause or Mr. Wade voluntarily terminates
his employment for good reason, we will pay him his then-current salary for six
months. If any such termination follows a change in control of our company, we
will pay Mr. Wade his then-current salary for 12 months.
In January 2000, we entered into an employment agreement with James R. Piggott,
Ph.D. to serve as our Senior Vice President of Pharmaceutical Biology. Under the
agreement, Dr. Piggott receives a base salary of $200,000 a year, subject to
adjustment, with an annual discretionary bonus based upon specific objectives to
be determined by the compensation committee. The employment agreement is at-will
and contains a non-competition agreement. The agreement also provides that if we
terminate Dr. Piggott's employment without cause or Dr. Piggott voluntarily
terminates his employment for good reason, we will pay him his then-current
salary for six months. If any such termination follows a change in control of
our company, we will pay Dr. Piggott his then-current salary for 12 months.
In February 2000, we entered into an employment agreement with Brian P.
Zambrowicz, Ph.D., our Senior Vice President of Genomics. Under the agreement,
Dr. Zambrowicz receives a base salary of $200,000 a year, subject to adjustment,
with an annual discretionary bonus based upon specific objectives to be
determined by the compensation committee. The employment agreement is at-will
and contains a non-competition agreement. The agreement also provides that if we
terminate Dr. Zambrowicz employment without cause or Dr. Zambrowicz voluntarily
terminates his employment for good reason, we will pay him his then-current
salary for six months. If any such termination follows our change in control, we
will pay Dr. Zambrowicz his then-current salary for 12 months.
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<PAGE> 42
EMPLOYEE BENEFIT PLANS
2000 Equity Incentive Plan
We adopted our 2000 Equity Incentive Plan in February 2000. The 2000 Equity
Incentive Plan is an amendment and restatement of our 1995 Stock Option Plan and
will terminate in 2010 unless the board terminates it sooner. The 2000 Equity
Incentive Plan provides for the grant of incentive stock options to employees
and nonstatutory stock options to our employees, directors and consultants and
our affiliates. The plan also provides for stock bonuses and restricted stock
purchase awards. Incentive stock options will have an exercise price of 100% or
more of the fair market value of our common stock on the date of grant.
Nonstatutory stock options may have an exercise price as low as 85% of fair
market value on the date of grant. The purchase price of other stock awards may
not be less than 85% of fair market value. However, the board may award stock
bonuses in consideration of past services without a purchase payment. Shares may
be subject to a repurchase option in the discretion of the board. The 2000
Equity Incentive Plan provides that it will be administered by the board, or a
committee appointed by the board, which determines recipients and types of
options to be granted, including number of shares under the option and the
exercisability of the shares.
Shares Reserved. We have reserved an aggregate of 3,750,000 shares of our
common stock for issuance under the 2000 Equity Incentive Plan.
On January 1 of each year for ten years, beginning in 2001, the number of shares
reserved for issuance under the 2000 equity incentive plan will be automatically
increased by the greater of:
- 5% of our outstanding shares on a fully-diluted basis; or
- that number of shares that could be issued under awards granted under the
incentive plan during the prior 12-month period.
The total number of shares reserved for issuance under the 2000 equity incentive
plan may not exceed 20,000,000 shares over the ten-year period.
Effect of Merger on Options. If we dissolve or liquidate, then outstanding
options will terminate immediately prior to the event. If we sell, lease or
dispose of all or substantially all of our assets, or are acquired pursuant to a
merger or consolidation, all outstanding options will become immediately vested
and exercisable in full.
Options Issued. As of February 8, 2000, options to purchase 2,901,089 shares of
common stock were outstanding under the equity incentive plan and options for
39,169 shares had been exercised.
2000 Non-Employee Directors' Stock Option Plan
In February 2000, the board of directors adopted the 2000 Non-Employee
Directors' Stock Option Plan to provide for the automatic grant of options to
purchase shares of common stock to our non-employee directors. The board of
directors administers the plan, unless it delegates administration to a
committee.
Shares Reserved. We have reserved a total of 200,000 shares of our common stock
for issuance under the directors' plan. On the day after each annual meeting of
our stockholders, for 10 years, starting in 2001, the total number of shares
reserved for issuance under the non-employee directors' plan will be increased
by a number of shares equal to the greater of:
- 0.3% of our outstanding shares on a fully-diluted basis; or
- that number of shares that could be issued under options granted under
the directors' plan during the prior 12-month period.
If an optionholder does not purchase the shares under the option before the
option expires or otherwise terminates, the shares that are not purchased again
become available for issuance under the non-employee directors' plan.
Initial Grants. Each person who is first elected or appointed as a non-employee
director after our initial public offering will automatically receive an option
for 10,000 shares, effective on the later of the approval of the non-employee
directors' plan by the stockholders at the annual meeting or the date the
director first becomes a member of our board.
Annual Grants. In addition, on the date of each of our annual meetings of
stockholders, beginning with the annual meeting in 2000, each non-employee
director who has been a director for at least six months will automatically be
granted an option to purchase 2,000 shares of common stock.
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<PAGE> 43
Vesting and Exercise Terms. The options granted under the non-employee
directors' plan will vest and become exercisable over a period of five years.
All options granted under the non-employee directors' plan will have an exercise
price equal to the fair market value of our common stock on the date of grant.
The option term is ten years.
Effect of a Merger on Options. If we dissolve or liquidate, outstanding options
will terminate immediately prior to the event. If we sell, lease or dispose of
all or substantially all of our assets, or are acquired pursuant to a merger or
consolidation, the surviving entity will either assume or replace all
outstanding options under the 2000 Non-Employee Directors' Stock Option Plan. If
it declines to do so, all outstanding options will become immediately vested and
exercisable in full. If an option is assumed or replaced but the option holder
is not elected to the board of directors of the acquiring or surviving
corporation at the first meeting of the board after the event, the vesting of
that option will accelerate by 18 months.
Options Issued. The non-employee directors' plan will not be effective until
the closing of the initial public offering of our stock. Therefore, we have not
issued any options under the directors' plan.
Other Plans
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 a statutory
limit, which was $10,000 in 1999. In addition, we have a profit sharing plan
pursuant to which we may grant cash bonuses out of our profits to our employees.
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<PAGE> 44
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND
FIVE PERCENT STOCKHOLDERS
From January 1, 1997 through January 31, 2000, the following executive officers,
directors or holders of more than five percent of our voting securities
purchased securities in the amounts as of the dates shown below.
<TABLE>
<CAPTION>
------------------------------------
DATE(S) COMMON PRICE PER
NAME PURCHASED STOCK SHARE
- ---- ----------- --------- ---------
<S> <C> <C> <C>
Gordon A. Cain.............................................. 1/97 - 7/97 590,000 $5.00
William A. McMinn........................................... 8/97 45,000(1) --
Patricof & Co. Ventures Inc. ............................... 5/98 1,000,000(2) $7.50
Apax Partners & Co.......................................... 5/98 1,000,000(2) $7.50
</TABLE>
- ---------------
(1) Represents a warrant to purchase common stock at a price of $7.50 per share.
Please read "--Indebtedness to Director" below.
(2) Represents shares of common stock that will be issued upon the conversion of
1,000,000 shares of series A convertible preferred stock concurrent with the
closing of this offering.
We have entered into the following agreements with our executive officers,
directors and holders of more than five percent of our voting securities.
Amended and Restated Registration Rights Agreement. The stockholders described
above have entered into an agreement with us, pursuant to which these and other
stockholders will have registration rights with respect to their shares of
common stock following this offering. Please read "Description of Capital
Stock--Registration Rights" for a further description of the terms of that
agreement.
Executive Employment Agreements. We have entered into employment contracts with
Arthur T. Sands, M.D., Ph.D., our President and Chief Executive Officer, Julia
P. Gregory, our Executive Vice President and Chief Financial Officer, Jeffrey L.
Wade, J.D., our Executive Vice President and General Counsel, James R. Piggott,
Ph.D., our Senior Vice President of Pharmaceutical Biology, and Brian P.
Zambrowicz, Ph.D., our Senior Vice President of Genomics. Please read
"Management -- Employment Agreements" for a description of the terms of these
agreements.
Indebtedness to Director. In August of 1997, we entered into a loan agreement
with William McMinn, the chairman of our board of directors. Under the terms of
the promissory note, we borrowed a principal amount of $1,000,000 at an interest
rate of 8.0% to be repaid in 36 monthly installments of $16,666.67 each. The
monthly installments commenced on August 31, 1999, and the outstanding principal
balance of the loan is due, together with all accrued but unpaid interest, on
August 31, 2002. The note may be prepaid, in whole or in part, at any time
without penalty. In connection with this loan agreement, we issued to Mr. McMinn
a warrant to purchase 45,000 shares of our common stock at an exercise price of
$7.50 per share.
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 their 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.
Indemnification Agreements. We have entered into indemnification agreements
with our directors and officers for the indemnification of these persons to the
full extent permitted by law. We also intend to execute these agreements with
our future directors and officers.
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<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership of
our common stock as of February 8, 2000, and as adjusted to reflect the sale of
our common stock offered by this prospectus, by:
- each of the individuals listed in the "Summary Compensation Table" above;
- each of our directors;
- each person, or group of affiliated persons, who is known by us to own
beneficially five percent or more of our common stock; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock under options held by that
person that are currently exercisable or exercisable within 60 days of February
8, 2000 are considered outstanding. These shares, however, are not considered
outstanding when computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Percentage
of ownership is based on 12,429,231 shares of common stock outstanding on
February 8, 2000 and shares of common stock outstanding after completion
of this offering. Unless otherwise indicated in the footnotes, the address of
each of the individuals named below is: c/o Lexicon Genetics Incorporated, 4000
Research Forest Drive, The Woodlands, Texas 77381.
<TABLE>
<CAPTION>
----------------------------------------------------------
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
--------------------------------
SHARES ISSUABLE
PURSUANT TO
OPTIONS AND
WARRANTS PERCENTAGE
EXERCISABLE BENEFICIALLY
NUMBER OF WITHIN OWNED
SHARES 60 DAYS OF ---------------------
BENEFICIALLY FEBRUARY 4, BEFORE AFTER
OWNED 2000 OFFERING OFFERING
------------ --------------- -------- --------
<S> <C> <C> <C> <C>
Baylor College of Medicine(1)........................... 1,993,804 -- 7.84%
Apax Partners & Co.(2).................................. 1,000,000 -- 6.84%
Patricof & Co. Ventures, Inc.(3)........................ 1,000,000 -- 6.84%
Arthur T. Sands, M.D., Ph.D.(4)......................... 339,100 423,347 5.94%
Jeffrey L. Wade, J.D.................................... -- 40,627 *
Lance K. Ishimoto, Ph.D., J.D........................... -- 14,585 *
Randall B. Riggs........................................ -- 28,126 *
Brian P. Zambrowicz, Ph.D............................... -- 122,924 *
William A. McMinn....................................... 133,333 45,000 1.43%
Stephen J. Banks(5)..................................... 460,487 -- 3.70%
Gordon A. Cain.......................................... 5,220,000 -- 41.99%
Patricia M. Cloherty(6)................................. 1,000,000 -- 6.84%
Paul Haycock, M.D.(7)................................... 1,000,000 -- 6.84%
All directors and executive officers as a group (14
persons)(4)(5)(6)(7).................................. 8,163,869 862,730 67.91%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1 percent.
(1) The address for Baylor College of Medicine is c/o BCM Technologies, Inc.,
1709 Dryden Road, Suite 901, Medical Towers Building, Houston, Texas 77030.
The number of shares beneficially owned includes 460,487 shares owned by BCM
Technologies, Inc., the technology transfer subsidiary of Baylor College of
Medicine, and 387,427 shares held by Baylor College of Medicine as escrow
agent. Mr. Banks, one of our directors, is President of BCM Technologies,
Inc.
(2) Entities associated with Apax Partners & Co. are Apax UK VI-A-E, LPs. Dr.
Haycock, one of our directors, is a director of Apax Partners & Co. The
address of Apax Partners & Co. is 15 Portland Place, London, England WIN
3AA.
43
<PAGE> 46
(3) Entities affiliated with Patricof & Co. Ventures, Inc. include APA Excelsior
IV, L.P., APA Excelsior IV/Offshore, L.P., The P/A Fund III, LP and Patricof
Private Investment Club, L.P. Ms. Cloherty, one of our directors, is a
Special Limited Partner of Patricof & Co. Ventures, Inc. The address for
Patricof & Co. Ventures, Inc. is 445 Park Avenue, New York, New York 10022.
(4) The number of shares beneficially owned by Dr. Sands includes 15,000 shares
held in the name of minor children.
(5) The number of shares owned by Mr. Banks consists of 460,487 shares owned by
BCM Technologies, Inc., of which Mr. Banks is President. Mr. Banks disclaims
beneficial ownership of these shares.
(6) The number of shares owned by Patricia M. Cloherty consists of 1,000,000
shares owned by Patricof & Co. Ventures, Inc., of which Ms. Cloherty is a
Special Limited Partner. Ms. Cloherty disclaims beneficial ownership of
these shares.
(7) The number of shares owned by Paul Haycock, M.D. consists of 1,000,000
shares owned by Apax Partners & Co., of which Dr. Haycock is a director. Dr.
Haycock disclaims beneficial ownership of these shares.
44
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist of
70,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.01 par value.
COMMON STOCK
As of February 8, 2000, there were 12,429,231 shares of common stock outstanding
held of record by 73 stockholders. 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. The holders of common stock are entitled to receive ratably any
dividends as may be declared by the board of directors out of legally available
funds, after the superior rights of the holders of preferred stock have been
satisfied. Please read "Dividend Policy." Upon a liquidation, dissolution or
winding up of our company, holders of the common stock are entitled to share
ratably in all assets remaining after payment of liabilities and amounts due to
the holders of preferred stock as described below. Holders of common stock have
no preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions that apply to the
common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be, fully
paid and non-assessable.
PREFERRED STOCK
The board of directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon the preferred stock,
including dividend rights, conversion rights, terms of redemption, liquidation
preference, sinking fund terms and the number of shares constituting any series
or the designation of a series, without any further vote or action by the
stockholders. The board of directors, without stockholder approval, can issue
preferred stock with voting and conversion rights that could adversely affect
the voting power of the holders of common stock. The issuance of preferred stock
could have the effect of delaying, deferring or preventing a change in control
of our company. We have no present plan to issue any shares of preferred stock.
WARRANTS
As of February 8, 2000, we had three outstanding warrants entitling their
holders to purchase an aggregate of 330,000 shares of common stock at an
exercise price of $7.50 per share. The warrants contain provisions for the
adjustment of the exercise price and the aggregate number of shares that may be
issued upon the exercise of the warrant if a stock dividend, stock split,
reorganization, reclassification or consolidation occurs.
REGISTRATION RIGHTS
On the date 180 days after the completion of this offering, the holders of
12,390,062 shares of common stock and warrants exercisable for 246,667
additional shares of common stock have rights which enable them to sell shares
in transactions registered under the Securities Act of 1933. If we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other securityholders, the holders of these shares
will be entitled to notice of the registration and will be entitled to include,
at our expense, their shares of common stock. In addition, the holders of these
shares may require us, at our expense and on not more than three occasions at
any time beginning approximately six months from the date of the closing of this
offering, to file a registration statement under the Securities Act covering
their shares of common stock, and we will be required to use our best efforts to
have the registration statement declared effective. These rights shall terminate
on the earlier of five years after the effective date of this offering, or when
a holder is able to sell all its shares pursuant to Rule 144 under the
Securities Act in any 90-day period. These registration rights are subject to
certain conditions and limitations, including the right of the underwriters to
limit the number of shares included in the registration statement.
45
<PAGE> 48
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
Delaware Law
In general, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years following the date
that the stockholder became an interested stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held under the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- in general, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested
stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Charter Provisions
Our amended and restated certificate of incorporation and bylaws include a
number of provisions that may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of our company. First,
our certificate of incorporation provides that all stockholder actions following
completion of this offering must be effected at a duly called meeting of holders
and not by written consent. Second, our bylaws provide that special meetings of
the holders may be called only by the chairman of the board of directors, the
chief executive officer or our board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors. Third, our
certificate of incorporation provides that our board of directors can issue up
to 5,000,000 shares of preferred stock, as described under "--Preferred Stock"
above. Fourth, our certificate of incorporation and bylaws provide for a
classified board of directors, in which approximately one-third of the directors
would be elected each year. Consequently, any potential acquiror would need to
successfully complete two proxy contests in order to take control of the board
of directors. Finally, our bylaws establish procedures, including advance notice
procedures, with regard to the nomination of candidates for election as
directors and stockholder proposals. These provisions of our certificate of
incorporation and bylaws could discourage potential acquisition proposals and
could delay or prevent a change in our control or management.
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank has been appointed as the transfer agent and
registrar for our common stock.
NASDAQ NATIONAL MARKET LISTING
We have applied for listing of our common stock on the Nasdaq Stock Market's
National Market under the symbol "LEXG".
46
<PAGE> 49
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain material U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder"
is a person or entity that, for U.S. federal income tax purposes, is a
non-resident alien individual, a foreign corporation or a foreign estate or
trust.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended,
and administrative interpretations as of the date of this prospectus, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances (including, without limitation, Non-U.S. Holders who are
pass-through entities or who hold their common stock through pass-through
entities) and does not address any tax consequences arising under the laws of
any state, local or foreign jurisdiction. Prospective holders should consult
their tax advisors with respect to the particular tax consequences under the
laws of any state, local or foreign jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends, if any, paid to a Non-U.S. Holder of
our common stock generally will be subject to withholding tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty. For
purposes of determining whether tax is to be withheld at a 30% rate or at a
reduced rate as specified by an income tax treaty, we ordinarily will presume
that dividends paid on or before December 31, 2000 to an address in a foreign
country are paid to a resident of such country absent knowledge that such
presumption is not warranted.
Under U.S. Treasury Regulations applicable to dividends paid after December 31,
2000 (the "New Regulations"), to obtain a reduced rate of withholding under a
treaty, a Non-U. S. Holder generally will be required to provide an Internal
Revenue Service Form W-8 BEN certifying such Non-U.S. Holder's entitlement to
benefits under a treaty. The New Regulations also provide special rules to
determine whether, for purposes of determining the applicability of a tax
treaty, dividends paid to a Non-U.S. Holder that is an entity should be treated
as paid to the entity or those holding an interest in that entity.
There will be no withholding tax on dividends paid to a Non-U.S. Holder that are
effectively connected with the Non-U.S. Holder's conduct of a trade or business
within the United States if a Form 4224, or, after December 31, 2000, a Form W-8
ECI, stating that the dividends are so connected is filed with us. Instead, the
effectively connected dividends will be subject to regular U.S. income tax in
the same manner as if the Non-U.S. Holder were a U.S. resident unless a specific
treaty exemption applies. A non-U.S. corporation receiving effectively connected
dividends may also be subject to an additional "Branch profits tax" which is
imposed, under certain circumstances, at a rate of 30% (or such lower rate as
may be specified by an applicable treaty) of the non-U.S. corporation's
effectively connected earnings and profits, subject to certain adjustments.
Generally, we must report to the U.S. Internal Revenue Service the amount of
dividends paid, the name and address of the recipient, and the amount, if any,
of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a Non-U.S. Holder at an address within the United States may
be subject to backup withholding imposed at a rate of 31% if the Non-U.S. Holder
fails to establish that it is entitled to an exemption or to provide a correct
taxpayer identification number and certain other information to us.
Under current U.S. federal income tax law, backup withholding generally does not
apply to dividends paid on or before December 31, 2000 to a Non-U.S. Holder at
an address outside the United States, unless the payer has knowledge that the
payee is a U.S. person. Under the New Regulations however, a Non-U.S. Holder
will be subject to backup withholding unless applicable certification
requirements are met.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax with
respect to gain realized on a sale or other disposition of our common stock
unless (i) the gain is effectively connected with a trade or business of such
holder in the United States and a specific treaty exemption does not apply, (ii)
in the case of certain Non-U.S. Holders who are nonresident alien individuals
and hold our common stock as a capital asset, such individuals are present in
the United States for 183 or more days in the taxable year of the disposition,
(iii) the Non-U.S. Holder is subject to tax pursuant to the provision of the
47
<PAGE> 50
U.S. Internal Revenue Code regarding the taxation of U.S. expatriates, or (iv)
we are or have been a "U.S. real property holding corporation" within the
meaning of Section 897(c)(2) of the U.S. Internal Revenue Code at any time
within the shorter of the five-year period preceding such disposition or such
holder's holding period. We believe that we are not, and do not anticipate
becoming, a U.S. real property holding corporation. Even if we are treated as a
U.S. real property holding corporation, gain realized by a Non-U.S. Holder on a
disposition of our common stock will not be subject to U.S. federal income tax
so long as (i) the Non-U.S. Holder is considered to have beneficially owned no
more than five percent of the common stock at all times within the shorter of
(a) the five year period preceding the disposition or (b) the holder's holding
period and (ii) our common stock is regularly traded on an established
securities market (within the meaning of action 897(c)(3) of the U.S. Internal
Revenue Code and the temporary Treasury Regulations thereunder) at some time
during the calendar year in which the disposition occurs. There can be no
assurance that our common stock will continue to qualify as regularly traded on
an established securities market.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK
Under current U.S. federal income tax law, information reporting and backup
withholding imposed at a rate of 31% will apply to the proceeds of a disposition
of our common stock effected by or through a U.S. office of a broker unless the
disposing holder certifies as to its non-U.S. status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will not
apply to a payment of disposition proceeds where the transaction is effected
outside the United States through a non-U.S. office of a non-U.S. broker.
However, U.S. information reporting requirements (but not backup withholding)
will apply to a payment of disposition proceeds where the transaction is
effected outside the United States by or through an office outside the United
States of a broker that fails to maintain documentary evidence that the holder
is a Non-U.S. Holder and that certain conditions are met, or that the holder
otherwise is entitled to an exemption, and the broker is (i) a U.S. person, (ii)
a foreign person which derived 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes, or (iv)
effective after December 31, 2000, a foreign partnership (a) at least 50% of the
capital or profits interest in which is owned by U.S. persons, or (b) that is
engaged in a U.S. trade or business.
Effective after December 31, 2000, backup withholding will apply to a payment of
those disposition proceeds if the broker has actual knowledge that the holder is
a U.S. person.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in our common stock will be required
to include the value thereof in his gross estate for U.S. federal estate tax
purposes, and may be subject to U.S. federal estate tax unless an applicable
estate tax treaty provides otherwise.
48
<PAGE> 51
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. Upon completion of this
offering, we will have outstanding an aggregate of shares of common
stock. Of these shares, all of the 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 12,429,231 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 under the Securities Act.
Our executive officers, directors and certain stockholders have agreed pursuant
to "lock-up" agreements that, for a period of 180 days from the date of this
prospectus, they will not sell any shares of common stock without the prior
written consent of J.P. Morgan Securities Inc.
As a result of these "lock-up" agreements and the rules under the Securities
Act, the restricted shares will be available for sale in the public market,
subject, to certain volume and other restrictions, as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DAYS AFTER THE NUMBER OF SHARES
EFFECTIVE DATE ELIGIBLE FOR SALE COMMENT
- -------------- ----------------- -------
<S> <C> <C>
On Effectiveness -- Shares not locked-up and eligible for sale under Rule 144
90 days -- Shares not locked-up and eligible for sale under Rules 144 and 701
180 days 12,139,231 Lock-up released; shares eligible for sale under Rules 144 and 701
</TABLE>
Additionally, of the 2,901,089 shares that may be issued upon the exercise of
options outstanding as of February 8, 2000, approximately 1,364,387 shares are
subject to options which will be vested and exercisable 180 days after the date
of this prospectus.
Registration Rights
On the date 180 days after the completion of this offering, the holders of
12,390,062 shares of our common stock and warrants exercisable for 246,667
additional shares of common stock will have rights to require us to register
their shares under the Securities Act. Upon the effectiveness of a registration
statement covering these shares, the shares would become freely tradable.
Stock Options
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering approximately 3,910,831 shares of common stock
reserved for issuance under our stock option plans. We expect the registration
statement to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under such registration
statement will be available for sale in the open market after the effectiveness
of the registration statement, unless they are held by persons that have signed
a "lock-up" agreement.
49
<PAGE> 52
UNDERWRITING
J.P. Morgan Securities Inc. and Credit Suisse First Boston Corporation are
acting as joint lead managers for this offering. J.P. Morgan Securities Inc. is
acting as book running lead manager for this offering.
We and the underwriters named below have entered into an underwriting agreement
covering the common stock to be offered in this offering. J.P. Morgan Securities
Inc., Credit Suisse First Boston Corporation, Dain Rauscher Incorporated and
Punk, Ziegel & Company, L.P. are acting as representatives of the underwriters.
Each underwriter has agreed to purchase the number of shares of common stock set
forth opposite its name in the following table.
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
----------------
<S> <C>
UNDERWRITERS
J.P. Morgan Securities Inc..................................
Credit Suisse First Boston Corporation......................
Dain Rauscher Incorporated..................................
Punk, Ziegel & Company, L.P.................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares presented in the table above, then they must take all of these shares. No
underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the prior
sale of shares, and when, as and if such shares are delivered to and accepted by
them. The underwriters will initially offer to sell shares to the public at the
initial public offering price shown on the cover page of this prospectus. The
underwriters may sell shares to securities dealers at a discount of up to $
per share from the initial public offering price. Any such securities dealers
may resell shares to certain other brokers or dealers at a discount of up to
$ per share from the initial public offering price. After the initial public
offering, the underwriters may vary the public offering price and other selling
terms.
If the underwriters sell more shares than the total number shown in the table
above, the underwriters have the option to buy up to an additional
shares of common stock from us to cover such sales. They may exercise this
option during the 30-day period from the date of this prospectus. If any shares
are purchased with this option, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
The following table shows the per share and total underwriting discounts and
commissions that we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total............................................. $ $
</TABLE>
The underwriters may purchase and sell shares of common stock in the open market
in connection with this offering. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
slowing a decline in the market price of the common stock while this offering is
in progress. The underwriters may also impose a penalty bid, which means that an
underwriter must repay to the other underwriters a portion of the underwriting
discount received by it. An underwriter may be subject to a penalty bid if the
representatives of the underwriters, while engaging in stabilizing or short
covering transactions, repurchase shares sold by or for the account of that
underwriter. These activities may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
50
<PAGE> 53
We estimate that the total expenses of this offering, excluding underwriting
discounts, will be $ .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
We and our executive officers, directors and certain stockholders have agreed
that, during the period beginning from the date of this prospectus and
continuing to and including the date 180 days after the date of this prospectus,
none of us will, directly or indirectly, offer, sell, offer to sell, contract to
sell or otherwise dispose of any shares of common stock or any of our securities
which are substantially similar to the common stock, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, common stock or any such substantially similar
securities or enter into any swap, option, future, forward or other agreement
that transfers, in whole or in part, the economic consequence of ownership of
common stock or any securities substantially similar to the common stock, other
than pursuant to employee stock option plans existing on the date of this
prospectus, without the prior written consent of J.P. Morgan Securities Inc.
At our request, the underwriters have reserved shares of common stock for sale
to our directors, officers, employees, consultants and family members of the
foregoing. We expect these persons to purchase no more than five percent of the
common stock offered in this offering. The number of shares available for sale
to the general public will be reduced to the extent such persons purchase such
reserved shares.
We intend to apply to have the common stock listed on the Nasdaq National Market
under the symbol "LEXG".
It is expected that delivery of the shares will be made to investors on or about
, 2000.
There has been no public market for the common stock prior to this offering. We
and the underwriters will negotiate the initial offering price. In determining
the price, we and the underwriters expect to consider a number of factors in
addition to prevailing market conditions, including:
- the history of and prospects for our industry and for biotechnology
companies generally;
- an assessment of our management;
- our present operations;
- our historical results of operations;
- the trend of our revenues and earnings; and
- our earnings prospects.
We and the underwriters will consider these and other relevant factors in
relation to the price of similar securities of generally comparable companies.
Neither we nor the underwriters can assure investors that an active trading
market will develop for the common stock, or that the common stock will trade in
the public market at or above the initial offering price.
From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with us and
our affiliates. In addition, affiliates of Punk, Ziegel & Company, L.P.
beneficially own common stock, convertible preferred stock that will convert
into common stock upon completion of this offering and warrants to purchase
common stock at $7.50 per share, which represents % of our outstanding common
stock assuming completion of this offering and exercise of the warrants.
51
<PAGE> 54
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed upon
for us by Andrews & Kurth L.L.P., Houston, Texas. Legal matters in connection
with the offering will be passed upon for the underwriters by Cahill Gordon &
Reindel, New York, New York.
EXPERTS
The financial statements, as of December 31, 1998 and 1999, and for each of the
three years in the period ended December 31, 1999, included in this prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933 regarding the shares of common stock offered by us. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information contained in the registration statement, some
items of which are contained in exhibits to the registration statement as
permitted by the rules and regulations of the SEC. For further information on us
and the common stock we are offering, reference is made to the registration
statement, including the exhibits, and the financial statements and notes filed
as a part of the registration statement. A copy of the registration statement,
including the exhibits and the financial statements and notes filed as a part of
it, may be inspected without charge at the public reference facilities
maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from the SEC upon the payment of fees prescribed by it. The SEC
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding companies that file
electronically with it.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will file
periodic reports, proxy statements and other information with the SEC. You may
inspect any of these documents as described in the preceding paragraph. Upon
approval of our common stock for quotation on the Nasdaq National Market, these
reports, proxy statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
52
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)............................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Lexicon Genetics Incorporated:
We have audited the accompanying balance sheets of Lexicon Genetics Incorporated
(a Delaware corporation) as of December 31, 1998 and 1999, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of Lexicon's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lexicon Genetics Incorporated
as of December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 4, 2000
F-2
<PAGE> 57
LEXICON GENETICS INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------------------------------
PRO FORMA
STOCKHOLDERS'
AS OF DECEMBER 31, EQUITY (DEFICIT) AT
------------------------- DECEMBER 31,
1998 1999 1999
----------- ----------- --------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 3,022,201 $ 2,025,585
Marketable securities..................................... 16,400,158 7,130,848
Accounts receivable....................................... 1,673,479 3,391,648
Prepaid expenses and other current assets................. 17,471 76,257
----------- -----------
Total current assets.............................. 21,113,309 12,624,338
Property, plant and equipment............................... 8,326,683 12,476,021
Accumulated depreciation.................................... (1,185,951) (3,087,397)
----------- -----------
7,140,732 9,388,624
Other assets, net........................................... 261,962 281,605
----------- -----------
Total assets...................................... $28,516,003 $22,294,567
=========== ===========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities.................. $ 1,593,446 $ 1,192,276
Current portion of long-term debt......................... 83,335 1,074,178
Current portion of capital lease obligations.............. 196,085 127,119
Current portion of deferred revenue....................... 1,138,750 8,209,574
----------- -----------
Total current liabilities......................... 3,011,616 10,603,147
Capital lease obligations, net of current portion........... 107,114 6,279
Long-term debt, net of current portion...................... 916,665 3,571,028
Deferred revenue, net of current portion.................... 4,000,000 --
----------- -----------
Total liabilities................................. 8,035,395 14,180,454
Commitments and contingencies
Redeemable convertible Series A preferred stock, $.01 par
value, 10,000,000 shares authorized 4,244,664, 4,244,664
and no shares issued and outstanding, respectively;
aggregate liquidation preference of $31,834,980 at
December 31, 1999 (none pro forma)........................ 29,514,820 30,050,236 $ --
Stockholders' equity (deficit)
Common stock, $.001 par value, 25,000,000 shares
authorized, 8,163,565, 8,180,067 and 12,424,731 shares
issued and outstanding, respectively................... 8,164 8,180 12,425
Additional paid-in capital................................ 7,748,116 8,772,114 38,818,105
Deferred stock compensation............................... -- (915,422) (915,422)
Accumulated deficit....................................... (16,790,492) (29,800,995) (29,800,995)
----------- ----------- ------------
Total stockholders' equity (deficit).............. (9,034,212) (21,936,123) $ 8,114,113
----------- ----------- ------------
Total liabilities and stockholders' equity
(deficit)....................................... $28,516,003 $22,294,567
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 58
LEXICON GENETICS INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues
Subscription and license fees............................. $ 336,875 $ 761,950 $ 2,197,696
Collaborative research.................................... 486,416 1,072,205 2,120,016
Reagents.................................................. 144,451 204,445 229,967
Grants.................................................... -- 203,242 190,024
----------- ----------- ------------
Total revenues.................................... 967,742 2,241,842 4,737,703
Operating expenses
Research and development.................................. 4,970,488 8,409,770 14,645,773
General and administrative................................ 1,472,966 2,024,322 2,913,121
----------- ----------- ------------
Total operating expenses.......................... 6,443,454 10,434,092 17,558,894
----------- ----------- ------------
Loss from operations........................................ (5,475,712) (8,192,250) (12,821,191)
Interest income............................................. 133,004 838,110 648,906
Interest expense............................................ 58,861 126,665 302,802
----------- ----------- ------------
Net loss.................................................... (5,401,569) (7,480,805) (12,475,087)
Accretion on redeemable convertible preferred stock......... --......... (356,946) (535,416)
----------- ----------- ------------
Net loss attributable to common stockholders................ $(5,401,569) $(7,837,751) $(13,010,503)
=========== =========== ============
Net loss per common share, basic and diluted................ $ (0.68) $ (0.96) $ (1.59)
=========== =========== ============
Shares used in computing net loss per common share, basic
and diluted............................................... 7,996,323 8,148,474 8,176,809
Pro forma net loss per common share, basic and diluted...... $ (1.00)
============
Shares used in computing pro forma net loss per common
share, basic and diluted.................................. 12,421,473
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 59
LEXICON GENETICS INCORPORATED
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
REDEEMABLE STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE -------------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
----------------------- --------------------- PAID-IN STOCK
SHARES AMOUNT SHARES PAR VALUE CAPITAL COMPENSATION
--------- ----------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... -- $ -- 7,550,898 $7,551 $4,064,340 $ --
Issuance of common stock for
cash ($5.00 per share)....... -- -- 590,000 590 2,949,410 --
Net loss....................... -- -- -- -- -- --
--------- ----------- --------- ------ ---------- -----------
Balance at December 31, 1997... -- -- 8,140,898 8,141 7,013,750 --
Common stock warrants issued
with debt agreement.......... -- -- -- -- 24,750 --
Issuance of redeemable
convertible Series A
preferred stock.............. 4,244,664 29,157,874 -- -- 498,597 --
Common stock warrants issued
for lease option............. -- -- -- -- 195,855 --
Exercise of common stock
options...................... -- -- 22,667 23 15,164 --
Accretion on redeemable
convertible preferred stock
to redemption value.......... -- 356,946 -- -- -- --
Net loss....................... -- -- -- -- -- --
--------- ----------- --------- ------ ---------- -----------
Balance at December 31, 1998... 4,244,664 29,514,820 8,163,565 8,164 7,748,116 --
Exercise of common stock
options...................... -- -- 16,502 16 22,943 --
Accretion on redeemable
convertible preferred stock
to redemption value.......... -- 535,416 -- -- -- --
Deferred stock compensation.... -- -- -- -- 1,001,055 (1,001,055)
Amortization of deferred stock
compensation................. -- -- -- -- -- 85,633
Net loss....................... -- -- -- -- -- --
--------- ----------- --------- ------ ---------- -----------
Balance at December 31, 1999... 4,244,664 $30,050,236 8,180,067 $8,180 $8,772,114 $ (915,422)
========= =========== ========= ====== ========== ===========
<CAPTION>
-------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
------------ ----------------
<S> <C> <C>
Balance at December 31, 1996... $ (3,551,172) $ 520,719
Issuance of common stock for
cash ($5.00 per share)....... -- 2,950,000
Net loss....................... (5,401,569) (5,401,569)
------------ ------------
Balance at December 31, 1997... (8,952,741) (1,930,850)
Common stock warrants issued
with debt agreement.......... -- 24,750
Issuance of redeemable
convertible Series A
preferred stock.............. -- 498,597
Common stock warrants issued
for lease option............. -- 195,855
Exercise of common stock
options...................... -- 15,187
Accretion on redeemable
convertible preferred stock
to redemption value.......... (356,946) (356,946)
Net loss....................... (7,480,805) (7,480,805)
------------ ------------
Balance at December 31, 1998... (16,790,492) (9,034,212)
Exercise of common stock
options...................... -- 22,959
Accretion on redeemable
convertible preferred stock
to redemption value.......... (535,416) (535,416)
Deferred stock compensation.... -- --
Amortization of deferred stock
compensation................. -- 85,633
Net loss....................... (12,475,087) (12,475,087)
------------ ------------
Balance at December 31, 1999... $(29,800,995) $(21,936,123)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 60
LEXICON GENETICS INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(5,401,569) $ (7,480,805) $(12,475,087)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation........................................... 315,929 756,600 1,901,446
Loss on sale of asset.................................. -- 21,819 --
Amortization of deferred stock compensation............ -- -- 85,633
Amortization of lease option........................... -- 17,180 41,232
Amortization of deferred financing costs............... -- 24,750 --
Changes in operating assets and liabilities
Increase in accounts receivable...................... (444,618) (1,070,309) (1,718,169)
(Increase) decrease in prepaid expenses and other
current assets.................................... 22,321 (12,875) (58,786)
Increase in other assets............................. (43,135) (3,736) (60,875)
Increase (decrease) in accounts payable and accrued
liabilities....................................... 354,581 800,410 (401,170)
Increase in deferred revenue......................... 4,500,000 638,750 3,070,824
----------- ------------ ------------
Net cash used in operating activities............. (696,491) (6,308,216) (9,614,952)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (1,289,438) (5,658,953) (4,100,286)
Sale of marketable securities............................. -- 24,026,708 21,818,363
Purchase of marketable securities......................... -- (40,426,865) (12,549,053)
Proceeds from sale of asset............................... -- 47,000 --
----------- ------------ ------------
Net cash provided by (used in) investing
activities...................................... (1,289,438) (22,012,110) 5,169,024
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of capital lease obligations........... (83,633) (209,569) (218,853)
Proceeds from issuance of common stock.................... 2,950,000 15,187 22,959
Proceeds from issuance of redeemable convertible Series A
preferred stock........................................ -- 29,656,471 --
Proceeds from debt borrowings............................. 1,100,000 -- 4,168,060
Repayment of debt borrowings.............................. -- (100,000) (522,854)
----------- ------------ ------------
Net cash provided by financing activities......... 3,966,367 29,362,089 3,449,312
----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents........ 1,980,438 1,041,763 (996,616)
Cash and cash equivalents at beginning of year.............. -- 1,980,438 3,022,201
----------- ------------ ------------
Cash and cash equivalents at end of year.................... $ 1,980,438 $ 3,022,201 $ 2,025,585
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.................................... $ 29,528 $ 49,331 $ 409,469
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Purchases of equipment under capital lease obligations.... $ 407,047 $ 58,297 $ 49,052
Warrants issued in conjunction with lease option.......... $ -- $ 195,855 $ --
Warrants issued in conjunction with debt borrowings....... $ 24,750 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 61
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND OPERATIONS
Lexicon Genetics Incorporated is a Delaware corporation incorporated on July 7,
1995. Lexicon was organized to research, develop and market products and
services related to functional genomics and drug target identification.
Lexicon has financed its operations from inception primarily through private
financing transactions, contract and milestone payments related to subscription
and collaboration agreements, and certain equipment financing arrangements.
Lexicon's future success is dependent upon many factors, including, but not
limited to, its ability to use gene sequence databases and knockout mice to
select promising candidates for drug target or therapeutic protein development,
reliance on subscriptions to its databases, compliance with state and federal
regulatory restrictions, favorable public perception regarding ethical and
social issues, reliance on collaborative research and development arrangements
with corporate and academic affiliates and the obtaining of the funds necessary
to complete these activities. As a result of the aforementioned factors and the
related uncertainties, there can be no assurance of Lexicon's future success.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
Cash, Cash Equivalents and Marketable Securities: Lexicon considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. Management determines the appropriate classification of its cash
equivalents and marketable securities at the time of purchase. Management has
classified Lexicon's marketable securities as held-to-maturity securities in the
accompanying financial statements. Held-to maturity securities are carried at
purchase cost plus accrued interest, which approximates fair value.
Concentration of Credit Risk: Lexicon's cash equivalents and marketable
securities represent potential concentrations of credit risk. Lexicon minimizes
potential concentrations of risk in cash equivalents by placing investments in
high-quality financial instruments. At December 31, 1999, management believes
that Lexicon has no significant concentrations of credit risk and has incurred
no impairments in the carrying values of its cash equivalents and marketable
securities.
Significant Customers: For the years ended December 31, 1997, 1998 and 1999,
six, three and three entities represented 55%, 48% and 58% of Lexicon's
revenues, respectively.
Property and Equipment: Property and equipment are carried at cost and
depreciated using the straight-line method over the estimated useful life of the
assets which ranges from three to seven years.
Revenue Recognition: Revenues are earned from services performed pursuant to
database subscription and access agreements, and collaborations for the
development and, in some cases, analysis of knockout mice. Subscription and
access fees received are recognized ratably over the subscription or access
period. Payments received in advance under these arrangements are recorded as
deferred revenue until earned. Collaborative research payments are recognized as
revenue as Lexicon performs its obligations related to such research. Milestone
based fees are recognized upon completion of specified milestones according to
contract terms. Revenues for the supply of reagents to collaboration partners
and customers are recognized upon shipment. Non-refundable sublicense fees under
technology access programs are recognized as revenues upon the transfer of the
sublicense to third parties and when no further performance obligations exist.
Grant revenue is recognized as the related costs are incurred.
Research and Development Expenses: Research and development expenses consist of
costs incurred for company-sponsored as well as collaborative research and
development activities. These costs include direct and research-related overhead
expenses and are expensed as incurred. Research and development expenses also
include certain costs associated with the production of knockout mice for
commercial sale. Through December 31, 1999, total production costs incurred have
not been significant. Patent costs and costs to acquire technologies which are
utilized in research and development and which have no alternative future use
are expensed when incurred.
F-7
<PAGE> 62
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net Loss Per Share: Net loss per share is computed using the weighted average
number of shares of common stock outstanding. Shares associated with stock
options and warrants and the convertible preferred stock are not included
because they are antidilutive.
Pro Forma Net Loss Per Share (Unaudited): Pro forma net loss per share is
computed using the weighted average number of common shares outstanding,
including pro forma effects of the automatic conversion of outstanding
redeemable convertible preferred stock into shares of Lexicon's common stock
effective upon the closing of Lexicon's initial public offering as if such
conversion occurred on the date of original issuance.
The following table sets forth the computation of basic and diluted, and pro
forma basic and diluted, net loss per share for the respective periods.
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C> <C>
Basic and diluted
Net loss.................................................. $(5,401,569) $(7,480,805) $(12,475,087)
Accretion on redeemable convertible preferred stock....... -- (356,946) (535,416)
----------- ----------- ------------ ---
Net loss attributable to common stockholders.............. $(5,401,569) $(7,837,751) $(13,010,503)
=========== =========== ============ ===
Shares used to compute net loss per common share.......... 7,996,323 8,148,474 8,176,809
=========== =========== ============ ===
Net loss per common share................................. $ (0.68) $ (0.96) $ (1.59)
=========== =========== ============ ===
Pro forma basic and diluted
Net loss.................................................. $(12,475,087)
============
Shares used to compute net loss per share................. 8,176,809
Adjustment to reflect weighted-average effect of assumed
conversion of redeemable convertible preferred stock.... 4,244,664
------------
Weighted-average shares used in pro forma basic and
diluted net loss per share.............................. 12,421,473
============
Pro forma net loss per share.............................. $ (1.00)
============
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1999, are as follows:
<TABLE>
<CAPTION>
--------------------------------------
AS OF DECEMBER 31,
USEFUL LIVES -----------------------
IN YEARS 1998 1999
------------ ---------- ----------
<S> <C> <C> <C> <C>
Computers and software............................... 3 $1,188,007 $2,275,528
Furniture and fixtures............................... 5-7 300,224 386,760
Laboratory equipment................................. 7 3,275,454 4,678,492
Leasehold improvements............................... 7 3,562,998 5,135,241
---------- ----------
8,326,683 12,476,021
Less: Accumulated depreciation....................... (1,185,951) (3,087,397)
---------- ----------
Net property and equipment......................... $7,140,732 $9,388,624
========== ==========
</TABLE>
As of December 31, 1999, approximately $133,398 of the above equipment is held
under capital leases.
4. FINANCING AND DEBT OBLIGATIONS
In June 1999, Lexicon entered into a $5.0 million financing arrangement for the
purchase of property and equipment. As of December 31, 1999, Lexicon had drawn
down approximately $4.2 million and had $831,940 remaining available under this
arrangement. As of December 31, 1999, $3.7 million of the amount outstanding was
secured by the equipment financed. This
F-8
<PAGE> 63
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
facility accrues interest at a weighted average rate of 11.7% and is due in
monthly installments of $106,054 through the year 2003. In addition, as of
December 31, 1999, the balance of this obligation was $3,728,539.
In August 1997, Lexicon entered into two notes payable in the amount of $1
million and $100,000, respectively. During 1998, Lexicon paid off the entire
balance of the $100,000 note. The remaining unsecured $1 million note is payable
to a member of the board of directors and bears interest at the rate of 8
percent. The note is paid in monthly installments of $16,667 plus any accrued
and unpaid interest with the balance due August 2002. As of December 31, 1999,
the balance of this obligation was $916,667.
5. INCOME TAXES
Lexicon recognizes deferred tax liabilities and assets for the expected future
tax consequences of events that have been recognized differently in the
financial statements and tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of liabilities and assets
using enacted tax rates and laws in effect in the years in which the differences
are expected to reverse. Deferred tax assets are evaluated for realization based
on a more-likely-than-not criteria in determining if a valuation should be
provided.
The components of Lexicon's deferred tax assets (liabilities) at December 31,
1998 and 1999, are as follows:
<TABLE>
<CAPTION>
-------------------------------
AS OF DECEMBER 31,
---------------------------
1998 1999
---------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards........................... $5,436,001 $ 9,466,857
Technology license......................................... 125,001 114,293
Research and development tax credits....................... 359,034 670,663
Accrued expenses not yet deductible........................ (12,680) (21,853)
Start-up and organizational costs.......................... 71,188 38,332
Property and equipment..................................... (281,160) (234,490)
Prepaid expenses........................................... 1,309 (20,459)
---------- ----------- ---
Total deferred tax assets (liabilities).......... 5,698,693 10,013,343
Less: Valuation allowance.................................. (5,698,693) (10,013,343)
---------- ----------- ---
Net deferred tax assets.......................... $ -- $ --
========== =========== ===
</TABLE>
As of December 31, 1999, Lexicon has generated net operating loss (NOL)
carryforwards of approximately $27.0 million and research and development tax
credits of approximately $671,000 available to reduce future income taxes. These
carryforwards begin to expire in 2011. A change in ownership, as defined by
federal income tax regulations, could significantly limit Lexicon's ability to
utilize its carryforwards. Lexicon's ability to utilize its current and future
NOLs to reduce future taxable income and tax liabilities may be limited.
Additionally, because federal tax laws limit the time during which these
carryforwards may be applied against future taxes, Lexicon may not be able to
take full advantage of these attributes for federal income tax purposes. As
Lexicon has had cumulative losses and there is no assurance of future taxable
income, valuation allowances have been established to fully offset the deferred
tax assets of $5,698,693 and $10,013,343 at December 31, 1998 and 1999,
respectively. The valuation allowance increased approximately $4,314,650 million
during 1999, primarily due to Lexicon's net loss.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CAPITAL STOCK
Redeemable Convertible Series A Preferred Stock: During May 1998, a private
placement was completed in which Lexicon issued 4,244,664 shares of redeemable
convertible Series A preferred stock (Series A Preferred Stock) for proceeds of
approximately $29.6 million net of placement agent fees and offering costs of
approximately $2.2 million. The Series A Preferred Stock has the right to
receive dividends in the form of cash, common stock or any combination of cash
and common stock at Lexicon's discretion. Any dividends declared to junior
securities must be matched or exceeded with dividends to the Series A Preferred
Stock. As of December 31, 1999, no dividends had been declared. The Series A
Preferred Stock has voting rights equal to one vote for each full share of
common stock into which the Series A Preferred Stock held by such holder could
then be converted.
F-9
<PAGE> 64
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Series A Preferred Stock is convertible into common stock at the discretion
of the stockholder after the stock's issuance and prior to the mandatory
redemption date outlined below at a price of $7.50 per share of common stock. In
addition, the Series A Preferred Stock will be automatically converted into
common stock if (a) Lexicon receives the written consent of the holders of at
least 66 2/3 percent of the Series A Preferred Stock then outstanding or (b)
Lexicon consummates an underwritten public offering of its common stock with
gross proceeds, net of underwriting discounts and commissions, exceeding $20
million and at a price of at least $18.75 per share. At December 31, 1999, a
total of 4,244,664 shares of common stock were issuable upon conversion of the
Series A Preferred Stock.
The Series A Preferred Stock will be automatically redeemable on May 7, 2003,
for a sum of the following: (a) the greater of $7.50 per share or the fair
market value of the number of shares of common stock into which a share of
Series A Preferred Stock could then be converted and (b) an amount per share
equal to all declared but unpaid dividends. The Series A Preferred Stock is
being accreted to its redemption value of $31,834,980 on May 7, 2003.
Pro Forma Stockholders' Equity Information: Upon the effective date of Lexicon's
proposed initial public offering all of the preferred stock outstanding will
automatically be converted into 4,244,664 shares of common stock. The unaudited
pro forma redeemable convertible preferred stock and stockholders' equity at
December 31, 1999 has been adjusted for the assumed conversion of preferred
stock based on the shares of preferred stock outstanding at December 31, 1999.
Common Stock: In 1996, Lexicon entered into a subscription agreement with an
individual investor through which Lexicon agreed to issue 800,000 shares of
common stock at a price of $5 per share. Total cash consideration of $4,000,000
was received and the related shares issued at various dates from September 1996
through July 1997.
On September 14, 1995, Lexicon entered into a stockholders' agreement with its
stockholders providing for certain restrictions on the transfer of shares of
Lexicon's capital stock and certain preemptive rights with respect to new
securities offered by Lexicon. The agreement was subsequently extended to other
stockholders and holders of warrants and was amended and restated as of May 7,
1998. As amended and restated, the stockholders' agreement (a) requires any
stockholder who desires to sell shares of Company stock to first offer to sell
such shares to Lexicon and to the remaining stockholders, (b) permits holders of
Series A Preferred Stock, at their option, to participate on a pro rata basis in
certain sales of Company stock by selling stockholders, (c) grants certain
preemptive rights to a director and founding stockholder of Lexicon and to the
holders of Series A Preferred Stock with respect to new securities offered by
Lexicon and (d) contains voting agreements with respect to the election of
directors and certain other matters, in each case subject to certain exceptions.
The agreement terminates upon the earlier to occur of (a) the closing of a
qualifying initial public offering of Lexicon's common stock or (b) the written
approval of Lexicon and the holders of at least 75 percent of the outstanding
capital stock of Lexicon subject to the agreement.
On September 14, 1995, Lexicon entered into a registration rights agreement with
its founding stockholders. The agreement was subsequently extended to other
stockholders and holders of warrants and was amended and restated as of May 7,
1998. As amended and restated, the registration rights agreement provides
holders of registrable securities with the right to require Lexicon to register
the offering of their shares under the Securities Act of 1933, as amended, under
certain circumstances and subject to certain exceptions. Such rights may be
exercised by holders of registrable securities who, in the aggregate, hold (a)
at least 25 percent of the then-outstanding registrable securities that were
originally issued to a director and founding stockholder of Lexicon or (b) 25
percent of the then-outstanding registrable securities issued or issuable upon
conversion of the Series A Preferred Stock. The registration rights agreement
also provides holders of registrable securities with the right to include their
shares in offerings registered under the Securities Act of 1933, as amended, for
the account of Lexicon or for the account of other holders of registration
rights, subject to certain exceptions. The registration rights agreement
provides that Lexicon shall pay the expenses associated with all such
registrations.
7. STOCK OPTIONS AND WARRANTS
Stock Options: In September 1995, Lexicon's board of directors approved the 1995
Stock Option Plan (the Plan). Under the Plan, as amended, a total of 2,000,000
shares of common stock have been reserved for issuance upon exercise of stock
options granted to employees, consultants or directors. The option price may not
be less than the fair market value per share on the date of grant for incentive
stock options. All of the options issued by Lexicon through December 31, 1999,
vest in accordance with grant provisions (typically four years) and are
exercisable for a period of 10 years subsequent to the date of grant.
F-10
<PAGE> 65
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Lexicon follows Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which permits one of two methods for
accounting for stock options. Lexicon has elected the method that only requires
note disclosure of stock-based compensation. Because of this election, Lexicon
is required to account for its employee stock-based compensation plan under
Accounting Principles Board (APB) Opinion No. 25 and its related
interpretations. In accordance with APB No. 25, deferred compensation is
recorded for stock-based compensation grants based on the excess of the
estimated fair value of the common stock on the measurement date over the
exercise price. The deferred compensation is amortized over the vesting period
of each unit of stock-based compensation grant, which is generally four years.
If the exercise price of the stock-based compensation grants is equal to the
estimated fair value of Lexicon's stock on the date of grant, no compensation
expense is recorded.
The following pro forma information regarding net loss is required by SFAS No.
123, and has been determined as if Lexicon had accounted for its employee stock
options under the fair-value method as defined by SFAS No. 123. The fair value
of these options was estimated at the date of grant using the Black-Scholes
method and the following assumptions for 1997, 1998, and 1999: volatility of
29%, risk-free interest rate of 8%, expected option lives of seven years, three
percent expected turnover, and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options using the
straight-line method. Lexicon's pro forma information follows:
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss
As reported...................................... $(5,401,569) $(7,480,805) $(12,475,087)
Pro forma........................................ $(5,912,092) $(8,351,766) $(14,522,430)
Net loss per common share, basic and diluted
As reported...................................... $ (0.68) $ (0.96) $ (1.59)
Pro forma........................................ $ (0.74) $ (1.07) $ (1.84)
</TABLE>
The following is a summary of option activity under this plan:
<TABLE>
<CAPTION>
----------------------------
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance at December 31, 1996................................ 650,100 $1.00
Granted..................................................... 301,450 5.00
Exercised................................................... -- --
Canceled.................................................... (17,700) 4.76
-----------
Balance at December 31, 1997................................ 933,850 $2.22
Granted..................................................... 711,350 7.45
Exercised................................................... (22,667) 0.67
Canceled.................................................... (25,429) 4.98
-----------
Balance at December 31, 1998................................ 1,597,104 $4.53
Granted..................................................... 367,300 7.50
Exercised................................................... (16,502) 1.39
Canceled.................................................... (90,415) 6.51
-----------
Balance at December 31, 1999................................ 1,857,487 $5.05
----------- =====
Exercisable at December 31, 1999............................ 1,067,947 $3.49
----------- =====
</TABLE>
The weighted average fair values of options granted during the years ended
December 31, 1997, 1998, and 1999 were $2.46, $3.67 and $3.69, respectively. As
of December 31, 1999, 142,513 shares of common stock were available for grant
under the Plan.
F-11
<PAGE> 66
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Lexicon recorded approximately $1.0 million in deferred compensation expense,
relating to options issued during the year ended December 31, 1999, for the
excess of the estimated fair value of the common stock on the date of grant over
the exercise price. The fair value of the common stock on the date of grant was
determined based on valuations in relation to Lexicon's preferred stock
financing and the development of Lexicon's gene trapping technology. The
deferred compensation will be amortized over the four-year vesting period of the
options. During the year ended December 31, 1999, Lexicon recognized $85,633 in
compensation expense relating to these options.
Warrants: In August 1997, Lexicon issued warrants to acquire 4,500 shares and
45,000 shares of common stock, respectively, in connection with certain loan
agreements (see Note 4). The warrants are exercisable for a period of three
years at a price of $7.50 per share. Management estimated the value of these
warrants at $24,750 and recorded them as deferred financing costs and additional
paid-in capital. Amortization of these costs is reflected as additional interest
expense in the accompanying financial statements.
On May 7, 1998, simultaneous with the completion of the Series A Preferred Stock
private placement, Lexicon issued a warrant to acquire 201,667 shares of common
stock in conjunction with the sale of the Series A Preferred Stock (the 1998
Warrant). The 1998 Warrant is exercisable at the following prices: (a) an
exercise price of $7.50 per share or (b) a "cashless" purchase of the common
stock calculated based upon the difference between fair market value and
exercise price. The warrant expires on the fifth anniversary of the date of
grant. Management estimated the value of this warrant at approximately $498,000.
Upon consummation of the private placement, this amount was recorded as a
reduction of the Series A Preferred Stock balance and an increase to additional
paid-in capital. The value of the warrant, along with the offering costs
associated with the private placement, are being accreted back to the Series A
Preferred Stock over a five-year period.
In July 1998, Lexicon issued a warrant to acquire 83,333 shares of common stock
for the option to lease additional facility space. The warrant is exercisable
for a period of three years at a price of $7.50 per share. Management estimated
the value of this warrant at approximately $196,000. As this warrant has been
treated as consideration for the option to lease certain facility space (lease
option), Lexicon has recorded the warrant's value as a long-term asset and
additional paid-in capital. Amortization of the lease option, $17,180 and
$41,232 during 1998 and 1999, respectively, has been recorded as additional
lease expense in the accompanying financial statements.
8. COLLABORATION AND LICENSE AGREEMENTS
In October 1999, Lexicon entered into an initial agreement with Millennium
Pharmaceuticals, Inc. ("Millennium") for non-exclusive access to Lexicon's human
and mouse gene sequence databases. Under the agreement Lexicon receives
subscription fees for database access, and may receive license fees for
full-length genes, validated drug targets and protein therapeutics. Lexicon may
also receive milestones and royalty payments from future licenses and products.
In July 1998, Lexicon entered into a license agreement with DuPont
Pharmaceuticals Company (DuPont), which grants Lexicon a nonexclusive, worldwide
license to use DuPont's Cre/lox technology. The agreement also grants Lexicon
certain worldwide, royalty-bearing licenses to use the Cre/lox technology
together with gene trapping techniques in research collaborations. No royalties
have been paid to date under the license agreement.
In March 1997, Lexicon entered into an agreement with Merck Genome Research
Institute (MGRI) under which Lexicon received an initial cash payment of $4
million. This payment is recognized as revenue as Lexicon performs its
obligations related to such agreement. Under the terms of the subscription
agreement with MGRI, Lexicon has agreed to develop, produce and deliver certain
knockout mice over a period of three or more years. To date, deferred revenue
has been recorded for all cash received from MGRI. Management believes Lexicon's
obligations will be satisfied during 2000, and has classified the corresponding
deferred revenue amount as a current liability at December 31, 1999.
On September 14, 1995, Lexicon entered into a royalty-bearing, worldwide,
exclusive license agreement with Baylor College of Medicine which permits
Lexicon to use the technology under said license to grant sublicenses and to
make and sell licensed products incorporating or utilizing the technology as
defined in the agreement. The agreement requires that Lexicon pay a royalty
equal to 2 percent of net sales. For each of the three years in the period ended
December 31, 1999, royalties paid under this agreement were less than $6,000.
F-12
<PAGE> 67
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Lease Obligations: Lexicon leases office space and certain equipment under
operating leases and has financed the acquisition of certain equipment through
capital leases with various parties. Rental expense was $410,355, $672,523 and
$1,111,039 during the years ended December 31, 1997, 1998 and 1999,
respectively. At December 31, 1999, the present value of future minimum capital
lease payments and future minimum lease payments under non-cancelable operating
leases are as follows:
<TABLE>
<CAPTION>
-----------------------
CAPITAL OPERATING
LEASES LEASES
-------- -----------
<S> <C> <C>
2000........................................................ $138,295 $ 1,078,143
2001........................................................ 6,876 1,078,143
2002........................................................ -- 1,078,143
2003........................................................ -- 1,172,876
2004........................................................ -- 1,172,876
Thereafter.................................................. -- 11,852,120
-------- -----------
Total............................................. 145,171 $17,432,301
-----------
Less: Amount representing interest (implicit rates ranging
from 7% to 19%)........................................... 11,773
--------
Present value of remaining lease payments.............. 133,398
Less: Amount due within one year............................ 127,119
--------
Capital lease obligations, net of current portion...... $ 6,279
========
</TABLE>
Employment Agreements: In December 1998, October 1999, January 2000 and February
2000, Lexicon entered into employment agreements with some of its corporate
officers. Under the agreements, each officer receives a set base salary, subject
to adjustment, with an annual discretionary bonus based upon specific objectives
to be determined by the compensation committee. The employment agreements are
at-will and contain non-competition agreements. The agreements also provide for
a termination clause, which requires either a six or 12-month payment based on
the officer's salary, in the event of termination or change in corporate
control.
10. BENEFIT PLANS
Lexicon has established an Annual Profit Sharing Incentive Plan (the Profit
Sharing Plan). The purpose of the Profit Sharing Plan is to provide for the
payment of incentive compensation out of the profits of Lexicon to some of its
employees. Participants in the Profit Sharing Plan are entitled to a cash bonus
equal to their proportionate share (based on salary) of 15 percent of Lexicon's
fiscal year pretax income, if any.
Lexicon maintains a retirement and deferred savings plan for its 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 a statutory
limit, which was $10,000 in 1999.
11. SUBSEQUENT EVENTS (UNAUDITED)
During January and February 2000, Lexicon issued 1,165,300 options to purchase
common stock to certain employees and consultants. Lexicon anticipates that
additional deferred compensation totaling approximately $23.2 million will be
recorded for options granted in the first quarter of 2000. The additional
deferred compensation expense will be amortized over the vesting periods of the
individual stock options issued. Lexicon expects to record amortization expense
for deferred compensation as follows: $9.7 million during 2000, $4.3 million
during 2001, $4.3 million during 2002, $4.3 million during 2003 and $600,000
during 2004.
In February 2000, Lexicon adopted the 2000 Equity Incentive Plan (the 2000
Equity Incentive Plan). The 2000 Equity Incentive Plan is an amendment and
restatement of the 1995 Stock Option Plan and will terminate in 2010 unless the
board terminates it sooner. The board authorized and reserved an aggregate of
3,750,000 shares of common stock for issuance under the 2000 Equity Incentive
Plan. The 2000 Equity Incentive Plan provides for the grant of incentive stock
options to employees and nonstatutory stock options to employees, directors and
consultants of Lexicon. The plan also provides for stock bonuses
F-13
<PAGE> 68
LEXICON GENETICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and restricted stock purchase awards. Incentive stock options will have an
exercise price of 100% or more of the fair market value of our common stock on
the date of grant. Nonstatutory stock options may have an exercise price as low
as 85% of fair market value on the date of grant. The purchase price of other
stock awards may not be less than 85% of fair market value. However, the board
may award bonuses in consideration of past services without a purchase payment.
Shares may be subject to a repurchase option in the discretion of the board. The
2000 Equity Incentive Plan provides that it will be administered by the board,
or a committee appointed by the board, which determines recipients and types of
options to be granted, including number of shares under the option and the
exercisability of the shares. On the day after each annual meeting of Lexicon's
stockholders for ten years, beginning in 2001, the number of shares in the
reserve automatically will be increased by the greater of:
- 5% of Lexicon's outstanding shares on a fully-diluted basis; or
- that number of shares that could be issued under awards granted under the
incentive plan during the prior 12-month period.
The total number of shares reserved in the aggregate may not exceed 20,000,000
shares over the ten-year period. As of February 8, 2000, options to purchase
2,901,089 shares of common stock were outstanding under the equity incentive
plan and no options had been exercised.
In February 2000, Lexicon adopted the 2000 Non-Employee Directors' Stock Option
Plan (the "directors' plan") to provide for the automatic grant of options to
purchase shares of common stock to non-employee directors of Lexicon. Lexicon
reserved a total of 200,000 shares of its common stock for issuance under the
directors' plan. Non-employee directors elected after the closing of Lexicon's
initial public offering will receive an initial option to purchase 10,000 shares
of common stock. In addition, on the date of each of Lexicon's annual meetings
of stockholders, beginning with the annual meeting in 2001, each non-employee
director who has been a director for at least six months will automatically be
granted an option to purchase 2,000 shares of common stock. On the day after
each annual meeting of our stockholders, for 10 years, starting in 2001, the
share reserve will automatically be increased by a number of shares equal to the
greater of:
- 0.3% of Lexicon's outstanding shares on a fully-diluted basis; or
- that number of shares that could be issued under options granted under
the directors' plan during the prior 12-month period.
Options granted under the directors' plan will become vested and exercisable
over a period of five years. All options granted under the non-employee
directors' plan will have an exercise price equal to the fair market value of
our common stock on the date of grant. The option term is ten years. The
directors' plan will not be effective until the date of this initial public
offering of Lexicon's stock. Therefore, Lexicon has not issued any options under
the directors' plan.
In February 2000, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission permitting Lexicon to sell
shares of its common stock to the public.
F-14
<PAGE> 69
[LEXICON LOGO]
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered (other than underwriting
discounts and commissions) are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $26,400
NASD Filing Fee............................................. 10,500
NASDAQ Listing Fee.......................................... *
Printing Expenses........................................... *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Transfer Agent and Registrar Fees........................... *
Miscellaneous Expenses...................................... *
-------
Total............................................. $
=======
</TABLE>
- ---------------
*To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Lexicon's certificate of incorporation and bylaws provide that indemnification
shall be to the fullest extent permitted by the DGCL for all current or former
directors or officers. As permitted by the DGCL, the certificate of
incorporation provides that directors of Lexicon shall have no personal
liability to Lexicon or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (1) for any breach of the director's duty
of loyalty to Lexicon or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of law, (3)
under Section 174 of the DGCL or (4) for any transaction from which a director
derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order below is information regarding the number of
shares of common and preferred stock issued, and the number of options granted,
by the Registrant since January 1, 1997. Further included is the consideration,
if any, received by the Registrant for such shares and options, and information
relating to the section of the Securities Act, or rule of
II-1
<PAGE> 71
the SEC, under which exemption from registration was claimed. All awards of
options did not involve any sale under the Securities Act and none of these
securities were registered under the Securities Act.
1. In the past three years, the Registrant has issued options to purchase an
aggregate of 1,857,487 shares of common stock at a weighted average exercise
price of $5.05 per share. During this same time period, the Registrant has
issued a total of 39,961 shares of common stock pursuant to the exercise of
options previously granted.
2. On January 6, 1997, Lexicon sold to Gordon A. Cain 80,000 shares of common
stock pursuant to a June 1996 subscription agreement at a purchase price of
$5.00 per share.
3. On January 27, 1997, Lexicon sold to Gordon A. Cain 80,000 shares of common
stock pursuant to a June 1996 subscription agreement at a purchase price of
$5.00 per share.
4. In February 1997, Lexicon sold to Gordon A. Cain 80,000 shares of common
stock pursuant to a June 1996 subscription agreement at a purchase price of
$5.00 per share.
5. In March 1997, Lexicon sold to Gordon A. Cain 80,000 shares of common stock
pursuant to a June 1996 subscription agreement at a purchase price of $5.00 per
share.
6. In April 1997, Lexicon sold to Gordon A. Cain 80,000 shares of common stock
pursuant to a June 1996 subscription agreement at a purchase price of $5.00 per
share.
7. In May 1997, Lexicon sold to Gordon A. Cain 80,000 shares of common stock
pursuant to a June 1996 subscription agreement at a purchase price of $5.00 per
share.
8. In June 1997, Lexicon sold to Gordon A. Cain 80,000 shares of common stock
pursuant to a June 1996 subscription agreement at a purchase price of $5.00 per
share.
9. In July 1997, Lexicon sold to Gordon A. Cain 30,000 shares of common stock
pursuant to a June 1996 subscription agreement at a purchase price of $5.00 per
share.
10. In August 1997, Lexicon issued to William A. McMinn 45,000 warrants with an
exercise price of $7.50 per share in connection with a $1,000,000 note.
11. In August 1997, Lexicon issued to Carter Interests Ltd. 4,500 warrants with
an exercise price of $7.50 share in connection with a $100,000 note.
12. In May 1998, Lexicon sold 4,244,664 shares of series A convertible preferred
stock to 30 accredited investors in connection with venture capital financing at
a purchase price of $7.50 per share.
13. In May 1998, Lexicon issued to Punk, Ziegel & Company 201,667 warrants with
an exercise price of $7.50 per share in connection with venture capital
financing.
14. In July 1998, Lexicon issued to The Woodlands Commercial Properties, L.P.
83,333 warrants with an exercise price of $7.50 per share in connection with a
lease option.
Except as described above, no underwriters were engaged in connection with the
foregoing sales of securities. The sales of shares of common stock, series A
preferred stock and other securities listed above were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act and
Rule 506 of Regulation D promulgated thereunder for transactions not involving a
public offering and all purchasers were accredited investors as such term is
defined in Rule 501(a) of Regulation D. Issuances of options to the company's
employees and directors were made pursuant to Rule 701 promulgated under the
Securities Act. All of the foregoing securities are deemed restricted securities
for purposes of the Securities Act.
ITEM 16. EXHIBITS.
a. Exhibits:
<TABLE>
<C> <S>
1.1* --Form of Underwriting Agreement
3.1 --Restated Certificate of Incorporation
3.2 --Restated Bylaws
5.1* --Opinion of Andrews & Kurth L.L.P.
10.1 --Employment Agreement with Arthur T. Sands, M.D., Ph.D.
</TABLE>
II-2
<PAGE> 72
<TABLE>
<S> <C>
10.2 --Employment Agreement with James R. Piggott, Ph.D.
10.3 --Employment Agreement with Jeffrey L. Wade, J.D.
10.4 --Employment Agreement with Brian P. Zambrowicz, Ph.D.
10.5* --Employment Agreement with Julia P. Gregory
10.6 --Form of Indemnification Agreement with Officers and Directors
10.7 --2000 Equity Incentive Plan
10.8 --2000 Non-Employee Directors' Stock Option Plan
10.9* --Database Access Agreement, dated October 5, 1999, between Lexicon and Millennium Pharmaceuticals, Inc.
10.10* --Agreement, dated March 21, 1997, between Lexicon and Merck Genome Research Institute
10.11 --Master Loan and Security Agreement dated May 21, 1999, with FINOVA Capital Corporation
21.1 --Subsidiaries of Lexicon
23.1 --Consent of Arthur Andersen LLP
23.2* --Consent of Andrews & Kurth L.L.P. (contained in Exhibit 5.1)
24.1 --Power of Attorney (contained in signature page)
27.1 --Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
b. Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
in Item 14, 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 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) To provide to the underwriter(s) at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter(s) to permit prompt delivery
to each purchaser.
(c) For purpose 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
the 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.
(d) 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-3
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of The
Woodlands, in the State of Texas, on February 7, 2000.
LEXICON GENETICS INCORPORATED
By: /s/ ARTHUR T. SANDS, M.D., PH.D.
---------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Arthur T. Sands and Jeffrey
L. Wade, and each of them, any of whom may act without the joinder of the other,
as his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement
(including any amendment thereto) for this offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or would do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute and substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ARTHUR T. SANDS, M.D., PH.D. President, Chief Executive Officer and February 7, 2000
- ----------------------------------------------------- Director (principal executive officer)
Arthur T. Sands, M.D., Ph.D.
/s/ JEFFREY L. WADE, J.D. Senior Vice President and Chief Financial February 7, 2000
- ----------------------------------------------------- Officer (principal financial and
Jeffrey L. Wade, J.D. accounting officer)
/s/ WILLIAM A. MCMINN Chairman of the Board of Directors February 7, 2000
- -----------------------------------------------------
William A. McMinn
/s/ STEPHEN J. BANKS Director February 7, 2000
- -----------------------------------------------------
Stephen J. Banks
/s/ GORDON A. CAIN Director February 7, 2000
- -----------------------------------------------------
Gordon A. Cain
/s/ PATRICIA M. CLOHERTY Director February 7, 2000
- -----------------------------------------------------
Patricia M. Cloherty
/s/ PAUL HAYCOCK, M.D. Director February 7, 2000
- -----------------------------------------------------
Paul Haycock, M.D.
</TABLE>
II-4
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* --Form of Underwriting Agreement
3.1 --Restated Certificate of Incorporation
3.2 --Restated Bylaws
5.1* --Opinion of Andrews & Kurth L.L.P.
10.1 --Employment Agreement with Arthur T. Sands, M.D., Ph.D.
10.2 --Employment Agreement with James R. Piggott, Ph.D.
10.3 --Employment Agreement with Jeffrey L. Wade, J.D.
10.4 --Employment Agreement with Brian P. Zambrowicz, Ph.D.
10.5* --Employment Agreement with Julia P. Gregory
10.6 --Form of Indemnification Agreement with Officers and
Directors
10.7 --2000 Equity Incentive Plan
10.8 --2000 Non-Employee Directors' Stock Option Plan
10.9* --Database Access Agreement, dated October 5, 1999, between
Lexicon and Millennium Pharmaceuticals, Inc.
10.10* --Agreement, dated March 21, 1997, between Lexicon and Merck
Genome Research Institute
10.11 --Master Loan and Security Agreement dated May 21, 1999 with
FINOVA Capital Corporation
21.1 --Subsidiaries of Lexicon
23.1 --Consent of Arthur Andersen LLP
23.2* --Consent of Andrews & Kurth L.L.P. (contained in Exhibit
5.1)
24.1 --Power of Attorney (contained in signature page)
27.1 --Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
LEXICON GENETICS INCORPORATED
LEXICON GENETICS INCORPORATED (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware ("DGCL"), hereby certifies as follows pursuant to Sections 242
and 245 of the DGCL:
FIRST: The name of the Corporation is "Lexicon Genetics Incorporated."
SECOND: The original Certificate of Incorporation of the Corporation
was filed in the Office of the Secretary of State of the State
of Delaware (the "Secretary of State") on July 7, 1995. A
Restated Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State on May 6, 1998.
THIRD: The board of directors of the Corporation, in accordance with
Sections 242 and 245 of the DGCL, (i) adopted and approved
this Restated Certificate of Incorporation (including the
amendments to the Corporation's Certificate of Incorporation
effected hereby) and (ii) proposed that the Corporation's
stockholders adopt and approve this Restated Certificate of
Incorporation (including the amendments to the Corporation's
Certificate of Incorporation effected hereby).
FOURTH: The holders of not less than a majority of the outstanding
shares of the Corporation's common stock, par value $.001 per
share, and preferred stock, par value $0.01 per share, in
accordance with Section 228 of the DGCL, approved and adopted
on behalf of the stockholders this Restated Certificate of
Incorporation (including the amendments to the Corporation's
Certificate of Incorporation effected hereby).
FIFTH: This Restated Certificate of Incorporation shall become
effective on its filing with the Secretary of State.
SIXTH: The Restated Certificate of Incorporation of the Corporation is
hereby amended and restated to read in its entirety as follows:
<PAGE> 2
ARTICLE I
Name
The name of the Corporation is "Lexicon Genetics Incorporated."
ARTICLE II
Registered Office and Registered Agent
The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
Purpose
The purpose for which the Corporation is organized is to engage in any
lawful acts and activities for which corporations may be organized under the
General Corporation Law of the State of Delaware ("DGCL").
ARTICLE IV
Capitalization
Section 4.01. Authorized Capital. (a) The total number of shares of
stock that the Corporation shall have the authority to issue is 75,000,000
shares of capital stock, consisting of (i) 5,000,000 shares of preferred stock,
par value $0.01 per share (the "Preferred Stock"), and (ii) 70,000,000 shares of
common stock, par value $0.001 per share (the "Common Stock").
(b) Subject to the provisions of this Certificate of Incorporation
and the Preferred Stock Designation (as defined below) creating any series of
Preferred Stock, the Corporation may issue shares of its capital stock from time
to time for such consideration (not less than the par value thereof) as may be
fixed by the Board of Directors of the Corporation (the "Board of Directors"),
which is expressly authorized to fix the same in its absolute discretion subject
to the foregoing conditions. Shares so issued for which the consideration shall
have been paid or delivered to the Corporation shall be deemed fully paid stock
and shall not be liable to any
2
<PAGE> 3
further call or assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.
(c) The right to cumulate votes for the election of directors as
provided in Section 214 of the DGCL shall not be granted and is hereby expressly
denied.
(d) No stockholder of the Corporation shall by reason of his or
her holding shares of any class of capital stock of the Corporation have any
preemptive or preferential right to acquire or subscribe for any additional,
unissued or treasury shares (whether now or hereafter acquired) of any class of
capital stock of the Corporation now or hereafter to be authorized, or any
notes, debentures, bonds or other securities convertible into or carrying any
right, option or warrant to subscribe for or acquire shares of any class of
capital stock of the Corporation now or hereafter to be authorized, whether or
not the issuance of any such shares or such notes, debentures, bonds or other
securities would adversely affect the dividends or voting or other rights of
that stockholder.
Section 4.02. Preferred Stock. (a) The Preferred Stock may be issued
from time to time in one or more series. Authority is hereby expressly granted
to and vested in the Board of Directors to authorize from time to time the
issuance of Preferred Stock in one or more series. With respect to each series
of Preferred Stock authorized by it, the Board of Directors shall be authorized
to establish by resolution or resolutions, and by filing a certificate pursuant
to applicable law of the State of Delaware (the "Preferred Stock Designation"),
the following to the fullest extent now or hereafter permitted by the DGCL:
(1) the designation of such series;
(2) the number of shares to constitute such series;
(3) whether such series is to have voting rights (full,
special or limited) or is to be without voting rights;
(4) if such series is to have voting rights, whether or
not such series is to be entitled to vote as a separate class either
alone or together with the holders of the Common Stock or one or more
other series of Preferred Stock;
(5) the preferences and relative, participating,
optional, conversion or other special rights (if any) of such series
and the qualifications, limitations or restrictions (if any) with
respect to such series;
(6) the redemption rights and price(s), if any, of such
series, and whether or not the shares of such series shall be subject
to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement and, if such
retirement or sinking funds or funds are to be established, the
periodic amount thereof and the terms and provisions relative to the
operation thereof;
3
<PAGE> 4
(7) the dividend rights and preferences (if any) of such
series, including, without limitation, (i) the rates of dividends
payable thereon, (ii) the conditions upon which and the time when such
dividends are payable, (iii) whether or not such dividends shall be
cumulative or noncumulative and, if cumulative, the date or dates from
which such dividends shall accumulate and (iv) whether or not the
payment of such dividends shall be preferred to the payment of
dividends payable on the Common Stock or any other series of Preferred
Stock;
(8) the preferences (if any), and the amounts thereof,
which the holders of such series shall be entitled to receive upon the
voluntary or involuntary liquidation, dissolution or winding-up of, or
upon any distribution of the assets of, the Corporation;
(9) whether or not the shares of such series, at the
option of the Corporation or the holders thereof or upon the happening
of any specified event, shall be convertible into or exchangeable for
(i) shares of Common Stock, (ii) shares of any other series of
Preferred Stock or (iii) any other stock or securities of the
Corporation;
(10) if such series is to be convertible or exchangeable,
the price or prices or ratio or ratios or rate or rates at which such
conversion or exchange may be made and the terms and conditions (if
any) upon which such price or prices or ratio or ratios or rate or
rates may be adjusted; and
(11) such other rights, powers and preferences with
respect to such series as may to the Board of Directors seem advisable.
Any series of Preferred Stock may vary from any other series of Preferred Stock
in any or all of the foregoing respects and in any other manner.
(b) The Board of Directors may, with respect to any existing
series of Preferred Stock but subject to the Preferred Stock Designation
creating such series, (i) increase the number of shares of Preferred Stock
designated for such series by a resolution adding to such series authorized and
unissued shares of Preferred Stock not designated for any other series and (ii)
decrease the number of shares of Preferred Stock designated for such series by a
resolution subtracting from such series shares of Preferred Stock designated for
such series (but not below the number of shares of such series then
outstanding), and the shares so subtracted shall become authorized, unissued and
undesignated shares of Preferred Stock.
(c) No vote of the holders of the Common Stock or the Preferred
Stock shall, unless otherwise expressly provided in a Preferred Stock
Designation creating any series of Preferred Stock, be a prerequisite to the
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of Incorporation. Shares of
any series of Preferred Stock that have been authorized for issuance pursuant to
this Certificate of Incorporation and that have been issued and reacquired in
any manner by the Corporation (including upon conversion or exchange thereof)
shall be restored to the status of authorized and unissued shares of Preferred
Stock
4
<PAGE> 5
and may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors and a Preferred Stock
Designation as set forth above.
Section 4.03. Common Stock. (a) The holders of shares of the Common
Stock shall be entitled to vote upon all matters submitted to a vote of the
common stockholders of the Corporation and shall be entitled to one vote for
each share of the Common Stock held.
(b) Subject to the prior rights and preferences (if any)
applicable to shares of Preferred Stock of any series, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in cash,
stock or otherwise) as may be declared thereon by the Board of Directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
(c) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after payment or provision for
payment of the debts and other liabilities of the Corporation and subject to the
preferential or other rights (if any) of the holders of shares of the Preferred
Stock in respect thereof, the holders of shares of the Common Stock shall be
entitled to receive all the remaining assets of the Corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
of the Common Stock held by them. For purposes of this paragraph (c), a
liquidation, dissolution or winding-up of the Corporation shall not be deemed to
be occasioned by or to include (i) any consolidation or merger of the
Corporation with or into another corporation or other entity or (ii) a sale,
lease, exchange or conveyance of all or a part of the assets of the Corporation.
Section 4.04. Stock Options, Warrants, etc. Unless otherwise expressly
prohibited in the Preferred Stock Designation creating any series of Preferred
Stock, the Corporation shall have authority to create and issue warrants, rights
and options entitling the holders thereof to purchase from the Corporation
shares of the Corporation's capital stock of any class or series or other
securities of the Corporation for such consideration and to such persons, firms
or corporations as the Board of Directors, in its sole discretion, may
determine, setting aside from the authorized but unissued capital stock of the
Corporation the requisite number of shares for issuance upon the exercise of
such warrants, rights or options. Such warrants, rights and options shall be
evidenced by one or more instruments approved by the Board of Directors. The
Board of Directors shall be empowered to set the exercise price, duration, time
for exercise and other terms of such warrants, rights or options; provided,
however, that the consideration to be received for any shares of capital stock
subject thereto shall not be less than the par value thereof.
ARTICLE V
Directors
Section 5.01. Number and Term. The number of directors of the
Corporation shall from time to time be fixed exclusively by the Board of
Directors in accordance with, and subject to the limitations set forth in, the
bylaws of the Corporation (the "Bylaws"); provided, however, that the Board of
Directors shall at all times consist of a minimum of three and a maximum of
twelve
5
<PAGE> 6
members, subject, however, to increases above twelve members as may be required
in order to permit the holders of any series of Preferred Stock to exercise
their right (if any) to elect additional directors under specified
circumstances. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Anything in this Certificate of
Incorporation or the Bylaws to the contrary notwithstanding, each director shall
hold office until his successor is elected and qualified or until his earlier
death, resignation or removal.
Section 5.02. Limitation of Personal Liability. (a) No person who is or
was a director of the Corporation shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derived an improper personal benefit.
(b) If the DGCL is hereafter amended to authorize corporate action
further limiting or eliminating the personal liability of directors, then the
personal liability of the directors to the Corporation or its stockholders shall
be limited or eliminated to the fullest extent permitted by the DGCL, as so
amended from time to time.
Section 5.03. Classification. The Board of Directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively,
all as nearly equal in number as possible, with each director then in office
receiving the classification to be determined with respect to such director by
the Board of Directors. The initial term of office of Class I directors shall
expire at the annual meeting of the Corporation's stockholders in 2001. The
initial term of office of Class II directors shall expire at the annual meeting
of stockholders in 2002. The initial term of office of Class III directors shall
expire at the annual meeting of stockholders in 2003. Each director elected at
an annual meeting of stockholders to succeed a director whose term is then
expiring shall hold office until the third annual meeting of stockholders after
his election or until his successor is elected and qualified or until his
earlier death, resignation or removal. Increases and decreases in the number of
directors shall be apportioned among the classes of directors so that all
classes will be as nearly equal in number as possible. No decrease in the number
of directors constituting the Corporation's Board of Directors shall shorten the
term of any incumbent director.
Section 5.04. Nomination and Election. (a) Nominations of persons for
election or reelection to the Board of Directors may be made by or at the
direction of the Board of Directors. The Bylaws may set forth procedures for the
nomination of persons for election or reelection to the Board of Directors and
only persons who are nominated in accordance with such procedures (if any) shall
be eligible for election or reelection as directors of the Corporation;
provided, however, that such procedures shall not infringe upon (i) the right of
the Board of Directors to nominate persons for election or reelection to the
Board of Directors or (ii) the rights of the holders of any class or series of
Preferred Stock, voting separately by class or series, to elect additional
directors under specified circumstances.
6
<PAGE> 7
(b) Each director shall be elected in accordance with this
Certificate of Incorporation, the Bylaws and applicable law. Election of
directors by the Corporation's stockholders need not be by written ballot unless
the Bylaws so provide.
Section 5.05. Removal. No director of any class may be removed before
the expiration of his term of office except for cause and then only by the
affirmative vote of the holders of not less than a majority in voting power of
all the outstanding shares of capital stock of the Corporation entitled to vote
generally in an election of directors, voting together as a single class. The
Board of Directors may not remove any director, and no recommendation by the
Board of Directors that a director be removed may be made to the Corporation's
stockholders unless such recommendation is set forth in a resolution adopted by
the affirmative vote of not less than 66-2/3% of the whole Board of Directors.
Section 5.06. Vacancies. (a) In case any vacancy shall occur on the
Board of Directors because of death, resignation or removal, such vacancy may be
filled only by a majority (or such higher percentage as may be specified in the
Bylaws) of the directors remaining in office (though less than a quorum), or by
the sole remaining director. The director so appointed shall serve for the
unexpired term of his predecessor or until his successor is elected and
qualified or until his earlier death, resignation or removal. If there are no
directors then in office, an election of directors may be held in the manner
provided by applicable law.
(b) Any newly-created directorship resulting from any increase in
the number of directors may be filled only by a majority (or such higher
percentage as may be specified in the Bylaws) of the directors then in office
(though less than a quorum), or by the sole remaining director. The director so
appointed shall be assigned to such class of directors as such majority of
directors or the sole remaining director, as the case may be, shall determine;
provided, however, that newly-created directorships shall be apportioned among
the classes of directors so that all classes will be as nearly equal in number
as possible. Each director so appointed shall hold office for the remaining term
of the class to which he is assigned or until his successor is elected and
qualified or until his earlier death, resignation or removal.
(c) Except as expressly provided in this Certificate of
Incorporation or as otherwise provided by applicable law, stockholders of the
Corporation shall not have the right to fill vacancies on the Board of
Directors, including newly-created directorships.
Section 5.07. Subject to Rights of Holders of Preferred Stock.
Notwithstanding the foregoing provisions of this Article V, if the Preferred
Stock Designation creating any series of Preferred Stock entitles the holders of
such Preferred Stock, voting separately by class or series, to elect additional
directors under specified circumstances, then all provisions of such Preferred
Stock Designation relating to the nomination, election, term of office, removal,
filling of vacancies and other features of such directorships shall, as to such
directorships, govern and control over any conflicting provisions of this
Article V, and such directors so elected need not be divided into classes
pursuant to this Article V unless expressly provided by the provisions of such
Preferred Stock Designation.
7
<PAGE> 8
ARTICLE VI
Amendment of Bylaws
The Board of Directors is expressly authorized and empowered to adopt,
alter, amend or repeal the Bylaws. Stockholders of the Corporation shall have
the power to alter, amend, expand or repeal the Bylaws but only by the
affirmative vote of the holders of not less than 66-2/3% in voting power of all
outstanding shares of capital stock of the Corporation entitled to vote
generally at an election of directors, voting together as a single class.
ARTICLE VII
Actions and Meetings of Stockholders
Section 7.01. No Action by Written Consent. No action shall be taken by
the stockholders of the Corporation except at an annual or special meeting of
stockholders. Stockholders of the Corporation may not act by written consent in
lieu of a meeting.
Section 7.02. Meetings. (a) Meetings of the stockholders of the
Corporation (whether annual or special) may only be called by the Board of
Directors or by such officer or officers of the Corporation as the Board of
Directors may from time to time authorize to call meetings of the stockholders
of the Corporation. Stockholders of the Corporation shall not be entitled to
call any meeting of stockholders or to require the Board of Directors or any
officer or officers of the Corporation to call a meeting of stockholders except
as otherwise expressly provided in the Bylaws or in the Preferred Stock
Designation creating any series of Preferred Stock.
(b) Stockholders of the Corporation shall not be entitled to
propose business for consideration at any meeting of stockholders except as
otherwise expressly provided in the Bylaws or in the Preferred Stock Designation
creating any series of Preferred Stock.
(c) Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice or waivers of notice of
such meeting. The person presiding at a meeting of stockholders may determine
whether business has been properly brought before the meeting and, if the facts
so warrant, such person may refuse to transact any business at such meeting
which has not been properly brought before such meeting.
Section 7.03. Appoint and Remove Officers, etc. The stockholders of the
Corporation shall have no right or power to appoint or remove officers of the
Corporation nor to abrogate the power of the Board of Directors to elect and
remove officers of the Corporation. The stockholders of the Corporation shall
have no power to appoint or remove directors as members of committees of the
Board of Directors nor to abrogate the power of the Board of Directors to
establish one or more such
8
<PAGE> 9
committees or the power of any such committee to exercise the powers and
authority of the Board of Directors.
Section 7.04. Compromises and Arrangements. Whenever a compromise or
arrangement is proposed between this corporation and its creditors or any class
of them and/or between this corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this corporation under Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under Section 279 of Title 8 of the Delaware code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
ARTICLE VIII
Indemnification of Directors and Officers
The Corporation shall indemnify, to the fullest extent permitted by
applicable law and pursuant to the Bylaws, each person who is or was a director
or officer of the Corporation, and may indemnify each employee and agent of the
Corporation and all other persons whom the Corporation is authorized to
indemnify under the provisions of the DGCL.
ARTICLE IX
Election to be Governed by Section 203 of the DGCL
The Corporation hereby elects to be governed by Section 203 of
the DGCL; provided, however, that the provisions of this Article IX shall not
apply to restrict a business combination between the Corporation and an
interested stockholder (as defined in Section 203 of the DGCL) of the
Corporation if either (i) such business combination was approved by the Board of
Directors prior to the time that such stockholder became an interested
stockholder or (ii) such stockholder became an interested stockholder as a
result of, and at or prior to the effective time of, a transaction which was
approved by the Board of Directors prior to the time that such stockholder
became an interested stockholder.
9
<PAGE> 10
ARTICLE X
Amendment of Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by applicable law, and all rights conferred upon
stockholders, directors or any other persons by or pursuant to this Certificate
of Incorporation are granted subject to this reservation. Notwithstanding the
foregoing or any other provision of this Certificate of Incorporation or any
provision of law that might otherwise permit a lesser or no vote, the provisions
of this Article X and of Articles V, VI, VII and VIII may not be repealed or
amended in any respect, and no provision inconsistent with any such provision or
imposing cumulative voting in the election of directors may be added to this
Certificate of Incorporation, unless such action is approved by the affirmative
vote of the holders of not less than 66-2/3% in voting power of all outstanding
shares of capital stock of the Corporation entitled to vote generally at an
election of directors, voting together as a single class; provided, however,
that any amendment or repeal of Section 5.02 or Article VIII of this Certificate
of Incorporation shall not adversely affect any right or protection existing
thereunder in respect of any act or omission occurring prior to such amendment
or repeal and, provided further, that no Preferred Stock Designation shall be
amended after the issuance of any shares of the Series of Preferred Stock
created thereby, except in accordance with the terms of such Preferred Stock
Designation and the requirements of applicable law.
ARTICLE XI
Voting Requirements Not Exclusive
The voting requirements contained in this Certificate of Incorporation
shall be in addition to the voting requirements imposed by law or by the
Preferred Stock Designation creating any series of Preferred Stock.
10
<PAGE> 11
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
executed for and on behalf and in the name of the Corporation by its officers
thereunto duly authorized on _________, 2000.
LEXICON GENETICS INCORPORATED
By:
---------------------------------------------
Arthur T. Sands
President and Chief Executive Officer
Attest:
By:
---------------------------------------------
Jeffrey L. Wade
Assistant Secretary
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
LEXICON GENETICS INCORPORATED
PREAMBLE
These Bylaws are subject to, and governed by, the General Corporation
Law of the State of Delaware ("DGCL") and the Certificate of Incorporation of
Lexicon Genetics Incorporated ("the Corporation"), as amended (the "Certificate
of Incorporation", such term to include the resolutions of the Board of
Directors of the Corporation creating any series of preferred stock, par value
$0.01 per share, of the Corporation). In the event of a direct conflict between
the provisions of these Bylaws and the mandatory provisions of the DGCL or the
provisions of the Certificate of Incorporation, such provisions of the DGCL and
the Certificate of Incorporation, as the case may be, will be controlling.
ARTICLE I
Offices and Records
Section 1.1. Registered Office and Agent. The registered office and
registered agent of the Corporation shall be as designated from time to time by
the appropriate filing by the Corporation in the office of the Secretary of
State of the State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors of the Corporation (the "Board of Directors") may from time to time
determine or the business of the Corporation may require.
Section 1.3. Books and Records. The books and records of the
Corporation may be kept at the Corporation's principal office in Houston, Texas
or at such other locations outside the State of Delaware as may from time to
time be designated by the Board of Directors.
ARTICLE II
Meetings of Stockholders
Section 2.1. Annual Meetings. An annual meeting of the Corporation's
stockholders (the "Stockholders") shall be held each calendar year for the
purposes of (i) electing directors as provided in Article III and (ii)
transacting such other business as may properly be brought before the meeting.
Each annual meeting shall be held on such date (no later than 13 months after
the date of the last
<PAGE> 2
annual meeting of Stockholders) and at such time as shall be designated by the
Board of Directors and stated in the notice or waivers of notice of such
meeting.
Section 2.2. Special Meetings. Special meetings of the Stockholders,
for any purpose or purposes, may be called at any time by the Chairman of the
Board (if any) or the Chief Executive Officer and shall be called by the
Secretary at the written request, or by resolution adopted by the affirmative
vote, of a majority of the total number of directors which the Corporation would
have if there were no vacancies (the "Whole Board"), which request or resolution
shall fix the date, time and place, and state the purpose or purposes, of the
proposed meeting. Except as provided by applicable law, these Bylaws or the
Certificate of Incorporation, Stockholders shall not be entitled to call a
special meeting of Stockholders or to require the Board of Directors or any
officer to call such a meeting or to propose business at such a meeting.
Business transacted at any special meeting of Stockholders shall be limited to
the purposes stated in the notice or waivers of notice of such meeting.
Section 2.3. Place of Meetings. The Board of Directors may designate
the place of meeting (either within or without the State of Delaware) for any
meeting of Stockholders. If no designation is made by the Board of Directors,
the place of meeting shall be held at the principal executive office of the
Corporation.
Section 2.4. Notice of Meetings. (a) Written notice of each meeting of
Stockholders shall be delivered to each Stockholder of record entitled to vote
thereat, which notice shall (i) state the place, date and time of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called and (ii) be given not less than 10 nor more than 60 days
before the date of the meeting.
(b) Each notice of a meeting of Stockholders shall be given as provided
in Section 9.1, except that if no address appears on the Corporation's books or
stock transfer records with respect to any Stockholder, notice to such
Stockholder shall be deemed to have been given if sent by first-class mail or
telecommunication to the Corporation's principal executive office or if
published at least once in a newspaper of general circulation in the county
where such principal executive office is located.
(c) If any notice addressed to a Stockholder at the address of such
Stockholder appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the Stockholder
at such address, all further notices to such Stockholder at such address shall
be deemed to have been duly given without further mailing if the same shall be
available to such Stockholder upon written demand of such Stockholder at the
principal executive office of the Corporation for a period of one year from the
date of the giving of such notice.
(d) Any previously scheduled meeting of the Stockholders may be
postponed by resolution of the Board of Directors upon public notice given prior
to the time previously scheduled for such meeting.
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Section 2.5. Voting List. At least 10 days before each meeting of
Stockholders, the Secretary or other officer or agent of the Corporation who has
charge of the Corporation's stock ledger shall prepare a complete list of the
Stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing, with respect to each Stockholder, his address and the number of
shares registered in his name. Such list shall be open to the examination of any
Stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice or waivers of notice of the meeting or, if not so specified, at
the place where the meeting is to be held. The list shall also be produced and
kept open at the time and place of the meeting during the whole time thereof,
and may be inspected by any Stockholder who is present. The stock ledger of the
Corporation shall be the only evidence as to who are the Stockholders entitled
to examine any list required by this Section 2.5 or to vote at any meeting of
Stockholders.
Section 2.6. Quorum and Adjournment. The holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), present in person
or by proxy, shall constitute a quorum at any meeting of Stockholders, except as
otherwise provided by applicable law, the Certificate of Incorporation or these
Bylaws. If a quorum is present at any meeting of Stockholders, such quorum shall
not be broken by the withdrawal of enough Stockholders to leave less than a
quorum and the remaining Stockholders may continue to transact business until
adjournment. If a quorum shall not be present at any meeting of Stockholders,
the holders of a majority of the voting stock represented at such meeting or, if
no Stockholder entitled to vote is present at such meeting, any officer of the
Corporation may adjourn such meeting from time to time until a quorum shall be
present. Notwithstanding anything in these Bylaws to the contrary, the chairman
of any meeting of Stockholders shall have the right, acting in his sole
discretion, to adjourn such meeting from time to time.
Section 2.7. Adjourned Meetings. When a meeting of Stockholders is
adjourned to another time or place, unless otherwise provided by these Bylaws,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken; provided,
however, if an adjournment is for more than 30 days or if after an adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Stockholder entitled to vote thereat. At any
adjourned meeting at which a quorum shall be present in person or by proxy, the
Stockholders entitled to vote thereat may transact any business which might have
been transacted at the meeting as originally noticed.
Section 2.8. Voting. (a) Election of directors at all meetings of
Stockholders at which directors are to be elected shall be by written ballot
and, except as otherwise provided in the Certificate of Incorporation, a
plurality of the votes cast thereat shall elect. Except as otherwise provided by
applicable law, the Certificate of Incorporation or these Bylaws, all matters
other than the election of directors submitted to the Stockholders at any
meeting shall be decided by a majority of the votes cast with respect to such
matter. Except as otherwise provided in the Certificate of Incorporation or by
applicable law, (i) no Stockholder shall have any right of cumulative voting and
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(ii) each outstanding share, regardless of class, shall be entitled to one vote
on each matter submitted to a vote at a meeting of Stockholders.
(b) Shares standing in the name of another corporation (whether
domestic or foreign) may be voted by such officer, agent or proxy as the bylaws
of such corporation may prescribe or, in the absence of such provision, as the
board of directors of such corporation may determine. Shares standing in the
name of a deceased person may be voted by the executor or administrator of such
deceased person, either in person or by proxy. Shares standing in the name of a
guardian, conservator or trustee may be voted by such fiduciary, either in
person or by proxy, but no fiduciary shall be entitled to vote shares held in
such fiduciary capacity without a transfer of such shares into the name of such
fiduciary. Shares standing in the name of a receiver may be voted by such
receiver. A Stockholder whose shares are pledged shall be entitled to vote such
shares, unless in the transfer by the pledgor on the books of the Corporation he
has expressly empowered the pledgee to vote thereon, in which case only the
pledgee (or his proxy) may represent the stock and vote thereon.
(c) If shares or other securities having voting power stand of record
in the name of two or more persons (whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise) or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect:
(i) if only one votes, his act binds all;
(ii) if more than one votes, the act of the majority so voting
binds all; and
(iii) if more than one votes but the vote is evenly split on
any particular matter, each faction may vote the securities in question
proportionately or any person voting the shares, or a beneficiary, (if
any) may apply to the Delaware Court of Chancery or such other court as
may have jurisdiction to appoint an additional person to act with the
person so voting the shares, which shall then be voted as determined by
a majority such persons and the person so appointed by the court.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purpose of the paragraph (c) shall
be a majority or even-split in interest.
Section 2.9. Proxies. (a) At any meeting of Stockholders, each
Stockholder having the right to vote thereat may be represented and vote either
in person or by proxy executed in writing by such Stockholder or by his duly
authorized attorney-in-fact. Each such proxy shall be filed with the Secretary
of the Corporation at or before the beginning of each meeting at which such
proxy is to be voted. Unless otherwise provided therein, no proxy shall be valid
after three years from the date of its execution. Each proxy shall be revocable
unless expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by applicable law.
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(b) A proxy shall be deemed signed if the Stockholder's name is placed
on the proxy (whether by manual signature, telegraphic transmission or
otherwise) by the Stockholder or his attorney-in-fact. In the event any proxy
shall designate two or more persons to act as proxies, a majority of such
persons present at the meeting (or, if only one shall be present, then that one)
shall have and may exercise all the powers conferred by the proxy upon all the
persons so designated unless the proxy shall otherwise provide.
(c) Except as otherwise provided by applicable law, by the Certificate
of Incorporation or by these Bylaws, the Board of Directors may, in advance of
any meeting of Stockholders, prescribe additional regulations concerning the
manner of execution and filing of proxies (and the validation of same) which may
be voted at such meeting.
Section 2.10. Record Date. For the purpose of determining the
Stockholders entitled to notice of or to vote at any meeting of Stockholders (or
any adjournment thereof) or to receive payment of any dividend or other
distribution or allotment of any rights or to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date on which the resolution fixing the record date is
adopted by the Board of Directors or be more than 60 nor less than 10 days prior
to the date of such meeting nor more than 60 days prior to any other action. If
no record date is fixed, (i) the record date for determining Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held and (ii) the record date for determining
Stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of Stockholders of record entitled to notice of or to vote at a
meeting of Stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 2.11. Conduct of Meetings; Agenda. (a) Meetings of the
Stockholders shall be presided over by the officer of the Corporation whose
duties under these Bylaws require him to do so; provided, however, if no such
officer of the Corporation shall be present at any meeting of Stockholders, such
meeting shall be presided over by a chairman to be chosen by a majority of the
Stockholders entitled to vote at the meeting who are present in person or by
proxy. At each meeting of Stockholders, the officer of the Corporation whose
duties under these Bylaws require him to do so shall act as secretary of the
meeting; provided, however, if no such officer of the Corporation shall be
present at any meeting of Stockholders, the chairman of such meeting shall
appoint a secretary. The order of business at each meeting of Stockholders shall
be as determined by the chairman of the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him in order.
(b) The Board of Directors may, in advance of any meeting of
Stockholders, adopt an agenda for such meeting, adherence to which the chairman
of the meeting may enforce.
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Section 2.12. Inspectors of Election; Opening and Closing of Polls. (a)
Before any meeting of Stockholders, the Board of Directors may, and if required
by law shall, appoint one or more persons to act as inspectors of election at
such meeting or any adjournment thereof. If any person appointed as inspector
fails to appear or fails or refuses to act, the chairman of the meeting may, and
if required by law or requested by any Stockholder entitled to vote or his proxy
shall, appoint a substitute inspector. If no inspectors are appointed by the
Board of Directors, the chairman of the meeting may, and if required by law or
requested by any Stockholder entitled to vote or his proxy shall, appoint one or
more inspectors at the meeting. Notwithstanding the foregoing, inspectors shall
be appointed consistent with the mandatory provisions of Section 231 of the
DGCL.
(b) Inspectors may include individuals who serve the Corporation in
other capacities (including as officers, employees, agents or representatives);
provided, however, that no director or candidate for the office of director
shall act as an inspector. Inspectors need not be Stockholders.
(c) The inspectors shall (i) determine the number of shares of capital
stock of the Corporation outstanding and the voting power of each, the number of
shares represented at the meeting, the existence of a quorum and the validity
and effect of proxies and (ii) receive votes or ballots, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes and ballots, determine the results and do such acts as are
proper to conduct the election or vote with fairness to all Stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. The inspectors shall have such other
duties as may be prescribed by Section 231 of the DGCL.
(d) The chairman of the meeting may, and if required by the DGCL shall,
fix and announce at the meeting the date and time of the opening and the closing
of the polls for each matter upon which the Stockholders will vote at the
meeting.
Section 2.13. Procedures for Bringing Business before Annual Meetings.
(a) Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at an annual meeting of Stockholders except in accordance with the
procedures hereinafter set forth in this Section 2.13; provided, however, that
nothing in this Section 2.13 shall be deemed to preclude discussion by any
Stockholder of any business properly brought before any annual meeting of
Stockholders in accordance with such procedures.
(b) At any annual meeting of Stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be (i) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the Board
of Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (iii) properly brought before the meeting
by a Stockholder. In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a Stockholder, the
Stockholder must have given timely notice thereof in writing to the Secretary.
To be timely, a Stockholder's notice must be delivered to or mailed and received
at the principal executive office of the Corporation not less than 120 days nor
more than
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150 days in advance of the first anniversary of the date of the Corporation's
proxy statement released to Stockholders in connection with the previous year's
annual meeting of Stockholders; provided, however, that if no annual meeting was
held in the previous year or the date of the annual meeting of Stockholders has
been changed by more than 30 calendar days from the date contemplated at the
time of the previous year's proxy statement, the notice must be received by the
Corporation at least 80 days prior to the date the Corporation intends to
distribute its proxy statement with respect to such meeting. Any meeting of
Stockholders which is adjourned and will reconvene within 30 days after the
meeting date as originally noticed shall, for purposes of any Stockholder's
notice contemplated by this paragraph (b), be deemed to be a continuation of the
original meeting, and no business may be brought before such adjourned meeting
by any Stockholder unless timely notice of such business was given to the
Secretary of the Corporation for the meeting as originally noticed.
(c) Each notice given by a Stockholder as contemplated by paragraph (b)
above shall set forth, as to each matter the Stockholder proposes to bring
before the annual meeting, (i) the nature of the proposed business with
reasonable particularity, including the exact text of any proposal to be
presented for adoption and any supporting statement, which proposal and
supporting statement shall not in the aggregate exceed 500 words, and his
reasons for conducting such business at the annual meeting, (ii) any material
interest of the Stockholder in such business, (iii) the name, principal
occupation and record address of the Stockholder, (iv) the class and number of
shares of the Corporation which are held of record or beneficially owned by the
Stockholder, (v) the dates upon which the Stockholder acquired such shares of
stock and documentary support for any claims of beneficial ownership and (vi)
such other matters as may be required by the Certificate of Incorporation.
(d) The foregoing right of a Stockholder to propose business for
consideration at an annual meeting of Stockholders shall be subject to such
conditions, restrictions and limitations as may be imposed by the Certificate of
Incorporation. Nothing in this Section 2.13 shall entitle any Stockholder to
propose business for consideration at any special meeting of Stockholders.
(e) The chairman of any meeting of Stockholders shall determine whether
business has been properly brought before the meeting and, if the facts so
warrant, may refuse to transact any business at such meeting which has not been
properly brought before the meeting.
(f) Notwithstanding any other provision of these Bylaws, the
Corporation shall be under no obligation to include any Stockholder proposal in
its proxy statement or otherwise present any such proposal to Stockholders at a
meeting of Stockholders if the Board of Directors reasonably believes that the
proponents thereof have not complied with Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and the Corporation shall not be required to
include in its proxy statement to Stockholders any Stockholder proposal not
required to be included in its proxy statement to Stockholders in accordance
with the Exchange Act and such rules or regulations.
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(g) Nothing in this Section 2.13 shall be deemed to affect any rights
of Stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 of the Exchange Act.
(h) Reference is made to Section 3.4 for procedures relating to the
nomination of any person for election or reelection as a director of the
Corporation.
Section 2.14. Action without Meeting. No action shall be taken by
Stockholders except at a meeting of Stockholders. Stockholders may not act by
written consent in lieu of a meeting.
ARTICLE III
Board of Directors -- Powers, Number, Classification,
Nominations, Resignations, Removal, Vacancies and Compensation
Section 3.1. Management. The business and property of the Corporation
shall be managed by and under the direction of the Board of Directors. In
addition to the powers and authorities expressly conferred upon the Board of
Directors by these Bylaws, the Board of Directors may exercise all the powers of
the Corporation and do all such lawful acts and things as are not by law, by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the Stockholders.
Section 3.2. Number and Qualification. The number of directors shall be
fixed from time to time exclusively pursuant to resolution adopted by a majority
of the Whole Board, but shall consist of not less than three nor more than 12
directors, subject, however, to increases above 12 members as may be required in
order to permit the holders of any series of preferred stock of the Corporation
to elect directors under specified circumstances. The directors need not be
Stockholders or residents of the State of Delaware. Each director must have
attained 21 years of age.
Section 3.3 Classes of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively, all as nearly equal in number as possible, with each director then
in office receiving the classification to be determined with respect to such
director by the Board of Directors.
Section 3.4. Election; Term of Office. (a) The initial term of office
of Class I directors shall expire at the annual meeting of the Corporation's
stockholders in 2001. The initial term of office of Class II directors shall
expire at the annual meeting of stockholders in 2002. The initial term of office
of Class III directors shall expire at the annual meeting of stockholders in
2003. Subject to Sections 3.9 and 3.10, each director elected at an annual
meeting of stockholders to succeed a director whose term is expiring shall hold
office until the third annual meeting of stockholders after his election or
until his successor is elected and qualified or until his earlier death,
resignation or removal.
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(b) Directors shall be elected by Stockholders only at annual meetings
of Stockholders, except that if any such annual meeting is not held or if any
director to be elected thereat is not elected, such director may be elected at
any special meeting of Stockholders held for that purpose.
(c) No decrease in the number of directors constituting the Whole Board
shall have the effect of shortening the term of any incumbent director.
Section 3.5. Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as a director of the class of which
he is a member and (ii) the newly created or eliminated directorships resulting
from such increase or decrease shall be apportioned by the Board of Directors
among the three classes of directors so as to ensure that no one class has more
than one director more than any other class. To the extent possible, consistent
with the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of office are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
Section 3.6. Nominations. (a) Notwithstanding anything in these Bylaws
to the contrary, only persons who are nominated in accordance with the
procedures hereinafter set forth in this Section 3.6 shall be eligible for
election as directors of the Corporation.
(b) Nominations of persons for election to the Board of Directors at a
meeting of Stockholders may be made only (i) by or at the direction of the Board
of Directors or (ii) by any Stockholder entitled to vote for the election of
directors at the meeting who satisfies the eligibility requirements (if any) set
forth in the Certificate of Incorporation and who complies with the notice
procedures set forth in this Section 3.6 and in the Certificate of
Incorporation; provided, however, Stockholders may not nominate persons for
election to the Board of Directors at any special meeting of Stockholders unless
the business to be transacted at such special meeting, as set forth in the
notice of such meeting, includes the election of directors. Nominations by
Stockholders shall be made pursuant to timely notice in writing to the
Secretary. To be timely, a Stockholder's notice given in the context of an
annual meeting of Stockholders shall be delivered to or mailed and received at
the principal executive office of the Corporation not less than 120 days nor
more than 150 days in advance of the first anniversary of the date of the
Corporation's proxy statement released to Stockholders in connection with the
previous year's annual meeting of Stockholders; provided, however, that if no
annual meeting was held in the previous year or the date of the annual meeting
of Stockholders has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, the notice must
be received by the Corporation at least 80 days prior to the date the
Corporation intends to distribute its proxy statement with respect to such
meeting. To be timely, a Stockholder's notice given in the context of a special
meeting of Stockholders shall be delivered to or mailed and received at the
principal executive office of the Corporation not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or the tenth day
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following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such special meeting. For purposes of the foregoing, "public
announcement" means the disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Any meeting
of Stockholders which is adjourned and will reconvene within 30 days after the
meeting date as originally noticed shall, for purposes of any notice
contemplated by this paragraph (b), be deemed to be a continuation of the
original meeting and no nominations by a Stockholder of persons to be elected
directors of the Corporation may be made at any such reconvened meeting other
than pursuant to a notice that was timely for the meeting on the date originally
noticed.
(c) Each notice given by a Stockholder as contemplated by paragraph (b)
above shall set forth the following information, in addition to any other
information or matters required by the Certificate of Incorporation:
(i) as to each person whom the Stockholder proposes to
nominate for election or re-election as a director, (A) the exact name
of such person, (B) such person's age, principal occupation, business
address and telephone number and residence address and telephone
number, (C) the number of shares (if any) of each class of stock of the
Corporation owned directly or indirectly by such person and (D) all
other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Exchange Act or any successor
regulation thereto (including such person's notarized written
acceptance of such nomination, consent to being named in the proxy
statement as a nominee and statement of intention to serve as a
director if elected);
(ii) as to the Stockholder giving the notice, (A) his name and
address, as they appear on the Corporation's books, (B) his principal
occupation, business address and telephone number and residence address
and telephone number, (C) the class and number of shares of the
Corporation which are held of record or beneficially owned by him and
(D) the dates upon which he acquired such shares of stock and
documentary support for any claims of beneficial ownership; and
(iii) a description of all arrangements or understandings
between the Stockholder giving the notice and each nominee and any
other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by such Stockholder.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a Stockholder's notice
of nomination which pertains to the nominee.
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(d) The foregoing right of a Stockholder to nominate a person for
election or reelection to the Board of Directors shall be subject to such
conditions, restrictions and limitations as may be imposed by the Certificate of
Incorporation.
(e) Nothing in this Section 3.6 shall be deemed to affect any rights of
Stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 of the Exchange Act.
(f) The chairman of a meeting of Stockholders shall have the power and
duty to determine whether a nomination was made in accordance with the
procedures set forth in this Section 3.6 and, if any nomination is not in
compliance with this Section 3.6, to declare that such defective nomination
shall be disregarded.
Section 3.7. Resignations. Any director may resign at any time by
giving written notice to the Board of Directors or the Secretary. Such
resignation shall take effect at the date of receipt of such notice or at any
later time specified therein. Acceptance of such resignation shall not be
necessary to make it effective. When one or more directors shall resign from the
Board of Directors, effective at a future date, a majority of the directors then
in office, including those who have so resigned, shall have the power to fill
such vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until his successor shall have been duly elected and qualified.
Section 3.8. Removal. No director may be removed before the expiration
of his term of office except for cause and then only by the affirmative vote of
the holders of not less than a majority of the voting power of all outstanding
Voting Stock, voting together as a single class. The Board of Directors may not
remove any director, and no recommendation by the Board of Directors that a
director be removed may be made to the Stockholders unless such recommendation
is set forth in a resolution adopted by the affirmative vote of not less than
66-2/3% of the Whole Board.
Section 3.9. Vacancies. (a) In case any vacancy shall occur on the
Board of Directors because of death, resignation or removal, such vacancy may be
filled by a majority of the directors remaining in office (though less than a
quorum) or by the sole remaining director. The director so appointed shall serve
for the unexpired term of his predecessor or until his successor is elected and
qualified or until his earlier death, resignation or removal. If there are no
directors then in office, an election of directors may be held in the manner
provided by applicable law.
(b) Any newly-created directorship resulting from any increase in the
number of directors constituting the Whole Board may be filled by a majority of
the directors then in office (though less than a quorum), or by the sole
remaining director. The director so appointed shall be assigned to such class of
directors as such majority of directors, or the sole remaining director, as the
case may be, shall determine; provided however, that newly-created directorships
shall be apportioned among the classes of directors so that all classes will be
as nearly equal in number as possible. Each director
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so appointed shall hold office until his successor is elected and qualified or
until his earlier death, resignation or removal.
(c) Except as expressly provided in these Bylaws or the Certificate of
Incorporation or as otherwise provided by law, Stockholders shall not have any
right to fill vacancies on the Board of Directors, including newly-created
directorships.
(d) If, as a result of a disaster or emergency (as determined in good
faith by the then remaining directors), it becomes impossible to ascertain
whether or not vacancies exist on the Board of Directors and a person is or
persons are elected by the directors, who in good faith believe themselves to be
a majority of the remaining directors, or the sole remaining director, to fill a
vacancy or vacancies that such remaining directors in good faith believe exists,
then the acts of such person or persons who are so elected as directors shall be
valid and binding upon the Corporation and the Stockholders, although it may
subsequently develop that at the time of the election (i) there was in fact no
vacancy or vacancies existing on the Board of Directors or (ii) the directors,
or the sole remaining director, who so elected such person or persons did not in
fact constitute a majority of the remaining directors.
Section 3.10. Subject to Rights of Holders of Preferred Stock.
Notwithstanding the foregoing provisions of this Article III, if the resolutions
of the Board of Directors creating any series of preferred stock of the
Corporation entitle the holders of such preferred stock, voting separately by
series, to elect additional directors under specified circumstances, then all
provisions of such resolutions relating to the nomination, election, term of
office, removal, filling of vacancies and other features of such directorships
shall, as to such directorships, govern and control over any conflicting
provisions of this Article III.
Section 3.11. Compensation. The Board of Directors shall have the
authority to fix, and from time to time to change, the compensation of
directors. Each director shall be entitled to reimbursement from the Corporation
for his reasonable expenses incurred in attending meetings of the Board of
Directors (or any committee thereof) and meetings of the Stockholders. Nothing
contained in these Bylaws shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Board of Directors -- Meetings and Actions
Section 4.1. Place of Meetings. The directors may hold their meetings
and have one or more offices, and keep the books of the Corporation, in such
place or places, within or without the State of Delaware, as the Board of
Directors may from time to time determine.
Section 4.2. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, within or without
the State of Delaware, as shall from time
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to time be determined by the Board of Directors. Except as otherwise provided by
applicable law, any business may be transacted at any regular meeting of the
Board of Directors.
Section 4.3. Special Meetings. Special meetings of the Board of
Directors shall be called by the Secretary at the request of the Chairman of the
Board (if any) or the Chief Executive Officer on not less than 24 hours' notice
to each director, specifying the time, place and purpose of the meeting. Special
meetings shall be called by the Secretary on like notice at the written request
of any two directors, which request shall state the purpose of the meeting.
Section 4.4. Quorum; Voting. (a) At all meetings of the Board of
Directors, a majority of the Whole Board shall be necessary and sufficient to
constitute a quorum for the transaction of business. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time (without notice other than
announcement at the meeting) until a quorum shall be present. A meeting of the
Board of Directors at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors; provided,
however, that no action of the remaining directors shall constitute the act of
the Board of Directors unless the action is approved by at least a majority of
the required quorum for the meeting or such greater number of directors as shall
be required by applicable law, by the Certificate of Incorporation or by these
Bylaws.
(b) The act of a majority of the directors present at any meeting of
the Board of Directors at which there is a quorum shall be the act of the Board
of Directors unless by express provision of law, the Certificate of
Incorporation or these Bylaws a different vote is required, in which case such
express provision shall govern and control.
Section 4.5. Conduct of Meetings. At meetings of the Board of
Directors, business shall be transacted in such order as shall be determined by
the chairman of the meeting unless the Board of Directors shall otherwise
determine the order of business. The Board of Directors shall keep regular
minutes of its proceedings which shall be placed in the minute book of the
Corporation.
Section 4.6. Presumption of Assent. A director who is present at a
meeting of the Board of Directors at which action on any corporate matter is
taken shall be presumed to have assented to such action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting before
the adjournment thereof or shall forward any dissent by certified or registered
mail to the Secretary immediately after the adjournment of the meeting. Such
right to dissent shall not apply to any director who voted in favor of such
action.
Section 4.7. Action without Meeting. Unless otherwise provided in the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting if all directors consent thereto in writing. All such written consents
shall be filed with the minutes of proceedings of the Board of Directors.
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Section 4.8. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors
may participate in a meeting of the Board of Directors by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at such meeting.
ARTICLE V
Committees of the Board of Directors
Section 5.1. Executive Committee. (a) The Board of Directors may, by
resolution adopted by the affirmative vote of a majority of the Whole Board,
designate an Executive Committee which, during the intervals between meetings of
the Board of Directors and subject to Section 5.11, shall have and may exercise,
in such manner as it shall deem to be in the best interests of the Corporation,
all of the powers of the Board of Directors in the management or direction of
the business and affairs of the Corporation, except as reserved to the Board of
Directors or as delegated by the Board of Directors to another committee of the
Board of Directors or as may be prohibited by law. The Executive Committee shall
consist of not less than two directors, the exact number to be determined from
time to time by the affirmative vote of a majority of the Whole Board. None of
the members of the Executive Committee need be an officer of the Corporation.
(b) Meetings of the Executive Committee may be called at any time by
the Chairman of the Board (if any) or the Chief Executive Officer on not less
than one day's notice to each member given verbally or in writing, which notice
shall specify the time, place and purpose of the meeting.
Section 5.2. Other Committees. The Board of Directors may, by
resolution adopted by a majority of the Whole Board, establish additional
standing or special committees of the Board of Directors, each of which shall
consist of two or more directors (the exact number to be determined from time to
time by the Board of Directors) and, subject to Section 5.11, shall have such
powers and functions as may be delegated to it by the Board of Directors. No
member of any such additional committee need be an officer of the Corporation.
Section 5.3. Term. Each member of a committee of the Board of Directors
shall serve as such until the earliest of (i) his death, (ii) the expiration of
his term as a director, (iii) his resignation as a member of such committee or
as a director and (iv) his removal as a member of such committee or as a
director.
Section 5.4. Committee Changes; Removal. The Board of Directors shall
have the power at any time to fill vacancies in, to change the membership of and
to abolish any committee of the Board of Directors; provided, however, that no
such action shall be taken in respect of the Executive Committee unless approved
by a majority of the Whole Board.
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Section 5.5. Alternate Members. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. If no alternate
members have been so appointed or each such alternate committee member is absent
or disqualified, the committee member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member.
Section 5.6. Rules and Procedures. (a) The Board of Directors may
designate one member of each committee as chairman of such committee; provided,
however, that, except as provided in the following sentence, no person shall be
designated as chairman of the Executive Committee unless approved by a majority
of the Whole Board. If a chairman is not so designated for any committee, the
members thereof shall designate a chairman.
(b) Each committee shall adopt its own rules (not inconsistent with
these Bylaws or with any specific direction as to the conduct of its affairs as
shall have been given by the Board of Directors) governing the time, place and
method of holding its meetings and the conduct of its proceedings and shall meet
as provided by such rules.
(c) If a committee is comprised of an odd number of members, a quorum
shall consist of a majority of that number. If a committee is comprised of an
even number of members, a quorum shall consist of one-half of that number. If a
committee is comprised of two members, a quorum shall consist of both members.
If a quorum is not present at a meeting of any committee, a majority of the
members present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present. The act of a
majority of the members present at any meeting at which a quorum is in
attendance shall be the act of a committee, unless the act of a greater number
is required by law, the Certificate of Incorporation, these Bylaws or the
committee's rules as adopted in Section 5.6(b).
(d) Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when requested.
(e) Unless otherwise provided by these Bylaws or by the rules adopted
by any committee, notice of the time and place of each meeting of such committee
shall be given to each member of such committee as provided in these Bylaws with
respect to notices of special meetings of the Board of Directors.
Section 5.7. Presumption of Assent. A member of a committee of the
Board of Directors who is present at a meeting of such committee at which action
on any corporate matter is taken shall be presumed to have assented to such
action unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to any member who voted in favor of such action.
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Section 5.8. Action without Meeting. Unless otherwise provided in the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting if all members of such committee consent thereto in writing.
All such written consents shall be filed with the minutes of proceedings of such
committee.
Section 5.9. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of any committee of the
Board of Directors may participate in a meeting of such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
Section 5.10. Resignations. Any committee member may resign at any time
by giving written notice to the Board of Directors or the Secretary. Such
resignation shall take effect at the date of receipt of such notice or at any
later time specified therein. Acceptance of such resignation shall not be
necessary to make it effective.
Section 5.11. Limitations on Authority. Unless otherwise provided in
the Certificate of Incorporation, no committee of the Board of Directors shall
have the power or authority to (i) authorize an amendment to the Certificate of
Incorporation, (ii) adopt an agreement of merger or consolidation, recommend to
the Stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (iii) recommend to the Stockholders a
dissolution of the Corporation or a revocation of a dissolution, (iv) amend
these Bylaws, (v) declare a dividend or other distribution on, or authorize the
issuance, purchase or redemption of, securities of the Corporation, (vi) elect
any officer of the Corporation or (vii) approve any material transaction between
the Corporation and one or more of its directors, officers or employees or
between the Corporation and any corporation, partnership, association or other
organization in which one or more of its directors, officers or employees are
directors or officers or have a financial interest; provided, however, that the
Executive Committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of preferred stock adopted by
the Board of Directors as provided in the Certificate of Incorporation, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the decrease or increase of the
shares of any such series.
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ARTICLE VI
Officers
Section 6.1. Number; Titles; Qualification; Term of Office. (a) The
officers of the Corporation shall be a Chief Executive Officer, a President, a
Secretary and a Treasurer. The Board of Directors from time to time may also
elect such other officers (including, without limitation, a Chairman of the
Board and one or more Vice Presidents) as the Board of Directors deems
appropriate or necessary. Each officer shall hold office until his successor
shall have been duly elected and shall have been qualified or until his earlier
death, resignation or removal. Any two or more offices may be held by the same
person, but no officer shall execute any instrument in more than one capacity if
such instrument is required by law or any act of the Corporation to be executed
or countersigned by two or more officers. None of the officers need be a
Stockholder or a resident of the State of Delaware. No officer (other than the
Chairman of the Board, if any) need be a director.
(b) The Board of Directors may delegate to the Chairman of the Board
(if any) and/or the Chief Executive Officer the power to appoint one or more
employees of the Corporation as divisional or departmental vice presidents and
fix their duties as such appointees. However, no such divisional or departmental
vice presidents shall be considered an officer of the Corporation, the officers
of the Corporation being limited to those officers elected by the Board of
Directors.
Section 6.2. Election. At the first meeting of the Board of Directors
after each annual meeting of Stockholders at which a quorum shall be present,
the Board of Directors shall elect the officers of the Corporation.
Section 6.3. Removal. Any officer may be removed, either with or
without cause, by the Board of Directors; provided, however, that (i) the
Chairman of the Board (if any) and the Chief Executive Officer may be removed
only by the affirmative vote of a majority of the Whole Board and (ii) the
removal of any officer shall be without prejudice to the contract rights, if
any, of such officer. Election or appointment of an officer shall not of itself
create contract rights.
Section 6.4. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chairman of the Board (if any) or
the Chief Executive Officer. Any such resignation shall take effect on receipt
of such notice or at any later time specified therein. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the Corporation under any contract to which the officer is a party.
Section 6.5. Vacancies. If a vacancy shall occur in any office because
of death, resignation, removal, disqualification or any other cause, the Board
of Directors may elect or appoint a successor to fill such vacancy for the
remainder of the term.
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Section 6.6. Salaries. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors or pursuant to its direction, and no
officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the Corporation.
Section 6.7. Chairman of the Board. The Chairman of the Board (if any)
shall have all powers and shall perform all duties incident to the office of
Chairman of the Board and such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws. The Chairman of the Board, if present,
shall preside at all meetings of the Board of Directors and of the Stockholders.
During the time of any vacancy in the office of Chief Executive Officer or in
the event of the absence or disability of the Chief Executive Officer, the
Chairman of the Board shall have the duties and powers of the Chief Executive
Officer unless otherwise determined by the Board of Directors. In no event shall
any third party having dealings with the Corporation be bound to inquire as to
any facts required by the terms of this Section 6.7 for the exercise by the
Chairman of the Board of the powers of the Chief Executive Officer.
Section 6.8. Chief Executive Officer. (a) The Chief Executive Officer
shall be the chief executive officer of the Corporation and, subject to the
supervision, direction and control of the Board of Directors, shall have general
supervision, direction and control of the business and officers of the
Corporation with all such powers as may be reasonably incident to such
responsibilities. He shall have the general powers and duties of management
usually vested in the chief executive officer of a corporation.
(b) During the time of any vacancy in the office of the Chairman of the
Board or in the event of the absence or disability of the Chairman of the Board,
the Chief Executive Officer shall have the duties and powers of the Chairman of
the Board unless otherwise determined by the Board of Directors. During the time
of any vacancy in the office of President or in the event of the absence or
disability of the President, the Chief Executive Officer shall have the duties
and powers of the President unless otherwise determined by the Board of
Directors. In no event shall any third party having any dealings with the
Corporation be bound to inquire as to any facts required by the terms of this
Section 6.8 for the exercise by the Chief Executive Officer of the powers of the
Chairman of the Board or the President.
Section 6.9. President. (a) The President shall be the chief operating
officer of the Corporation and, subject to the supervision, direction and
control of the Chief Executive Officer and the Board of Directors, shall manage
the day-to-day operations of the Corporation. He shall have the general powers
and duties of management usually vested in the chief operating officer of a
corporation and such other powers and duties as may be assigned to him by the
Board of Directors, the Chief Executive Officer or these Bylaws.
(b) During the time of any vacancy in the offices of the Chairman of
the Board and Chief Executive Officer or in the event of the absence or
disability of the Chairman of the Board and the Chief Executive Officer, the
President shall have the duties and powers of the Chief Executive Officer unless
otherwise determined by the Board of Directors. In no event shall any third
party
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having any dealings with the Corporation be bound to inquire as to any facts
required by the terms of this Section 6.9 for the exercise by the President of
the powers the Chief Executive Officer.
Section 6.10. Vice Presidents. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as fixed by the
Board of Directors, or if not ranked, the Vice President designated by the
President, shall perform all the duties of the President as chief operating
officer of the Corporation, and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the President as chief operating
officer of the Corporation. In no event shall any third party having dealings
with the Corporation be bound to inquire as to any facts required by the terms
of this Section 6.10 for the exercise by any Vice President of the powers of the
President as chief operating officer of the Corporation. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be assigned to them by the Board of Directors, the Chief Executive Officer
or the President.
Section 6.11. Treasurer. The Treasurer shall (i) have custody of the
Corporation's funds and securities, (ii) keep full and accurate account of
receipts and disbursements, (iii) deposit all monies and valuable effects in the
name and to the credit of the Corporation in such depository or depositories as
may be designated by the Board of Directors and (iv) perform such other duties
as may be prescribed by the Board of Directors or the Chief Executive Officer.
Section 6.12. Assistant Treasurers. Each Assistant Treasurer shall have
such powers and duties as may be assigned to him by the Board of Directors, the
Chief Executive Officer or the President. In case of the absence or disability
of the Treasurer, the Assistant Treasurer designated by the President (or, in
the absence of such designation, the Treasurer) shall perform the duties and
exercise the powers of the Treasurer during the period of such absence or
disability. In no event shall any third party having dealings with the
Corporation be bound to inquire as to any facts required by the terms of this
Section 6.12 for the exercise by any Assistant Treasurer of the powers of the
Treasurer under these Bylaws.
Section 6.13. Secretary. (a) The Secretary shall keep or cause to be
kept, at the principal office of the Corporation or such other place as the
Board of Directors may order, a book of minutes of all meetings and actions of
the Board of Directors, committees of the Board of Directors and Stockholders,
with the time and place of holding, whether regular or special, and, if special,
how authorized, the notice thereof given, the names of those present at meetings
of the Board of Directors and committees thereof, the number of shares present
or represented at Stockholders' meetings and the proceedings thereof.
(b) The Secretary shall keep, or cause to be kept, at the principal
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, a share register, or a duplicate share register, showing the names
of all Stockholders and their addresses, the number and classes of shares held
by each, the number and date of certificates issued for the same and the number
and date of cancellation of every certificate surrendered for cancellation.
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(c) The Secretary shall give, or cause to be given, notice of all
meetings of the Stockholders and of the Board of Directors required by these
Bylaws or by law to be given, and he shall keep the seal of the Corporation, if
one be adopted, in safe custody, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors, the Chairman
of the Board (if any), the Chief Executive Officer, the President or these
Bylaws.
(d) The Secretary may affix the seal of the Corporation, if one be
adopted, to contracts of the Corporation.
Section 6.14. Assistant Secretaries. Each Assistant Secretary shall
have such powers and duties as may be assigned to him by the Board of Directors,
the Chairman of the Board (if any), the Chief Executive Officer or the
President. In case of the absence or disability of the Secretary, the Assistant
Secretary designated by the President (or, in the absence of such designation,
the Secretary) shall perform the duties and exercise the powers of the Secretary
during the period of such absence or disability. In no event shall any third
party having dealings with the Corporation be bound to inquire as to any facts
required by the terms of this Section 6.14 for the exercise by any Assistant
Secretary of the powers of the Secretary under these Bylaws.
ARTICLE VII
Stock
Section 7.1. Certificates. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the Board of
Directors. The certificates shall be signed (i) by the Chairman of the Board (if
any), the President or a Vice President and (ii) by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer.
Section 7.2. Signatures on Certificates. Any or all of the signatures
on the certificates may be a facsimile and the seal of the Corporation (or a
facsimile thereof), if one has been adopted, may be affixed thereto. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 7.3. Legends. The Board of Directors shall have the power and
authority to provide that certificates representing shares of stock of the
Corporation bear such legends and statements (including, without limitation,
statements relating to the powers, designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the shares represented by such certificates) as the Board of
Directors deems appropriate in connection with the requirements of federal or
state securities laws or other applicable laws.
Section 7.4. Lost, Stolen or Destroyed Certificates. The Board of
Directors, the Secretary and the Treasurer each may direct a new certificate or
certificates to be issued in place of any
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certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, in each case upon the making of an
affidavit of that fact by the owner of such certificate, or his legal
representative. When authorizing such issue of a new certificate or
certificates, the Board of Directors, the Secretary or the Treasurer, as the
case may be, may, in its or his discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as the Board of Directors, the Secretary or the Treasurer, as the
case may be, shall require and/or to furnish the Corporation a bond in such form
and substance and with such surety as the Board of Directors, the Secretary or
the Treasurer, as the case may be, may direct as indemnity against any claim, or
expense resulting from any claim, that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 7.5. Transfers of Shares. Shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives. Upon surrender to the Corporation, or the transfer agent of the
Corporation, of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the Corporation or
its transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon the Corporation's
books.
Section 7.6. Registered Stockholders. The Corporation shall be entitled
to treat the holder of record of any share of stock of the Corporation as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim or interest in such share on the part of any other
person, whether or not the Corporation shall have express or other notice
thereof, except as expressly provided by the laws of the State of Delaware.
Section 7.7. Regulations. The Board of Directors shall have the power
and authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration or the replacement of
certificates for shares of stock of the Corporation. The Board of Directors may
(i) appoint and remove transfer agents and registrars of transfers and (ii)
require all stock certificates to bear the signature of any such transfer agent
and/or any such registrar of transfers.
Section 7.8. Stock Options, Warrants, etc. Unless otherwise expressly
prohibited in the resolutions of the Board of Directors creating any class or
series of preferred stock of the Corporation, the Board of Directors shall have
the power and authority to create and issue (whether or not in connection with
the issue and sale of any stock or other securities of the Corporation)
warrants, rights or options entitling the holders thereof to purchase from the
Corporation any shares of capital stock of the Corporation of any class or
series or any other securities of the Corporation for such consideration and to
such persons, firms or corporations as the Board of Directors, in its sole
discretion, may determine, setting aside from the authorized but unissued stock
of the Corporation the requisite number of shares for issuance upon the exercise
of such warrants, rights or options. Such warrants, rights and options shall be
evidenced by one or more instruments approved by the Board of Directors. The
Board of Directors shall be empowered to set the exercise price, duration,
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time for exercise and other terms of such warrants, rights and operations;
provided, however, that the consideration to be received for any shares of
capital stock subject thereto shall not be less than the par value thereof.
ARTICLE VIII
Indemnification
Section 8.1. Third Party Actions. The Corporation (i) shall, to the
maximum extent permitted from time to time under the laws of the State of
Delaware, indemnify every person who is or was a party or is or was threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation), by reason of the fact that
such person is or was a director or officer of the Corporation or any of its
direct or indirect subsidiaries or is or was serving at the request of the
Corporation or any of its direct or indirect subsidiaries as a director, officer
or fiduciary of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, and (ii) may, to the maximum extent permitted
from time to time under the laws of the State of Delaware, indemnify every
person who is or was a party or is or was threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation), by reason of the fact that such person is or was an
employee or agent of the Corporation or any of its direct or indirect
subsidiaries or is or was serving at the request of the Corporation or any of
its direct or indirect subsidiaries as an employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including counsel fees), judgments, fines and
amounts paid or owed in settlement, actually and reasonably incurred by such
person or rendered or levied against such person in connection with such action,
suit or proceeding, if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent shall not, in itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal action or proceeding, that the
person had reasonable cause to believe that his conduct was unlawful. Any person
seeking indemnification under this Section 8.1 shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary is
established.
Section 8.2. Actions By or in the Right of the Corporation. The
Corporation (i) shall, to the maximum extent permitted from time to time under
the laws of the State of Delaware, indemnify every person who is or was a party
or who is or was threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director or officer of the Corporation or any of its direct or indirect
subsidiaries or is or was serving at the request of the Corporation or any of
its direct or indirect subsidiaries as a director, officer or fiduciary of
another corporation,
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partnership, joint venture, trust, employee benefit plan or other enterprise,
and (ii) may, to the maximum extent permitted from time to time under the laws
of the State of Delaware, indemnify every person who is or was a party or who is
or was threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that such person is or was an employee or agent
of the Corporation or any of its direct or indirect subsidiaries or is or was
serving at the request of the Corporation or any of its direct or indirect
subsidiaries as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including counsel fees) actually and reasonably incurred by such person in
connection with the defense or settlement or such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation; provided, however, that no
indemnification shall be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnification.
Section 8.3. Expenses. Expenses incurred by a director or officer of
the Corporation or any of its direct or indirect subsidiaries in defending a
civil or criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article VIII. Such expenses
incurred by other employees and agents of the Corporation and other persons
eligible for indemnification under this Article VIII may be paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
Section 8.4. Non-exclusivity. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article VIII shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any provision of law, the
Certificate of Incorporation, the certificate of incorporation or bylaws or
other governing documents of any direct or indirect subsidiary of the
Corporation, under any agreement, vote of stockholders or disinterested
directors or under any policy or policies of insurance maintained by the
Corporation on behalf of any person or otherwise, both as to action in his
official capacity and as to action in another capacity while holding any of the
positions or having any of the relationships referred to in this Article VIII.
Section 8.5. Enforceability. The provisions of this Article VIII (i)
are for the benefit of, and may be enforced directly by, each director or
officer of the Corporation the same as if set forth in their entirety in a
written instrument executed and delivered by the Corporation and such director
or officer and (ii) constitute a continuing offer to all present and future
directors and officers of the Corporation. The Corporation, by its adoption of
these Bylaws, (A) acknowledges and agrees that each present and future director
and officer of the Corporation has relied upon and will continue to rely upon
the provisions of this Article VIII in becoming, and serving as, a director or
officer of the Corporation or, if requested by the Corporation, a director,
officer or fiduciary or the like of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, (B) waives
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reliance upon, and all notices of acceptance of, such provisions by such
directors and officers and (C) acknowledges and agrees that no present or future
director or officer of the Corporation shall be prejudiced in his right to
enforce directly the provisions of this Article VIII in accordance with their
terms by any act or failure to act on the part of the Corporation.
Section 8.6. Insurance. The Board of Directors may authorize, by a vote
of the majority of the Whole Board, the Corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article VIII.
Section 8.7. Survival. The provisions of this Article VIII shall
continue as to any person who has ceased to be a director or officer of the
Corporation and shall inure to the benefit of the estate, executors,
administrators, heirs, legatees and devisees of any person entitled to
indemnification under this Article VIII.
Section 8.8. Amendment. No amendment, modification or repeal of this
Article VIII or any provision hereof shall in any manner terminate, reduce or
impair the right of any past, present or future director or officer of the
Corporation to be indemnified by the Corporation, nor the obligation of the
Corporation to indemnify any such director or officer, under and in accordance
with the provisions of this Article VIII as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising, in whole or in
part, from a state of facts extant on the date of, or relating to matters
occurring prior to, such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
Section 8.9. Definitions. For purposes of this Article VIII, (i)
reference to any person shall include the estate, executors, administrators,
heirs, legatees and devisees of such person, (ii) "employee benefit plan" and
"fiduciary" shall be deemed to include, but not be limited to, the meaning set
forth, respectively, in sections 3(3) and 21(A) of the Employee Retirement
Income Security Act of 1974, as amended, (iii) references to the judgments,
fines and amounts paid or owed in settlement or rendered or levied shall be
deemed to encompass and include excise taxes required to be paid pursuant to
applicable law in respect of any transaction involving an employee benefit plan
and (iv) references to the Corporation shall be deemed to include any
predecessor corporation or entity and any constituent corporation or entity
absorbed in a merger, consolidation or other reorganization of or by the
Corporation which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, employees, agents and
fiduciaries so that any person who was a director, officer, employee, agent or
fiduciary of such predecessor or constituent corporation or entity, or served at
the request of such predecessor or constituent corporation or entity as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under the provisions of this Article VIII with
respect to the Corporation as such person
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would have with respect to such predecessor or constituent corporation or entity
if its separate existence had continued.
ARTICLE IX
Notices and Waivers
Section 9.1. Methods of Giving Notices. Whenever, by applicable law,
the Certificate of Incorporation or these Bylaws, notice is required to be given
to any Stockholder, any director or any member of a committee of the Board of
Directors and no provision is made as to how such notice shall be given,
personal notice shall not be required and such notice may be given (i) in
writing, by mail, postage prepaid, addressed to such Stockholder, director or
committee member at his address as it appears on the books or (in the case of a
Stockholder) the stock transfer records of the Corporation or (ii) by any other
method permitted by law (including, but not limited to, overnight courier
service, telegram, telex or telecopier). Any notice required or permitted to be
given by mail shall be deemed to be delivered and given at the time when the
same is deposited in the United States mail as aforesaid. Any notice required or
permitted to be given by overnight courier service shall be deemed to be
delivered and given one business day after delivery to such service with all
charges prepaid and addressed as aforesaid. Any notice required or permitted to
be given by telegram, telex or telecopy shall be deemed to be delivered and
given at the time transmitted with all charges prepaid and addressed as
aforesaid.
Section 9.2. Waiver of Notice. Whenever any notice is required to be
given to any Stockholder, director or member of a committee of the Board of
Directors by applicable law, the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be equivalent to
the giving of such notice. Attendance of a Stockholder (whether in person or by
proxy), director or committee member at a meeting shall constitute a waiver of
notice of such meeting, except where such person attends for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
ARTICLE X
Miscellaneous Provisions
Section 10.1. Dividends. Subject to applicable law and the provisions
of the Certificate of Incorporation, dividends may be declared by the Board of
Directors at any meeting and may be paid in cash, in property or in shares of
the Corporation's capital stock. Any such declaration shall be at the discretion
of the Board of Directors. A director shall be fully protected in relying in
good faith upon the books of account of the Corporation or statements prepared
by any of its officers as to the value and amount of the assets, liabilities or
net profits of the Corporation or any other facts pertinent
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to the existence and amount of surplus or other funds from which dividends might
properly be declared.
Section 10.2. Reserves. There may be created by the Board of Directors,
out of funds of the Corporation legally available therefor, such reserve or
reserves as the Board of Directors from time to time, in its absolute
discretion, considers proper to provide for contingencies, to equalize dividends
or to repair or maintain any property of the Corporation, or for such other
purpose as the Board of Directors shall consider beneficial to the Corporation,
and the Board of Directors may thereafter modify or abolish any such reserve in
its absolute discretion.
Section 10.3. Checks. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the Corporation shall be signed by such officer or officers or by
such employees or agents of the Corporation as may be designated from time to
time by the Board of Directors.
Section 10.4. Corporate Contracts and Instruments. Subject always to
the specific directions of the Board of Directors, the Chairman of the Board (if
any), the President, any Vice President, the Secretary or the Treasurer may
enter into contracts and execute instruments in the name and on behalf of the
Corporation. The Board of Directors and, subject to the specific directions of
the Board of Directors, the Chairman of the Board (if any) or the President may
authorize one or more officers, employees or agents of the Corporation to enter
into any contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances.
Section 10.5. Attestation. With respect to any deed, deed of trust,
mortgage or other instrument executed by the Corporation through its duly
authorized officer or officers, the attestation to such execution by the
Secretary or an Assistant Secretary of the Corporation shall not be necessary to
constitute such deed, deed of trust, mortgage or other instrument a valid and
binding obligation of the Corporation unless the resolutions, if any, of the
Board of Directors authorizing such execution expressly state that such
attestation is necessary.
Section 10.6 Securities of Other Corporations. The Chairman of the
Board, the Chief Executive Officer, the President or any Vice President of the
Corporation shall have the power and authority to transfer, endorse for
transfer, vote, consent or take any other action with respect to any securities
of another issuer which may be held or owned by the Corporation and to make,
execute and deliver any waiver, proxy or consent with respect to any such
securities.
Section 10.7. Fiscal Year. The fiscal year of the Corporation shall be
January 1 through December 31, unless otherwise fixed by the Board of Directors.
Section 10.8. Seal. The seal of the Corporation shall be such as from
time to time may be approved by the Board of Directors.
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Section 10.9. Invalid Provisions. If any part of these Bylaws shall be
invalid or inoperative for any reason, the remaining parts, so far as is
possible and reasonable, shall remain valid and operative.
Section 10.10. Headings. The headings used in these Bylaws have been
inserted for administrative convenience only and shall not limit or otherwise
affect any of the provisions of these Bylaws.
Section 10.11. References/Gender/Number. Whenever in these Bylaws the
singular number is used, the same shall include the plural where appropriate.
Words of any gender used in these Bylaws shall include the other gender where
appropriate. In these Bylaws, unless a contrary intention appears, all
references to Articles and Sections shall be deemed to be references to the
Articles and Sections of these Bylaws.
Section 10.12. Amendments. These Bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of a majority of
the Whole Board; provided, however, that no such action shall be taken at any
special meeting of the Board of Directors unless notice of such action is
contained in the notice of such special meeting. These Bylaws may not be
altered, amended or rescinded, nor may new bylaws be adopted, by the
Stockholders except by the affirmative vote of the holders of not less than
66-2/3% of the voting power of all outstanding Voting Stock, voting together as
a single class. Each alteration, amendment or repeal of these Bylaws shall be
subject in all respects to Section 8.7.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of October 15, 1999
(the "EFFECTIVE DATE"), by and between Lexicon Genetics Incorporated, a Delaware
corporation (hereafter "COMPANY"), and Arthur T. Sands, M.D., Ph.D. (hereafter
"EXECUTIVE"), an individual and resident of Montgomery County, Texas.
W I T N E S S E T H:
WHEREAS, Company wishes to secure the services of the Executive subject
to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon the
terms and conditions hereafter set forth,
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in
Section 4 hereof), the Company shall employ Executive, and Executive shall
serve, as President and Chief Executive Officer and as a member of the Company's
Board of Directors ("BOARD"). Executive's principal place of employment shall be
at the Company's principal corporate offices in The Woodlands, Texas, or at such
other location for the Company's principal corporate offices during the
Employment Period.
2. DUTIES AND RESPONSIBILITIES OF EXECUTIVE.
(a) During the Employment Period, Executive shall devote
his services full time to the business of the Company and its
Affiliates (as defined below), and perform the duties and
responsibilities assigned to him by the Board to the best of his
ability and with reasonable diligence. Executive agrees to cooperate
fully with the Board, and other executive officers of the Company, and
not to engage in any activity which conflicts with or interferes with
the performance of his duties hereunder. During the Employment Period,
Executive shall devote his best efforts and skills to the business and
interests of Company, do his utmost to further enhance and develop
Company's best interests and welfare, and endeavor to improve his
ability and knowledge of Company's business, in an effort to increase
the value of his services for the mutual benefit of the parties hereto.
During the Employment Period, it shall not be a violation of this
Agreement for Executive to (1) serve on any corporate board or
committee thereof with the approval of the Board, (2) to serve on any
civic, or charitable boards or committees (except for boards or
committees of a
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Competing Business (as defined in Section 11) unless approved by the
Board), (3) deliver lectures, fulfill teaching or speaking engagements,
or (4) manage personal investments; provided, however, any such
activities must not materially interfere with performance of
Executive's responsibilities under this Agreement.
For purposes of this Agreement, "AFFILIATE" means any entity
which owns or controls, is owned or controlled by, or is under common
ownership or control with, the Company.
(b) Executive represents and covenants to Company that he
is not subject or a party to any employment agreement, noncompetition
covenant, nondisclosure agreement, or any similar agreement, covenant,
understanding, or restriction that would prohibit Executive from
executing this Agreement and fully performing his duties and
responsibilities hereunder, or would in any manner, directly or
indirectly, limit or affect the duties and responsibilities that may
now or in the future be assigned to Executive hereunder.
3. COMPENSATION.
(a) During the Employment Period, the Company shall pay
to Executive an annual base salary of $200,000, in consideration for
his services under this Agreement, payable on a pro rata basis in not
less than monthly installments, in conformity with the Company's
customary payroll practices for executive salaries. Executive's base
salary shall be subject to review at least annually, and such salary
may be adjusted, depending upon the performance of the Company and
Executive, upon the recommendation of the Compensation Committee of the
Board (the "COMPENSATION COMMITTEE"). All salary, bonus and other
compensation payments hereunder shall be subject to all applicable
payroll and other taxes.
(b) As promptly as practicable after the end of each
Bonus Year during the Employment Period, the Compensation Committee
shall determine whether Executive is entitled to a bonus based on the
attainment of performance goals during the Bonus Year then ended. The
term "Bonus Year" refers to the 12-month period beginning on October 1
and ending on September 30, with the first Bonus Year beginning on
October 1, 1998 and ending on September 30, 1999. Effective for the
Bonus Year beginning October 1, 1998, and for each Bonus Year
thereafter during the Employment Period, the Compensation Committee
shall establish certain performance goals for the Company and the
Executive and a targeted annual bonus amount (which annual target bonus
shall not exceed $50,000 unless otherwise determined by the
Compensation Committee in its discretion). The target bonus shall be
paid to Executive within 30 days after completion of the Company's
financial statements for the applicable Bonus Year (but in no event
later than 120 days after the end of such Bonus Year unless otherwise
agreed by Executive) based on the extent to which the performance goals
and objectives, in the judgment of the Compensation Committee, for the
Bonus Year
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have been achieved. The full amount of the target bonus shall be paid
if substantially all of the designated performance goals and objectives
have been achieved for the Bonus Year; if not, the Compensation
Committee, in its discretion exercised in good faith, may award a
target bonus to Executive in an amount less than the full target bonus
for that Bonus Year. The Compensation Committee may also award
additional bonuses or other compensation to Executive at any time in
its complete discretion.
4. TERM OF EMPLOYMENT. Executive's initial term of employment
with the Company under this Agreement shall be for the four-year period
beginning on the Effective Date and ending at midnight (CST) on December 31,
2002, unless Notice of Termination pursuant to Section 7 is given by either the
Company or Executive to the other party. The Company and Executive shall each
have the right to give Notice of Termination at will, with or without cause, at
any time, subject to the terms and conditions of this Agreement regarding the
rights and duties of the parties upon termination of employment. The term of
employment hereunder ending on December 31, 2002, shall be referred to herein as
the "INITIAL TERM OF EMPLOYMENT." On December 31, 2002 and on December 31st of
each succeeding year (each such date being referred to as a "RENEWAL DATE"),
this Agreement shall automatically renew and extend for a period of one (1)
additional year (the "RENEWAL TERM") unless written notice of nonrenewal is
delivered from one party to the other at least ninety (90) days prior to the
relevant Renewal Date or, alternatively, the parties may mutually agree to
voluntarily enter into a new employment agreement at any time. The period from
the Effective Date through the date of Executive's termination of employment at
any time for whatever reason shall be referred to herein as the "EMPLOYMENT
PERIOD."
5. BENEFITS. Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to the
following:
(a) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall
pay or reimburse Executive for all reasonable travel, entertainment and
other expenses paid or incurred by Executive in performing his business
obligations hereunder. Executive shall provide substantiating
documentation for expense reimbursement requests as reasonably required
by the Company.
(b) BENEFITS. Executive shall be entitled to and shall
receive all other benefits and conditions of employment available
generally to executives of the Company pursuant to Company plans and
programs, including, but not limited to, group health insurance
benefits, dental benefits, life insurance benefits, disability
benefits, and pension and retirement benefits. The Company shall not be
obligated to institute, maintain, or refrain from changing, amending,
or discontinuing, any such employee benefit program or plan, so long as
such actions are similarly applicable to covered executives generally.
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Notwithstanding the previous paragraph, Company shall provide
Executive with long-term disability ("LTD") insurance coverage, at no
cost to Executive, that provides income replacement benefits to
Executive, if he should incur a long-term disability covered under such
policy, in an amount at least equal to 60% of his base salary at the
time of such disability, which benefits shall begin after a waiting
period that does not exceed six months. The income replacement benefits
described in the previous sentence shall remain payable at least until
Executive attains the age of 65 provided that he remains unable to
perform the essential functions of his occupation for the Company
during such period. To the extent that the Company's LTD policy which
covers employees generally does not provide sufficient coverage to
Executive, as described in the previous sentence, Company agrees to
purchase a supplemental LTD policy for Executive from a reputable
insurer and to pay the premiums on Executive's behalf during the
Employment Period.
Notwithstanding the first paragraph of this Section 5(b), the
Company shall pay for term life insurance coverage on Executive's life,
with the beneficiary(ies) thereof designated by Executive, with a death
benefit in an amount not less than twice Executive's base salary
(pursuant to Section 3(a)) as such base salary is set on each January 1
during the Employment Period. Upon request, Executive agrees to take
any physical exams, and to provide such information, which are
reasonably necessary or appropriate to secure or maintain such term
life insurance coverage.
(c) SPLIT DOLLAR LIFE INSURANCE. Within sixty (60) days
of the Effective Date, the Company agrees to enter into a split dollar
life insurance agreement with Executive, upon terms acceptable to the
parties, with any established and reputable insurance company
reasonably acceptable to the Executive, for a whole or universal life
insurance policy on the life of Executive with a policy death benefit
of at least $1,000,000. Executive's rights under the policy shall be
determined in accordance with the terms of the split dollar life
insurance agreement.
(d) PAID VACATION. Executive shall be entitled to a paid
annual vacation of four (4) weeks. Vacation time may be accumulated and
carried over by Executive into any subsequent year(s); provided,
however, Executive shall not be permitted to accumulate more than eight
weeks of accrued and unused vacation. In addition, the Executive shall
be allowed up to ten (10) days each year to attend professional
continuing education meetings or seminars; provided, that attendance at
such meetings or seminars shall be planned for minimum interference
with the Company's business.
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6. RIGHTS AND PAYMENTS UPON TERMINATION. Executive's right to
compensation and benefits for periods after the date on which his employment
with the Company and its Affiliates (as defined in Section 2) terminates for
whatever reason (the "TERMINATION DATE") shall be determined in accordance with
this Section 6.
(a) ACCRUED SALARY AND VACATION PAYMENTS. Executive shall
be entitled to the following payments under this Section 6(a)
regardless of the reason for termination, in addition to any payments
or benefits to which the Executive is entitled under the terms of any
employee benefit plan or the provisions of Section 6(b):
(1) his accrued but unpaid salary through his
Termination Date; and
(2) his accrued but unpaid vacation pay for the
period ending on his Termination Date in accordance with
Section 5(d) above.
(b) SEVERANCE PAYMENT.
(1) At any time prior to a Change in Control (as
defined below), in the event that:
(A) Executive's employment hereunder is
terminated by the Company at any time for
any reason except (i) for Cause (as defined
below) or (ii) due to Executive's death or
Disability (as defined below);
(B) Executive terminates his own
employment hereunder for Good Reason (as
defined below); or
(C) Company terminates Executive's
employment through notice of nonrenewal as
of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year
Renewal Term,
then, in any such event, Executive shall be entitled to
receive, and the Company shall be obligated to pay,
Executive's base salary under Section 3(a) (without regard to
any bonuses or extraordinary compensation) then being paid to
him on the Termination Date as salary continuation (pursuant
to the Company's normal payroll procedures) for a period of
twelve (12) consecutive months following the Termination Date.
In the event of Executive's death during such salary
continuation period, the Company shall pay, within 60 days of
Executive's death, a lump sum equal to the present value of
all remaining payments (using a 5% interest discount rate) to
the Executive's surviving spouse, if any, or if there is no
surviving spouse, to Executive's estate.
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(2) At any time after a Change in Control (as
defined below), in the event that:
(A) Executive's employment hereunder is
terminated by the Company at any time for
any reason except (i) for Cause (as defined
below) or (ii) due to Executive's death or
Disability (as defined below);
(B) Executive terminates his own
employment hereunder for Good Reason (as
defined below in this Section 6(c); or
(C) the Company terminates Executive's
employment through notice of nonrenewal as
of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year
Renewal Term,
then, in any such event, Executive shall be entitled to
receive, and the Company shall be obligated to pay,
Executive's base salary under Section 3(a) (without regard to
any bonuses or extraordinary compensation except as provided
below in this paragraph) then being paid to him on the
Termination Date as salary continuation (pursuant to the
Company's normal payroll procedures) for a period of twelve
(12) consecutive months following the Termination Date, plus
an additional single sum payment equal to Executive's full
target bonus (pursuant to Section 3(b)) for the Bonus Year in
which the termination occurred which shall be payable within
30 days from the Termination Date. In the event of Executive's
death during such salary continuation period, the Company,
within 60 days of Executive's death, shall pay a lump sum
equal to the present value of all remaining payments (using a
5% interest discount rate) to the Executive's surviving
spouse, if any, or if there is no surviving spouse, to
Executive' estate.
(3) Except as otherwise specifically provided in
this Section 6(b), severance payments shall be in addition to,
and shall not reduce or offset, any other payments that are
due to Executive from the Company (or any other source) or
under any other agreements, except that severance payments
hereunder shall offset any severance benefits otherwise due to
Executive under any severance pay plan or program maintained
by the Company that covers its employees generally. The
provisions of this Section 6(b) shall supersede any
conflicting provisions of this Agreement but shall not be
construed to curtail, offset or limit Executive's rights to
any other payments, whether contingent upon a Change in
Control (as defined below) or otherwise, under this Agreement
or any other agreement, contract, plan or other source of
payment.
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(4) A "CHANGE IN CONTROL" of the Company shall
be deemed to have occurred if any of the following shall have
taken place: (A) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) other than Gordon Cain and his
Affiliates (defined below), taken together, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), or any successor provisions thereto, directly
or indirectly, of securities of the Company representing
thirty-five percent (35%) or more of the combined voting power
of the Company's then-outstanding voting securities; (B) the
approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case with
respect to which persons who were stockholders of the Company
immediately prior to such reorganization, merger, or
consolidation do not, immediately thereafter, own or control
more than fifty percent (50%) of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding
securities in substantially the same proportion as their
ownership of the Company's outstanding voting securities prior
to such reorganization, merger or consolidation; (C) a
liquidation or dissolution of the Company or the sale of all
or substantially all of the Company's assets; (D) in the event
any person is elected by the stockholders of the Company to
the Board who has not been nominated for election by a
majority of the Board or any duly appointed committee thereof;
or (E) following the election or removal of directors, a
majority of the Board consists of individuals who were not
members of the Board two (2) years before such election or
removal, unless the election of each director who is not a
director at the beginning of such two-year period has been
approved in advance by directors representing at least a
majority of the directors then in office who were directors at
the beginning of the two-year period. The Board, in its
discretion, may deem any other corporate event affecting the
Company to be a "Change in Control" hereunder.
An "AFFILIATE" of Gordon Cain shall include (1) any
person or entity directly or indirectly controlling or
controlled by or under direct or indirect common control with
Gordon Cain, (2) any spouse, immediate family member or
relative of Gordon Cain, (3) any trust in which Gordon Cain or
any person described in clause (2) above has a beneficial
interest, and (4) any trust established by Gordon Cain or any
person described in clause (2) above, whether or not such
person has a beneficial interest in such trust. For purposes
of this definition of "Affiliate," the term "control" means
the power to direct the management and policies of a person,
directly or through one or more intermediaries, whether
through the ownership of voting securities by contract, or
otherwise.
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(5) "DISABILITY" means a permanent and total
disability which entitles Executive to disability income
payments under the Company's long-term disability plan or
policy as then in effect which covers Executive pursuant to
Section 5(b). If Executive is not covered under the Company's
long-term disability plan or policy at such time for whatever
reason or under a supplemental LTD policy provided by the
Company, then the term "Disability" hereunder shall mean a
"permanent and total disability" as defined in Section
22(e)(3) of the Code and, in this case, the existence of any
such Disability shall be certified by a physician acceptable
to both the Company and Executive. In the event that the
parties are not able to agree on the choice of a physician,
each shall select a physician who, in turn, shall select a
third physician to render such certification. All costs
relating to the determination of whether Executive has
incurred a Disability shall be paid by the Company.
(6) "CODE" means the Internal Revenue Code of
1986, as amended. References in this Agreement to any Section
of the Code shall include any successor provisions of the Code
or its successor.
(7) "CAUSE" means a termination of employment
directly resulting from (1) the Executive having engaged in
intentional misconduct causing a material violation by the
Company of any state or federal laws, (2) the Executive having
engaged in a theft of corporate funds or corporate assets or
in a material act of fraud upon the Company, (3) an act of
personal dishonesty taken by the Executive that was intended
to result in personal enrichment of the Executive at the
expense of the Company, (4) Executive's final conviction (or
the entry of a plea of nolo contendere or equivalent plea) in
a court of competent jurisdiction of a felony, or (5) a breach
by the Executive during the Employment Period of the
provisions of Sections 9, 10, and 11 hereof, if such breach
results in a material injury to the Company. For purposes of
this definition of "Cause", the term "Company" shall mean the
Company or any of its Affiliates (as defined in Section 2).
(8) "GOOD REASON" means the occurrence of any of
the following events without Executive's express written
consent:
(A) Before a Change in Control (as
defined in Section 6(b)(4)), a five percent (5%) or
greater reduction in Executive's annual base salary
unless any such greater reduction is (i) applied
across the board to the other senior officers of the
Company or (ii) specifically agreed to in writing by
Executive or, after a Change in Control, any
reduction in Executive's base salary unless agreed to
in writing by Executive, provided that in either
event Executive specifically terminates his
employment for Good Reason
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hereunder within 120 days from the date that he has
actual notice of such reduction; or
(B) Before or after a Change in
Control, any breach by the Company of any material
provision of this Agreement, provided that Executive
specifically terminates his employment for Good
Reason hereunder within 120 days from the date that
he has actual notice of such material breach; or
(C) Before or after a Change in
Control, for any reason except on account of
Executive's Disability (as defined above), a
substantial and adverse change in the Executive's
duties, control, authority, status or position, or
the assignment to the Executive of any duties or
responsibilities which are materially inconsistent
with such status or position, or a material reduction
in the duties and responsibilities exercised by
Executive, or a loss of title, loss of office, loss
of significant authority, power or control, or any
removal of Executive from, or any failure to
reappoint or reelect him to, his CEO or Board
membership positions stated in Section 1; provided
that Executive specifically terminates his employment
for Good Reason hereunder within 120 days from the
date that he has actual notice of such action; or
(D) Only after a Change in Control (as
defined in Section 6(b)), any of the following events
will constitute Good Reason, provided that Executive
specifically terminates his employment for Good
Reason hereunder within six (6) months following his
receipt of actual notice of an event listed below:
(i) the failure by the Company or
its successor to expressly assume and agree
to continue and perform this Agreement in
the same manner and to the same extent that
the Company would be required to perform if
such Change in Control had not occurred;
(ii) the Company or its successor
fails to continue in effect any pension,
medical, health-and-accident, life
insurance, or disability income plan or
program in which Executive was participating
at the time of the Change in Control (or
replacement plans or programs providing
Executive with substantially similar
benefits), or the taking of any action by
the Company or its successor that would
adversely affect Executive's participation
in or materially reduce his benefits under
any such plan or program that was enjoyed by
him immediately
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prior to the Change in Control unless the
Company or its successor provides a
replacement plan or program with
substantially similar benefits.
Notwithstanding the preceding provisions of this Section
6(b)(8), if Executive desires to terminate his employment for Good
Reason, he shall first give written notice of the facts and
circumstances providing the basis for Good Reason to the Board or the
Compensation Committee, and allow the Company thirty (30) days from the
date of such notice to remedy, cure or rectify the situation giving
rise to Good Reason to the reasonable satisfaction of Executive.
7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means a
written notice that indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to
mitigate the amount of any payment provided for under this Agreement by seeking
other employment or in any other manner.
9. CONFLICTS OF INTEREST.
(a) In keeping with his fiduciary duties to Company,
Executive hereby agrees that he shall not become involved in a conflict
of interest, or upon discovery thereof, allow such a conflict to
continue at any time during the Employment Period. Moreover, Executive
agrees that he shall immediately disclose to the Board any facts which
might involve a conflict of interest that has not been approved by the
Board.
(b) Executive and Company recognize and acknowledge that
it is not possible to provide an exhaustive list of actions or
interests which may constitute a "conflict of interest." Moreover,
Company and Executive recognize there are many borderline situations.
In some instances, full disclosure of facts by the Executive to the
Board may be all that is necessary to enable Company to protect its
interests. In others, if no improper motivation appears to exist and
Company's interests have not demonstrably suffered, prompt elimination
of the outside interest may suffice. In other serious instances, it may
be necessary for the Company to terminate Executive's employment for
Cause (as defined in Section 6(b)). The Board reserves the right to
take such action as, in its good faith judgment, will resolve the
conflict of interest.
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(c) Executive hereby agrees that any direct or indirect
interest in, connection with, or benefit from any outside activities,
particularly commercial activities, which interest might adversely
affect the Company or any of its Affiliates (as defined in Section 2),
involves a possible conflict of interest. Circumstances in which a
conflict of interest on the part of Executive would or might arise, and
which must be reported immediately to the Board, include, but are not
limited to, any of the following:
(1) Ownership by the Executive and his immediate
family members of more than a two percent (2%) interest, on an
aggregated basis, in any lender, supplier, contractor,
customer or other entity with which Company or any of its
Affiliates does business;
(2) Misuse of information, property or
facilities to which Executive has access in a manner which is
demonstrably and materially injurious to the interests of
Company or any of its Affiliates, including its business,
reputation or goodwill; or
(3) Materially trading in products or services
connected with products or services designed or marketed by or
for the Company or any of its Affiliates.
10. CONFIDENTIAL INFORMATION.
(a) NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes
of this Section 10, all references to Company shall mean and include
its Affiliates (as defined in Section 2). Executive hereby
acknowledges, understands and agrees that all Confidential Information,
as defined in Section 10(b), whether developed by Executive or others
employed by or in any way associated with Executive or Company, is the
exclusive and confidential property of Company and shall be regarded,
treated and protected as such in accordance with this Agreement.
Executive acknowledges that all such Confidential Information is in the
nature of a trade secret. Failure to mark any writing confidential
shall not affect the confidential nature of such writing or the
information contained therein.
(b) DEFINITION OF CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall mean information, whether or not
originated by Executive, which is used in Company's business and (1) is
proprietary to, about or created by Company; (2) gives Company some
competitive business advantage or the opportunity of obtaining such
advantage, or the disclosure of which could be detrimental to the
interests of Company; (3) is designated as Confidential Information by
Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential
by Company, or from all the relevant circumstances should reasonably be
assumed by Executive to be confidential and proprietary to Company; or
(4) is not generally known by non-Company personnel. Such Confidential
Information includes, but is not
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limited to, the following types of information and other information of
a similar nature (whether or not reduced to writing or designated as
confidential):
(1) Work product resulting from or related to
the research, development or production of the programs of the
Company including, without limitation, OmniBank(TM),
homologous recombination, DNA sequencing, phenotypic analysis,
drug target validation and drug discovery;
(2) Internal Company personnel and financial
information, vendor names and other vendor information
(including vendor characteristics, services and agreements),
purchasing and internal cost information, internal service and
operational manuals, and the manner and methods of conducting
Company's business;
(3) Marketing, partnering and business and
development plans, price and cost data, price and fee amounts,
pricing and billing policies, quoting procedures, marketing
techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and
potential strategies of the Company which have been or are
being discussed; and
(4) Business acquisition and other business
opportunities.
(c) EXCLUSIONS FROM CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall not include information publicly known
other than as a result of a disclosure by Executive in breach of
Section 10(a), and the general skills and experience gained during
Executive's work with the Company which Executive could reasonably have
been expected to acquire in similar work with another company.
(d) COVENANTS OF EXECUTIVE. As a consequence of
Executive's acquisition or anticipated acquisition of Confidential
Information, Executive shall occupy a position of trust and confidence
with respect to Company's affairs and business. In view of the
foregoing and of the consideration to be provided to Executive,
Executive agrees that it is reasonable and necessary that Executive
make the following covenants:
(1) At any time during the Employment Period and
within ten (10) years after the Employment Period, Executive
shall not disclose Confidential Information to any person or
entity, either inside or outside of Company, other than as
necessary in carrying out duties on behalf of Company, without
obtaining Company's prior written consent (unless such
disclosure is compelled pursuant to court order or subpoena,
and at which time Executive gives notice of such proceedings
to Company), and Executive will take all reasonable
precautions to prevent inadvertent
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disclosure of such Confidential Information. This prohibition
against Executive's disclosure of Confidential Information
includes, but is not limited to, disclosing the fact that any
similarity exists between the Confidential Information and
information independently developed by another person or
entity, and Executive understands that such similarity does
not excuse Executive from abiding by his covenants or other
obligations under this Agreement.
(2) At any time during or after the Employment
Period, Executive shall not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties
on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to
prevent inadvertent use, copying or transfer of such
Confidential Information. This prohibition against Executive's
use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or
otherwise exploiting, directly or indirectly, any products or
services (including databases, written documents and software
in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses
based upon knowledge of Confidential Information.
(e) RETURN OF CONFIDENTIAL MATERIAL. Executive shall
promptly turn over to the person designated by the Board all originals
and copies of materials containing Confidential Information in the
Executive's possession, custody, or control upon request or upon
termination of Executive's employment with Company. Executive agrees to
attend a termination interview with the person or persons designated by
the Board in the Company's offices for a reasonable time period. The
purposes of the termination interview shall be (1) to confirm turnover
of all Confidential Information, (2) discuss any questions Executive
may have about his continuing obligations under this Agreement, (3)
answer questions related to his duties and on-going projects to allow a
temporary or permanent successor to obtain a better understanding of
the employment position, (4) confirm the number of any outstanding
stock options, or other long-term incentive awards, and their vested
percentages and other terms and conditions, and (5) any other topics
relating to the business affairs of Company or its Affiliates as
determined by the Company.
(f) INVENTIONS. Any and all inventions, products,
discoveries, improvements, copyrightable or patentable works or
products, trademarks, service marks, ideas, processes, formulae,
methods, designs, techniques and trade secrets (collectively
hereinafter referred to as "INVENTIONS") made, developed, conceived or
resulting from work performed by Executive (alone or in conjunction
with others, during regular hours of work or otherwise) while he is
employed by Company and which may be directly or indirectly useful in,
or related to, the business of Company (including, without limitation,
research and development activities of Company), or which are made
using any equipment, facilities, Confidential Information, materials,
labor, money, time or other resources of Company, shall be promptly
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disclosed by Executive to the person or persons designated by the
Board, shall be deemed Confidential Information for purposes of this
Agreement, and shall be Company's exclusive property. Executive shall,
upon Company's reasonable request during or after the Employment
Period, execute any documents and perform all such acts and things
which are necessary or advisable in the opinion of Company to cause
issuance of patents to, or otherwise obtain recorded protection of
right to intellectual property for, Company with respect to Inventions
that are to be Company's exclusive property under this Section 10, or
to transfer to and vest in Company full and exclusive right, title and
interest in and to such Inventions; provided, however, that the expense
of securing any such protection of right to Inventions shall be borne
by Company. In addition, during or after the Employment Period,
Executive shall, at Company's expense, reasonably assist the Company in
any reasonable and proper manner in enforcing any Inventions which are
to be or become Company's exclusive property hereunder against
infringement by others. Executive shall keep confidential and will hold
for Company's sole use and benefit any Invention that is to be
Company's exclusive property under this Section 10 for which full
recorded protection of right has not been or cannot be obtained.
(g) PROPERTY RIGHTS. In keeping with his fiduciary duties
to Company, Executive hereby covenants and agrees that during his
Employment Period, and for a period of three (3) months following his
Termination Date, Executive shall promptly disclose in writing to
Company any and all Inventions, which are conceived, developed, made or
acquired by Executive, either individually or jointly with others, and
which relate to, or are useful in, the business, products or services
of Company including, without limitation, research and development
activities of the Company, or which are made using any equipment,
facilities, Confidential Information, material, labor, money, time or
other resources of the Company. In consideration for his employment
hereunder, Executive hereby specifically sells, assigns and transfers
to Company all of his worldwide right, title and interest in and to all
such Inventions.
If during the Employment Period, Executive creates any
original work of authorship or other property fixed in any tangible
medium of expression which (1) is the subject matter of copyright
(including computer programs) and (2) relates to, or is useful in,
Company's present or planned business, products, or services, whether
such property is created solely by Executive or jointly with others,
such property shall be deemed a work for hire, with the copyright
vesting in the Company unless the Company otherwise consents to the
copyright vesting in another person or entity; provided, however, the
parties agree that, notwithstanding anything herein to the contrary,
(A) Executive shall retain all copyright and other property rights in
Executive's personal memoirs (or any fictional or non-fictional
derivative thereof) which address topics including the founding of the
Company and the development of the functional genomics field and (B)
such memoirs (or any fictional or non-fictional derivative thereof) may
be published and released in any medium of expression
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at any time subject to the foregoing provisions of this Section 10
regarding Confidential Information and Inventions.
Executive hereby agrees to (1) assist Company or its nominee
at all times in the protection of any property that is subject to this
Section 10, (2) not to disclose any such property to others without the
written consent of Company or its nominee, except as required by his
employment hereunder, and (3) at the request of Company, to execute
such assignments, certificates or other interests as Company or its
nominee may from time to time deem desirable to evidence, establish,
maintain, perfect, protect or enforce its rights, title or interests in
or to any such property.
(h) EMPLOYEE PROPRIETARY INFORMATION AGREEMENT. The
provisions of this Section 10 shall not supersede the Employee
Proprietary Information Agreement (the "Proprietary Agreement") between
Employee and the Company (or any other agreement of similar intent)
which shall remain in full force and effect and, moreover, this
Agreement, the Proprietary Agreement and any such other similar
agreement between the parties shall be construed and applied as being
mutually consistent to the full extent possible. Notwithstanding the
immediately preceding sentence, the second paragraph of Section 10(g)
hereof, but only such provisions which address Executive's personal
memoirs (or any fictional or non-fictional derivative thereof), shall
control in the event of any conflict or inconsistency between such
provisions in Section 10(g) and the Proprietary Agreement or any other
agreement of similar intent.
(i) REMEDIES. In the event of a breach or threatened
breach of any of the provisions of this Section 10, Company shall be
entitled to an injunction ordering the return of all such Confidential
Information and Inventions, and restraining Executive from using or
disclosing, for his benefit or the benefit of others, in whole or in
part, any Confidential Information or Inventions. Executive further
agrees that any breach or threatened breach of any of the provisions of
this Section 10 would cause irreparable injury to Company, for which it
would have no adequate remedy at law. Nothing herein shall be construed
as prohibiting Company from pursuing any other remedies available to it
for any such breach or threatened breach, including the recovery of
damages.
11. AGREEMENT NOT TO COMPETE. All references in this Section 11 to
"COMPANY" shall mean and include its Affiliates (as defined in Section 2).
(a) PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees
that except in the ordinary course and scope of his employment
hereunder during the Employment Period, Executive shall not while
employed by Company and for a period of (i) six (6) months following
his Termination Date within the continental United States and (ii)
twelve (12) months following his Termination Date only within the State
of Texas:
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(1) Directly or indirectly, engage or invest in,
own, manage, operate, control or participate in the ownership,
management, operation or control of, be employed by,
associated or in any manner connected with, or render services
or advice to, any Competing Business (as defined below);
provided, however, Executive may invest in the securities of
any enterprise with the power to vote up to two percent (2%)
of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(2) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, employer, advisor (whether paid or unpaid),
stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own benefit
or for the benefit of any other person or entity, solicit,
divert or take away, any customers, clients, or business
acquisition or other business opportunities of Company; or
(3) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, advisor (whether paid or unpaid), stockholder,
partner or in any other individual or representative capacity
whatsoever, either for his own benefit or for the benefit of
any other person or entity, either (A) hire, attempt to hire,
contact or solicit with respect to hiring any employee of
Company, (B) induce or otherwise counsel, advise or encourage
any employee of Company to leave the employment of Company, or
(C) induce any distributor, representative or agent of Company
to terminate or modify its relationship with Company.
"COMPETING BUSINESS" means any individual, business,
firm, company, partnership joint venture, organization, or
other entity whose products or services compete, in whole or
in part, at any time during the Employment Period with the
products or services (or planned products and services) of
Company including, without limitation, genomics research,
development and products including, without limitation,
OmniBank(TM), homologous recombination, DNA sequencing,
phenotypic analysis, drug validation and drug discovery.
(b) ESSENTIAL NATURE OF NON-COMPETE OBLIGATION. It is
acknowledged, understood and agreed by and between the parties hereto
that the covenants made by Executive in this Section 11 are essential
elements of this Agreement and that, but for the agreement of the
Executive to comply with such covenants, Company would not have entered
into this Agreement.
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(c) NECESSITY AND REASONABLENESS OF NON-COMPETE
OBLIGATION. Executive hereby specifically acknowledges and agrees that:
(1) Company has expended and will continue to
expend substantial time, money and effort in developing its
business;
(2) Executive will, in the course of his
employment, be personally entrusted with and exposed to
Confidential Information (as defined in Section 10);
(3) Company, during the Employment Period and
thereafter, will be engaged in its highly competitive business
in which many firms, including Company, compete;
(4) Executive could, after having access to
Company's financial records, contracts, and other Confidential
Information and know-how and, after receiving training by and
experience with the Company, become a competitor;
(5) Company will suffer great loss and
irreparable harm if Executive terminates his employment and
enters, directly or indirectly, into competition with Company;
(6) The temporal and other restrictions
contained in this Section 11 are in all respects reasonable
and necessary to protect the business goodwill, trade secrets,
prospects and other reasonable business interests of Company;
(7) The enforcement of this Agreement in
general, and of this Section 11 in particular, will not work
an undue or unfair hardship on Executive or otherwise be
oppressive to him; it being specifically acknowledged and
agreed by Executive that he has activities and other business
interests and opportunities which will provide him adequate
means of support if the provisions of this Section 11 are
enforced after the Termination Date; and
(8) the enforcement of this Agreement in
general, and of this Section 11 in particular, will neither
deprive the public of needed goods or services nor otherwise
be injurious to the public.
(d) JUDICIAL MODIFICATION. Executive agrees that if an
arbitrator (pursuant to Section 21) or a court of competent
jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 11 is overly
restrictive and unenforceable, the arbitrator or court shall reduce or
modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified,
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the parties hereto agree that the restrictions of this Section 11 shall
remain in full force and effect. Executive further agrees that if an
arbitrator or court of competent jurisdiction determines that any
provision of this Section 11 is invalid or against public policy, the
remaining provisions of this Section 11 and the remainder of this
Agreement shall not be affected thereby, and shall remain in full force
and effect.
12. REMEDIES. In the event of any pending, threatened or actual
breach of any of the covenants or provisions of Section 9, 10, or 11, it is
understood and agreed by Executive that the remedy at law for a breach of any of
the covenants or provisions of these Sections may be inadequate and, therefore,
Company shall be entitled to a restraining order or injunctive relief from any
court of competent jurisdiction, in addition to any other remedies at law and in
equity. In the event that Company seeks to obtain a restraining order or
injunctive relief, Executive hereby agrees that Company shall not be required to
post any bond in connection therewith. Should a court of competent jurisdiction
or an arbitrator (pursuant to Section 21) declare any provision of Section 9,
10, or 11 to be unenforceable due to an unreasonable restriction of duration or
geographical area, or for any other reason, such court or arbitrator is hereby
granted the consent of each of the Executive and Company to reform such
provision and/or to grant the Company any relief, at law or in equity,
reasonably necessary to protect the reasonable business interests of Company or
any of its affiliated entities. Executive hereby acknowledges and agrees that
all of the covenants and other provisions of Sections 9, 10, and 11 are
reasonable and necessary for the protection of the Company's reasonable business
interests. Executive hereby agrees that if the Company prevails in any action,
suit or proceeding with respect to any matter arising out of or in connection
with Section 9, 10, or 11, Company shall be entitled to all equitable and legal
remedies, including, but not limited to, injunctive relief and compensatory
damages.
13. DEFENSE OF CLAIMS. Executive agrees that, during the
Employment Period and for a period of two (2) years after his Termination Date,
upon request from the Company, he will reasonably cooperate with the Company and
its Affiliates in the defense of any claims or actions that may be made by or
against the Company or any of its Affiliates that affect his prior areas of
responsibility, except if Executive's reasonable interests are adverse to the
Company or Affiliates in such claim or action. To the extent travel is required
to comply with the requirements of this Section 13, the Company shall, to the
extent possible, provide Executive with notice at least 10 days prior to the
date on which such travel would be required. The Company agrees to promptly pay
or reimburse Executive upon demand for all of his reasonable travel and other
direct expenses incurred, or to be reasonably incurred, to comply with his
obligations under this Section 13.
14. DETERMINATIONS BY THE COMPENSATION COMMITTEE.
(a) TERMINATION OF EMPLOYMENT. Prior to a Change in
Control (as defined in Section 6(b)), any question as to whether and
when there has been a termination of
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Executive's employment, the cause of such termination, and the
Termination Date, shall be determined by the Compensation Committee in
its discretion exercised in good faith.
(b) COMPENSATION. Prior to a Change in Control (as
defined in Section 6(b)), any question regarding salary, bonus and
other compensation payable to Executive pursuant to this Agreement
shall be determined by the Compensation Committee in its discretion
exercised in good faith.
15. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct
from any benefits and payments made or to be made pursuant to this Agreement (a)
all federal, state, local and other taxes as may be required pursuant to any law
or governmental regulation or ruling, (b) all other employee deductions made
with respect to Company's employees generally, and (c) any advances made to
Executive and owed to Company.
16. NONALIENATION. The right to receive payments under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge or encumbrance by Executive, his dependents or
beneficiaries, or to any other person who is or may become entitled to receive
such payments hereunder. The right to receive payments hereunder shall not be
subject to or liable for the debts, contracts, liabilities, engagements or torts
of any person who is or may become entitled to receive such payments, nor may
the same be subject to attachment or seizure by any creditor of such person
under any circumstances, and any such attempted attachment or seizure shall be
void and of no force and effect.
17. INCOMPETENT OR MINOR PAYEES. Should the Board determine that
any person to whom any payment is payable under this Agreement has been
determined to be legally incompetent or is a minor, any payment due hereunder
may, notwithstanding any other provision of this Agreement to the contrary, be
made in any one or more of the following ways: (a) directly to such minor or
person; (b) to the legal guardian or other duly appointed personal
representative of the person or estate of such minor or person; or (c) to such
adult or adults as have, in the good faith knowledge of the Board, assumed
custody and support of such minor or person; and any payment so made shall
constitute full and complete discharge of any liability under this Agreement in
respect to the amount paid.
18. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 21), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.
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19. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to
Sections hereof are for the purpose of reference only and shall in no way limit,
define or otherwise affect the provisions hereof. Any and all Exhibits referred
to in this Agreement are, by such reference, incorporated herein and made a part
hereof for all purposes. The words "herein", "hereof", "hereunder" and other
compounds of the word "here" shall refer to the entire Agreement and not to any
particular provision hereof.
20. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
21. ARBITRATION.
(a) ARBITRABLE MATTERS. If any dispute or controversy
arises between Executive and the Company relating to (1) this Agreement
in any way or arising out of the parties' respective rights or
obligations under this Agreement or (2) the employment of Executive or
the termination of such employment, then either party may submit the
dispute or controversy to arbitration under the then-current Commercial
Arbitration Rules of the American Arbitration Association (AAA) (the
"RULES"); provided, however, the Company shall retain its rights to
seek a restraining order or injunctive relief pursuant to Section 12.
Any arbitration hereunder shall be conducted before a panel of three
arbitrators unless the parties mutually agree that the arbitration
shall be conducted before a single arbitrator. The arbitrators shall be
selected (from lists provided by the AAA) through mutual agreement of
the parties, if possible. If the parties fail to reach agreement upon
appointment of arbitrators within twenty (20) days following receipt by
one party of the other party's notice of desire to arbitrate, then
within five (5) days following the end of such 20-day period, each
party shall select one arbitrator who, in turn, shall within five (5)
days jointly select the third arbitrator to comprise the arbitration
panel hereunder. The site for any arbitration hereunder shall be in
Harris County or Montgomery County, Texas, unless otherwise mutually
agreed by the parties, and the parties hereby waive any objection that
the forum is inconvenient.
(b) SUBMISSION TO ARBITRATION. The party submitting any
matter to arbitration shall do so in accordance with the Rules. Notice
to the other party shall state the question or questions to be
submitted for decision or award by arbitration. Notwithstanding any
provision of this Section 21, Executive shall be entitled to seek
specific performance of the Executive's right to be paid during the
pendency of any dispute or controversy arising under this Agreement. In
order to prevent irreparable harm, the arbitrator may grant temporary
or permanent injunctive or other equitable relief for the protection of
property rights.
(c) ARBITRATION PROCEDURES. The arbitrator shall set the
date, time and place for each hearing, and shall give the parties
advance written notice in accordance with the Rules.
Initials:
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Initials:
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Any party may be represented by counsel or other authorized
representative at any hearing. The arbitration shall be governed by the
Federal Arbitration Act, 9 U.S.C. Sections 1 et. seq. (or its
successor). The arbitrator shall apply the substantive law (and the law
of remedies, if applicable) of the State of Texas to the claims
asserted to the extent that the arbitrator determines that federal law
is not controlling.
(d) COMPLIANCE WITH AWARD.
(1) Any award of an arbitrator shall be final
and binding upon the parties to such arbitration, and each
party shall immediately make such changes in its conduct or
provide such monetary payment or other relief as such award
requires. The parties agree that the award of the arbitrator
shall be final and binding and shall be subject only to the
judicial review permitted by the Federal Arbitration Act.
(2) The parties hereto agree that the
arbitration award may be entered with any court having
jurisdiction and the award may then be enforced as between the
parties, without further evidentiary proceedings, the same as
if entered by the court at the conclusion of a judicial
proceeding in which no appeal was taken. The Company and the
Executive hereby agree that a judgment upon any award rendered
by an arbitrator may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
(e) COSTS AND EXPENSES. Each party shall pay any monetary
amount required by the arbitrator's award, and the fees, costs and
expenses for its own counsel, witnesses and exhibits, unless otherwise
determined by the arbitrator in the award. The compensation and costs
and expenses assessed by the arbitrator(s) and the AAA shall be split
evenly between the parties unless otherwise determined by the
arbitrator in the award. If court proceedings to stay litigation or
compel arbitration are necessary, the party who opposes such
proceedings to stay litigation or compel arbitration, if such party is
unsuccessful, shall pay all associated costs, expenses, and attorney's
fees which are reasonably incurred by the other party as determined by
the arbitrator.
22. BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, and to
their respective heirs, executors, personal representatives, successors and
permitted assigns hereunder, but otherwise this Agreement shall not be for the
benefit of any third parties.
23. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the
entire agreement of the parties with respect to Executive's employment and the
other matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof.
Initials:
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Initials:
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This Agreement may be amended, waived or terminated only by a written instrument
executed by both parties hereto.
24. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 14 and 21 hereof, shall survive any termination or expiration
of this Agreement.
25. WAIVER OF BREACH. No waiver by either party hereto of a breach
of any provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provision or condition at the same or any
subsequent time. The failure of either party hereto to take any action by reason
of any breach will not deprive such party of the right to take action at any
time while such breach continues.
26. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Company and its Affiliates (as defined in
Section 2), and upon any successor to the Company following a Change in Control
(as defined in Section 6(b)); provided, however, any such assignment by the
Company shall not relieve Company of its obligations hereunder unless such
successor to the Company has fully and expressly assumed the obligations of the
Company to the Executive under this Agreement. Any reference herein to "Company"
shall mean the Company as first written above, as well as any successor or
successors thereto.
This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board. Any attempt by the Executive to
assign, delegate or otherwise transfer this Agreement, any portion hereof, or
his rights, duties or obligations hereunder without the prior approval of the
Board shall be deemed void and of no force and effect.
27. NOTICES. Notices provided for in this Agreement shall be in
writing and shall be deemed to have been duly received (a) when delivered in
person or sent by facsimile transmission, (b) on the first business day after it
is sent by air express overnight courier service, or (c) on the third business
day following deposit in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed, to the following
address, as applicable:
(1) If to Company, addressed to:
Lexicon Genetics Incorporated
4000 Research Forest Drive
The Woodlands, Texas 77381
Attention: Corporate Secretary
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof;
or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 27.
Initials:
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Initials:
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28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a copy hereof containing multiple signature
pages, each signed by one party, but together signed by both parties hereto.
29. EXECUTIVE ACKNOWLEDGMENT; NO STRICT CONSTRUCTION. The
Executive represents to Company that he is knowledgeable and sophisticated as to
business matters, including the subject matter of this Agreement, that he has
read the Agreement and that he understands its terms and conditions. The parties
hereto agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction shall be applied against either party hereto. Executive also
represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement. Executive acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of Employer's counsel, regarding
the terms and conditions of this Agreement and has done so to the extent that
he, in his unfettered discretion, deemed to be appropriate.
30. SUPERSEDING AGREEMENT. This Employment Agreement shall
supersede any prior employment agreement entered into between the Company and
Executive.
[Intentionally left blank -- signature page follows]
Initials:
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Initials:
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IN WITNESS WHEREOF, the Executive has hereunto set his hand, and
Company has caused this Agreement to be executed in its name and on its behalf,
to be effective as of the Effective Date first above written.
EXECUTIVE:
Signature: /s/ Arthur T. Sands
-----------------------------------
Date: October 21, 1999
-------------------------------------------
Address for Notices: 4000 Research Forest Drive
---------------------------
The Woodlands, Texas 77381
-----------------------------------
(fax) 281-364-0155
-----------------------------------
LEXICON GENETICS INCORPORATED
By: /s/ Dr. Paul Haycock
--------------------------------------------
Name: Dr. Paul Haycock
-------------------------------------------
Title: Chairman of Compensation Committee
------------------------------------------
Date: October 27, 1999
-------------------------------------------
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of January 17, 2000
(the "EFFECTIVE DATE"), by and between Lexicon Genetics Incorporated, a Delaware
corporation (hereafter "COMPANY"), and James R. Piggott, Ph.D. (hereafter
"EXECUTIVE"), an individual and resident of King County, Washington.
W I T N E S S E T H:
-------------------
WHEREAS, Company wishes to secure the services of the Executive subject
to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon the
terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in Section 4
hereof), the Company shall employ Executive, and Executive shall serve, as
Senior Vice President - Pharmaceutical Biology of the Company. Executive's
principal place of employment shall be at the Company's principal corporate
offices in The Woodlands, Texas, or at such other location for the Company's
principal corporate offices during the Employment Period.
2. DUTIES AND RESPONSIBILITIES OF EXECUTIVE.
(a) During the Employment Period, Executive shall devote his
services full time to the business of the Company and its Affiliates
(as defined below), and perform the duties and responsibilities
assigned to him by the Chief Executive Officer ("CEO") or Board of
Directors (the "BOARD") of the Company to the best of his ability and
with reasonable diligence. Executive agrees to cooperate fully with the
Board, CEO and other executive officers of the Company, and not to
engage in any activity which conflicts with or interferes with the
performance of his duties hereunder. During the Employment Period,
Executive shall devote his best efforts and skills to the business and
interests of Company, do his utmost to further enhance and develop
Company's best interests and welfare, and endeavor to improve his
ability and knowledge of Company's business, in an effort to increase
the value of his services for the mutual benefit of the parties hereto.
During the Employment Period, it shall not be a violation of this
Agreement for Executive to (1) serve on corporate, civic, or charitable
boards or committees (except for boards or committees of a Competing
Business (as defined in Section 11)), (2) deliver lectures, fulfill
teaching or speaking engagements, or (3) manage personal investments;
provided that such activities do not materially interfere with
performance of Executive's responsibilities under this Agreement.
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For purposes of this Agreement, "AFFILIATE" means any entity which owns
or controls, is owned or controlled by, or is under common ownership or
control with, the Company.
(b) Executive has provided to Company copies of (i) the
noncompetition provisions of the Employment Agreement between Executive
and ZymoGenetics, Inc. and (ii) a Confidentiality Agreement between
Executive and ZymoGenetics, Inc. Executive and Company have each
reviewed such agreements and determined that Executive's employment by
Company pursuant to this Agreement will not violate the terms of either
such agreement. Executive and Company further agree that Company will
not ask or request Executive to perform, and that Executive will not
perform, any activity on behalf of Company that would violate either
such agreement. Subject to the preceding disclosures in this Section
2(b), Executive represents and covenants to Company that he is not
subject or a party to any employment agreement, noncompetition
covenant, nondisclosure agreement, or any similar agreement, covenant,
understanding, or restriction that would prohibit Executive from
executing this Agreement and fully performing his duties and
responsibilities hereunder, or would in any manner, directly or
indirectly, limit or affect the duties and responsibilities that may
now or in the future be assigned to Executive hereunder.
3. COMPENSATION.
(a) During the Employment Period, the Company shall pay to
Executive an annual base salary of not less than $200,000 in
consideration for his services under this Agreement, payable on a pro
rata basis in not less than monthly installments, in conformity with
the Company's customary payroll practices for executive salaries.
Executive's base salary shall be subject to review at least annually,
and such salary may be adjusted, depending upon the performance of the
Company and Executive, upon the recommendation of the Compensation
Committee of the Board (the "COMPENSATION COMMITTEE"). All salary,
bonus and other compensation payments hereunder shall be subject to all
applicable payroll and other taxes.
(b) As promptly as practicable after the end of each calendar
year during the Employment Period, the Compensation Committee shall
determine whether Executive is entitled to a bonus based on the
attainment of performance goals during the calendar year then ended
(the "BONUS YEAR"). For each Bonus Year during the Employment Period
(including the Bonus Year commencing on the Effective Date and ending
on December 31, 2000), the Compensation Committee shall establish
certain performance goals for the Company and the Executive and a
targeted annual bonus amount (the amount of which annual target bonus
shall be within the sole discretion of the Compensation Committee). The
target bonus shall be paid to Executive within 60 days after the end of
the applicable Bonus Year based on the extent to which the performance
goals and objectives for the Bonus Year have been achieved. The full
amount of the target bonus shall be paid if substantially all of the
designated performance goals and objectives have been achieved for the
Bonus Year; if not, the Compensation Committee, in its discretion
exercised in good faith, may award a target bonus to Executive in an
amount less than the full target bonus for that Bonus Year.
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The Compensation Committee may also award additional bonuses or other
compensation to Executive at any time in its complete discretion.
4. TERM OF EMPLOYMENT. Executive's initial term of employment
with the Company under this Agreement shall be for the period beginning on the
Effective Date and ending at midnight (CST) on December 31, 2001, unless Notice
of Termination pursuant to Section 7 is given by either the Company or Executive
to the other party. The Company and Executive shall each have the right to give
Notice of Termination at will, with or without cause, at any time, subject to
the terms and conditions of this Agreement regarding the rights and duties of
the parties upon termination of employment. The term of employment hereunder
ending on December 31, 2001, shall be referred to herein as the "INITIAL TERM OF
EMPLOYMENT." On December 31, 2001 and on December 31st of each succeeding year
(each such date being referred to as a "RENEWAL DATE"), this Agreement shall
automatically renew and extend for a period of one (1) additional year (a
"RENEWAL TERM") unless written notice of non-renewal is delivered from one party
to the other at least sixty (60) days prior to the relevant Renewal Date or,
alternatively, the parties may mutually agree to voluntarily enter into a new
employment agreement at any time. The period from the Effective Date through the
date of Executive's termination of employment at any time for whatever reason
shall be referred to herein as the "EMPLOYMENT PERIOD."
5. BENEFITS. Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to the
following:
(a) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall pay
or reimburse Executive for all reasonable travel, entertainment and
other expenses paid or incurred by Executive in performing his business
obligations hereunder. Executive shall provide substantiating
documentation for expense reimbursement requests as reasonably required
by the Company.
(b) BENEFITS. Executive shall be entitled to and shall receive
all other benefits and conditions of employment available generally to
executives of the Company pursuant to Company plans and programs,
including, but not limited to, group health insurance benefits, dental
benefits, life insurance benefits, disability benefits, and pension and
retirement benefits. The Company shall not be obligated to institute,
maintain, or refrain from changing, amending, or discontinuing, any
such employee benefit program or plan, so long as such actions are
similarly applicable to covered executives generally.
Notwithstanding the previous paragraph, Company shall provide
Executive with long-term disability ("LTD") insurance coverage, at no
cost to Executive, that provides income replacement benefits to
Executive, if he should incur a long-term disability covered under such
policy, in an amount at least equal to 60% of his base salary at the
time of such disability, which benefits shall begin after a waiting
period that does not exceed six months. The income replacement benefits
described in the previous sentence shall remain payable at least until
Executive attains the age of 65 provided that he remains unable to
perform the essential functions of his occupation during such period.
To the extent that the Company's
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LTD policy which covers employees generally does not provide sufficient
coverage to Executive, as described in the previous sentence, Company
agrees to purchase a supplemental LTD policy for Executive from a
reputable insurer and to pay the premiums on Executive's behalf during
the Employment Period.
Notwithstanding the first paragraph of this Section 5(b), the
Company shall pay for term life insurance coverage on Executive's life,
with the beneficiary(ies) thereof designated by Executive, with a death
benefit in an amount not less than twice Executive's base salary
(pursuant to Section 3(a)) as such base salary is set on each January 1
during the Employment Period. Upon request, Executive agrees to take
any physical exams, and to provide such information, which are
reasonably necessary or appropriate to secure or maintain such term
life insurance coverage.
(c) PAID VACATION. Executive shall be entitled to a paid
annual vacation of three (3) weeks. Vacation time may be accumulated
and carried over by Executive into any subsequent year(s); provided,
however, Executive shall not be permitted to accumulate more than six
(6) weeks of accrued and unused vacation. In addition, the Executive
shall be allowed up to five (5) days each year to attend professional
continuing education meetings or seminars; provided that attendance at
such meetings or seminars shall be planned for minimum interference
with the Company's business.
(d) RELOCATION AND INTERIM HOUSING AND TRAVEL EXPENSES. The
Company shall pay or reimburse Executive all reasonable expenses paid
or incurred by Executive for the relocation of Executive's household
belongings from Executive's home in Bothell, Washington to a home in
The Woodlands, Texas area. In addition, the Company shall pay or
reimburse Executive all reasonable expenses paid or incurred by
Executive pending such relocation for a period of up to six (6) months
from the Effective Date for (1) temporary living accommodations in The
Woodlands, Texas area and (2) reasonable airfare for two roundtrip
flights per month from Houston, Texas to Seattle, Washington. Executive
shall provide substantiating documentation for expense reimbursement
requests as reasonably required by the Company. During the first year
of employment, the Executive will also be entitled to an additional
fifteen (15) days of non-paid leave for personal use.
6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right to
compensation and benefits for periods after the date on which his employment
with the Company and its Affiliates (as defined in Section 2) terminates for
whatever reason (the "TERMINATION DATE") shall be determined in accordance with
this Section 6.
(a) ACCRUED SALARY AND VACATION PAYMENTS. Executive shall be
entitled to the following payments under this Section 6(a) regardless
of the reason for termination, in addition to any payments or benefits
to which the Executive is entitled under the terms of any employee
benefit plan or the provisions of Section 6(b):
(1) his accrued but unpaid salary through his
Termination Date; and
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(2) his accrued but unpaid vacation pay for the
period ending on his Termination Date in accordance with
Section 5(c) above.
(b) SEVERANCE PAYMENTS.
(1) At any time prior to a Change in Control (as
defined below), in the event that (A) Executive's employment
hereunder is terminated by the Company at any time for any
reason except (i) for Cause (as defined below) or (ii) due to
Executive's death or Disability (as defined below), or (B)
Executive terminates his own employment hereunder for Good
Reason (as defined below), then, in either such event,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation) then being paid to him on the Termination Date
as salary continuation (pursuant to the Company's normal
payroll procedures) for a period equal to six (6) consecutive
months following the Termination Date. In the event of
Executive's death during such salary continuation period, the
Company shall pay the sum of the present value of all
remaining payments (using a 5% discount rate) in a single
payment to Executive's surviving spouse, if any, or if there
is no surviving spouse, to Executive's estate within 60 days
of his death. Such severance payments shall be subject to
Sections 10 and 11 hereof.
Prior to a Change in Control, in the event that
Executive's employment is terminated through notice of
non-renewal as of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year Renewal Term,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation) then being paid to him on the Termination Date
as salary continuation (pursuant to the Company's normal
payroll procedures) for each month following his Termination
Date, not to exceed six months, that Executive is (A) not in
violation of the confidential information, non-competition and
other covenants of Sections 10 and 11 hereof and (B) not
employed by another employer, as determined by the Company.
(2) At any time after a Change in Control (as defined
below), in the event that (A) Executive's employment hereunder
is terminated by the Company at any time for any reason except
(i) for Cause (as defined below) or (ii) due to Executive's
death or Disability (as defined below), or (B) Executive
terminates his own employment hereunder for Good Reason (as
defined below in this Section 6(c)), then, in either such
event, Executive shall be entitled to receive, and the Company
shall be obligated to pay, Executive's base salary under
Section 3(a) (without regard to any bonuses or extraordinary
compensation except as provided below in this paragraph) then
being paid to him on the Termination Date as salary
continuation (pursuant to the Company's normal payroll
procedures) for a period equal to twelve (12)
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consecutive months following the Termination Date, plus an
additional single sum payment equal to one-half of Executive's
target bonus (pursuant to Section 3(b)) for the Bonus Year in
which the termination occurred, which bonus shall be payable
within 30 days from the Termination Date. In the event of
Executive's death during such salary continuation period, the
Company shall pay the sum of the present value of all
remaining payments in a single payment (using a 5% discount
rate) to Executive's surviving spouse, if any, or if there is
no surviving spouse, to Executive's estate within 60 days of
his death.
After a Change in Control, in the event that the
Company terminates Executive's employment through notice of
nonrenewal as of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year Renewal Term,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation) then being paid to him on the Termination Date
as salary continuation (pursuant to the Company's normal
payroll procedures) for a period of six (6) consecutive months
following the Termination Date.
(3) Except as otherwise specifically provided in this
Section 6(b), severance payments shall be in addition to, and
shall not reduce or offset, any other payments that are due to
Executive from the Company (or any other source) or under any
other agreements, except that severance payments hereunder
shall offset any severance benefits otherwise due to Executive
under any severance pay plan or program maintained by the
Company that covers its employees generally. The provisions of
this Section 6(b) shall supersede any conflicting provisions
of this Agreement but shall not be construed to curtail,
offset or limit Executive's rights to any other payments,
whether contingent upon a Change in Control (as defined below)
or otherwise, under this Agreement or any other agreement,
contract, plan or other source of payment.
(4) A "CHANGE IN CONTROL" of the Company shall be
deemed to have occurred if any of the following shall have
taken place: (A) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) other than Gordon Cain and his
Affiliates (defined below), taken together, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, or any successor provisions thereto), directly
or indirectly, of securities of the Company representing
thirty-five percent (35%) or more of the combined voting power
of the Company's then-outstanding voting securities; (B) the
approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case with
respect to which persons who were stockholders of the Company
immediately prior to such reorganization, merger, or
consolidation do not, immediately thereafter, own or control
more than fifty percent (50%) of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding
securities in
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substantially the same proportion as their ownership of the
Company's outstanding voting securities prior to such
reorganization, merger or consolidation; (C) a liquidation or
dissolution of the Company or the sale of all or substantially
all of the Company's assets; (D) in the event any person is
elected by the stockholders of the Company to the Board who
has not been nominated for election by a majority of the Board
or any duly appointed committee thereof; or (E) following the
election or removal of directors, a majority of the Board
consists of individuals who were not members of the Board two
(2) years before such election or removal, unless the election
of each director who is not a director at the beginning of
such two-year period has been approved in advance by directors
representing at least a majority of the directors then in
office who were directors at the beginning of the two-year
period. The Board, in its discretion, may deem any other
corporate event affecting the Company to be a "Change in
Control" hereunder.
An "AFFILIATE" of Gordon Cain shall include (1) any
person or entity directly or indirectly controlling or
controlled by or under direct or indirect common control with
Gordon Cain, (2) any spouse, immediate family member or
relative of Gordon Cain, (3) any trust in which Gordon Cain or
any person described in clause (2) above has a beneficial
interest, and (4) any trust established by Gordon Cain or any
person described in clause (2) above, whether or not such
person has a beneficial interest in such trust. For purposes
of this definition of "Affiliate," the term "control" means
the power to direct the management and policies of a person,
directly or through one or more intermediaries, whether
through the ownership of voting securities by contract, or
otherwise.
(5) "DISABILITY" means a permanent and total
disability which entitles Executive to disability income
payments under the Company's long-term disability plan or
policy as then in effect which covers Executive pursuant to
Section 5(b). If Executive is not covered under the Company's
long-term disability plan or policy at such time for whatever
reason or under a supplemental LTD policy provided by the
Company, then the term "Disability" hereunder shall mean a
"permanent and total disability" as defined in Section
22(e)(3) of the Code and, in this case, the existence of any
such Disability shall be certified by a physician acceptable
to both the Company and Executive. In the event that the
parties are not able to agree on the choice of a physician,
each shall select a physician who, in turn, shall select a
third physician to render such certification. All costs
relating to the determination of whether Executive has
incurred a Disability shall be paid by the Company.
(6) "CODE" means the Internal Revenue Code of 1986,
as amended. References in this Agreement to any Section of the
Code shall include any successor provisions of the Code or its
successor.
(7) "CAUSE" means a termination of employment
directly resulting from (1) the Executive having engaged in
intentional misconduct causing a material
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violation by the Company of any state or federal laws, (2) the
Executive having engaged in a theft of corporate funds or
corporate assets or in a material act of fraud upon the
Company, (3) an act of personal dishonesty taken by the
Executive that was intended to result in personal enrichment
of the Executive at the expense of the Company, (4)
Executive's final conviction (or the entry of a plea of nolo
contendere or equivalent plea) in a court of competent
jurisdiction of a felony, or (5) a breach by the Executive
during the Employment Period of the provisions of Sections 9,
10, and 11 hereof, if such breach results in a material injury
to the Company. For purposes of this definition of "Cause",
the term "Company" shall mean the Company or any of its
Affiliates (as defined in Section 2).
(8) "GOOD REASON" means the occurrence of any of
the following events without Executive's express written
consent:
(A) Before a Change in Control (as defined
in Section 6(b)), (i) a five percent (5%) or greater
reduction in Executive's annual base salary unless
any such greater reduction is (i) applied across the
board to the other senior officers of the Company
except the CEO or (ii) specifically agreed to in
writing by Executive or, after a Change in Control,
any reduction in Executive's base salary unless such
reduction is specifically agreed to in writing by
Executive, provided that, in either event, Executive
specifically terminates his employment for Good
Reason hereunder within 120 days from the date that
he has actual notice of such reduction; or
(B) Before or after a Change in Control, any
breach by the Company of any material provision of
this Agreement, provided that Executive specifically
terminates his employment for Good Reason hereunder
within 120 days from the date that he has actual
notice of such material breach; or
(C) Only following a Change in Control, any
of the following events will constitute Good Reason,
provided that Executive specifically terminates his
employment for Good Reason hereunder within 12 months
following his receipt of actual notice of an event
listed below:
(i) the failure by the Company or
its successor to expressly assume and agree
to continue and perform this Agreement in
the same manner and to the same extent that
the Company would be required to perform if
such Change in Control had not occurred;
(ii) Executive's duties or
responsibilities for the Company or its
successor are materially reduced; or
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(iii) the Company or its successor
fails to continue in effect any pension,
medical, health-and-accident, life
insurance, or disability income plan or
program in which Executive was participating
at the time of the Change in Control (or
plans providing Executive with substantially
similar benefits), or the taking of any
action by the Company or its successor that
would adversely affect Executive's
participation in or materially reduce his
benefits under any such plan that was
enjoyed by him immediately prior to the
Change in Control, unless the Company or its
successor provides a replacement plan with
substantially similar benefits.
Notwithstanding the preceding provisions of this
Section 6(b)(8), if Executive desires to terminate his
employment for Good Reason, he shall first give written notice
of the facts and circumstances providing the basis for Good
Reason to the Board or the Compensation Committee, and allow
the Company thirty (30) days from the date of such notice to
remedy, cure or rectify the situation giving rise to Good
Reason to the reasonable satisfaction of Executive.
7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means a
written notice that indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to
mitigate the amount of any payment provided for under this Agreement by seeking
other employment or in any other manner.
9. CONFLICTS OF INTEREST.
(a) In keeping with his fiduciary duties to Company, Executive
hereby agrees that he shall not become involved in a conflict of
interest, or upon discovery thereof, allow such a conflict to continue
at any time during the Employment Period. Moreover, Executive agrees
that he shall immediately disclose to the Board any facts which might
involve a conflict of interest that has not been approved by the Board.
(b) Executive and Company recognize and acknowledge that it is
not possible to provide an exhaustive list of actions or interests
which may constitute a "conflict of interest." Moreover, Company and
Executive recognize there are many borderline situations. In some
instances, full disclosure of facts by the Executive to the Board may
be all that is necessary to enable Company to protect its interests. In
others, if no improper motivation appears to exist and Company's
interests have not demonstrably suffered, prompt elimination of the
outside interest may suffice. In other serious instances, it may be
necessary for the Company
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to terminate Executive's employment for Cause (as defined in Section
6(b)). The Board reserves the right to take such action as, in its good
faith judgment, will resolve the conflict of interest.
(c) Executive hereby agrees that any direct or indirect
interest in, connection with, or benefit from any outside activities,
particularly commercial activities, which interest might adversely
affect the Company or any of its Affiliates (as defined in Section 2),
involves a possible conflict of interest. Circumstances in which a
conflict of interest on the part of Executive would or might arise, and
which must be reported immediately to the Board, include, but are not
limited to, any of the following:
(1) Ownership by the Executive and his immediate
family members of more than a two percent (2%) interest, on an
aggregated basis, in any lender, supplier, contractor,
customer or other entity with which Company or any of its
Affiliates does business;
(2) Misuse of information, property or facilities to
which Executive has access in a manner which is demonstrably
and materially injurious to the interests of Company or any of
its Affiliates, including its business, reputation or
goodwill; or
(3) Materially trading in products or services
connected with products or services designed or marketed by or
for the Company or any of its Affiliates.
10. CONFIDENTIAL INFORMATION.
(a) NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of
this Section 10, all references to Company shall mean and include its
Affiliates (as defined in Section 2). Executive hereby acknowledges,
understands and agrees that all Confidential Information, as defined in
Section 10(b), whether developed by Executive or others employed by or
in any way associated with Executive or Company, is the exclusive and
confidential property of Company and shall be regarded, treated and
protected as such in accordance with this Agreement. Executive
acknowledges that all such Confidential Information is in the nature of
a trade secret. Failure to mark any writing confidential shall not
affect the confidential nature of such writing or the information
contained therein.
(b) DEFINITION OF CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall mean information, whether or not
originated by Executive, which is used in Company's business and (1) is
proprietary to, about or created by Company; (2) gives Company some
competitive business advantage or the opportunity of obtaining such
advantage, or the disclosure of which could be detrimental to the
interests of Company; (3) is designated as Confidential Information by
Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential
by Company, or from all the relevant circumstances should reasonably be
assumed by Executive to be confidential and proprietary to Company; or
(4) is not generally
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known by non-Company personnel. Such Confidential Information includes,
but is not limited to, the following types of information and other
information of a similar nature (whether or not reduced to writing or
designated as confidential):
(1) Work product resulting from or related to the
research, development or production of the programs of the
Company including, without limitation, the Human Gene Trap(TM)
database, OmniBank(R), homologous recombination, DNA
sequencing, phenotypic analysis, drug target validation and
drug discovery;
(2) Internal Company personnel and financial
information, vendor names and other vendor information
(including vendor characteristics, services and agreements),
purchasing and internal cost information, internal service and
operational manuals, and the manner and methods of conducting
Company's business;
(3) Marketing, partnering and business and
development plans, price and cost data, price and fee amounts,
pricing and billing policies, quoting procedures, marketing
techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and
potential strategies of the Company which have been or are
being discussed; and
(4) Business acquisition and other business
opportunities.
(c) EXCLUSIONS FROM CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall not include information publicly known
other than as a result of a disclosure by Executive in breach of
Section 10(a), and the general skills and experience gained during
Executive's work with the Company which Executive could reasonably have
been expected to acquire in similar work with another company.
(d) COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information,
Executive shall occupy a position of trust and confidence with respect
to Company's affairs and business. In view of the foregoing and of the
consideration to be provided to Executive, Executive agrees that it is
reasonable and necessary that Executive make the following covenants:
(1) At any time during the Employment Period and
within ten (10) years after the Employment Period, Executive
shall not disclose Confidential Information to any person or
entity, either inside or outside of Company, other than as
necessary in carrying out duties on behalf of Company, without
obtaining Company's prior written consent (unless such
disclosure is compelled pursuant to court order or subpoena,
and at which time Executive gives notice of such proceedings
to Company), and Executive will take all reasonable
precautions to prevent inadvertent disclosure of such
Confidential Information. This prohibition against Executive's
disclosure of Confidential Information includes, but is not
limited to, disclosing the fact that any similarity exists
between the Confidential Information and information
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independently developed by another person or entity, and
Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations
under this Agreement.
(2) At any time during or after the Employment
Period, Executive shall not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties
on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to
prevent inadvertent use, copying or transfer of such
Confidential Information. This prohibition against Executive's
use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or
otherwise exploiting, directly or indirectly, any products or
services (including databases, written documents and software
in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses
based upon knowledge of Confidential Information.
(e) RETURN OF CONFIDENTIAL MATERIAL. Executive shall promptly
turn over to the person designated by the Board or CEO all originals
and copies of materials containing Confidential Information in the
Executive's possession, custody, or control upon request or upon
termination of Executive's employment with Company. Executive agrees to
attend a termination interview with the person or persons designated by
the Board or CEO in the Company's offices for a reasonable time period.
The purposes of the termination interview shall be (1) to confirm
turnover of all Confidential Information, (2) discuss any questions
Executive may have about his continuing obligations under this
Agreement, (3) answer questions related to his duties and on-going
projects to allow a temporary or permanent successor to obtain a better
understanding of the employment position, (4) confirm the number of any
outstanding stock options, or other long-term incentive awards, and
their vested percentages and other terms and conditions, and (5) any
other topics relating to the business affairs of Company or its
Affiliates as determined by the Company.
(f) INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable or patentable works or products,
trademarks, service marks, ideas, processes, formulae, methods,
designs, techniques and trade secrets (collectively hereinafter
referred to as "INVENTIONS") made, developed, conceived or resulting
from work performed by Executive (alone or in conjunction with others,
during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related
to, the business of Company (including, without limitation, research
and development activities of Company), or which are made using any
equipment, facilities, Confidential Information, materials, labor,
money, time or other resources of Company, shall be promptly disclosed
by Executive to the person or persons designated by the Board or CEO,
shall be deemed Confidential Information for purposes of this
Agreement, and shall be Company's exclusive property. Executive shall,
upon Company's reasonable request during or after the Employment
Period, execute any documents and perform all such acts and things
which are necessary or advisable in the opinion of Company to cause
issuance of patents to, or otherwise obtain recorded protection of
right to intellectual property for, Company with
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respect to Inventions that are to be Company's exclusive property under
this Section 10, or to transfer to and vest in Company full and
exclusive right, title and interest in and to such Inventions;
provided, however, that the expense of securing any such protection of
right to Inventions shall be borne by Company. In addition, during or
after the Employment Period, Executive shall, at Company's expense,
reasonably assist the Company in any reasonable and proper manner in
enforcing any Inventions which are to be or become Company's exclusive
property hereunder against infringement by others. Executive shall keep
confidential and will hold for Company's sole use and benefit any
Invention that is to be Company's exclusive property under this Section
10 for which full recorded protection of right has not been or cannot
be obtained.
(g) PROPERTY RIGHTS. In keeping with his fiduciary duties to
Company, Executive hereby covenants and agrees that during his
Employment Period, and for a period of three (3) months following his
Termination Date, Executive shall promptly disclose in writing to
Company any and all Inventions, which are conceived, developed, made or
acquired by Executive, either individually or jointly with others, and
which relate to, or are useful in, the business, products or services
of Company including, without limitation, research and development
activities of the Company, or which are made using any equipment,
facilities, Confidential Information, material, labor, money, time or
other resources of the Company. In consideration for his employment
hereunder, Executive hereby specifically sells, assigns and transfers
to Company all of his worldwide right, title and interest in and to all
such Inventions.
If during the Employment Period, Executive creates any
original work of authorship or other property fixed in any tangible
medium of expression which (1) is the subject matter of copyright
(including computer programs) and (2) directly relates to Company's
present or planned business, products, or services, whether such
property is created solely by Executive or jointly with others, such
property shall be deemed a work for hire, with the copyright
automatically vesting in Company. To the extent that any such writing
or other property is determined not to be a work for hire for whatever
reason, Executive hereby consents and agrees to the unconditional
waiver of "moral rights" in such writing or other property, and to
assign to Company all of his right, title and interest, including
copyright, in such writing or other property.
Executive hereby agrees to (1) assist Company or its nominee
at all times in the protection of any property that is subject to this
Section 10, (2) not to disclose any such property to others without the
written consent of Company or its nominee, except as required by his
employment hereunder, and (3) at the request of Company, to execute
such assignments, certificates or other interests as Company or its
nominee may from time to time deem desirable to evidence, establish,
maintain, perfect, protect or enforce its rights, title or interests in
or to any such property.
(h) EMPLOYEE PROPRIETARY INFORMATION AGREEMENT. The provisions
of this Section 10 shall not supersede the Employee Proprietary
Information Agreement (the
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"Proprietary Agreement") between Employee and the Company (or any other
agreement of similar intent) which shall remain in full force and
effect and, moreover, this Agreement, the Proprietary Agreement and any
such other similar agreement between the parties shall be construed and
applied as being mutually consistent to the full extent possible.
(i) REMEDIES. In the event of a breach or threatened breach of
any of the provisions of this Section 10, Company shall be entitled to
an injunction ordering the return of all such Confidential Information
and Inventions, and restraining Executive from using or disclosing, for
his benefit or the benefit of others, in whole or in part, any
Confidential Information or Inventions. Executive further agrees that
any breach or threatened breach of any of the provisions of this
Section 10 would cause irreparable injury to Company, for which it
would have no adequate remedy at law. Nothing herein shall be construed
as prohibiting Company from pursuing any other remedies available to it
for any such breach or threatened breach, including the recovery of
damages.
11. AGREEMENT NOT TO COMPETE. All references in this Section 11
to "COMPANY" shall mean and include its Affiliates (as defined in Section 2).
(a) PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that
except in the ordinary course and scope of his employment hereunder
during the Employment Period, Executive shall not while employed by
Company and for a period of six (6) months following his Termination
Date, within the continental United States:
(1) Directly or indirectly engage or invest in, own,
manage, operate, control or participate in the ownership,
management, operation or control of, be employed by,
associated or in any manner connected with, or render services
or advice to, any Competing Business (as defined below);
provided, however, Executive may invest in the securities of
any enterprise with the power to vote up to two percent (2%)
of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(2) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, employer, advisor (whether paid or unpaid),
stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own benefit
or for the benefit of any other person or entity, solicit,
divert or take away, any customers, clients, or business
acquisition or other business opportunities of Company; or
(3) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, advisor (whether paid or unpaid), stockholder,
partner or in any other individual or representative capacity
whatsoever, either for his own benefit or for the benefit of
any other person or entity, either
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(A) hire, attempt to hire, contact or solicit with respect to
hiring any employee of Company, (B) induce or otherwise
counsel, advise or encourage any employee of Company to leave
the employment of Company, or (C) induce any distributor,
representative or agent of Company to terminate or modify its
relationship with Company.
"COMPETING BUSINESS" means any individual, business,
firm, company, partnership, joint venture, organization, or
other entity whose products or services compete in whole or in
part, at any time during the Employment Period with the
products or services (or planned products and services) of
Company including, without limitation, genomics research,
development and products including, without limitation, the
Human Gene Trap(TM) database, OmniBank(R), homologous
recombination, DNA sequencing, phenotypic analysis, drug
target validation and drug discovery.
(b) ESSENTIAL NATURE OF NON-COMPETE OBLIGATION. It is
acknowledged, understood and agreed by and between the parties hereto
that the covenants made by Executive in this Section 11 are essential
elements of this Agreement and that, but for the agreement of the
Executive to comply with such covenants, Company would not have entered
into this Agreement.
(c) NECESSITY AND REASONABLENESS OF NON-COMPETE
OBLIGATION. Executive hereby specifically acknowledges and agrees that:
(1) Company has expended and will continue to expend
substantial time, money and effort in developing its business;
(2) Executive will, in the course of his employment,
be personally entrusted with and exposed to Confidential
Information (as defined in Section 10);
(3) Company, during the Employment Period and
thereafter, will be engaged in its highly competitive business
in which many firms, including Company, compete;
(4) Executive could, after having access to Company's
financial records, contracts, and other Confidential
Information and know-how and, after receiving training by and
experience with the Company, become a competitor;
(5) Company will suffer great loss and irreparable
harm if Executive terminates his employment and enters,
directly or indirectly, into competition with Company;
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(6) The temporal and other restrictions contained in
this Section 11 are in all respects reasonable and necessary
to protect the business goodwill, trade secrets, prospects and
other reasonable business interests of Company;
(7) The enforcement of this Agreement in general, and
of this Section 11 in particular, will not work an undue or
unfair hardship on Executive or otherwise be oppressive to
him; it being specifically acknowledged and agreed by
Executive that he has activities and other business interests
and opportunities which will provide him adequate means of
support if the provisions of this Section 11 are enforced
after the Termination Date; and
(8) the enforcement of this Agreement in general, and
of this Section 11 in particular, will neither deprive the
public of needed goods or services nor otherwise be injurious
to the public.
(d) JUDICIAL MODIFICATION. Executive agrees that if an
arbitrator (pursuant to Section 21) or a court of competent
jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 11 is overly
restrictive and unenforceable, the arbitrator or court shall reduce or
modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
parties hereto agree that the restrictions of this Section 11 shall
remain in full force and effect. Executive further agrees that if an
arbitrator or court of competent jurisdiction determines that any
provision of this Section 11 is invalid or against public policy, the
remaining provisions of this Section 11 and the remainder of this
Agreement shall not be affected thereby, and shall remain in full force
and effect.
12. REMEDIES. In the event of any pending, threatened or actual
breach of any of the covenants or provisions of Section 9, 10, or 11, it is
understood and agreed by Executive that the remedy at law for a breach of any of
the covenants or provisions of these Sections may be inadequate and, therefore,
Company shall be entitled to a restraining order or injunctive relief from any
court of competent jurisdiction, in addition to any other remedies at law and in
equity. In the event that Company seeks to obtain a restraining order or
injunctive relief, Executive hereby agrees that Company shall not be required to
post any bond in connection therewith. Should a court of competent jurisdiction
or an arbitrator (pursuant to Section 21) declare any provision of Section 9,
10, or 11 to be unenforceable due to an unreasonable restriction of duration or
geographical area, or for any other reason, such court or arbitrator is hereby
granted the consent of each of the Executive and Company to reform such
provision and/or to grant the Company any relief, at law or in equity,
reasonably necessary to protect the reasonable business interests of Company or
any of its affiliated entities. Executive hereby acknowledges and agrees that
all of the covenants and other provisions of Sections 9, 10, and 11 are
reasonable and necessary for the protection of the Company's reasonable business
interests. Executive hereby agrees that if the Company prevails in any action,
suit or proceeding with respect to any matter arising out of or in connection
with Section 9, 10, or 11, Company shall be entitled to all equitable and legal
remedies, including, but not limited to, injunctive relief and compensatory
damages.
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13. DEFENSE OF CLAIMS. Executive agrees that, during the
Employment Period and for a period of two (2) years after his Termination Date,
upon request from the Company, he will cooperate with the Company and its
Affiliates in the defense of any claims or actions that may be made by or
against the Company or any of its Affiliates that affect his prior areas of
responsibility, except if Executive's reasonable interests are adverse to the
Company or Affiliates in such claim or action. To the extent travel is required
to comply with the requirements of this Section 13, the Company shall, to the
extent possible, provide Executive with notice at least 10 days prior to the
date on which such travel would be required. The Company agrees to promptly pay
or reimburse Executive upon demand for all of his reasonable travel and other
direct expenses incurred, or to be reasonably incurred, to comply with his
obligations under this Section 13.
14. DETERMINATIONS BY THE COMPENSATION COMMITTEE.
(e) TERMINATION OF EMPLOYMENT. Prior to a Change in Control
(as defined in Section 6(b)), any question as to whether and when there
has been a termination of Executive's employment, the cause of such
termination, and the Termination Date, shall be determined by the
Compensation Committee in its discretion exercised in good faith.
(f) COMPENSATION. Prior to a Change in Control (as defined in
Section 6(b)), any question regarding salary, bonus and other
compensation payable to Executive pursuant to this Agreement shall be
determined by the Compensation Committee in its discretion exercised in
good faith.
15. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct
from any benefits and payments made or to be made pursuant to this Agreement (a)
all federal, state, local and other taxes as may be required pursuant to any law
or governmental regulation or ruling, (b) all other employee deductions made
with respect to Company's employees generally, and (c) any advances made to
Executive and owed to Company.
16. NONALIENATION. The right to receive payments under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge or encumbrance by Executive, his dependents or
beneficiaries, or to any other person who is or may become entitled to receive
such payments hereunder. The right to receive payments hereunder shall not be
subject to or liable for the debts, contracts, liabilities, engagements or torts
of any person who is or may become entitled to receive such payments, nor may
the same be subject to attachment or seizure by any creditor of such person
under any circumstances, and any such attempted attachment or seizure shall be
void and of no force and effect.
17. INCOMPETENT OR MINOR PAYEES. Should the Board determine that
any person to whom any payment is payable under this Agreement has been
determined to be legally incompetent or is a minor, any payment due hereunder
may, notwithstanding any other provision of this Agreement to the contrary, be
made in any one or more of the following ways: (a) directly to such minor or
person; (b) to the legal guardian or other duly appointed personal
representative of the
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person or estate of such minor or person; or (c) to such adult or adults as
have, in the good faith knowledge of the Board, assumed custody and support of
such minor or person; and any payment so made shall constitute full and complete
discharge of any liability under this Agreement in respect to the amount paid.
18. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 21), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.
19. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to
Sections hereof are for the purpose of reference only and shall in no way limit,
define or otherwise affect the provisions hereof. Any and all Exhibits referred
to in this Agreement are, by such reference, incorporated herein and made a part
hereof for all purposes. The words "herein", "hereof", "hereunder" and other
compounds of the word "here" shall refer to the entire Agreement and not to any
particular provision hereof.
20. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
21. ARBITRATION.
(g) ARBITRABLE MATTERS. If any dispute or controversy arises
between Executive and the Company relating to (1) this Agreement in any
way or arising out of the parties' respective rights or obligations
under this Agreement or (2) the employment of Executive or the
termination of such employment, then either party may submit the
dispute or controversy to arbitration under the then-current Commercial
Arbitration Rules of the American Arbitration Association (AAA) (the
"RULES"); provided, however, the Company shall retain its rights to
seek a restraining order or injunctive relief pursuant to Section 12.
Any arbitration hereunder shall be conducted before a single arbitrator
unless the parties mutually agree that the arbitration shall be
conducted before a panel of three arbitrators. The arbitrator shall be
selected (from lists provided by the AAA) through mutual agreement of
the parties, if possible. If the parties fail to reach agreement upon
appointment of the arbitrator within twenty (20) days following receipt
by one party of the other party's notice of desire to arbitrate, then
within five (5) days following the end of such 20-day period, each
party shall select one arbitrator who, in turn, shall within five (5)
days select a third arbitrator who shall be the single arbitrator
hereunder. The site for any arbitration hereunder shall be in Harris
County or Montgomery County, Texas, unless otherwise mutually agreed by
the parties, and the parties hereby waive any objection that the forum
is inconvenient.
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(h) SUBMISSION TO ARBITRATION. The party submitting any
matter to arbitration shall do so in accordance with the Rules. Notice
to the other party shall state the question or questions to be
submitted for decision or award by arbitration. Notwithstanding any
provision of this Section 21, Executive shall be entitled to seek
specific performance of the Executive's right to be paid during the
pendency of any dispute or controversy arising under this Agreement. In
order to prevent irreparable harm, the arbitrator may grant temporary
or permanent injunctive or other equitable relief for the protection of
property rights.
(i) ARBITRATION PROCEDURES. The arbitrator shall set the
date, time and place for each hearing, and shall give the parties
advance written notice in accordance with the Rules. Any party may be
represented by counsel or other authorized representative at any
hearing. The arbitration shall be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1 et. seq. (or its successor). The arbitrator
shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas to the claims asserted to the extent
that the arbitrator determines that federal law is not controlling.
(j) COMPLIANCE WITH AWARD.
(1) Any award of an arbitrator shall be final and
binding upon the parties to such arbitration, and each party
shall immediately make such changes in its conduct or provide
such monetary payment or other relief as such award requires.
The parties agree that the award of the arbitrator shall be
final and binding and shall be subject only to the judicial
review permitted by the Federal Arbitration Act.
(2) The parties hereto agree that the arbitration
award may be entered with any court having jurisdiction and
the award may then be enforced as between the parties, without
further evidentiary proceedings, the same as if entered by the
court at the conclusion of a judicial proceeding in which no
appeal was taken. The Company and the Executive hereby agree
that a judgment upon any award rendered by an arbitrator may
be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(k) COSTS AND EXPENSES. Each party shall pay any monetary
amount required by the arbitrator's award, and the fees, costs and
expenses for its own counsel, witnesses and exhibits, unless otherwise
determined by the arbitrator in the award. The compensation and costs
and expenses assessed by the arbitrator and the AAA shall be split
evenly between the parties unless otherwise determined by the
arbitrator in the award. If court proceedings to stay litigation or
compel arbitration are necessary, the party who opposes such
proceedings to stay litigation or compel arbitration, if such party is
unsuccessful, shall pay all associated costs, expenses, and attorney's
fees which are reasonably incurred by the other party as determined by
the arbitrator.
22. BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto, and to
their respective heirs, executors, personal
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representatives, successors and permitted assigns hereunder, but otherwise this
Agreement shall not be for the benefit of any third parties.
23. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the
entire agreement of the parties with respect to Executive's employment and the
other matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both
parties hereto.
24. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 14 and 21 hereof, shall survive any termination or expiration
of this Agreement.
25. WAIVER OF BREACH. No waiver by either party hereto of a breach
of any provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provision or condition at the same or any
subsequent time. The failure of either party hereto to take any action by reason
of any breach will not deprive such party of the right to take action at any
time while such breach continues.
26. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Company and its Affiliates (as defined in
Section 2), and upon any successor to the Company following a Change in Control
(as defined in Section 6(b)); provided, however, any such assignment by the
Company shall not relieve Company of its obligations hereunder unless such
successor to the Company has fully and expressly assumed the obligations of the
Company to the Executive under this Agreement. Any reference herein to "Company"
shall mean the Company as first written above, as well as any successor or
successors thereto.
This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board. Any attempt by the Executive to
assign, delegate or otherwise transfer this Agreement, any portion hereof, or
his rights, duties or obligations hereunder without the prior approval of the
Board shall be deemed void and of no force and effect.
27. NOTICES. Notices provided for in this Agreement shall be in
writing and shall be deemed to have been duly received (a) when delivered in
person or sent by facsimile transmission, (b) on the first business day after it
is sent by air express overnight courier service, or (c) on the third business
day following deposit in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed, to the following
address, as applicable:
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(1) If to Company, addressed to:
Lexicon Genetics Incorporated
4000 Research Forest Drive
The Woodlands, Texas 77381
Attention: Corporate Secretary
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof;
or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 27.
28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a copy hereof containing multiple signature
pages, each signed by one party, but together signed by both parties hereto.
29. EXECUTIVE ACKNOWLEDGMENT; NO STRICT CONSTRUCTION. The
Executive represents to Company that he is knowledgeable and sophisticated as to
business matters, including the subject matter of this Agreement, that he has
read the Agreement and that he understands its terms and conditions. The parties
hereto agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction shall be applied against either party hereto. Consistent with and
subject to the disclosures referenced in Section 2(b) of this Agreement,
Executive also represents that he is free to enter into this Agreement
including, without limitation, that he is not subject to any undisclosed
contract of employment or covenant not to compete that would conflict in any way
with his duties under this Agreement. Executive acknowledges that he has had the
opportunity to consult with counsel of his choice, independent of Employer's
counsel, regarding the terms and conditions of this Agreement and has done so to
the extent that he, in his unfettered discretion, deemed to be appropriate.
30. SUPERSEDING AGREEMENT. This Employment Agreement shall
supersede any prior employment agreement entered into between the Company and
Executive.
IN WITNESS WHEREOF, the Executive has hereunto set his hand, and
Company has caused this Agreement to be executed in its name and on its behalf,
to be effective as of the Effective Date first above written.
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EXECUTIVE:
Signature: /s/ James R. Piggott
-------------------------------
James R. Piggott, Ph.D.
Date: January 25, 2000
------------------------------------
Address for Notices:
23827 Second Avenue West
Bothell, Washington 98021
LEXICON GENETICS INCORPORATED
By: /s/ Arthur T. Sands
--------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
Date: January 24, 2000
------------------------------------
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of January 1, 1999
(the "EFFECTIVE DATE"), by and between Lexicon Genetics Incorporated, a Delaware
corporation (hereafter "COMPANY"), and Jeffrey L. Wade (hereafter "EXECUTIVE"),
an individual and resident of Montgomery County, Texas.
W I T N E S S E T H:
WHEREAS, Company wishes to secure the services of the Executive subject
to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon the
terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in Section 4
hereof), the Company shall employ Executive, and Executive shall serve, as
Senior Vice President and Chief Financial Officer of the Company. Executive's
principal place of employment shall be at the Company's principal corporate
offices in The Woodlands, Texas, or at such other location for the Company's
principal corporate offices during the Employment Period.
2. DUTIES AND RESPONSIBILITIES OF EXECUTIVE.
(a) During the Employment Period, Executive shall devote his
services full time to the business of the Company and its Affiliates
(as defined below), and perform the duties and responsibilities
assigned to him by the Chief Executive Officer ("CEO") or Board of
Directors (the "BOARD") of the Company to the best of his ability and
with reasonable diligence. Executive agrees to cooperate fully with the
Board, CEO and other executive officers of the Company, and not to
engage in any activity which conflicts with or interferes with the
performance of his duties hereunder. During the Employment Period,
Executive shall devote his best efforts and skills to the business and
interests of Company, do his utmost to further enhance and develop
Company's best interests and welfare, and endeavor to improve his
ability and knowledge of Company's business, in an effort to increase
the value of his services for the mutual benefit of the parties hereto.
During the Employment Period, it shall not be a violation of this
Agreement for Executive to (1) serve on corporate, civic, or charitable
boards or committees (except for boards or committees of a Competing
Business (as defined in Section 11)), (2) deliver lectures, fulfill
teaching or speaking
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engagements, or (3) manage personal investments, so long as such
activities do not materially interfere with performance of Executive's
responsibilities under this Agreement.
For purposes of this Agreement, "AFFILIATE" means any entity
which owns or controls, is owned or controlled by, or is under common
ownership or control with, the Company.
(b) Executive represents and covenants to Company that he is
not subject or a party to any employment agreement, noncompetition
covenant, nondisclosure agreement, or any similar agreement, covenant,
understanding, or restriction that would prohibit Executive from
executing this Agreement and fully performing his duties and
responsibilities hereunder, or would in any manner, directly or
indirectly, limit or affect the duties and responsibilities that may
now or in the future be assigned to Executive hereunder.
3. COMPENSATION.
(a) During the Employment Period, the Company shall pay to
Executive an annual base salary of $170,000, in consideration for his
services under this Agreement, payable on a pro rata basis in not less
than monthly installments, in conformity with the Company's customary
payroll practices for executive salaries. Executive's base salary shall
be subject to review at least annually, and such salary may be
adjusted, depending upon the performance of the Company and Executive,
upon the recommendation of the Compensation Committee of the Board (the
"COMPENSATION COMMITTEE"). All salary, bonus and other compensation
payments hereunder shall be subject to all applicable payroll and other
taxes.
(b) As promptly as practicable after the end of each calendar
year during the Employment Period, the Compensation Committee shall
determine whether Executive is entitled to a bonus based on the
attainment of performance goals during the calendar year then ended
(the "BONUS YEAR"). For each Bonus Year during the Employment Period
(including the Bonus Year commencing on the Effective Date and ending
on December 31, 1999), the Compensation Committee shall establish
certain performance goals for the Company and the Executive and a
targeted annual bonus amount (which annual target bonus shall not
exceed fifteen percent (15%) of his annual base salary pursuant to
Section 3(a)). The target bonus shall be paid to Executive within 60
days after the end of the applicable Bonus Year based on the extent to
which the performance goals and objectives for the Bonus Year have been
achieved. The full amount of the target bonus shall be paid if
substantially all of the designated performance goals and objectives
have been achieved for the Bonus Year; if not, the Compensation
Committee, in its discretion exercised in good faith, may award a
target bonus to Executive in an amount less than the full target bonus
for that Bonus Year. The Compensation Committee may also award
additional bonuses or other compensation to Executive at any time in
its complete discretion.
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4. TERM OF EMPLOYMENT. Executive's initial term of employment with the
Company under this Agreement shall be for the two-year period beginning on the
Effective Date and ending at midnight (CST) on December 31, 2000, unless Notice
of Termination pursuant to Section 7 is given by either the Company or Executive
to the other party. The Company and Executive shall each have the right to give
Notice of Termination at will, with or without cause, at any time, subject to
the terms and conditions of this Agreement regarding the rights and duties of
the parties upon termination of employment. The term of employment hereunder
ending on December 31, 2000, shall be referred to herein as the "INITIAL TERM OF
EMPLOYMENT." On December 31, 2000 and on December 31st of each succeeding year
(each such date being referred to as a "Renewal Date"), this Agreement shall
automatically renew and extend for a period of one (1) additional year (a
"RENEWAL TERM") unless written notice of nonrenewal is delivered from one party
to the other at least sixty (60) days prior to the relevant Renewal Date or,
alternatively, the parties may mutually agree to voluntarily enter into a new
employment agreement at any time. The period from the Effective Date through the
date of Executive's termination of employment at any time for whatever reason
shall be referred to herein as the "EMPLOYMENT PERIOD."
5. BENEFITS. Subject to the terms and conditions of this Agreement,
during the Employment Period, Executive shall be entitled to the following:
(a) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall pay
or reimburse Executive for all reasonable travel, entertainment and
other expenses paid or incurred by Executive in performing his business
obligations hereunder. Executive shall provide substantiating
documentation for expense reimbursement requests as reasonably required
by the Company.
The Company shall also pay State Bar dues, attorney occupation
tax and reasonable continuing legal education expenses for the
Executive, or reimburse the Executive for such expenses, provided that
such expenses are incurred and submitted for payment or reimbursement
in accordance with the Company's expense payment or reimbursement
policies as they may exist from time to time.
(b) BENEFITS. Executive shall be entitled to and shall receive
all other benefits and conditions of employment available generally to
executives of the Company pursuant to Company plans and programs,
including, but not limited to, group health insurance benefits, dental
benefits, life insurance benefits, disability benefits, and pension and
retirement benefits. The Company shall not be obligated to institute,
maintain, or refrain from changing, amending, or discontinuing, any
such employee benefit program or plan, so long as such actions are
similarly applicable to covered executives generally.
Notwithstanding the previous paragraph, Company shall provide
Executive with long-term disability ("LTD") insurance coverage, at no
cost to Executive, that provides income replacement benefits to
Executive, if he should incur a long-term disability covered
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under such policy, in an amount at least equal to 60% of his base
salary at the time of such disability, which benefits shall begin after
a waiting period that does not exceed six months. The income
replacement benefits described in the previous sentence shall remain
payable at least until Executive attains the age of 65 provided that he
remains unable to perform the essential functions of his occupation
during such period. To the extent that the Company's LTD policy which
covers employees generally does not provide sufficient coverage to
Executive, as described in the previous sentence, Company agrees to
purchase a supplemental LTD policy for Executive from a reputable
insurer and to pay the premiums on behalf of Executive during the
Employment Period.
Notwithstanding the first paragraph of this Section 3(b), the
Company shall pay for term life insurance coverage on Executive's life,
with the beneficiary(ies) thereof designated by Executive, with a death
benefit in an amount not less than twice Executive's base salary
(pursuant to Section 3(a)) as such base salary is set on each January 1
during the Employment Period. Upon request, Executive agrees to take
any physical exams, and to provide such information, which are
reasonably necessary or appropriate to secure or maintain such term
life insurance coverage.
(c) PAID VACATION. Executive shall be entitled to a paid
annual vacation of three (3) weeks. Vacation time may be accumulated
and carried over by Executive into any subsequent year(s); provided,
however, Executive shall not be permitted to accumulate more than six
weeks of accrued and unused vacation. In addition, the Executive shall
be allowed up to five (5) days each year to attend professional
continuing education meetings or seminars; provided, that attendance at
such meetings or seminars shall be planned for minimum interference
with the Company's business.
6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right to
compensation and benefits for periods after the date on which his employment
with the Company and its Affiliates (as defined in Section 2) terminates for
whatever reason (the "TERMINATION DATE") shall be determined in accordance with
this Section 6.
(a) ACCRUED SALARY AND VACATION PAYMENTS. Executive shall be
entitled to the following payments under this Section 6(a), in addition
to any payments or benefits to which the Executive is entitled under
the terms of any employee benefit plan or the following provisions of
this Section 6:
(1) his accrued but unpaid salary through his
Termination Date; and
(2) his accrued but unpaid vacation pay for the
period ending on his Termination Date in accordance with
Section 5(c) above.
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(b) SEVERANCE PAYMENTS.
(1) At any time prior to a Change in Control (as
defined below), in the event that (A) Executive's employment
hereunder is terminated by the Company at any time for any
reason except (i) for Cause (as defined below) or (ii) due to
Executive's death or Disability (as defined below), or (B)
Executive terminates his own employment hereunder for Good
Reason (as defined below), then, in either such event,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation) then being paid to him on the Termination Date
as salary continuation (pursuant to the Company's normal
payroll procedures) for a period equal to six (6) consecutive
months following the Termination Date; provided that if such
termination occurs within 120 days following a reduction in
Executive's base salary, such salary continuation payments
shall be made in an amount equal to Executive's base salary
prior to such reduction. In the event of Executive's death
during such salary continuation period, the Company shall pay
the sum of the present value of all remaining payments (using
a 5% discount rate) in a single payment to the Executive's
estate within 60 days of his death. Such severance payments
shall be subject to Sections 10 and 11 hereof.
Prior to a Change in Control, in the event that
Executive's employment is terminated through notice of
nonrenewal as of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year Renewal Term,
Executive shall not be entitled to receive any severance
payments pursuant to the first paragraph of this Section 6(a);
provided, however, Executive shall be entitled to receive a
severance payment equal to $14,000 per month for each month
following his Termination Date, not to exceed six months, that
Executive is (A) not in violation of the confidential
information, non-competition and other covenants of Sections
10 and 11 hereof and (B) not employed by another employer, as
determined by the Company.
(2) At any time after a Change in Control (as defined
below), in the event that (A) Executive's employment hereunder
is terminated by the Company at any time for any reason except
(i) for Cause (as defined below) or (ii) due to Executive's
death or Disability (as defined below), or (B) Executive
terminates his own employment hereunder for Good Reason (as
defined below in this paragraph), then, in either such event,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation except as provided below in this paragraph) then
being paid to him on the Termination Date as salary
continuation (pursuant to the Company's normal payroll
procedures) for a period equal to twelve (12) consecutive
months following the Termination Date, plus an additional
single sum
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payment equal to one-half of Executive's target bonus
(pursuant to Section 3(b)) for the Bonus Year that contains
the Termination Date which bonus shall be payable within 30
days from the Termination Date; provided that if such
termination occurs within 120 days following a reduction in
Executive's base salary, such salary continuation payments
shall be made in an amount equal to Executive's base salary
prior to such reduction. In the event of Executive's death
during such salary continuation period, the Company shall pay
the sum of the present value of all remaining payments in a
single payment (using a 5% discount rate) to the Executive's
estate within 60 days of his death.
After a Change in Control, in the event that the
Company terminates Executive's employment through notice of
nonrenewal as of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year Renewal Term,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation) then being paid to him on the Termination Date
as salary continuation (pursuant to the Company's normal
payroll procedures) for a period of six (6) consecutive months
following the Termination Date.
(3) Except as otherwise specifically provided in this
Section 6(b), severance payments shall be in addition to, and
shall not reduce or offset, any other payments that are due to
Executive from the Company (or any other source) or under any
other agreements, except that severance payments hereunder
shall offset any severance benefits otherwise due to Executive
under any severance pay plan or program maintained by the
Company that covers its employees generally. The provisions of
this Section 6(b) shall supersede any conflicting provisions
of this Agreement but shall not be construed to curtail,
offset or limit Executive's rights to any other payments,
whether contingent upon a Change in Control (as defined below)
or otherwise, under this Agreement or any other agreement,
contract, plan or other source of payment except as
specifically provided herein.
(4) A "CHANGE IN CONTROL" of the Company shall be
deemed to have occurred if any of the following shall have
taken place: (A) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) other than Gordon Cain is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, or any successor provisions thereto),
directly or indirectly, of securities of the Company
representing thirty-five percent (35%) or more of the combined
voting power of the Company's then-outstanding voting
securities; (B) the approval by the stockholders of the
Company of a reorganization, merger, or consolidation, in each
case with respect to which persons who were stockholders of
the Company immediately prior to such reorganization, merger,
or consolidation do not, immediately thereafter, own or
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control more than fifty percent (50%) of the combined voting
power entitled to vote generally in the election of directors
of the reorganized, merged or consolidated Company's then
outstanding securities in substantially the same proportion as
their ownership of the Company's outstanding voting securities
prior to such reorganization, merger or consolidation; (C) a
liquidation or dissolution of the Company or the sale of all
or substantially all of the Company's assets; (D) in the event
any person is elected by the stockholders of the Company to
the Board who has not been nominated for election by a
majority of the Board or any duly appointed committee thereof;
or (E) following the election or removal of directors, a
majority of the Board consists of individuals who were not
members of the Board two (2) years before such election or
removal, unless the election of each director who is not a
director at the beginning of such two-year period has been
approved in advance by directors representing at least a
majority of the directors then in office who were directors at
the beginning of the two-year period. The Board, in its
discretion, may deem any other corporate event affecting the
Company to be a "Change in Control" hereunder.
(5) "DISABILITY" means a permanent and total
disability which entitles Executive to disability income
payments under the Company's long-term disability plan or
policy as then in effect which covers Executive pursuant to
Section 5(b). If Executive is not covered under the Company's
long-term disability plan or policy at such time for whatever
reason or under a supplemental LTD policy provided by the
Company, then the term "Disability" hereunder shall mean a
"permanent and total disability" as defined in Section
22(e)(3) of the Code and, in this case, the existence of any
such Disability shall be certified by a physician acceptable
to both the Company and Executive. In the event that the
parties are not able to agree on the choice of a physician,
each shall select a physician who, in turn, shall select a
third physician to render such certification. All costs
relating to the determination of whether Executive has
incurred a Disability shall be paid by the Company.
(6) "CODE" means the Internal Revenue Code of 1986,
as amended. References in this Agreement to any Section of the
Code shall include any successor provisions of the Code or its
successor.
(7) "CAUSE" means a termination of employment
directly resulting from (1) the Executive having engaged in
intentional misconduct causing a material violation by the
Company of any state or federal laws, (2) the Executive having
engaged in a theft of corporate funds or corporate assets or
in a material act of fraud upon the Company, (3) an act of
personal dishonesty taken by the Executive that was intended
to result in substantial personal enrichment of the Executive
at the expense of the Company, (4) Executive's final
conviction (or the entry of a plea of nolo contendere or
equivalent plea) in a court of competent jurisdiction of a
felony, or (5)
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a breach by the Executive during the Employment Period of the
provisions of Sections 9, 10, and 11 hereof, if such breach
results in a material injury to the Company. For purposes of
this definition of "Cause", the term "Company" shall mean the
Company or any of its Affiliates (as defined in Section 2).
(8) "GOOD REASON" means the occurrence of any of the
following events without Executive's express written consent:
(A) Before a Change in Control (as defined
in Section 6(b)), (i) a five percent (5%) or greater
reduction in Executive's annual base salary unless
any such greater pay cut is applied across the board
to the other senior officers of the Company except
the CEO, or (ii) after a Change in Control, any
reduction in Executive's base salary, provided that,
in either event, Executive specifically terminates
his employment for Good Reason hereunder within 120
days from the date that he has actual notice of such
reduction; or
(B) Before or after a Change in Control, any
breach by the Company of any material provision of
this Agreement, provided that Executive specifically
terminates his employment for Good Reason hereunder
within 120 days from the date that he has actual
notice of such material breach; or
(C) Only following a Change in Control (as
defined in Section 6(b)), any of the following events
will constitute Good Reason, provided that Executive
specifically terminates his employment for Good
Reason hereunder within 12 months following his
receipt of actual notice of an event listed below:
(i) the failure by the Company or
its successor to expressly assume and agree
to continue and perform this Agreement in
the same manner and to the same extent that
the Company would be required to perform if
such Change in Control had not occurred;
(ii) Executive's duties or
responsibilities for the Company or its
successor are materially reduced; or
(iii) the Company or its successor
fails to continue in effect any pension,
medical, health-and-accident, life
insurance, or disability income plan or
program in which Executive was participating
at the time of the Change in Control (or
plans providing Executive with substantially
similar benefits), or the taking of any
action by the Company or its successor that
would adversely affect Executive's
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participation in or materially reduce his
benefits under any such plan that was
enjoyed by him immediately prior to the
Change in Control.
7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means a
written notice that indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to mitigate
the amount of any payment provided for under this Agreement by seeking other
employment or in any other manner.
9. CONFLICTS OF INTEREST.
(a) In keeping with his fiduciary duties to Company, Executive
hereby agrees that he shall not become involved in a conflict of
interest, or upon discovery thereof, allow such a conflict to continue
at any time during the Employment Period. Moreover, Executive agrees
that he shall immediately disclose to the Board any facts which might
involve a conflict of interest that has not been approved by the Board.
(b) Executive and Company recognize and acknowledge that it is
not possible to provide an exhaustive list of actions or interests
which may constitute a "conflict of interest." Moreover, Company and
Executive recognize there are many borderline situations. In some
instances, full disclosure of facts by the Executive to the Board may
be all that is necessary to enable Company to protect its interests. In
others, if no improper motivation appears to exist and Company's
interests have not demonstrably suffered, prompt elimination of the
outside interest may suffice. In other serious instances, it may be
necessary for the Company to terminate Executive's employment for Cause
(as defined in Section 6(b)). The Board reserves the right to take such
action as, in its good faith judgment, will resolve the conflict of
interest.
(c) Executive hereby agrees that any direct or indirect
interest in, connection with, or benefit from any outside activities,
particularly commercial activities, which interest might adversely
affect the Company or any of its Affiliates (as defined in Section 2),
involves a possible conflict of interest. Circumstances in which a
conflict of interest on the part of Executive would or might arise, and
which must be reported immediately to the Board, include, but are not
limited to, any of the following:
(1) Ownership by the Executive and his immediate
family members of more than a two percent (2%) interest, on an
aggregated basis, in any lender,
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supplier, contractor, customer or other entity with which
Company or any of its Affiliates does business;
(2) Misuse of information, property or facilities to
which Executive has access in a manner which is demonstrably
and materially injurious to the interests of Company or any of
its Affiliates, including its business, reputation or
goodwill; or
(3) Materially trading in products or services
connected with products or services designed or marketed by or
for the Company or any of its Affiliates.
10. CONFIDENTIAL INFORMATION.
(a) NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of
this Section 10, all references to Company shall mean and include its
Affiliates (as defined in Section 2). Executive hereby acknowledges,
understands and agrees that all Confidential Information, as defined in
Section 10(b), whether developed by Executive or others employed by or
in any way associated with Executive or Company, is the exclusive and
confidential property of Company and shall be regarded, treated and
protected as such in accordance with this Agreement. Executive
acknowledges that all such Confidential Information is in the nature of
a trade secret. Failure to mark any writing confidential shall not
affect the confidential nature of such writing or the information
contained therein.
(b) DEFINITION OF CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall mean information, whether or not
originated by Executive, which is used in Company's business and (1) is
proprietary to, about or created by Company; (2) gives Company some
competitive business advantage or the opportunity of obtaining such
advantage, or the disclosure of which could be detrimental to the
interests of Company; (3) is designated as Confidential Information by
Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential
by Company, or from all the relevant circumstances should reasonably be
assumed by Executive to be confidential and proprietary to Company; or
(4) is not generally known by non-Company personnel. Such Confidential
Information includes, but is not limited to, the following types of
information and other information of a similar nature (whether or not
reduced to writing or designated as confidential):
(1) Work product resulting from or related to the
research, development or production of the programs of the
Company including, without limitation, OmniBank(TM),
homologous recombination, DNA sequencing, phenotypic analysis,
drug target validation and drug discovery;
(2) Internal Company personnel and financial
information, vendor names and other vendor information
(including vendor characteristics, services and
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agreements), purchasing and internal cost information,
internal service and operational manuals, and the manner and
methods of conducting Company's business;
(3) Marketing, partnering and business and
development plans, price and cost data, price and fee amounts,
pricing and billing policies, quoting procedures, marketing
techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and
potential strategies of the Company which have been or are
being discussed; and
(4) Business acquisition and other business
opportunities.
(c) EXCLUSIONS FROM CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall not include information publicly known
other than as a result of a disclosure by Executive in breach of
Section 10(a), and the general skills and experience gained during
Executive's work with the Company which Executive could reasonably have
been expected to acquire in similar work with another company.
(d) COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information,
Executive shall occupy a position of trust and confidence with respect
to Company's affairs and business. In view of the foregoing and of the
consideration to be provided to Executive, Executive agrees that it is
reasonable and necessary that Executive make the following covenants:
(1) At any time during the Employment Period and
within ten (10) years after the Employment Period, Executive
shall not disclose Confidential Information to any person or
entity, either inside or outside of Company, other than as
necessary in carrying out duties on behalf of Company, without
obtaining Company's prior written consent (unless such
disclosure is compelled pursuant to court order or subpoena,
and at which time Executive gives notice of such proceedings
to Company), and Executive will take all reasonable
precautions to prevent inadvertent disclosure of such
Confidential Information. This prohibition against Executive's
disclosure of Confidential Information includes, but is not
limited to, disclosing the fact that any similarity exists
between the Confidential Information and information
independently developed by another person or entity, and
Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations
under this Agreement.
(2) At any time during or after the Employment
Period, Executive shall not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties
on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to
prevent inadvertent use, copying or transfer of such
Confidential Information. This prohibition against Executive's
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use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or
otherwise exploiting, directly or indirectly, any products or
services (including databases, written documents and software
in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses
based upon knowledge of Confidential Information.
(e) RETURN OF CONFIDENTIAL MATERIAL. Executive shall promptly
turn over to the person designated by the Board or CEO all originals
and copies of materials containing Confidential Information in the
Executive's possession, custody, or control upon request or upon
termination of Executive's employment with Company. Executive agrees to
attend a termination interview with the person or persons designated by
the Board or CEO in the Company's offices for a reasonable time period.
The purposes of the termination interview shall be (1) to confirm
turnover of all Confidential Information, (2) discuss any questions
Executive may have about his continuing obligations under this
Agreement, (3) answer questions related to his duties and on-going
projects to allow a temporary or permanent successor to obtain a better
understanding of the employment position, (4) confirm the number of any
outstanding stock options, or other long-term incentive awards, and
their vested percentages and other terms and conditions, and (5) any
other topics relating to the business affairs of Company or its
Affiliates as determined by the Company.
(f) INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable or patentable works or products,
trademarks, service marks, ideas, processes, formulae, methods,
designs, techniques and trade secrets (collectively hereinafter
referred to as "INVENTIONS") made, developed, conceived or resulting
from work performed by Executive (alone or in conjunction with others,
during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related
to, the business of Company (including, without limitation, research
and development activities of Company), or which are made using any
equipment, facilities, Confidential Information, materials, labor,
money, time or other resources of Company, shall be promptly disclosed
by Executive to the person or persons designated by the Board or CEO,
shall be deemed Confidential Information for purposes of this
Agreement, and shall be Company's exclusive property. Executive shall,
upon Company's reasonable request during or after the Employment
Period, execute any documents and perform all such acts and things
which are necessary or advisable in the opinion of Company to cause
issuance of patents to, or otherwise obtain recorded protection of
right to intellectual property for, Company with respect to Inventions
that are to be Company's exclusive property under this Section 10, or
to transfer to and vest in Company full and exclusive right, title and
interest in and to such Inventions; provided, however, that the expense
of securing any such protection of right to Inventions shall be borne
by Company. In addition, during or after the Employment Period,
Executive shall, at Company's expense, reasonably assist the Company in
any reasonable and proper manner in enforcing any Inventions which are
to be or become Company's exclusive property hereunder against
infringement by others. Executive shall keep
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confidential and will hold for Company's sole use and benefit any
Invention that is to be Company's exclusive property under this Section
10 for which full recorded protection of right has not been or cannot
be obtained.
(g) PROPERTY RIGHTS. In keeping with his fiduciary duties to
Company, Executive hereby covenants and agrees that during his
Employment Period, and for a period of three (3) months following his
Termination Date, Executive shall promptly disclose in writing to
Company any and all Inventions, which are conceived, developed, made or
acquired by Executive, either individually or jointly with others, and
which directly relate to the business, products or services of Company.
In consideration for his employment hereunder, Executive hereby
specifically sells, assigns and transfers to Company all of his
worldwide right, title and interest in and to all such Inventions.
If during the Employment Period, Executive creates any
original work of authorship or other property fixed in any tangible
medium of expression which (1) is the subject matter of copyright
(including computer programs) and (2) directly relates to Company's
present or planned business, products, or services, whether such
property is created solely by Executive or jointly with others, such
property shall be deemed a work for hire, with the copyright
automatically vesting in Company. To the extent that any such writing
or other property is determined not to be a work for hire for whatever
reason, Executive hereby consents and agrees to the unconditional
waiver of "moral rights" in such writing or other property, and to
assign to Company all of his right, title and interest, including
copyright, in such writing or other property.
Executive hereby agrees to (1) assist Company or its nominee
at all times in the protection of any property that is subject to this
Section 10, (2) not to disclose any such property to others without the
written consent of Company or its nominee, except as required by his
employment hereunder, and (3) at the request of Company, to execute
such assignments, certificates or other interests as Company or its
nominee may from time to time deem desirable to evidence, establish,
maintain, perfect, protect or enforce its rights, title or interests in
or to any such property.
(h) EMPLOYEE PROPRIETARY INFORMATION AGREEMENT. The provisions
of this Section 10 shall not supersede the Employee Proprietary
Information Agreement (the "Proprietary Agreement") between Employee
and the Company (or any other agreement of similar intent) which shall
remain in full force and effect and, moreover, this Agreement, the
Proprietary Agreement and any such other similar agreement between the
parties shall be construed and applied as being mutually consistent to
the full extent possible.
(i) REMEDIES. In the event of a breach or threatened breach of
any of the provisions of this Section 10, Company shall be entitled to
an injunction ordering the return of all such Confidential Information
and Inventions, and restraining Executive from using
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or disclosing, for his benefit or the benefit of others, in whole or in
part, any Confidential Information or Inventions. Executive further
agrees that any breach or threatened breach of any of the provisions of
this Section 10 would cause irreparable injury to Company, for which it
would have no adequate remedy at law. Nothing herein shall be construed
as prohibiting Company from pursuing any other remedies available to it
for any such breach or threatened breach, including the recovery of
damages.
11. AGREEMENT NOT TO COMPETE. All references in this Section 11 to
"COMPANY" shall mean and include its Affiliates (as defined in Section 2).
(a) PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that
except in the ordinary course and scope of his employment hereunder
during the Employment Period, Executive shall not while employed by
Company and, except as specifically provided below in this Section
11(a), for a period of six (6) months following his Termination Date,
within the continental United States:
(1) Directly or indirectly engage or invest in, own,
manage, operate, control or participate in the ownership,
management, operation or control of, be employed by,
associated or in any manner connected with, or render services
or advice to, any Competing Business (as defined below);
provided, however, Executive may invest in the securities of
any enterprise with the power to vote up to two percent (2%)
of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(2) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, employer, advisor (whether paid or unpaid),
stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own benefit
or for the benefit of any other person or entity, solicit,
divert or take away, any customers, clients, or business
acquisition or other business opportunities of Company; or
(3) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, advisor (whether paid or unpaid), stockholder,
partner or in any other individual or representative capacity
whatsoever, either for his own benefit or for the benefit of
any other person or entity, either (A) hire, attempt to hire,
contact or solicit with respect to hiring any employee of
Company, (B) induce or otherwise counsel, advise or encourage
any employee of Company to leave the employment of Company, or
(C) induce any distributor, representative or agent of Company
to terminate or modify its relationship with Company.
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In the event that Executive's Termination Date occurs
after a Change in Control (as defined in Section 6(b)), then
notwithstanding any provisions of this Section 11 to the
contrary, all of the non-compete restrictions set forth in
this Section 11 shall not apply to, or be enforced against,
Executive if his employment with the Company or its successor
is terminated (1) by Executive for Good Reason (as defined in
Section 6(b)), (2) by the Company or its successor without
Cause (as defined in Section 6(b), or (3) upon notice of
nonrenewal pursuant to Section 4. Therefore, following a
Change in Control, in the event that Executive terminates his
employment for Good Reason or upon notice of nonrenewal, or
the Company or its successor terminates Executive's employment
without Cause or upon nonrenewal, Executive shall not be
subject to the provisions of Section 11.
"COMPETING BUSINESS" means any individual, business,
firm, company, partnership, joint venture, organization, or
other entity whose products or services compete in whole or in
part, at any time during the Employment Period with the
products or services (or planned products and services) of
Company including, without limitation, genomics research,
development and products including, without limitation,
OmniBank(TM), homologous recombination, DNA sequencing,
phenotypic analysis, drug validation and drug discovery.
(b) ESSENTIAL NATURE OF NON-COMPETE OBLIGATION. It is
acknowledged, understood and agreed by and between the parties hereto
that the covenants made by Executive in this Section 11 are essential
elements of this Agreement and that, but for the agreement of the
Executive to comply with such covenants, Company would not have entered
into this Agreement.
(c) NECESSITY AND REASONABLENESS OF NON-COMPETE OBLIGATION.
Executive hereby specifically acknowledges and agrees that:
(1) Company has expended and will continue to expend
substantial time, money and effort in developing its business;
(2) Executive will, in the course of his employment,
be personally entrusted with and exposed to Confidential
Information (as defined in Section 10);
(3) Company, during the Employment Period and
thereafter, will be engaged in its highly competitive business
in which many firms, including Company, compete;
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(4) Executive could, after having access to Company's
financial records, contracts, and other Confidential
Information and know-how and, after receiving training by and
experience with the Company, become a competitor;
(5) Company will suffer great loss and irreparable
harm if Executive terminates his employment and enters,
directly or indirectly, into competition with Company;
(6) The temporal and other restrictions contained in
this Section 11 are in all respects reasonable and necessary
to protect the business goodwill, trade secrets, prospects and
other reasonable business interests of Company;
(7) The enforcement of this Agreement in general, and
of this Section 11 in particular, will not work an undue or
unfair hardship on Executive or otherwise be oppressive to
him; it being specifically acknowledged and agreed by
Executive that he has activities and other business interests
and opportunities which will provide him adequate means of
support if the provisions of this Section 11 are enforced
after the Termination Date; and
(8) the enforcement of this Agreement in general, and
of this Section 11 in particular, will neither deprive the
public of needed goods or services nor otherwise be injurious
to the public.
(d) JUDICIAL MODIFICATION. Executive agrees that if an
arbitrator (pursuant to Section 21) or a court of competent
jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 11 is overly
restrictive and unenforceable, the arbitrator or court shall reduce or
modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
parties hereto agree that the restrictions of this Section 11 shall
remain in full force and effect. Executive further agrees that if an
arbitrator or court of competent jurisdiction determines that any
provision of this Section 11 is invalid or against public policy, the
remaining provisions of this Section 11 and the remainder of this
Agreement shall not be affected thereby, and shall remain in full force
and effect.
12. REMEDIES. In the event of any pending, threatened or actual breach
of any of the covenants or provisions of Section 9, 10, or 11, it is understood
and agreed by Executive that the remedy at law for a breach of any of the
covenants or provisions of these Sections may be inadequate and, therefore,
Company shall be entitled to a restraining order or injunctive relief from any
court of competent jurisdiction, in addition to any other remedies at law and in
equity. In the event that Company seeks to obtain a restraining order or
injunctive relief, Executive hereby agrees that Company shall not be required to
post any bond in connection therewith. Should a court of competent jurisdiction
or an arbitrator (pursuant to Section 21) declare any provision of Section 9,
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10, or 11 to be unenforceable due to an unreasonable restriction of duration or
geographical area, or for any other reason, such court or arbitrator is hereby
granted the consent of each of the Executive and Company to reform such
provision and/or to grant the Company any relief, at law or in equity,
reasonably necessary to protect the reasonable business interests of Company or
any of its affiliated entities. Executive hereby acknowledges and agrees that
all of the covenants and other provisions of Sections 9, 10, and 11 are
reasonable and necessary for the protection of the Company's reasonable business
interests. Executive hereby agrees that if the Company prevails in any action,
suit or proceeding with respect to any matter arising out of or in connection
with Section 9, 10, or 11, Company shall be entitled to all equitable and legal
remedies, including, but not limited to, injunctive relief and compensatory
damages.
13. DEFENSE OF CLAIMS. Executive agrees that, during the Employment
Period and for a period of two (2) years after his Termination Date, upon
request from the Company, he will cooperate with the Company and its Affiliates
in the defense of any claims or actions that may be made by or against the
Company or any of its Affiliates that affect his prior areas of responsibility,
except if Executive's reasonable interests are adverse to the Company or
Affiliates in such claim or action. To the extent travel is required to comply
with the requirements of this Section 13, the Company shall, to the extent
possible, provide Executive with notice at least 10 days prior to the date on
which such travel would be required. The Company agrees to promptly pay or
reimburse Executive upon demand for all of his reasonable travel and other
direct expenses incurred, or to be reasonably incurred, to comply with his
obligations under this Section 13.
14. DETERMINATIONS BY THE BOARD OF DIRECTORS.
(a) TERMINATION OF EMPLOYMENT. Prior to a Change in Control
(as defined in Section 6(b)), any question as to whether and when there
has been a termination of Executive's employment, the cause of such
termination, and the Termination Date, shall be determined by the
Compensation Committee in its discretion exercised in good faith.
(b) COMPENSATION. Prior to a Change in Control (as defined in
Section 6(b)), any question regarding salary, bonus and other
compensation payable to Executive pursuant to this Agreement shall be
determined by the Compensation Committee in its discretion exercised in
good faith.
15. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct from
any benefits and payments made or to be made pursuant to this Agreement (a) all
federal, state, local and other taxes as may be required pursuant to any law or
governmental regulation or ruling, (b) all other employee deductions made with
respect to Company's employees generally, and (c) any advances made to Executive
and owed to Company.
16. NONALIENATION. The right to receive payments under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge or encumbrance
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by Executive, his dependents or beneficiaries, or to any other person who is or
may become entitled to receive such payments hereunder. The right to receive
payments hereunder shall not be subject to or liable for the debts, contracts,
liabilities, engagements or torts of any person who is or may become entitled to
receive such payments, nor may the same be subject to attachment or seizure by
any creditor of such person under any circumstances, and any such attempted
attachment or seizure shall be void and of no force and effect.
17. INCOMPETENT OR MINOR PAYEES. Should the Board determine that any
person to whom any payment is payable under this Agreement has been determined
to be legally incompetent or is a minor, any payment due hereunder may,
notwithstanding any other provision of this Agreement to the contrary, be made
in any one or more of the following ways: (a) directly to such minor or person;
(b) to the legal guardian or other duly appointed personal representative of the
person or estate of such minor or person; or (c) to such adult or adults as
have, in the good faith knowledge of the Board, assumed custody and support of
such minor or person; and any payment so made shall constitute full and complete
discharge of any liability under this Agreement in respect to the amount paid.
18. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 21), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.
19. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to Sections
hereof are for the purpose of reference only and shall in no way limit, define
or otherwise affect the provisions hereof. Any and all Exhibits referred to in
this Agreement are, by such reference, incorporated herein and made a part
hereof for all purposes. The words "herein", "hereof", "hereunder" and other
compounds of the word "here" shall refer to the entire Agreement and not to any
particular provision hereof.
20. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES
OF CONFLICTS OF LAW.
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21. ARBITRATION.
(a) ARBITRABLE MATTERS. If any dispute or controversy arises
between Executive and the Company relating to (1) this Agreement in any
way or arising out of the parties' respective rights or obligations
under this Agreement or (2) the employment of Executive or the
termination of such employment, then either party may submit the
dispute or controversy to arbitration under the then-current Commercial
Arbitration Rules of the American Arbitration Association (AAA) (the
"RULES"); provided, however, the Company shall retain its rights to
seek a restraining order or injunctive relief pursuant to Section 12.
Any arbitration hereunder shall be conducted before a single arbitrator
unless the parties mutually agree that the arbitration shall be
conducted before a panel of three arbitrators. The arbitrator shall be
selected through mutual agreement of the parties, if possible. If the
parties fail to reach agreement upon appointment of the arbitrator
within twenty (20) days following receipt by one party of the other
party's notice of desire to arbitrate, then within five (5) days
following the end of such 20-day period, each party shall select one
arbitrator who, in turn, shall within five (5) days select a third
arbitrator who shall be the single arbitrator hereunder. The site for
any arbitration hereunder shall be in Harris County or Montgomery
County, Texas, unless otherwise mutually agreed by the parties, and the
parties hereby waive any objection that the forum is inconvenient.
(b) SUBMISSION TO ARBITRATION. The party submitting any matter
to arbitration shall do so in accordance with the Rules. Notice to the
other party shall state the question or questions to be submitted for
decision or award by arbitration. Notwithstanding any provision of this
Section 21, Executive shall be entitled to seek specific performance of
the Executive's right to be paid during the pendency of any dispute or
controversy arising under this Agreement. In order to prevent
irreparable harm, the arbitrator may grant temporary or permanent
injunctive or other equitable relief for the protection of property
rights.
(c) ARBITRATION PROCEDURES. The arbitrator shall set the date,
time and place for each hearing, and shall give the parties advance
written notice in accordance with the Rules. Any party may be
represented by counsel or other authorized representative at any
hearing. The arbitration shall be governed by the Federal Arbitration
Act, 9 U.S.C.Sections 1 et. seq. (or its successor). The arbitrator
shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas to the claims asserted to the extent
that the arbitrator determines that federal law is not controlling.
(d) COMPLIANCE WITH AWARD.
(1) Any award of an arbitrator shall be final and
binding upon the parties to such arbitration, and each party
shall immediately make such changes in its conduct or provide
such monetary payment or other relief as such award requires.
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The parties agree that the award of the arbitrator shall be
final and binding and shall be subject only to the judicial
review permitted by the Federal Arbitration Act.
(2) The parties hereto agree that the arbitration
award may be entered with any court having jurisdiction and
the award may then be enforced as between the parties, without
further evidentiary proceedings, the same as if entered by the
court at the conclusion of a judicial proceeding in which no
appeal was taken. The Company and the Executive hereby agree
that a judgment upon any award rendered by an arbitrator may
be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(e) COSTS AND EXPENSES. Each party shall pay any monetary
amount required by the arbitrator's award, and the fees, costs and
expenses for its own counsel, witnesses and exhibits, unless otherwise
determined by the arbitrator in the award. The compensation and costs
and expenses assessed by the arbitrator and the AAA shall be split
evenly between the parties unless otherwise determined by the
arbitrator in the award. If court proceedings to stay litigation or
compel arbitration are necessary, the party who opposes such
proceedings to stay litigation or compel arbitration, if such party is
unsuccessful, shall pay all associated costs, expenses, and attorney's
fees which are reasonably incurred by the other party as determined by
the arbitrator.
22. BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, and to their
respective heirs, executors, personal representatives, successors and permitted
assigns hereunder, but otherwise this Agreement shall not be for the benefit of
any third parties.
23. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire
agreement of the parties with respect to Executive's employment and the other
matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and understandings, oral or written, between the
parties hereto concerning the subject matter hereof. This Agreement may be
amended, waived or terminated only by a written instrument executed by both
parties hereto.
24. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 14 and 21 hereof, shall survive any termination or expiration
of this Agreement.
25. WAIVER OF BREACH. No waiver by either party hereto of a breach of
any provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provision or condition at the same
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or any subsequent time. The failure of either party hereto to take any action by
reason of any breach will not deprive such party of the right to take action at
any time while such breach continues.
26. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Company and its Affiliates (as defined in Section 2),
and upon any successor to the Company following a Change in Control (as defined
in Section 6(b)); provided, however, any such assignment by the Company shall
not relieve Company of its obligations hereunder. Any reference herein to
"Company" shall mean the Company as first written above, as well as any
successor or successors thereto.
This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board. Any attempt by the Executive to
assign, delegate or otherwise transfer this Agreement, any portion hereof, or
his rights, duties or obligations hereunder without the prior approval of the
Board shall be deemed void and of no force and effect.
27. NOTICES. Notices provided for in this Agreement shall be in writing
and shall be deemed to have been duly received (a) when delivered in person or
sent by facsimile transmission, (b) on the first business day after it is sent
by air express overnight courier service, or (c) on the third business day
following deposit in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed, to the following
address, as applicable:
(1) If to Company, addressed to:
Lexicon Genetics Incorporated
4000 Research Forest Drive
The Woodlands, Texas 77381
Attention: Corporate Secretary
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof;
or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 27.
28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a copy hereof containing multiple signature
pages, each signed by one party, but together signed by both parties hereto.
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29. EXECUTIVE ACKNOWLEDGMENT; NO STRICT CONSTRUCTION. The Executive
represents to Company that he is knowledgeable and sophisticated as to business
matters, including the subject matter of this Agreement, that he has read the
Agreement and that he understands its terms and conditions. The parties hereto
agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction shall be applied against either party hereto. Executive also
represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement. Executive acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of Employer's counsel, regarding
the terms and conditions of this Agreement and has done so to the extent that
he, in his unfettered discretion, deemed to be appropriate.
30. SUPERSEDING AGREEMENT. This Employment Agreement shall supersede
any prior employment agreement entered into between the Company and Executive.
IN WITNESS WHEREOF, the Executive has hereunto set his hand, and
Company has caused this Agreement to be executed in its name and on its behalf,
to be effective as of the Effective Date first above written.
WITNESS: EXECUTIVE:
Signature: /s/ Debbie Ritter Signature: /s/ Jeffrey L. Wade
----------------------------- -------------------------
Printed Name: Debbie Ritter
--------------------------
Date: December 22, 1998 Date: December 22, 1998
---------------------------------- ------------------------------
Address for Notices:
2 Thornbush Place
The Woodlands, Texas 77381
ATTEST: LEXICON GENETICS INCORPORATED
By: /s/ Jean Magdaleno By: /s/ Arthur T. Sands
------------------------------------ --------------------------------
Name: Jean Magdaleno Name: Arthur T. Sands
---------------------------------- ------------------------------
Title: Administrative Assistant Title: President and Chief Executive
Officer
--------------------------------- -----------------------------
Date: December 21, 1998 Date: December 21, 1998
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of February ___,
2000 (the "EFFECTIVE DATE"), by and between Lexicon Genetics Incorporated, a
Delaware corporation (hereafter "COMPANY"), and Brian P. Zambrowicz, Ph.D.
(hereafter "EXECUTIVE"), an individual and resident of Montgomery County, Texas.
W I T N E S S E T H:
WHEREAS, Company wishes to secure the services of the Executive subject
to the terms and conditions hereafter set forth; and
WHEREAS, the Executive is willing to enter into this Agreement upon the
terms and conditions hereafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. During the Employment Period (as defined in Section 4
hereof), the Company shall employ Executive, and Executive shall serve, as
Senior Vice President - Genomics of the Company. Executive's principal place of
employment shall be at the Company's principal corporate offices in The
Woodlands, Texas, or at such other location for the Company's principal
corporate offices during the Employment Period.
2. DUTIES AND RESPONSIBILITIES OF EXECUTIVE.
(a) During the Employment Period, Executive shall devote his
services full time to the business of the Company and its Affiliates
(as defined below), and perform the duties and responsibilities
assigned to him by the Chief Executive Officer ("CEO") or Board of
Directors (the "BOARD") of the Company to the best of his ability and
with reasonable diligence. Executive agrees to cooperate fully with the
Board, CEO and other executive officers of the Company, and not to
engage in any activity which conflicts with or interferes with the
performance of his duties hereunder. During the Employment Period,
Executive shall devote his best efforts and skills to the business and
interests of Company, do his utmost to further enhance and develop
Company's best interests and welfare, and endeavor to improve his
ability and knowledge of Company's business, in an effort to increase
the value of his services for the mutual benefit of the parties hereto.
During the Employment Period, it shall not be a violation of this
Agreement for Executive to (1) serve on corporate, civic, or charitable
boards or committees (except for boards or committees of a Competing
Business (as defined in Section 11)), (2) deliver lectures, fulfill
teaching or speaking engagements, or (3) manage personal investments;
provided that such activities do not materially interfere with
performance of Executive's responsibilities under this Agreement.
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For purposes of this Agreement, "AFFILIATE" means any entity
which owns or controls, is owned or controlled by, or is under common
ownership or control with, the Company.
(b) Executive represents and covenants to Company that he is
not subject or a party to any employment agreement, noncompetition
covenant, nondisclosure agreement, or any similar agreement, covenant,
understanding, or restriction that would prohibit Executive from
executing this Agreement and fully performing his duties and
responsibilities hereunder, or would in any manner, directly or
indirectly, limit or affect the duties and responsibilities that may
now or in the future be assigned to Executive hereunder.
3. COMPENSATION.
(a) During the Employment Period, the Company shall pay to
Executive an annual base salary of $200,000 in consideration for his
services under this Agreement, payable on a pro rata basis in not less
than monthly installments, in conformity with the Company's customary
payroll practices for executive salaries. Executive's base salary shall
be subject to review at least annually, and such salary may be
adjusted, depending upon the performance of the Company and Executive,
upon the recommendation of the Compensation Committee of the Board (the
"COMPENSATION COMMITTEE"). All salary, bonus and other compensation
payments hereunder shall be subject to all applicable payroll and other
taxes.
(b) As promptly as practicable after the end of each calendar
year during the Employment Period, the Compensation Committee shall
determine whether Executive is entitled to a bonus based on the
attainment of performance goals during the calendar year then ended
(the "BONUS YEAR"). For each Bonus Year during the Employment Period
(including the Bonus Year commencing on the Effective Date and ending
on December 31, 2000), the Compensation Committee shall establish
certain performance goals for the Company and the Executive and a
targeted annual bonus amount (the amount of which annual target bonus
shall be within the sole discretion of the Compensation Committee). The
target bonus shall be paid to Executive within 60 days after the end of
the applicable Bonus Year based on the extent to which the performance
goals and objectives for the Bonus Year have been achieved. The full
amount of the target bonus shall be paid if substantially all of the
designated performance goals and objectives have been achieved for the
Bonus Year; if not, the Compensation Committee, in its discretion
exercised in good faith, may award a target bonus to Executive in an
amount less than the full target bonus for that Bonus Year. The
Compensation Committee may also award additional bonuses or other
compensation to Executive at any time in its complete discretion.
4. TERM OF EMPLOYMENT. Executive's initial term of employment
with the Company under this Agreement shall be for the period beginning on the
Effective Date and ending at midnight (CST) on December 31, 2001, unless Notice
of Termination pursuant to Section 7 is given by either the Company or Executive
to the other party. The Company and Executive shall each have the right to give
Notice of Termination at will, with or without cause, at any time, subject to
the terms and conditions of this Agreement regarding the rights and duties of
the parties upon termination of employment. The term of employment hereunder
ending on December 31, 2001, shall be referred
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to herein as the "INITIAL TERM OF EMPLOYMENT." On December 31, 2001 and on
December 31st of each succeeding year (each such date being referred to as a
"RENEWAL DATE"), this Agreement shall automatically renew and extend for a
period of one (1) additional year (a "RENEWAL TERM") unless written notice of
non-renewal is delivered from one party to the other at least sixty (60) days
prior to the relevant Renewal Date or, alternatively, the parties may mutually
agree to voluntarily enter into a new employment agreement at any time. The
period from the Effective Date through the date of Executive's termination of
employment at any time for whatever reason shall be referred to herein as the
"EMPLOYMENT PERIOD."
5. BENEFITS. Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to the
following:
(a) REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall pay
or reimburse Executive for all reasonable travel, entertainment and
other expenses paid or incurred by Executive in performing his business
obligations hereunder. Executive shall provide substantiating
documentation for expense reimbursement requests as reasonably required
by the Company.
(b) BENEFITS. Executive shall be entitled to and shall receive
all other benefits and conditions of employment available generally to
executives of the Company pursuant to Company plans and programs,
including, but not limited to, group health insurance benefits, dental
benefits, life insurance benefits, disability benefits, and pension and
retirement benefits. The Company shall not be obligated to institute,
maintain, or refrain from changing, amending, or discontinuing, any
such employee benefit program or plan, so long as such actions are
similarly applicable to covered executives generally.
Notwithstanding the previous paragraph, Company shall provide
Executive with long-term disability ("LTD") insurance coverage, at no
cost to Executive, that provides income replacement benefits to
Executive, if he should incur a long-term disability covered under such
policy, in an amount at least equal to 60% of his base salary at the
time of such disability, which benefits shall begin after a waiting
period that does not exceed six months. The income replacement benefits
described in the previous sentence shall remain payable at least until
Executive attains the age of 65 provided that he remains unable to
perform the essential functions of his occupation during such period.
To the extent that the Company's LTD policy which covers employees
generally does not provide sufficient coverage to Executive, as
described in the previous sentence, Company agrees to purchase a
supplemental LTD policy for Executive from a reputable insurer and to
pay the premiums on Executive's behalf during the Employment Period.
Notwithstanding the first paragraph of this Section 5(b), the
Company shall pay for term life insurance coverage on Executive's life,
with the beneficiary(ies) thereof designated by Executive, with a death
benefit in an amount not less than twice Executive's base salary
(pursuant to Section 3(a)) as such base salary is set on each January 1
during the Employment Period. Upon request, Executive agrees to take
any physical exams, and to provide such information, which are
reasonably necessary or appropriate to secure or maintain such term
life insurance coverage.
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(c) PAID VACATION. Executive shall be entitled to a paid
annual vacation of three (3) weeks. Vacation time may be accumulated
and carried over by Executive into any subsequent year(s); provided,
however, Executive shall not be permitted to accumulate more than six
(6) weeks of accrued and unused vacation. In addition, the Executive
shall be allowed up to five (5) days each year to attend professional
continuing education meetings or seminars; provided that attendance at
such meetings or seminars shall be planned for minimum interference
with the Company's business.
6. RIGHTS AND PAYMENTS UPON TERMINATION. The Executive's right to
compensation and benefits for periods after the date on which his employment
with the Company and its Affiliates (as defined in Section 2) terminates for
whatever reason (the "TERMINATION DATE") shall be determined in accordance with
this Section 6.
(a) ACCRUED SALARY AND VACATION PAYMENTS. Executive shall
be entitled to the following payments under this Section 6(a)
regardless of the reason for termination, in addition to any payments
or benefits to which the Executive is entitled under the terms of any
employee benefit plan or the provisions of Section 6(b):
(1) his accrued but unpaid salary through his
Termination Date; and
(2) his accrued but unpaid vacation pay for the
period ending on his Termination Date in accordance with
Section 5(c) above.
(b) SEVERANCE PAYMENTS.
(1) At any time prior to a Change in Control (as
defined below), in the event that (A) Executive's employment
hereunder is terminated by the Company at any time for any
reason except (i) for Cause (as defined below) or (ii) due to
Executive's death or Disability (as defined below), or (B)
Executive terminates his own employment hereunder for Good
Reason (as defined below), then, in either such event,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation) then being paid to him on the Termination Date
as salary continuation (pursuant to the Company's normal
payroll procedures) for a period equal to six (6) consecutive
months following the Termination Date. In the event of
Executive's death during such salary continuation period, the
Company shall pay the sum of the present value of all
remaining payments (using a 5% discount rate) in a single
payment to Executive's surviving spouse, if any, or if there
is no surviving spouse, to Executive's estate within 60 days
of his death. Such severance payments shall be subject to
Sections 10 and 11 hereof.
Prior to a Change in Control, in the event that
Executive's employment is terminated through notice of
non-renewal as of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year Renewal Term,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base
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salary under Section 3(a) (without regard to any bonuses or
extraordinary compensation) then being paid to him on the
Termination Date as salary continuation (pursuant to the
Company's normal payroll procedures) for each month following
his Termination Date, not to exceed six months, that Executive
is (A) not in violation of the confidential information,
non-competition and other covenants of Sections 10 and 11
hereof and (B) not employed by another employer, as determined
by the Company.
(2) At any time after a Change in Control (as defined
below), in the event that (A) Executive's employment hereunder
is terminated by the Company at any time for any reason except
(i) for Cause (as defined below) or (ii) due to Executive's
death or Disability (as defined below), or (B) Executive
terminates his own employment hereunder for Good Reason (as
defined below in this Section 6(c)), then, in either such
event, Executive shall be entitled to receive, and the Company
shall be obligated to pay, Executive's base salary under
Section 3(a) (without regard to any bonuses or extraordinary
compensation except as provided below in this paragraph) then
being paid to him on the Termination Date as salary
continuation (pursuant to the Company's normal payroll
procedures) for a period equal to twelve (12) consecutive
months following the Termination Date, plus an additional
single sum payment equal to one-half of Executive's target
bonus (pursuant to Section 3(b)) for the Bonus Year in which
the termination occurred, which bonus shall be payable within
30 days from the Termination Date. In the event of Executive's
death during such salary continuation period, the Company
shall pay the sum of the present value of all remaining
payments in a single payment (using a 5% discount rate) to
Executive's surviving spouse, if any, or if there is no
surviving spouse, to Executive's estate within 60 days of his
death.
After a Change in Control, in the event that the
Company terminates Executive's employment through notice of
nonrenewal as of the end of the Initial Term of Employment
(pursuant to Section 4) or any one-year Renewal Term,
Executive shall be entitled to receive, and the Company shall
be obligated to pay, Executive's base salary under Section
3(a) (without regard to any bonuses or extraordinary
compensation) then being paid to him on the Termination Date
as salary continuation (pursuant to the Company's normal
payroll procedures) for a period of six (6) consecutive months
following the Termination Date.
(3) Except as otherwise specifically provided in this
Section 6(b), severance payments shall be in addition to, and
shall not reduce or offset, any other payments that are due to
Executive from the Company (or any other source) or under any
other agreements, except that severance payments hereunder
shall offset any severance benefits otherwise due to Executive
under any severance pay plan or program maintained by the
Company that covers its employees generally. The provisions of
this Section 6(b) shall supersede any conflicting provisions
of this Agreement but shall not be construed to curtail,
offset or limit Executive's rights to any other payments,
whether contingent upon a Change in Control (as defined below)
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or otherwise, under this Agreement or any other agreement,
contract, plan or other source of payment.
(4) A "CHANGE IN CONTROL" of the Company shall be
deemed to have occurred if any of the following shall have
taken place: (A) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934 (the "Exchange Act")) other than Gordon Cain and his
Affiliates (defined below), taken together, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, or any successor provisions thereto), directly
or indirectly, of securities of the Company representing
thirty-five percent (35%) or more of the combined voting power
of the Company's then-outstanding voting securities; (B) the
approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case with
respect to which persons who were stockholders of the Company
immediately prior to such reorganization, merger, or
consolidation do not, immediately thereafter, own or control
more than fifty percent (50%) of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated Company's then outstanding
securities in substantially the same proportion as their
ownership of the Company's outstanding voting securities prior
to such reorganization, merger or consolidation; (C) a
liquidation or dissolution of the Company or the sale of all
or substantially all of the Company's assets; (D) in the event
any person is elected by the stockholders of the Company to
the Board who has not been nominated for election by a
majority of the Board or any duly appointed committee thereof;
or (E) following the election or removal of directors, a
majority of the Board consists of individuals who were not
members of the Board two (2) years before such election or
removal, unless the election of each director who is not a
director at the beginning of such two-year period has been
approved in advance by directors representing at least a
majority of the directors then in office who were directors at
the beginning of the two-year period. The Board, in its
discretion, may deem any other corporate event affecting the
Company to be a "Change in Control" hereunder.
An "AFFILIATE" of Gordon Cain shall include (1) any
person or entity directly or indirectly controlling or
controlled by or under direct or indirect common control with
Gordon Cain, (2) any spouse, immediate family member or
relative of Gordon Cain, (3) any trust in which Gordon Cain or
any person described in clause (2) above has a beneficial
interest, and (4) any trust established by Gordon Cain or any
person described in clause (2) above, whether or not such
person has a beneficial interest in such trust. For purposes
of this definition of "Affiliate," the term "control" means
the power to direct the management and policies of a person,
directly or through one or more intermediaries, whether
through the ownership of voting securities by contract, or
otherwise.
(5) "DISABILITY" means a permanent and total
disability which entitles Executive to disability income
payments under the Company's long-term disability plan or
policy as then in effect which covers Executive pursuant to
Section 5(b). If Executive is not covered under the Company's
long-term disability plan or policy at
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such time for whatever reason or under a supplemental LTD
policy provided by the Company, then the term "Disability"
hereunder shall mean a "permanent and total disability" as
defined in Section 22(e)(3) of the Code and, in this case, the
existence of any such Disability shall be certified by a
physician acceptable to both the Company and Executive. In the
event that the parties are not able to agree on the choice of
a physician, each shall select a physician who, in turn, shall
select a third physician to render such certification. All
costs relating to the determination of whether Executive has
incurred a Disability shall be paid by the Company.
(6) "CODE" means the Internal Revenue Code of 1986,
as amended. References in this Agreement to any Section of the
Code shall include any successor provisions of the Code or its
successor.
(7) "CAUSE" means a termination of employment
directly resulting from (1) the Executive having engaged in
intentional misconduct causing a material violation by the
Company of any state or federal laws, (2) the Executive having
engaged in a theft of corporate funds or corporate assets or
in a material act of fraud upon the Company, (3) an act of
personal dishonesty taken by the Executive that was intended
to result in personal enrichment of the Executive at the
expense of the Company, (4) Executive's final conviction (or
the entry of a plea of nolo contendere or equivalent plea) in
a court of competent jurisdiction of a felony, or (5) a breach
by the Executive during the Employment Period of the
provisions of Sections 9, 10, and 11 hereof, if such breach
results in a material injury to the Company. For purposes of
this definition of "Cause", the term "Company" shall mean the
Company or any of its Affiliates (as defined in Section 2).
(8) "GOOD REASON" means the occurrence of any of the
following events without Executive's express written consent:
(A) Before a Change in Control (as defined
in Section 6(b)), (i) a five percent (5%) or greater
reduction in Executive's annual base salary unless
any such greater reduction is (i) applied across the
board to the other senior officers of the Company
except the CEO or (ii) specifically agreed to in
writing by Executive or, after a Change in Control,
any reduction in Executive's base salary unless such
reduction is specifically agreed to in writing by
Executive, provided that, in either event, Executive
specifically terminates his employment for Good
Reason hereunder within 120 days from the date that
he has actual notice of such reduction; or
(B) Before or after a Change in Control, any
breach by the Company of any material provision of
this Agreement, provided that Executive specifically
terminates his employment for Good Reason hereunder
within 120 days from the date that he has actual
notice of such material breach; or
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(C) Only following a Change in Control, any
of the following events will constitute Good Reason,
provided that Executive specifically terminates his
employment for Good Reason hereunder within 12 months
following his receipt of actual notice of an event
listed below:
(i) the failure by the Company or
its successor to expressly assume and agree
to continue and perform this Agreement in
the same manner and to the same extent that
the Company would be required to perform if
such Change in Control had not occurred;
(ii) Executive's duties or
responsibilities for the Company or its
successor are materially reduced; or
(iii) the Company or its successor
fails to continue in effect any pension,
medical, health-and-accident, life
insurance, or disability income plan or
program in which Executive was participating
at the time of the Change in Control (or
plans providing Executive with substantially
similar benefits), or the taking of any
action by the Company or its successor that
would adversely affect Executive's
participation in or materially reduce his
benefits under any such plan that was
enjoyed by him immediately prior to the
Change in Control, unless the Company or its
successor provides a replacement plan with
substantially similar benefits.
Notwithstanding the preceding provisions of this
Section 6(b)(8), if Executive desires to terminate his
employment for Good Reason, he shall first give written notice
of the facts and circumstances providing the basis for Good
Reason to the Board or the Compensation Committee, and allow
the Company thirty (30) days from the date of such notice to
remedy, cure or rectify the situation giving rise to Good
Reason to the reasonable satisfaction of Executive.
7. NOTICE OF TERMINATION. Any termination by the Company or the
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, the term "NOTICE OF TERMINATION" means a
written notice that indicates the specific termination provision of this
Agreement relied upon and sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
8. NO MITIGATION REQUIRED. Executive shall not be required to
mitigate the amount of any payment provided for under this Agreement by seeking
other employment or in any other manner.
9. CONFLICTS OF INTEREST.
(a) In keeping with his fiduciary duties to Company, Executive
hereby agrees that he shall not become involved in a conflict of
interest, or upon discovery thereof, allow
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such a conflict to continue at any time during the Employment Period.
Moreover, Executive agrees that he shall immediately disclose to the
Board any facts which might involve a conflict of interest that has not
been approved by the Board.
(b) Executive and Company recognize and acknowledge that it is
not possible to provide an exhaustive list of actions or interests
which may constitute a "conflict of interest." Moreover, Company and
Executive recognize there are many borderline situations. In some
instances, full disclosure of facts by the Executive to the Board may
be all that is necessary to enable Company to protect its interests. In
others, if no improper motivation appears to exist and Company's
interests have not demonstrably suffered, prompt elimination of the
outside interest may suffice. In other serious instances, it may be
necessary for the Company to terminate Executive's employment for Cause
(as defined in Section 6(b)). The Board reserves the right to take such
action as, in its good faith judgment, will resolve the conflict of
interest.
(c) Executive hereby agrees that any direct or indirect
interest in, connection with, or benefit from any outside activities,
particularly commercial activities, which interest might adversely
affect the Company or any of its Affiliates (as defined in Section 2),
involves a possible conflict of interest. Circumstances in which a
conflict of interest on the part of Executive would or might arise, and
which must be reported immediately to the Board, include, but are not
limited to, any of the following:
(1) Ownership by the Executive and his immediate
family members of more than a two percent (2%) interest, on an
aggregated basis, in any lender, supplier, contractor,
customer or other entity with which Company or any of its
Affiliates does business;
(2) Misuse of information, property or facilities to
which Executive has access in a manner which is demonstrably
and materially injurious to the interests of Company or any of
its Affiliates, including its business, reputation or
goodwill; or
(3) Materially trading in products or services
connected with products or services designed or marketed by or
for the Company or any of its Affiliates.
10. CONFIDENTIAL INFORMATION.
(a) NON-DISCLOSURE OBLIGATION OF EXECUTIVE. For purposes of
this Section 10, all references to Company shall mean and include its
Affiliates (as defined in Section 2). Executive hereby acknowledges,
understands and agrees that all Confidential Information, as defined in
Section 10(b), whether developed by Executive or others employed by or
in any way associated with Executive or Company, is the exclusive and
confidential property of Company and shall be regarded, treated and
protected as such in accordance with this Agreement. Executive
acknowledges that all such Confidential Information is in the nature of
a trade secret. Failure to mark any writing confidential shall not
affect the confidential nature of such writing or the information
contained therein.
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(b) DEFINITION OF CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall mean information, whether or not
originated by Executive, which is used in Company's business and (1) is
proprietary to, about or created by Company; (2) gives Company some
competitive business advantage or the opportunity of obtaining such
advantage, or the disclosure of which could be detrimental to the
interests of Company; (3) is designated as Confidential Information by
Company, known by the Executive to be considered confidential by
Company, or from all the relevant circumstances considered confidential
by Company, or from all the relevant circumstances should reasonably be
assumed by Executive to be confidential and proprietary to Company; or
(4) is not generally known by non-Company personnel. Such Confidential
Information includes, but is not limited to, the following types of
information and other information of a similar nature (whether or not
reduced to writing or designated as confidential):
(1) Work product resulting from or related to the
research, development or production of the programs of the
Company including, without limitation, the Human Gene Trap(TM)
database, OmniBank(R), homologous recombination, DNA
sequencing, phenotypic analysis, drug target validation and
drug discovery;
(2) Internal Company personnel and financial
information, vendor names and other vendor information
(including vendor characteristics, services and agreements),
purchasing and internal cost information, internal service and
operational manuals, and the manner and methods of conducting
Company's business;
(3) Marketing, partnering and business and
development plans, price and cost data, price and fee amounts,
pricing and billing policies, quoting procedures, marketing
techniques and methods of obtaining business, forecasts and
forecast assumptions and volumes, and future plans and
potential strategies of the Company which have been or are
being discussed; and
(4) Business acquisition and other business
opportunities.
(c) EXCLUSIONS FROM CONFIDENTIAL INFORMATION. The term
"CONFIDENTIAL INFORMATION" shall not include information publicly known
other than as a result of a disclosure by Executive in breach of
Section 10(a), and the general skills and experience gained during
Executive's work with the Company which Executive could reasonably have
been expected to acquire in similar work with another company.
(d) COVENANTS OF EXECUTIVE. As a consequence of Executive's
acquisition or anticipated acquisition of Confidential Information,
Executive shall occupy a position of trust and confidence with respect
to Company's affairs and business. In view of the foregoing and of the
consideration to be provided to Executive, Executive agrees that it is
reasonable and necessary that Executive make the following covenants:
(1) At any time during the Employment Period and
within ten (10) years after the Employment Period, Executive
shall not disclose Confidential Information
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to any person or entity, either inside or outside of Company,
other than as necessary in carrying out duties on behalf of
Company, without obtaining Company's prior written consent
(unless such disclosure is compelled pursuant to court order
or subpoena, and at which time Executive gives notice of such
proceedings to Company), and Executive will take all
reasonable precautions to prevent inadvertent disclosure of
such Confidential Information. This prohibition against
Executive's disclosure of Confidential Information includes,
but is not limited to, disclosing the fact that any similarity
exists between the Confidential Information and information
independently developed by another person or entity, and
Executive understands that such similarity does not excuse
Executive from abiding by his covenants or other obligations
under this Agreement.
(2) At any time during or after the Employment
Period, Executive shall not use, copy or transfer Confidential
Information other than as necessary in carrying out his duties
on behalf of Company, without first obtaining Company's prior
written consent, and will take all reasonable precautions to
prevent inadvertent use, copying or transfer of such
Confidential Information. This prohibition against Executive's
use, copying, or transfer of Confidential Information
includes, but is not limited to, selling, licensing or
otherwise exploiting, directly or indirectly, any products or
services (including databases, written documents and software
in any form) which embody or are derived from Confidential
Information, or exercising judgment in performing analyses
based upon knowledge of Confidential Information.
(e) RETURN OF CONFIDENTIAL MATERIAL. Executive shall promptly
turn over to the person designated by the Board or CEO all originals
and copies of materials containing Confidential Information in the
Executive's possession, custody, or control upon request or upon
termination of Executive's employment with Company. Executive agrees to
attend a termination interview with the person or persons designated by
the Board or CEO in the Company's offices for a reasonable time period.
The purposes of the termination interview shall be (1) to confirm
turnover of all Confidential Information, (2) discuss any questions
Executive may have about his continuing obligations under this
Agreement, (3) answer questions related to his duties and on-going
projects to allow a temporary or permanent successor to obtain a better
understanding of the employment position, (4) confirm the number of any
outstanding stock options, or other long-term incentive awards, and
their vested percentages and other terms and conditions, and (5) any
other topics relating to the business affairs of Company or its
Affiliates as determined by the Company.
(f) INVENTIONS. Any and all inventions, products, discoveries,
improvements, copyrightable or patentable works or products,
trademarks, service marks, ideas, processes, formulae, methods,
designs, techniques and trade secrets (collectively hereinafter
referred to as "INVENTIONS") made, developed, conceived or resulting
from work performed by Executive (alone or in conjunction with others,
during regular hours of work or otherwise) while he is employed by
Company and which may be directly or indirectly useful in, or related
to, the business of Company (including, without limitation, research
and development activities of Company), or which are made using any
equipment, facilities, Confidential Information, materials, labor,
money, time or other resources of Company, shall be promptly
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disclosed by Executive to the person or persons designated by the Board
or CEO, shall be deemed Confidential Information for purposes of this
Agreement, and shall be Company's exclusive property. Executive shall,
upon Company's reasonable request during or after the Employment
Period, execute any documents and perform all such acts and things
which are necessary or advisable in the opinion of Company to cause
issuance of patents to, or otherwise obtain recorded protection of
right to intellectual property for, Company with respect to Inventions
that are to be Company's exclusive property under this Section 10, or
to transfer to and vest in Company full and exclusive right, title and
interest in and to such Inventions; provided, however, that the expense
of securing any such protection of right to Inventions shall be borne
by Company. In addition, during or after the Employment Period,
Executive shall, at Company's expense, reasonably assist the Company in
any reasonable and proper manner in enforcing any Inventions which are
to be or become Company's exclusive property hereunder against
infringement by others. Executive shall keep confidential and will hold
for Company's sole use and benefit any Invention that is to be
Company's exclusive property under this Section 10 for which full
recorded protection of right has not been or cannot be obtained.
(g) PROPERTY RIGHTS. In keeping with his fiduciary duties to
Company, Executive hereby covenants and agrees that during his
Employment Period, and for a period of three (3) months following his
Termination Date, Executive shall promptly disclose in writing to
Company any and all Inventions, which are conceived, developed, made or
acquired by Executive, either individually or jointly with others, and
which relate to, or are useful in, the business, products or services
of Company including, without limitation, research and development
activities of the Company, or which are made using any equipment,
facilities, Confidential Information, material, labor, money, time or
other resources of the Company. In consideration for his employment
hereunder, Executive hereby specifically sells, assigns and transfers
to Company all of his worldwide right, title and interest in and to all
such Inventions.
If during the Employment Period, Executive creates any
original work of authorship or other property fixed in any tangible
medium of expression which (1) is the subject matter of copyright
(including computer programs) and (2) directly relates to Company's
present or planned business, products, or services, whether such
property is created solely by Executive or jointly with others, such
property shall be deemed a work for hire, with the copyright
automatically vesting in Company. To the extent that any such writing
or other property is determined not to be a work for hire for whatever
reason, Executive hereby consents and agrees to the unconditional
waiver of "moral rights" in such writing or other property, and to
assign to Company all of his right, title and interest, including
copyright, in such writing or other property.
Executive hereby agrees to (1) assist Company or its nominee
at all times in the protection of any property that is subject to this
Section 10, (2) not to disclose any such property to others without the
written consent of Company or its nominee, except as required by his
employment hereunder, and (3) at the request of Company, to execute
such assignments, certificates or other interests as Company or its
nominee may from time to time
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deem desirable to evidence, establish, maintain, perfect, protect or
enforce its rights, title or interests in or to any such property.
(h) EMPLOYEE PROPRIETARY INFORMATION AGREEMENT. The provisions
of this Section 10 shall not supersede the Employee Proprietary
Information Agreement (the "Proprietary Agreement") between Employee
and the Company (or any other agreement of similar intent) which shall
remain in full force and effect and, moreover, this Agreement, the
Proprietary Agreement and any such other similar agreement between the
parties shall be construed and applied as being mutually consistent to
the full extent possible.
(i) REMEDIES. In the event of a breach or threatened breach of
any of the provisions of this Section 10, Company shall be entitled to
an injunction ordering the return of all such Confidential Information
and Inventions, and restraining Executive from using or disclosing, for
his benefit or the benefit of others, in whole or in part, any
Confidential Information or Inventions. Executive further agrees that
any breach or threatened breach of any of the provisions of this
Section 10 would cause irreparable injury to Company, for which it
would have no adequate remedy at law. Nothing herein shall be construed
as prohibiting Company from pursuing any other remedies available to it
for any such breach or threatened breach, including the recovery of
damages.
11. AGREEMENT NOT TO COMPETE. All references in this Section 11 to
"COMPANY" shall mean and include its Affiliates (as defined in Section 2).
(a) PROHIBITED EXECUTIVE ACTIVITIES. Executive agrees that
except in the ordinary course and scope of his employment hereunder
during the Employment Period, Executive shall not while employed by
Company and for a period of six (6) months following his Termination
Date, within the continental United States:
(1) Directly or indirectly engage or invest in, own,
manage, operate, control or participate in the ownership,
management, operation or control of, be employed by,
associated or in any manner connected with, or render services
or advice to, any Competing Business (as defined below);
provided, however, Executive may invest in the securities of
any enterprise with the power to vote up to two percent (2%)
of the capital stock of such enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
(2) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, employer, advisor (whether paid or unpaid),
stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own benefit
or for the benefit of any other person or entity, solicit,
divert or take away, any customers, clients, or business
acquisition or other business opportunities of Company; or
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<PAGE> 14
(3) Directly or indirectly, either as principal,
agent, independent contractor, consultant, director, officer,
employee, advisor (whether paid or unpaid), stockholder,
partner or in any other individual or representative capacity
whatsoever, either for his own benefit or for the benefit of
any other person or entity, either (A) hire, attempt to hire,
contact or solicit with respect to hiring any employee of
Company, (B) induce or otherwise counsel, advise or encourage
any employee of Company to leave the employment of Company, or
(C) induce any distributor, representative or agent of Company
to terminate or modify its relationship with Company.
"COMPETING BUSINESS" means any individual, business,
firm, company, partnership, joint venture, organization, or
other entity whose products or services compete in whole or in
part, at any time during the Employment Period with the
products or services (or planned products and services) of
Company including, without limitation, genomics research,
development and products including, without limitation, the
Human Gene Trap(TM) database, OmniBank(R), homologous
recombination, DNA sequencing, phenotypic analysis, drug
target validation and drug discovery.
(b) ESSENTIAL NATURE OF NON-COMPETE OBLIGATION. It is
acknowledged, understood and agreed by and between the parties hereto
that the covenants made by Executive in this Section 11 are essential
elements of this Agreement and that, but for the agreement of the
Executive to comply with such covenants, Company would not have entered
into this Agreement.
(c) NECESSITY AND REASONABLENESS OF NON-COMPETE OBLIGATION.
Executive hereby specifically acknowledges and agrees that:
(1) Company has expended and will continue to expend
substantial time, money and effort in developing its business;
(2) Executive will, in the course of his employment,
be personally entrusted with and exposed to Confidential
Information (as defined in Section 10);
(3) Company, during the Employment Period and
thereafter, will be engaged in its highly competitive business
in which many firms, including Company, compete;
(4) Executive could, after having access to Company's
financial records, contracts, and other Confidential
Information and know-how and, after receiving training by and
experience with the Company, become a competitor;
(5) Company will suffer great loss and irreparable
harm if Executive terminates his employment and enters,
directly or indirectly, into competition with Company;
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(6) The temporal and other restrictions contained in
this Section 11 are in all respects reasonable and necessary
to protect the business goodwill, trade secrets, prospects and
other reasonable business interests of Company;
(7) The enforcement of this Agreement in general, and
of this Section 11 in particular, will not work an undue or
unfair hardship on Executive or otherwise be oppressive to
him; it being specifically acknowledged and agreed by
Executive that he has activities and other business interests
and opportunities which will provide him adequate means of
support if the provisions of this Section 11 are enforced
after the Termination Date; and
(8) the enforcement of this Agreement in general, and
of this Section 11 in particular, will neither deprive the
public of needed goods or services nor otherwise be injurious
to the public.
(d) JUDICIAL MODIFICATION. Executive agrees that if an
arbitrator (pursuant to Section 21) or a court of competent
jurisdiction determines that the length of time or any other
restriction, or portion thereof, set forth in this Section 11 is overly
restrictive and unenforceable, the arbitrator or court shall reduce or
modify such restrictions to those which it deems reasonable and
enforceable under the circumstances, and as so reduced or modified, the
parties hereto agree that the restrictions of this Section 11 shall
remain in full force and effect. Executive further agrees that if an
arbitrator or court of competent jurisdiction determines that any
provision of this Section 11 is invalid or against public policy, the
remaining provisions of this Section 11 and the remainder of this
Agreement shall not be affected thereby, and shall remain in full force
and effect.
12. REMEDIES. In the event of any pending, threatened or actual breach
of any of the covenants or provisions of Section 9, 10, or 11, it is understood
and agreed by Executive that the remedy at law for a breach of any of the
covenants or provisions of these Sections may be inadequate and, therefore,
Company shall be entitled to a restraining order or injunctive relief from any
court of competent jurisdiction, in addition to any other remedies at law and in
equity. In the event that Company seeks to obtain a restraining order or
injunctive relief, Executive hereby agrees that Company shall not be required to
post any bond in connection therewith. Should a court of competent jurisdiction
or an arbitrator (pursuant to Section 21) declare any provision of Section 9,
10, or 11 to be unenforceable due to an unreasonable restriction of duration or
geographical area, or for any other reason, such court or arbitrator is hereby
granted the consent of each of the Executive and Company to reform such
provision and/or to grant the Company any relief, at law or in equity,
reasonably necessary to protect the reasonable business interests of Company or
any of its affiliated entities. Executive hereby acknowledges and agrees that
all of the covenants and other provisions of Sections 9, 10, and 11 are
reasonable and necessary for the protection of the Company's reasonable business
interests. Executive hereby agrees that if the Company prevails in any action,
suit or proceeding with respect to any matter arising out of or in connection
with Section 9, 10, or 11, Company shall be entitled to all equitable and legal
remedies, including, but not limited to, injunctive relief and compensatory
damages.
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13. DEFENSE OF CLAIMS. Executive agrees that, during the
Employment Period and for a period of two (2) years after his Termination Date,
upon request from the Company, he will cooperate with the Company and its
Affiliates in the defense of any claims or actions that may be made by or
against the Company or any of its Affiliates that affect his prior areas of
responsibility, except if Executive's reasonable interests are adverse to the
Company or Affiliates in such claim or action. To the extent travel is required
to comply with the requirements of this Section 13, the Company shall, to the
extent possible, provide Executive with notice at least 10 days prior to the
date on which such travel would be required. The Company agrees to promptly pay
or reimburse Executive upon demand for all of his reasonable travel and other
direct expenses incurred, or to be reasonably incurred, to comply with his
obligations under this Section 13.
14. DETERMINATIONS BY THE COMPENSATION COMMITTEE.
(a) TERMINATION OF EMPLOYMENT. Prior to a Change in Control
(as defined in Section 6(b)), any question as to whether and when there
has been a termination of Executive's employment, the cause of such
termination, and the Termination Date, shall be determined by the
Compensation Committee in its discretion exercised in good faith.
(b) COMPENSATION. Prior to a Change in Control (as defined in
Section 6(b)), any question regarding salary, bonus and other
compensation payable to Executive pursuant to this Agreement shall be
determined by the Compensation Committee in its discretion exercised in
good faith.
15. WITHHOLDINGS: RIGHT OF OFFSET. Company may withhold and deduct
from any benefits and payments made or to be made pursuant to this Agreement (a)
all federal, state, local and other taxes as may be required pursuant to any law
or governmental regulation or ruling, (b) all other employee deductions made
with respect to Company's employees generally, and (c) any advances made to
Executive and owed to Company.
16. NONALIENATION. The right to receive payments under this
Agreement shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge or encumbrance by Executive, his dependents or
beneficiaries, or to any other person who is or may become entitled to receive
such payments hereunder. The right to receive payments hereunder shall not be
subject to or liable for the debts, contracts, liabilities, engagements or torts
of any person who is or may become entitled to receive such payments, nor may
the same be subject to attachment or seizure by any creditor of such person
under any circumstances, and any such attempted attachment or seizure shall be
void and of no force and effect.
17. INCOMPETENT OR MINOR PAYEES. Should the Board determine that
any person to whom any payment is payable under this Agreement has been
determined to be legally incompetent or is a minor, any payment due hereunder
may, notwithstanding any other provision of this Agreement to the contrary, be
made in any one or more of the following ways: (a) directly to such minor or
person; (b) to the legal guardian or other duly appointed personal
representative of the person or estate of such minor or person; or (c) to such
adult or adults as have, in the good faith knowledge of the Board, assumed
custody and support of such minor or person; and any payment
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so made shall constitute full and complete discharge of any liability under this
Agreement in respect to the amount paid.
18. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the maximum extent permitted by law, and should any
provision contained herein be held unenforceable by a court of competent
jurisdiction or arbitrator (pursuant to Section 21), the parties hereby agree
and consent that such provision shall be reformed to create a valid and
enforceable provision to the maximum extent permitted by law; provided, however,
if such provision cannot be reformed, it shall be deemed ineffective and deleted
herefrom without affecting any other provision of this Agreement.
19. TITLE AND HEADINGS; CONSTRUCTION. Titles and headings to
Sections hereof are for the purpose of reference only and shall in no way limit,
define or otherwise affect the provisions hereof. Any and all Exhibits referred
to in this Agreement are, by such reference, incorporated herein and made a part
hereof for all purposes. The words "herein", "hereof", "hereunder" and other
compounds of the word "here" shall refer to the entire Agreement and not to any
particular provision hereof.
20. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAW.
21. ARBITRATION.
(a) ARBITRABLE MATTERS. If any dispute or controversy arises
between Executive and the Company relating to (1) this Agreement in any
way or arising out of the parties' respective rights or obligations
under this Agreement or (2) the employment of Executive or the
termination of such employment, then either party may submit the
dispute or controversy to arbitration under the then-current Commercial
Arbitration Rules of the American Arbitration Association (AAA) (the
"RULES"); provided, however, the Company shall retain its rights to
seek a restraining order or injunctive relief pursuant to Section 12.
Any arbitration hereunder shall be conducted before a single arbitrator
unless the parties mutually agree that the arbitration shall be
conducted before a panel of three arbitrators. The arbitrator shall be
selected (from lists provided by the AAA) through mutual agreement of
the parties, if possible. If the parties fail to reach agreement upon
appointment of the arbitrator within twenty (20) days following receipt
by one party of the other party's notice of desire to arbitrate, then
within five (5) days following the end of such 20-day period, each
party shall select one arbitrator who, in turn, shall within five (5)
days select a third arbitrator who shall be the single arbitrator
hereunder. The site for any arbitration hereunder shall be in Harris
County or Montgomery County, Texas, unless otherwise mutually agreed by
the parties, and the parties hereby waive any objection that the forum
is inconvenient.
(b) SUBMISSION TO ARBITRATION. The party submitting any matter
to arbitration shall do so in accordance with the Rules. Notice to the
other party shall state the question or questions to be submitted for
decision or award by arbitration. Notwithstanding any provision of this
Section 21, Executive shall be entitled to seek specific performance of
the
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Executive's right to be paid during the pendency of any dispute or
controversy arising under this Agreement. In order to prevent
irreparable harm, the arbitrator may grant temporary or permanent
injunctive or other equitable relief for the protection of property
rights.
(c) ARBITRATION PROCEDURES. The arbitrator shall set the
date, time and place for each hearing, and shall give the parties
advance written notice in accordance with the Rules. Any party may be
represented by counsel or other authorized representative at any
hearing. The arbitration shall be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1 et. seq. (or its successor). The arbitrator
shall apply the substantive law (and the law of remedies, if
applicable) of the State of Texas to the claims asserted to the extent
that the arbitrator determines that federal law is not controlling.
(d) COMPLIANCE WITH AWARD.
(1) Any award of an arbitrator shall be final and
binding upon the parties to such arbitration, and each party
shall immediately make such changes in its conduct or provide
such monetary payment or other relief as such award requires.
The parties agree that the award of the arbitrator shall be
final and binding and shall be subject only to the judicial
review permitted by the Federal Arbitration Act.
(2) The parties hereto agree that the arbitration
award may be entered with any court having jurisdiction and
the award may then be enforced as between the parties, without
further evidentiary proceedings, the same as if entered by the
court at the conclusion of a judicial proceeding in which no
appeal was taken. The Company and the Executive hereby agree
that a judgment upon any award rendered by an arbitrator may
be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(e) COSTS AND EXPENSES. Each party shall pay any monetary
amount required by the arbitrator's award, and the fees, costs and
expenses for its own counsel, witnesses and exhibits, unless otherwise
determined by the arbitrator in the award. The compensation and costs
and expenses assessed by the arbitrator and the AAA shall be split
evenly between the parties unless otherwise determined by the
arbitrator in the award. If court proceedings to stay litigation or
compel arbitration are necessary, the party who opposes such
proceedings to stay litigation or compel arbitration, if such party is
unsuccessful, shall pay all associated costs, expenses, and attorney's
fees which are reasonably incurred by the other party as determined by
the arbitrator.
22. BINDING EFFECT; THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, and to their
respective heirs, executors, personal representatives, successors and permitted
assigns hereunder, but otherwise this Agreement shall not be for the benefit of
any third parties.
23. ENTIRE AGREEMENT AND AMENDMENT. This Agreement contains the entire
agreement of the parties with respect to Executive's employment and the other
matters covered herein; moreover, this Agreement supersedes all prior and
contemporaneous agreements and
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understandings, oral or written, between the parties hereto concerning the
subject matter hereof. This Agreement may be amended, waived or terminated only
by a written instrument executed by both parties hereto.
24. SURVIVAL OF CERTAIN PROVISIONS. Wherever appropriate to the
intention of the parties hereto, the respective rights and obligations of said
parties, including, but not limited to, the rights and obligations set forth in
Sections 6 through 14 and 21 hereof, shall survive any termination or expiration
of this Agreement.
25. WAIVER OF BREACH. No waiver by either party hereto of a breach of
any provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provision or condition at the same or any
subsequent time. The failure of either party hereto to take any action by reason
of any breach will not deprive such party of the right to take action at any
time while such breach continues.
26. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Company and its Affiliates (as defined in Section
2), and upon any successor to the Company following a Change in Control (as
defined in Section 6(b)); provided, however, any such assignment by the Company
shall not relieve Company of its obligations hereunder unless such successor to
the Company has fully and expressly assumed the obligations of the Company to
the Executive under this Agreement. Any reference herein to "Company" shall mean
the Company as first written above, as well as any successor or successors
thereto.
This Agreement is personal to Executive, and Executive may not assign,
delegate or otherwise transfer all or any of his rights, duties or obligations
hereunder without the consent of the Board. Any attempt by the Executive to
assign, delegate or otherwise transfer this Agreement, any portion hereof, or
his rights, duties or obligations hereunder without the prior approval of the
Board shall be deemed void and of no force and effect.
27. NOTICES. Notices provided for in this Agreement shall be in writing
and shall be deemed to have been duly received (a) when delivered in person or
sent by facsimile transmission, (b) on the first business day after it is sent
by air express overnight courier service, or (c) on the third business day
following deposit in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed, to the following
address, as applicable:
(1) If to Company, addressed to:
Lexicon Genetics Incorporated
4000 Research Forest Drive
The Woodlands, Texas 77381
Attention: Corporate Secretary
(2) If to Executive, addressed to the address set forth
below his name on the execution page hereof;
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or to such other address as either party may have furnished to the other party
in writing in accordance with this Section 27.
28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a copy hereof containing multiple signature
pages, each signed by one party, but together signed by both parties hereto.
29. EXECUTIVE ACKNOWLEDGMENT; NO STRICT CONSTRUCTION. The Executive
represents to Company that he is knowledgeable and sophisticated as to business
matters, including the subject matter of this Agreement, that he has read the
Agreement and that he understands its terms and conditions. The parties hereto
agree that the language used in this Agreement shall be deemed to be the
language chosen by them to express their mutual intent, and no rule of strict
construction shall be applied against either party hereto. Executive also
represents that he is free to enter into this Agreement including, without
limitation, that he is not subject to any other contract of employment or
covenant not to compete that would conflict in any way with his duties under
this Agreement. Executive acknowledges that he has had the opportunity to
consult with counsel of his choice, independent of Employer's counsel, regarding
the terms and conditions of this Agreement and has done so to the extent that
he, in his unfettered discretion, deemed to be appropriate.
30. SUPERSEDING AGREEMENT. This Employment Agreement shall supersede
any prior employment agreement entered into between the Company and Executive.
IN WITNESS WHEREOF, the Executive has hereunto set his hand, and
Company has caused this Agreement to be executed in its name and on its behalf,
to be effective as of the Effective Date first above written.
EXECUTIVE:
Signature:
----------------------------------
Brian P. Zambrowicz, Ph.D.
Date:
---------------------------------------
Address for Notices:
18 Firethorn Place
The Woodlands, Texas 77382
LEXICON GENETICS INCORPORATED
By:
-----------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
Date:
----------------------------------------
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<PAGE> 1
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made as of _________, _____, by and
between LEXICON GENETICS INCORPORATED, a Delaware corporation (the "Company"),
and ___________ ("Indemnitee").
WHEREAS, the Certificate of Incorporation and Bylaws of the Company
provide for the indemnification of its directors and executive officers to the
maximum extent permitted from time to time under applicable law and, along with
the Delaware General Corporation Law, contemplate that the Company may enter
into agreements with respect to such indemnification; and
WHEREAS, the Board of Directors of the Company has concluded that it is
reasonable, prudent and in the best interests of the Company's stockholders for
the Company to contractually obligate itself to indemnify certain of its
Authorized Representatives (defined below) so that they will serve or continue
to serve with greater certainty that they will be adequately protected;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Indemnitee hereby agree as follows:
1. Definitions. For purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires, the following terms
shall have the following respective meanings:
"Authorized Representative" means (i) a director, officer,
employee, agent or fiduciary of the Company or any Subsidiary and (ii)
a person serving at the request of the Company or any Subsidiary as a
director, officer, employee, fiduciary or other representative of
another Enterprise.
"Enterprise" means any corporation, partnership, limited
liability company, association, joint venture, trust, employee benefit
plan or other entity.
"Expenses" means all expenses, including (without limitation)
reasonable fees and expenses of counsel.
"Liabilities" means all liabilities, including (without
limitation) the amounts of any judgments, fines, penalties, excise
taxes and amounts paid in settlement.
"Proceeding" means any threatened, pending or completed claim,
action (including any action by or in the right of the Company), suit
or proceeding (whether formal or informal, or civil, criminal,
administrative, legislative, arbitrative or investigative) in respect
of which Indemnitee is, was or at any time becomes, or is threatened to
be made, a party, witness, subject or target, by reason of the fact
that Indemnitee is or was an Authorized Representative or a prospective
Authorized Representative.
"Subsidiary" means, at any time, (i) any corporation of which
at least a majority of the outstanding voting stock is owned by the
Company at such time, directly or indirectly through subsidiaries, and
(ii) any other Enterprise in which the Company, directly or indirectly,
owns more than a 50% equity interest at such time.
<PAGE> 2
2. Interpretation. (a) In this Agreement, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to
any particular Section or other subdivision;
(iv) unless the context indicates otherwise, reference to any
Section means such Section hereof; and
(v) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term.
(b) The Section headings herein are for convenience only and shall not
affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or construed
against any party solely because that party or its legal representative drafted
such provision.
(d) In the event of any ambiguity, vagueness or other similar matter
involving the interpretation or meaning of this Agreement, this Agreement shall
be liberally construed so as to provide to Indemnitee the full benefits
contemplated hereby.
(e) If the indemnification to which Indemnitee is entitled as respects
any aspect of any claim varies between two or more provisions of this Agreement,
that provision providing the most comprehensive indemnification shall apply.
3. Limitation on Personal Liability. To the fullest extent permitted
by applicable law, Indemnitee shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a director
of the Company, provided that the foregoing shall not eliminate or limit the
liability of Indemnitee (i) for any breach of Indemnitee's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law relating to unlawful
dividend payments and unlawful stock purchases or redemptions or (iv) for any
transaction from which Indemnitee derived an improper personal benefit.
4. Indemnity. (a) Subject to the following provisions of this
Agreement, the Company shall hold harmless and indemnify Indemnitee against all
Expenses and Liabilities actually incurred by Indemnitee in connection with any
Proceeding; provided, however, that no indemnity shall be paid by the Company
pursuant to this Agreement:
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(i) for amounts actually paid to Indemnitee pursuant to one or
more policies of directors and officers liability insurance maintained
by the Company or pursuant to a trust fund, letter of credit or other
security or funding arrangement provided by the Company; provided,
however, that if it should subsequently be determined that Indemnitee
is not entitled to retain any such amount, this clause (i) shall no
longer apply to such amount;
(ii) in respect of remuneration paid to Indemnitee if it shall
be determined by a final judgment or other final adjudication that
payment of such remuneration was in violation of applicable law;
(iii) on account of Indemnitee's conduct which is finally
adjudged to constitute willful misconduct or to have been knowingly
fraudulent, deliberately dishonest or from which the Indemnitee derives
an improper personal benefit; or
(iv) on account of any suit in which final judgment is
rendered against Indemnitee for an accounting of profits made from the
sale or purchase by Indemnitee of securities of the Company pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934,
as amended.
(b) If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for only a portion (but not, however, for the
total amount) of any Expenses or Liabilities actually incurred by Indemnitee in
connection with any Proceeding, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses and Liabilities to which Indemnitee
is entitled. If the indemnification provided for herein in respect of any
Expenses or Liabilities actually incurred by Indemnitee in connection with any
Proceeding is finally determined by a court of competent jurisdiction to be
prohibited by applicable law, then the Company, in lieu of indemnifying
Indemnitee, shall contribute to the amount paid or payable by Indemnitee as a
result of such Expenses and Liabilities in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
Indemnitee on the other hand from the events, circumstances, conditions,
happenings, actions or transactions from which such Proceeding arose, (ii) the
relative fault of the Company (including its other Authorized Representatives)
on the one hand and of Indemnitee on the other hand in connection with the
events, circumstances and happenings which resulted in such Expenses and
Liabilities, such relative fault to be determined by reference to, among other
things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the events, circumstances and/or happenings
resulting in such Expenses and Liabilities, and (iii) any other relevant
equitable considerations, it being agreed that it would not be just and
equitable if such contribution were determined by pro rata or other method of
allocation which does not take into account the foregoing equitable
considerations.
(c) The indemnification provided herein shall be applicable only to
Proceedings commenced after the date hereof, regardless, however, of whether
they arise from acts, omissions, facts or circumstances occurring before or
after the date hereof.
(d) The indemnification provided herein shall be applicable whether or
not negligence of Indemnitee is alleged or proved, and regardless of whether
such negligence be contributory or sole.
(e) Amounts paid by the Company to Indemnitee under this Section 4 are
subject to refund by Indemnitee as provided in Section 8.
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<PAGE> 4
5. Notification and Defense of Claims. (a) Promptly after the receipt
by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will,
if a claim in respect thereof is to be made against the Company under this
Agreement, notify the Company of the commencement of such Proceeding; provided,
however, that the omission to so notify the Company will not relieve the Company
(i) from any liability which it may have to Indemnitee under this Agreement
unless, and then only to the extent that, such omission results in insufficient
time being available to permit the Company or its counsel to effectively defend
against or make timely response to any loss, claim, damage, liability or expense
resulting from such Proceeding or otherwise has a material adverse effect on the
Company's ability to promptly deal with such loss, claim, damage, liability or
expense or (ii) from any liability which it may have to Indemnitee otherwise
than under this Agreement.
(b) The following provisions shall apply with respect to any such
Proceeding as to which Indemnitee notifies the Company of the commencement
thereof:
(i) The Company shall be entitled to participate therein at
its own expense.
(ii) Except as otherwise provided below, to the extent it may
elect to do so, the Company (jointly with any other indemnifying party
similarly notified) will be entitled to assume the defense thereof,
with counsel of its own selection reasonably satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election
so to assume the defense thereof, the Company will not be liable to
Indemnitee under this Agreement for any Expenses subsequently incurred
by Indemnitee in connection with the defense of such Proceeding other
than reasonable costs of investigation or as otherwise provided below.
Indemnitee shall have the right to employ separate counsel in such
Proceeding but the fees and expenses of such counsel incurred after
notice from the Company of its assumption of the defense thereof shall
be at the expense of Indemnitee unless (A) the employment of separate
counsel by Indemnitee has been authorized by the Company; (B)
Indemnitee shall have reasonably concluded that there may be a conflict
of interest between the Company and Indemnitee in the conduct of the
defense of such Proceeding; or (C) the Company shall not in fact have
employed counsel to assume the defense of such Proceeding, in each of
which cases the reasonable fees and expenses of Indemnitee's counsel
shall be borne by the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the
Company or as to which Indemnitee shall have made the conclusion
provided for in (B) above. Nothing in this subparagraph (ii) shall
affect the obligation of the Company to indemnify Indemnitee against
Expenses and Liabilities paid in settlement for which it is otherwise
obligated hereunder.
(iii) The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any
Proceedings or claims effected without its prior written consent. The
Company shall not settle any Proceeding or claim in any manner which
would impose any penalty or limitation on Indemnitee without
Indemnitee's prior written consent. Neither the Company nor Indemnitee
will unreasonably withhold or delay its consent to any proposed
settlement.
6. Advancement of Expenses, Etc. If requested to do so by Indemnitee
with respect to any Proceeding, the Company shall advance to or for the benefit
of Indemnitee, prior to the final disposition of such Proceeding, the Expenses
actually incurred by Indemnitee in investigating, defending or appealing such
Proceeding. Any judgments, fines or amounts to be paid in settlement of any
Proceeding shall also be
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<PAGE> 5
advanced by the Company upon request by Indemnitee. Advances made by the Company
under this Section 6 are subject to refund by Indemnitee as provided in Section
8.
7. Right of Indemnitee to Bring Suit. (a) If a claim for
indemnification or a claim for an advance under this Agreement is not paid in
full by the Company within 30 days after receipt by the Company from Indemnitee
of a written request or demand therefor, Indemnitee may bring suit against the
Company to recover the unpaid amount of the claim. If, in any such action,
Indemnitee makes a prima facie showing of entitlement to indemnification under
this Agreement, the Company shall have the burden of proving that
indemnification is not required under this Agreement. The only defense to any
such action shall be that indemnification is not required by this Agreement.
(b) In the event that any action is instituted by Indemnitee to enforce
Indemnitee's rights or to collect monies due to Indemnitee under this Agreement
and if Indemnitee is successful in such action, the Company shall reimburse
Indemnitee for all Expenses incurred by Indemnitee with respect to such action.
8. Repayment Obligation of Indemnitee. If the Company advances or pays
any amount to Indemnitee under Section 4, 6 or 7 and if it shall thereafter be
finally adjudicated that Indemnitee was not entitled to be indemnified hereunder
for all or any portion of such amount, Indemnitee shall promptly repay such
amount or such portion thereof, as the case may be, to the Company. If the
Company advances or pays any amount to Indemnitee under Section 4, 6 or 7 and if
Indemnitee shall thereafter receive all or a portion of such amount under one or
more policies of directors and officers liability insurance maintained by the
Company or pursuant to a trust fund, letter of credit or other security or
funding arrangement provided by the Company, Indemnitee shall promptly repay
such amount or such portion thereof, as the case may be, to the Company.
9. Changes in Law. If any change after the date of this Agreement in
any applicable law, statute or rule expands the power of the Company to
indemnify Authorized Representatives, such change shall be within the purview of
Indemnitee's rights and the Company's obligations under this Agreement. If any
change after the date of this Agreement in any applicable law, statute or rule
narrows the right of the Company to indemnify an Authorized Representative, such
change shall, to the fullest extent permitted by applicable law, leave this
Agreement and the parties' rights and obligations hereunder unaffected.
10. Continuation of Indemnity. All agreements and obligations of the
Company hereunder shall continue during the period Indemnitee is an Authorized
Representative, and shall continue after Indemnitee has ceased to occupy such
position or have such relationship so long as Indemnitee shall be subject to any
possible Proceeding.
11. Nonexclusivity. The indemnification and other rights provided by
any provision of this Agreement shall not be deemed exclusive of any other
rights to which Indemnitee may be entitled under (i) any statutory or common
law, (ii) the Company's Certificate of incorporation, (iii) the Company's
Bylaws, (iv) any other agreement or (v) any vote of stockholders or
disinterested directors or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while occupying any of the
positions or having any of the relationships referred to in this Agreement.
Nothing in this Agreement shall in any manner affect, impair or compromise any
indemnification Indemnitee has or may have by virtue of any agreement previously
entered into between Indemnitee and the Company.
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<PAGE> 6
12. Severability. If any provision of this Agreement shall be held to
be invalid, illegal or unenforceable, (i) the validity, legality or
enforceability of the remaining provisions of this Agreement shall not be in any
way affected or impaired thereby and (ii), to the fullest extent possible, the
provisions of this Agreement shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable. Each
provision of this Agreement is a separate and independent portion of this
Agreement.
13. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties. No waiver of any of the provisions of this Agreement shall be binding
unless executed in writing by the person making the waiver nor shall such waiver
constitute a continuing waiver.
14. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed (i) if to the Company, at
its principal office address as shown on the signature page hereof or such other
address as it may have designated by written notice to Indemnitee for purposes
hereof, directed to the attention of the Secretary and (ii) if to Indemnitee, at
Indemnitee's address as shown on the signature page hereof or to such other
address as Indemnitee may have designated by written notice to the Company for
purposes hereof. Each such notice or other communication shall be deemed to have
been duly given if (i) delivered by hand and receipted for by the party to whom
said notice or other communication shall have been directed, (ii) transmitted by
facsimile transmission, at the time that receipt of such transmission is
confirmed, or (iii) mailed by certified or registered mail with postage prepaid,
on the third business day after the date on which it is so mailed.
15. Governing Law. This Agreement shall be deemed to be a contract made
under, and shall be governed by and construed and enforced in accordance with,
the internal laws of the State of Delaware without regard to principles of
conflicts of law.
16. Heirs, Successors and Assigns. (a) This Agreement shall be binding
upon, inure to the benefit of and be enforceable by (i) Indemnitee and
Indemnitee's personal or legal representatives, executors, administrators,
heirs, devisees and legatees and (ii) the Company and its successors and
assigns. This Agreement shall not inure to the benefit of any other person or
Enterprise.
(b) The Company agrees to require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used herein, the term "Company" shall include any successor
to its business and/or assets as aforesaid which executes and delivers the
assumption and agreement provided for in this Section 16 or which otherwise
becomes bound by all terms and provisions of this Agreement by operation of law.
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<PAGE> 7
ENTERED into on the day and year first above written.
THE COMPANY:
LEXICON GENETICS INCORPORATED
By:
-----------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
Address:
4000 Research Forest Drive
The Woodlands, Texas 77381
Telecopier: (281) 364-0155
INDEMNITEE:
---------------------------------------------
[Name of Indemnitee]
Address:
c/o Lexicon Genetics Incorporated
4000 Research Forest Drive
The Woodlands, Texas 77381
Telecopier: (281) 364-0155
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<PAGE> 1
EXHIBIT 10.7
LEXICON GENETICS INCORPORATED
2000 EQUITY INCENTIVE PLAN
1. PURPOSES.
(a) AMENDMENT AND RESTATEMENT OF INITIAL PLAN. The Plan initially was
established as the 1995 Stock Option Plan, effective as of September 13, 1995
(the "Initial Plan"). The Initial Plan, as amended hereby, is amended and
restated in its entirety and renamed the 2000 Equity Incentive Plan, effective
as of its adoption. The terms of this Plan shall supersede the Initial Plan in
its entirety; provided, however, that nothing herein shall operate or be
construed as modifying the terms of an incentive stock option granted under the
Initial Plan in a manner that would treat the option as being a new grant for
purpose of Section 424(h) of the Code (as hereafter defined).
(b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(d) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock, par value $.001 per share, of
the Company.
<PAGE> 2
(f) "COMPANY" means Lexicon Genetics Incorporated, a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or
market with the greatest volume of trading in the Common Stock) on the
last market trading day prior to the day of determination, as reported
in The Wall Street Journal or such other source as the Board deems
reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
for a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person designated
by the Company as an officer and (ii) on and after the Listing Date, a person
who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
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<PAGE> 4
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this Lexicon Genetics Incorporated 2000 Equity
Incentive Plan.
(z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
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<PAGE> 5
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award
shall be granted; the provisions of each Stock Award granted (which need
not be identical), including the time or times when a person shall be
permitted to receive Common Stock pursuant to a Stock Award; and the
number of shares of Common Stock with respect to which a Stock Award
shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any
Stock Award Agreement, in a manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests
of the Company that are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one (1) or more members of the Board,
and the term "Committee" shall apply to any person or persons to whom
such authority has been delegated. If administration is delegated to a
Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the
Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from
time to time by the Board. The Board may abolish the Committee at any
time and revest in the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED.
At such time as the Common Stock is publicly
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<PAGE> 6
traded, in the discretion of the Board, a Committee may consist solely
of two or more Outside Directors, in accordance with Section 162(m) of
the Code, and/or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. Within the scope of such authority, the
Board or the Committee may (1) delegate to a committee of one or more
members of the Board who are not Outside Directors the authority to
grant Stock Awards to eligible persons who are either (a) not then
Covered Employees and are not expected to be Covered Employees at the
time of recognition of income resulting from such Stock Award or (b) not
persons with respect to whom the Company wishes to comply with Section
162(m) of the Code, and/or (2) delegate to a committee of one or more
members of the Board who are not Non-Employee Directors the authority to
grant Stock Awards to eligible persons who are not then subject to
Section 16 of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate Three Million, Seven
Hundred Fifty Thousand (3,750,000) shares.
(b) EVERGREEN SHARE RESERVE INCREASE.
(i) Notwithstanding subsection 4(a) hereof on each January 1 (the
"Calculation Date") for a period of ten (10) years, commencing on
January 1, 2001, the aggregate number of shares of Common Stock that is
available for issuance under the Plan shall automatically be increased
by that number of shares equal to the greater of (1) five percent (5%)
of the Diluted Shares Outstanding or (2) the number of shares of Common
Stock subject to Stock Awards granted during the prior 12-month period;
provided, however, that the Board, from time to time, may provide for a
lesser increase in the aggregate number of shares of Common Stock that
is available for issuance under the Plan.
(ii) Subject to the provisions of Section 11 hereof relating to
adjustments upon changes in securities, the increase in the maximum
aggregate number of shares of Common Stock that is available for
issuance pursuant to Stock Awards granted under the Plan shall not
exceed Twenty Million (20,000,000) shares.
(iii) "Diluted Shares Outstanding" shall mean, as of any date,
(1) the number of outstanding shares of Common Stock of the Company on
such Calculation Date, plus (2) the number of shares of Common Stock
issuable upon
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<PAGE> 7
such Calculation Date assuming the conversion of all outstanding
Preferred Stock and convertible notes, plus (3) the additional number of
dilutive Common Stock equivalent shares outstanding as the result of any
options or warrants outstanding during the fiscal year, calculated using
the treasury stock method.
(c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(d) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than One Million
(1,000,000) shares during any calendar year. This subsection 5(c) shall not
apply prior to the Listing Date and, following the Listing Date, this subsection
5(c) shall not apply until (i) the earliest of: (1) the first material
modification of the Plan (including any increase in the number of shares of
Common Stock reserved for issuance under the Plan in accordance with Section 4);
(2) the issuance of all of the shares of Common Stock reserved for issuance
under the Plan; (3) the expiration of the Plan; or (4) the first meeting of
stockholders at which Directors are to be elected that occurs after the close of
the third calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
(d) CONSULTANTS.
(i) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the
offer or the sale of the Company's securities to such Consultant is not
exempt under Rule 701 of the Securities Act ("Rule 701") because of the
nature of the services that the Consultant is providing to the Company,
or because the Consultant is not a natural
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<PAGE> 8
person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule
701 and will satisfy another exemption under the Securities Act as well
as comply with the securities laws of all other relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form
S-8 Registration Statement under the Securities Act ("Form S-8") is not
available to register either the offer or the sale of the Company's
securities to such Consultant because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is
not a natural person, or as otherwise provided by the rules governing
the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act
(e.g., on a Form S-3 Registration Statement) or (B) does not require
registration under the Securities Act in order to comply with the
requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant
jurisdictions.
(iii) Rule 701 and Form S-8 generally are available to
consultants and advisors only if (i) they are natural persons; (ii) they
provide bona fide services to the issuer, its parents, its
majority-owned subsidiaries or majority-owned subsidiaries of the
issuer's parent; and (iii) the services are not in connection with the
offer or sale of securities in a capital-raising transaction, and do not
directly or indirectly promote or maintain a market for the issuer's
securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option granted prior to the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted,
and no Incentive Stock Option granted on or after the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is
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granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market Value
of the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
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(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution, and to the extent provided in
the Option Agreement and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or
after the Listing Date shall be transferable to the extent provided in the
Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for cause), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
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Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance by a person designated to exercise the option
upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death (or such longer or shorter period specified in the
Option Agreement, which period shall not be less than six (6) months for Options
granted prior to the Listing Date) or (2) the expiration of the term of such
Option as set forth in the Option Agreement. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 10(g), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate. Provided that the "Repurchase Limitation" in subsection 10(g)
is not violated, the Company will not exercise its repurchase option until at
least six (6) months (or such longer or shorter period of time required to avoid
a charge to earnings for financial accounting purposes) have elapsed following
exercise of the Option unless the Board otherwise specifically provides in the
Option.
(m) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(g), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option. Provided that the "Repurchase Limitation" in subsection
10(g) is not violated, the Company will not exercise its repurchase option until
at least six (6) months (or such longer or shorter period of time required to
avoid a charge to earnings for financial accounting purposes) have elapsed
following exercise of the Option unless the Board otherwise specifically
provides in the Option.
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(n) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided in this subsection
6(n), such right of first refusal shall otherwise comply with any applicable
provisions of the Bylaws of the Company.
(o) RE-LOAD OPTIONS.
(i) Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a
"Re-Load Option") in the event the Optionholder exercises the Option
evidenced by the Option Agreement, in whole or in part, by surrendering
other shares of Common Stock in accordance with this Plan and the terms
and conditions of the Option Agreement. Unless otherwise specifically
provided in the Option, the Optionholder shall not surrender shares of
Common Stock acquired, directly or indirectly from the Company, unless
such shares have been held for more than six (6) months (or such longer
or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock
surrendered as part or all of the exercise price of such Option; (2)
have an expiration date which is the same as the expiration date of the
Option the exercise of which gave rise to such Re-Load Option; and (3)
have an exercise price which is equal to one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Re-Load Option
on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option shall be subject to the same exercise price
and term provisions heretofore described for Options under the Plan.
(iii) Any such Re-Load Option may be an Incentive Stock Option or
a Nonstatutory Stock Option, as the Board may designate at the time of
the grant of the original Option; provided, however, that the
designation of any Re-Load Option as an Incentive Stock Option shall be
subject to the one hundred thousand dollar ($100,000) annual limitation
on the exercisability of Incentive Stock Options described in subsection
10(d) and in Section 422(d) of the Code. There shall be no Re-Load
Options on a Re-Load Option. Any such Re-Load Option shall be subject to
the availability of sufficient shares of Common Stock under subsection
4(a) and the "Section 162(m) Limitation" on the grants of Options under
subsection 5(c) and shall be subject to such other terms and conditions
as the Board may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
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7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for
its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to
the "Repurchase Limitation" in subsection 10(g), in the event a
Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which
have not vested as of the date of termination under the terms of the
stock bonus agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before the
Listing Date, rights to acquire shares of Common Stock under the stock
bonus agreement shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime
of the Participant only by the Participant. For a stock bonus award made
on or after the Listing Date, rights to acquire shares of Common Stock
under the stock bonus agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the stock bonus
agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the stock bonus agreement remains subject to
the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
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(i) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each
restricted stock purchase agreement shall be such amount as the Board
shall determine and designate in such restricted stock purchase
agreement. Such purchase price shall not be less than eighty-five
percent (85%) of the Common Stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of
the Board, according to a deferred payment or other similar arrangement
with the Participant; or (iii) in any other form of legal consideration
that may be acceptable to the Board in its discretion; provided,
however, that at any time that the Company is incorporated in Delaware,
then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(g), shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting
schedule to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to
the "Repurchase Limitation" in subsection 10(g), in the event a
Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by
the Participant which have not vested as of the date of termination
under the terms of the restricted stock purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made before the
Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall not be transferable except by
will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant. For a
restricted stock award made on or after the Listing Date, rights to
acquire shares of Common Stock under the restricted stock purchase
agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement
remains subject to the terms of the restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
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(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates)
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exceeds one hundred thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they were granted)
shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.
(g) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
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consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL -- DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL -- ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(c) for those
outstanding under the Plan). In the event any surviving corporation or acquiring
corporation refuses to assume such Stock Awards or to substitute similar stock
awards for those outstanding under the Plan, then with respect to Stock Awards
held by Participants whose Continuous Service has not terminated, the vesting of
such Stock Awards (and, if applicable, the time during which such Stock Awards
may be exercised) shall be accelerated in full, and the Stock Awards shall
terminate if not exercised (if applicable) at or prior to such event. With
respect to any other Stock Awards outstanding under the Plan, such Stock Awards
shall terminate if not exercised (if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
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(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
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15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
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EXHIBIT 10.8
LEXICON GENETICS INCORORATED
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" means the common stock, par value $.001 per share, of
the Company.
(g) "COMPANY" means Lexicon Genetics Incorporated, a Delaware
corporation.
(h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or
<PAGE> 2
Directors of the Company who are merely paid a director's fee by the Company for
their services as Directors.
(i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or
market with the greatest volume of trading in the Common Stock) on the
last market trading day prior to the day of determination, as reported
in The Wall Street Journal or such other source as the Board deems
reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
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(o) "INITIAL GRANT" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(a) of the Plan.
(p) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(w) "PLAN" means this Lexicon Genetics Incorporated 2000 Non-Employee
Directors' Stock Option Plan.
(x) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
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<PAGE> 4
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Option
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests
of the Company that are not in conflict with the provisions of the Plan.
(c) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate Two Hundred
Thousand (200,000) shares of Common Stock.
(b) EVERGREEN SHARE RESERVE INCREASE.
(i) Notwithstanding subsection 4(a) hereof, on the day after each
Annual Meeting (the "Calculation Date") for a period of ten (10) years,
commencing with the Annual Meeting in 2000, the aggregate number of
shares of Common Stock that is available for issuance under the Plan
shall automatically be increased by that number of shares equal to the
greater of (1) three-tenths of one percent (0.3%) of the Diluted Shares
Outstanding or (2) the number of shares of Common Stock subject to
Options granted during the prior 12-month period; provided, however,
that the Board, from time to time, may provide for a lesser increase in
the aggregate number of shares of Common Stock that is available for
issuance under the Plan.
(ii) "Diluted Shares Outstanding" shall mean, as of any date, (1)
the number of outstanding shares of Common Stock of the Company on such
Calculation Date, plus (2) the number of shares of Common Stock issuable
upon such Calculation Date assuming the conversion of all outstanding
Preferred Stock and convertible notes, plus (3) the additional number of
dilutive Common Stock equivalent shares outstanding as the result of any
options or warrants outstanding during the fiscal year, calculated using
the treasury stock method.
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(c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.
(d) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
The Options as set forth in section 6 automatically shall be granted
under the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
(a) INITIAL GRANTS. Without any further action of the Board, each person
who is elected or appointed for the first time to be a Non-Employee Director
automatically shall, upon the date of his or her initial election or appointment
to be a Non-Employee Director, be granted an Initial Grant to purchase Ten
Thousand (10,000) shares of Common Stock on the terms and conditions set forth
herein.
(b) ANNUAL GRANTS. Without any further action of the Board, on the day
following each Annual Meeting, commencing with the Annual Meeting in 2001, each
person who is then a Non-Employee Director, and has been a Non-Employee Director
for at least six (6) months, automatically shall be granted an Annual Grant to
purchase Two Thousand (2,000) shares of Common Stock on the terms and conditions
set forth herein.
7. OPTION PROVISIONS. Each Option shall be in such form and shall contain
such terms and conditions as required by the Plan. Each Option shall contain
such additional terms and conditions, not inconsistent with the Plan, as the
Board shall deem appropriate. Each Option shall include (through incorporation
of provisions hereof by reference in the Option or otherwise) the substance of
each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, or (ii) delivery to the
Company of other Common
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<PAGE> 6
Stock. The purchase price of Common Stock acquired pursuant to an Option that is
paid by delivery to the Company of other Common Stock acquired, directly or
indirectly from the Company, shall be paid only by shares of the Common Stock of
the Company that have been held for more than six (6) months (or such longer or
shorter period of time required to avoid a charge to earnings for financial
accounting purposes). At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
(d) TRANSFERABILITY. An Option is not transferable, except (i) by will
or by the laws of descent and distribution, (ii) by instrument to an inter vivos
or testamentary trust, in a form accepted by the Company, in which the Option is
to be passed to beneficiaries upon the death of the trustor (settlor) and (iii)
by gift, in a form accepted by the Company, to a member of the "immediate
family" of the Optionholder as that term is defined in 17 C.F.R. 240.16a-1(e).
In addition, Optionholder may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(e) VESTING. Options shall vest as follows:
(i) Initial Grants shall provide for vesting of 1/60th of the
shares subject to the Option each month after grant for five (5) years
after the date of the grant.
(ii) Annual Grants shall provide for vesting of 1/12th of the
shares subject to the Option each month after grant for twelve (12)
months after the date of the grant.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date six (6)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
(g) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months
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<PAGE> 7
after the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to
Options shall constitute general funds of the Company.
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<PAGE> 8
10. MISCELLANEOUS.
(a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding
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<PAGE> 9
the minimum amount of tax required to be withheld by law; or (iii) delivering to
the Company owned and unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL -- DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
(c) CHANGE IN CONTROL -- ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER.
(i) In the event of (i) a sale, lease or other disposition of all
or substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or
(iii) a reverse merger in which the Company is the surviving corporation
but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Options
outstanding under the Plan or shall substitute similar Options
(including an option to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(c) for
those outstanding under the Plan).
(ii) In the event any surviving corporation or acquiring
corporation refuses to assume such Options or to substitute similar
Options for those outstanding under the Plan, then the vesting of such
Options and the vesting of any shares of Common Stock acquired pursuant
to such Options shall be accelerated in full, and the Options shall
terminate if not exercised at or prior to such event.
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<PAGE> 10
(iii) In the event any surviving corporation or acquiring
corporation assumes such Options or substitutes similar Options for
those outstanding under the Plan but the Optionholder is not elected or
appointed to the board of directors of the surviving corporation or
acquiring corporation at the first meeting of such board of directors
after such change in control event, then the vesting of such Options and
the vesting of any shares of Common Stock acquired pursuant to such
Options shall be accelerated by eighteen (18) months on the day after
the first meeting of the board of directors of the surviving corporation
or acquiring corporation.
(iv) In the event any surviving corporation or acquiring
corporation assumes such Options or substitutes similar Options for
those outstanding under the Plan and the Optionholder is elected or
appointed to the board of directors of the surviving corporation or
acquiring corporation at the first meeting of such board of directors
after such change in control event, then the vesting of such Options and
the vesting of any shares of Common Stock acquired pursuant to such
Options shall not be accelerated.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders
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of the Company, whichever is earlier. No Options may be granted under the Plan
while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN. The Plan shall become effective on the IPO Date,
but no Option shall be exercised unless and until the Plan has been approved by
the stockholders of the Company, which approval shall be within twelve (12)
months before or after the date the Plan is adopted by the Board.
15. CHOICE OF LAW. All questions concerning the construction, validity and
interpretation of this Plan shall be governed by the law of the State of
Delaware, without regard to such state's conflict of laws rules.
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<PAGE> 1
EXHIBIT 10.11
MASTER LOAN AND SECURITY AGREEMENT
Master Loan and Security Agreement No. S7260 Dated May 21, 1999
FINOVA Capital Corporation, with its principal place of business located at 1850
N. Central Avenue, Phoenix, AZ 85004 ("we," "us" or "FINOVA") is willing to make
a loan (the "Loan") to LEXICON GENETICS INCORPORATED ("you" or "Borrower") under
the terms and conditions contained in this Master Loan and Security Agreement
(this "Master Agreement"). The Loan will be secured by the Collateral described
in any schedule to this Master Agreement (a "Schedule"). The Collateral also
includes any replacement parts, additions and accessories that you may add to
the Collateral, as well as any proceeds of sale, lease or rental of the
Collateral. We may treat any Schedule as a separate loan and security agreement
containing all of the provisions of this Master Agreement.
1. THE CREDIT
We may make the Loan in more than one advance (an "Advance", each of which shall
be evidenced by a "Schedule"). All of the Schedules, taken together, will make
up the Loan. We will only make the Loan to you if all the conditions in this
Master Agreement have been met to our satisfaction. We will rely on your
representations and warranties, contained in this Master Agreement, in making
the Loan. The terms of this Agreement will each apply to the Loan.
o USE OF PROCEEDS. You will use the proceeds of the Loan to pay for the
Collateral. We may pay the Supplier (whom you have chosen) of the
Collateral directly from the Loan proceeds. The Supplier will deliver the
Collateral to you at your expense. You will properly install the Collateral
at your expense at the location(s) indicated in the Schedule. If you have
already paid for the Collateral, we will pay the Loan proceeds to you or to
another person that you may designate in writing.
o NOTES. Your obligation to repay the Loan and to pay interest on the Loan
will be evidenced by Notes. Each Note will be dated the date of the
Schedule to which the Advance evidenced by the Note is related.
o TERM. The Term of each Schedule (and the related Advance) begins upon the
date that we make payment for the Collateral covered under each Schedule
(the "Closing Date"). The Term continues until you fully perform all of
your obligations under this Agreement and each Schedule and the related
Note(s). If the Collateral is not delivered, installed and accepted by you
by the date indicated in the Schedule, we may terminate this Agreement and
the Schedule as to the Collateral that was not delivered, installed and
accepted by giving you 10 days written notice of termination. Any advance
Loan payment you may have paid
<PAGE> 2
us is nonrefundable, even if the Term never starts or if we rightfully
terminate this Master Agreement or the Schedule.
o LOAN ACCOUNT. We will keep a loan account on our books and records (which
are computerized) for the Loan. We will record all payments of principal
and interest in the loan account. Unless the entries in the loan account
are clearly in error, the loan account will definitively indicate the
outstanding principal balance and accrued interest on the Loan. We may send
you loan account statements from time to time or upon your request.
o PAYMENTS. The scheduled loan payments (the "Payments") are indicated on the
Schedule. The Payments are payable periodically as specified on the
Schedule from time to time (for example, monthly). The Schedule also
indicates whether the Payments are payable "in advance" or "in arrears."
You agree that you owe us the total of all of these Payments over the Term
of the Schedule.
o FIRST PAYMENT. The first Payment is due at the beginning of the Term or at
a later date that we agree to in writing. Subsequent Payments are due on
the thirtieth day of each successive period (except the next following
period if Payments are payable in arrears) until you pay us in full all of
the Payments and any other charges or expenses you owe us.
o INTEREST. Prior to maturity of a Schedule, you will pay us interest on each
Schedule at the Interest Rate indicated in the Schedule. "Maturity" means
the scheduled maturity or any earlier date on which we accelerate the Loan.
The Payment amount indicated in the Schedule includes interest at this
Interest Rate. Interest is calculated in advance using a year of 360 days
with twelve months of 30 days.
o DEFAULT INTEREST RATE. After Maturity of the Loan you will pay us interest
at a rate of four (4%) percent per year above the Interest Rate. This is
referred to as the "Default Rate."
o INTERIM PAYMENT. If an Advance is made on a day other than the thirtieth or
thirty-first day of a period, you will also pay us an interim Payment on
the first Payment date. The interim Payment will be for the period from the
beginning of the Term until the twenty-ninth day of the period in which the
Advance is made, unless the Advance is made on the thirty-first day of a
period. If the Advance is made on the thirty-first day of a period, the
interim Payment will be for the period from the beginning of the Term
through and including the twenty-ninth day of the next following period.
The Interim Payment will be calculated the same way as the regular Payments
but pro rata on a daily basis for the number of days for which the interim
Payment is due.
o USURY. You and we intend to obey the law. If the Interest Rate charged
would exceed the maximum legal rate, you will only have to pay the maximum
legal rate. You do not have to pay any excess interest over and above the
maximum legal rate of interest. However, if it later becomes legal for you
to pay all or part of any excess interest, you will then pay it to us upon
our request.
o PAYMENT DETAILS. You will make all payments due under this Master Agreement
by 12:00 P.M., Connecticut time, on the day they are due. You will make all
payments in US Dollars (US$) in immediately available funds. We do not have
to make or give "presentment, demand, protest or notice" to get paid. You
waive "presentment, demand, protest and notice."
o APPLICATION OF PAYMENTS. Each payment under this Master Agreement is to
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be applied in the following order: first, to any fees, costs, expenses and
charges you may owe us; second, to any interest due; and third to the
principal balance.
o PREPAYMENT. You may not prepay the Loan, in whole or in part, unless this
is specifically permitted by Exhibit A to this Agreement. If prepayment is
permitted by Exhibit A to this Master Agreement, you will give us at least
30 days advance written notice of prepayment. You will pay us the
prepayment premium indicated in the Schedule(s). You will also pay us all
accrued and unpaid interest through the date of prepayment, as well as all
outstanding fees, costs, expenses and charges then due. Of course, you will
also pay the entire outstanding principal balance of the Loan. Once you
give us a notice of prepayment, that notice is final and irrevocable. If we
accelerate the Loan following an Event of Default, you will also owe us a
prepayment premium calculated as if the Loan were prepaid on the date of
acceleration. If no prepayment is permitted, the premium due upon
acceleration will be five (5%) percent of the outstanding principal
balance.
o YOUR OBLIGATION TO PAY US ALL PAYMENTS IS ABSOLUTE AND UNCONDITIONAL. YOU
ARE NOT EXCUSED FROM MAKING THE PAYMENTS, IN FULL, FOR ANY REASON. YOU
AGREE THAT YOU HAVE NO DEFENSE FOR FAILURE TO MAKE THE PAYMENTS AND YOU
WILL NOT MAKE ANY COUNTERCLAIMS OR SETOFFS TO AVOID MAKING THE PAYMENTS.
2. SECURITY INTEREST
o You grant us a security interest in the Collateral. The Collateral secures
the full and timely payment and performance of all of your obligations to
us under this Master Agreement and any other agreement, loan or lease that
you may have with us (the "Obligations"). You also grant us a security
interest in any additional collateral identified in any Schedule. Any
additional collateral is considered to be "Collateral" and it secures all
of the Obligations.
o If we request, you will put labels supplied by us stating "PROPERTY SUBJECT
TO A SECURITY INTEREST HELD BY FINOVA" on the Collateral where they are
clearly visible.
o You give us permission to add to this Master Agreement or any Schedule the
serial numbers and other information about the Collateral.
o You give us permission to file this Master Agreement or a Uniform
Commercial Code financing statement, at your expense, in order to perfect
our security interest in the Collateral. You also give us permission to
sign your name on the Uniform Commercial Code financing statements where
this is permitted by law.
o You will pay our cost to do searches for other filings or judgments against
you or your affiliates. You will also pay any filing, recording or stamp
fees or taxes resulting from filing this Agreement or a Uniform Commercial
Code financing statement. You will also pay our fees in effect from time to
time for documentation, administration and Termination of this Master
Agreement.
o At your expense, you will defend our first priority security interest in
the Collateral against, and keep the Collateral free of, any legal process,
liens, other security interests, attachments, levies and executions. You
will give us immediate written notice of any legal process, liens,
attachments, levies or executions, and you will indemnify us against any
loss that results to us from these causes.
-3-
<PAGE> 4
o You will notify us at least 15 days before you change the address of your
principal executive office.
o You will promptly sign and return additional documents that we may
reasonably request in order to protect our first priority security interest
in the Collateral.
o The Collateral is personal property and will remain personal property. You
will not incorporate it into real estate and will not do anything that will
cause the Collateral to become part of real estate or a fixture.
3. CONDITIONS OF LENDING
o See our Commitment Letter to you dated May 11, 1999, which you and we
consider to be a part of this Master Agreement. The terms and conditions of
the Commitment Letter continue following the making of the first Advance.
However, if there is a conflict between the terms and conditions of this
Master Agreement, any Schedule or any Note and the terms and conditions of
the Commitment Letter, then you and we agree that the terms and conditions
of this Master Agreement, the Schedules and the Notes control over the
Commitment Letter terms and conditions.
o Before we disburse any proceeds of any Advance, we also require the
following:
* That no payment is past due to us under any other agreement, loan or lease
that you or any guarantor have with us.
* That you are complying with all terms of this Master Agreement.
* That we have received all the documents we requested, including the signed
Schedule, Note and Delivery and Acceptance Certificate.
* That there has been no material adverse change in your financial condition,
business, operations or prospects, or that of any guarantor, from the
financial condition that you disclosed to us in your application for
credit.
4. REPRESENTATIONS AND WARRANTIES
You represent and warrant to us as follows:
o All financial information and other information that you or any guarantor
have given us is true and complete. You or any guarantor have not failed to
tell us anything that would make the financial information materially not
misleading. There has been no material adverse change in your financial
condition, business, operations or prospects, or the financial condition of
any guarantor, from the financial condition that you disclosed to us in
your application for credit.
o You have supplied us with information about the Collateral. You promise to
us that the amount of our Advance as to each item of Collateral is no more
than the fair and usual price for this kind of Collateral, taking into
account any discounts, rebates and allowances that you or any affiliate of
yours may have been given for the Collateral.
o You have materially complied with all "environmental laws" and will
continue to comply with all "environmental laws." No "hazardous substances"
are used, generated, treated, stored or disposed of by you or at your
properties except in material compliance with all environmental laws.
"Environmental laws" mean all federal, state or local environmental laws
and regulations, including the following laws: CERCLA, RCRA, Hazardous
Materials Transport Act and The Federal Water Pollution Control Act.
"Hazardous substances" means all hazardous or toxic wastes, materials or
substances, as defined
-4-
<PAGE> 5
in the environmental laws, as well as oil, flammable substances, asbestos
that is or could become friable, urea formaldehyde insulation,
polychlorinated biphenyls and radon gas.
5. COVENANTS
You agree to do the following things (or not to do the following things if so
stated) until full payment of all amounts due to us under this Master Agreement,
the Schedules and the Notes:
CARE, USE, LOCATION AND ALTERATION OF THE COLLATERAL
o You will make sure that the Collateral is maintained in good operating
condition, and that it is serviced, repaired and overhauled when this is
necessary to keep the Collateral in good operating condition. All
maintenance must be done according to the Supplier's or Manufacturer's
requirements or recommendations. All maintenance must also comply with any
legal or regulatory requirements.
o You will maintain service logs for the Collateral and permit us to inspect
the Collateral, the service logs and service reports. You give us
permission to make copies of the service logs and service reports.
o We will give you prior notice if we, or our agent, want to inspect the
Collateral or the service logs or service reports. We may inspect it during
regular business hours. You will pay our travel, meals and lodging costs to
inspect the Collateral, but only for one inspection per year. If we find
during an inspection that you are not complying with this Master Agreement,
you will pay our travel, meals and lodging costs, our salary costs, and the
costs and fees of our agents for reinspection. You will promptly cure any
problems with the Collateral that are discovered during our inspection.
o You will use the Collateral only for business purposes. You will obey all
legal and regulatory requirements in your material use of the Collateral.
o You will make all additions, modifications and improvements to the
Collateral that are required by law or government regulation. Otherwise,
you will not alter the Collateral without our written permission. You will
replace all worn, lost, stolen or destroyed parts of the Collateral with
replacement parts that are as good or better than the original parts. The
new parts will become subject to our security interest upon replacement.
o You will not remove the Collateral from the location indicated in the
Schedule without our written permission.
YEAR 2000 COMPLIANT
You represent, warrant and agree to take all action necessary including, but not
limited to due inquiry and due diligence with critical business partners to
assure that there will be no material adverse change to your business by reason
of the advent of the year 2000, including without limitation that all
computer-based systems, embedded microchips and other processing capabilities
effectively recognize and process all dates before and after December 31, 1999
("Y2K Compliant"). At our request, you shall provide to us assurance reasonably
acceptable to us that your computer-based systems, embedded microchips and other
processing capabilities are Y2K Compliant.
RISK OF LOSS
o You have the complete risk of loss or damage to the Collateral. Loss or
damage to the Collateral will not relieve you of your obligation to make
the Payments.
o If any Collateral is lost or damaged, you have two choices (although if you
are in
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<PAGE> 6
default under this Master Agreement, we and not you will have the two
choices). The choices are:
(1) Repair or replace the damaged or lost Collateral so that, once again, the
Collateral is in good operating condition and we have a perfected first
priority security interest in it.
(2) Pay us the present value (as of the date of payment) of the remaining
Payments relating to the damaged or lost Collateral. We will calculate the
present value using a discount rate of five (5%) percent per year. Once you
have paid us this amount and any other amount that you may owe us, we will
release our security interest in the damaged or lost Collateral and you (or
your insurer) may keep the Collateral for salvage purposes, on an "AS IS,
WHERE IS" basis.
INSURANCE
o Until you have made all Payments to us under this Master Agreement, the
Schedules and the Notes, you will keep the Collateral insured. The amount
of insurance, the coverage, and the insurance company must comply with the
requirements of an insurance letter dated _______________, from our Risk
Management Department.
o If you do not provide us with written evidence of insurance that complies
with such requirements, we may buy the insurance ourselves, at your
expense. You will promptly pay us the cost of this insurance. We have no
obligation to purchase any insurance. Any insurance that we purchase will
be our insurance, and not yours.
o Insurance proceeds may be used to repair or replace damaged or lost
Collateral or to pay us the present value of the Payments, as provided
above.
o You appoint us as your "attorney-in-fact" to make claims under the
insurance policies, to receive payments under the insurance policies, and
to endorse your name on all documents, checks or drafts relating to
insurance claims for Collateral.
TAXES
o You will pay all sales, use, excise, stamp, documentary and ad valorum
taxes, license, recording and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession, use,
lease or rental of the equipment or on the Loan.
o You will pay all taxes (other than our federal or state net income taxes)
imposed on you or on us regarding the Payments.
o You will reimburse us for any of these taxes that we pay or advance.
o You will file and pay for any personal property taxes on the Collateral.
FINANCIAL STATEMENTS
o If you have securities registered under the Securities Exchange Act of
1934, you will promptly give copies of any filings you make with the
Securities and Exchange Commission (SEC) during the term. You and any
guarantor will also provide us with the following financial statements:
o Quarterly balance sheet and statements of earnings and cash flow - within
45 days after the end of your first three fiscal quarters in each fiscal
year. These will be certified by your chief financial officer.
* Annual balance sheet and statements of earnings and cash flow - within 90
days after the end of each fiscal year. These will be audited by
independent auditors that, if not a "Big Five" accounting firm, must be
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<PAGE> 7
acceptable to us. Their audit report must be unqualified.
Both the quarterly and annual financial statements will be accompanied by a
certificate executed by your chief financial officer that you have complied with
all covenants contained in the Master Agreement and that there are no events of
default thereunder (the "Compliance Certificate").
These financial statements will be prepared according to generally accepted
accounting principles, consistently applied.
All financial statements and SEC filings that you or any guarantor provide us
will be true and complete. They will not fail to tell us anything that would
make them materially not misleading.
6. DEFAULTS
You are in default if any of the following happens:
o You do not pay us, when it is due, any Payment or other payment that you
owe us under this Master Agreement, any Schedule, Note or that you owe
under any other agreement, loan or lease that you have with us.
o Any of the financial information that you give us is not true and complete,
or you fail to tell us anything that would make the financial information
not materially misleading.
o You do something you are not permitted to do, or you fail to do anything
that is required of you, under this Master Agreement, any Schedule or any
other lease, loan or other financial arrangement that you have with us, and
do not cure this failure within twenty (20) days after we give notice to
you.
o An event of default occurs for any other lease, loan or obligation of yours
(or any guarantor) that exceeds $25,000 and continues beyond any applicable
grace period provided therein.
o You or any guarantor file bankruptcy, or involuntary bankruptcy is filed
against you or any guarantor.
o You or any guarantor are subject to any other insolvency proceeding other
than bankruptcy (for example, a receivership action or an assignment for
the benefit of creditors).
o Without our permission, you or any guarantor sell all or a substantial part
of its assets, merge or consolidate, or a majority of your voting stock or
interests (or any guarantor's voting stock or interests) is transferred.
o There is a material adverse change in your financial condition, business,
operations or prospects, or that of any guarantor, from the condition that
you disclosed to us in your application for credit.
REMEDIES, DEFAULT INTEREST, LATE FEES
If you are in default we may exercise one or more of our "remedies." Each of our
remedies is independent. We may exercise any of our remedies, all of our
remedies or none of our remedies. We may exercise them in any order we choose.
Our exercise of any remedy will not prevent us from exercising any other remedy
or be an "election of remedies." If we do not exercise a remedy, or if we delay
in exercising a remedy, this does not mean that we are forgiving your default or
that we are giving up our right to exercise the remedy. Our remedies allow us to
do one or more of the following:
o "Accelerate" the Loan balance under any or all Notes. This means that we
may require
-7-
<PAGE> 8
you to immediately pay us all Payments for the entire Term for any or all
Schedules.
o Require you to immediately pay us all amounts that you are required to pay
us for the entire Term of any other agreements, loans or leases that you
have with us.
o Sue you for all Payments and other amounts you owe us plus the Prepayment
Premium (see Section 1 above).
o Require you at your expense to assemble the Collateral at a location we
request in the United States of America.
o Remove and repossess the Collateral from where it is located, without
demand or notice, or make the Collateral inoperable. We have your
permission to remove any physical obstructions to removal of the
Collateral. We may also disconnect and separate all Collateral from other
property. No court order, court hearing or "legal process" will be required
for us to repossess the Collateral. You will not be entitled to any damages
resulting from removal or repossession of the Collateral. We may use, ship,
store, repair or lease any Collateral that we repossess. We may sell any
repossessed Collateral at private or public sale. You give us permission to
show the Collateral to buyers at your location free of charge during normal
business hours. If we do this, we do not have to remove the Collateral from
your location. If we repossess the Collateral and sell it, we will give you
credit for the net sale price, after subtracting our costs of repossessing
and selling the Collateral. If we rent the Collateral to somebody else, we
will give you credit for the net rent received, after subtracting our costs
of repossessing and renting the Collateral, but the credit will be
discounted to present value using a discount rate equal to the Default
Rate. The credit will be applied against what you owe us under this Master
Agreement, the Schedules, the Notes and any other agreements, loans or
leases that you have with us. If the credit exceeds the amount you owe
under this Master Agreement, the Schedule, the Notes and any other
agreements, loans or leases that you have with us, we will refund the
amount of the excess to you.
o Return conditions: Following an Event of Default, at our request you will
return the Collateral, freight and insurance prepaid by you, to us at a
location we request in the United States of America. It will be returned in
good operating condition, as required by Section 5 above. The Collateral
will not be subject to any liens when it is returned. All advertising
insignia will be removed and the finish will be painted or blended so that
nobody can see that advertising insignia used to be there.
* You will pack or crate the Collateral for shipping in the original
containers, or comparable ones. You will do this carefully and follow all
recommendations of the Supplier and the Manufacturer as to packing or
crating.
* You will also return to us the plans, specifications, operating manuals,
software documentation, discs, warranties and other documents furnished by
the Manufacturer or Supplier. You will also return to us all service logs
and service reports, as well as all written materials that you may have
concerning the maintenance and operation of the Collateral.
* At our request, you will provide us with up to 60 days free storage of the
Collateral at your location, and will let us (or our agent) have access to
the Collateral in order to inspect it and sell it.
* You will pay us what it costs us to repair the Collateral if you do not
return it in the required condition.
You will also pay us for the following:
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<PAGE> 9
o All our expenses of enforcing our remedies. This includes all our expenses
to repossess, store, ship, repair and sell the Collateral.
o Our reasonable attorney's fees and expenses.
o Default interest on everything you owe us from the date of your default to
the date on which we are paid in full at the Default Rate.
You realize that the damages we could suffer as a result of your default are
very uncertain. This is why we have agreed with you in advance on the Default
Rate to be used in calculating the payments you will owe us if you default. You
agree that, for these reasons, the payments you will owe us if you default are
"agreed" or "liquidated" damages. You understand that these payments are not
"penalties" or "forfeitures."
LATE FEES. You will pay us a late fee whenever you pay any amount that you owe
us more than ten (10) days after it is due. You will pay the late fee within one
month after the late Payment was originally due. The late fee will be ten (10%)
percent of the late Payment. If this exceeds the highest legal amount we can
charge you, you will only be required to pay the highest legal amount. The late
fee is intended to reimburse us for our collection costs that are caused by late
Payment. It is charged in addition to all other amounts you are required to pay
us, including Default Interest.
7. EXPENSES AND INDEMNITIES
PERFORMING YOUR OBLIGATIONS IF YOU DO NOT
If you do not perform one or more of your obligations under this Master
Agreement or a Schedule or Note, we may perform it for you. We will notify you
in writing at least ten (10) days before we do this. We do not have to perform
any of your obligations for you. If we do choose to perform them, you will pay
us all of our expenses to perform the obligations. You will also reimburse us
for any money that we advance to perform your obligations, together with
interest at the Default Rate on that amount. These will be additional "Payments"
that you will owe us and you will pay them at the same time that your next
Payment is due.
o You will indemnify us, defend us and hold us harmless for any and all
claims, expenses and attorney's fees concerning or arising from the
Collateral, this Master Agreement, or any Schedule or Note, or your breach
of any representation or warranty. It includes any claims concerning the
manufacture, selection, delivery, possession, use, operation or return of
the Collateral.
o This obligation of yours to indemnify us continues even after the Term is
over.
8. MISCELLANEOUS
WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS AGREEMENT, ANY SCHEDULE, ANY
NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE PERSON TO WHOM WE ASSIGN IS
CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT HAVE ANY OF OUR OBLIGATIONS UNDER
THIS MASTER AGREEMENT. YOU WILL NOT BE ABLE TO RAISE ANY DEFENSE, COUNTERCLAIM
OR OFFSET AGAINST THE ASSIGNEE.
AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE COLLATERAL SO LONG AS
YOU ARE NOT IN DEFAULT.
UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO
LEASE OR RENT THE COLLATERAL OR LET ANYBODY ELSE
-9-
<PAGE> 10
USE IT UNLESS WE GIVE YOU OUR WRITTEN PERMISSION.
WE DID NOT MANUFACTURE OR SUPPLY THE COLLATERAL. WE ARE NOT A DEALER IN THE
COLLATERAL. INSTEAD, YOU CHOSE THE COLLATERAL.
WE DO NOT MAKE ANY WARRANTY AS TO THE COLLATERAL. WE DO NOT MAKE ANY WARRANTY AS
TO "MERCHANTABILITY" OR "SUITABILITY" OR "FITNESS FOR A PARTICULAR PURPOSE" OR
"NONINFRINGEMENT" OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT.
WE WILL NOT BE RESPONSIBLE FOR ANY LOSS, DAMAGE, OR INJURY TO YOU OR ANYBODY
ELSE AS A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN THE COLLATERAL UNDER
"STRICT LIABILITY" LAWS OR ANY OTHER LAWS.
WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
LOSS OF PROFITS OR GOODWILL.
If the Collateral is unsatisfactory, you will continue to pay us all Payments
and other amounts you are required to pay us. You must seek repair or
replacement of the equipment solely from the Manufacturer or Supplier and not
from us. Neither the Manufacturer nor the Supplier is our "agent," so they
cannot speak for us and they are not allowed to make any changes in this Master
Agreement or any Schedule or Note, or give up any of our rights.
ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF PROCESS,
WAIVER OF JURY TRIAL.
THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.
THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF
ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN WHICH OUR
OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS OR CONDITIONS OF THIS
MASTER AGREEMENT OCCURRED AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WILL
BE ORDERED. HOWEVER, IF THIS MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA
LAW, IT WILL INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED.
YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA
COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL
JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT MARICOPA COUNTY,
ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE."
WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH PROCESS
IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR ADDRESS
INDICATED AFTER YOUR SIGNATURE BELOW.
YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.
NOTICES. We may give you written notice in person, by mail, by overnight
delivery service, or by fax. Notice will be sent to your address below your
signature. Mail notice will be effective three (3) days after we mail it with
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<PAGE> 11
prepaid postage to the address stated. Overnight delivery notice requires a
receipt and tracking number. Fax notice requires a receipt from the sending
machine showing that it has been sent to your fax number and received.
You may give us notice the same way that we may give you notice.
This Master Agreement benefits our successors and assigns. This Master Agreement
benefits only those successors and assigns of yours that we have approved in
writing.
This Master Agreement binds your successors and assigns. This Master Agreement
binds only those successors and assigns of ours that clearly assume our
obligations in writing.
TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT
This Master Agreement, all of the Schedules and the Notes and the Commitment
Letter are together the entire agreement between you and us concerning the
Collateral.
Only an employee of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Loan or any Schedule or Note on our behalf, and this
must be in writing. Only he or she may give up any of our rights, and this must
be in writing. If more than one person is the Borrower under this Master
Agreement, then each of you is jointly and severally liable for your obligations
under this Master Agreement.
This Master Agreement is only for your benefit and for our benefit, as well as
our successors and assigns. It is not intended to benefit any other person.
If any provision in this Master Agreement is unenforceable, then that provision
must be deleted. Only unenforceable provisions are to be deleted. The rest of
this Master Agreement will remain as written.
PUBLICITY. We may make press releases and publish a tombstone announcing this
transaction and its total amount. You may not publicize this transaction in any
way without our prior written consent, although you may disclose information
about this transaction that may be required by applicable law or the rules of
the Nasdaq stock market or any securities exchange.
LENDER: BORROWER:
FINOVA CAPITAL CORPORATION. LEXICON GENETICS INCORPORATED
10 WATERSIDE DRIVE 4000 RESEARCH FOREST DRIVE
FARMINGTON, CT 06032-3065 THE WOODLANDS, TX 77381
BY: BY:
------------------------------ ---------------------------------
PRINTED NAME: PRINTED NAME:
-------------------- -----------------------
TITLE: TITLE:
--------------------------- ------------------------------
FAX NUMBER: (860) 676-1814 Taxpayer ID#
------------------------
DATE ACCEPTED: FAX NUMBER:
------------------- -------------------------
DATED:
------------------------------
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<PAGE> 12
STATE OF _______________________
COUNTY OF _____________________
I acknowledge that ___________________, who stated that he/she is
_______________ of the Borrower named above, signed this Master Loan and
Security Agreement in my presence today: _______________. He/She acknowledged to
me that his/her signature on this Master Loan and Security Agreement was
authorized by a valid resolution or other valid authorization from Borrower's
board of directors or other governing body.
---------------------------------
Notary Public
[SEAL]
-12-
<PAGE> 13
Exhibit A
To Master Loan and Security Agreement No. S7260 dated as of May 21, 1999
PREPAYMENT PREMIUM
The Prepayment Premium shall be determined by multiplying the outstanding
principal balance by the percentage amount shown below which corresponds with
the month during the Term in which the prepayment occurs:
<TABLE>
<CAPTION>
MONTH OF THE TERM PERCENTAGE AMOUNT
----------------- ------------------------
<S> <C>
1 THROUGH 24 NO PREPAYMENT IS ALLOWED
25 THROUGH 36 3%
37 THROUGH 48 2%
</TABLE>
---------
INITIAL
-13-
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF LEXICON GENETICS INCORPORATED
None.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Houston, Texas
February 4, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001062822
<NAME> LEXICON GENETICS INCORPORATED
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,025,585
<SECURITIES> 7,130,848
<RECEIVABLES> 3,391,648
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,624,338
<PP&E> 12,476,021
<DEPRECIATION> (3,087,397)
<TOTAL-ASSETS> 22,294,567
<CURRENT-LIABILITIES> 10,603,147
<BONDS> 3,577,307
30,050,236
0
<COMMON> 8,180
<OTHER-SE> 7,856,692
<TOTAL-LIABILITY-AND-EQUITY> 22,294,567
<SALES> 0
<TOTAL-REVENUES> 4,737,703
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,558,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 302,802
<INCOME-PRETAX> (13,010,503)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,010,503)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,010,503)
<EPS-BASIC> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>
