<PAGE>
As filed with the Securities and Exchange Commission on December 15, 1999
Registration No. 333-89413
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MAXYGEN, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 8731 77-0449487
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
MAXYGEN, INC.
515 Galveston Drive
Redwood City, California 94063
(650) 298-5300
(Address, including zip code, and telephone number, including area code, of
Maxygen, Inc.'s principal executive offices)
---------------
RUSSELL J. HOWARD, Ph.D.
President and Chief Executive Officer
MAXYGEN, INC.
515 Galveston Drive
Redwood City, California 94063
(650) 298-5300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
JULIAN N. STERN BARRY E. TAYLOR
AUGUST J. MORETTI TREVOR J. CHAPLICK
Heller Ehrman White & McAuliffe Wilson Sonsini Goodrich & Rosati
2500 Sand Hill Road, Suite 100 Professional Corporation
Menlo Park, California 94025-7063 650 Page Mill Road
Telephone: (650) 234-4229 Palo Alto, California 94304
Facsimile: (650) 234-4299 Telephone: (650) 493-9300
Facsimile: (650) 845-5000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effectiveness of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please 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 of 1933, please check the
following box and list the Securities Act registration 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Offering Amount of
Registered Registered(1) Per Share Price(3) Registration Fee(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value................ 6,325,000 $15.00 $94,875,000 $26,174
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</TABLE>
(1) Includes 825,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933, as
amended.
(3) $22,379 of such amount previously paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated December 15, 1999.
5,500,000 Shares
[MAXYGEN LOGO]
Common Stock
-----------
This is an initial public offering of 5,500,000 shares of common stock of
Maxygen, Inc. Maxygen is selling all of the shares of common stock in this
offering.
At the request of Maxygen, the underwriters have reserved at the initial
public offering price up to 1,112,508 shares of common stock for sale to Dr.
Alejandro Zaffaroni and his affiliates, R.A. Investment Group and its
affiliates and Pioneer Overseas Corporation, each of whom is an existing
Maxygen stockholder. We will sell all of these reserved shares on the same
terms and conditions as the shares sold to the public.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $13.00 and $15.00. The common stock has been approved for quotation
on The Nasdaq National Market under the symbol "MAXY."
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Maxygen.................... $ $
</TABLE>
To the extent that the underwriters sell more than 5,500,000 shares of common
stock, the underwriters have the option to purchase up to an additional 825,000
shares from Maxygen at the initial public offering price less the underwriting
discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on December , 1999.
Goldman, Sachs & Co.
Robertson Stephens
Invemed Associates
-----------
Prospectus dated , 1999.
<PAGE>
[Diverse Market Opportunities Graphic]
Header: Diverse Market Opportunities
Description: Graphical illustration description of the four industry areas in
which Maxygen is currently focused, including chemicals,
agriculture, vaccines and pharmaceuticals.
<PAGE>
[MolecularBreeding Graphic]
Header: Maxygen's technologies known as MolecularBreeding create novel
genes for commercial purposes.
Description: Graphical illustration of the MolecularBreeding process, showing
genes undergoing DNAShuffling and MaxyScan. Identification of the
potential business models intended to capture value, including
alliances, proprietary products and technology access.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us, the sale of our common stock in this offering, and
our financial statements and notes to those financial statements that appear
elsewhere in this prospectus.
Our Business
Overview
We believe that we are the leader in the emerging field of directed
molecular evolution, the process by which genes are modified for specific
commercial uses. Our proprietary technologies, known as MolecularBreeding(TM),
mimic the natural process of evolution and bring together advances in molecular
biology and classical breeding, while capitalizing on the large amount of
genetic information generated by government, academic and commercial
laboratories. Unlike conventional technologies, MolecularBreeding technologies
are efficient, in part because they require minimal understanding of complex
underlying biological systems. We have designed our technologies to rapidly
develop new genes for commercial applications, where such genes would be
difficult or impossible to develop through other processes. We believe our
MolecularBreeding technologies are commercially applicable to a broad range of
industries. We are currently conducting research on more than 35 product
candidates for the chemical, agricultural and pharmaceutical industries,
enabling us to potentially generate short-term as well as long-term revenues.
We have established collaborations with Novo Nordisk, DuPont/Pioneer Hi-
Bred, AstraZeneca and DSM, all leaders in their respective markets, as well as
with United States government agencies. Our commercial collaborators and U.S.
government agencies have committed funding of over $94 million. While we will
continue to establish strategic collaborations with leading companies and
pursue additional grants from U.S. government agencies, we will also invest our
own funds in certain areas. To that end, we have retained significant product
commercialization rights to future applications of our technologies.
Our Target Markets
Our technologies address a number of multi-billion dollar industries. Our
target markets include chemicals, agriculture, protein pharmaceuticals, and
preventative and therapeutic vaccines. Within these markets, we are focusing
our efforts on specific high-value opportunities. In chemicals, we are
developing new processes using enzymes as catalysts that could increase yields
and decrease manufacturing costs for multiple product classes, such as
vitamins, pharmaceuticals, paints and plastics. In addition, we believe that
processes using enzymes as catalysts may have utility for generating new useful
materials such as fibers for industrial and consumer product applications. In
agriculture, we are applying our technologies to potentially increase crop
yield and qualities, including enhanced nutritional value in human food and
animal feed. In pharmaceuticals and vaccines, we are focusing our efforts on
developing products for a number of indications, including multiple forms of
cancer, infectious diseases such as HIV and hepatitis, and diseases in which
the body generates an improper immune response, such as rheumatoid arthritis
and multiple sclerosis.
Our Technologies
Our MolecularBreeding technologies consist of two components:
DNAShuffling(TM) technologies and MaxyScan(TM) screening systems. DNAShuffling
is the process of recombining single genes or gene families to generate a
library of new modified genes. MaxyScan is a series of specialized screening
systems that efficiently and rapidly select those gene products and enzymes
best suited for specific commercial purposes. We have an extensive patent
portfolio, including 15 issued U.S. patents, of which five are owned by us and
10 have been licensed to us by others. Furthermore, we have over 40 families of
patent
3
<PAGE>
applications relating to our MolecularBreeding technologies, the application of
our technologies to diverse industries and specific proteins improved by our
technologies.
Our Accomplishments
We have attracted a multi-disciplinary team comprised of leading experts in
the field of directed molecular evolution. We have consistently been able to
generate significant enhancements in many different genes that have relevance
to multiple commercial applications. We have demonstrated improvements in 10
product candidates and have an additional 29 product candidates in earlier
stages of development. For example, we have increased the anti-viral activity
of a protein and developed new modified enzymes which have the potential to
streamline chemical and pharmaceutical manufacturing processes. In addition, we
have significantly improved the performance of multiple commercially relevant
properties of the industrial enzyme, subtilisin, one of the most studied and
extensively modified commercial enzymes. Subtilisin, which is widely used in
laundry detergents, had annual sales of $500 million in 1998. We believe that
this example demonstrates the ability of MolecularBreeding to achieve
significant improvements beyond the limits of other approaches in
biotechnology.
To date, we have established strategic alliances with Novo Nordisk in the
area of industrial enzymes, DuPont/Pioneer Hi-Bred and AstraZeneca in
agriculture, and DSM in antibiotic manufacturing. Since 1997, our collaborators
have committed funding of over $67 million, assuming we perform research for
the full term of the existing collaborations. Of this amount, we have received
approximately $24 million, including $10 million in equity investments. In
addition, we could receive over $145 million in milestone payments based on the
accomplishment of specific performance criteria, as well as royalties on
product sales. We have received six grants from the U.S. National Institute of
Standards and Technology-Advanced Technology Program and the Defense Advanced
Research Projects Agency with total committed grant funding of over $27
million, of which we have expended approximately $5 million. These grants are
primarily for the development of vaccines and the advancement of our
MolecularBreeding technologies.
Our Strategy
Our strategy has four major components:
. We will continue to develop our core MolecularBreeding technologies to
extend our proprietary technology leadership by investing significantly
in research and development programs.
. We will continue to establish strategic collaborations with leading
companies in targeted industries and will pursue additional grants from
U.S. government agencies. We have retained, and intend to retain,
significant rights to develop and market certain applications of
products arising from our strategic collaborations.
. We plan to develop multiple products in the chemicals, agriculture and
pharmaceutical industries to generate revenues in the short-, medium-
and long-term. We expect to receive a diversified royalty stream from
the sale of commercial products and processes that may be developed and
commercialized by our existing collaborators as well as revenues from
any products that result from our grant-funded programs and self-funded
programs.
. We plan to retain rights to use our technologies in multiple
applications. We will invest our own funds in selected areas and product
opportunities with the aim of capturing a high percentage of profits on
product sales.
Our History
We began operations in 1997 to commercialize technologies originally
conceived by Dr. Willem P.C. Stemmer while at Affymax Research Institute, a
subsidiary of Glaxo Wellcome plc. We now have over 125 employees and occupy our
own facilities and executive offices, totaling 47,880 square feet, located at
515 Galveston Drive, Redwood City, California 94063. Our telephone number is
(650) 298-5300. We were incorporated under the laws of Delaware on May 7, 1996.
4
<PAGE>
Maxygen(TM), MaxyScan(TM), MolecularBreeding(TM), DNAShuffling(TM), and the
Maxygen logo are some of our trademarks. Other service marks, trademarks and
trade names referred to in this prospectus are the property of their respective
owners.
The Offering
<TABLE>
<S> <C>
Shares offered by Maxygen.................... 5,500,000 shares
Shares outstanding after this offering....... 29,410,568 shares
Proposed Nasdaq National Market symbol....... MAXY
Use of proceeds.............................. For research and development activities, for
capital expenditures, to finance possible
acquisitions and investments in technology,
and for working capital and other general
corporate purposes.
</TABLE>
---------------
The above information is based on shares outstanding as of November 15,
1999. This information excludes 1,903,975 shares of common stock issuable upon
the exercise of outstanding options at a weighted average exercise price of
$2.85 per share and 2,108,488 shares of common stock reserved for future
issuance under our benefit plans.
Except as otherwise indicated, we have presented information in this
prospectus based on the following assumptions:
. the underwriters do not exercise their over-allotment option; and
. each outstanding share of preferred stock converts into one share of
common stock upon the closing of this offering.
5
<PAGE>
Summary Financial Data
See Note 1 of Notes to Financial Statements for an explanation of the
method used to determine the number of shares used in computing per share data
below. See Note 8 to Financial Statements for information concerning the deemed
dividend upon issuance of convertible preferred stock in August 1999.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended September
December 31, 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Collaborative research and development
revenue.................................. $ 341 $ 1,077 $ 729 $ 6,068
Grant revenue............................. -- 1,646 1,090 3,625
------- ------- ------- -------
Total revenues............................ 341 2,723 1,819 9,693
Operating expenses:
Research and development................ 3,074 7,858 5,229 12,897
General and administrative.............. 1,461 3,920 2,313 4,333
------- ------- ------- -------
Total operating expenses.................. 4,535 11,778 7,542 17,230
------- ------- ------- -------
Loss from operations...................... (4,194) (9,055) (5,723) (7,537)
Net interest income....................... 161 229 75 783
------- ------- ------- -------
Net loss.................................. $(4,033) $(8,826) $(5,648) $(6,754)
Deemed dividend upon issuance of
convertible preferred stock.............. -- -- -- (2,200)
------- ------- ------- -------
Net loss attributable to common
stockholders............................. $(4,033) $(8,826) $(5,648) $(8,954)
======= ======= ======= =======
Basic and diluted net loss per share...... $ (0.82) $ (1.31) $ (1.54) $ (1.15)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share....................... 4,917 6,748 3,679 7,778
Pro forma basic and diluted net loss per
share.................................... $ (0.75) $ (0.53)
======= =======
Shares used in computing pro forma basic
and diluted net loss per share........... 11,762 17,028
</TABLE>
In the "pro forma" column below, we have adjusted the actual balance sheet
data to give effect to the net proceeds from the issuance of 1,846,707 shares
of common stock upon the exercise of stock options for $180,000 of promissory
notes and $687,000 in cash in October and November 1999. In the "pro forma as
adjusted" column below, we have adjusted the pro forma balance sheet data to
give effect to receipt of the net proceeds from the sale in this offering of
5,500,000 shares of common stock at an assumed initial public offering price of
$14.00 per share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $ 36,120 $ 36,807 $107,417
Working capital................................. 32,268 32,955 103,565
Total assets.................................... 43,458 44,145 114,755
Accumulated deficit............................. (19,613) (19,613) (19,613)
Total stockholders' equity...................... 33,589 34,276 104,886
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before deciding whether
to invest in our common stock. The occurrence of any of the following risks
could harm our business, financial condition or results of operations. In such
case, the trading price of our common stock could decline, and you may lose all
or part of your investment.
We Have a History of Net Losses. We Expect to Continue to Incur Net Losses and
We May Not Achieve or Maintain Profitability.
We have incurred net losses since our inception, including a net loss of
approximately $6.8 million for the nine months ended September 30, 1999. As of
September 30, 1999, we have an accumulated deficit of approximately $19.6
million. We expect to have increasing net losses and negative cash flow in the
foreseeable future. The size of these net losses will depend, in part, on the
rate of growth, if any, in our contract revenues and on the level of our
expenses. To date, we have derived all of our revenues from collaborations and
grants and will continue to do so in the foreseeable future. Revenues from
collaborations and grants are uncertain because our existing agreements have
fixed terms and because our ability to secure future agreements will depend
upon our ability to address the needs of our potential future collaborators. We
expect to spend significant amounts to fund research and development and
enhance our core technologies. As a result, we expect that our operating
expenses will increase significantly in the near term and, consequently, we
will need to generate significant additional 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 Deploying Unproven Technologies. If We Do Not
Develop Commercially Successful Products, We May Be Forced to Cease Operations.
You must evaluate us in light of the uncertainties and complexities
affecting an early stage biotechnology company. Our MolecularBreeding
technologies are new and in the early stage of development. We may not develop
products that prove to be safe and efficacious in any market, meet applicable
regulatory standards, are capable of being manufactured at reasonable costs, or
can be marketed successfully.
We may not be successful in the commercial development of products.
Successful products will require significant development and investment,
including testing, to demonstrate their cost-effectiveness prior to their
commercialization. To date, companies in the biotechnology industry have
developed and commercialized only a limited number of gene-based products. We
have not proven our ability to develop and commercialize products. Further,
none of our potential vaccine or protein therapeutic products are expected to
enter clinical trials within the next year. We must conduct a substantial
amount of additional research and development before any regulatory authority
will approve any of our products. Our research and development may not indicate
that our products are safe and effective, in which case regulatory authorities
may not approve them. Problems frequently encountered in connection with the
development and utilization of new and unproven technologies and the
competitive environment in which we operate might limit our ability to develop
commercially successful products.
Commercialization of Our Technologies Depends On Collaborations With Other
Companies. If We Are Not Able to Find Collaborators in the Future, We May Not
Be Able to Develop Our Technologies or Products.
Since we do not currently possess the resources necessary to develop and
commercialize potential products that may result from our MolecularBreeding
technologies, or the resources to complete any approval processes which may be
required for these products, we must enter into collaborative arrangements to
develop and commercialize products. We have entered into collaborative
agreements
7
<PAGE>
with other companies to fund the development of certain new products for
specific purposes. These contracts expire after a fixed period of time. If they
are not renewed or if we do not enter into new collaborative agreements, our
revenues will be reduced and our products may not be commercialized.
We have limited or no control over the resources that any collaborator may
devote to our products. Any of our present or future collaborators may not
perform their obligations as expected. These collaborators may breach or
terminate their agreement with us or otherwise fail to conduct their
collaborative activities successfully and in a timely manner. Further, our
collaborators may elect not to develop products arising out of our
collaborative arrangements or devote sufficient resources to the development,
manufacture, market or sale of these products. If any of these events occur, we
may not be able to develop our technologies or commercialize our products.
We Intend to Conduct Proprietary Research Programs, and Any Conflicts With Our
Collaborators or Any Inability to Commercialize Products Resulting from This
Research Could Harm Our Business.
An important part of our strategy involves conducting proprietary research
programs. We may pursue opportunities in fields that could conflict with those
of our collaborators. Moreover, disagreements with our collaborators could
develop over rights to our intellectual property. Any conflict with our
collaborators could reduce our ability to obtain future collaboration
agreements and negatively impact our relationship with existing collaborators,
which could reduce our revenues.
Certain 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, fail to obtain timely regulatory
approvals, terminate their agreements with us prematurely or fail to devote
sufficient resources to the development and commercialization of products. Any
of these developments could harm our product development efforts.
We will either commercialize products resulting from our proprietary
programs directly or through licensing to other companies. We have no
experience in manufacturing and marketing, and we currently do not have the
resources or capability to manufacture products on a commercial scale. In order
for us to commercialize these products directly, we would need to develop, or
obtain through outsourcing arrangements, the capability to manufacture, market
and sell products. We do not have these capabilities, and we may not be able to
develop or otherwise obtain the requisite manufacturing, marketing and sales
capabilities. If we are unable to successfully commercialize products resulting
from our proprietary research efforts, we will continue to incur losses.
We May Encounter Difficulties in Managing Our Growth. These Difficulties Could
Increase Our Losses.
We have experienced a period of rapid and substantial growth that has
placed and, if this growth continues, will place a strain on our human and
capital resources. If we are unable to manage this growth effectively, our
losses could increase. The number of our employees increased from 20 at
December 31, 1997 to 109 at September 30, 1999. Our revenues increased from
$341,000 in 1997 to $2.7 million in 1998 and $9.7 million for the nine months
ended September 30, 1999. 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 and to
attract and retain sufficient numbers of talented employees. 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, then management may receive
inadequate information to manage the day-to-day operations of the Company.
8
<PAGE>
Since Our Technologies Can Be Applied to Many Different Industries, If We Focus
Our Efforts on Industries Which Fail to Produce Viable Product Candidates, We
May Fail to Capitalize on More Profitable Areas.
We have limited financial and managerial resources. In light of the fact
that our technologies may be applicable to numerous, diverse industries, we
will be required to prioritize our application of resources to discrete
efforts. This requires us to focus on product candidates in selected industries
and forego efforts with regard to other products and industries. Our decisions
may not produce viable commercial products and may divert our resources from
more profitable market opportunities.
Public Perception of Ethical and Social Issues May Limit 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 MolecularBreeding technologies. Governmental authorities
could, for social or other purposes, limit the use of genetic processes or
prohibit the practice of our MolecularBreeding technologies. Ethical and other
concerns about our MolecularBreeding technologies, particularly the use of
genes from nature for commercial purposes, and products resulting therefrom
could adversely affect their market acceptance.
If the Public Does Not Accept Genetically Engineered Products, We Will Have
Less Demand for Our Products.
The commercial success of our potential products will depend in part on
public acceptance of the use of genetically engineered products including
drugs, plants and plant products. Claims that genetically engineered products
are unsafe for consumption or pose a danger to the environment may influence
public attitudes. Our genetically engineered products may not gain public
acceptance. Negative public reaction to genetically modified organisms and
products could result in greater government regulation of genetic research and
resultant products, including stricter labeling requirements, and could cause a
decrease in the demand for our products.
The subject of genetically modified organisms has received negative
publicity in Europe, which has aroused public debate. The adverse publicity in
Europe could lead to greater regulation and trade restrictions on imports of
genetically altered products. If similar adverse public reaction occurs in the
United States, genetic research and resultant products could be subject to
greater domestic regulation and could cause a decrease in the demand for our
products.
Many Potential Competitors Who Have Greater Resources and Experience Than We Do
May Develop Products and Technologies That Make Ours Obsolete.
The biotechnology industry is characterized by rapid technological change,
and the area of gene research is a rapidly evolving field. Our future success
will depend on our ability to maintain a competitive position with respect to
technological advances. Rapid technological development by others may result in
our products and technologies becoming obsolete.
We face, and will continue to face, intense competition from organizations
such as large biotechnology companies, as well as academic and research
institutions and government agencies that are pursuing competing technologies
for modifying DNA. These organizations may develop technologies that are
superior alternatives to our technologies. Further, our competitors in the
directed molecular evolution field may be more effective at implementing their
technologies to develop commercial products. Some of these competitors have
entered into collaborations with leading companies within our target markets to
produce enzymes for commercial purposes.
Any products that we develop through our MolecularBreeding technologies
will compete in multiple, highly competitive markets. Most of the organizations
competing with us in the markets for such products have greater capital
resources, research and development and marketing staffs and facilities and
capabilities, and greater experience in modifying DNA, obtaining regulatory
approvals, product manufacturing and marketing.
9
<PAGE>
Accordingly, our competitors may be able to develop technologies and
products more easily which would render our technologies and products and those
of our collaborators obsolete and noncompetitive.
Any Inability to Adequately Protect Our Proprietary Technologies Could Harm Our
Competitive Position.
Our success will depend in part on our ability to obtain patents and
maintain adequate protection of our other intellectual property for our
technologies and products in the U.S. and other countries. If we do not
adequately protect our intellectual property, competitors may be able to
practice our technologies and erode our competitive advantage. The laws of some
foreign countries do not protect proprietary rights to the same extent as the
laws of the U.S., and many companies have encountered significant problems in
protecting their proprietary rights in these foreign countries. These problems
can be caused by, for example, a lack of rules and methods for defending
intellectual property rights.
The patent positions of biopharmaceutical and biotechnology companies,
including our patent position, are generally uncertain and involve complex
legal and factual questions. We will be able to protect our proprietary rights
from unauthorized use by third parties only to the extent that our proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. We will apply for patents covering both our
technologies and products as we deem appropriate. However, these applications
may be challenged and may not result in issued patents. Our existing patents
and any future patents we obtain may not be sufficiently broad to prevent
others from practicing our technologies or from developing competing products.
Furthermore, others may independently develop similar or alternative
technologies or design around our patented technologies. In addition, others
may challenge or invalidate our patents, or our patents may fail to provide us
with any competitive advantages.
We rely upon trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information. These measures may not provide adequate protection for our trade
secrets or other proprietary information. We seek to protect our proprietary
information by entering into confidentiality agreements with employees,
collaborators and consultants. Nevertheless, employees, collaborators or
consultants may still disclose our proprietary information, and we may not be
able to meaningfully protect our trade secrets. In addition, others may
independently develop substantially equivalent proprietary information or
techniques or otherwise gain access to our trade secrets.
Litigation or Other Proceedings or Third Party Claims of Intellectual Property
Infringement Could Require Us to Spend Time and Money and Could Shut Down Some
of Our Operations.
Our commercial success depends in part on neither infringing patents and
proprietary rights of third parties, nor breaching any licenses that we have
entered into with regard to our technologies and products. Others have filed,
and in the future are likely to file, patent applications covering genes or
gene fragments which we may wish to utilize with our MolecularBreeding
technologies, or products that are similar to products developed with the use
of our MolecularBreeding technologies. If these patent applications result in
issued patents and we wish to use the claimed technology, we would need to
obtain a license from the third party.
Third parties may assert that we are employing their proprietary technology
without authorization. In addition, third parties may obtain patents in the
future and claim that use of our technologies infringes these patents. We could
incur substantial costs and diversion of management and technical personnel in
defending ourselves against any of these claims or enforcing our patents
against others. Furthermore, parties making claims against us may be able to
obtain injunctive or other equitable relief which could effectively block our
ability to further develop, commercialize and sell products, and could result
in the award of substantial damages against us. In the event of a successful
claim of infringement against us, we may be required to pay damages and obtain
one or more licenses from third parties. We may not be able to obtain these
licenses at a reasonable cost, if at all. In that event, we could encounter
delays in product
10
<PAGE>
introductions while we attempt to develop alternative methods or products.
Defense of any lawsuit or failure to obtain any of these licenses could prevent
us from commercializing available products.
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 the principal members of our management and
scientific staff, the loss of whose services might adversely impact the
achievement of our objectives. In addition, recruiting and retaining qualified
scientific personnel to perform future research and development work will be
critical to our success. 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. As a result,
competition for skilled personnel is intense, and the turnover rate can be
high. Although we believe we will be successful in attracting and retaining
qualified personnel, competition for experienced scientists from numerous
companies and academic and other research institutions may limit our ability to
do so on acceptable terms. Failure to attract and retain personnel would
prevent us from pursuing collaborations or developing our products or core
technologies.
Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel. The inability to acquire these services or to develop
this expertise could impair the growth, if any, of our business.
We Will Need Additional Capital in the Future. If Additional Capital 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 payments received under collaborative agreements and
government grants, the progress and scope of our collaborative and independent
research and development projects, and the filing, prosecution and enforcement
of patent claims.
Changes may also occur that would consume available capital resources
significantly sooner than we expect. We may be unable to raise sufficient
additional capital. If we fail to raise sufficient funds, we will have to
curtail or cease operations. 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 the next two years. 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.
Some of Our Programs Depend on Government Grants, Which May Be Withdrawn. The
Government Has License Rights to Technology Developed With Its Funds.
We have received and expect to continue to receive significant funds under
various U.S. government research and technology development programs. The
government may significantly reduce funding in the future for a number of
reasons. For example, some programs are subject to a yearly appropriations
process in Congress. Additionally, we may not receive funds under existing or
future grants because of budgeting constraints of the agency administering the
program. There can be no assurance that we will receive the entire funding
under our existing or future grants.
Our grants provide the U.S. government a non-exclusive, non-transferable
paid up license to practice for or on behalf of the U.S. inventions made with
federal funds. If the government exercises these rights, the U.S. government
could use these inventions and Maxygen's potential market could be reduced.
11
<PAGE>
Our Potential Therapeutic Products Are Subject to a Lengthy and Uncertain
Regulatory Process. If Our Potential Products Are Not Approved, We Will Not Be
Able to Commercialize Those Products.
The Food and Drug Administration must approve any vaccine or therapeutic
product before it can be marketed in the U.S. Before we can file a new drug
application or biologic license application with the FDA, the product candidate
must undergo extensive testing, including animal and human clinical trials,
which can take many years and require substantial expenditures. Data obtained
from such testing are susceptible to varying interpretations which could delay,
limit or prevent regulatory approval. In addition, changes in regulatory policy
for product approval during the period of product development and regulatory
agency review of each submitted new application or product license application
may cause delays or rejections. The regulatory process is expensive and time
consuming.
Because our products involve the application of new technologies and may be
based upon new therapeutic approaches, they may be subject to substantial
review by government regulatory authorities and, government regulatory
authorities may grant regulatory approvals more slowly for our products than
for products using more conventional technologies. We have not submitted an
application with the FDA or any other regulatory authority for any product
candidate, and neither the FDA nor any other regulatory authority has approved
any therapeutic product candidate developed with our MolecularBreeding
technologies for commercialization in the U.S. or elsewhere. We or any of our
collaborators may not be able to conduct clinical testing or obtain the
necessary approvals from the FDA or other regulatory authorities for our
products. The regulatory agencies of foreign governments must also approve our
therapeutic products before the products can be sold in those other countries.
Even after investing significant time and expenditures, we may not obtain
regulatory approval for our products. Even if we receive regulatory approval,
this approval may entail limitations on the indicated uses for which we can
market a product. Further, once regulatory approval is obtained, a marketed
product and its manufacturer are subject to continual review, and discovery of
previously unknown problems with a product or manufacturer may result in
restrictions on the product, manufacturer and manufacturing facility, including
withdrawal of the product from the market. In certain countries, regulatory
agencies also set or approve prices.
Laws May Limit Our Provision of Genetically Engineered Agricultural Products in
the Future. These Laws Could Reduce Our Ability to Sell These Products.
We may develop genetically engineered agricultural products. The field
testing, production and marketing of genetically engineered plants and plant
products are subject to federal, state, local and foreign governmental
regulation. Regulatory agencies administering existing or future regulations or
legislation may not allow us to produce and market our genetically engineered
products in a timely manner or under technically or commercially feasible
conditions. In addition, regulatory action or private litigation could result
in expenses, delays or other impediments to our product development programs or
the commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed
through genetic engineering as applied to foods developed through traditional
plant breeding. However, genetically engineered food products will be subject
to premarket review if these products raise safety questions or are deemed to
be food additives. Our products may be subject to lengthy FDA reviews and
unfavorable FDA determinations if they raise questions, are deemed to be food
additives, or if the FDA changes its policy.
The FDA has also announced in a policy statement that it will not require
that genetically engineered agricultural products be labeled as such, provided
that these products are as safe and have the same nutritional characteristics
as conventionally developed products. The FDA may reconsider or change its
labeling policies, or local or state authorities may enact labeling
requirements. Any such labeling requirements could reduce the demand for our
products.
12
<PAGE>
The U.S. Department of Agriculture prohibits genetically engineered plants
from being grown and transported except pursuant to an exemption, or under
strict controls. If our future products are not exempted by the USDA, it may be
impossible to sell such products.
Health Care Reform and Restrictions on Reimbursements May Limit Our Returns on
Pharmaceutical Products.
Our future products are expected to include pharmaceutical products. Our
ability and that of our collaborators to commercialize pharmaceutical products
developed with our MolecularBreeding technologies 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. Third-party payors are increasingly challenging the price
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there can be
no assurance 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.
Our Collaborations With Outside Scientists May Be Subject to Change Which Could
Limit Our Access to Their Expertise.
We work with scientific advisors and collaborators at academic and other
institutions. These scientists are not our employees and may have other
commitments that would limit their availability to us. Although our scientific
advisors generally agree not to do competing work, if a conflict of interest
between their work for us and their work for another entity arises, we may lose
their services. Although our scientific advisors and collaborators sign
agreements not to disclose our confidential information, it is possible that
certain of our valuable proprietary knowledge may become publicly known through
them.
We May Be Sued for Product Liability.
We may be held liable if any product we develop, or any product which is
made with the use or incorporation of, any of our technologies, causes injury
or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. These risks are inherent in the development of chemical,
agricultural and pharmaceutical products. Although we intend to obtain product
liability insurance, this insurance may be prohibitively expensive, or may not
fully cover our potential liabilities. Inability to obtain sufficient insurance
coverage at an acceptable cost or otherwise to protect against potential
product liability claims could prevent or inhibit the commercialization of
products developed by us or our collaborators. If we are sued for any injury
caused by our products, our liability could exceed our total assets.
We Use Hazardous Chemicals and Radioactive and Biological Materials in Our
Business. Any Claims Relating to Improper Handling, Storage or Disposal of
These Materials Could Be Time Consuming and Costly.
Our research and development processes involve the controlled use of
hazardous materials, including chemicals, radioactive and biological materials.
Some of these materials may be novel, including viruses with novel properties
and animal models for the study of viruses. Our operations also produce
hazardous waste products. Some of our work also involves the development of
novel viruses and viral animal models. We cannot eliminate the risk of
accidental contamination or discharge and any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials. We believe that
our current operations comply in all material respects with these laws and
regulations. We could be subject to civil damages in the event of an improper
or unauthorized release of, or exposure of individuals to, 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 believe that our current
operations comply in all material respects with applicable Environmental
Protection Agency regulations.
13
<PAGE>
In addition, certain of our collaborators are working with these types of
hazardous materials in connection with our collaborations. To our knowledge,
the work is performed in accordance with biosafety regulations. In the event
of a lawsuit or investigation, we could be held responsible for any injury
caused to persons or property by exposure to, or release of, these viruses and
hazardous materials. Further, under certain circumstances, we have agreed to
indemnify our collaborators against all damages and other liabilities arising
out of development activities or products produced in connection with these
collaborations.
Management May Invest or Spend the Proceeds of This Offering in Ways With
Which You May Not Agree and in Ways That May Not Yield a Return.
Management will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem such uses desirable, and our use of the
proceeds may not yield a significant return or any return at all. Management
intends to use a majority of the proceeds from this offering for research and
development, working capital and other general corporate purposes and to
finance potential acquisitions or investments. Because of the number and
variability of factors that determine our use of the net proceeds from this
offering, we cannot assure you that these uses will not vary substantially
from our currently planned uses. Pending these uses of the net proceeds from
this offering, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment grade and U.S. government securities.
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, or if developed, 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 will prevail later in the market. The stock market has experienced
significant price and volume fluctuations, and the market prices of technology
companies, particularly life science companies such as ours, without
consistent product revenues and earnings, have been highly volatile. You may
not be able to resell your shares at or above the initial public offering
price.
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.
We Expect that Our Quarterly Results of Operations Will Fluctuate, and This
Fluctuation Could Cause Our Stock Price to Decline, Causing Investor Losses.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. Some of the factors which could cause our
operating results to fluctuate include:
. expiration of 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 our products
which would result in royalties; and
. general and industry specific economic conditions, which may affect our
collaborators' research and development expenditures.
14
<PAGE>
A large portion of our expenses are relatively fixed, including expenses
for facilities, equipment and personnel. Accordingly, if revenues decline or do
not grow as anticipated due to expiration of research contracts or government
research grants, failure to obtain new contracts or other factors, we may not
be able to correspondingly reduce our operating expenses. In addition, we plan
to significantly increase operating expenses in 2000. Failure to achieve
anticipated levels of revenues could therefore significantly harm our operating
results for a particular fiscal period.
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.
Future Sales of Our Common Stock May Depress Our Stock Price.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be 29,410,568 shares of common stock
outstanding immediately after this offering, or 30,235,568 shares if the
representatives of the underwriters exercise their over-allotment option in
full. All of the shares sold in the offering will be freely transferable
without restriction or further registration under the Securities Act, except
for any shares purchased by our "affiliates," as defined in Rule 144 of the
Securities Act. The remaining 23,910,568 shares of common stock outstanding
will be "restricted securities" as defined in Rule 144. These shares may be
sold on the 181st day after the date of this prospectus without registration
under the Securities Act to the extent permitted by Rule 144 or other
exemptions under the Securities Act. See "Shares Eligible for Future Sale."
Some of Our Existing Stockholders Can Exert Control Over Us, and May Not Make
Decisions that Are in the Best Interests of All Stockholders.
After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) will together control approximately 51% of our
outstanding common stock, and Affymax Technologies N.V. will own approximately
23% of our outstanding common stock. As a result, these stockholders, if they
act together, and Affymax Technologies N.V. by itself, will be able to exert a
significant degree of influence over our management and affairs and over
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. In addition, this concentration
of ownership may delay or prevent a change in control of Maxygen and might
affect the market price of our common stock, even when a change may be in the
best interests of all stockholders. In addition, the interests of this
concentration of ownership may not always coincide with our interests or the
interests of other stockholders and accordingly, they could cause us to enter
into transactions or agreements which we would not otherwise consider.
If We Engage in Any Acquisition, We Will Incur a Variety of Costs, and We May
Never Realize the Anticipated Benefits of the Acquisition.
If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any transaction of
this sort, the process of integrating an acquired business, technology, service
or product may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of our business. Moreover, we may fail to realize the
anticipated benefits of any acquisition. Future acquisitions could reduce your
ownership in Maxygen and could cause us to incur debt, expose us to future
liabilities and result in amortization expenses related to goodwill and other
intangible assets.
15
<PAGE>
In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect the cost of making acquisitions or
of being acquired. For example, if these proposed changes become effective we
would likely have to record goodwill or other intangible assets that we would
amortize to earnings if we merge with another company. Such amortization would
adversely impact our future operating results. Further, accounting rule changes
that reduce the availability of write-offs of the value of in-process research
and development in connection with an acquisition could result in the
capitalization and amortization of these amounts which would negatively impact
results of operations in future periods.
Our Facilities Are Located Near Known Earthquake Fault Zones, and the
Occurrence of an Earthquake or Other Catastrophic Disaster Could Cause Damage
to Our Facilities and Equipment, Which Could Require Us to Cease or Curtail
Operations.
Our facilities are located in the San Francisco Bay Area near known
earthquake fault zones and are vulnerable to damage from earthquakes. In
October 1989 a major earthquake that caused significant property damage and a
number of fatalities struck this area. We are also vulnerable to damage from
other types of disasters, including fire, floods, power loss, communications
failures and similar events. If any disaster were to occur, our ability to
operate our business at our facilities would be seriously, or potentially
completely, impaired. In addition, the unique nature of our research activities
and of much of our equipment could make it difficult for us to recover from a
disaster. The insurance we maintain may not be adequate to cover our losses
resulting from disasters or other business interruptions.
As a New Investor, You Will Experience Immediate and Substantial Dilution.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution of $8.85 per share in pro forma net tangible
book value. If the holders of outstanding options or warrants exercise those
options or warrants, you will incur further dilution. See "Dilution."
If We, Our Customers or Our Suppliers Fail to Remedy Year 2000 Issues, Our
Research Programs Could Be Interrupted and Our Business and Operating Results
Could be Harmed.
If we, our customers, our providers of hardware and software or our third-
party computer network providers fail to remedy any Year 2000 issues, our
research programs could be interrupted. Any significant interruption in our
research would harm our operating results. Presently, we are unable to predict
whether an interruption is likely to occur, the duration of any interruption or
the effect an interruption would have on our future revenue.
We cannot guarantee that we will be able to identify and correct all Year
2000 problems on a timely basis. Similarly, we cannot guarantee that unknown or
unanticipated Year 2000 issues will not arise. As a result, Year 2000
compliance efforts may involve significant time and expense and the occurrence
of unknown, unanticipated or unremediated Year 2000 problems could harm our
business and operating results. We currently have no contingency plans to
address the risks associated with unremediated Year 2000 problems.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws that relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "intend," "potential" or
"continue" or the negative of these terms or other comparable terminology.
Examples of these forward-looking statements include, but are not limited to,
statements regarding the following: (1) our MolecularBreeding technologies and
processes, (2) our ability to realize commercially valuable discoveries in our
programs, (3) our intellectual property portfolio, (4) our business strategies
and plans and (5) our ability to develop products suitable for
commercialization. These statements are only predictions.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus or to conform these statements to
actual results.
USE OF PROCEEDS
We expect to receive net proceeds from the sale of the 5,500,000 shares of
common stock of approximately $70,610,000 at an assumed initial public offering
price of $14.00 per share (approximately $81,351,500 if the underwriters' over-
allotment option is exercised in full), after deducting the estimated
underwriting discounts and offering expenses payable by us.
We intend to use the net proceeds of the offering for research and
development, working capital and other general corporate purposes and capital
expenditures. 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 and
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
will invest the net proceeds in short-term, interest-bearing 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>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the net proceeds from the issuance in
October and November 1999 of 1,846,707 shares of common stock upon the
exercise of stock options for $180,000 of full-recourse promissory notes
and $687,000 in cash, and the automatic conversion concurrent with the
closing of this offering, of all outstanding shares of preferred stock
into 11,898,031 shares of common stock; and
. on a pro forma as adjusted basis to reflect the sale of 5,500,000 shares
of common stock offered by this prospectus at an assumed initial public
offering price of $14.00 per share, after deducting the estimated
underwriting discounts and offering expenses payable by us.
The outstanding share information excludes 1,903,975 shares of common stock
issuable upon the exercise of outstanding options under our option plan with a
weighted average exercise price of $2.85 per share as of November 15, 1999. In
addition, the outstanding share information excludes 2,108,488 shares of
common stock reserved for issuance under our stock option and employee stock
purchase plans as of November 15, 1999.
This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Long-term obligations.......................... $ 1,159 $ 1,159 $ 1,159
-------- -------- --------
Stockholders' equity:..........................
Convertible preferred stock, $0.0001 par
value; 25,000,000 shares authorized;
11,898,031 shares issued and outstanding,
actual; no shares issued and outstanding pro
forma and pro forma as adjusted............. 1 -- --
Common stock, $0.0001 par value, 50,000,000
shares authorized; 10,165,830 shares issued
and outstanding, actual; 23,910,568 shares
issued and outstanding, pro forma;
29,410,568 shares issued and outstanding,
pro forma as adjusted....................... 1 2 2
Additional paid-in capital................... 71,217 72,084 142,694
Notes receivable from stockholders........... (971) (1,151) (1,151)
Deferred stock compensation.................. (17,046) (17,046) (17,046)
Accumulated deficit.......................... (19,613) (19,613) (19,613)
-------- -------- --------
Total stockholders' equity................... 33,589 34,276 104,886
-------- -------- --------
Total capitalization........................... $ 34,748 $ 35,435 $106,045
======== ======== ========
</TABLE>
18
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering.
The pro forma net tangible book value of Maxygen at September 30, 1999, was
$34.3 million, or $1.43 per share of common stock. Pro forma net tangible book
value per share represents total tangible assets less total liabilities,
divided by the number of outstanding shares of common stock after giving effect
to the issuance in October and November 1999 of 1,846,707 shares of common
stock upon the exercise of stock options for $180,000 of full-recourse
promissory notes and $687,000 in cash and to the conversion of all outstanding
shares of our preferred stock into 11,898,031 shares of common stock effective
automatically upon completion of the closing of this offering. After giving
effect to the sale of the 5,500,000 shares of common stock at an assumed
initial public offering price of $14.00 per share, and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, our pro forma as adjusted net tangible book value at September 30,
1999, would be $104.9 million or $3.57 per share. This represents an immediate
increase in the pro forma as adjusted net tangible book value of $2.14 per
share to existing stockholders and an immediate dilution of $10.43 per share to
new investors, or approximately 75% of the assumed offering price of $14.00 per
share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $14.00
Pro forma net tangible book value per share at September 30,
1999........................................................... $1.43
Increase per share attributable to this offering ............... 2.14
-----
Pro forma net tangible book value per share after this offering .. 3.57
------
Dilution per share to new investors............................... $10.43
======
</TABLE>
The following table shows on a pro forma as adjusted basis at September 30,
1999, after giving effect to the sale of the 5,500,000 shares of common stock
at an assumed initial public offering price of $14.00 per share, before
deducting estimated underwriting discounts and commissions and estimated
offering expenses, the total consideration paid to us and the average price
paid per share by existing stockholders and by new investors purchasing common
stock in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ------------------------- Price
Number Percentage Amount Percentage Per Share
---------- ---------- -------------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Existing stockholders... 23,910,568 81.3% $ 49,963 39.4% $ 2.09
New investors........... 5,500,000 18.7 77,000 60.6 14.00
---------- ----- -------- -----
Total................. 29,410,568 100.0% $126,963 100.0%
========== ===== ======== =====
</TABLE>
The computations in the table above assume no exercise of any stock options
outstanding at November 15, 1999. As of November 15, 1999, there were options
outstanding to purchase a total of 1,903,975 shares of common stock at a
weighted average exercise price of $2.85 per share. If any of these options are
exercised, there will be further dilution to new public investors.
19
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1997 and
1998 and for the nine month period ended September 30, 1999 and the balance
sheet data as of December 31, 1997 and 1998 and September 30, 1999 are derived
from our financial statements, which have been audited by Ernst & Young LLP,
independent auditors and are included elsewhere in this prospectus. The
financial data for the nine months ended September 30, 1998 are derived from
unaudited financial statements included elsewhere in this prospectus. We have
prepared this unaudited information on the same basis as the audited financial
statements and have included all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
our financial position and operating results for such periods. When you read
this selected financial data, it is important that you also read the historical
financial statements and related notes included in this prospectus, as well as
the section of this prospectus related to "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Historical results are not
necessarily indicative of future results. See Note 1 of Notes to Financial
Statements for an explanation of the method used to determine the number of
shares used in computing pro forma net loss per share. See Note 8 to Financial
Statements for information concerning the deemed dividend upon issuance of
convertible preferred stock in August 1999.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended September
December 31, 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Statement Of Operations Data:
Collaborative research and development
revenue.................................. $341 $1,077 $729 $6,068
Grant revenue............................. -- 1,646 1,090 3,625
------- ------- ------- -------
Total revenues............................ 341 2,723 1,819 9,693
Operating expenses:
Research and development................ 3,074 7,858 5,229 12,897
General and administrative.............. 1,461 3,920 2,313 4,333
------- ------- ------- -------
Total operating expenses.................. 4,535 11,778 7,542 17,230
------- ------- ------- -------
Loss from operations...................... (4,194) (9,055) (5,723) (7,537)
Net interest income....................... 161 229 75 783
------- ------- ------- -------
Net loss.................................. $(4,033) $(8,826) $(5,648) $(6,754)
Deemed dividend upon issuance of
convertible preferred stock.............. -- -- -- (2,200)
------- ------- ------- -------
Net loss attributable to common
stockholders............................. $(4,033) $(8,826) $(5,648) $(8,954)
Basic and diluted net loss per share...... $(0.82) $(1.31) $ (1.54) $(1.15)
======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share....................... 4,917 6,748 3,679 7,778
Pro forma basic and diluted net loss per
share.................................... $(0.75) $(0.53)
======= =======
Shares used in computing pro forma basic
and diluted net loss per share........... 11,762 17,028
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
------- -------- -------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $2,693 $15,306 $36,120
Working capital................................ 2,152 12,264 32,268
Total assets................................... 3,154 17,600 43,458
Accumulated deficit............................ (4,033) (12,859) (19,613)
Total stockholders' equity..................... 2,571 11,700 33,589
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that are based
upon current expectations. These forward-looking statements fall within the
meaning of the federal securities laws that relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "intend," "potential" or
"continue" or the negative of these terms or other comparable terminology.
Forward-looking statements involve risks and uncertainties. Our actual results
and the timing of events could differ materially from those anticipated in our
forward-looking statements as a result of many factors, including those set
forth under "Risk Factors" and elsewhere in this prospectus.
Overview
Maxygen was founded in May 1996 and began operations in March 1997. To
date, we have generated revenues from research collaborations with large
agriculture and chemical companies and from government grants. Our current
collaborators are Novo Nordisk, DuPont/Pioneer Hi-Bred, AstraZeneca and DSM.
Our government grants are from the Defense Advanced Research Projects Agency
and the National Institute of Standards and Technology-Advanced Technology
Program.
We have invested heavily in establishing our MolecularBreeding
technologies. These investments contributed to revenue increases from $341,000
in 1997 to $2.7 million in 1998 and $9.7 million in the nine months ended
September 30, 1999. Our total headcount increased from 20 employees at the end
of fiscal 1997 to 74 employees at the end of fiscal 1998 and to 109 employees
at September 30, 1999 of whom 80% were engaged in research and development.
Research and development consisted of work for collaborators, government grant
agencies and work advancing our core technologies.
We have incurred significant losses since our inception. As of September
30, 1999, our accumulated deficit was $19.6 million and total stockholders'
equity was $33.6 million. Operating expenses increased from $4.5 million in
fiscal 1997, to $11.8 million in fiscal 1998 and to $17.2 million for the nine
months ended September 30, 1999. We expect to incur additional operating losses
over at least the next several years as we continue to expand our research and
development efforts and infrastructure.
Source of Revenue and Revenue Recognition Policy
We recognize revenues from research collaboration agreements as earned upon
achievement of the performance requirements of the agreements. Revenue related
to grant agreements is recognized as related research and development expenses
are incurred. Our existing corporate collaboration agreements with
DuPont/Pioneer Hi-Bred and AstraZeneca provide for research funding for a
specified number of full time researchers working in defined research programs.
Revenue related to these payments is earned as the related research work is
performed. In addition, our collaborators make technology advancement payments
which are intended to fund development of our core technology, as opposed to a
defined research program. These payments are recognized ratably over the
applicable funding period. Payments received that are related to future
performance are deferred and recognized as revenue as the performance
requirements are achieved. As of September 30, 1999, we have deferred revenues
of approximately $6.9 million. Our sources of potential revenue for the next
several years are likely to be research, technology advancement and milestone
payments under existing and possible future collaborative arrangements,
government research grants, and royalties from our collaborators based on
revenues received from any products commercialized under those agreements. See
Note 2 of Notes to Financial Statements.
Deferred Compensation
Deferred compensation for options granted to employees has been determined
as the difference between the deemed fair market value for financial reporting
purposes of our common stock on the date
21
<PAGE>
options were granted and the exercise price. Deferred compensation for options
granted to consultants has been determined in accordance with Statement of
Financial Accounting Standards No. 123 as the fair value of the equity
instruments issued. Deferred compensation for options granted to consultants is
periodically remeasured as the underlying options vest.
In connection with the grant of stock options to employees, we recorded
deferred stock compensation of approximately $17.0 million in the nine month
period ended September 30, 1999 and $2.6 million and $2.4 million in the fiscal
years ended December 31, 1997 and 1998 respectively. These amounts were
initially recorded as a component of stockholders' equity and are being
amortized as charges to operations over the vesting period of the options using
a graded vesting method. We recorded amortization of deferred compensation of
approximately $2.6 million for the nine months ended September 30, 1999 and
$863,000 and $1.6 million for the fiscal years ended December 31, 1997 and
1998, respectively. The amortization expense relates to options awarded to
employees in all operating expense categories. See Note 8 of Notes to Financial
Statements. We recorded additional deferred stock compensation of approximately
$2.5 million for additional stock option grants made in October and November
1999.
Results of Operations
Comparison of Nine Months Ended September 30, 1998 and 1999
Revenues
Our total revenues increased from $1.8 million for the nine months ended
September 30, 1998 to $9.7 million for the nine months ended September 30,
1999. This increase was due primarily to the addition of new research
collaborations with AstraZeneca and DuPont/Pioneer Hi-Bred, new government
grants and the expansion of existing government grants. Collaboration research
and development revenue and grant revenue accounted for 40% and 60%,
respectively, of total revenues for the nine months ended September 30, 1998,
and 63% and 37% of total revenues, for the nine months ended September 30,
1999, respectively.
Research and Development Expenses
Our research and development expenses consist primarily of salaries and
other personnel-related expenses, facility costs, supplies and depreciation of
facilities and laboratory equipment. Research and development expenses
increased 147% from $5.2 million for the nine months ended September 30, 1998
to $12.9 million for the nine months ended September 30, 1999. The increase was
due primarily to increased staffing and other personnel-related costs to
support our additional collaborative and internal research efforts. Also
included in research and development expenses is $783,000 related to the
acquisition of certain technology licenses from research institutions. The
technology is being used in research and development and has no alternative
future uses.
Research and development expenses represented 287% of total revenues for
the nine months ended September 30, 1998 and 133% of total revenues for the
nine months ended September 30, 1999. The decrease as a percentage of total
revenues was due primarily to the growth in our total revenues. We expect to
continue to devote substantial resources to research and development, and we
expect that research and development expenses will continue to increase in
absolute dollars.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel
costs for finance, human resources, business development, legal and general
management, as well as professional expenses, such as legal and accounting.
General and administrative expenses increased 87% from $2.3 million for the
22
<PAGE>
nine months ended September 30, 1998 to $4.3 million for the nine months ended
September 30, 1999. Expenses increased primarily due to increased staffing
necessary to manage and support our growth.
General and administrative expenses represented 127% of total revenues for
the nine months ended September 30, 1998 and 45% of total revenues for the nine
months ended September 30, 1999. The decrease as a percentage of our total
revenues was due primarily to the growth in our total revenues. We expect that
our general and administrative expenses will increase in absolute dollar
amounts as we expand our legal and accounting staff, add infrastructure and
incur additional costs related to being a public company, including directors'
and officers' insurance, investor relations programs and increased professional
fees.
Net Interest Income
Net interest income represents income earned on our cash and cash
equivalents. Interest income increased from $75,000 for the nine months ended
September 30, 1998 to $783,000 for the nine months ended September 30, 1999.
This increase was due to higher average cash balances.
We recorded a deemed dividend of $2.2 million in August 1999 upon the
issuance of Series E convertible preferred stock. At the date of issuance, we
believed the per share price of $6.25 represented the fair value of the
preferred stock and was in excess of the deemed fair value of our common stock.
Subsequent to the commencement of our initial public offering process, we re-
evaluated the deemed fair market value of our common stock as of August 1999
and determined it to be $9.00 per share. Accordingly, the incremental fair
value is deemed to be the equivalent of a preferred stock dividend. We recorded
the deemed dividend at the date of issuance by offsetting charges and credits
to additional paid in capital, without any effect on total stockholders'
equity. The amount increased the loss allocable to common stockholders, in the
calculation of basic net loss per share for the nine months ended September 30,
1999.
Provision for Income Taxes
We incurred net operating losses in the nine months ended September 30,
1998 and 1999, and consequently we did not pay any federal, state or foreign
income taxes. As of September 30, 1999, we had a federal net operating loss
carryforwards of approximately $11.9 million. We also had federal research and
development tax credit carryforwards of approximately $600,000. If not
utilized, the net operating losses and credit carryforwards will expire at
various dates beginning in 2011 through 2019. Utilization of the net operating
losses and credits may be subject to a substantial annual limitation due to the
change in the ownership provisions of the Internal Revenue Code of 1986, as
amended, and similar state provisions. The annual limitation may result in the
expiration of net operating losses and credits before utilization. See Note 9
of Notes to Financial Statements.
Comparison of Years Ended December 31, 1997 and 1998
Revenues
Our total revenues for fiscal 1997 and 1998 were $341,000 and $2.7 million,
respectively. The increase of $2.4 million was due primarily to the addition of
new research collaborations and government grants. Collaborative research and
development revenue accounted for 100% of total revenues in fiscal 1997.
Collaborative research and development revenue and grant revenue accounted for
40% and 60%, respectively, of total revenues in fiscal 1998.
Research and Development Expenses
Research and development expenses increased from $3.1 million in fiscal
1997 to $7.9 million in fiscal 1998. The increase was due primarily to
increased staffing and other personnel-related costs. Research and development
expenses represented 901% and 289% of total revenues in fiscal 1997 and 1998,
respectively. The decrease as a percentage of total revenues was due primarily
to the growth in our total revenues.
23
<PAGE>
General and Administrative Expenses
General and administrative expenses increased from $1.5 million in fiscal
1997 to $3.9 million in fiscal 1998. Expenses increased in each period due
primarily to increased staffing and personnel-related costs resulting from
additional staffing necessary to manage and support our growth. General and
administrative expenses represented 428% of total revenues for fiscal 1997 and
144% of total revenues for fiscal 1998. The decrease as a percentage of our
total revenues was due primarily to the growth in our total revenues.
Net Interest Income
Net interest income was $161,000 in fiscal 1997 and $229,000 in fiscal
1998. Changes in interest income were due primarily to changes in our average
cash balances during these periods.
Provision for Income Taxes
We incurred net operating losses in fiscal 1997 and 1998 and consequently
we did not pay any federal, state or foreign income taxes.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
placements of preferred stock, totaling $46.5 million and research and
development funding from collaborators and government grants. As of September
30, 1999, we had $36.1 million in cash and cash equivalents and $800,000
available under an equipment financing line of credit.
Our operating activities used cash of $2.6 million and $2.7 million in
fiscal 1997 and 1998, respectively, and $4.4 million and $1.4 million in the
nine months ended September 30, 1998 and 1999, respectively. Uses of cash in
operating activities were primarily to fund net operating losses offset by
receipt of funding from collaborators which has been deferred.
Additions of property and equipment were $459,000 and $760,000 in fiscal
1997 and 1998, respectively, and $683,000 and $4.0 million in the nine months
ended September 30, 1998 and 1999, respectively. We expect to continue to make
significant investments in the purchase of property and equipment to support
our expanding operations. We may use a portion of our cash to acquire or invest
in complementary businesses, products or technologies, or to obtain the right
to use such complementary technologies.
Financing activities provided cash of $5.7 million and $16.1 million in
fiscal 1997 and 1998, respectively, and $11.1 million and $26.3 million in the
nine months ended September 30, 1998 and 1999, respectively. These amounts are
the proceeds we received from the sale of preferred stock, net of issuance
costs, and proceeds from the sale of common stock.
We expect cash flows from our corporate collaborators for the funding of
research and technology advancement to total $10.8 million in both 2000 and
2001 and up to this amount in 2002 and 2003 if our collaboration with
DuPont/Pioneer Hi-Bred extends to a fourth and fifth year. DuPont/Pioneer Hi-
Bred may terminate the agreement after three years, upon six months notice if a
specified milestone has not been met. The above amounts include $1 million
annually of technology advancement funding from AstraZeneca. In lieu of making
this payment, AstraZeneca can elect to purchase $3 million of our equity
securities at a 50% premium to the fair value of the securities on the date of
issuance. Cash flows from government grants are determined by the expenses
incurred by the Company. Total remaining committed grant funding amounts to
$21.8 million through fiscal 2002; however some grant programs are subject to a
yearly appropriations process in Congress and we may not receive funds under
existing grants because of budgeting constraints of the agency administering
the program.
24
<PAGE>
We believe that the net proceeds from this offering, together with our
current cash balances and funding received from collaborators and government
grants will be sufficient to satisfy our anticipated cash needs for working
capital and capital expenditures for at least the next 24 months. However, it
is possible that we will seek additional financing within this timeframe. We
may raise additional funds through public or private financing, collaborative
relationships or other arrangements. We cannot assure you that additional
funding, if sought, will be available on terms favorable to us. Further, any
additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Our failure to
raise capital when needed may harm our business and operating results.
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.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using such computer programs or hardware,
including, among other things, a temporary inability to process research data,
send invoices or engage in normal business activities. As a result, many
companies' computer systems may need to be upgraded or replaced in order to
avoid "Year 2000" issues.
State of Readiness
We completed an assessment of our information technology systems for year
2000 problems in June 1999. Our information technology group coordinated a
program to assess and document all other systems.
We are a relatively new enterprise and therefore a majority of the computer
hardware and software we use to operate our business has been acquired within
the past 30 months. While this itself is not protection against Year 2000
issues, it is a factor to consider when comparing the efforts required to
achieve Year 2000 readiness against other enterprises with older legacy
systems.
Our approach was to prioritize a comprehensive list of all systems on the
basis of their importance to the operation of our business. Working from this
list, we would:
. obtain documentation from third party vendors as to their Year 2000
compliance testing and recommendations;
. devise a review and testing plan for all internal systems;
. conduct the review and testing;
. assess any necessary follow-on actions or remediation required; and
. execute the measures identified.
Principally because information from third party hardware and software
vendors has continued to change throughout this year, we have determined that
an additional set of compliance tests are prudent. We conducted a final review
process of all systems in October 1999. Based on the continuing release of
information and recommended remediation activities from the principal vendor
of our enterprise productivity software, Microsoft, we expect to continue to
be required to make changes to our server software throughout the remainder of
1999.
25
<PAGE>
Budget
To date we have incurred expenses relating to Year 2000 compliance of less
than $10,000. We do not expect the remaining planned work to exceed $15,000.
These costs have been included in the operating expenses of 1999.
Reasonably Likely Worst Case Scenario
If we, our customers, our providers of hardware and software or our third-
party computer network providers fail to remedy any Year 2000 issues, the
reasonably likely worst case scenario would be the interruption of our research
programs, which could have a material adverse affect on our business, financial
conditions and results of operations. Presently we are unable to quantitatively
estimate the duration and extent of any such interruption, or estimate the
effect such interruption may have on our future revenue. However, we believe
that the impact of any Year 2000 issue on our research operations will be
limited to the ongoing execution of new experiments. We do not expect that any
historical data will be affected.
Contingency Plans
We do not believe that we will need to implement a Year 2000 contingency
plan. We expect to complete our Year 2000 plan in November 1999. The effort
required to complete the plan is minimal. Therefore, we believe that we can
complete the planned work within this timeframe. Additionally, we may implement
a company-wide system shutdown on December 31, 1999 and a controlled startup by
the information technology organization on January 2, 2000 prior to the opening
of business on January 3, 2000. This will allow us to immediately identify and
address any issues.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which will be effective for our fiscal
year 2001. This Statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded on the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS 133 is not anticipated
to have a significant impact on our operating results or financial condition
when adopted, since we currently do not engage in hedging activities.
26
<PAGE>
BUSINESS
Overview
We believe that we are the leader in the emerging field of directed
molecular evolution, the process by which new, modified genes are generated for
specific commercial uses. Our MolecularBreeding technologies bring together
advances in molecular biology and classical breeding, while capitalizing on the
large amount of genetic information being generated by government, academic and
commercial laboratories. Our principal objective is to maximize the value of
our MolecularBreeding technologies through the development of multiple products
in a broad range of industries including agriculture, chemicals and human
therapeutics.
We have established strategic alliances with recognized leaders in our
target industries and with U.S. government agencies. To date, our corporate
collaborators include Novo Nordisk in the area of industrial enzymes,
DuPont/Pioneer Hi-Bred and AstraZeneca in agriculture and DSM in antibiotic
manufacturing. Our government grants are from the Defense Advanced Research
Projects Agency (DARPA) and the National Institute of Standards and Technology-
Advanced Technology Program (NIST-ATP) primarily for the development of
vaccines and the advancement of our MolecularBreeding technologies. Committed
funding from our commercial collaborators and grant agencies totals over $94
million. We may additionally receive over $145 million in milestone payments
based on the accomplishment of specific performance criteria, as well as
royalties on product sales.
We will continue to establish strategic collaborations with recognized
leaders in several of our target industries and with U.S. government agencies.
We plan to retain significant rights to develop and market products arising
from our funded strategic collaborations. In addition, we will identify and
invest our own funds in certain specific areas and product opportunities with
the aim of capturing a high percentage of profits on product sales. We intend
to fully develop and exploit the breadth of opportunity which we believe can be
addressed by our MolecularBreeding technologies.
Background
Evolution and DNA
Evolution is the process by which living organisms adapt to their
environment. The first step of this process is sexual reproduction, which
creates a variety of physical characteristics that increase the diversity of a
population. Second, nature exerts a selective force on the individuals,
dictating which characteristics will be favored and be passed to the next
generation. As a result of changing environmental and competitive pressures,
diversity may increase, leading to variation in the physical characteristics of
individuals and species adapted for specific environments.
The physical characteristics of an organism are determined by genetic
information inherited from the previous generation. This genetic information is
coded for by DNA, a molecule found in the cells of living organisms. DNA is
comprised of four different chemical bases called nucleotides. Human cells have
several billion nucleotides, the precise sequence of which determines the
content of the genetic information. DNA is organized into discrete units called
genes. Genes act alone or in combination to produce proteins, that not only
form the fabric of cells but also direct them to perform biological functions
which may in turn influence physical characteristics. Generally, the inherited
biological properties or physical characteristics of an organism change only
when the DNA in a gene is altered.
In summary, variations in genes provide the basis for inherited diversity
in a population, thus maximizing the opportunity for developing characteristics
optimally suited for a specific environment.
Mutation and Recombination
There are two predominant methods by which nature is able to change the
genetic information encoded by DNA to create diversity: mutation and
recombination.
27
<PAGE>
All organisms incur a certain number of mutations in their DNA as a result
of normal cellular processes or interactions with external environmental
factors such as radiation from sunlight. Mutation typically involves changes in
individual nucleotides and is essentially random. Almost all mutations are
harmful to the function of genes, but a very small percentage are beneficial
and may pass more broadly into the population.
Sexually reproducing organisms use recombination, a process that involves
the organized exchange and reassortment of large sections of DNA from their
parents. This process allows for new combinations of genes without disrupting
the function of the newly created genes. This has a significant impact on
physical characteristics and is the primary cause of diversity in a sexually
reproducing population.
Classical Breeding and Its Limitations
Without any knowledge of the genetic basis of evolution, humans have been
breeding crops and animals for over 4,000 years in the search for better
physical characteristics. All of the domestic breeds of farm animals and
horses, cereal crops, fruits, vegetables, crops for fiber, household pets, most
ornamental flowers and many other species represent the results of many
generations of selective breeding by humans. In all these cases, humans have
cross-bred crops or animals with the most desired physical characteristics to
produce improvements in the next generation. For example, modern corn now has a
dramatically higher yield than the wild strain of corn which produced very
small amounts of grain. This improvement probably began with ancient Inca
farmers continually selecting, breeding and propagating the most robust seed
corn. This is known as classical breeding.
In the 19th century, advances in biology led to a better understanding of
the basis of heredity. The discovery of the structure of DNA in 1953
subsequently led to the realization that genetic information was responsible
for physical characteristics and that its manipulation could further improve
the breeding process. In modern breeding, the DNA of offspring is often
sequenced to determine whether or not they are carrying undesirable genes. This
reduces the probability of breeding poor quality stock and increases the pace
of improvement.
Despite the improvements in classical breeding, this technique still has a
number of significant limitations. First, the process is extremely time
consuming, since the offspring must mature in order to determine if they carry
the desired characteristic. For example, this cycle takes several years in
cattle. Second, classical breeding can only be used to breed entire organisms
and cannot readily use genetic information to modify or select for specific
genes and the traits they represent. This limitation is compounded when
multiple genes encode the selected trait or when the simultaneous breeding of
multiple traits is desired. Thus, the scope of potential improvements
accessible by classical breeding is limited.
Modern Biotechnology and Its Current Limitations
The modern biotechnology industry was founded on the ability to isolate
genes from natural sources, and to make proteins from these genes for use in
production systems. Despite some notable exceptions, the majority of proteins
discovered by scientists and developed by the modern biotechnology industry
have not been commercially successful. Similarly, in the chemical industry,
most naturally occurring enzymes are not efficient or stable enough to be used
for manufacturing chemicals. The lack of product success is due in part to the
fact that the relevant proteins have not been evolved for commercial purposes.
In recent years, significant research efforts in biotechnology have focused
on identifying genes and elucidating their function. These efforts, which are
known as genomics, have been highly successful in identifying tens of thousands
of genes, but are limited in their ability to rapidly develop products. This
results from two primary causes. First, the genes identified by genomics have
not been evolved for commercial purposes. Second, once a gene has been
identified, a number of steps need to be completed before the genetic
information can be used for the development of products.
28
<PAGE>
Typical deficiencies of naturally occurring genes and proteins which limit
their commercial utility as therapeutic products include inappropriate
availability in the body, stability, difficulty and cost of manufacture, lack
of specificity, toxicity and other side effects. Similarly, in applications
such as agricultural biotechnology and chemical processes using enzymes as
catalysts, problems include the levels at which proteins can be made,
specificity, stability, efficiency of enzyme function under industrial
manufacturing conditions and purity. In addition, potential products with the
highest commercial value often result from the action of multiple genes or
multiple biological reactions and are difficult to optimize with modern
biotechnology techniques. Many biotechnology companies have abandoned or never
pursued development efforts with potential product candidates as a result of
the unsuitability of the native proteins for commercial uses.
One approach used by the traditional biotechnology industry to attempt to
improve genes for commercial purposes is random mutagenesis. This technique,
involving the random mutation of genes, usually results in harmful changes. In
addition, the low probability of randomly improving a gene or sequence of
complex biological reactions makes screening for positive changes prohibitively
expensive and time consuming.
A second approach, rational design, seeks to modify a gene to improve its
properties based on knowledge regarding how the structure of the gene
determines the function of its resultant protein. Fundamental research on the
mechanism of action of the relevant protein is pursued until the knowledge
gained allows a rational prediction of how to change the gene for desired
effect. This process requires many simplifying assumptions, is costly and time
intensive, and has been generally unsuccessful.
As such, genes and gene products are generally too complex to commercialize
using genomics, rational design, random mutagenesis or other current
technologies.
The Maxygen Solution
We have developed proprietary MolecularBreeding technologies that address
the limitations of classical breeding and traditional biotechnology by
maximizing DNA variation, which is known as genetic diversity, through directed
evolution at the molecular level. Maximizing genetic diversity increases the
opportunity for developing characteristics optimally suited for a specific
commercial purpose. Our MolecularBreeding technologies bring together advances
in molecular biology and classical breeding, while capitalizing on the wealth
of genetic information being developed by genomics. Our technologies are fast,
inexpensive, commercially focused and results oriented. Our approach, unlike
conventional approaches, requires minimal understanding of complex underlying
biological systems.
There are two components of our MolecularBreeding technologies. The first
is DNAShuffling, our proprietary process for recombining genes into a diverse
library of novel DNA sequences known as gene variants. The second is MaxyScan,
a series of proprietary screening capabilities for the selection of desired
commercial properties from the library of DNA sequences. The combination of
DNAShuffling and MaxyScan specialized screening enables us to identify new
products in a rapid, cost-effective manner.
Virtually any product or process that utilizes or could utilize DNA or
proteins can potentially be improved for optimal function using our
MolecularBreeding technologies. We are therefore applying our technologies to
evolve genes and proteins for use in fields as diverse as chemicals,
agriculture, vaccines and protein pharmaceuticals.
29
<PAGE>
We believe that our MolecularBreeding technologies provide distinctive
advantages over traditional biotechnology, as summarized in the following
table.
Advantages of Maxygen's MolecularBreeding Technologies
<TABLE>
<CAPTION>
Maxygen's
Modern MolecularBreeding
Characteristic Biotechnology Technologies
- ------------------------------------------------------------------------------
<S> <C> <C>
Time to generate lead product candidates several years weeks to months
- ------------------------------------------------------------------------------
Necessary understanding of the biological
processes underlying lead product
candidates yes no
- ------------------------------------------------------------------------------
Ability to optimally improve properties
for commercial applications no yes
- ------------------------------------------------------------------------------
Cost to generate lead product candidates high low
- ------------------------------------------------------------------------------
Amount of resulting genetic diversity limited virtually unlimited
</TABLE>
30
<PAGE>
Maxygen's MolecularBreeding Technologies
Our technologies mimic the natural events of evolution. First, genes are
subjected to DNAShuffling, generating a diverse library of gene variants.
Second, our proprietary MaxyScan screening systems select individual proteins
from the gene variants in the library. The proteins that show improvements in
the desired characteristics become the initial lead candidates. After
confirmation of activity, the initial lead candidates are then used as the
genetic starting material for additional rounds of shuffling. Once the level of
improvement needed for the particular commercial application is achieved, the
group of lead candidates is moved forward to the product or process development
stage.
[MolecularBreeding Process Graphic]
Header: The MolecularBreeding Process
Description: Graphical illustration of the MolecularBreeding(TM) process
showing genes undergoing DNAshuffling and MaxyScan.
31
<PAGE>
Step One: DNAShuffling Technologies
Our DNAShuffling technologies work as follows: a single gene or multiple
genes are cleaved into fragments and recombined, creating a population of new
gene variants. The new genes created by DNAShuffling are then selected for one
or more desired characteristics. This selection process yields a population of
genes which becomes the starting point for the next cycle of recombination. As
with classical breeding, this process is repeated until genes expressing the
desired properties are identified.
DNAShuffling technologies can be used to evolve properties which are coded
for by single genes, multiple genes and entire genomes. By repeating the
process, DNAShuffling technologies ultimately generate libraries with a high
percentage of genes which have the desired function. Due to the high quality of
these libraries, a relatively small number of screening tests need to be
performed in order to identify gene variants with the desired commercial
qualities. This process significantly reduces the cost and time associated with
identifying multiple potential products.
Step Two: MaxyScan Screening
The ability to screen or select for a desired improvement in function is
essential to the effective development of a newer improved gene or protein. As
a result, we have invested significant resources in developing automated, rapid
screens and selection formats.
We have developed screening tests which can measure the production of
proteins or small molecules in culture without significant purification steps
or specific test reagents, thereby eliminating time-consuming steps required
for traditional screening tests. We are also focusing on the development of
reliable, cell-based screening tests that are predictive of specific functions
relevant to our human therapeutics programs. Accordingly, we continue to
develop new screening approaches and technologies. Our approach is to create
multitiered screening systems whereby we use a less sensitive screening test as
a first screen to quickly select proteins with the desired characteristics,
followed by a more sensitive screening test to confirm value in these variants
and to select for final lead product candidates. Unlike approaches that create
random diversity, MolecularBreeding produces potentially valuable libraries of
gene variants with a predominance of active genes with the desired function.
This allows us to use complex biological screens and formats as a final
screening test, as relatively few proteins must be screened to detect an
improvement in the starting gene activity.
We have access to multiple sources of genetic starting material. In
addition to the wealth of publicly available genetic sequence information, we
are able to access our collaborators' proprietary genes. Furthermore, we are
able to inexpensively obtain our own genetic starting material which, when
coupled with the DNAShuffling process, provides a virtually infinite amount of
new, proprietary gene variants with potential commercial value.
We use certain equipment and vendor software in conjunction with our
DNAShuffling technologies and MaxyScan technologies, but to date, have not used
internally developed software. We also use other software purchased from third
party vendors to a limited extent in our research and development activities.
Demonstrated Successes of MolecularBreeding in Multiple Applications
We have consistently achieved improvement in gene function using our
MolecularBreeding technologies. Impressive results have been demonstrated in
many different systems that have relevance to multiple commercial applications.
Our technologies have the ability to generate improvements that would be
difficult, costly, time intensive and, in many cases, impossible to achieve
using other methods. We have shown that we can achieve improved gene function
without a detailed understanding of the underlying complex biological
processes.
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For example, we have demonstrated our ability to improve genes that
increase the anti-viral activity of a protein and develop new enzymes which
have the potential to streamline chemical and pharmaceutical manufacturing
processes. In addition, we have improved the performance of subtilisin, one of
the most commercially valuable laundry detergent enzymes. Subtilisin is one of
the most highly studied enzymes which has been extensively modified to improve
its commercial properties. This example demonstrates the ability of
MolecularBreeding to achieve further improvements beyond the limits of modern
biotechnology. A summary of representative experiments published by our
scientists is set forth below.
<TABLE>
<CAPTION>
Example Property Activity Increase Publication
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(beta)-lactamase Increased antibiotic 32,000-fold Nature (1994)
resistance/enzyme activity
Antibody Increased expression level 100-fold Nature Medicine (1996)
Antibody Increased antibody/receptor >440-fold Nature Medicine (1996)
binding
Green fluorescent Increased fluorescence 45-fold Nature Biotechnology (1996)
protein
(beta)-galactosidase to Increase in activity 66-fold activity Proceedings of the
fucosidase National Academy of
Sciences (1997)
Increase in specificity 1,000-fold specificity
Arsenate pathway (3 Increased bacterial resistance 40-fold Nature Biotechnology (1997)
genes) to arsenate
Cephalosporinase family Increased antibiotic resistance 270-540-fold Nature (1998)
Subtilisin protease Simultaneous improvement 2 to 4 fold in Nature Biotechnology (1999)
in 3 properties 3 properties
Human (alpha)-interferon Increased activity as 285,000-fold Nature Biotechnology (1999)
family measured by antiviral activity
on mouse cells
HSV thymidine kinase Increased sensitivity to 32-fold Nature Biotechnology (1999)
family prodrug (AZT)
</TABLE>
The Maxygen Strategy
Our goal is to be the world leader in the commercialization of products and
processes developed using directed molecular evolution. There are four basic
elements to our business strategy:
Expand Our Proprietary Technology Leadership. In order to expand our
technology leadership, we will continue to develop our core MolecularBreeding
technologies by investing significantly in research and development. We will
license from others and acquire technologies that complement our core
capabilities. We will protect and build on our existing patent portfolio and
also rely on trade secrets to protect our proprietary technologies. We will
continue to recruit and collaborate with leaders in the field of directed
molecular evolution.
Expand Our Strategic Collaborations and Grants. We will continue to
establish strategic collaborations with leading companies in different
industries. We will also pursue additional grants from major U.S. government
agencies. Our goal is to benefit from the combined expertise of Maxygen and
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<PAGE>
our collaborators. Additionally, we seek to receive financial support from our
collaborators for research and development of products and for our core
technologies, as well as potential milestone and royalty payments on any
products commercialized.
Maximize Commercial Applications of Our Technologies. We plan to develop
multiple products for multiple industries. We believe we have short-, medium-
and long-term commercial opportunities in the chemicals, agriculture and
pharmaceutical industries. We believe our technologies have broad commercial
applications, including the development of new and improved pharmaceuticals and
vaccines, better agricultural products and more efficient chemical
manufacturing systems.
Retain Our Commercialization Rights. We have invested and plan to invest
our own funds in certain areas and product opportunities with the aim of
capturing a high percentage of profits on product sales.
Potential Fields of Application
We believe that our MolecularBreeding technologies can be applied to many
different industries. We can potentially improve virtually any product or
process that utilizes or could utilize DNA or proteins using our
MolecularBreeding technologies. Potential applications of MolecularBreeding
technologies include the development of new high-value products and the
improvement of existing products and manufacturing processes. We can
potentially use multiple approaches to develop products to solve complex
problems, including the following:
In Medicine
. New and improved treatments for major diseases such as cancer,
cardiovascular disease, diabetes and obesity.
. New vaccines to treat and prevent viral diseases such as hepatitis, AIDS
and emerging viral diseases and parasitic diseases such as malaria which
affect millions of people each year.
. Therapeutic vaccines and gene therapies to treat and prevent diseases
such as multiple sclerosis, allergies and cancer.
. New natural products for the development of better and cheaper
antibiotics to counter the spread of infectious organisms that have
developed a resistance to conventional antibiotics.
. New natural products as improved therapies for cancer.
. New gene therapies for treatments for hereditary diseases such as
hemophilia and cystic fibrosis.
In Agriculture and Food Production
. Crops with increased yields which require less fertilizers, herbicides or
insecticides.
. Plants which can thrive on land where they could not otherwise survive,
for example because of lack of water, high salt level or extreme
temperatures.
. Vaccines to treat and prevent diseases of farm animals.
. Nutritionally improved forms of food and animal feed.
. Food with increased health benefits.
In the Chemical Industry
. New, more cost-effective and more environmentally friendly production
systems for plastics, vitamins, pharmaceuticals, fibers and adhesives.
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. New materials such as fibers and plastics.
. Plants as factories for the cheaper and more environmentally friendly
production of substances such as plastics and pharmaceuticals.
In the Environmental and Energy Industries
. New systems for controlling pollution, such as novel processes for
reduction of carbon emissions and polluting effluents.
. Preparation of non-polluting and cleaner-burning energy sources.
. Removal of pollutants, such as sulphur, from oil and other fossil fuels.
Current Fields of Application
We are currently applying our MolecularBreeding technologies to high-value
opportunities in the fields of chemicals, agriculture, preventative and
therapeutic vaccines and protein pharmaceuticals.
Chemicals
The chemicals industry is comprised of three major segments: commodity,
specialty and fine chemicals. Together, 1998 sales in these segments exceeded
$800 billion. Within these segments, approximately $50 billion is readily
addressable by biological processing, for example, either by fermentation or
through the use of enzyme catalysts. An additional $200 billion has been
identified as potentially addressable by biological approaches within the next
10-20 years. Included in the potential market is the manufacturing of major
chemicals, plastics, vitamins, compounds used in the manufacture of
pharmaceuticals, enzymes for use as catalysts, the pigments and additives in
paint and the polymers and fibers in our clothing. Enzymes occurring in nature
are generally not able to meet the stringent activity requirements that would
allow for the broad commercial use of enzymes as catalysts.
We have demonstrated that MolecularBreeding technologies allow for the
creation of new modified enzymes for use as catalysts, and metabolic pathways
that overcome the limitations of naturally occurring enzymes. We are currently
generating libraries of proprietary enzymes for use as catalysts, which we
believe will offer a significant competitive advantage over existing chemical
catalysts. These enzymes could provide increased yields and decreased
manufacturing costs by a reduction in requirements for raw materials, capital
equipment and energy. In addition, we believe these enzyme catalysts will have
applicability in generating new useful materials.
We have established two collaborations in the chemical industry, one with
Novo Nordisk, the world's leading manufacturer of industrial enzymes, and
another with DSM, a leader in the production of bulk antibiotic products and
intermediates. Our partnership with Novo Nordisk was established in September
1997. Novo Nordisk had a market share of 45% of the industrial enzymes market
in 1998. The total industrial enzymes market (a segment of the chemicals
market) is estimated at $1.4 billion today, growing to over $3 billion by 2008.
Together with Novo Nordisk, we are applying our MolecularBreeding technologies
to the potential production of improved industrial enzymes. For example, we
have significantly improved multiple commercially relevant properties in
subtilisin, one of the most studied and highly modified industrial enzyme
products. Under the five-year agreement, Novo Nordisk will pay us royalties on
any sales of industrial enzyme products that are developed through our
MolecularBreeding technologies.
In March 1999, we commenced a three-year strategic collaboration with DSM
to evolve new enzymes for use in the manufacture of certain classes of
penicillin antibiotics. We are receiving research funding over the three-year
collaboration, and we will receive royalties from the implementation of any
evolved enzymes developed through our MolecularBreeding technologies.
In addition to the existing collaborations, we expect to pursue independent
development of high-value chemical products, as well as to enter into
additional strategic alliances with leading chemical companies.
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Agriculture
Today's agricultural biotechnology market is estimated at approximately $1
billion. It is expected to grow to approximately $6 billion by 2005. Over the
past decade, companies have used biotechnology to provide protection from
herbicides, diseases and pests, resulting in impressive increases in crop
yield.
The need for increased crop yield, the desire to move away from chemical
pesticides, and the determination of the DNA sequence have combined to provide
significant growth in agricultural biotechnology.
In addition to yield improvement, the agricultural industry is investing
heavily in biotechnology to develop crops with improved qualities such as
higher oil content and enhanced nutritional value for human food or animal
feed.
A third area of great market potential is the use of plants as "factories"
where the plant produces a substance that has commercial value, generally when
processed and separated from the plant and sold as a pure preparation. Plants
potentially can be used to manufacture pharmaceutical products and specialty or
fine chemicals.
We believe our MolecularBreeding technologies can be used to create
numerous commercial opportunities in crop protection and plant quality traits.
We are developing multiple commercial products for the agriculture industry
through commercial collaborations with two of the world's leading agriculture
companies, AstraZeneca and DuPont/Pioneer Hi-Bred. From these collaborations we
have committed funding of over $61 million and may receive milestone payments
of over $145 million based on the accomplishment of specific performance
criteria, as well as royalties on product sales. The AstraZeneca and
DuPont/Pioneer Hi-Bred collaborations fully fund our research and development
efforts under these collaborations, and provide us with a large portfolio of
potentially high-value gene products for the agricultural markets.
Together with our collaborators, we are currently working on a broad
portfolio of 12 potential products in areas of yield improvement and quality
traits. We have retained significant rights to develop and market certain
applications of the products resulting from the collaborations. In addition to
the existing collaborations, we are pursuing and expect to pursue independent
development of high-value agricultural products, and intend to enter into
additional strategic alliances with leading agriculture companies.
Preventative and Therapeutic Vaccines
Worldwide sales of vaccines in 1998 exceeded $4 billion and are expected to
exceed approximately $10 billion by 2005. Vaccines have been used for decades
to prevent the onset of infectious disease in humans and animals. The vaccine
market has the potential to increase dramatically for the following reasons:
. Many physicians recognize vaccines as the preferred therapy for numerous
infectious diseases given the increasing drug resistance of pathogens and
the inability to prevent or effectively treat traditional and newly
emerging viral infections.
. Researchers are investigating vaccines as treatments for cancer,
autoimmune diseases, allergy and other non-infectious diseases.
. Adults are increasingly using vaccines.
. Travelers from developed countries are increasingly using vaccines.
Vaccines are typically comprised of two elements: antigens, which are
components of the invading pathogen that are recognized by cells of the immune
system and trigger the body's defenses; and adjuvants, which are immune system
boosters. The limited ability of existing antigens and adjuvants to generate
the required immune responses has hindered the development of vaccines. We
believe that we can generate new modified vaccines that have the potential to
overcome the limitations of traditional vaccine development.
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We are building our research and development capabilities in the vaccine
area with the support of government grant funding and have retained full
commercialization rights, subject only to a license to the U.S. government as
required by applicable statutes and regulations. Total committed government
grant funding in the vaccine area is over $22 million.
We believe our MolecularBreeding technologies have the potential ability to
transform the design and development of vaccines through the identification of
new genes and proteins that allow for the generation of broad and strong immune
response. This would enable us to address both the treatment and prevention of
a wide variety of diseases including cancer, allergy, diseases in which the
body generates an improper immune response and infectious diseases such as AIDS
and hepatitis. We are developing a portfolio of products in the vaccine area,
including, for example, proprietary new improved antigens and adjuvants for
stimulating the immune system.
Protein Pharmaceuticals
In 1998, the worldwide sales of therapeutic proteins made using recombinant
DNA technology were approximately $17 billion, and are projected to reach
approximately $19 billion in 2000. Protein pharmaceutical products, such as
erythropoietin (1998 worldwide sales of $4 billion) and granulocyte colony
stimulating factor (1998 worldwide sales of over $1.6 billion) represent some
of the world's highest revenue pharmaceutical products. While some protein
pharmaceuticals containing naturally occurring proteins can address large
markets, many naturally occurring proteins are not well suited for
commercialization without modification. We believe that our MolecularBreeding
technologies provide the capabilities necessary to attain the improvements
suitable for commercial use.
Our MolecularBreeding technologies potentially can be applied to improve
existing pharmaceutical proteins, create superior second generation high-value
proteins with, for instance, improved stability, and create new proteins and
pioneer new therapies. Our MolecularBreeding technologies potentially can also
be applied to protein pharmaceuticals to improve desirable biological
activities, alter binding activity, and reduce harmful side effects and
toxicities.
The area of human therapeutics presents significant opportunity for us as
the rapid cloning and sequencing of the human genome is leading to the
identification of hundreds of new genes and proteins that potentially could be
optimized and developed as new protein pharmaceuticals. We are currently
working on a number of protein pharmaceuticals at the research stage. We are
pursuing a two-fold strategy to develop protein pharmaceuticals. First, we
intend to collaborate with leading pharmaceutical and biotechnology companies
and second, we are internally developing our own pharmaceutical product
pipeline for future collaboration opportunities, licensing to others or
independent commercialization.
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The following chart summarizes the current status of our commercially-
focused research projects. This table does not include our proof of principle
research focused publications.
Current Status of Commercially-Focused Research Projects
[CHART]
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Areas of Exploration
In addition to those areas described above, we will continue to evaluate
opportunities in fields such as antibody engineering, food and feed with
enhanced nutritional benefits, natural products, gene therapy, liquid fuels and
environmental applications. We are assessing these and other commercialization
opportunities through discussions with potential corporate and academic
collaborators and U.S. government agencies. In many instances, we have already
established initial technology development and proof of principle models.
Additional development may be funded through federal grants, corporate
collaborators or our own funds.
Antibodies
Our MolecularBreeding technologies potentially allow for the generation of
new antibodies with improved binding specificity for their targets and other
improved therapeutic properties for multiple diseases. In particular,
monoclonal antibodies, which originate from a single cell and that have
specificity for particular disease targets, are an important sector of the
biotechnology industry representing over 20% of all biopharmaceutical products
in development. The FDA has recently approved for commercial sale several
antibodies, including Genentech's Herceptin(R) and Novartis' Simulect(R), which
have potential utility in a broad range of diseases.
Nutritional Compounds
We believe that our technologies may be applied to individual genes, gene
families and entire complex biological pathways to develop foods, nutritional
supplements and animal feed with improved health benefits. Specific
applications include vitamins, sweeteners, preservatives and cholesterol
lowering agents. These are potentially high-value products that are currently
receiving significant attention in both the food and pharmaceutical industries.
Natural Product Drug Discovery
Natural products and natural product derivatives represent approximately
80% of 1998 product sales in the areas of antibiotics and cancer therapies. We
may enter into collaborations with biotechnology and pharmaceutical companies
to generate new libraries of lead natural product compounds by modifying
enzymes and metabolic pathways through MolecularBreeding. We believe that new
enzymes and pathways created through MolecularBreeding may allow for the
generation of natural product variants in ways that are not feasible using
existing chemical synthesis methodologies. Our efforts could potentially create
new natural products with increased activity, stability, availability in the
body or specificity.
Gene Therapy
Gene therapy is an approach to treat or prevent certain diseases by
introducing therapeutic genes into target cells to produce specific proteins
that will elicit a desired therapeutic response. We believe that our
MolecularBreeding technologies are potentially well suited to the development
of gene delivery and cell-targeting systems that could improve current modes of
disease treatment and prevention. We have completed two internal programs that
demonstrate the technical feasibility of MolecularBreeding to improve the
properties of viral and non-viral gene therapy delivery methodologies.
Liquid Fuels and Environmental Uses
The depletion of fossil fuels and the effects of carbon dioxide emissions
on the environment have raised awareness of the need to develop alternative
fuels. Companies may employ our MolecularBreeding technologies to develop
biological systems that produce cleaner burning fuels, such as methanol and
ethanol, from alternative carbon sources, such as plant biomass and animal
waste rather than petroleum. Additionally, companies potentially could use our
MolecularBreeding technologies to develop systems containing enzymes for use as
catalysts that could capture carbon dioxide which would otherwise be released
into the environment, and potentially use the carbon dioxide to produce value-
added products, such as fertilizers, polymers and plastics and cleaner burning
fuels.
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Corporate Collaborations
Since inception, we have entered into strategic collaborations and several
additional proof of principle collaborations with commercial entities and have
received six grants from U.S. government agencies. Assuming our research
efforts for existing collaborations are expended for the full research term, we
have total committed funding of over $94 million, of which approximately $67
million is from our collaborators and $27 million from government funding. Of
these committed funds, we have earned approximately $13 million; additionally,
we have received $10 million in consideration of purchase of our equity. In
addition, potential milestone payments from our existing collaborations could
exceed $145 million based on the accomplishment of specific performance
criteria, in addition to earned royalties on product sales. We expect that
strategic collaborations and government grants will continue to be an important
element of our business strategy.
Our strategy in entering into strategic collaborations is to work with
leaders in their respective industries on specific research projects. Our
agreements grant to our strategic collaborators exclusive licenses under
intellectual property developed by us in the collaboration for specific
products for specific uses. Generally, we retain the right to work ourselves or
with others on projects outside the scope of the areas and projects which are
the subject of our collaborations.
In the chemicals area, where we have entered into research agreements with
Novo Nordisk for industrial enzymes and with DSM for enzymes for use in the
manufacture of penicillin, we retain the right to conduct other projects
ourselves or with third parties.
Even in those areas, such as agriculture, where we have entered into
research agreements with DuPont/Pioneer Hi-Bred and AstraZeneca for multiple
research projects relating to multiple crops and traits, we have the right to
use these same crops to conduct other projects and develop other products, as
well as the right to conduct projects using other crops.
In our strategic collaborations, in exchange for commercial licenses to the
products developed during the program in specified fields, we typically seek
initial license fees, collaborative research funding, technology advancement
funding, milestone payments for significant developments and royalties on
product sales.
We have entered into the following significant collaborations:
Novo Nordisk
In September 1997, we entered into a five year strategic collaboration with
Novo Nordisk A/S, the world's largest producer of industrial enzymes, for the
development and bulk production of specific industrial enzymes in fields such
as laundry detergents, leather processing and pulp and paper manufacturing.
Industrial enzymes are used for a broad spectrum of activities ranging from
food preparation, to detergents, to pulp and paper manufacturing. Industrial
enzymes today represent over a $1.4 billion market.
Novo Nordisk will use our MolecularBreeding technologies to generate new
industrial enzymes. In addition, Novo Nordisk has made a five year commitment
to contribute funding for the research and development of new directed
evolution technologies. Under the agreement, Novo Nordisk has an exclusive
royalty-bearing license to use our MolecularBreeding technologies to develop
proteins and enzymes for use in certain industrial enzyme fields. We have
received an exclusive royalty-free license to certain Novo Nordisk technologies
useful for the practice of MolecularBreeding in all fields outside the scope of
the collaboration, except the field of human and veterinary diagnostic and
therapeutic products, for which we received a co-exclusive license from Novo
Nordisk. Under this agreement, Novo Nordisk will pay us a royalty on the sales
of industrial enzyme products developed using our MolecularBreeding
technologies.
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DuPont/Pioneer Hi-Bred
In December 1998, we entered into a five year strategic collaboration with
Pioneer Hi-Bred International, Inc., a wholly-owned subsidiary of E.I. duPont
de Nemours and Company, to utilize our MolecularBreeding technologies to
generate new gene variants for use in the development of specific crop
protection and quality grain traits in corn, soybeans and certain other crops.
Under the terms of the agreement, in exchange for global commercialization
rights, DuPont/Pioneer Hi-Bred purchased $5 million of our preferred stock and
paid $2.5 million in initial license fees. In addition, DuPont/Pioneer Hi-Bred
has committed to pay us up to $27.5 million over five years for research and
technology development, as well as possible milestone payments of up to $45
million based on the accomplishment of specific performance criteria and
royalties on future product sales, if any. The agreement may be terminated by
DuPont/Pioneer Hi-Bred after three years, upon six months notice, if a
specified milestone has not been met.
DSM
In March 1999, we entered into a three year collaboration with Gist-
brocades N.V., a subsidiary of DSM N.V., to utilize our proprietary
MolecularBreeding technologies to develop certain new enzymes for use in the
manufacture of certain classes of penicillin antibiotics. Under the terms of
the agreement, in exchange for global commercialization rights, we will receive
research funding over three years and will receive royalties from the
commercialization of any enzymes developed through our MolecularBreeding
technologies.
AstraZeneca
In June 1999, we entered into a five year strategic collaboration with
Zeneca Limited, a wholly-owned subsidiary of AstraZeneca plc, to utilize our
MolecularBreeding technologies to improve the yield and quality of several of
AstraZeneca's strategic crops. AstraZeneca is one of the world's leading
agricultural companies. We have received $5 million in a preferred stock equity
investment and could receive up to $21.5 million for research and development
funding and technology advancement funding. We may receive over $100 million in
potential milestone payments based on the accomplishment of specific
performance criteria, in addition to royalties on product sales. In addition,
each year of the collaboration AstraZeneca has the right to substitute their
obligation to pay us $1 million in annual technology advancement funding with a
$3 million equity investment at a 50% premium to the current market value.
In addition to the above collaborations, we have entered into several proof
of principle collaborations with parties such as Abbott, Pfizer and Novartis.
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U.S. Government Grants
Government grants allow us to focus on key internal scientific programs. In
addition, we retain ownership of all intellectual property and commercial
rights generated during the project, subject to a non-exclusive, non-
transferable, paid-up license to practice for or on behalf of the U.S.
inventions made with federal funds which is retained by the U.S. government as
provided by the applicable statutes and regulations. We have obtained grant
funding of over $27 million, primarily for the development of vaccines and the
advancement of core technology, as outlined below.
Summary of Grants
<TABLE>
<CAPTION>
Granting Dollar
Area of Grant Agency Description Grant Date Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Improved Drug Testing NIST-ATP Use of MolecularBreeding Sept. 1997 $2.0 million
technologies to develop new screening
systems for use in accelerated
discovery and development of new
AIDS therapies and vaccines.
Evolution of Vectors DARPA Use of MolecularBreeding Feb. 1998 $5.6 million
technologies to evolve a new
generation of DNA vectors for
rapid and efficient delivery of
antigens for immunization.
Whole Genome Shuffling NIST-ATP Use of MolecularBreeding Oct. 1998 $1.2 million
technologies to develop new or
improved manufacturing processes.
Decontamination DARPA Use of MolecularBreeding Dec. 1998 $3.8 million
technologies to create
enzyme-based decontamination
compounds effective against pathogens.
New Therapeutic and DARPA Use of MolecularBreeding April 1999 $7.7 million
Preventative DNA technologies to generate
Vaccines new vaccines with a broad
spectrum of activity against
multiple strains of several
different pathogens.
Aerosol-Based Vaccines DARPA Use of MolecularBreeding Sept. 1999 $6.8 million
technologies to deliver
aerosol-based preventative and
therapeutic agents.
</TABLE>
Intellectual Property and Technology Licenses
Pursuant to the technology transfer agreement we entered into with Affymax
Technologies N.V. and Glaxo Group Limited, each a wholly-owned subsidiary of
Glaxo Wellcome plc, we were assigned all rights to the patents, applications
and know-how related to MolecularBreeding technologies. Affymetrix, Inc.
retains an exclusive, royalty-free license under the patents and patent
applications previously owned by Affymax for use in the diagnostics and
research supply markets for specific applications. In addition, Affymax
assigned jointly to us and to Affymetrix a family of patent applications
relating to circular PCR techniques.
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We have an extensive patent portfolio including five issued U.S. patents
relating to our proprietary MolecularBreeding technology. Counterpart
applications of these U.S. patents are pending in other major industrialized
countries. We have an additional 77 pending U.S. patent applications and 63
pending foreign and international counterpart applications relating to our
MolecularBreeding technologies and specialized screening technologies, and the
application of these technologies to diverse industries including agriculture,
protein pharmaceuticals, vaccines, gene therapy, chemicals and therapeutic
drugs.
We have exclusively licensed patent rights and technology for specific uses
from Novo Nordisk, the California Institute of Technology, Stanford University
and the University of Washington. These licenses give us rights to an issued
U.S. patent, 10 U.S. patent applications, and 79 additional international or
foreign counterpart applications.
In addition, we received from Affymax a worldwide, non-exclusive license to
certain Affymax patent applications and patents related to technology for
displaying multiple diverse proteins on the surface of bacterial viruses.
Competition
We believe we are the leader in the field of directed molecular evolution.
We are aware that companies such as Diversa and Ixsys have alternative methods
for obtaining genetic diversity. Academic institutions such as Caltech and the
University of Washington are working in this field, and we have licensed
certain technology from Caltech and the University of Washington. In the
future, we expect the field to become highly competitive and that companies and
academic and research institutions will seek to develop technologies that could
be competitive with our MolecularBreeding technologies.
Any products that we may develop through our MolecularBreeding technologies
will compete in highly competitive markets. Many of our potential competitors
in these markets have substantially greater financial, technical and personnel
resources than we do, and we cannot assure you that they will not succeed in
developing technologies and products that would render our technologies and
products or those of our collaborators obsolete or noncompetitive. In addition,
many of those competitors have significantly greater experience than we do in
their respective fields.
Employees
As of November 15, 1999, we had 126 full-time employees, 59 of whom hold
Ph.D. or M.D. degrees and 88 of whom were engaged in full-time research
activities. We plan to expand our corporate development programs and hire
additional staff as corporate collaborations and government grants are
established. We continue to search for qualified individuals with
interdisciplinary training and flexibility to address the various aspects and
applications of our technologies. None of our employees are represented by a
labor union, and we consider our employee relations to be good.
Facilities
We lease an aggregate of 47,880 square feet of office and laboratory
facilities in Redwood City, California. The lease expires on February 24, 2005
with respect to 31,166 square feet and on March 31, 2002 with respect to 16,714
square feet. We have an option to extend the term of the lease for three years
with respect to the 16,714 square feet. We believe that the facilities we
currently lease are sufficient for approximately the next six months. We
believe we will require additional space thereafter and will seek additional
facilities.
Legal Proceedings
We are not currently a party to any material pending legal proceedings.
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MANAGEMENT
Directors and Executive Officers
Our directors and executive officers as of November 15, 1999 are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Russell J. Howard, Ph.D....... 49 Director, President and Chief Executive
Officer
Simba Gill, Ph.D.............. 35 Chief Financial Officer and Senior Vice
President of Business Development
Michael Rabson, Ph.D.......... 45 General Counsel and Senior Vice President
of Legal Affairs
Willem P.C. Stemmer, Ph.D. ... 42 Vice President of Research
John Bedbrook, Ph.D........... 50 President of Agriculture
Joseph Affholter, Ph.D. ...... 35 Vice President of Biocatalysis and
Chemicals
Howard A. Simon............... 40 Vice President of Human Resources
Norman Kruse, Ph.D............ 50 Director of Intellectual Property, Chief
Patent Counsel
Isaac Stein (1)(2)............ 53 Chairman of the Board and Director
Robert J. Glaser, M.D. (2).... 81 Director
M.R.C. Greenwood, Ph.D........ 56 Director
Adrian Hennah (1)............. 42 Director
Gordon Ringold, Ph.D. (1)(2).. 48 Director
George Poste, D.V.M., Ph.D.... 55 Director
Julian N. Stern............... 75 Secretary
</TABLE>
- --------
(1)Member of the audit and finance committee
(2)Member of the compensation committee
Russell J. Howard, Ph.D., has served as our President, Chief Executive
Officer and Director since June 1998 and is one of our co-founders. Dr. Howard
was elected our President and Chief Operating Officer in May 1997. Originally
trained in biochemistry and chemistry, Dr. Howard has spent over 20 years
studying infectious diseases, primarily malaria, and currently serves on the
National Institutes of Health and USAID advisory panels for malaria vaccine
development. Prior to joining Maxygen, Dr. Howard was from August 1994 to June
1996 the President and Scientific Director of Affymax Research Institute.
Simba Gill, Ph.D., joined us in July 1998 as the Chief Financial Officer
and Senior Vice President of Business Development. Prior to joining us, from
November 1996 to July 1998, Dr. Gill was at Megabios Corp. where he was Vice
President of Business Development. Prior to this from November 1995 to November
1996, Dr. Gill was Director of Business Development at Systemix. Prior to
joining Systemix, Dr. Gill worked at Boehringer Mannheim in a variety of
corporate functions including Global Product Manager for erythropoietin,
Manager of Corporate Business Development and Director of New Diagnostics
Program Management. Dr. Gill received his Ph.D. in immunology at King's
College, London University in collaboration with the U.K. biotechnology company
CellTech, and his M.B.A. from INSEAD in Fontainbleau, France.
Michael Rabson, Ph.D., joined us in September 1999 as Senior Vice President
of Legal Affairs and General Counsel. Prior to joining us from February 1996 to
September 1999, Dr. Rabson was a member of Wilson Sonsini Goodrich & Rosati,
P.C. Prior to becoming a member, Dr. Rabson was an associate at Wilson Sonsini
Goodrich & Rosati, P.C. Dr. Rabson received his Ph.D. in infectious disease
epidemiology from Yale University and did a post-doctoral fellowship at the
National Cancer Institute, National Institutes of Health. He was a patent
examiner at the U.S. Patent and Trademark Office before he received his J.D.
from Yale Law School.
Willem P.C. Stemmer, Ph.D., is one of our co-founders and the inventor of
MolecularBreeding. He has served as our Vice President of Research since March
1997. Dr. Stemmer's background is in medical genetics, where he originally
worked on antibody engineering for immunotherapy of cancer. Prior to the
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<PAGE>
organization of Maxygen, he was a distinguished scientist at Affymax Research
Institute from 1992 to 1996. He is a co-founder and board member of the
Diversity Biotechnology Consortium, a joint academic and business effort
focused on theoretical issues in molecular diversity and evolution. Dr. Stemmer
has pioneered our MolecularBreeding technologies and has authored more than 14
papers on the subject and is the named inventor on more than 20 patent
applications covering the technologies and, to date, five issued patents.
John Bedbrook, Ph.D., joined us in November 1999 as President of
Agriculture. Prior to this Dr. Bedbrook was Chief Executive Officer of Plant
Science Ventures since 1999 and Chief Technology Officer at SAVIA from February
1998 to October 1999. Prior to joining SAVIA, Dr. Bedbrook held several senior
management positions including Executive Vice President of Research and
Development and Co-President at DNA Plant Technology Corp. from 1988 to 1997.
Dr. Bedbrook also served as a Scientific Board Member and Director for many
organizations. Dr. Bedbrook received his Ph.D. in Molecular Biology from the
University of Auckland in New Zealand.
Joseph Affholter, Ph.D., joined us in April 1998 as Vice President of
Biocatalysis and Chemicals. Prior to joining us, Dr. Affholter was from 1997 to
1998 a member of the Biotechnology Steering Committee and from July 1996 to
March 1998 was the research leader of the biotechnology program at the Dow
Chemical Company. Prior to this, Dr. Affholter was the Project Leader of
industrial biocatalysis research and development. Dr. Affholter serves on a
number of academic and corporate technical advisory boards and has given
numerous invited seminars on the coming future impact of biotechnology on the
chemical industry. Dr. Affholter received his B.S. degree in chemistry from
Michigan Technological University and his Ph.D. in molecular pharmacology from
Stanford University.
Howard A. Simon joined us in November 1999 as Vice President of Human
Resources. Prior to joining us, from 1993 to November 1999 Mr. Simon was a
partner in the Labor, Employment and Benefits Law Group of Landels Ripley &
Diamond, LLP. Mr. Simon is a 1985 graduate of the Boalt Hall School of Law at
the University of California, Berkeley. Also in 1985, Mr. Simon received his
Master of Arts Degree with highest honors from the Graduate Theological Union
of Berkeley.
Norman Kruse, Ph.D., joined us in March 1998 as the Director of
Intellectual Property, Chief Patent Counsel. Prior to joining us, from December
1995 to February 1998, Dr. Kruse was a patent attorney at Chiron Corporation.
Dr. Kruse was a patent attorney at Townsend and Townsend and Crew from January
1993 to December 1995. Dr. Kruse received his Ph.D. in molecular biology from
the University of Washington and worked initially as a scientist and manager in
the diagnostics industry. Subsequently, he managed technology assessment and
acquisition for Triton Biosciences, during which time he obtained his J.D. from
Golden Gate University of Law in San Francisco.
Isaac Stein has served as our Chairman of the Board since June 1998 and a
director since May 1996 and is one of our co-founders. Since November 1982, Mr.
Stein has been president of Waverley Associates, Inc. a private investment
firm. Mr. Stein is also a Managing Member of Technogen Enterprises, L.L.C. and
Technogen Managers, L.L.C., which is the general partner of Technogen
Associates, L.P. and a director of ALZA Corporation, the Benham Group of mutual
funds and CV Therapeutics, Inc. He is also a trustee of Stanford University and
the Chairman of the Board of UCSF Stanford Health Care.
Robert J. Glaser, M.D., has served as our Director since September 1997.
Dr. Glaser was Director for Medical Science at the Lucille P. Markey Charitable
Trust from 1984 to June 1997, and a trustee from 1988 to June 1997. In
accordance with the donor's will, the Trust ceased operations in June 1997. Dr.
Glaser is also a director of ALZA Corporation and Hanger Orthopedic Group, Inc.
Dr. Glaser has held faculty appointments at several universities, including
Dean of the School of Medicine at Stanford University and Professor of Social
Medicine at Harvard University. Originally trained as an internist, Dr. Glaser
has 124 publications on streptococcal infections, rheumatic fever, medical
education and health care, as well as being a contributor to numerous
scientific treatises.
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<PAGE>
M.R.C. Greenwood, Ph.D., has served as our Director since February 1999.
Dr. Greenwood has been Chancellor of the University of California ("UC") at
Santa Cruz since July 1996. Prior to being named Chancellor of UC Santa Cruz,
Dr. Greenwood was Dean of Graduate Studies and Vice President at UC Davis from
July 1989 to July 1996. In addition, from November 1993 to May 1995, Dr.
Greenwood took a leave from UC Davis to serve as Associate Director for
Science in the White House Office of Science and Technology Policy. Dr.
Greenwood received her doctorate in physiology, developmental biology and
neurosciences from Rockefeller University.
Adrian Hennah has served as our Director since September 1997. Mr. Hennah
has held several key positions in the Glaxo Wellcome organization. He is
currently Senior Vice President and Chief Financial Officer of Glaxo Wellcome
Inc. Prior to that, Mr. Hennah had a range of responsibilities within research
and development including finance, business redesign and strategy process,
human resources and engineering, and he led the team coordinating the
integration of Glaxo and Wellcome. Mr. Hennah is also a Director of
Affymetrix. Mr. Hennah has a degree in law from Cambridge University and is a
Sloan Fellow of the London Business School.
Gordon Ringold, Ph.D., has served as our Director since September 1997.
Since March 1995, Dr. Ringold has been Chief Executive Officer and Scientific
Director of Affymax Research Institute where he manages the development of
novel technologies to accelerate the pace of drug discovery. Prior to serving
as Chief Executive Officer, Dr. Ringold was the President and Scientific
Director of Affymax Research Institute. Dr. Ringold received his Ph.D. in the
laboratory of Dr. Harold Varmus, prior to joining the Stanford University
School of Medicine, Department of Pharmacology, and serving as the Vice
President and Director of the Institute for Cancer and Development Biology of
Syntex Research. Dr. Ringold is a Managing Member of Technogen Enterprises,
L.L.C. and Technogen Managers, L.L.C., which is the general partner of
Technogen Associates, L.P. and has served as Chairman and Chief Executive
Officer of SurroMed, a biotechnology company focused on novel clinical
databases since 1997.
George Poste, D.V.M., Ph.D., has served as our Director since October 1999.
Dr. Poste has been Chief Science and Technology Officer at SmithKline Beecham
since January 1997 and is a member of the Board of Directors of SmithKline
Beecham. Prior to being appointed to Chief Science and Technology Officer, Dr.
Poste was President of Research and Development at SmithKline Beecham. Dr.
Poste is also a Research Professor at the University of Pennsylvania and holds
the William Pitt Fellowship at Pembroke College, Cambridge University. He is a
Board-certified pathologist and was awarded a D.Sc. for meritorious research
contributions by the University of Bristol in 1987. Dr. Poste received his
Doctorate in Veterinary Medicine in 1966 and his Ph.D. in Virology in 1969
from the University of Bristol.
Julian N. Stern, J.D., has served as our Secretary since March 1997. He is
the sole employee of a professional corporation that is a partner of the law
firm of Heller Ehrman White & McAuliffe and is a director of ALZA Corporation.
Scientific Advisory Board
The following individuals are members of our Scientific Advisory Board:
Baruch S. Blumberg, M.D., Ph.D., is a Distinguished Scientist at Fox Chase
Cancer Center, Philadelphia, and University Professor of Medicine and
Anthropology at the University of Pennsylvania. Dr. Blumberg's research has
covered many areas including clinical research, epidemiology, virology,
genetics and anthropology. Dr. Blumberg was awarded the Nobel Prize in 1976
for his work on infectious diseases and specifically for the discovery of the
hepatitis B virus and has also been elected to the National Inventors Hall of
Fame for similar work. Dr. Blumberg's research and insight into infectious
diseases are valuable to Maxygen programs related to vaccines and hepatitis B
in particular.
Arthur Kornberg, M.D., is an active Professor Emeritus at the Stanford
University School of Medicine, Department of Biochemistry. Dr. Kornberg has
received numerous accolades including several
46
<PAGE>
honorary degrees and awards, the National Medal of Science, and the Nobel Prize
in Medicine in 1959. He is a member of several prestigious scientific societies
and serves as a member of several scientific advisory boards. Dr. Kornberg's
years of research in enzymes and metabolism is a valuable contribution to
directing the internal research programs of Maxygen.
Joshua Lederberg, Ph.D., a research geneticist, is Professor Emeritus at
the Rockefeller University, in New York. Formerly, Dr. Lederberg was a
professor of genetics at the University of Wisconsin and at Stanford University
School of Medicine. Dr. Lederberg is a pioneer in the field of bacterial
genetics with the discovery of genetic recombination in bacteria, work for
which he received the Nobel Prize in Physiology and Medicine in 1958. Maxygen
is funding work in Dr. Lederberg's laboratory pertaining to the study of cell
fusion and the generation of genetically diverse recombinants. His work and
guidance in genetic recombination is important to our MolecularBreeding
technologies.
Alejandro C. Zaffaroni, Ph.D., is one of our co-founders. Dr. Zaffaroni is
a biochemist by training and a highly successful biotechnology entrepreneur,
who has co-founded and built several companies including ALZA Corporation, DNAX
Institute of Molecular and Cellular Biology, Affymax N.V. and Affymetrix, Inc.
Dr. Zaffaroni has repeatedly recognized the commercial value of leading-edge
technologies and has turned those visions into highly successful companies. In
1995, Dr. Zaffaroni was awarded the National Medal of Technology by President
Clinton in recognition of his contributions to the pharmaceutical and
biotechnology industries. Dr. Zaffaroni is a Managing Member of Technogen
Enterprises, L.L.C. and Technogen Managers, L.L.C., which is the general
partner of Technogen Associates, L.P.
Frances Arnold, Ph.D., is a Professor of Chemical Engineering and
Biochemistry at the California Institute of Technology. She received her Ph.D.
in Chemical Engineering from the University of California, Berkeley. She has
authored or co-authored more than 120 publications and has 18 patents issued or
pending. Dr. Arnold's research focuses on engineering new enzymes and pathways
by directing their evolution in the laboratory. Her awards include an Office of
Naval Research Young Investigator Award, a Presidential Young Investigator
Award and a David and Lucille Packard Fellowship in Science and Engineering.
Maxygen is funding work at Dr. Arnold's laboratory pertaining to directed
molecular evolution. Dr. Arnold provides on-going guidance in the field of
directed molecular evolution and its applications in the chemical industry.
Board Composition and Committees
We currently have seven directors.
Our board of directors currently has an audit committee and a compensation
committee. The audit committee consists of Adrian Hennah, Gordon Ringold and
Isaac Stein. The audit committee makes recommendations to the board of
directors regarding the selection of independent auditors, reviews the scope of
audit and other services by our independent auditors, reviews the accounting
principles and auditing practices and procedures to be used for our financial
statements and reviews the results of those audits. The compensation committee
consists of Robert J. Glaser, Gordon Ringold and Issac Stein. The compensation
committee makes recommendations to the board of directors regarding our stock
and compensation plans, approves compensation of certain officers and grants
stock options.
Compensation Committee Interlocks and Insider Participation Interlocks
None of the members of the compensation committee is currently, or has ever
been at any time since our formation, one of our officers or employees, nor has
served as a member of the board of directors or compensation committee of any
entity that has one or more officers serving as a member of our board of
directors or compensation committee.
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<PAGE>
In March 1998, Dr. Ringold executed a full recourse promissory note in the
amount of $99,000 in favor of Maxygen for the payment of the exercise price in
connection with the exercise of options to purchase 550,000 shares of our
common stock. In addition, in August 1998, Dr. Ringold purchased 16,667 shares
of Series B preferred stock at a purchase price of $3.00 per share. In March
1997, Mr. Stein issued a full recourse promissory note in the amount of
$120,000, of which $98,800 is outstanding, in favor of Maxygen in connection
with the purchase of 600,000 shares of our common stock. In addition, in August
1998, the Stein 1995 Revocable Trust, of which Mr. Stein is a trustee,
purchased 31,667 shares of Series B preferred stock at a price of $3.00 per
share and Stein Partners, of which Mr. Stein is a partner, purchased 41,667
shares of Series B preferred stock at a price of $3.00 per share.
Director Compensation
We reimburse our nonemployee directors for expenses incurred in connection
with attending board and committee meetings but do not compensate them for
their services as board or committee members. We have in the past granted
nonemployee directors options to purchase our common stock pursuant to the
terms of our stock plans, and our board continues to have the discretion to
grant options to new nonemployee directors. Beginning after our stockholders
meeting in 2000, our nonemployee directors will each receive nondiscretionary,
automatic grants of options to purchase 20,000 shares of our common stock upon
joining the board of directors and nondiscretionary, automatic grants of
options to purchase 5,000 shares of our common stock each year pursuant to the
1999 Nonemployee Directors Stock Option Plan.
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<PAGE>
Executive Compensation
The following table sets forth the compensation paid by us during 1998 to
our Chief Executive Officer and to our four other most highly compensated
executive officers who received salary and bonus compensation of more than
$100,000 during 1998. The following table also sets forth compensation
information about John Bedbrook and Michael Rabson, each of whom would have
been one of our four most highly compensated executive officers if they had
been employed by us in fiscal year 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Awards
Annual Compensation Securities
-------------------- Underlying All Other
Name and Position Year Salary Bonus Options Compensation
----------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Russell J. Howard............... 1998 $218,333 $ -- 200,000 $ --
President, Chief Executive
Officer and Director
Simba Gill(1)................... 1998 99,750 10,000 330,000 35,864(2)
Chief Financial Officer and
Senior Vice President of
Business Development
Michael Rabson(3)............... 1998 -- -- -- --
Senior Vice President of Legal
Affairs and General Counsel
Willem P.C. Stemmer............. 1998 136,667 -- -- --
Vice President of Research
John Bedbrook(4)................ 1998 -- -- -- --
President of Agriculture
Joseph Affholter(5)............. 1998 84,480 10,000 110,000 82,397(6)
Vice President of Biocatalysis
and Chemicals
Norman Kruse(7)................. 1998 118,767 10,000 87,500 114,808(8)
Director of Intellectual
Property, Chief Patent Counsel
</TABLE>
- --------
(1) Dr. Gill joined Maxygen in July 1998. His annual salary is $190,000.
(2) Consists of $35,864 for reimbursement of relocation expenses.
(3) Dr. Rabson joined Maxygen in September 1999. Dr. Rabson's annual salary is
currently $220,000.
(4) Dr. Bedbrook joined Maxygen in November 1999. Dr. Bedbrook's annual salary
is currently $212,500.
(5) Dr. Affholter joined Maxygen in May 1998. His annual salary is $135,960.
(6) Consists of $39,953 in the form of a housing allowance and $42,444 for
reimbursement of relocation expenses.
(7) Dr. Kruse joined Maxygen in March 1998. His annual salary is $144,200.
(8) Consists of $31,233 in the form of a housing allowance and $83,575 for
reimbursement of relocation expenses.
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<PAGE>
Stock Options Granted in the Fiscal Year Ended December 31, 1998
The following table sets forth information with respect to stock options
granted during the fiscal year ended December 31, 1998 to each of the named
executive officers. All options were granted under Maxygen's 1997 Stock Option
Plan. The following options are immediately exercisable in full at the date of
grant, but shares purchased on exercise of unvested options are subject to a
repurchase right in our favor that entitles us to repurchase unvested shares at
their original exercise price on termination of the employee's services with
us. The repurchase right lapses as to 25% of the shares on the first
anniversary of the grant date and the balance, ratably by year, over the next
three years.
The percentage of options granted is based on an aggregate of 1,537,120
options granted by Maxygen during the fiscal year ended December 31, 1998 to
our employees, including the named executive officers. The potential realizable
value amounts in the last two columns of the following chart represent
hypothetical gains that could be achieved for the respective options if
exercised at the end of the option term. The assumed 5% and 10% annual rates of
stock price appreciation from the date of grant to the end of the option term
are provided in accordance with rules of the SEC and do not represent our
estimate or projection of the future common stock price. Actual gains, if any,
on stock option exercises are dependent on the future performance of the common
stock, overall market conditions and the option holder's continued employment
through the vesting period.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential
Realizable
Value at
% of Assumed Annual
Total Rates of Stock
Options Price
Number of Granted Appreciation
Securities to Exercise for Option
Underlying Employees Price Terms
Options in Fiscal Per Expiration ---------------
Name Granted Year Share Date 5% 10%
---- ---------- --------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Russell J. Howard
President, Chief
Executive Officer and
Director............... 200,000 13.0% $0.30 6/16/08 $37,733 $95,624
Simba Gill
Chief Financial Officer
and Senior Vice
President of Business
Development............ 330,000(1) 21.5% 0.30 6/16/08 62,261 157,781
Michael Rabson
Senior Vice President
of Legal Affairs and
General Counsel(2)..... -- -- -- -- -- --
Willem P.C. Stemmer
Vice President of
Research.............. -- -- -- -- -- --
John Bedbrook
President of
Agriculture(3)........ -- -- -- -- -- --
Joseph Affholter
Vice President of
Biocatalysis and
Chemicals.............. 110,000 7.2% 0.30 6/16/08 20,753 52,593
Norman Kruse
Director of
Intellectual Property,
Chief Patent Counsel... 87,500 5.7% 0.20 3/11/08 11,006 27,890
</TABLE>
- --------
(1) Our right of repurchase lapses over a four-year period with respect to 25%
of the underlying shares at the first anniversary of the grant date and in
equal monthly installments over the next three years.
(2) Dr. Rabson joined Maxygen in September 1999.
(3) Dr. Bedbrook joined Maxygen in November 1999.
50
<PAGE>
Aggregated Option Exercises in Fiscal Year 1998 and Fiscal-Year End Option
Values
The following table sets forth certain information regarding exercised
stock options during the fiscal year ended December 31, 1998 and unexercised
options held as of December 31, 1998 by each of the named executive officers.
We granted all options under our 1997 Stock Option Plan. These options are
immediately exercisable in full at the date of grant, but shares purchased on
exercise of unvested options are subject to a repurchase right in our favor
that entitles us to repurchase unvested shares at their original exercise price
on termination of the employee's services with us. Unless otherwise indicated,
the repurchase right lapses as to 25% of the shares on the first anniversary of
the grant date and the balance, ratably by year, over the next three years. The
value realized is based on the fair market value of the underlying securities
as of the date of exercise, minus the per share exercise price, multiplied by
the number of shares underlying the option. The value of unexercised in-the-
money options are based on a value of $0.50 per share, the fair market value of
our common stock on December 31, 1998 as determined by our board of directors.
Amounts reflected are based on the value of $0.50 per share, minus the per
share exercise price, multiplied by the number of shares underlying the option.
Each of the people below who exercised options paid the entire exercise price
with a full recourse promissory note secured by the acquired stock, except Dr.
Gill who paid 10% of the exercise price by cash and the remaining amount with a
full recourse promissory note.
<TABLE>
<CAPTION>
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The Money
Options At Options At
Shares Fiscal Year-End(#) Fiscal Year-End($)
Acquired On Value ------------------------- -------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Russell J. Howard
President, Chief
Executive Officer and
Director............... 150,000 -- 200,000 -- $40,000 --
Simba Gill
Chief Financial Officer
and Senior Vice
President of Business
Development(1) ........ 330,000 33,000 -- -- -- --
Michael Rabson
Senior Vice President
of Legal Affairs and
General Counsel(2)..... -- -- -- -- -- --
Willem P.C. Stemmer
Vice President of
Research............... 300,000 -- -- -- -- --
John Bedbrook
President of
Agriculture(3)......... -- -- -- -- -- --
Joseph Affholter
Vice President of
Biocatalysis and
Chemicals.............. -- -- 110,000 -- 22,000 --
Norman Kruse
Director of
Intellectual Property,
Chief Patent Counsel... -- -- 87,500 -- 26,250 --
</TABLE>
- --------
(1) Our right of repurchase lapses over a four-year period with respect to 25%
of the underlying shares at the first anniversary of the grant date and in
equal monthly installments over the next three years.
(2) Dr. Rabson joined Maxygen in September 1999.
(3) Dr. Bedbrook joined Maxygen in November 1999.
51
<PAGE>
Employee Benefit Plans
1997 Stock Option Plan
Our board of directors adopted our 1997 Stock Option Plan on March 1, 1997.
This plan provides for the grant of incentive stock options to our employees
and nonstatutory stock options to our employees, directors and consultants. As
of November 15, 1999, 7,500,000 shares of common stock were reserved for
issuance under this plan. Of these shares, 4,187,537 were issued upon exercise
of stock options, 1,903,975 shares were subject to outstanding options and
1,408,488 shares were available for future grant. The stock option plan
provides for annual increases in the number of shares available for issuance on
the first day of each year, beginning January 1, 2001, equal to the lesser of
1,500,000 shares, 4% of the outstanding shares on the date of the annual
increase or an amount determined by our board of directors.
Our board of directors or a committee appointed by the board administers
the stock option plan and determines the terms of options granted, including
the exercise price, the number of shares subject to individual option awards
and the vesting period of options. The exercise price of nonstatutory options
must generally be at least 85% of the fair market value of the common stock on
the date of grant. The exercise price of incentive stock options cannot be
lower than 100% of the fair market value of the common stock on the date of
grant and, in the case of incentive stock options granted to holders of more
than 10% of our voting power, not less than 110% of the fair market value. The
term of an incentive stock option cannot exceed ten years, and the term of an
incentive stock option granted to a holder of more than 10% of our voting power
cannot exceed five years.
A participant may not transfer rights granted under our stock option plan
other than by will, the laws of descent and distribution or as otherwise
provided under the stock option plan.
Options granted under our stock option plan will accelerate and become
fully exercisable for a period of 30 days in the event we are acquired, unless
the successor corporation assumes or substitutes other equivalent options in
their place. Our board of directors may not, without the adversely affected
optionee's prior written consent, amend, modify or terminate the stock plan if
the amendment, modification or termination would impair the rights of
optionees. Our stock option plan will terminate in 2007 unless terminated
earlier by the board of directors.
1999 Employee Stock Purchase Plan
Our board of directors adopted our 1999 Employee Stock Purchase Plan on
September 29, 1999. This plan provides our employees with an opportunity to
purchase our common stock through accumulated payroll deductions.
A total of 400,000 shares of common stock has been reserved for issuance
under the purchase plan through March 2001. In addition, the purchase plan
provides for annual increases in the number of shares available for issuance
under the purchase plan on the first day of each year, beginning January 1,
2001, equal to the lesser of 200,000 shares, 0.75% of the outstanding shares on
the date of the annual increase or such amount as may be determined by the
board.
The board of directors or a committee appointed by the board administers
the purchase plan. The board or its committee has full and exclusive authority
to interpret the terms of the purchase plan and determine eligibility.
Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week. However, an
employee may not be granted an option to purchase stock under the purchase
plan:
. if such an employee immediately after grant owns stock possessing
five percent or more of the total combined voting power or value
of all classes of our capital stock, or
52
<PAGE>
. if, and to the extent that, such an employee has rights to
purchase stock under all of our employee stock purchase plans in
excess of $25,000 worth of stock for each calendar year.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, allows for favorable tax treatment
of participants, offering periods of up to 24 months, as determined by the plan
administrator, although it is anticipated that offering periods will generally
be 12 months, each including two six-month purchase periods. The offering
periods will generally start on the first trading day on or after April 1 of
each year, except for the first offering period which will commence on the
first trading day before the effective date of this offering, will end on the
last trading day on or before March 31, 2001, and will have two purchase
periods ending on the last trading days of September 2000 and March 2001.
The purchase plan permits participants to purchase common stock though
payroll deductions of up to 15% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation.
Amounts deducted and accumulated for the participant's account are used to
purchase shares of common stock on the last trading day of each purchase period
at a price of 85% of the lower of the fair market values of the common stock at
the beginning of the offering period and the end of the purchase period.
Participants may reduce their withholding percentage to zero at any time during
an offering period and may increase their withholding percentage or decrease
it, but to more than zero, on the first day of each purchase period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
A participant may not transfer rights granted under the purchase plan other
than by will, the laws of descent and distribution or as otherwise provided
under the purchase plan.
The purchase plan provides that, if we merge with or into another
corporation or a sale of substantially all of our assets, a successor
corporation may assume or substitute for each outstanding purchase right. If
the successor corporation refuses to assume or substitute for the outstanding
purchase rights, the offering period then in progress will be shortened, and a
new exercise date will be set.
The purchase plan will terminate in 2009. However, the board of directors
has the authority to amend or terminate the purchase plan at any time and may
apply any action to affect their outstanding rights to purchase stock under the
purchase plan.
1999 Nonemployee Directors Stock Option Plan
We have adopted the 1999 Nonemployee Directors Stock Option Plan and have
reserved a total of 300,000 shares of common stock for issuance thereunder.
Maxygen will automatically grant each nonemployee director who becomes a
Maxygen director after our stockholder meeting in 2000 a nonstatutory stock
option to purchase 20,000 shares of common stock on the date on which such
person first becomes a director. At the first board of directors meeting
immediately following each annual stockholders meeting beginning with the 1999
Annual Stockholders Meeting, Maxygen will automatically grant each nonemployee
director a nonstatutory option to purchase 5,000 shares of common stock. The
exercise price of options under the director plan will be equal to the fair
market value of the common stock on the date of grant. The maximum term of the
options granted under the director plan is ten years. Options will become
exercisable at the rate determined by the plan administrator. Shares underlying
options granted to a director upon joining our board are subject to a right of
repurchase in our favor which lapses with respect to 25% of the shares one year
after the date of grant and at a rate of 25% of the shares at the end of each
year thereafter. Each subsequent grant is subject to a right of repurchase for
one year after the date of grant. The director plan will terminate in September
2009, unless terminated earlier in accordance with the provisions of the
director plan.
53
<PAGE>
401(k) Plan
In May 1997, our board of directors adopted a Retirement Savings and
Investment Plan covering our full-time employees located in the United States.
This plan is intended to qualify under Section 401(k) of the Internal Revenue
Code of 1986, as amended, so that contributions to this plan by employees, and
the investment earnings thereon, are not taxable to employees until withdrawn.
Pursuant to the plan, employees may elect to reduce their current compensation
by up to the lesser of 25% of their annual compensation or the statutory
prescribed annual limit ($10,000 in 1999) and to have the amount of the
reduction contributed to the plan. We do not currently make additional matching
contributions on behalf of plan participants.
Limitation of Liability and Indemnification
Our certificate of incorporation and bylaws limit the liability of
directors, officers, employees and other agents to the fullest extent permitted
by Delaware law; provided however that we indemnify any such person in
connection with a proceeding initiated by such person only if such proceeding
was authorized by our board. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except for liability for: (1) breach of
their duty of loyalty to the corporation or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) unlawful payments of dividends or unlawful stock
repurchases or redemptions, or (4) any transaction from which the director
derived an improper personal benefit. This limitation of liability does not
apply to liabilities arising under the federal or state securities laws and
does not affect the availability of equitable remedies such as injunctive
relief or rescission.
We believe that indemnification under our bylaws and certificate of
incorporation covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in this capacity, regardless of whether the bylaws permit
indemnification.
We intend to enter into agreements to indemnify our directors, in addition
to the indemnification provided for in our bylaws. These agreements, among
other things, will indemnify our directors for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
Maxygen arising out of such person's services as one of our directors or such
person's services to any of our subsidiaries or any other company or enterprise
to which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors.
There is no pending litigation or proceeding involving a director or
officer of Maxygen in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.
CERTAIN TRANSACTIONS
In February 1997, we entered into a services agreement with Affymax
Research Institute. Pursuant to the services agreement, Affymax provided
certain accounting, administrative and facilities management services to us and
allowed us to occupy certain facilities leased by Affymax in exchange for
specified annual fees. The services agreement terminated on April 1, 1999.
At the time of our formation, we entered into a technology transfer
agreement with Affymax Technologies N.V. and Glaxo Group Limited, each a
wholly-owned subsidiary of Glaxo Wellcome plc, pursuant to which we were
assigned all right, title and interest in the patents, patent applications and
confidential information relating to our MolecularBreeding technologies,
subject to an exclusive royalty-free license under the patents and patent
applications for use in the diagnostics and research supply markets for
specific applications. In exchange for the intellectual property transferred we
issued 5,460,000 shares of our common stock to Affymax.
54
<PAGE>
In March 1997, in connection with our formation, we made loans to certain
officers and directors to purchase our common stock, which are evidenced by
full recourse promissory notes and secured by the common stock underlying this
stock purchase. The promissory notes bear interest at 6.42% per year, and
interest payments on the notes are due and payable on June 30 and December 31
of each year. Unpaid principal and interest on the notes are due and payable on
the earlier of 30 days after termination of the participant's employment with
us, or three years after the date of the promissory note. As of November 15,
1999, the original and outstanding principal amounts of each promissory note by
a director or executive officer are set forth below.
<TABLE>
<CAPTION>
Outstanding
Director or Executive Officer Original Note Amount Note Amount
----------------------------- -------------------- -----------
<S> <C> <C>
Russell Howard.............................. $ 60,000 $ 60,000
Isaac Stein................................. 120,000 98,800
Willem P.C. Stemmer......................... 120,000 120,000
</TABLE>
Options granted to our directors, executive officers and key employees are
immediately exercisable as to both vested and unvested shares, with unvested
shares being subject to a right of repurchase in our favor in the event of
termination of employment prior to vesting of all shares. These individuals pay
the exercise price for their outstanding options pursuant to full recourse
promissory notes secured by the common stock underlying the options. The notes
bear interest at 5.59% per year, and interest payments on the notes are due and
payable on June 30 and December 31 of each year. Unpaid principal and interest
on the notes are due and payable on the earlier of 30 days after termination of
the participant's employment with us, or three years after the date of the
promissory note. As of November 15, 1999, the original and outstanding
principal amounts of each promissory note by a director or executive officer
are set forth below.
<TABLE>
<CAPTION>
Original
and
Outstanding
Director or Executive Officer Note Amount
----------------------------- -----------
<S> <C>
Joseph Affholter................................................. $ 74,048
Simba Gill....................................................... 173,163
Russell J. Howard................................................ 47,250
Norman Kruse..................................................... 56,728
Michael S. Rabson................................................ 236,250
Gordon Ringold................................................... 99,000
Willem P.C. Stemmer.............................................. 136,688
</TABLE>
In April 1998, we loaned $72,500 to Dr. Joseph Affholter, which is
evidenced by a full recourse promissory note. In April 1999, we loaned an
additional $77,500 to Dr. Affholter and received from Dr. Affholter a full
recourse promissory note covering all amounts due from Dr. Affholter, which
note is secured by a deed of trust on Dr. Affholter's principal residence and
bears interest at 5.70% per year with respect to $72,500 of the principal and
4.83% with respect to $77,500 of the principal. Under the terms of the
promissory note, interest is generally forgiven. The promissory note is due
with respect to $72,500 of the principal on April 1, 2003 and with respect to
$77,500 of the principal on March 30, 2004. The outstanding principal amount of
the promissory note is $150,000.
In March 1997, December 1997 and April 1998, we sold to various investors a
total of 2,795,000 shares of Series A preferred stock at a purchase price of
$2.00 per share. In August 1998, we sold to various investors a total of
3,666,667 shares of Series B preferred stock at a purchase price of $3.00 per
share. In December 1998, we sold to a collaborator a total of 1,000,000 shares
of Series C preferred stock at a purchase price of $5.00 per share. In June
1999, we sold to various investors a total of 3,636,364 shares of Series D
preferred stock at a purchase price of $5.50 per share. In August 1999, we sold
to a collaborator a total of 800,000 shares of Series E preferred stock at a
purchase price of $6.25.
55
<PAGE>
The table below sets forth the officers, directors, immediate family
members of officers and directors and holders of more than 5% of our
outstanding stock who invested in, or are beneficial owners of our preferred
stock as of November 15, 1999. The numbers in the table below are on an as
converted to common stock basis at a conversion ratio of one share of common
stock for each share of preferred stock.
<TABLE>
<CAPTION>
Preferred Stockholder Preferred Stock
--------------------- ---------------
<S> <C>
Holders of More than 5%:
Affymax Technologies N.V. (a wholly-owned subsidiary of
Glaxo Wellcome plc)..................................... 1,250,000
Technogen Associates, L.P. (1)........................... 3,274,772
Technogen Enterprises, L.L.C. (2)........................ 3,274,772
Directors:
Gordon Ringold (3)....................................... 3,291,439
Isaac Stein (4).......................................... 3,348,106
Officers:
Russell Howard (5)....................................... 55,136
Willem Stemmer........................................... 125,000
Michael Rabson........................................... 9,100
Immediate Family Members of Officers and Directors:
Bhagwant Gill and Krishna Gill (6)....................... 128,787
Joseph Glaser, II (7).................................... 8,712
Robert Glaser, Jr. (8)................................... 10,991
Sally Glaser (9)......................................... 9,718
</TABLE>
- --------
(1) Consists of 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Enterprises, L.L.C.
and Technogen Associates, L.P. are under common control.
(2) Consists of 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Enterprises, L.L.C.
and Technogen Associates, L.P. are under common control.
(3) Includes 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Managers, L.L.C. is
the general partner of Technogen Associates, L.P. Dr. Ringold is a Managing
Member of Technogen Enterprises, L.L.C. and Technogen Managers, L.L.C. and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in the limited liability companies.
(4) Includes 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Managers, L.L.C. is
the general partner of Technogen Associates, L.P. Mr. Stein is a Managing
Member of Technogen Enterprises, L.L.C. and Technogen Managers, L.L.C. and
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in the limited liability companies. Also includes
525,667 shares held by the Stein 1995 Revocable Trust, of which Mr. Stein
is a trustee and 41,667 shares held by Stein Partners, of which Mr. Stein
is a general partner.
(5) Includes 53,636 shares held by the Russell and Maureen Howard Trust, of
which Dr. Howard is a trustee.
(6) Drs. Gill are the parents of Simba Gill.
(7) Mr. Glaser is the son of Robert J. Glaser.
(8) Mr. Glaser is the son of Robert J. Glaser.
(9) Ms. Glaser is the daughter of Robert J. Glaser.
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock--Registration Rights."
We believe that all transactions between us and our officers, directors,
principal stockholders and other affiliates have been and will be on terms no
less favorable to us than could be obtained from unaffiliated third parties.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of November 15, 1999 (assuming conversion of all outstanding shares of
preferred stock into common stock upon the closing of this offering and as
adjusted to reflect the sale of the shares offered by this prospectus) by:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. each of the named executive officers and each of our directors; and
. all of our officers and directors as a group.
Percentage of ownership is based on 23,910,568 shares outstanding as of
November 15, 1999, assuming conversion of the preferred stock, and 29,410,568
shares outstanding after this offering, assuming no exercise of the
underwriters' over-allotment options. Beneficial ownership is calculated based
on SEC requirements. All shares of the common stock subject to options
currently exercisable or exercisable within 60 days after November 15, 1999 are
deemed to be outstanding for the purpose of computing the percentage of
ownership of the person holding such options, but are not deemed to be
outstanding for computing the percentage of ownership of any other person.
Unless otherwise indicated below, each stockholder named in the table has sole
or shared voting and investment power with respect to all shares beneficially
owned, subject to applicable community property laws. Unless otherwise
indicated in the table, the address of each individual listed in the table is
Maxygen, Inc., 515 Galveston Drive, Redwood City, California 94063.
<TABLE>
<CAPTION>
Number of Percentage of Shares
Shares Beneficially Owned
Beneficially ------------------------
Owned Prior to Before After
Beneficial Owner the Offering Offering Offering
---------------- -------------- ---------- ----------
<S> <C> <C> <C>
Affymax Technologies N.V. (1)
Greenford Road, Greenford,
Middlesex,
UBG OHE, UK....................... 6,785,000 28.4% 23.1%
Technogen Associates, L.P. (2)
525 University Avenue, Suite 700
Palo Alto, California 94301....... 3,274,772 13.7% 11.1%
Technogen Enterprises, L.L.C. (3)
525 University Avenue, Suite 700
Palo Alto, California 94301....... 3,274,772 13.7% 11.1%
Russell J. Howard, Ph.D. (4)....... 877,636 3.7% 3.0%
Willem P.C. Stemmer, Ph.D. (5)..... 1,147,500 4.8% 3.9%
Simba Gill, Ph.D. (6).............. 456,738 1.9% 1.6%
Joseph Affholter, Ph.D. (7)........ 175,700 * *
John Bedbrook, Ph.D. (8)........... 200,000 * *
Norman Kruse, Ph.D. (9)............ 154,043 * *
Michael Rabson, Ph.D. (10)......... 359,100 1.5% 1.2%
Isaac Stein (11)................... 3,892,106 16.3% 13.2%
Robert J. Glaser, M.D.............. -- * *
M.R.C. Greenwood, Ph.D. (12)....... 75,000 * *
Adrian Hennah (13)................. 75,000 * *
George Poste, Ph.D. (14)........... 75,000 * *
Gordon Ringold, Ph.D. (15)......... 10,531,439 44.1% 35.8%
All directors and executive
officers as a group (15 persons)
(16).............................. 14,978,202 62.6% 50.9%
</TABLE>
- --------
*Less than 1% of Maxygen's outstanding common stock.
(1) Affymax Technologies N.V. is a wholly-owned subsidiary of Glaxo Wellcome
plc. Includes 75,000 shares subject to immediately exercisable options held
by Adrian Hennah and which Mr. Hennah has assigned to Glaxo Wellcome plc.
(2) Consists of 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Enterprises, L.L.C.
and Technogen Associates, L.P. are under common control.
57
<PAGE>
(3) Consists of 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Enterprises, L.L.C.
and Technogen Associates, L.P. are under common control.
(4) Includes 53,636 shares held by the Russell and Maureen Howard Trust, of
which Dr. Howard is a trustee. Also includes 297,500 shares that are
subject to immediately exercisable options. As of November 15, 1999, we
have the right to repurchase 448,125 shares including shares issuable upon
exercise of options held by Dr. Howard if Dr. Howard ceases his employment,
directorship or consultancy with us.
(5) Includes 379,375 shares that are subject to our right of repurchase as of
November 15, 1999 if Dr. Stemmer ceases his employment, directorship or
consultancy with us.
(6) Includes 336,600 shares that are subject to our right of repurchase as of
November 15, 1999 if Dr. Gill ceases his employment, directorship or
consultancy with us.
(7) Includes 144,375 shares that are subject to our right of repurchase as of
November 15, 1999 if Dr. Affholter ceases his employment, directorship or
consultancy with us.
(8) Includes 200,000 shares that are subject to immediately exercisable
options. As of November 15, 1999, we have the right to repurchase all of
the shares issuable upon exercise of these options if Dr. Bedbrook ceases
his employment, directorship or consultancy with us.
(9) Includes 127,500 shares that are subject to our right of repurchase as of
November 15, 1999 if Dr. Kruse ceases his employment, directorship or
consultancy with us.
(10) As of November 15, 1999, we have the right to repurchase 350,000 of these
shares if Dr. Rabson ceases his employment, directorship or consultancy
with us.
(11) Includes 3,211,574 shares that are held by Technogen Associates, L.P. and
63,198 shares held by Technogen Enterprises, L.L.C. Technogen Managers,
L.L.C. is the general partner of Technogen Associates, L.P. Mr. Stein is a
Managing Member of Technogen Enterprises, L.L.C. and Technogen Managers,
L.L.C. and disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest in the limited liability companies.
Includes 525,667 shares held by the Stein 1995 Revocable Trust, of which
Mr. Stein is a trustee and 41,667 shares held by Stein Partners, of which
Mr. Stein is a general partner. As of November 15, 1999, we have the right
to repurchase 162,500 shares held by Mr. Stein if he ceases his
employment, directorship or consultancy with us.
(12) Includes 75,000 shares that are subject to immediately exercisable
options. As of November 15, 1999, we have the right to repurchase all of
the shares issuable upon exercise of these options if Dr. Greenwood ceases
her employment, directorship or consultancy with us.
(13) Includes 75,000 shares that are subject to immediately exercisable
options. As of November 15, 1999, we have the right to repurchase 37,500
shares issuable upon exercise of these options if Mr. Hennah ceases his
employment, directorship or consultancy with us. Mr. Hennah has assigned
beneficial ownership of these shares to Glaxo Wellcome plc and disclaims
beneficial ownership of the shares.
(14) Includes 75,000 shares that are subject to immediately exercisable
options. As of November 15, 1999, we have the right to repurchase all of
the shares issuable upon exercise of these options if Dr. Poste ceases his
employment, directorship or consultancy with us.
(15) Includes 3,211,574 shares held by Technogen Associates, L.P. and 63,198
shares held by Technogen Enterprises, L.L.C. Technogen Managers, L.L.C. is
the general partner of Technogen Associates, L.P. Dr. Ringold is a
Managing Member of Technogen Enterprises, L.L.C. and Technogen Managers,
L.L.C. and disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest in the limited liability companies. Also
includes 6,710,000 shares held by Affymax Technologies N.V. Dr. Ringold is
the Chief Executive Officer of Affymax Research Institute which is under
common control with Affymax Technologies N.V. Dr. Ringold disclaims
beneficial ownership of these shares. Also includes 20,000 shares held by
the Gregory Zarucki Ringold 1998 Trust, 20,000 shares held by the
Alexander Zarucki Ringold 1998 Trust and 20,000 shares held by the Melanie
Gault-Ringold 1998 Trust. As of November 15, 1999, we have the right to
repurchase 137,500 shares held by Dr. Ringold if he ceases his employment,
directorship or consultancy with us.
(16) Includes shares included pursuant to notes (2), (3), (4), (5), (6), (7),
(8), (9), (10), (11), (12), (13), (14) and (15).
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our amended and restated certificate of incorporation, the filing of which
will occur at the closing of this offering, authorizes the issuance of up to 70
million shares of common stock, par value $0.0001 per share, and five million
shares of preferred stock, par value $0.0001 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of November 15, 1999, after giving effect to the conversion of
all preferred stock into common stock, 23,910,568 shares of common stock were
outstanding. As of November 15, 1999, we had 254 stockholders.
Common Stock
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available therefor. In the event of our liquidation, dissolution or winding up,
holders of common stock will be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any outstanding shares of preferred stock. Holders of
common stock have no preemptive or conversion rights or other subscription
rights, and there are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are, and the shares of
common stock offered by us in this offering, when issued and paid for, will be,
fully paid and nonassessable. The rights, preferences and privileges of the
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock, which we may
designate in the future.
Preferred Stock
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of five million shares
of preferred stock, $0.0001 par value per share, in one or more series, each of
such series to have such rights and preferences, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be determined by the board of directors. The rights of
the holders of common stock will be subject to, and may be adversely affected
by, the rights of holders of any preferred stock that may be issued in the
future. Issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
Registration Rights
Pursuant to a registration rights agreement entered into between us and
holders of 19,458,031 shares of common stock issuable upon conversion of our
Series A, Series B, Series C, Series D and Series E preferred stock, we are
obligated, under limited circumstances and subject to specified conditions and
limitations, to use our reasonable best efforts to register the registrable
shares.
We must use our reasonable best efforts to register shares of the
registrable shares:
- if we receive written notice from holders of 50% or more of the
registrable shares requesting that we effect a registration with respect
to at least 20% of the registrable shares then held by the holders
requesting registration;
59
<PAGE>
-if we decide to register our own securities; or
- if (1) we receive written notice from any holder or holders of the
registrable shares requesting that we effect a registration on Form S-3
(a shortened form of registration statement) with respect to the
registrable shares and (2) we are then eligible to use Form S-3 (which
at the earliest could occur 12 calendar months after the closing of this
offering).
However, in addition to certain other conditions and limitations, if we are
proposing to issue registered shares and the underwriters request to decrease
the number of shares registered, we can limit the number of registerable shares
included in the registration statement. The underwriters have requested that no
registerable shares be registered in this offering. In addition, the holders of
these registration rights have entered into lockup agreements and waived their
registration rights until 180 days following this offering.
Delaware Anti-Takeover Law and Charter Provisions
Certain provisions of our certificate of incorporation and bylaws may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Certain of these provisions allow
us to issue preferred stock without any vote or further action by the
stockholders, require advance notification of stockholder proposals and
nominations of candidates for election as directors, and eliminate cumulative
voting in the election of directors. In addition, our bylaws provide that
special meetings of the stockholders may be called only by the board of
directors and that the authorized number of directors may be changed only by
resolution of the board of directors. These provisions may make it more
difficult for stockholders to take certain corporate actions and could have the
effect of delaying or preventing a change in control of Maxygen.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law. This law prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder, unless any of the
following conditions are met. First, this law does not apply if prior to the
date of the transaction, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder. Second, the law does not apply
if upon consummation of the transaction which resulted in the stockholder
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 for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer. Third, the law does not apply
if at or after the date of the transaction, 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 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of our common stock.
Upon completion of this offering, we will have outstanding an aggregate of
29,410,568 shares of common stock, assuming the issuance of 5,500,000 shares of
common stock offered hereby and no exercise of options after November 15, 1999.
Of these shares, the 3,976,192 shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by "affiliates" of Maxygen as that term is
defined in Rule 144 under the Securities Act. Shares purchased by affiliates
may generally only be sold pursuant to an effective registration statement
under the Securities Act or in compliance with limitations of Rule 144 as
described below.
The remaining 25,493,900 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All of these shares and
approximately 1,523,808 shares purchased in the offering will be subject to
"lock-up" agreements providing that the stockholder will not offer, sell or
otherwise dispose of any of the shares of common stock owned by them for a
period of 180 days after the date of this prospectus. Goldman, Sachs & Co.,
however, may in its sole discretion, at any time without notice, release all or
any portion of the shares subject to lock-up agreements. Upon expiration of the
lock-up agreements, 824,500 shares will become eligible for sale pursuant to
Rule 144(k), 17,973,531 shares will become eligible for sale under Rule 144,
4,187,537 shares will become eligible for sale under Rule 701 and 1,523,808
shares sold in the offering will become eligible for sale.
<TABLE>
<CAPTION>
Days After Date Of Shares Eligible
This Prospectus For Sale Comment
------------------ --------------- ----------------------------------------------------
<S> <C> <C>
Upon Effectiveness...... 3,976,192 Shares sold in the offering that are not subject
lock-up agreements
180 days................ 28,485,568 Lock-up released; shares saleable under Rules
144(k), 144 and 701
</TABLE>
Immediately after the completion of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our
stock option plans and our stock purchase plan. Based upon the number of shares
subject to outstanding options as of November 15, 1999 and currently reserved
for issuance under both of the stock option plans and the stock purchase plans,
this registration statement would cover approximately 4,012,463 shares in
addition to annual increases in the number of shares available under the stock
option plans and stock purchase plan pursuant to the terms of such plans.
Shares registered under the registration statement will generally be available
for sale in the open market immediately after the 180 day lock-up agreements
expire.
Also beginning six months after the date of this offering, holders of
19,458,031 shares of our common stock, including shares issuable upon
conversion of preferred stock will be entitled to certain rights with respect
to registration of these shares for sale in the public market. See "Description
of Capital Stock -- Registration Rights". Registration of these shares under
the Securities Act would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon effectiveness of
the registration.
Rule 144
In general, under Rule 144 as currently in effect, beginning 180 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would
61
<PAGE>
be entitled to sell in "broker's transactions" or to market makers, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding (which will
equal approximately 294,106 shares immediately after this offering); or
- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current
public information about Maxygen.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
such shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.
Therefore, "144(k) shares" may be sold immediately upon expiration of the
lock-up agreements.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 180 days after
the effective date of this offering in reliance on Rule 144, in the case of
affiliates, without having to comply with the holding period and notice filing
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice filing
requirements of Rule 144.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Maxygen by Heller Ehrman White & McAuliffe, Palo Alto, California. Certain
legal matters will be passed upon for the underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation. An investment partnership
composed of current and former members of and persons associated with Wilson
Sonsini Goodrich & Rosati, Professional Corporation, beneficially own 4,546
shares of our common stock. HEWM Investors, an entity affiliated with Heller
Ehrman White & McAuliffe, beneficially owns 27,000 shares of our common stock.
Julian N. Stern, the sole shareholder of a professional corporation that is a
partner of Heller Ehrman White & McAuliffe and Secretary of Maxygen
beneficially owns 65,000 shares of our common stock.
CHANGE IN INDEPENDENT AUDITORS
Effective December 1998, Ernst & Young LLP was engaged as our independent
auditors and replaced other auditors who were dismissed as our independent
auditors on the same date. The decision to change auditors was approved by our
board of directors. Our former auditors issued a report for the period ended
December 31, 1997 which contained an emphasis paragraph as to our ability to
continue as a going concern. In connection with the audit for the period ended
December 31, 1997 and through the date at which Ernst & Young LLP was engaged
as our independent auditors, there were no disagreements with our former
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements if
not resolved to the satisfaction of our former auditors, would have caused
them to make reference thereto in any of their reports. Our former auditors
have not audited or reported on any of the financial statements included in
this prospectus. Prior to December 1998, we had not consulted with Ernst &
Young LLP on items that involved our accounting principles or the form of
audit opinion to be issued on our financial statements.
62
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1997 and 1998 and September 30, 1999, and for the
each of the two years in the period ended December 31, 1998 and for the nine-
month period ended September 30, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon
the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits and schedules) under the Securities Act, with respect to the shares to
be sold in this offering. This prospectus does not contain all of the
information set forth in the registration statement. For further information
with respect to us and the common stock offered in this prospectus, reference
is made to the registration statement, including the exhibits, financial
statements and notes to the financial statements filed as a part of the
registration statement. You should read the documents filed with the SEC as
exhibits to the registration statement for a more complete description of the
matter involved.
We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. You may read and copy any document that we file at
the public reference facilities of the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's web site at http://www.sec.gov.
63
<PAGE>
MAXYGEN, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP Independent Auditors.......................... F-2
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statement of Stockholders' Equity......................................... F-5
Statements of Cash Flows.................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Maxygen, Inc.
We have audited the accompanying balance sheets of Maxygen, Inc. as of
December 31, 1997 and 1998 and September 30, 1999, and the related statements
of operations, stockholders' equity, and cash flows for each of the two years
in the period ended December 31, 1998 and the nine month period ended September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Maxygen, Inc. at December
31, 1997 and 1998 and September 30, 1999, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1998
and the nine month period ended September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
October 29, 1999
F-2
<PAGE>
MAXYGEN, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
---------------- September 30, September 30,
1997 1998 1999 1999 (Note 1)
------- ------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $2,693 $15,306 $36,120
Grant and other receivables.... 10 600 1,708
Prepaid expenses and other
current assets................ 32 271 424
------- ------- -------
Total current assets.......... 2,735 16,177 38,252
Property and equipment, net.... 419 1,001 4,567
Deposits and other assets...... -- 422 639
------- ------- -------
Total assets.................. $3,154 $17,600 $43,458
======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............... $101 $466 $502
Accrued compensation........... 53 153 304
Other accrued liabilities...... 178 286 965
Deferred revenue............... 199 2,903 4,134
Related party payables......... 52 105 13
Current portion of equipment
financing obligations......... -- -- 66
------- ------- -------
Total current liabilities........ 583 3,913 5,984
Deferred revenue................. -- 1,987 2,726
Non-current portion of equipment
financing obligations .......... -- -- 1,159
Commitments
Stockholders' equity:
Convertible preferred stock,
$0.0001 par value,
25,000,000 shares authorized,
issuable in series: 2,790,000,
7,461,667 and 11,898,031
shares issued and outstanding
in December 31, 1997, 1998 and
September 30, 1999,
respectively (no shares
outstanding pro forma)
(aggregate liquidation
preference of $21,590 and
$46,590 at December 31, 1998
and September 30, 1999,
respectively)................. -- 1 1 $ --
Common stock, $0.0001 par
value: 50,000,000 shares
authorized, 7,660,000,
9,230,500, and 10,165,830
shares issued and outstanding
at December 31, 1997, 1998,
and September 30, 1999,
respectively (22,063,861
shares outstanding pro
forma)........................ 1 1 1 2
Additional paid-in capital..... 8,658 27,706 71,217 71,217
Notes receivable from
stockholders.................. (279) (548) (971) (971)
Deferred stock compensation.... (1,776) (2,601) (17,046) (17,046)
Accumulated deficit............ (4,033) (12,859) (19,613) (19,613)
------- ------- ------- -------
Total stockholders' equity.... 2,571 11,700 33,589 $33,589
------- ------- ------- =======
Total liabilities and
stockholders' equity......... $3,154 $17,600 $43,458
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
MAXYGEN, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
---------------- -------------------
1997 1998 1998 1999
------- ------- ----------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Collaborative research and development
revenue............................... $341 $1,077 $729 $6,068
Grant revenue.......................... -- 1,646 1,090 3,625
------- ------- ------- -------
Total revenues......................... 341 2,723 1,819 9,693
Operating expenses:
Research and development (Including
charges for stock compensation of
$317 and $651 in 1997 and 1998,
respectively, and $462 and $1,360
for the nine months ended September
30, 1998 and 1999, respectively).... 3,074 7,858 5,229 12,897
General and administrative (Including
charges for stock compensation of
$546 and $910 in 1997 and 1998,
respectively, and $655 and $1,218
for the nine months ended September
30, 1998 and 1999, respectively).... 1,461 3,920 2,313 4,333
------- ------- ------- -------
Total operating expenses............... 4,535 11,778 7,542 17,230
------- ------- ------- -------
Loss from operations................... (4,194) (9,055) (5,723) (7,537)
Interest income, net................... 161 229 75 783
------- ------- ------- -------
Net loss............................... $(4,033) $(8,826) $(5,648) $(6,754)
Deemed dividend upon issuance of
convertible preferred stock (Note 8).. -- -- -- (2,200)
------- ------- ------- -------
Net loss attributable to common
stockholders.......................... $(4,033) $(8,826) $(5,648) $(8,954)
Basic and diluted net loss per share... $(0.82) $(1.31) $ (1.54) $(1.15)
======= ======= ======= =======
Shares used in computing basic and
diluted net loss per share............ 4,917 6,748 3,679 7,778
Pro forma basic and diluted net loss
per share (unaudited)................. $(0.75) $(0.53)
======= =======
Shares used in computing pro forma
basic and diluted net loss per share
(unaudited)........................... 11,762 17,028
</TABLE>
See accompanying notes.
F-4
<PAGE>
MAXYGEN, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Additional Receivable Deferred Total
----------------- ----------------- Paid-In from Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Equity
---------- ------ ---------- ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to Affymax
Technologies N.V.
and Glaxo Group
Limited for
technology in March
1997................ -- $-- 5,460,000 $-- $-- $-- $ -- $-- $--
Issuance of common
stock to founders
for promissory notes
at $0.20 per share.. -- -- 2,100,000 1 419 (420) -- -- --
Issuance of Series A
convertible
preferred stock to
investors at $2.00
per share for cash.. 2,790,000 -- -- -- 5,580 -- -- -- 5,580
Issuance of common
stock to employees
upon exercise of
stock options for
$0.20 per share..... -- -- 100,000 -- 20 -- -- -- 20
Payments received on
promissory notes.... -- -- -- -- -- 141 -- -- 141
Deferred stock
compensation........ -- -- -- -- 2,639 -- (2,639) -- --
Amortization of
deferred stock
compensation........ -- -- -- -- -- -- 863 -- 863
Net loss from
inception to
December 31, 1997... -- -- -- -- -- -- -- (4,033) (4,033)
---------- --- ---------- ---- ------- ----- -------- -------- -------
Balance at December
31, 1997............ 2,790,000 -- 7,660,000 1 8,658 (279) (1,776) (4,033) 2,571
Issuance of Series A
convertible
preferred stock to
investors at $2.00
per share for cash.. 5,000 -- -- -- 10 -- -- -- 10
Issuance of Series B
convertible
preferred stock to
investors at $3.00
per share for cash,
less issuance cost
of $36.............. 3,666,667 1 -- -- 10,966 -- -- -- 10,967
Issuance of Series C
convertible
preferred stock to a
collaborator for
cash at $5.00 per
share............... 1,000,000 -- -- -- 5,000 -- -- -- 5,000
Options granted to
consultants for
services rendered... -- -- -- -- 209 -- -- -- 209
Issuance of common
stock to consultants
for cash and
services at $2.25
and $4.00 per share,
and to employees
upon exercise of
stock options for
cash and promissory
notes at $0.20 and
$0.30 per share..... -- -- 1,570,500 -- 477 (269) -- -- 208
Deferred stock
compensation........ -- -- -- -- 2,386 -- (2,386) -- --
Amortization of
deferred stock
compensation........ -- -- -- -- -- -- 1,561 -- 1,561
Net loss............ -- -- -- -- -- -- -- (8,826) (8,826)
---------- --- ---------- ---- ------- ----- -------- -------- -------
Balance at December
31, 1998............ 7,461,667 1 9,230,500 1 27,706 (548) (2,601) (12,859) 11,700
Issuance of common
stock to employees
upon exercise of
options for cash and
promissory notes at
$0.20, $0.30 and
$0.75 per share..... -- -- 745,330 -- 486 (423) -- -- 63
Options granted to
consultants for
services rendered... -- -- -- -- 204 -- -- -- 204
Issuance of common
stock for services
rendered and certain
technology rights at
$4.00 and $5.16 per
share............... -- -- 190,000 -- 835 -- -- -- 835
Issuance of Series D
convertible
preferred stock to
investors at $5.50
per share for cash,
less issuance costs
of $37.............. 3,636,364 -- -- -- 19,963 -- -- -- 19,963
Issuance of Series E
convertible
preferred stock to a
collaborator at
$6.25 per share..... 800,000 -- -- -- 5,000 -- -- -- 5,000
Deferred stock
compensation........ -- -- -- -- 17,023 -- (17,023) -- --
Amortization of
deferred stock
compensation........ -- -- -- -- -- -- 2,578 -- 2,578
Net loss............ -- -- -- -- -- -- -- (6,754) (6,754)
---------- --- ---------- ---- ------- ----- -------- -------- -------
Balance at September
30, 1999............ 11,898,031 $1 10,165,830 $1 $71,217 $(971) $(17,046) $(19,613) $33,589
========== === ========== ==== ======= ===== ======== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
MAXYGEN, INC.
STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
---------------- -------------------
1997 1998 1998 1999
------- ------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss................................ $(4,033) $(8,826) $(5,648) $(6,754)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 40 178 123 442
Deferred stock compensation
amortization......................... 863 1,561 1,117 2,578
Common stock issued and stock options
granted to consultants for services
rendered and for certain technology
rights............................... -- 332 198 1,039
Changes in operating assets and
liabilities:
Grant and other receivables......... (10) (590) (399) (1,108)
Prepaid expenses and other current
assets............................. (32) (239) (1) (153)
Deposits and other assets........... -- (422) (73) (217)
Accounts payable.................... 101 365 81 36
Accrued liabilities................. 231 208 162 830
Deferred revenue.................... 199 4,691 3 1,970
Related party payables.............. 52 53 35 (92)
------- ------- ------- -------
Net cash used in operating activities... (2,589) (2,689) (4,402) (1,429)
------- ------- ------- -------
Investing activities
Acquisition of property and equipment... (459) (760) (683) (4,008)
------- ------- ------- -------
Financing activities
Proceeds from issuance of convertible
preferred stock, net of issuance
costs.................................. 5,580 14,477 9,497 24,963
Proceeds from notes payable............. -- 1,500 1,500 --
Borrowings under equipment financing
obligations............................ -- -- -- 1,225
Payments received on promissory notes... 141 -- -- --
Proceeds from issuance of common stock.. 20 85 63 63
------- ------- ------- -------
Net cash provided by financing
activities............................. 5,741 16,062 11,060 26,251
------- ------- ------- -------
Net increase in cash and cash
equivalents............................ 2,693 12,613 5,975 20,814
Cash and cash equivalents at beginning
of period.............................. -- 2,693 2,693 15,306
------- ------- ------- -------
Cash and cash equivalents at end of
period................................. $2,693 $15,306 $8,668 $36,120
======= ======= ======= =======
Schedule of noncash transactions
Issuance of common stock in exchange for
note receivable........................ $420 $269 $269 $423
Conversion of note payable to preferred
stock.................................. $-- $1,500 $1,500 $--
</TABLE>
See accompanying notes.
F-6
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1998 is unaudited)
1. Organization and Summary of Significant Accounting Policies
Maxygen, Inc. (the "Company") was incorporated in Delaware on May 7, 1996
to develop and apply proprietary directed evolution technologies, also known as
"MolecularBreeding" technologies, to evolve new or improved properties into
single genes, multigene pathways, vectors, and genomes. Since the technology
can be applied to a wide range of genetic targets, the Company will explore
commercial opportunities for the directed evolution of novel enzymes and
metabolic processes, novel products for agriculture, as well as opportunities
in the fields of human medicine, such as gene therapy, vaccines, and protein
pharmaceuticals.
The MolecularBreeding technology was conceived at Affymax Research
Institute ("Affymax"), a subsidiary of Glaxo Group Ltd. In March 1997, as a
result of the determination that a substantial future investment in the further
research and development of the technology was merited, all rights to the
MolecularBreeding technology were transferred by Affymax to the Company in
exchange for the issuance of 5,460,000 shares of common stock. This transaction
represented the formation of the Company and thus the common shares issued were
not assigned any value for accounting purposes. The technology rights
transferred to the Company represented research and development stage
technology with no immediate commercial application or alternative future use,
and were recorded at the historic carrying value of Glaxo Group Ltd. as
determined in accordance with generally accepted accounting principles in the
United States. The total amount of costs incurred by Glaxo Group Ltd. to
develop the MolecularBreeding technology are not determinable but were not
significant to Affymax or Glaxo Group Ltd.
Operations commenced in March 1997 and have consisted primarily of
technology and product development. Operational activity and expenses incurred
for the period from inception (May 7, 1996) through March 1997 were immaterial.
Through December 31, 1998, the Company was in the development stage. During
fiscal 1999, the Company entered into its second corporate research
collaboration and recognized significant revenues associated with collaborative
research agreements and expects to receive significant revenues under these
agreements in the future. Consequently, the Company is no longer considered to
be in the development stage. The Company will require additional financial
resources to complete the development and commercialization of its products.
Management plans to continue to finance the Company primarily through issuances
of equity securities, collaborative research and development arrangements,
government grants, and debt financing. If the financing arrangements
contemplated by management are not consummated, the Company may have to seek
other sources of capital or reevaluate its operating plans.
Initial Public Offering
In September 1999, the board of directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock to the
public. If the initial public offering is closed under the terms presently
anticipated, all of the preferred stock outstanding will automatically convert
into 11,898,031 shares of common stock. Unaudited pro forma stockholders'
equity, as adjusted for the assumed conversion of the preferred stock, is set
forth on the balance sheet.
Interim Financial Information
The financial information at September 30, 1998 and for the nine months
ended September 30, 1998 is unaudited but has been prepared on the same basis
as the annual financial statements and, in the opinion of management, includes
all adjustments (consisting only of normal recurring adjustments) that the
F-7
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
Company considers necessary for a fair presentation of the financial position
at such date and the operating results and cash flows for such periods. Results
for the interim period are not necessarily indicative of the results to be
expected for any subsequent period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company's cash
and cash equivalents are maintained with one financial institution and consist
of depository accounts, master notes, and liquidity optimized general
investment contracts.
The Company has classified its marketable securities as "available-for-
sale" and recorded these securities at fair value. At September 30, 1999, these
instruments are classified as cash equivalents. Unrealized gains and losses,
which are considered to be temporary, are recorded as a separate component of
stockholders' equity until realized. At December 31, 1997 and 1998 and
September 30, 1999, the fair value of all of the Company's marketable
securities approximated cost.
Property and Equipment
Property and equipment, including the cost of purchased software, are
stated at cost, less accumulated depreciation. Depreciation is provided using
the straight-line method over the estimated useful life of the assets
(generally three to five years). Leasehold improvements are amortized over the
shorter of six years or the estimated useful life of the assets.
Revenue Recognition
Non-refundable up-front payments received in connection with research and
development collaboration agreements, including technology advancement funding
which is intended for the development of the Company's core technology, are
deferred and recognized on a straight-line basis over the relevant periods
specified in the agreement, generally the research term.
Revenue related to collaborative research with the Company's corporate
collaborators is recognized as research services are performed over the related
funding periods for each contract. Under these agreements, the Company is
required to perform research and development activities as specified in each
respective agreement. The payments received under each respective agreement are
not refundable and are generally based on a contractual cost per full-time
equivalent employee working on the project. Research and development expenses
under the collaborative research agreements approximate or exceed the revenue
recognized under such agreements over the term of the respective agreements.
Deferred revenue may result when the Company does not incur the required level
of effort during a specific period in comparison to funds received under the
respective contracts. Milestone and royalty payments, if any, will be
recognized pursuant to collaborative agreements upon the achievement of
specified milestones.
F-8
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
In 1997 and 1998 and for the nine months ended September 30, 1999, the
Company was awarded Defense Advanced Research Projects Agency grants and
National Institute of Standards and Technology-Advanced Technology Program
grants totaling approximately $2.0 million, $10.6 million, and $14.5 million,
respectively, for various research and development projects. The terms of these
grant agreements are three years. Revenue related to grant agreements is
recognized as related research and development expenses 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 as well as the cost
of funding research at universities and other research institutions, and are
expensed as incurred. Costs to acquire technologies which are utilized in
research and development and which have no alternative future use are expensed
when incurred (see Note 3).
Stock-Based Compensation
The Company accounts for common stock options granted to employees using
the intrinsic value method and, thus, recognizes no compensation expense for
options granted with exercise prices equal to or greater than the fair value of
the Company's common stock on the date of the grant. In 1998 and 1999, the
Company recognized deferred stock compensation related to certain stock option
grants (see Note 8). Pro forma information required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") is also included in Note 8.
Stock compensation expense for options granted to nonemployees has been
determined in accordance with SFAS 123 and EITF 96-18 as the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. The fair value of options granted to non-
employees is periodically remeasured as the underlying options vest.
Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity
with the Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), for all periods presented. Following the guidance given by
the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock that has been issued or granted for
nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of basic and diluted net
loss per common share as if these shares had been outstanding for all periods
presented. To date, the Company has not issued or granted shares for nominal
consideration.
In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the statements of
operations, has been computed for the year ended December 31, 1998 and the
nine months ended September 30, 1999 as described above, and also gives effect
to the conversion of the convertible preferred stock which will automatically
convert to common stock immediately prior to the completion of the Company's
initial public offering (using the if-converted method) from the original date
of issuance.
F-9
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
The following table presents the calculation of basic, diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, September 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders.............................. $(4,033) $(8,826) $(5,648) $(8,954)
======= ======= ======= =======
Basic and diluted:
Weighted-average shares of common stock
outstanding............................. 6,329 8,789 5,714 9,408
Less: weighted-average shares subject to
repurchase.............................. (1,412) (2,041) (2,035) (1,630)
------- ------- ------- -------
Weighted-average shares used in computing
basic and diluted net loss per share.... 4,917 6,748 3,679 7,778
======= ======= ======= =======
Basic and diluted net loss per share....... $ (0.82) $ (1.31) $ (1.54) $ (1.15)
======= ======= ======= =======
Pro forma:
Net loss attributable to common
stockholders............................ $(8,826) $(8,954)
======= =======
Shares used above........................ 6,748 7,778
Pro forma adjustment to reflect weighted
effect of assumed conversion of
convertible preferred stock
(unaudited)............................. 5,014 9,250
------- -------
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited)............................. 11,762 17,028
======= =======
Pro forma basic and diluted net loss per
share (unaudited)....................... $ (0.75) $ (0.53)
======= =======
</TABLE>
The Company has excluded all convertible preferred stock, outstanding stock
options, and shares subject to repurchase from the calculation of diluted loss
per common share because all such securities are antidilutive for all
applicable periods presented. The total number of shares excluded from the
calculations of diluted net loss per share, prior to application of the
treasury stock method for options, was 6,232,000 and 11,305,000 for the years
ended December 31, 1997 and 1998, respectively, and 8,976,967 and 15,454,826
for the nine months ended September 30, 1998 and 1999, respectively. Such
securities, had they been dilutive, would have been included in the
computations of diluted net loss per share. See Note 8 for further information
on these securities.
Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement had no
impact on the Company's net loss or stockholders' equity in 1998 or for the
nine months ended September 30, 1999.
Segment Reporting
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
F-10
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
disclosures about its products, services, geographic areas, and major
customers. The Company has determined that it operates in only one segment.
Accordingly, the adoption of this statement had no impact on the Company's
financial statements.
Effect of New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which will be effective for the year
ending 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. The Company believes the
adoption of SFAS 133 will not have a material effect on the financial
statements, since it currently does not hold derivative instruments or engage
in hedging activities.
2. Collaborative Agreements
AstraZeneca
In June 1999, the Company entered into a noncancelable (other than for
material breach), five-year collaborative research agreement with Zeneca
Limited, a wholly-owned subsidiary of AstraZeneca plc (hereafter known as
"AstraZeneca") to improve the yield and quality of several of AstraZeneca's
strategic crops. Pursuant to the agreement, AstraZeneca paid $2.5 million in
technology advancement funding. AstraZeneca will also provide research funding
of $15 million over the research term for defined research programs covering
specified crops, potential milestone payments that could exceed $100 million as
well as royalties on future product sales, as defined in the agreement. On an
annual basis beginning in the second year of the agreement, AstraZeneca must
either pay $1 million in annual technology advancement funding or purchase $3
million shares of the Company's stock at a 50% premium to the current fair
value. If AstraZeneca elects this option, then the resulting $1.0 million
premium will be accounted for as technology advancement funding. The technology
advancement funding is intended to fund the Company's continuing development of
its core MolecularBreeding technology. Because the agreement does not specify a
required level of effort or other specific performance criteria, the funding is
being recognized ratably over the five-year term of the agreement.
Revenue recognized under the collaborative research agreement with
AstraZeneca was $586,000 (10% of total collaborative research and development
revenues) for the nine months ended September 30, 1999, consisting of research
funding earned of $214,000 and technology advancement funding of $372,000.
In August 1999, in conjunction with the agreement, AstraZeneca purchased
800,000 shares of Series E convertible preferred stock at $6.25 per share.
DuPont/Pioneer Hi-Bred International, Inc.
In December 1998, the Company entered into a five-year collaborative
research and license agreement with Pioneer Hi-Bred International, Inc., a
subsidiary of E.I. duPont de Nemours and
F-11
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
Company (hereafter known as "DuPont/Pioneer Hi-Bred") to utilize
MolecularBreeding technologies to generate novel gene products for use in the
development of specific crop protection and quantity grain traits in corn,
soybeans, and certain other crops. Pursuant to the agreement, DuPont/Pioneer
Hi-Bred paid an up-front, nonrefundable license fee of $2.5 million and agreed
to provide nonrefundable research and development funding of up to $20 million,
potential milestone payments of up to $45 million and royalties on future
product sales, as defined in the agreement. The agreement also provides for
nonrefundable technology advancement payments of up to $7.5 million which are
being recognized ratably over the applicable research term. The agreement may
be terminated by DuPont/Pioneer Hi-Bred after three years upon six-months
notice, if a specified technological milestone has not been met.
Revenue recognized under the collaborative research agreement with
DuPont/Pioneer Hi-Bred was $62,000 and $4.6 million for the year ended
December 31, 1998 and for the nine months ended September 30, 1999,
respectively (6% and 76%, respectively, of total collaborative research and
development revenues).
In December 1998, in conjunction with the agreement, DuPont/Pioneer Hi-Bred
purchased 1,000,000 shares of Series C convertible preferred stock at $5.00 per
share which was the fair value of the preferred stock on the date of issuance.
Furthermore, upon a public offering of the Company's common stock and subject
to the underwriter's discretion, the Company can require DuPont/Pioneer Hi-Bred
to purchase $5,000,000 of the Company's common stock at the initial public
offering price. Because this right is contingent upon future events and the
price per share and number of shares to be issued, if any, pursuant to this
right is presently not determinable, no accounting value has been assigned to
this right in the accompanying financial statements.
DSM
In March 1999, the Company entered into a three-year collaborative research
and license agreement with Gist-brocades N.V., a subsidiary of DSM N.V. ("DSM")
to utilize the Company's proprietary MolecularBreeding technologies to develop
certain novel enzymes involved in the manufacture of certain classes of
antibiotics. Under the terms of the agreement, DSM will receive worldwide
commercialization rights and the Company will receive research payments of
approximately $2.3 million over the three-year term and may receive royalty
payments in the future. Total revenue of $403,000 was recognized for the nine
months ended September 30, 1999 (7% of total collaborative research and
development revenue).
Novo Nordisk A/S
In September 1997, the Company entered into a five-year License and
Collaboration Agreement with Novo Nordisk A/S ("Novo Nordisk") to use
MolecularBreeding technologies to develop products. The agreement provides for
research and development funding as well as royalty payments on future products
to the Company upon the occurrence of specified events as defined in the
agreement.
As set forth in the agreement, Novo Nordisk will fund up to $500,000 of
research funding under the development program on an annual basis. Total
revenue of $544,000 and $336,000 was recognized for the year ended December 31,
1998 and for the nine months ended September 30, 1999, respectively (51% and
6%, respectively, of total collaborative research and development revenue). No
revenue was recognized under this agreement for the year ended December 31,
1997.
F-12
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
Other Collaborations
The Company has entered into corporate collaborations under which it has
completed all of its research obligations. Revenue recognized pursuant to these
agreements was $341,000, $461,000, and $196,000 for the years ended December
31, 1997, 1998, and for the nine months ended September 30, 1999, respectively
(100%, 43%, and 3%, respectively, of total collaborative research and
development revenue).
3. Sponsored License and Research Agreements
The Company has entered into several research agreements to fund research
at universities and other organizations. These agreements are generally
cancelable by either party upon written notice and may be extended by mutual
consent of both parties. Research and development expenses are recognized as
the related services are performed, generally ratably over the period of the
service. Expenses under these agreements were approximately $254,000, $702,000,
and $898,000 for the years ended December 31, 1997, 1998, and for the nine
months ended September 30, 1999, respectively.
In addition, in 1999 the Company issued 175,000 shares of common stock with
a fair value of $783,000 to research institutions in exchange for technology
licenses. This amount is included in research and development expense for nine
months ended September 30, 1999 as the related technology is in research and
development and has no alternative future uses.
4. Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------ September 30,
1997 1998 1999
---- ------ -------------
<S> <C> <C> <C>
Leasehold improvements.. $-- $ -- $ 700
Construction in
progress............... -- -- 641
Machinery and laboratory
equipment.............. 406 1,123 3,381
Computer equipment and
software............... 36 68 157
Furniture and fixtures.. 16 28 348
---- ------ ------
458 1,219 5,227
Less accumulated
depreciation and
amortization........... (39) (218) (660)
---- ------ ------
Property and equipment,
net.................... $419 $1,001 $4,567
==== ====== ======
</TABLE>
5. Equipment Financing
In June 1999, the Company entered into an equipment financing agreement for
up to $2.0 million with a financing company. In July 1999, the Company financed
$1.2 million in equipment purchases structured as loans. The equipment loans
are to be repaid over 48 months at an interest rate of 11.73% and are secured
by the related equipment. During the first 6 months of the loan terms, the
payments consist of interest only. Accumulated amortization of assets acquired
pursuant to these obligations was approximately $110,000 at September 30, 1999.
F-13
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
At September 30, 1999, the Company's future minimum principal payments
under the equipment financing arrangements are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1999................................................................. $ --
2000................................................................. 146
2001................................................................. 345
2002................................................................. 388
2003................................................................. 346
------
$1,225
======
</TABLE>
In November 1999, the Company financed an additional $391,000 in equipment
purchases structured as a loan to be repaid over 48 months at an interest rate
of 12.04%. The loan is secured by the related equipment.
6. Commitments
Services and Facility Agreement
In February 1997, the Company entered into a services and facility
agreement, which was amended in September 1998 and February 1999, with Affymax
Research Institute ("ARI"), a related party. Under the agreement, ARI provided
certain accounting, human resources, materials management, facility, safety,
library, and information technology services, as well as the use of designated
space in the ARI facility for specified periods. In exchange, the Company
agreed to pay ARI $417,000 for the period from February 1, 1997 to December 31,
1997, $667,000 for the period from January 1, 1998 to December 31, 1998, and
$135,000 for the period from January 1, 1999 to April 1, 1999. These expenses
were determined by ARI based upon the relative percentage of effort expended by
ARI personnel on the Company's affairs and the relative use of facilities and
fixed assets of ARI. Management believes that the charges from ARI were
reasonable and would not have been materially different on a stand-alone basis.
In addition, ARI agreed to transfer title of fixed assets with a carrying value
of approximately $55,000 to the Company. At December 31, 1998, the Company owed
ARI approximately $105,000 under this agreement. The agreement expired in April
1999.
Consulting Agreement
In September 1998, the Company entered into a consulting arrangement
whereby the Company is committed to pay to a consulting firm up to a specified
percentage, as outlined in the agreement, of funds received in connection with
certain of the Company's agricultural collaborative agreements. The term of the
payments owed pursuant to this agreement is five years, ending in fiscal year
2004. For the fiscal year ended December 31, 1998 and for the nine month period
ended September 30, 1999, the Company expensed $199,000 and $112,000,
respectively.
F-14
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
Facility Leases
The Company leases facilities under an operating lease which commenced in
1999. The lease expires for specified facilities in 2002 and 2005. The lease
contains a renewal option on the facilities under the portion of the lease that
expires in 2002. This lease also includes scheduled rent increases. The
scheduled rent increases are recognized on a straight-line basis over the term
of the lease. Minimum annual rental commitments under operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended
December 31,
------------
<S> <C>
1999.................................................................. $ 379
2000.................................................................. 1,528
2001.................................................................. 1,451
2002.................................................................. 1,113
2003.................................................................. 1,019
Thereafter............................................................ 1,216
------
$6,706
======
</TABLE>
Rent expense allocated from the services and facility agreement for the
years ended December 31, 1997 and 1998 was approximately $122,000 and $147,000,
respectively. For the nine months ended September 30, 1999, rent expense was
approximately $914,000.
7. Related Party Notes Receivable
The Company issued full recourse loans to certain employees, of which
$279,000, $620,000, and $1,121,000 was outstanding at December 31, 1997 and
1998 and September 30, 1999, respectively. These loans bear interest at rates
ranging from 4.83% to 6.42% with terms ranging from three to five years. One
loan totaling $150,000 was for the purchase of the employee's residence and is
secured by a deed of trust on the employee's residence and is classified on the
balance sheet as other assets. The remaining loans were for the purchase of the
Company's common stock and are classified in stockholders' equity.
8. Stockholders' Equity
Convertible Preferred Stock
In September 1999, the board of directors approved an amendment to the
Company's articles of incorporation to authorize 5,000,000 shares of
undesignated preferred stock, for which the board of directors is authorized to
fix the designation, powers, preferences, and rights and an increase in the
authorized number of shares of common stock to 70,000,000 shares. These changes
are expected to become effective concurrent with the close of the Company's
initial public offering.
F-15
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
Convertible preferred stock designated and outstanding is as follows (in
thousands, except share amounts):
<TABLE>
<CAPTION>
Number of Shares
---------------------- Aggregate
Issued and Net Liquidation
Designated Outstanding Proceeds Preference
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Series A......................... 2,800,000 2,795,000 $ 5,590 $ 5,590
Series B......................... 3,666,667 3,666,667 10,967 11,000
Series C......................... 1,000,000 1,000,000 5,000 5,000
---------- ---------- ------- -------
At December 31, 1998............. 7,466,667 7,461,667 21,557 21,590
Series D......................... 3,636,364 3,636,364 19,963 20,000
Series E......................... 800,000 800,000 5,000 5,000
---------- ---------- ------- -------
At September 30, 1999............ 11,903,031 11,898,031 $46,520 $46,590
========== ========== ======= =======
</TABLE>
The Company issued Series E convertible preferred stock in August 1999 at
$6.25 per share. At the date of issuance, the Company believed the per share
price of $6.25 represented the fair value of the preferred stock and was in
excess of the deemed fair value of its common stock. Subsequent to the
commencement of the Company's initial public offering process, the Company re-
evaluated the deemed fair market value of its common stock as of August 1999
and determined it to be $9.00 per share. Accordingly, the incremental fair
value is deemed to be the equivalent of a preferred stock dividend. The Company
recorded the deemed dividend at the date of issuance by offsetting charges and
credits to additional paid in capital, without any effect on total
stockholders' equity. The amount increased the loss allocable to common
stockholders, in the calculation of basic net loss per share for the nine
months ended September 30, 1999.
Each share of preferred stock is convertible into common stock on a one-
for-one basis (subject to, among other things, adjustment for stock splits and
dividends) at the option of the holder or automatically upon a public offering
in which the public offering price is equal to or exceeds $8.00 per share and
the aggregate proceeds are equal to or exceeds $10 million.
The holders of shares of Series A, B, C, D, and E convertible preferred
stock are entitled to receive dividends, at the rate of $0.16, $0.24, $0.40,
$0.44, and $0.50 per share per year, respectively, out of any assets legally
available, prior to and in preference to any declaration or payment of any
dividend on the common stock of the Company. Such dividends are payable
annually when, as, and if declared by the board of directors, and such
dividends are not cumulative. As of September 30, 1999, no dividends have been
declared.
In the event of any liquidation, dissolution, or winding up of the Company,
either voluntary or involuntary, the stockholders of Series A, B, C, D, and E
convertible preferred stock are entitled to receive, prior to and in preference
to any distribution of any of the assets of the Company to the stockholders of
common stock by reason of their ownership, an amount equal to the sum of $2.00,
$3.00, $5.00, $5.50, and $6.25, respectively, for each outstanding share of
Series A, B, C, D, and E preferred stock (as adjusted for any stock dividends,
combinations, or splits), plus any declared but unpaid dividends on such shares
(collectively, the "Series A, B, C, D, and E Liquidation Preference"). After
payment in full of the Series A, B, C, D, and E Liquidation Preference, each
stockholder of shares of Series A, B, C, D, and E convertible preferred stock
then outstanding shall be entitled to be paid out of the remaining net assets
of the corporation, as and when distributed, ratably with the stockholders of
common stock such amount as would otherwise be distributable to such
stockholder on an as-converted basis.
F-16
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
In the event insufficient funds are available to pay all liquidation
preferences, then the net assets of the Company shall be paid ratably to the
holders of the Series A, B, C, D, and E preferred stock, in proportion to their
respective liquidation preferences. A merger, reorganization, or sale of all or
substantially all of the assets of the Company, in which the existing
stockholders of the Company prior to the transaction possess less than 50% of
the voting power of the surviving entity (or its parent) immediately after the
transaction, shall be deemed to be a liquidation, dissolution, or winding up of
the Company.
The holder of each share of preferred stock is entitled to voting rights
equal to the number of shares of common stock into which each share of
preferred stock could be converted, and has voting rights and powers equal to
the voting rights and powers of the shares of common stock.
1997 Stock Option Plan
In 1997, the Company authorized the 1997 Stock Option Plan (the "Plan")
under which the board of directors may issue incentive stock options to
employees, including officers and members of the board of directors who are
also employees, and nonqualified stock options to employees, officers,
directors, consultants, and advisors of the Company. Under the Plan, incentive
options to purchase the Company's common shares may be granted to employees at
prices not lower than fair value at the date of grant, as determined by the
board of directors. Nonstatutory options (options which do not qualify as
incentive options) may be granted to key employees, including directors and
consultants, at prices not lower than 85% of fair value at the date of grant
(110% in certain cases), as determined by the board of directors. Options have
a term of ten years. Certain options are immediately exercisable, at the
discretion of the board of directors. Shares issued pursuant to the exercise of
an unvested option are subject to the Company's right of repurchase which lapse
over periods specified by the board of directors, generally four years from the
date of grant. If not immediately exercisable, options generally vest over four
years (vesting at a rate of 25% at the end of each year). The stock option plan
provides for annual increases in the number of shares available for issuance on
the first day of each year, beginning January 1, 2001, equal to the lesser of
1,500,000 shares, 4% of the outstanding shares on the date of the annual
increase or an amount determined by the board of directors.
F-17
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------
Weighted-
Average
Shares Number of Exercise Price
Available Shares Per Share
---------- ---------- --------------
<S> <C> <C> <C>
Shares authorized..................... 2,140,000 -- --
Options granted....................... (1,891,550) 1,891,550 $0.20
Options exercised..................... -- (100,000) $0.20
---------- ----------
Balance at December 31, 1997.......... 248,450 1,791,550 $0.20
Shares authorized..................... 3,860,000 -- --
Options granted....................... (1,537,120) 1,537,120 $0.30
Options exercised..................... -- (1,495,500) $0.22
Options canceled...................... 38,500 (38,500) $0.24
---------- ----------
Balance at December 31, 1998.......... 2,609,830 1,794,670 $0.27
Shares Authorized..................... 1,500,000 -- --
Options granted....................... (2,044,205) 2,044,205 $0.69
Options exercised..................... -- (745,330) $0.65
Options canceled...................... 61,750 (61,750) $0.35
---------- ----------
Balance at September 30, 1999......... 2,127,375 3,031,795 $0.46
========== ==========
</TABLE>
The options outstanding and exercisable at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Options Outstanding Weighted-Average
------------------------------------ Remaining
Exercise Price Number Outstanding Contractual Life Vested Options
-------------- ------------------ ---------------- --------------
(In years)
<S> <C> <C> <C>
$0.20 818,300 8.7 207,137
$0.30 872,370 9.6 50,000
$0.50 104,000 9.9 21,500
--------- -------
1,794,670 278,637
========= =======
</TABLE>
The options outstanding and exercisable at September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Options Outstanding Weighted-Average
------------------------------------ Remaining
Exercise Price Number Outstanding Contractual Life Vested Options
-------------- ------------------ ---------------- --------------
(In years)
<S> <C> <C> <C>
$0.20 764,925 7.9 355,463
$0.30 805,903 8.9 170,625
$0.50 281,500 9.4 21,500
$0.63 254,500 9.7 5,000
$0.75 924,967 8.0 30,717
--------- -------
3,031,795 583,305
========= =======
</TABLE>
F-18
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
The weighted-average fair value of options granted in fiscal 1997 and 1998
was $1.80 and $2.13, respectively. The weighted-average fair value of options
granted in the nine months ended September 30, 1999 was $9.35. At December 31,
1997, 1998, and September 30, 1999, 75,000, 1,064,250, and 1,237,475 shares of
common stock issued upon the exercise of options were subject to repurchase at
a weighted-average price of $0.20, $0.23, and $0.48, respectively.
Pro forma net loss information is required to be disclosed by SFAS 123 and
has been determined as if the Company has accounted for its employee stock
options under the fair market value method of that statement. The fair value
for these options was estimated at the date of grant using the minimum value
method with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Expected dividend yield............ 0% 0% 0%
Risk-free interest rate range...... 5.9% to 6.6% 4.4% to 5.6% 5.2% to 5.9%
Expected life...................... 5 years 5 years 5 years
</TABLE>
The full effect of SFAS 123 will not be fully reflected until fiscal 2002.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma net loss information is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Year ended
December 31,
---------------- September 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Net loss attributable to common
stockholders--as reported................ $(4,033) $(8,826) $(8,954)
======= ======= =======
Net loss attributable to common
stockholders--pro forma.................. $(4,054) $(8,871) $(9,009)
======= ======= =======
Basic and diluted net loss per share--as
reported................................. $ (0.82) $ (1.31) $ (1.15)
======= ======= =======
Basic and diluted net loss per share--pro
forma.................................... $ (0.82) $ (1.31) $ (1.16)
======= ======= =======
</TABLE>
In March through December 1998, the Company granted 173,000 common stock
options, of which 86,500 were fully vested, to consultants for services
rendered. In addition, in September 1998, 75,000 shares of common stock were
issued to consultants for services at a deemed fair value of $2.25 per share.
Expense of $364,000 was recognized in 1998 related to these transactions.
During the nine months ended September 30, 1999, the Company issued 15,000
shares of common stock for services rendered at a deemed fair market value of
$4.00 per share. Also during the nine months ended September 30, 1999, the
Company granted 65,000 common stock options to consultants for services
rendered. Expense of $257,000 was recognized in 1999 related to these
transactions. Options granted to consultants are periodically re-valued as they
vest in accordance with SFAS 123 and EITF 96-18 using a Black-Scholes model and
the following weighted-average assumptions for 1999: estimated volatility of
0.7, risk-free interest rate of 5.0%, no dividend yield, and an expected life
of the option equal to the full term, generally ten years from the date of
grant.
During the years ended December 31, 1997 and 1998 and during the nine
months ended September 30, 1999, in connection with the grant of certain share
options to employees, the Company recorded deferred stock compensation of $2.6
million, $2.4 million and $17.0 million, respectively, representing the
difference between the exercise price and the deemed fair value of the
Company's common stock for financial reporting purposes on the date such stock
options were granted. Deferred compensation is
F-19
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
included as a reduction of stockholders' equity and is being amortized to
expense on a graded vesting method. During the years ended December 31, 1997
and 1998 and the nine months ended September 30, 1999, the Company recorded
amortization of deferred stock compensation expense of approximately $863,000,
$1.6 million and $2.6 million, respectively. Additional deferred compensation
of approximately $2.5 million is expected to be recorded based on the deemed
fair value of common stock options granted to employees during October and
November 1999.
1999 Employee Stock Purchase Plan
In September 1999, the Company's board of directors adopted the 1999
Employee Stock Purchase Plan (the "Purchase Plan"). A total of 400,000 shares
of the Company's common stock have been reserved for issuance under the
Purchase Plan. The Purchase Plan permits eligible employees to purchase common
stock at a discount, but only through payroll deductions, during defined
offering periods. The price at which stock is purchased under the Purchase Plan
is equal to 85% of the fair market value of the common stock on the first or
last day of the offering period, whichever is lower. The initial offering
period will commence on the effective date of the offering. In addition, the
Purchase Plan provides for annual increases in the number of shares available
for issuance under the purchase plan on the first day of each year, beginning
January 1, 2001, equal to the lesser of 200,000 shares, .75% of the outstanding
shares on the date of the annual increase or such amount as may be determined
by the board.
Non Employee Directors Stock Option Plan
In September 1999, the Company adopted the 1999 Nonemployee Directors Stock
Option Plan and reserved a total of 300,000 shares of common stock for issuance
thereunder. Each nonemployee director who becomes a director of the Company
will be automatically granted a nonstatutory stock option to purchase 20,000
shares of common stock on the date on which such person first becomes a
director. At each board meeting immediately following each annual stockholders
meeting beginning with the first board meeting after the 1999 Annual
Stockholders Meeting, each nonemployee director will automatically be granted a
nonstatutory option to purchase 5,000 shares of common stock. The exercise
price of options under the director plan will be equal to the fair market value
of the common stock on the date of grant. The maximum term of the options
granted under the director plan is ten years. Each initial grant under the
director plan will vest as to 25% of the shares subject to the option one year
after the date of grant and at a rate of 25% of the shares at the end of each
year. Each subsequent grant will vest in full one year after the date of grant.
The director plan will terminate in September 2009, unless terminated earlier
in accordance with the provisions of the director plan.
Common Stock
The founders' shares issued in March 1997 are also subject to repurchase.
The repurchase right for these shares lapses at a rate of 25% on an annual
basis in four years. The holders of unvested shares have voting and other
rights identical to other common stockholders. At December 31, 1997, 1998, and
September 30, 1999, 1,575,000, 1,050,000, and 525,000 shares, respectively, of
common stock at a weighted-average price of $0.20 per share were subject to
repurchase.
F-20
<PAGE>
MAXYGEN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1998 is unaudited)
At December 31, 1998, the Company has reserved shares of common for future
issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock..................... 7,461,667
1997 Stock Option Plan........................................ 4,404,500
----------
11,866,167
==========
</TABLE>
At September 30, 1999, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock..................... 11,898,031
1997 Stock Option Plan........................................ 5,159,170
----------
17,057,201
==========
</TABLE>
9. Income Taxes
At September 30, 1999, the Company had federal net operating loss
carryforwards of approximately $11.9 million. The Company also had federal
research and development tax credit carryforwards of approximately $600,000.
The net operating loss and credit carryforwards will expire at various dates
beginning in the year 2011 through 2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by 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.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
December 31, 1999
---------------- -------------
1997 1998
------- -------
<S> <C> <C> <C>
Net operating loss carryforwards............. $ 1,000 $ 1,800 $4,500
Research credits............................. 100 400 800
Capitalized research and development......... -- 100 --
Deferred revenue............................. -- 900 400
Other........................................ 100 200 200
------- ------- ------
Total deferred tax assets.................... 1,200 3,400 5,900
Valuation allowance.......................... (1,200) (3,400) (5,900)
------- ------- ------
Net deferred tax assets...................... $ -- $ -- $ --
======= ======= ======
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $1.2 million and $2.2 million during the years ended December 31,
1997 and 1998, respectively.
F-21
<PAGE>
UNDERWRITING
Maxygen and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., BancBoston
Robertson Stephens Inc., and Invemed Associates LLC are the representatives of
the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.......................................
BancBoston Robertson Stephens Inc.........................
Invemed Associates LLC....................................
---------
Total................................................... 5,500,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 825,000
shares from Maxygen to cover such sales. They may exercise that option for 30
days. If any shares are purchased under this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Maxygen. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Maxygen
---------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share.................................................. $ $
Total...................................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
of these securities dealers may resell any shares purchased from the
underwriters to other brokers or dealers at a discount of up to $ per
share from the initial public offering price. If all the shares are not sold at
the initial public offering price, the representatives may change the offering
price and the other selling terms.
Maxygen has agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This restriction does not apply
to any existing employee benefit plans or securities issued in connection with
acquisition transactions, provided that the recipients of such securities agree
not to dispose of or hedge any of such securities for the same 180 day period.
See "Shares Eligible for Future Sale" for a discussion of transfer
restrictions.
Certain persons associated with Invemed Associates LLC, one of the
underwriters, hold an aggregate of 114,497 shares of common stock, of which
73,590 shares were purchased in August 1998 for $3.00 per share and 40,907
shares were purchased in June 1999 for $5.50 per share. These associated
persons also hold a pecuniary interest in a small portion of the shares of
common stock held by Technogen Associates, L.P. by virtue of limited
partnership interests held by such associated persons in Technogen Associates.
In addition, Invemed Fund L.P., a fund for which Invemed Associates is the sole
general partner but holds only a 0.5 percent partnership interest, owns 363,636
shares of common stock that were purchased in June 1999 for $5.50 per share. By
virtue of Invemed Associates' partnership interest in Invemed Fund, Invemed
Associates beneficially owns (as that term is defined by the NASD)
U-1
<PAGE>
1,818 shares that are held directly by Invemed Fund. In addition, WS Investment
Company 99A ("WS Investments"), an investment partnership composed of current
and former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, counsel to the underwriters for this offering, owns 4,546 shares of
Maxygen's common stock, all of which were purchased in June 1999 for $5.50 per
share. The National Association of Securities Dealers, Inc. has deemed (i) the
40,907 shares of common stock acquired by the persons associated with Invemed
Associates in June 1999, (ii) the 4,546 shares of common stock purchased by WS
Investments in June 1999 and (iii) Invemed Associates' pecuniary interest in
1,818 shares of common stock held by Invemed Fund to be underwriting
compensation. As such, Invemed Associates, WS Investments and the persons
associated with Invemed Associates have agreed not to sell, transfer, assign or
hypothecate these shares for a period of one year from the effective date of
this offering.
At the request of Maxygen, the underwriters have reserved at the initial
public offering price up to 1,112,508 shares of common stock for sale to Dr.
Alejandro Zaffaroni and his affiliates, R.A. Investment Group and its
affiliates and Pioneer Overseas Corporation, a subsidiary of Pioneer Hi-Bred
International, a DuPont business, each of whom is an existing Maxygen
stockholder. These purchasers have expressed an interest in purchasing such
shares of common stock in this offering and have agreed to lock-up such shares
for a period of 180 days from the date of this prospectus. Maxygen has the
right to require Pioneer Hi-Bred International to purchase $5,000,000 of shares
of common stock in this offering pursuant to agreements entered into in
connection with Maxygen's collaboration with Pioneer Hi-Bred International.
Maxygen will not exercise such right until the effective date of this offering,
and Maxygen reserves the right not to exercise such right. There can be no
assurance that any of the reserved shares will be purchased. The number of
shares available for sale to the general public in this offering will be
reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered hereby.
In addition, at the request of Maxygen, the underwriters have reserved for
sale, at the initial public offering price, up to 411,300 shares of common
stock for certain directors, employees and friends of Maxygen. There can be no
assurance that any of the reserved shares will be so purchased. The number of
shares available for sale to the general public in the offering will be reduced
by the number reserved shares sold. Any reserved shares not so purchased will
be offered to the general public on the same basis as the other shares offered
hereby.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be
negotiated among Maxygen and the representatives of the underwriters. Among the
factors considered in determining the initial public offering price of the
shares, in addition to prevailing market conditions, will be Maxygen's
historical performance, estimates of Maxygen's business potential and earnings
prospects, an assessment of Maxygen's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
Maxygen's common stock has been approved for quotation on The Nasdaq
National Market under the symbol "MAXY."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. 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 the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
U-2
<PAGE>
These activities by the underwriters may stabilize, maintain or 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
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on The Nasdaq National Market, in
the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Maxygen estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Maxygen has agreed to indemnify the several underwriters against
liabilities, including liabilities under the Securities Act of 1933.
U-3
<PAGE>
CORPORATE COLLABORATORS
[LOGO] Pioneer Hi-Bred International, Inc., a DuPont business, is the
world's leading developer and supplier of advanced plant
genetics to farmers worldwide.
[LOGO] Zeneca Agrochemicals is a world leading supplier of crop
protection products which are designed to improve crop yields
and food quality.
[LOGO] Novo Nordisk A/S is the world's largest producer of industrial
enzymes.
[LOGO] DSM is a leader in chemicals, biotechnological products and
plastic materials.
[LOGO] The National Institute of Standards and Technology-Advanced
Technology Program is a unique partnership between government
and private industry to accelerate the development of
technologies that promise significant commercial payoffs and
widespread benefits for the economy.
[LOGO] The Defense Advanced Research Projects Agency manages and
directs selected basic and applied research and development
projects for the Department of Defense, and pursues research and
technology where risk and payoff are both very high and where
success may provide dramatic advances.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 27
Management............................................................... 44
Certain Transactions..................................................... 54
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 61
Legal Matters............................................................ 62
Change in Independent Auditors........................................... 62
Experts.................................................................. 63
Where You Can Find Additional Information................................ 63
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
----------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,500,000 Shares
Maxygen, Inc.
Common Stock
----------------
[MAXYGEN LOGO]
----------------
Goldman, Sachs & Co.
Robertson Stephens
Invemed Associates
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Information Not Required In Prospectus
Item 13 Other Expenses of Issuance and Distribution.*
The following table sets forth all expenses to be paid by Maxygen, other
than the underwriting discounts and commissions payable by Maxygen in
connection with the sale of the common stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
Registration fee................................................. $ 26,174
NASD filing fee.................................................. 8,550
Nasdaq National Market........................................... 95,000
Blue sky qualification fees and expenses......................... 10,000
Printing and engraving expenses.................................. 180,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 300,000
Transfer agent and registrar fees................................ 25,000
Miscellaneous expenses........................................... 55,276
----------
Total.......................................................... $1,000,000
==========
</TABLE>
- --------
*To be supplied by amendment.
Item 14 Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. Our Certificate of Incorporation and Bylaws
provide that we will indemnify our directors, officers, employees and agents to
the full extent permitted by Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. In addition, we intend to enter into separate indemnification
agreements with our directors which would require us, among other things, to
indemnify them against certain liabilities which may arise by reason of their
status or service (other than liabilities arising from willful misconduct of a
culpable nature). The indemnification provisions in our Certificate of
Incorporation and Bylaws and the indemnification agreement to be entered into
between us and our directors may be sufficiently broad to permit
indemnification of our officers and directors for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act. We also
intend to maintain director and officer liability insurance, if available on
reasonable terms, to insure our directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances. In
addition, the underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Company and
our officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
Item 15 Recent Sales of Unregistered Securities.
Since our incorporation in May 1996, we have sold and issued the following
securities:
1. In March 1997, we issued to Affymax Technologies, N.V. and Glaxo Group
Limited (both subsidiaries of Glaxo Wellcome plc) a total of 5,460,000 shares
of common stock in exchange for the transfer of intellectual property and other
technology assets. In addition, we sold an aggregate of 2,100,000 shares of
common stock to four founders of Maxygen for aggregate consideration of
$420,000 which was paid by promissory note, secured by the common stock
underlying the stock purchase. In May 1998, we issued 125,000 shares of common
stock to the California Institute of Technology in exchange for the license of
II-1
<PAGE>
intellectual property. In September 1998, we sold 75,000 shares of common
stock to three of our consultants for aggregate consideration of $22,500. In
March 1999, we issued 15,000 shares of common stock to Cahan & Associates in
consideration for consulting services. In April 1999, we issued 50,000 shares
of common stock to the University of Washington in exchange for the license of
intellectual property.
2. In March 1997, we sold 2,500,000 shares of Series A preferred stock to two
investors for aggregate consideration of $5,000,000. In December 1997, we sold
290,000 shares of Series A preferred stock to 16 investors for aggregate
consideration of $580,000. In April 1998, we sold 5,000 shares of Series A
preferred stock to one investor for aggregate consideration of $10,000.
3. In August 1998, we sold 3,666,667 shares of Series B preferred stock to 63
investors for aggregate consideration of $10,966,000.
4. In December 1998, we sold 1,000,000 shares of Series C preferred stock to
Pioneer Overseas Corporation for an aggregate consideration of $5,000,000.
5. In June 1999, we sold 3,636,364 shares of Series D preferred stock to 62
investors for aggregate consideration of $19,963,000.
6. In August 1999, we sold 800,000 shares of Series E preferred stock to
AstraZeneca Holdings, B.V. for aggregate consideration of $5,000,000.
7. As of October 15, 1999, we have issued, and there remain outstanding,
options to purchase an aggregate of 3,031,795 shares of common stock with
exercise prices ranging from $0.20 to $0.75 per share. As of October 15, 1999,
options to purchase 2,340,830 shares of common stock have been exercised for
aggregate consideration of $838,369.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances of securities described in Items 15(1) through 15(6) were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. The issuances of
securities described in Item 15(7) were deemed to be exempt from registration
under the Securities Act in reliance on Rule 701 promulgated thereunder as
transactions pursuant to compensatory benefit plans approved by the
registrant's board of directors. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about us or had access, through
employment or other relationships, to such information.
II-2
<PAGE>
Item 16 Exhibits and Financial Statement Schedules.
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement
3.1** Certificate of Incorporation, as currently in effect
3.2** Amended Certificate of Designations, Preferences and Rights of Series
A Preferred Stock, as currently in effect
3.3** Amended Certificate of Designations, Preferences and Rights of Series
B Preferred Stock, as currently in effect
3.4** Amended Certificate of Designations, Preferences and Rights of Series
C Preferred Stock, as currently in effect
3.5** Certificate of Designations, Preferences and Rights of Series D
Preferred Stock, as currently in effect
3.6** Certificate of Designations, Preferences and Rights of Series E
Preferred Stock, as currently in effect
3.7** Bylaws, as currently in effect
3.8** Amended and Restated Certificate of Incorporation, to be effective
upon closing
3.9** Amended and Restated Bylaws, to be effective upon closing
4.1** Specimen Common Stock Certificate
4.2** Registration Rights Agreement among the Company, Affymax Technologies
N.V., Dr. Zaffaroni and Glaxo Wellcome plc dated March 14, 1997
4.3** Amendment to Registration Rights Agreement and Consent dated as of
July 31, 1998 between Maxygen and certain holders of Series A
preferred stock
4.4** Second Amendment to Registration Rights Agreement and Consent dated as
of December 23, 1998 among Maxygen and certain holders of Series A
preferred stock and Series B preferred stock
4.5** Third Amendment to Registration Rights Agreement and Consent dated as
of June 15, 1999 among Maxygen, and certain holders of Series A
preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock
4.6** Series E Preferred Stock Purchase Agreement between Maxygen,
AstraZeneca Holdings, B.V. and Zeneca Limited dated as of June 18,
1999
4.7** Fourth Amendment to Registration Rights Agreement and Consent dated as
of August 6, 1999 among Maxygen, certain holders of Series A preferred
stock, Series B preferred stock, Series C preferred stock, Series D
preferred stock and Series E preferred stock
5.1 Opinion of Heller Ehrman White & McAuliffe
10.1** 1997 Stock Option Plan, as amended
10.2** Form of Promissory Note dated March 14, 1997 executed by each of
Russell J. Howard, Isaac Stein and Willem P.C. Stemmer in favor of
Maxygen
10.3+ Technology Transfer Agreement among Maxygen, Affymax Technologies N.V.
and Glaxo Wellcome plc dated March 14, 1997, as amended, effective
March 1, 1998
10.4** Lease between Metropolitan Life Insurance Company and Maxygen dated
October 21, 1998
10.5** First Amendment to Lease dated as of February 26, 1999 by and between
Metropolitan Life Insurance Company and Maxygen
10.6** Promissory Note dated April 22, 1999 executed by Joseph Affholter and
Roxanne Affholter in favor of Maxygen
10.7** Form of Director Indemnification Agreement
10.8** 1999 Nonemployee Directors Stock Option Plan
10.9** 1999 Employee Stock Purchase Plan
10.10** Form of Promissory Note issued in connection with exercise of stock
options
10.11+ License and Collaboration Agreement between Maxygen and Novo Nordisk
A/S effective as of September 17, 1997, as amended June 29, 1998, July
29, 1998, and April 19, 1999
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------------------------------------------------------
<C> <S>
10.12+ Collaborative Research and License Agreement entered into as of
December 23, 1998 by and between Pioneer Hi-Bred International, Inc.
and Maxygen
10.13+ Agreement between Maxygen and Gist-Brocades B.V. entered into the 15th
day of March, 1999
10.14+ Collaboration Agreement effective as of June 18, 1999 by and between
Zeneca Limited and Maxygen
16.1** Letter re change in certifying accountant dated October 20, 1999
16.2 Letter re change in certifying accountant dated November 22, 1999
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5.1)
24.1** Power of Attorney
27.1** Financial Data Schedule
</TABLE>
- --------
*to be filed by amendment
**previously filed
+confidential treatment has been requested for portions of this exhibit
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
Item 17 Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the Offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Redwood City,
California, on the 15th day of December 1999.
MAXYGEN, INC.
/s/ Russell J. Howard
By:_____________________________________
Russell J. Howard, Ph.D.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Russell J. Howard, Ph.D. President, Chief Executive December 15, 1999
____________________________________ Officer and Director
Russell J. Howard, Ph.D. (Principal Executive Officer)
/s/ Simba Gill, Ph.D. Senior Vice President of December 15, 1999
____________________________________ Business Development and Chief
Simba Gill, Ph.D. Financial Officer (Principal
Financial and Accounting
Officer)
Isaac Stein* Chairman of the Board December 15, 1999
____________________________________
Isaac Stein
Robert J. Glaser, M.D.* Director December 15, 1999
____________________________________
Robert J. Glaser, M.D.
M.R.C. Greenwood, Ph.D.* Director December 15, 1999
____________________________________
M.R.C. Greenwood, Ph.D.
Adrian Hennah* Director December 15, 1999
____________________________________
Adrian Hennah
Gordon Ringold, Ph.D.* Director December 15, 1999
____________________________________
Gordon Ringold, Ph.D.
George Poste, Ph.D.* Director December 15, 1999
____________________________________
George Poste, Ph.D.
</TABLE>
/s/ Simba Gill, Ph.D.
______________________________
*Simba Gill, Ph.D.
(Attorney-in-Fact)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement
3.1** Certificate of Incorporation, as currently in effect
3.2** Amended Certificate of Designations, Preferences and Rights of Series
A Preferred Stock, as currently in effect
3.3** Amended Certificate of Designations, Preferences and Rights of Series
B Preferred Stock, as currently in effect
3.4** Amended Certificate of Designations, Preferences and Rights of Series
C Preferred Stock, as currently in effect
3.5** Certificate of Designations, Preferences and Rights of Series D
Preferred Stock, as currently in effect
3.6** Certificate of Designations, Preferences and Rights of Series E
Preferred Stock, as currently in effect
3.7** Bylaws, as currently in effect
3.8** Amended and Restated Certificate of Incorporation, to be effective
upon closing
3.9** Amended and Restated Bylaws, to be effective upon closing
4.1** Specimen Common Stock Certificate
4.2** Registration Rights Agreement among the Company, Affymax Technologies
N.V., Dr. Zaffaroni and Glaxo Wellcome plc dated March 14, 1997
4.3** Amendment to Registration Rights Agreement and Consent dated as of
July 31, 1998 between Maxygen and certain holders of Series A
preferred stock
4.4** Second Amendment to Registration Rights Agreement and Consent dated as
of December 23, 1998 among Maxygen and certain holders of Series A
preferred stock and Series B preferred stock
4.5** Third Amendment to Registration Rights Agreement and Consent dated as
of June 15, 1999 among Maxygen, and certain holders of Series A
preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock
4.6** Series E Preferred Stock Purchase Agreement between Maxygen,
AstraZeneca Holdings, B.V. and Zeneca Limited dated as of June 18,
1999
4.7** Fourth Amendment to Registration Rights Agreement and Consent dated as
of August 6, 1999 among Maxygen, certain holders of Series A preferred
stock, Series B preferred stock, Series C preferred stock, Series D
preferred stock and Series E preferred stock
5.1 Opinion of Heller Ehrman White & McAuliffe
10.1** 1997 Stock Option Plan, as amended
10.2** Form of Promissory Note dated March 14, 1997 executed by each of
Russell J. Howard, Isaac Stein and Willem P.C. Stemmer in favor of
Maxygen
10.3+ Technology Transfer Agreement among Maxygen, Affymax Technologies N.V.
and Glaxo Wellcome plc dated March 14, 1997, as amended, effective
March 1, 1998
10.4** Lease between Metropolitan Life Insurance Company and Maxygen dated
October 21, 1998
10.5** First Amendment to Lease dated as of February 26, 1999 by and between
Metropolitan Life Insurance Company and Maxygen
10.6** Promissory Note dated April 22, 1999 executed by Joseph Affholter and
Roxanne Affholter in favor of Maxygen
10.7** Form of Director Indemnification Agreement
10.8** 1999 Nonemployee Directors Stock Option Plan
10.9** 1999 Employee Stock Purchase Plan
10.10** Form of Promissory Note issued in connection with exercise of stock
options
10.11+ License and Collaboration Agreement between Maxygen and Novo Nordisk
A/S effective as of September 17, 1997, as amended June 29, 1998, July
29, 1998, and April 19, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- ----------------------------------------------------------------------
<C> <S>
10.12+ Collaborative Research and License Agreement entered into as of
December 23, 1998 by and between Pioneer Hi-Bred International, Inc.
and Maxygen
10.13+ Agreement between Maxygen and Gist-Brocades B.V. entered into the 15th
day of March, 1999
10.14+ Collaboration Agreement effective as of June 18, 1999 by and between
Zeneca Limited and Maxygen
16.1** Letter re change in certifying accountant dated October 20, 1999
16.2 Letter re change in certifying accountant dated November 22, 1999
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5.1)
24.1** Power of Attorney
27.1** Financial Data Schedule
</TABLE>
- --------
*to be filed by amendment
**previously filed
+confidential treatment has been requested for portions of this exhibit
<PAGE>
EXHIBIT 5.1
[HELLER EHRMAN WHITE & MCAULIFFE LETTERHEAD]
December 14, 1999
Maxygen, Inc.
515 Galveston Drive
Redwood City, California 94063
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Maxygen, Inc., a Delaware corporation (the
"Company"), in connection with the Registration Statement on Form S-1
(Registration No. 333-89413) filed with the Securities and Exchange Commission
on October 20, 1999 (as may be further amended or supplemented, the
"Registration Statement") for the purpose of registering under the Securities
Act of 1933, as amended, 6,325,000 shares of its authorized but unissued Common
Stock, par value $.0001 per share (the "Shares"). The Shares, which include up
to 825,000 shares of the Company's Common Stock issuable pursuant to an over-
allotment option granted to the underwriters, are to be sold pursuant to an
Underwriting Agreement (the "Underwriting Agreement") among the Company and
Goldman, Sachs & Co., Robertson Stephens and Invemed Associates, as
representatives of the several underwriters named in Schedule I to the
Underwriting Agreement.
We have assumed the authenticity of all records, documents and instruments
submitted to us as originals, the genuineness of all signatures, the legal
capacity of natural persons and the conformity to the originals of all records,
documents and instruments submitted to us as copies.
In rendering our opinion, we have examined the following records, documents
and instruments:
(a) The Amended and Restated Certificate of Incorporation of the Company filed
as an exhibit to the Registration Statement and to be filed with
the Delaware Secretary of State in connection with the sale of the Shares
and certified to us by an officer of the Company as being the form to be
filed with the Delaware Secretary of State in connection with the sale of
the Shares;
(b) The Amended and Restated Bylaws of the Company certified to us by an
officer of the Company as being complete and in full force and effect as of
the date of this opinion;
(c) A Certificate of an officer of the Company (i) attaching records certified
to us as constituting all records of proceedings and actions of the Board
of Directors, including any committee thereof, and stockholders of the
Company relating to the Shares, and the Registration Statement, and (ii)
certifying as to certain factual matters;
<PAGE>
Maxygen, Inc.
December 14, 1999
(d) The Registration Statement; and
(e) The draft of the Underwriting Agreement filed as Exhibit 1.1 to the
Registration Statement.
This opinion is limited to the federal law of the United States of America
and the General Corporation Law of the State of Delaware, and we disclaim any
opinion as to the laws of any other jurisdiction. We further disclaim any
opinion as to any other statute, rule, regulation, ordinance, order or other
promulgation of any other jurisdiction or any regional or local governmental
body or as to any related judicial or administrative opinion. Our opinion to
the effect that all issued and outstanding Shares are fully paid and
nonassessable is based on the certification obtained from the Company identified
in item (c) above to the effect that the consideration of such Shares recited in
the Board of Directors' resolutions for such Shares has been received.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
assuming that (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold, (ii) the Underwriting
Agreement signed by the parties thereto conforms in all material respects to the
draft filed as Exhibit 1.1 to the Registration Statement, (iii) the currently
unissued Shares to be sold by the Company are issued, delivered and paid for in
accordance with the terms of the Underwriting Agreement, (iv) appropriate
certificates evidencing the Shares will be executed and delivered by the
Company, and (v) all applicable securities laws are complied with, it is our
opinion that, when issued by the Company, the currently unissued Shares covered
by the Registration Statement will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon
by you for any other purpose, or relied upon by any other person, firm,
corporation or other entity for any purpose, without our prior written consent.
We disclaim any obligation to advise you of any change of law that occurs, or
any facts of which we may become aware, after the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
<PAGE>
Exhibit 10.3
Affymax/Maxygen Technology Transfer Agreement
By and among Affymax Technologies N.V. and
Glaxo Group Limited (collectively "the Glaxo Wellcome Companies"),
and Maxygen, Inc.
1.0 INTRODUCTION
1.1 The parties to this Agreement are:
Affymax Technologies N.V.
Glaxo Wellcome House, Berkeley Avenue
Greenford, Middlesex, United Kingdom UB6 ONN;
(hereinafter referred to as "ATNV")
Glaxo Group Limited
Glaxo Wellcome House
Berkeley House
Greenford, Middlesex, United Kingdom UA ONN;
(hereinafter referred to as "GGL")
collectively "the Glaxo Wellcome Companies" and
Maxygen, Inc.
4001 Miranda Avenue
Palo Alto, California 94304;
(hereinafter referred to as "Maxygen")
1.2 The effective date of this Agreement is February 1, 1997.
2.0 RECITALS
The Glaxo Wellcome Companies and Maxygen have entered into a Registration
Rights Agreement, a Securities Purchase Agreement, and a Stockholder's Agreement
of even date (collectively, the "Stock Agreements") which call for the issuance
of a total of 5,460,000 shares of Maxygen Common Stock to one or more of the
Glaxo Wellcome Companies at the closing of the transaction in exchange for the
assignment of or license to certain intellectual property from the Glaxo
Wellcome Companies to Maxygen. Maxygen acknowledges that the Glaxo Wellcome
Companies would not enter into this Agreement but for the Stock Agreements. This
Agreement is contingent upon closing of the Stock Agreements and shall become
effective only upon the closing of the last of the Stock Agreements.
________________
* CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
NOW, THEREFORE, in consideration of the premises, covenants, conditions and
Attachments set forth herein, the parties agree as follows:
3.0 ATTACHMENTS
Schedules A and B are attached and form part of this Agreement.
4.0 DEFINITIONS
4.1 "Affiliate" means any entity that directly or indirectly controls, is
controlled by or is under common control with a party to this Agreement. A
corporation or non-corporate business entity shall be regarded as in control of
another corporation if it owns or directly or indirectly controls at least sixty
percent (60%) of the voting stock of the other company, or (a) in the absence of
the ownership of at least sixty percent (60%) of the voting stock of a
corporation or (b) in the case of a non-corporate business entity, if it
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation or non-corporate business
entity, as applicable.
Affiliates shall be entitled to exercise all rights of their respective party
under this Agreement provided that they agree in writing to be bound by the
corresponding obligations hereunder.
4.2 "Agreement" means this Agreement, fully executed by the parties, to
include without limitation, all Attachments hereto.
4.3 "Associated Technology" means a body of Confidential Information that
includes trade secrets, know-how, copyrights, and other technical information
reasonably related to the Patents and Applications set forth in Schedules A and
B, whether such information was developed by the named inventors or others.
4.4 "Confidential Information" means that information which the Glaxo
Wellcome Companies and/or Maxygen desire to protect against unauthorized
disclosure or use and which the disclosing party designates as confidential (i)
in writing, or (ii) orally, prior to any oral disclosure of the Confidential
Information, and is reduced to tangible form and provided to the receiving party
pursuant to this Agreement. Confidential Information may include information of
third parties.
4.5 "Derogatable Improvement" shall mean any modification of the
Derogatable Technology that is invented or developed by Maxygen prior to the
earlier of (i) five years from the closing of this transaction or (ii) upon the
closing of an underwritten public offering of shares of Maxygen under which not
less than $10 million in gross proceeds is provided to the Company and described
in a U.S. or foreign patent or patent application, provided that such
modification, if unlicensed, would infringe one or more of the claims of the
Licensed Patents and Applications.
<PAGE>
4.6 "Derogatable Technology" shall include all compositions, reagents, and
methods described in the Licensed Patents and Applications, excluding only
Licensed Technology and Designated Technology. Notwithstanding the foregoing,
"Derogatable Technology" shall not include any Derogated Technology. Derogatable
Technology includes, but is not limited to:
(1) gene therapy, including the optimization of vectors, such as HSV,
HIV, retroviral, adenoviral, and adeno-associated vectors naked DNA
vectors, and protein-coated vectors; and transgenes;
(2) vaccines, including live, dead, and attenuated bacterial vaccines;
live, dead, attenuated, subunit, and recombinant protein and peptide
viral vaccines; DNA vaccines; and diverse vectors;
(3) cell therapy, including cells expressing therapeutic transgenes,
protein, pharmaceuticals, and hormones;
(4) protein pharmaceuticals, including enzymes, cytokines, growth
factors, hormones, novel agonists and novel antagonists; and
(5) antibody pharmaceuticals, including whole IgGs and IgMs, Fabs, and
Fvs.
4.7 "Derogated Technology" shall mean any Derogatable Technology
specifically encompassed within a collaborative research project that Maxygen
has proposed to the Glaxo Wellcome Companies and upon which the Glaxo Wellcome
Companies has declined to pursue a collaborative research project with Maxygen
or upon which the parties have failed to negotiate a mutually satisfactory
agreement within the stipulated time period, provided, that Maxygen has entered
into a research collaboration with a third party on such Derogated Technology on
terms involving comparable scope and financial parameters as those proposed to
the Glaxo Wellcome Companies within twelve (12) months of Glaxo Wellcome
declining to participate in the project. "Derogated Technology" shall also refer
to any Derogatable Technology specifically encompassed within a collaborative
research project between Maxygen and a third party, wherein the third party
initially proposed, in confidence, the collaboration to Maxygen.
4.8 "Designated Technology" shall refer to the process of Shuffling as
practiced with mammalian or other eukaryotic cells using the compositions,
reagents, and methods described in the Licensed Patents and Applications in the
field of human pharmaceuticals; provided, however, that the proteins, RNAs, or
DNAs generated from such a process can be further manipulated, screened,
selected, or used in other hosts. Designated Technology shall include
(1) the Shuffling of proteins for development of assays for drug discovery
and optimization, such as proteins that can be used generically in
various assay formats as well as proteins for use in specific assays
with specific classes of targets, including modified ligands, modified
receptors, and modified proteins in signal transduction; and
(2) the Shuffling of proteins for validation of drug discovery targets,
such as antibodies, proteins that interfere with a pathway or process,
and other binding proteins.
Designated Technology shall not include:
(1) the Shuffling of proteins, peptides, DNAs, and RNAs to be used as
human pharmaceuticals;
<PAGE>
(2) generic assay technology for screening and selection; as well as
product-specific assay technology for screening and selection; and
(3) the Shuffling of viral sequences or mammalian plasmids or sequences
used for gene therapy or vaccines, or fragments or precursors thereof.
4.9 "Dulbecco Patent" shall mean U.S. Patent No. 4,593,002.
4.10 "Internal Research Purposes" shall mean that the Licensed Technology
and Licensed Improvements will not be used in specific research that is directly
subject to consulting or licensing obligations to a non-profit institution
(other than the United States Government) or to another for profit institution,
corporation or business entity unless written permission is obtained from the
owner of such Licensed Technology or Licensed Improvement, provided, however,
that the parties shall be free to use the Licensed Technology and Licensed
Improvements in furtherance of their own [*******] and the commercial marketing
of their products.
4.11 "Licensed Improvements" shall mean any modification of the Licensed
Technology related to the processes of generating molecular diversity within,
on, or secreted from [*******], provided (1) that such modification is invented
or developed by Maxygen or the Glaxo Wellcome Companies prior to the earlier of
(i) five years from the closing of this transaction or (ii) upon the closing of
an underwritten public offering of shares of Maxygen under which not less than
$10 million in gross proceeds is provided to the Company and described in a U.S.
or foreign patent or patent application and (2) that such modification, if
unlicensed, would infringe one or more of the claims of the Licensed Patents and
Applications.
4.12 "Licensed Technology" shall refer to the process of Shuffling of
proteins, RNAs, or DNAs as practiced in [*******] using the compositions,
reagents, and methods described in the Licensed Patents and Applications in the
field of [*******]; provided, however, that the proteins, RNAs, or DNAs
generated from such a process can be further manipulated, screened, selected, or
used in other hosts.
Licensed Technology includes but is not limited to:
(1) the Shuffling of proteins for [*******];
(2) the Shuffling of proteins for [*******];
(3) the Shuffling of [*******];
(4) the Shuffling of proteins, RNAs, or DNAs [*******] and the subsequent
screening and selection of the modified RNAs or DNAs in other cells
for [*******] purposes; and
<PAGE>
(5) the Shuffling of proteins, DNAs, and RNAs for Internal Research
Purposes only.
Licensed Technology shall not include:
(1) the Shuffling of proteins, peptides, DNAs, and RNAs to be used as
[*******];
(2) generic assay technology for [*******], as well as product-specific
assay technology for [*******]; and
(3) the Shuffling of proteins, RNAs, or DNAs [*******] using the
compositions, reagents, and methods described in the Licensed Patents
and Applications.
4.13 Licensed Patents and Applications" are as defined in Schedule A.
4.14 "Patent," "Patents," "Patent Applications" or "Patents and
Applications" refer to issued U.S. Patents, pending and abandoned U.S. patent
applications, to any division, renewal, continuation in whole or in part,
substitution, conversions, reissue, prolongation or extension thereof, to all
foreign counterparts (including patent, utility model, and industrial designs),
and to any Letters Patent and Registrations which may hereafter be granted on
any of the foregoing in the United States and all countries throughout the
world.
4.15 "Peptides-on-Plasmids Display Patents and Applications" refer to the
Patents and Applications set forth in the attached Schedule B.
4.16 "Phage Display Patents and Applications" refer to the Patents and
Applications set forth in the attached Schedule B.
4.17 "Polysome Display Patents and Applications" refer to the Patents and
Applications set forth in the attached Schedule B.
4.18 "Receptor Immobilization Patent Application" refer to the Patents and
Applications set forth in the attached Schedule B.
4.19 "Shuffling" shall mean the totality of the reiterative process of gene
fragmentation; reassembly; amplification, if necessary; transformation; and
screening or selection described in the Licensed Patents and Applications.
5.0 TRANSFERS
5.1 ASSIGNMENT OF PATENTS AND ASSOCIATED TECHNOLOGY
<PAGE>
5.1.1 For good and valuable consideration, receipt of which is
acknowledged by the Glaxo Wellcome Companies, the Glaxo Wellcome Companies agree
to assign and hereby assign to Maxygen all right, title, and interest in and to
the Licensed Patents and Applications, including the right to claim the priority
from the Patents and Applications as provided by the Paris Convention, and to
the Associated Technology, subject to any outstanding licenses or other rights
provided to Affymetrix under the Affymax/Affymetrix Technology Transfer
Agreement by and among Affymax N.V., Affymax Technologies, N.V., Affymax
Research Institute, Glaxo Group Limited, and Affymetrix, Inc., effective date,
March 2, 1995 ("the Affymetrix Agreement"). The right, title and interest in and
to these Patents and Applications is to be held and enjoyed by Maxygen and
Maxygen's successors and assigns as fully and exclusively as it would have been
held and enjoyed by the Glaxo Wellcome Companies had this assignment not been
made, for the full term of any Letters Patent and Registrations which may be
granted thereon.
5.2 LICENSE OF PATENTS
5.2.1 The Glaxo Wellcome Companies hereby grant Maxygen, a perpetual,
worldwide, royalty-free, non-exclusive license without the right to sublicense,
to Peptides-on-Plasmids Display Patents and Applications, Polysome Display
Patents and Applications, Phage Display Patents and Applications, the Dulbecco
Patent, and Receptor Immobilization Patent Application. Maxygen agrees that use
of these patents and applications shall be restricted to [*******].
5.3 LICENSED TECHNOLOGY AND LICENSED IMPROVEMENTS
5.3.1 Grant to the Glaxo Wellcome Companies
5.3.1.1 Maxygen hereby grants and agrees to grant the Glaxo
Wellcome Companies a perpetual, worldwide, royalty-free, non-exclusive license,
with the right to sublicense Affiliates only, under the Licensed Patents and
Applications and Associated Technology to make, have made and use Licensed
Technology for Internal Research Purposes only.
5.3.1.2 Maxygen hereby grants and agrees to grant the Glaxo
Wellcome Companies a perpetual, worldwide, royalty-free, non-exclusive license,
with the right to sublicense Affiliates only, to make, have made, and use
Licensed Improvements for Internal Research Purposes only.
5.3.1.3 Notwithstanding the foregoing, if any Licensed
Improvement is derived from a collaboration between Maxygen and an independent
third party, whereby Maxygen does not have the right to license such Licensed
Improvement outside
<PAGE>
of the collaboration, then Maxygen shall have no obligation to license or
otherwise make available such Improvement to the Glaxo Wellcome Companies.
5.3.1.4 Maxygen hereby grants and agrees to grant the Glaxo
Wellcome Companies a perpetual, worldwide, royalty-free, non-exclusive license,
with the right to sublicense Affiliates only, under the Licensed Patents and
Applications, to make, have made, and use the [*******] for Internal Research
Purposes only.
5.3.1.5 Upon the request of the Glaxo Wellcome Companies,
Maxygen shall grant a license to an Affiliate of the Glaxo Wellcome Companies
upon the terms set forth herein provided that the Glaxo Wellcome Companies shall
guarantee the performance of such licensee.
5.4.1 Grant to Maxygen
5.4.1.1 The Glaxo Wellcome Companies hereby grant and agree to
grant the Maxygen a perpetual, worldwide, royalty-free, non-exclusive license,
without the right to sublicense, to make, have made and use Licensed
Improvements for Internal Research Purposes only.
5.4.1.2 Notwithstanding the foregoing, if any Licensed
Improvement is derived from a collaboration between any of the Glaxo Wellcome
Companies and an independent third party, whereby such Glaxo Wellcome Company
does not have the right to license such Licensed Improvement outside of the
collaboration, then the Glaxo Wellcome Companies shall have no obligation to
license or otherwise make available such Improvement to Maxygen.
5.5 RIGHT OF FIRST NEGOTIATION FOR LICENSED TECHNOLOGY AND LICENSED
IMPROVEMENTS
5.5.1 Maxygen grants and agrees to grant the Glaxo Wellcome Companies
a right of first negotiation for any collaborative project to develop Licensed
Technology and Licensed Improvements in the field of human pharmaceuticals.
Notwithstanding the foregoing, this right of first negotiation shall not extend
to collaborative projects proposed by third parties in confidence to Maxygen.
This right will terminate upon the earlier of five years from the closing of the
transaction or upon an underwritten public offering of shares of Maxygen under
which not less than $10 million in gross proceeds is provided to the Company.
This proposal for a collaborative research project shall include, at a minimum,
a description of the scope of the research, the financial parameters of the
project, and the required nonfinancial contributions of the collaborator.
<PAGE>
5.5.2 If the Glaxo Wellcome Companies wish to pursue such a
collaborative project with Maxygen, then the Glaxo Wellcome Companies and
Maxygen agree that the parties will diligently and in good faith, negotiate the
terms and conditions of a collaborative research agreement and shall make a good
faith effort to conclude such license agreement within five months of
receipt of the Maxygen proposal by the Glaxo Wellcome Companies. If the Glaxo
Wellcome Companies decide not to pursue such a collaborative project, then they
shall promptly inform Maxygen of such a decision.
5.5.3 In the event that the Glaxo, Wellcome Companies decide not to
pursue a proposal of Maxygen as contemplated above or that the parties are
unable to negotiate a mutually satisfactory agreement within five months of
receipt of the Maxygen proposal by the Glaxo Wellcome Companies, Maxygen shall
be free to seek a third party sponsor of the project. If Maxygen enters into a
research collaboration with a third party on terms involving, comparable scope
and financial parameters as those proposed to the Glaxo Wellcome Companies
within twelve months of the Glaxo Wellcome Companies declining to participate
in the project or the failure of the parties to negotiate a mutually
satisfactory agreement within the stipulated time period, then the Glaxo
Wellcome Companies right to first negotiation for a collaborative project to
develop the Licensed Technology and Licensed Improvements specifically
encompassed within such proposal shall terminate.
5.5.4 If, however, Maxygen has not entered into a third party
collaboration on such project within twelve months of the Glaxo Wellcome
Companies declining to participate in the project or the failure of the parties
to negotiate a mutually satisfactory agreement within the stipulated time
period, then the Glaxo Wellcome Companies shall again have a right of first
negotiation for any collaborative project to develop the Licensed Technology and
Licensed Improvements encompassed within such proposal and Maxygen shall be
obligated to present any collaborative project to develop such Licensed
Technology and Licensed Improvements in the field of human pharmaceuticals to
the Glaxo Wellcome Companies prior to seeking a third party partner.
5.5.5 Notwithstanding the foregoing, in the event that Maxygen enters
into a research collaboration with a third party to Licensed Technology and
Licensed Improvements in the field of human pharmaceuticals, wherein the third
party initially proposed, in confidence, the collaboration to Maxygen, then the
Glaxo Wellcome Companies agree that the Glaxo Wellcome Companies right to first
negotiation for a collaborative project to develop the Licensed Technology and
Licensed Improvements specifically encompassed within such collaboration shall
terminate.
5.6 RIGHT OF FIRST NEGOTIATION FOR DESIGNATED TECHNOLOGY
5.6.1 Maxygen will grant the Glaxo Wellcome Companies a right of first
negotiation for any collaborative project to develop Designated Technology in
the field of human pharmaceuticals. Notwithstanding the foregoing, this right of
first negotiation
<PAGE>
shall not extend to collaborative projects proposed by third parties in
confidence to Maxygen. This right will terminate upon the earlier of five years
from the closing of the transaction or upon an underwritten public offering of
shares of Maxygen under which not less than $10 million in gross proceeds is
provided to the Company. This proposal for a collaborative research project
shall include, at a minimum, a description of the scope of the research, the
financial parameters of the project, and the required non-financial
contributions of the collaborator.
5.6.2 If the Glaxo Wellcome Companies wish to pursue such a
collaborative project with Maxygen, then the Glaxo Wellcome Companies and
Maxygen agree that the parties will diligently and in good faith, negotiate the
terms and conditions of a collaborative research agreement and shall make a good
faith effort to conclude such license agreement within five months of
receipt of the Maxygen proposal by the Glaxo Wellcome Companies. If the Glaxo
Wellcome Companies decide not to pursue such a collaborative project, then they
shall promptly inform Maxygen of such a decision.
5.6.3 In the event that the Glaxo Wellcome Companies decide not to
pursue a proposal of Maxygen as contemplated above or that the parties are
unable to negotiate a mutually satisfactory agreement within five months of
receipt of the Maxygen proposal by the Glaxo Wellcome Companies, Maxygen shall
be free to seek a third party sponsor of the project. If Maxygen enters into a
research collaboration with a third party on terms involving comparable scope
and financial parameters as those proposed to the Glaxo Wellcome Companies
within twelve months of the Glaxo Wellcome Companies declining to participate in
the project or the failure of the parties to negotiate a mutually satisfactory
agreement within the stipulated time period, then the Glaxo Wellcome Companies
right to first negotiation for a collaborative project to develop the Designated
Technology specifically encompassed within such proposal shall terminate.
5.6.4 If, however, Maxygen has not entered into a third party
collaboration on such project within twelve months of the Glaxo Wellcome
Companies declining to participate in the project or the failure of the parties
to negotiate a mutually satisfactory agreement within the stipulated time
period, then the Glaxo Wellcome Companies shall again have a right of first
negotiation for any collaborative project to develop the Designated Technology
encompassed within such proposal and Maxygen shall be obligated to present any
collaborative project to develop such Designated Technology in the field of
human pharmaceuticals to the Glaxo Wellcome Companies prior to seeking a third
party partner.
5.6.5 Notwithstanding the foregoing, in the event that Maxygen enters
into a research collaboration with a third party to Designated Technology in the
field of human pharmaceuticals wherein the third party initially proposed, in
confidence, the collaboration to Maxygen, then the Glaxo Wellcome Companies
agree that the Glaxo Wellcome Companies right to first negotiation for a
collaborative project to develop the
<PAGE>
Designated Technology specifically encompassed within such collaboration shall
terminate.
5.7 RIGHT OF FIRST NEGOTIATION FOR DEROGATABLE TECHNOLOGY AND DEROGATABLE
IMPROVEMENTS
5.7.1 Maxygen will grant the Glaxo Wellcome Companies a right of first
negotiation for any collaborative project to develop Derogatable Technology or
Derogatable Improvements in the field of human pharmaceuticals. Notwithstanding
the foregoing, this right of first negotiation shall not extend to collaborative
projects proposed by third parties in confidence to Maxygen. This right will
terminate upon the earlier of five years from the closing of the transaction or
upon an underwritten public offering of shares of Maxygen under which not less
than $10 million in gross proceeds is provided to the Company. This proposal for
a collaborative research project shall include, at a minimum, a description of
the scope of the research, the financial parameters of the project, and the
required nonfinancial contributions of the collaborator.
5.7.2 If the Glaxo Wellcome Companies wish to pursue such a
collaborative project with Maxygen, then the Glaxo Wellcome Companies and
Maxygen agree that the parties will diligently and in good faith, negotiate the
terms and conditions of a collaborative research agreement and shall make a good
faith effort to conclude such license agreement within five months of receipt of
the Maxygen proposal by the Glaxo Wellcome Companies. If the Glaxo Wellcome
Companies decide not to pursue such a collaborative project, then they shall
promptly inform Maxygen of such a decision.
5.7.3 In the event that the Glaxo Wellcome Companies decide not to
pursue a proposal of Maxygen as contemplated above or that the parties are
unable to negotiate a mutually satisfactory agreement within five months of
receipt of the Maxygen proposal by the Glaxo Wellcome Companies, then Maxygen
shall be free to seek a third party sponsor of the project. If Maxygen enters
into a research collaboration with a third party on terms involving comparable
scope and financial parameters as those proposed to the Glaxo Wellcome Companies
within twelve months of the Glaxo Wellcome Companies declining to participate in
the project or the failure of the parties to negotiate a mutually satisfactory
agreement within the stipulated time period, then the Glaxo Wellcome Companies
right to first negotiation for a collaborative project to develop the
Derogatable Technology or Derogatable Improvements specifically encompassed
within such proposal shall terminate and the Derogatable Technology and
Derogatable Improvements specifically encompassed within such proposal shall be
deemed Derogated Technology and Derogated Improvements, respectively.
5.7.4 If, however, Maxygen has not entered into a third party
collaboration on such project within twelve months of the Glaxo Wellcome
Companies declining to participate in the project or the failure of the parties
to negotiate a mutually satisfactory agreement within the stipulated time
period, then such Derogated Technology or
<PAGE>
Derogated Improvements shall again be deemed Derogatable Technology or
Derogatable Improvements, respectively, and the Glaxo Wellcome Companies shall
again have a right of first negotiation as set forth above to such Derogatable
Technology and to such Derogatable Improvements and Maxygen shall be obligated
to present any collaborative project to develop such Derogatable Technology and
Derogatable Improvements in the field of human pharmaceuticals to the Glaxo
Wellcome Companies prior to seeking a third party for a collaborative partner
based on such Derogatable Technology and Derogatable Improvements in the field
of human pharmaceuticals.
5.7.5 Notwithstanding the foregoing, in the event that Maxygen enters
into a research collaboration with a third party to develop Derogatable
Technology or Derogatable Improvements in the field of human pharmaceuticals,
wherein the third party initially proposed, in confidence, the collaboration to
Maxygen, then the Glaxo Wellcome Companies agree that the Glaxo Wellcome
Companies right to first negotiation for a collaborative project to develop the
Derogatable Technology or Derogatable Improvements specifically encompassed
within such collaboration shall terminate and the Derogatable Technology and
Derogatable Improvements specifically encompassed within such collaboration
shall be deemed Derogated Technology and Derogated Improvements,
respectively.
5.7.6 The Glaxo Wellcome Companies shall have no rights to the
Derogatable Technology and Derogatable Improvements except as otherwise provided
in this section.
5.8 ASSOCIATED TECHNOLOGY
Each party agrees that the other party shall not be prevented from using
any Associated Technology of one party which Associated Technology was
rightfully acquired by the other party under this Technology Transfer Agreement,
provided that such use does not (1) result in improper disclosure or misuse of
Confidential Information or (2) make use of rights to Patents and Applications
which rights are not expressly provided by this Agreement. Each party further
agrees to maintain such Associated Technology as Confidential Information with
the same degree of care that it exercises with respect to its own information of
like import, but in no event less than reasonable care.
5.9 TRADEMARKS
5.9.1 For good and valuable consideration, receipt of which is hereby
acknowledged by the Glaxo Wellcome Companies, the Glaxo Wellcome Companies
hereby assigns to Maxygen all right, title, and interest to the marks MAXYGEN,
SHUFFLING, MOLECULAR BREEDING, and SEXUAL PCR, including all goodwill associated
therewith. Maxygen shall be responsible for any and all future expenses
associated with registration and/or prosecution of these marks. The rights of
<PAGE>
Maxygen at common law and/or to the end of the term or terms of which
registration of the mark may be granted or renewed are to be enjoyed by Maxygen
for Maxygen's own use and enjoyment, and for the use and enjoyment of its
successors, assigns and other legal representatives, as fully and entirely as
the same would have been held and enjoyed by the Glaxo Wellcome Companies if
this assignment and sale had not been made; including all claims for royalties
for licensing of the marks provided in this section and damages by reason of
past infringement(s) of these marks, with the right to sue for and collect the
same for its own use and benefit, for the use, benefit and on behalf of its
successors, assigns and other legal representatives.
5.10 Except as expressly provided herein, the licensing, assignment or
other conveyance of rights under this Agreement shall not be construed as
conferring any rights, license or title, express or implied, in or to any
Patents and Applications or Associated Technology.
6.0 TERM AND TERMINATION
6.1 Term. The term of this Agreement shall commence on the Effective Date
and shall continue in force until terminated upon the expiration of the
last-to-expire of the Licensed Patents and Applications unless terminated
earlier as set forth below.
6.2 Termination for Material Breach. If either party fails to comply with
any of the material terms and conditions of this Agreement, the other party may
terminate this Agreement upon sixty (60) days' written notice to the defaulting
party specifying any such breach unless within the period of such notice, all
breaches specified therein shall have been remedied, or unless the breach is one
which, by its nature, cannot be fully remedied in sixty (60) days, but the
breaching party has undertaken reasonable, good faith efforts toward remedying
the breach within such sixty (60) days, and continues to use reasonable, good
faith, and diligent efforts to promptly remedy the breach.
A material breach includes but is not limited to either party's
failure to comply with the provisions prohibiting disclosure or unauthorized use
of Confidential Information.
6.3 Effect of Termination. Upon termination of the Agreement, as provided
in Section 6.2, all licenses granted by the nonbreaching party to the other
party under this Agreement shall terminate and all other rights granted by the
nonbreaching party to the other party shall revest in the nonbreaching party.
6.4 Survival. The provisions of the following sections and paragraphs
shall survive expiration or termination of this Agreement: Section 4.0
("Definitions"); Paragraph 10.8 ("Notices"); Paragraph 6.3 ("Effect of
Termination"); Section 7.0 ("Confidential Information"); Section 8.0
("Warranties and Disclaimer of Warranties"); and Section 9.0 ("Limitations of
Liability").
<PAGE>
7.0 CONFIDENTIAL INFORMATION
7.1 Restrictions. Each party will hold in confidence any Confidential
Information received by it from the other and will protect the confidentiality
of such with the same degree of care that it exercises with respect to its own
information of like import, but in no event less than reasonable care.
7.2 Exceptions. Notwithstanding any provisions herein concerning
non-disclosure and non-use of the Confidential Information, the obligations of
the above Paragraph will not apply to any portion of the Confidential
Information which:
(a) is now or which hereafter through no act or failure to act on
the part of the receiving party becomes generally known without restriction on
disclosure;
(b) is hereafter furnished to the receiving party by a third party
as matter of right without restriction on disclosure;
(c) is independently developed by the receiving party without the
use of the Confidential Information;
(d) is disclosed to others by the party owning the Confidential
Information without restriction.
(e) is required to be disclosed by the receiving party pursuant to a
legal, judicial, or administrative procedure, or is otherwise required by law;
providing the party required to disclose the Confidential Information gives the
party owning the Confidential Information notice of the proposed disclosure with
sufficient time to seek relief and that such disclosure, if made, is made in a
fashion as to maximize the protection of the information from further
disclosure;
(f) is already known to the receiving party without restriction on
disclosure; or
(g) is approved for release or use without restriction by written
authorization of an officer of the party owning the Confidential Information.
7.3 Advising Employees and Suspected Violations. Each party will inform
its employees having access to the Confidential Information of such party's
limitations, duties, and obligations regarding non-disclosure and copying of the
Confidential Information and will obtain their agreement, whether by means of
existing or new agreements, to comply with those limitations, duties, and
obligations. Each party will provide notice to the other party immediately after
learning of, or having reason to suspect, a breach of any of the confidential
restrictions set forth in this section.
<PAGE>
7.4 Independent Development. Each party understands that the other party
may develop information internally, or receive information from third parties,
that may be similar to Confidential Information. Accordingly, nothing in this
Agreement will be construed as a representation or inference that each party
will not develop or acquire products, for itself or others, that compete with
the products, systems, or methods contemplated by the other party's Confidential
Information, provided that the party has not done so in breach of this
Agreement.
8.0 WARRANTIES AND DISCLAIMER OF WARRANTY
8.1 Right to Enter into Agreement. The parties warrant that they have the
right and power to enter into this Agreement and to convey the rights granted
herein.
8.2 DISCLAIMER OF WARRANTY. EXCEPT AS PROVIDED IN THIS SECTION, NEITHER
PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES. WARRANTIES DISCLAIMED INCLUDE,
BUT ARE NOT LIMITED TO, THE WARRANTIES OF DESIGN, MERCHANTABILITY, OR FITNESS
FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE
PRACTICE. NO REPRESENTATION OR STATEMENT NOT EXPRESSLY CONTAINED IN THIS
AGREEMENT WILL BE BINDING UPON EITHER PARTY AS A WARRANTY OR OTHERWISE.
8.3 Nothing in this Agreement shall be construed as:
(i) a warranty or representation by either Party as to the
validity or scope of any Licensed Patent; or
(ii) a warranty or representation that anything made, use, sold or
otherwise disposed of under any license granted in this Agreement is or will be
free from infringement of patents of third parties; or
(iii) a requirement that either Party shall file any patent
application, secure any patent, or maintain any patent in force; or
(iv) an obligation to bring or prosecute actions or suits against
third parties for infringement; or
(v) an obligation to furnish any manufacturing or technical
information or training; or
(vi) conferring a right to use in advertising, publicity, or
otherwise any trademark or tradename of either Party
<PAGE>
9.0 LIMITATIONS OF LIABILITY
9.1 IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOST
REVENUES OR PROFITS OR OTHER INCIDENTAL, SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES ARISING OUT OF THIS AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
10.0 MISCELLANEOUS
10.1 Force Majeure. Neither party will be deemed in default of this
Agreement to the extent that performance of its obligations or attempts to cure
any breach are delayed or prevented by reason of any act of god, fire, natural
disaster, accident, act of government, or any other cause beyond the control of
such party ("Force Majeure"), provided that such party gives the other party
written notice thereof, and uses good faith efforts to so perform or cure. In
the event of such a Force Majeure, the time for performance or cure will be
extended for a period equal to the Force Majeure, but in no event more than six
(6) months.
10.2 Governing Law. This Agreement is deemed entered into in the state of
California and will be governed and construed in all respects according to the
laws of California as such laws are applied to agreements between California
residents entered into and entirely performed within California (except that
body of law controlling conflict of laws). Any litigation or other dispute
resolution between the parties, relating to this Agreement will take place in
Santa Clara County, California. By executing this Agreement, the parties consent
to personal jurisdiction of, and venue within the state and federal courts
within that country.
10.3 Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, will be settled by
arbitration before a single arbitrator, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. The
arbitration will take place in Palo Alto, California. The arbitration will be
conducted in the English language, and each party will bear its own expenses and
attorneys fees connected with the arbitration regardless of the outcome.
If the parties cannot agree on a single arbitrator, each party will
appoint an arbitrator, and the two appointed arbitrators will appoint a third
neutral arbitrator, whereupon the arbitration will take place before the three
arbitrators, so appointed.
10.4 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be determined by a court of
competent jurisdiction to be invalid or unenforceable under applicable law, the
remaining provisions of this Agreement will be interpreted so as best to
reasonably effect the intent of the parties. The
<PAGE>
parties further agree to replace any such invalid or unenforceable provisions
with valid and enforceable provisions designed to achieve, to the extent
possible. The business purposes and intent of such invalid and unenforceable
provisions.
10.5 Relationship to the Parties. No employees, consultants, contractors,
or agents of one party are agents, employees, franchisees, or joint ventures of
the other party, nor do they have any authority to bind the other party by
contract or otherwise to any obligation. They will not represent to the
contrary, either expressly, implicitly, or otherwise.
10.6 Assignment. Neither party will assign this Agreement to a third party
without the other party's prior written approval, except to a third party
pursuant to a merger, sale of all or substantially all of the business of which
this Agreement is a part, or other corporate reorganization.
10.7 Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the parties hereto and to their respective successors and
assigns, subject to the provisions of Paragraph 10.6.
10.8 Notices. All notices required hereunder must be in writing and
delivered either in person or by a means evidenced by a delivery receipt, to the
address specified in this Agreement or as otherwise notified in writing. Such
notice will be effective upon receipt.
Notices to the Glaxo Wellcome Companies will be to the attention of:
Affymax N.V. and Affymax Technologies N.V. Via Facsimile 011-44-181-966-8838
c/o Dr. Alan Hesketh Confirmation by DHL Courier
Manager, Intellectual Property Department
Glaxo Wellcome plc
Glaxo House, Berkeley Avenue
Greenford, Middlesex, United Kingdom UB6 ONN
Dr. Gordon Ringold Via Facsimile (415) 424-0832
Chief Executive Officer Confirmation by Registered Mail
Affymax Research Institute
4001 Miranda Avenue
Palo Alto, CA 94304
Notices to Maxygen will be to the attention of:
Dr. Alejandro Zaffaroni Via Facsimile (415) 424-0832
Chief Executive Officer Confirmation by Registered Mail
Maxygen, Inc.
<PAGE>
4001 Miranda Avenue
Palo Alto, CA 94304
10.9 No Waiver. Failure by either party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or any other
provision.
10.10 No Rights in Third Parties. This Agreement is made for the benefit of
the parties, and not for the benefit of any third parties unless otherwise
agreed to by the parties.
10.11 Headings. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
10.12 Construction. This Agreement has been negotiated by the parties and
by their respective counsel. This Agreement will be fairly interpreted in
accordance with its terms and without any strict construction in favor of or
against either party.
10.13 Entire Agreement. This Agreement, including all Attachments hereto,
represents the entire understanding and agreement of the parties with respect to
the subject matter of the Agreement, and supersedes all prior or contemporaneous
understandings and agreements, whether written or oral, except as specifically
provided in this Agreement. Unless otherwise provided herein, this Agreement may
not be modified, amended, rescinded, or waived, in whole or part except by a
written instrument signed by the duly authorized representatives of both
parties.
<PAGE>
11.0 EXECUTION BY THE PARTIES
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives. This Agreement may be
executed in one or more counterparts, each of which will be deemed an original,
but all of which will constitute but one and the same instrument.
Affymax Technologies N.V.
By: /s/ Adrian Hennah
Name: Adrian Hennah
Title: Director
Date: March 12, 1997
Glaxo Group Limited
By: /s/ Stephen J. Cowden
Name: Stephen J. Cowden
Title: Company Secretary
Date: March 12, 1997
Maxygen, Inc.
By: /s/ Alejandro Zaffaroni
Name: Alejandro Zaffaroni
Title: President
Date:
<PAGE>
SCHEDULE A
For the purposes of this term sheet, "Licensed Patents and Applications" shall
be defined as the following patents and applications:
1. U.S. Serial No. 08/198,431 filed February 17, 1994
2. U.S. Serial No. 08/537,874 filed October 30, 1995
3. U.S. Serial No. 08/564,955 filed November 30, 1995
4. U.S. Serial No. 08/621,859 filed March 25, 1996
5. U.S. Serial No. 08/621,430 filed March 25, 1996
6. U.S. Serial No. 08/650,400 filed May 20, 1996
7. PCT/US95/02126 filed February 17, 1995 and
National Phase counterparts:
a) Australia Appln. No. 29714/95;
b) Canada Appln. No. 2,182,393;
c) China Appln. No. 95191679.3;
d) Europe Appln. No. 95911826.6;
e) Japan Appln. No. 7-521977;
f) Korea Appln. No. 96-704465;
g) Russia Appln. No. 96118426
8. U.S. Serial No. 08/721,824 filed September 27, 1996
9. U.S. Serial No. 08/722,660 filed September 27, 1996
10. Townsend & Townsend file filed December 2, 1996
No. 16528J-014613PCT, entitled "Methods for generating
polynucleotides having desired characteristics by iterative selection and
recombination"
11. Townsend & Townsend file filed December 18, 1996
No. 16528J-0202500, entitled "Methods and compositions for polypeptide
engineering"
12. U.S. Serial No. 08/425,684 filed April 18, 1995
13. U.S. Serial No. 08/675,502 filed July 3, 1996
14. PCT/US96/05480 filed April 18, 1996
15. Provisional Application filed January , 1997
Townsend & Townsend file No. 018907-0207-OOUS, entitled "Recursive
sequence recombination between libraries of fragments and cellular genomes
of evolving whole cells and organisms"
16. All rights of Glaxo Wellcome Companies relating to Shuffling Patents and
Applications under the Affymax/Affymetrix Technology Transfer
Agreement; effective date, March 2, 1995.
<PAGE>
SCHEDULE B
For the purposes of this term sheet, the patents and patent applications related
to various peptide display technologies shall be defined as the following
patents and applications:
Peptides-on-Plasmids Display-Patents and Applications
- ----------------------------------------------------
1. U.S. Patent No. 5,270,170
2. U.S. Patent No. 5,338,665
3. European Patent Application No. 93908777.1
4. U.S. Patent No. 5,498,530
5. U.S. Serial No. 08/548,540 filed October 26, 1995
6. PCT Patent Application No. US96/09809
Polysome Display Patents and Applications
- -----------------------------------------
1. U.S. Serial No. 08/300,262 filed September 2, 1994
2. U.S. Serial No. 08/586,176 filed January 17, 1996
Phage Display Patents and Applications
- --------------------------------------
1. U.S. Patent No. 5,427,908
2. European Patent Application No. 91908963.1
3. Japan Patent Application No. 3-508896
4. U.S. Serial No. 08/376,326 filed January 20, 1995
5. U.S. Serial No. 08/450,754 filed May 25, 1995
6. U.S. Serial No. 07/541,108 filed June 20, 1990
7. U.S. Patent No. 5,432,018
8. European Patent Application No. 91913221.7
9. Japan Patent Application No. 3-512623
10. Australian Patent No. 663,055
11. Canada Patent No. 2,084,411
12. U.S. Serial No. 08/465,295 filed June 5, 1995
13. U.S. Serial No. 08/463,390 filed June 5, 1995
14. U.S. Serial No. 08/465,484 filed June 5, 1995
15. U.S. Serial No. 08/466,653 filed June 6, 1995
Dulbecco Patent
- ---------------
1. U.S. Patent No. 4,593,002
Receptor Immobilization Patent Application
- -----------------------------------------
1. U.S. Serial No. 08/309,345 filed September 19, 1994 as a file wrapper
continuation of U.S. Serial No. 07/947,339, filed September 18,
1992
<PAGE>
MODIFICATION TO
AFFYMAX/MAXYGEN TECHNOLOGY
TRANSFER AGREEMENT
This modification to the Affymax/Maxygen Technology Transfer Agreement (the
Agreement), is made by and between Affymax Technologies N.V. and Glaxo Group
Limited, each of which is a corporation having a registered address at Glaxo
Wellcome House, Berkeley Avenue, Greenford, Middlesex, United Kingdom
(collectively referred to as "the Glaxo Wellcome Companies") and Maxygen, Inc.,
a Delaware corporation having an address at 3410 Central Expressway, Santa
Clara, CA 95051 (referred to as "Maxygen") and shall have an effective date of
March 1, 1998.
1.0 Definitions
-----------
"Antibodies on Phage Patents and Applications"' refer to the following
Patents and Applications: US Patent No. 5,427,908; European Patent
Application No. 91908963.1; and Japan Patent Application No. 3-508896
"Modification Agreement" shall refer to this agreement.
2.0 Modification of Article 5.2
---------------------------
Article 5.2 of the Agreement is hereby modified in its entirety to read as
follows:
5.2.1 The Glaxo Wellcome Companies hereby grant Maxygen a perpetual,
worldwide, royalty-free, non-exclusive license, without the right
to sublicense, to Peptides-on-Plasmids Display Patents and
Applications, Polysome Display Patents and Applications, Phage
Display Patents and Applications, the Dulbecco Patent, and Receptor
Immobilization Patent Application. Maxygen agrees that use of these
patents and applications shall be [*******]. Maxygen further agrees
that Maxygen shall not enter into a research collaboration with a
third party, or conduct research on behalf of a third party, for
the purpose of developing reagents for commercial use in the
Diagnostic Field and using antibodies on phage technology as
claimed in the Antibody on Phage Patents and Applications.
Notwithstanding the foregoing, such restriction shall apply only in
those countries in which the Antibody on Phage Patents have
issued.
5.2.2 For purposes of this Modification Agreement, "Diagnostic Field"
shall mean the [*******].
3.0 Miscellaneous
-------------
The terms of the Agreement not specifically modified by this Modification
Agreement shall continue in effect.
<PAGE>
4.0 Execution by the Parties
------------------------
IN WITNESS WHEREOF, the parties have caused this Modification Agreement to
be executed by their duly authorized representatives. This Modification
Agreement may be executed in one or more counterparts, each of which will be
deemed an original, but all of which will constitute but one and the same
instrument.
Affymax Technologies N.V.
By: /s/ Alan Baxter
Name: Alan Baxter
Title: Managing Director
Date: November 13, 1998
Glaxo Group Limited
By: /s/ S M Bicknell
Name: S M Bicknell
Title: Assistant Secretary
Date: May 11, 1998
Maxygen, Inc.
By: /s/ Russell J. Howard
Name: Russell J. Howard
Title: President & CEO
Date: October 7, 1998
<PAGE>
Exhibit 10.11
LICENSE AND COLLABORATION AGREEMENT
between MAXYGEN, INC.
3410 Central Expressway
Santa Clara, California 95051, USA
(hereinafter referred to as MAXYGEN)
and NOVO NORDISK A/S
Novo Alle
DK-2880 Bagsvaerd
Denmark
(hereinafter referred to as NOVO NORDISK)
WHEREAS, MAXYGEN has developed and possesses expertise, know-how and
intellectual property rights within the generic field of in vitro and in vivo
Shuffling (as defined below);
WHEREAS, NOVO NORDISK has developed and possesses expertise, know-how and
intellectual property rights within the field of in vitro and in vivo Shuffling
for creating and screening genetic diversity for use in development of
Industrial Proteins (as defined below);
WHEREAS, MAXYGEN and NOVO NORDISK are both interested in exchanging such
expertise and know-how and granting each other access to use such intellectual
property rights in certain defined fields.
WHEREAS, NOVO NORDISK and MAXYGEN are both interested in further developing
such expertise, know-how and intellectual property rights by using collaborative
efforts; and
WHEREAS, NOVO NORDISK, as part of such collaboration, is willing to fund
certain development activities to be carried out at MAXYGEN's premises in
accordance with the terms described herein.
* CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN 0MITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
1
<PAGE>
NOW, THEREFORE, MAXYGEN and NOVO NORDISK hereby agree as follows:
1. DEFINITIONS
The following definitions shall control the construction of each of the
following terms wherever they appear in this Agreement:
The term "Affiliate" shall mean any corporation or other entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the designated party but only for
so long as such relationship exists. For the purposes of this section,
"Control" shall mean ownership of at least fifty (50) percent (or such lesser
-------
percent as may be the maximum that may be owned by foreign interests pursuant to
the laws of the country of incorporation) of the shares of stock entitled to
vote for directors in the case of a corporation and at least fifty (50) percent
(or such lesser percent as may be the maximum that may be owned by foreign
interests pursuant to the laws of the country of domicile) of the interests in
profits in the case of a business entity other than a corporation.
The term "Agreement" shall mean this present License and Collaboration
Agreement.
The term "Assay Technology" shall mean methods wherein genetic diversity
generated by Shuffling is selected or screened to identify the subset of genetic
variants for inclusion in a subsequent application of Shuffling or to identify
the desired product.
The term "Development Program" shall mean research and development
activities within the areas outlined in Exhibit A attached hereto, as
---------
supplemented or amended from time to time according to mutual written agreement
between the Parties. Cf. Also Section 8.1.
The term "Effective Date" shall mean the date of the last signature hereto.
The term "Industrial Protein Expression Pathway" shall mean any evolvable
process within a cell that leads to increased expression of the desired form of
an Industrial Protein, including, but not limited to evolution of enzymes and
compounds that modify or transport proteins per se, creation of improved
processes of cellular DNA uptake, evolution of stable, replicating genetic
elements such as plasmids, as well as cellular processes or substances that are
genetically encoded but not enzymatic, for example, lipid compositions of a cell
membrane that affect expression of the desired form of the Industrial Protein.
2
<PAGE>
The term "Industrial Protein" shall mean [*******] for production, sale
and/or use in the NOVO NORDISK Field or, upon being activated in accordance with
Section 7.3 hereof, a NOVO NORDISK Preferred Area.
The term "In Vitro Shuffling" shall mean Shuffling where the gene
recombination event occurs outside of a cell, but shall not include any Assay
Technology.
The term "In Vivo Shuffling" shall mean Shuffling where the gene
recombination event occurs inside of a cell, but shall not include any Assay
Technology.
The term "Jointly Owned Patents" shall mean any patent applications and/or
patents based on inventions made in the course of the Development Program,
including any reissued patents, reexamined patents, divisions, renewals,
continuations and continuations-in-part, substitutions, extensions or foreign
counterparts thereof.
The term "Licensed Product" shall mean any Industrial Protein (i) derived
by Shuffling or (ii) expressed, made or produced by the use of a vector,
organism or other material that has been improved by Shuffling, regardless of
whether such Industrial Protein is Shuffled, in either case in respect of which
the developing, making, having made, using or selling is covered by a Valid
Claim in the relevant country and/or which is developed and/or manufactured
through the use of MAXYGEN Know-How and including, but not limited to, any
Industrial Protein developed or manufactured by application or use of an
Industrial Protein or such improved vector, organism or other material for such
purpose.
The term "MAXYGEN Break-through Invention" shall mean any invention made by
MAXYGEN during the term of this Agreement but outside the scope and activities
of the Development Program which fulfills the following criteria:
(a) The MAXYGEN Break-through Invention shall be an invention that is the
result of [*******].
(b) The MAXYGEN Break-through Invention shall be patented or patentable.
The term "MAXYGEN Future Patents" shall mean any patent applications filed
by or on behalf of MAXYGEN on or after the Effective Date and any patents issued
thereon, provided the inventions covered by such patents and/or patent
applications have been made by MAXYGEN before the expiry or termination of the
Development Program but outside the scope of the Development Program and,
furthermore, provided such inventions consist of Shuffling methods and are
applicable within the NOVO NORDISK Field and, finally, provided such patent
applications would have been included in Exhibit C by virtue of their comprising
Shuffling technology had they been filed prior to the Effective Date.
3
<PAGE>
The term "MAXYGEN Field" shall mean all applications or uses of Shuffling
which fall outside the NOVO NORDISK Field. Thus, the MAXYGEN Field shall
include, but not be limited to, [*******], excluding, however, the NOVO NORDISK
Field and existing specific projects of NOVO NORDISK as specified in Exhibit B.
---------
The term "MAXYGEN Know-How" shall mean any proprietary and confidential
know-how, other than MAXYGEN Patents, MAXYGEN Future Patents, Jointly Owned
Patents, and MAXYGEN Breakthrough Inventions controlled by MAXYGEN on or after
the Effective Date, including technical data, experimental results,
specifications, techniques, methods, technology, processes, recipes and written
materials, all of which shall be related exclusively to Shuffling. For the
purposes of this definition, the term "controlled" shall mean owned and/or
having the ability to grant licenses or sublicenses to and/or disclose MAXYGEN
Know-How without violating the terms of any bona fide agreement under which
MAXYGEN may have acquired such rights.
The term "MAXYGEN Patents" shall mean the patents and patent applications
listed in Exhibit C attached hereto or referred to in Section 2.4 hereof and any
---------
patents issued on any such patent applications and including any reissued
patents, re-examined patents, divisions, renewals, continuations and
continuations in part, substitutions, extensions or foreign counterparts
thereof.
The term "Metabolic Pathways" shall mean a process using cells or cell
lysates from a single organism that utilizes [*******] except for the use in
Industrial Protein expression in the NOVO NORDISK Field.
The term "Minimum Royalty Level" shall have the meaning set forth in
Section 3.5.
The term "Net Proceeds of Sales" shall mean NOVO NORDISK's and its
Affiliates' and sublicensees' (other than agents, distributors, toll
manufacturers, customers and other end users that are not Affiliates of NOVO
NORDISK) gross receipts from sales of Licensed Products when invoiced to a third
party, less the following deductions actually allowed and taken by such third
parties and not otherwise received by or reimbursed to NOVO NORDISK or its
Affiliates or sublicensees:
(a) trade, cash and/or quantity discounts allowed, if any;
(b) refunds, rebates or allowances which effectively reduce the selling
price;
(c) actual returns and allowances;
(d) credits, if any, to customers on account of retroactive price
reductions;
(e) value added taxes and sales taxes;
4
<PAGE>
(f) duties;
(g) freight, insurance and other transportation charges to the extent added
to the sales price and set forth separately as such on the total amount
invoiced; and
(h) bad debt.
Sales of Licensed Products between NOVO NORDISK and its Affiliates or
between two or more of NOVO NORDISK's Affiliates shall not be considered
included within Net Proceeds of Sales.
The term "NOVO NORDISK Field" shall mean the use of Shuffling for the
development, production and/or sale of Industrial Proteins in the areas
described in Exhibit D attached hereto and, upon its activation in accordance
---------
with the provisions of Section 7.3 hereto each Preferred Area, excluding,
however, such use for the purpose of [*******] and excluding existing specific
projects of MAXYGEN as specified in Exhibit E. The NOVO NORDISK Field shall not
include the cure, treatment, mitigation, prevention or diagnosis of human or
animal diseases, except as set forth in Section 2.2 below.
The term "NOVO NORDISK Future Patents" shall mean any patent applications
filed on or after the Effective Date solely by or on behalf of NOVO NORDISK's
Enzyme Business (as organized and operated as a separate division according to
objective and bona fide criteria) and any patents issued thereon, provided the
inventions covered by such patents and/or patent applications have been made by
NOVO NORDISK before expiry or termination of the Development Program but outside
the scope of the Development Program and, furthermore, provided such inventions
consist of Shuffling methods and, finally, provided such patent applications
would have been included in Exhibit F by virtue of their comprising Shuffling
technology had they been filed prior to the Effective Date.
The term "NOVO NORDISK Patents" shall mean the patents and patent
applications listed in Exhibit F attached hereto and any patents issued on any
---------
such patent applications, including any reissued patents, re-examined patents,
divisions, renewals, continuations and continuations-in-part, substitutions,
extensions or foreign counterparts thereof.
The term "NOVO NORDISK Preferred Areas" shall mean the fields of
application of Industrial Proteins described in Exhibit G attached hereto and
---------
any other fields of interest selected by NOVO NORDISK in accordance with the
procedures set forth in Section 7 below. The NOVO NORDISK Preferred Areas shall
not include the cure, treatment, mitigation, prevention, or diagnosis of human
or animal diseases.
5
<PAGE>
The term "Party" shall mean either MAXYGEN or NOVO NORDISK, as appropriate,
whereas the term "Parties" shall mean MAXYGEN and NOVO NORDISK jointly.
The term "Shuffling" shall mean new methods (as of 17 February 1994) for
recombination of genetic material for creation and screening of genetic
diversity, comprising methods included in or similar to those described in
Exhibits C and F. Shuffling may be either in vivo or in vitro, but does not
include any Assay Technology. [*******]
The term "Valid Claim" shall mean a claim of an issued and unexpired patent
in the relevant country within the MAXYGEN Patents, the Jointly Owned Patents,
the MAXYGEN Future Patents and/or the MAXYGEN Breakthrough Inventions that has
not been held unenforceable, unpatentable or invalid by a court or other
governmental agency of competent jurisdiction or that has not been admitted to
be invalid or unenforceable through reissue, disclaimer or otherwise.
The term "Working Group" shall mean the collaborative body consisting of
representatives from both Parties, the tasks and working procedures of which
have been further outlined in Section 8.4 below.
2. EXCHANGE OF LICENSES
2.1 Grant of Licenses from MAXYGEN to NOVO NORDISK. MAXYGEN hereby grants
----------------------------------------------
to NOVO NORDISK a worldwide, royalty-bearing (in accordance with
below), exclusive, irrevocable (except as otherwise stated in Section 9) and
sublicensable right and license to practice the MAXYGEN Patents, the MAXYGEN
Know-How, the MAXYGEN Future Patents, the Jointly Owned Patents and the MAXYGEN
Break-through Inventions to make, have made, use, promote, market distribute and
sell Licensed Products within the NOVO NORDISK Field and any NOVO NORDISK
Preferred Areas which may be activated in accordance with Section 7 hereof.
2.2 Grant of Licenses from NOVO NORDISK to MAXYGEN. NOVO NORDISK hereby
----------------------------------------------
grants to MAXYGEN a worldwide, royalty-free, irrevocable (except as otherwise
stated in Section 9) and sublicensable right and license to practice, within the
MAXYGEN Field, the NOVO NORDISK Patents, NOVO NORDISK Future Patents and the
Jointly Owned Patents and any improvements by NOVO NORDISK of the MAXYGEN Know-
How to develop, make, have made, use, promote, market, distribute and sell
products. Said license shall be exclusive except as otherwise stated in Exhibits
F and H and except for use of NOVO NORDISK Patents and NOVO NORDISK Future
Patents for the cure, treatment, mitigation, prevention or diagnosis of human or
animal diseases, with respect to which this license shall be co-exclusive with
NOVO NORDISK. MAXYGEN's right to sublicense hereunder shall not include
sublicensing to third parties which, at the time of granting the sublicense,
have industrial enzymes as their primary business; in the event that MAXYGEN
should sublicense its
6
<PAGE>
rights hereunder to any third party which, to the best of MAXYGEN's knowledge,
has any activities within the industrial enzymes field, MAXYGEN shall
immediately inform NOVO NORDISK of the fact that such sublicense has been
granted without necessarily disclosing the field and terms of such sublicense.
Nothing herein shall prevent NOVO NORDISK from scientific or commercial
exploitation either by itself or through third parties (such as, but not limited
to, toll manufacturers, agents or distributors) of the NOVO NORDISK Patents and
the NOVO NORDISK Future Patents for the cure, treatment, mitigation, prevention,
or diagnosis of human or animal diseases.
2.3 Undisclosed MAXYGEN Patents as of the Effective Date. Any and all
----------------------------------------------------
patents or patent applications belonging to MAXYGEN as of the Effective Date and
relevant for use within the NOVO NORDISK Field or NOVO NORDISK Preferred Areas
which have not been disclosed, fully or in part, by MAXYGEN to NOVO NORDISK as
of the Effective Date shall be fully disclosed by MAXYGEN no later than fifteen
(15) days after the Effective Date and automatically be considered part of the
MAXYGEN Patents.
2.4 Undisclosed NOVO NORDISK Patents as of the Effective Date. NOVO
---------------------------------------------------------
NORDISK shall use diligent efforts within 60 (sixty) days from the Effective
Date to disclose to MAXYGEN as soon as practicable any and all patents or patent
applications belonging to NOVO NORDISK and relating to Shuffling as of the
Effective Date and relevant for use within the MAXYGEN Field which have not been
disclosed, fully or in part, by NOVO NORDISK to MAXYGEN as of the Effective Date
each of which shall automatically be considered part of the NOVO NORDISK
Patents.
3. ROYALTIES
3.1 Royalty Rates. The following royalty rates shall apply and be payable
-------------
by NOVO NORDISK with regard to NOVO NORDISK's and its Affiliates' sales of
Licensed Products:
Royalty Rate
Technology Applied by calculated on Net
NOVO NORDISK Proceeds of Sales
------------------------------------------ -----------------
MAXYGEN Patents: [*******]
MAXYGEN Know-How (subject to
fulfillment of the conditions outlined in
Section 3.2 hereof): [*******]
MAXYGEN Future Patents: [*******]
Jointly Owned Patents: [*******]
7
<PAGE>
MAXYGEN Break-through Inventions: [*******]
3.2 Royalties in Respect of MAXYGEN Know-How. NOVO NORDISK's payment of
----------------------------------------
royalties in respect of MAXYGEN Know-How on Net Proceeds of Sales of products
not covered by a Valid Claim shall be subject to the following:
(a) To the extent that NOVO NORDISK can document by competent evidence
that any third party is relying on [*******] in its development and/or
manufacturing of a product which is sold, in an amount equal to at
least [*******] percent of the sales by NOVO NORDISK in the relevant
country, in competition, either directly or indirectly, with an
Industrial Protein sold in such country by NOVO NORDISK, NOVO NORDISK
shall be relieved from paying royalties on Net Proceeds of Sales in
such country of the relevant Industrial Protein based solely on
MAXYGEN Know-How.
(b) The MAXYGEN Know-How used by NOVO NORDISK must relate to [*******]. It
is understood that royalties shall, nonetheless, become due at a rate
of [*******] per cent of Net Proceeds of Sales in respect of sales in
the USA of Licensed Products based on NOVO NORDISK's use of MAXYGEN
Know-How related to [*******], provided such use has taken place in
the period lasting from the Effective Date to the date of the first
publication of the MAXYGEN Know-How in question and furthermore
provided that [*******].
3.3 Notwithstanding Section 3.2, to the extent that NOVO NORDISK can
document by competent written evidence that it had developed, prior to the
earlier of the disclosure of information by MAXYGEN to NOVO NORDISK pursuant to
the Secrecy Agreement between the Parties dated March 7, 1997, or the Effective
Date, know-how or technology which is substantially similar to the MAXYGEN know-
how in question, no royalties shall be payable by NOVO NORDISK on the basis
solely of such MAXYGEN Know-How unless other MAXYGEN Know-How that has not been
so developed by NOVO NORDISK is also utilized to develop, make, have made, use,
promote, market, distribute or sell Licensed Products.
3.4 Only One Royalty Payable. The above royalty rates shall not be
------------------------
applied cumulatively. Thus, only one royalty shall be paid in respect of each
sale of any Licensed Product by NOVO NORDISK or its Affiliates, namely the
highest applicable rate.
3.5 Minimum Royalty.
---------------
(a) If the royalties otherwise payable hereunder by NOVO NORDISK in any
year beginning with the fourth year from the Effective Date are less
than the Minimum Royalty Levels set forth below, NOVO NORDISK shall
pay to MAXYGEN [*******] percent of the difference between the Minimum
Royalty Level for such year as stated below and the total royalties
otherwise
8
<PAGE>
payable hereunder including, but not limited to, royalties
attributable to MAXYGEN Know-How:
Year Minimum Royalty Level
----- ---------------------
[*******] [*******]
[*******] [*******]
[*******] [*******]
(b) An accumulated Minimum Royalty Level covering all NOVO NORDISK
Preferred Areas that have been activated shall be set, as to amount
and date of application as agreed to by the Parties, upon the
activation by NOVO NORDISK of each NOVO NORDISK Preferred Area.
(c) If NOVO NORDISK does not timely pay to MAXYGEN the stated Minimum
Royalty Level under either subparagraph (a) or subparagraph (b) above
by the end of sixty (60) days after the end of the applicable year,
the licenses granted to NOVO NORDISK by MAXYGEN shall [*******] within
the NOVO NORDISK Field and/or the NOVO NORDISK Preferred Areas, as
appropriate. In the event that MAXYGEN, after the possible [*******]
of NOVO NORDISK's license [*******] should grant a license to a third
party such license shall be granted on terms which, taken as a whole,
are not more favorable to such third party than the terms applying to
NOVO NORDISK's [*******] license.
4. PAYMENT OF AND ACCOUNTING FOR ROYALTIES
4.1 Keeping of Records.
------------------
NOVO NORDISK shall keep, and impose on its Affiliates to keep, complete and
correct records of Net Proceeds of Sales of Licensed Products for a period of
not less than three (3) years after the making of a royalty payment under this
Agreement.
4.2 Payment Term. All royalty payments under this Agreement shall become
------------
due and payable sixty (60) days after the last day of the calendar quarter in
which the corresponding sales of Licensed Products were made. Payment shall be
accompanied by a report on a country-by-country basis, showing the Net Sales in
each segment of the Field as listed on Exhibit D used in the computation of the
royalties payable. Any Minimum Royalty shall become due and payable sixty (60)
days after the end of the applicable year.
4.3 Currency and Exchange Rate. NOVO NORDISK shall make all payments to
--------------------------
MAXYGEN under this Agreement in U.S. Dollars and to a bank account to be
9
<PAGE>
designated by MAXYGEN. Net Proceeds of Sales shall be calculated on the basis of
the rates of exchange as quoted by the Wall Street Journal (U.S.A. Edition) on
the last business day of the calendar quarter in which the corresponding sales
of Licensed Products were made.
4.4 Auditor Statements. Upon MAXYGEN's request NOVO NORDISK shall provide
------------------
MAXYGEN with a statement from NOVO NORDISK's external auditors certifying the
correctness of NOVO NORDISK's royalty payments made hereunder. The statement
shall be provided at MAXYGEN's request and expense and no more than once in any
given calendar year.
4.5 Audit of NOVO NORDISK's Records. NOVO NORDISK shall allow MAXYGEN to
-------------------------------
appoint a firm of independent certified public accountants to whom NOVO NORDISK
has no reasonable objection. NOVO NORDISK shall give such accountant access,
during ordinary business hours and subject to a reasonable advance notice, to
such records of NOVO NORDISK as are necessary to verify the accuracy of any
royalty payments made or payable under this Agreement. Such access shall be
granted no more than once in a calendar year, at MAXYGEN's request and expense.
The independent certified public accountants shall be under a confidentiality
obligation to NOVO NORDISK to disclose to MAXYGEN in its report only the amount
and accuracy of royalty payments made or payable under this Agreement. In the
event it is determined that the records of NOVO NORDISK indicate that the amount
of royalties payable under this Agreement is more than that actually paid to
MAXYGEN, NOVO NORDISK shall pay such difference to MAXYGEN within thirty (30)
days of such accountant's report, and if that difference is greater than
[*******] percent [*******] of the amounts actually paid then the costs and
expenses of said independent certified public accountant shall be borne by NOVO
NORDISK.
5. WARRANTIES
5.1 MAXYGEN represents and warrants to NOVO NORDISK that:
(a) it has the right to grant to NOVO NORDISK the license granted
under Section 2.1 hereof and that said license does not conflict
with or violate the terms of any agreement between MAXYGEN and
any third party.
(b) it has duly informed NOVO NORDISK, prior to the Effective Date,
of administrative or judicial proceedings, if any, contesting the
inventorship, ownership, validity or enforceability of any
element of the MAXYGEN Patents.
10
<PAGE>
(c) it has not as of the Effective Date and it will not in the future
license the MAXYGEN Know-How to any legal entity competing with
NOVO NORDISK in the NOVO NORDISK Field or the NOVO NORDISK
Preferred Areas for use in such Field or Areas so long as NOVO
NORDISK retains rights therein pursuant to this Agreement.
(d) is unaware of any present patents or patent applications relating
to Shuffling of third parties, domestic or foreign, which would
be infringed by NOVO NORDISK in exercising its rights granted
under Section 2.1.
5.2 Warranties of NOVO NORDISK.
--------------------------
(a) it has the right to grant to MAXYGEN the license granted under
Section 2.2 hereof and that said license does not conflict with
or violate the terms of any agreement between NOVO NORDISK and
any third party.
(b) it has duly informed MAXYGEN, prior to the Effective Date, of
administrative or judicial proceedings, if any, contesting the
inventorship, ownership, validity or enforceability of any
element of the NOVO NORDISK Patents.
(c) is unaware of any present patents or patent applications relating
to Shuffling of third parties, domestic or foreign, that would be
infringed by MAXYGEN in exercising its rights granted under
Section 2.2.
6. PATENT PROSECUTION
6.1 Procedures. For all patent families licensed hereunder, the licensor
----------
shall inform about and, to the extent reasonably practicable as specified below,
give the licensee a reasonable opportunity to discuss and influence major
prosecution events. The licensor shall nonetheless have the final decision as to
any such matter unless the Working Group shall otherwise decide.
Such major prosecution events shall include official communications with
the examining division at European Patent Office and United States' Patent &
Trademark Office in the form of patent applications, including divisional
applications, reissue applications, continuations and continuations in part,
requests for examination, including reexamination, written opinions, amended
claims, final rejections and notices of allowance.
MAXYGEN and NOVO NORDISK shall each be responsible to utilize commercially
reasonable efforts to file, prosecute and maintain, at its expense, all patents
and patent applications included in their respective patent listings.
11
<PAGE>
The licensor shall use reasonably diligent efforts to provide to licensee
such communication from the licensor to the examining division no later than two
(2) weeks prior to the official communication.
The licensor shall use reasonably diligent efforts to disclose to the
licensee within two (2) weeks from its receipt such communications from the
examining division.
The licensee shall have the right to enforce, at its own expense, licensed
patent rights licensed to it within its field, i.e., the NOVO NORDISK Field or
the MAXYGEN Field, as appropriate. The licensee must inform the licensor of such
intention no later than three (3) months prior to initiation of such action. The
licensor must by written notice, within four (4) weeks from the date of receipt
of such information, decide to approve of such action or to delay it by up to a
further four (4) weeks' period. The licensor's comments and suggestions, if any,
in relation to the intended action shall be duly considered by the licensee. If
the licensee does not bring any such suit, the licensor shall have the right to
enforce, at its own expense, the said licensed patent rights. In any event the
Parties shall assist each other and cooperate in any such litigation. If NOVO
NORDISK shall institute any such enforcement with respect to uses of Shuffling
to which MAXYGEN would be entitled to royalties if NOVO NORDISK was so utilizing
Shuffling, MAXYGEN shall be entitled to twenty-five (25) percent of any cash
recovery by NOVO NORDISK after NOVO NORDISK has first recovered its reasonable
costs of enforcement. If MAXYGEN shall institute any such enforcement with
respect to uses of Shuffling in the NOVO NORDISK Field, NOVO NORDISK shall be
entitled to twenty-five (25) percent of any cash recovery by MAXYGEN after
MAXYGEN has first recovered its reasonable costs of enforcement.
Notwithstanding anything to the contrary herein, NOVO NORDISK shall be
fully entitled, at its own cost to enforce its patents within the field of cure,
treatment, mitigation, prevention or diagnosis of human or animal diseases.
The Parties shall keep one another informed of the status of and of their
respective activities regarding any litigation or settlement thereof concerning
the foregoing.
Neither Party shall make any settlement of any litigation or claim which
will result in the grant to any third party of any rights that will diminish the
other Party's rights granted hereunder.
NOTWITHSTANDING THE FOREGOING, NEITHER PARTY MAKES ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY PATENT
RIGHTS OR KNOW-HOW. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR CONSEQUENTIAL
DAMAGES OF ANY KIND.
12
<PAGE>
6.2 Invalidity or Unenforceability. In the event of any part of the
------------------------------
NOVO NORDISK Patents, the NOVO NORDISK Future Patents and/or the Jointly Owned
Patents being declared invalid or unenforceable in a final judgment or
administrative decision, MAXYGEN shall not be entitled to terminate this
Agreement.
In the event of any part of the MAXYGEN Patents, the MAXYGEN Future
Patents, the Jointly Owned Patents and/or any patent(s) included in the MAXYGEN
Breakthrough Inventions being declared invalid or unenforceable in a final
judgment or administrative decision, NOVO NORDISK shall not be entitled to
terminate this Agreement. NOVO NORDISK shall no longer have any obligation to
pay royalties on Net Proceeds of Sales of a product to MAXYGEN after final
judgment or administrative decision that determines that there is no material
Valid Claim included in any MAXYGEN Patent or MAXYGEN Future Patent that covers
the product, on a country-by-country basis, and MAXYGEN Know-How has not been
used to develop or manufacture such Licensed Product. Moreover, NOVO NORDISK
shall be entitled to [*******] provided that NOVO NORDISK shall not be entitled
during any [*******] to [*******] an amount higher than [*******] and,
furthermore provided that NOVO NORDISK shall not be entitled to make any
[*******] unless it has been met with competition which has reached a level
corresponding to at least [*******] of NOVO NORDISK's own sales of the same
Industrial Protein in the country in question.
7. NOVO NORDISK PREFERRED AREAS
7.1 Already Defined NOVO NORDISK Preferred Areas.
--------------------------------------------
The fields of application and production for Industrial Proteins described
in Exhibit F hereof shall be considered to be included in the NOVO NORDISK
---------
Preferred Areas, until otherwise determined by NOVO NORDISK as per Section 7.2
below.
7.2 Procedures for Selection of New NOVO NORDISK Preferred Areas.
------------------------------------------------------------
Altogether, NOVO NORDISK shall be entitled, at any time, to reserve up to
[*******] NOVO NORDISK Preferred Areas as fields of potential interest for NOVO
NORDISK to which to expand the license granted under Section 2.1 above as set
forth in Exhibit F. Notwithstanding anything to the contrary herein, NOVO
NORDISK shall be entitled to replace any selected NOVO NORDISK Preferred Areas
with a different Preferred Area insofar as such replacement would not be
obstructed by MAXYGEN's bona fide obligations vis-a-vis third parties entered
into in the meantime or developments made by or on behalf of MAXYGEN.
7.3 Procedures for Activation of NOVO NORDISK Preferred Areas. NOVO
---------------------------------------------------------
NORDISK shall activate its right to a Preferred Area by giving notice to MAXYGEN
in accordance with Section 17 hereof, in which event the Parties shall enter
into a license to be governed by the basic licensing terms contained herein and
terminating upon termination or expiration of the basic license grant hereunder
(Sections 2 through 7 and
13
<PAGE>
9), it being understood, however, that the royalty rates and level of Annual
Maintenance Fee and a work plan therefor shall be negotiated in good faith on a
case-by-case basis. Unless MAXYGEN's technology in question qualifies as MAXYGEN
Break-through Inventions, the royalty rate payable by NOVO NORDISK to MAXYGEN
shall in no event exceed [*******] percent and shall in no event be lower than
[*******] percent.
7.4 Notwithstanding the foregoing:
(a) if MAXYGEN should receive a bona fide offer initiated by a third
party with respect to such Preferred Area, it shall have the right
so to inform NOVO NORDISK and provide to NOVO NORDISK a right of
first negotiation with respect to such Area on terms at least as
favorable to NOVO NORDISK as those to be proposed to the third
party or that would be reasonable and in the spirit of this
Agreement if MAXYGEN has determined to commit its own resources.
If NOVO NORDISK does not accept such terms within forty-five (45)
days, MAXYGEN shall be free to enter into such agreement with the
third party.
(b) If MAXYGEN should determine to commit its own resources to a
Preferred Area, it shall be required first to offer to NOVO
NORDISK the opportunity for sixty (60) days to activate the
Preferred Area in question in accordance with Section 7.3 above.
If NOVO NORDISK does not elect to activate such Preferred Area on
its own behalf, MAXYGEN shall be free to proceed with developments
in such Preferred Area on its own behalf.
8. DEVELOPMENT COLLABORATION
8.1 Scope of Development Collaboration. The Parties hereby undertake to
----------------------------------
jointly carry out a scientific development cooperation in accordance with the
Development Program with the purpose of improving the protection of the
technology and the exclusive position status provided by the MAXYGEN Patents and
the NOVO NORDISK Patents, both within the MAXYGEN Field and the NOVO NORDISK
Field. The more detailed description of activities together with a time schedule
shall be agreed in writing between the Parties no later than sixty (60) days
after the Effective Date. The development work itself shall commence no later
than 1 January 1998.
8.2 Exchange of Information and Results. Each of MAXYGEN and NOVO
-----------------------------------
NORDISK shall, free of separate charge, fully and promptly disclose to each
other all inventions that pertain to Shuffling, whether or not patentable, made
by it or on its behalf in the course of the Development Program. Furthermore,
each Party shall disclose to the other Party any know-how, data, technology,
methods or other information in its possession which could facilitate the other
Party's performance of its specific tasks under the Development Program, which
may only be used by the other Party to perform its specific tasks under the
Development Program.
14
<PAGE>
8.3 Performance of Obligations. Each Party shall use its best efforts
--------------------------
to diligently carry out its tasks under the Development Program.
8.4 Working Group. A Working Group consisting of three (3) members
-------------
appointed by MAXYGEN and three (3) members appointed by NOVO NORDISK shall be
established in order to monitor the progress of the cooperation under this
Agreement including the Development Program.
Furthermore, the Working Group shall in good faith discuss questions
related, but not limited to:
. goals and time frame of the cooperation,
. setting of priorities within the scope of the Development Program,
. patent issues, e.g., filing, strategy, determination of inventorship,
etc.,
. possible change to or abandonment of Development Program,
. possible conflicts of interest, and
. inclusion of any third parties or any intellectual property rights or
know-how belonging to third parties in the project.
During such discussions the Parties shall aim at reaching unanimity.
However, in the absence of such unanimity, the Working Group shall not have any
decision powers, but shall refer the matter to the top management of NOVO
NORDISK and MAXYGEN, respectively, for settlement.
The Working Group shall meet whenever requested by either Party and
whenever deemed relevant by the Working Group. At least one (1) member from each
side shall participate at each meeting. Furthermore, relevant scientific or
other staff from either Party may attend. The members of the Working Group shall
communicate to the extent necessary in order to coordinate their efforts and
shall be responsible for the drafting of detailed minutes and records from each
meeting.
8.5 Funding by NOVO NORDISK. In consideration of the rights granted to
-----------------------
NOVO NORDISK hereunder, NOVO NORDISK shall, in addition to paying royalties
under Section 3 and granting a cross-license under Section 2.2, compensate
MAXYGEN for MAXYGEN's performance of its tasks under the Development Program.
Unless modified by mutual agreement in writing, said compensation shall amount
to an annual amount of [*******] out of which [*******] shall be considered as a
fixed amount whereas the remaining [*******] shall cover the [*******] MAXYGEN
scientists
15
<PAGE>
referred to below. The annual funding amount shall be paid in advance in
quarterly installments of [*******] each, the first of which will become due for
payment on the Effective Date. MAXYGEN undertakes to designate and assign at
least [*******] scientists with expertise in Shuffling towards full-time work
under the Development Program during the term of such funding by NOVO NORDISK.
8.6 Ownership of Patents and Technology. MAXYGEN Patents and MAXYGEN
--- -----------------------------------
Know-How are and shall continue to be the exclusive property of MAXYGEN, subject
to the licenses granted hereunder.
NOVO NORDISK Patents are and shall continue to be the exclusive property of
NOVO NORDISK, subject to the licenses granted hereunder.
Jointly Owned Patents shall be considered the joint property of and shall
be co-assigned to each of the Parties, the commercial exploitation of which,
however, shall be subject to the licenses, rights and restrictions outlined in
this Agreement.
MAXYGEN Break-through Inventions and MAXYGEN Future Patents, if any made,
shall become the property of MAXYGEN subject to the licenses granted hereunder.
NOVO NORDISK Future Patents, if any, shall be the exclusive property of
NOVO NORDISK subject to the licenses granted hereunder.
8.7 Filing, Prosecution and Maintenance of Jointly Owned Patents. The
------------------------------------------------------------
Parties will mutually agree upon which of them shall be responsible for filing,
prosecution and maintenance of Jointly Owned Patents. In case all inventors are
employed by the same Party, that Party shall be responsible for filing,
prosecution and maintenance of such Jointly Owned Patents. The expenses of such
filing, prosecution and maintenance shall be equally shared by the Parties
unless one of the Parties assigns all of its rights, on a country-by-country
basis, to the other Party.
8.8 Publication of Results. Neither Party shall be entitled to publish
----------------------
the results obtained under the Development Program, without the approval of the
other Party.
9. TERM AND TERMINATION
9.1 Term and Expiry. This Agreement shall enter into force on the
---------------
Effective Date and shall expire five (5) years after the Effective Date,
provided that NOVO NORDISK may reduce its funding obligation for the Development
Program under Section 8 hereof by up to [*******] beginning with the third year
after the Effective Date by notice to MAXYGEN not later than twelve (12) months
prior to the year for which the reduction shall be effective. Unless due to
breach of agreement or warranties
16
<PAGE>
hereunder by the other Party, neither Party may terminate this Agreement with
respect to the licenses and options exchanged hereunder. Notwithstanding the
expiry of this Agreement, the licenses granted hereunder shall continue in force
under the terms and conditions contained herein including the continuing
obligation to pay royalties on Net Sales of Licensed Products, on a country-by-
country basis, for the life of any patent containing a Valid Claim in the
relevant country, provided, however, that NOVO NORDISK shall have no further
right to activate any NOVO NORDISK Preferred Area that it has not bona fidely
activated prior to the expiry, but NOVO NORDISK nonetheless shall have the right
of first opportunity for a period of ninety (90) days after the expiry if
MAXYGEN should decide to pursue development or license of such lapsed NOVO
NORDISK Preferred Area with a third party. In such event, MAXYGEN shall advise
NOVO NORDISK from time to time of its decision to proceed with a third party and
the terms of a proposed agreement with NOVO NORDISK and NOVO NORDISK shall have
ninety (90) days thereafter to advise MAXYGEN whether it desires to accept such
proposed agreement. Similarly, NOVO NORDISK may propose to MAXYGEN its desire to
proceed with development of such a lapsed NOVO NORDISK Preferred Area and
MAXYGEN shall within sixty (60) days thereafter advise NOVO NORDISK of the terms
of a proposed agreement, and NOVO NORDISK shall have ninety (90) days thereafter
to advise MAXYGEN whether it desires to accept such proposed agreement. In
either event if NOVO NORDISK does not accept the agreement proposed by MAXYGEN,
MAXYGEN shall have six (6) months thereafter to enter into an agreement with a
third party on terms and conditions, taken as a whole, that are not materially
more favorable to such third party than those proposed to NOVO NORDISK. If
MAXYGEN is unable to enter into such agreement with a third party by the end of
such six-month period, it shall again offer to NOVO NORDISK the right of first
opportunity before entering into any such agreement with a third party.
9.2 Termination Due to Breach of Contract. If a Party to this Agreement
-------------------------------------
commits a material breach of any provision of this Agreement and fails to remedy
such breach within thirty (30) days after written notice thereof from the other
Party stating the intent to terminate the Party not in default may, at its
option, terminate this Agreement by giving fifteen (15) days prior written
notice to the Party in default. Said right of termination shall be in addition
to any remedies for damages and/or injunctive relief and may be exercised by the
non-defaulting Party whilst upholding the licenses granted to that Party under
Section 2.1 or 2.2, as appropriate, on the relevant licensing terms contained
herein.
9.3 Survival of Provisions.
----------------------
(a) Expiration or termination of this Agreement shall not terminate
the obligation of either Party to make any payments to the other
Party that have accrued prior to the date of expiry or
termination.
17
<PAGE>
(b) The provisions contained in Sections 5, 8.6, 8.7, 9, 11, 13, 19,
20 and 21 of this Agreement shall survive its expiry or
termination.
10. FORCE MAJEURE
Each of the Parties hereto shall be excused from the performance of its
obligations hereunder and shall not be liable for damages to the other in the
event that such performance is prevented by circumstances beyond its effective
control. Such excuse from performance shall continue for as long as the
condition responsible for such excuse continues and for a period of thirty (30)
days thereafter, provided that if such excuse continues for a period of one
hundred twenty (120) days, the Party whose performance is not being prevented
shall be entitled to withdraw from this Agreement. For the purpose of this
Agreement circumstances beyond the effective control of the Party which excuse
said Party from performance shall include, without limitation, acts of God,
enactments, regulations or laws of any government, injunctions or judgment of
any court, war, civil commotion, destruction of facility or materials by fire,
earthquake, storm or other casualty, labor disturbances and failure of public
utilities or common carrier.
11. INDEPENDENT CONTRACTORS
Nothing in this Agreement is intended or shall be deemed to constitute a
partnership, agency, employment or joint venture relationship between the
Parties. All activities by the Parties hereunder shall be performed by the
Parties as independent parties. Neither Party shall incur any debts or make any
commitment for or on behalf of the other Party except to the extent, if at all,
specifically provided herein or subsequently agreed upon.
12. LIMITATION ON ASSIGNMENT
Except as otherwise expressly provided herein neither this Agreement nor
any interest or obligation hereunder shall be assignable by either Party without
the prior written consent or agreement of the other Party, except in case of
sale or transfer of substantially all of a Party's business of which this
Agreement may be a part.
13. CONFIDENTIALITY
In consideration of disclosure by either of the Parties to the other Party
of confidential information in written or oral form or in the form of samples,
the recipient and the recipient's Affiliates undertake for a period of ten (10)
years from the date of disclosure to treat received information as strictly
secret and therefore not to disclose it to any third party (except reliable
employees and Affiliates and sublicensees under similar secrecy obligations),
and to make no commercial use of it except for the purposes of this
18
<PAGE>
Agreement or except as otherwise specifically provided for herein. This
obligation does not apply to:
(a) information which, at the time of disclosure, is already in the public
domain;
(b) information which, after disclosure, becomes a party of the public
domain by publication through no violation of this Agreement;
(c) information which the recipient is able to prove by competent written
evidence to have been in possession of prior to any disclosure;
(d) information which is hereafter lawfully disclosed by a third party to
the recipient, which third party did not acquire the information under
a still effective obligation of confidentiality to the disclosing
Party.
Neither Party shall issue any press release or other public statement concerning
the existence or terms of this Agreement or any activities related hereto
without consulting and agreeing with the other Party. However, each Party may
disclose this Agreement or any activities related hereto without the other
Party's approval if such approval has been requested but not received within
forty-eight (48) hours and such party concludes, after consulting with its legal
advisors, that it is required by law to disclose the transaction or part
thereof.
14. AMENDMENTS OF AGREEMENT
This Agreement may be amended or modified or one or more provisions hereof
waived only by a written instrument signed by both Parties.
15. SEVERABILITY
In the event that any one or more of the provisions of this Agreement
should for any reason be held by any court or authority having jurisdiction over
this Agreement and the Parties to be invalid, illegal or unenforceable such
provisions shall be deleted in such jurisdiction; elsewhere this Agreement shall
not be affected.
16. ARTICLE HEADINGS
The section headings contained in this Agreement are for convenience only
and are to be of no force or effect in construing and interpreting this
Agreement.
17. NOTICES
Any notice, report, request, approval, payment, consent or other
communication required or permitted to be given under this Agreement shall be in
writing and shall for all
19
<PAGE>
purposes be deemed to be fully given and received if delivered in person or sent
by registered mail, postage prepaid or by facsimile transmission to the
respective parties at the following addresses:
If to MAXYGEN: MAXYGEN, INC.
3410 Central Expressway
Santa Clara, CA 95051 USA
Attn: President
Telefax: 408-481-0385
with a copy to: Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
U.S.A.
Attention: Julian N. Stern
Telefax: 650-324-0638
If to NOVO NORDISK: NOVO NORDISK A/S
Novo Alle
DK-2880 Bagsvaerd
Denmark
Attn: General Counsel
Telefax: +45 44 98 06 70
Either Party may change its address for the purpose of this Agreement by
giving the other Party written notice of its new address.
18. NON-WAIVER FOR FAILURE TO ENFORCE COMPLIANCE
The express or implied waiver by either Party of a breach of any provision
of this Agreement shall not constitute a continuing waiver of other breaches of
the same or other provisions of this Agreement.
19. APPLICABLE LAW
This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York. The English wording of this Agreement shall
prevail.
20
<PAGE>
20. ARBITRATION
Both Parties will use their best endeavors to settle all matters in dispute
amicably. All disputes and differences of any kind related to this Agreement,
which cannot be solved amicably by the Parties, shall be referred to
arbitration.
The arbitration court shall consist of three arbitrators. The arbitration,
including appointment of arbitrators, shall be carried out in accordance with
the then valid rules of the American Arbitration Association (excluding any
conciliation procedures). The arbitration shall take place in New York City and
shall be conducted in the English language. The award of the arbitrators shall
be final and binding on both Parties. The Parties bind themselves to carry out
the awards of the arbitrators.
21. AUTHORITY TO SIGN
Each person signing below and each Party on whose behalf such person
executes this Agreement warrants that he, she or it as the case may be, has the
authority to enter into this Agreement.
Date: 1997-09-17 Date: 1997-09-17
NOVO NORDISK A/S MAXYGEN, INC.
By: /s/ Soren Carlsen By: /s/ Russell Howard
--------------------------- ---------------------------
Soren Carlsen Russell Howard
Corporate Vice President President
Enzyme Research
21
<PAGE>
AMENDMENT TO MAXYGEN/NOVO NORDISK LICENSE AND
COLLABORATION AGREEMENT
This Amendment is to the License and Collaboration Agreement (The
Agreement) between Maxygen, Inc. (Maxygen) and Novo Nordisk, A/S (Novo Nordisk)
dated September 17, 1997. Novo Nordisk and Maxygen hereby agree to amend and
clarify the Agreement as is set forth below.
It is understood and agreed that the Novo Nordisk Field in the Agreement
includes without limitation the use of Shuffling to develop, manufacture, sell
and use Industrial Proteins which are [*******] for those areas defined in
Exhibit D and for the Novo Nordisk Preferred Areas upon their activation. The
parties further acknowledge that [*******] for use in areas other than those
areas defined in Exhibit D of the Agreement and for areas other than those to be
included in the Novo Nordisk Preferred Areas upon their activation are not
included in the Novo Nordisk Field.
With specific regard to [*******] as listed in Exhibit D of the Agreement, the
Novo Nordisk Field is defined as and is limited to [*******]. The parties
further agree and acknowledge that such Industrial Protein use in the areas of
[*******] shall be limited to use where the purified or unpurified Industrial
Protein preparation does not itself constitute a significant part, [*******] of
the final [*******]. Thus, by way of clarification of the above, the Novo
Nordisk Field includes without limitation [*******], but excludes [*******].
22
<PAGE>
The parties further agree and acknowledge that the Novo Nordisk Field as defined
in the Agreement includes the use of Shuffling by Novo Nordisk or any research
collaborator or any contractor to [*******], provided however that such
[*******] are used exclusively by Novo Nordisk or any research collaborator or
any contractor for [*******] within the Novo Nordisk Field and Novo Nordisk
Preferred Areas upon their activation. By way of clarification, the Novo Nordisk
Field and Novo Nordisk Preferred Areas upon activation include without
limitation [*******] as defined in this Amendment and in Exhibit D of the
Agreement. As a further clarification, the parties acknowledge and agree that
neither party shall have any a priori rights to [*******] developed by the other
party or its collaborators or contractors. The parties further agree and
acknowledge that the use of Shuffling specifically for development of [*******]
is not sublicensable by Novo Nordisk to third parties except as is necessary for
a research collaboration with a third party or for contract services provided by
a third party.
The parties further agree and acknowledge that the development, production, and
sales of Industrial Proteins for use in [*******] as described in Exhibit D of
the Agreement does not include [*******].
23
<PAGE>
AUTHORITY TO SIGN
Each person signing below and each Party on whose behalf such person executes
this Agreement warrants that he, she or it, as the case my be, has the authority
to enter into this Amendment.
Date: 1998-6-29 Date: 1998-6-29
By: /s/ Soren Carlsen By: /s/ Russell Howard
---------------------- -----------------------
Soren Carlsen Russell Howard
Corporate Vice President President
Enzyme Research
3
<PAGE>
Amendment to
Maxygen/Novo Nordisk License
and Collaboration Agreement
This Amendment is to the Maxygen/Novo License and Collaboration Agreement (the
Agreement) between Maxygen, Inc. and Novo Nordisk A/S dated September 17, 1997.
Novo Nordisk and Maxygen agree to amend the Agreement as is set forth below.
This Amendment is effective as of the last date signed below.
Exhibit G
[*******]
[Exhibit G identifies the Novo Nordisk Preferred Areas.]
Each Person signing below and each Party on whose behalf such person executed
this Amendment warrants that he she or it, as the case may be, has the authority
to enter into this Amendment.
MAXYGEN, INC. NOVO NORDISK A/S
By: /s/ Russell Howard By: /s/ Soren Carlsen
------------------ -----------------
Russell Howard Soren Carlsen
President and Corporate Vice President
Chief Executive Officer Enzyme Research
Date: 7/22/98 Date: 7/29/98
<PAGE>
AMENDMENT TO MAXYGEN/NOVO NORDISK LICENSE AND COLLABORATION AGREEMENT
This amendment is to the License and Collaboration Agreement dated
September 17, 1997 (the License Agreement) between Maxygen, Inc., 515 Galveston
Drive, Redwood City, CA 94063 (hereinafter referred to as MAXYGEN) and Novo
Nordisk A/S, Novo Alle, DK-2880 Bagsvaerd, Denmark (hereinafter referred to as
NOVO NORDISK). This amendment is effective as of the last date signed below.
MAXYGEN and NOVO NORDISK hereby amend the Agreement as follows:
I) The following definitions from the Agreement are amended as is set forth
below:
The term "Industrial Protein" shall mean [*******] for production, sale,
and/or use in the Novo Nordisk Field, or upon being activated in accordance with
Section 7.3 hereof, a Novo Nordisk Preferred Area, but excluding [*******].
The term "NOVO NORDISK Field" shall mean the use of Shuffling for the
development, production and/or sale of Industrial Proteins in the areas
described in Exhibit D attached hereto, and, upon its activation in accordance
with the provisions of Section 7.3 hereof, in each Preferred Area, excluding,
however, such use for the purpose of [*******], and excluding existing specific
projects of MAXYGEN as specified in Exhibit E. The NOVO NORDISK Field shall not
include the cure, treatment, mitigation, prevention or diagnosis of human or
animal diseases, except as set forth in Section 2.2 below.
II) The following new definitions are added to the Agreement:
The term "Metabolic System" shall mean [*******].
The term "Circular PCR" shall mean new methods (as of 18 April 1995) for
DNA amplification reactions performed on overlapping DNA fragment with
complementary hybridizable ends allowing the fragments to anneal in the form of
a circle.
The term "MAXYGEN Circular PCR Patents" shall mean the patents and
applications listed in Exhibit I and any patents issued on any such patent
applications and including any reissued patents, re-examined patents, divisions,
renewals, continuations-in-part, substitutions, extensions or foreign
counterparts thereof.
The term "Shuffling" shall mean new methods (as of 17 February 1994) for
recombination of genetic material for creation and screening of genetic
diversity, comprising methods included in or similar to those described in
Exhibits C and F. Shuffling also encompasses the use of Circular PCR methods
included in or similar to
<PAGE>
those described in patents and applications listed in Exhibit 1. Shuffling may
be either in vivo or in vitro, but does not include any Assay Technology.
[*******].
The term "Shuffled," when referring to nucleic acid compositions such as
genes, shall mean any such compositions which have been obtained by the process
of Shuffling.
The term "Patent Prosecution Activities" shall mean patent filing,
prosecution and maintenance, including the defense of interferences,
oppositions, and similar proceedings.
The term "Chemical" or "Chemicals" as used in Exhibit D herein shall mean
[*******] used in the products or processes defined in Exhibit D.
III) The following sections of the Agreement are amended as is set forth below:
2.1 Grant of Licenses from MAXYGEN to NOVO NORDISK. MAXYGEN hereby grants
----------------------------------------------
to NOVO NORDISK a worldwide, royalty-bearing (in accordance with Section 3
below), exclusive, irrevocable (except as otherwise stated in Section 9) and
sublicensable (except for the restrictions set forth in item 13, Exhibit D)
right and license to practice the MAXYGEN Patents, the MAXYGEN Know-How, the
MAXYGEN Future Patents, the Jointly Owned Patents and the MAXYGEN Breakthrough
Inventions, to make, have made, use, promote, market, distribute and sell
Licensed Products within the NOVO NORDISK Field and any NOVO NORDISK Preferred
Areas which may be activated in accordance with Section 7 hereof. This license
grant expressly includes the right to manufacture Licensed Products by [*******]
for the purpose of using, promoting, marketing and distributing Licensed
Products in the NOVO NORDISK Field.
6. PATENT PROSECUTION
6.1 Patent Prosecution.
------------------
(a) MAXYGEN Patents, MAXYGEN Future Patents, NOVO NORDISK Patents, NOVO
NORDISK Future Patents, and MAXYGEN Breakthrough Inventions:
With regard to the MAXYGEN Patents, MAXYGEN Future Patents, MAXYGEN Break-
through Inventions, NOVO NORDISK Patents, and NOVO NORDISK Future Patents, the
licensor shall inform about and, to the extent reasonably practicable as
specified below, give the licensee a reasonable opportunity to discuss and
influence Patent Prosecution Activities. The licensor shall nonetheless have
the final decision as to any such matter unless the Working Group shall decide
otherwise.
Such major prosecution events shall include official communications with
the examining division at the European Patent Office and the United States'
Patent and Trademark Office in the form of patent applications, including
divisional applications,
2
<PAGE>
reissue applications, continuations and continuations-in part, requests for
examination, including reexamination, written opinions, amended claims, final
rejections, and notices of allowance.
MAXYGEN and NOVO NORDISK shall each be responsible to utilize commercially
reasonable efforts to file, prosecute and maintain, at its own expense, all
patents and patent applications included in the exhibits to this Agreement.
The licensor shall use reasonably diligent efforts to provide to licensee
such intended communications from the licensor to the examining division no
later than two (2) weeks prior to the filing of the actual official
communication.
The licensor shall use reasonably diligent efforts to disclose to the
licensee within two (2) weeks from its receipt such communications from the
examining division.
(b) Jointly Owned Patents:
Decisions on filing, prosecution and maintenance of Jointly Owned Patents
shall be as described in section 8.7 herein. Notwithstanding section 8.7, for
Jointly Owned Patents describing and claiming Shuffled genes encoding Industrial
Proteins, Industrial Proteins encoded by Shuffled genes and uses of such
Industrial Proteins, NOVO NORDISK shall be responsible, at its sole expense, for
Patent Prosecution Activities with respect to inventions made by MAXYGEN or NOVO
NORDISK or jointly by the Parties in connection with the Development Program.
However, if a Jointly Owned Patent solely claims uses in the MAXYGEN Field of
such Shuffled genes or of proteins encoded by the Shuffled genes, then MAXYGEN
shall be responsible at its sole expense for such Patent Prosecution Activities.
With regard to all other Jointly Owned Patents, responsibility for Patent
Prosecution Activities shall be as described in section 8.7.
6.2 Enforcement.
-----------
(a) MAXYGEN Patents, MAXYGEN Future Patents, MAXYGEN Breakthrough
Inventions, NOVO NORDISK Patents, and NOVO NORDISK Future
Patents:
In the event that any MAXYGEN Patent, MAXYGEN Future Patent, MAXYGEN
Breakthrough Invention, NOVO NORDISK Patent, or NOVO/NORDISK Future Patent may
be infringed or misappropriated by a third party in any country or is subject to
a declaratory judgment action arising from such infringement or misappropriation
in such country, or is the subject of an interference, re-examination, reissue
or opposition
3
<PAGE>
proceeding, the Party becoming aware thereof shall promptly notify the other
Party thereof.
NOVO NORDISK retains all rights for enforcement of the NOVO NORDISK
Patents, and/or NOVO NORDISK Future Patents within the NOVO NORDISK Field.
Similarly, MAXYGEN retains all rights for enforcement of the MAXYGEN Patents,
MAXYGEN Future Patents, and MAXYGEN Breakthrough Inventions within the MAXYGEN
Field.
The licensee shall have the right to enforce, at its own expense, licensed
patents within its field, i.e. the MAXYGEN Field or the NOVO NORDISK Field, as
appropriate, subject to the following provisions:
In cases where there is a reasonable suspicion of a commercially
significant infringement in the licensed field, the licensee shall first consult
the licensor and the Parties shall jointly develop and implement a plan to abate
the infringement. The Parties shall consider existing and potential infringement
suits by the licensor against a third party relating to the patents licensed
under this Agreement, and attempt to coordinate any such enforcement efforts
relating to the licensed patents without limiting the rights granted to the
licensee. Should one Party be unwilling to cooperate in the development of a
plan for abatement of infringement, it shall so notify the other Party in
writing, and the other Party may proceed on its own with any necessary work,
including the selection and use of outside counsel in order to develop such a
plan. Should the licensor and licensee jointly decide to initiate an
infringement suit, the Parties will cooperate with each other in the litigation,
with each Party maintaining its ability to retain counsel at their own expense.
Furthermore, the Parties shall both have access to copies of all documents filed
in, and all written communications in any such infringement suits, with
decisions regarding conduct of the litigation being made jointly between the
Parties. Decisions on settlement shall be made jointly between the Parties, and
neither Party shall enter into a settlement agreement without the consent of the
other Party, which consent shall not be unreasonably withheld. Neither Party
shall, without the other Party's consent make any settlement of any litigation
or claim which would result in any grant to any third party of any rights that
would diminish the rights of the other Party. Any cash recovery by such Party
received as a result of any such claim, suit or proceeding shall be used first
to reimburse the Parties hereto for all expenses (including court costs,
attorneys and professional fees and other expenses of all kinds) incurred in
connection with such claim, suit or proceeding. After reimbursement of such
expenses, twenty-five percent (25%) of the remainder shall be paid to the
licensor and seventy-five percent (75%) retained by the licensee.
In situations where there is a reasonable suspicion of a commercially
significant infringement in the licensed field, if the Parties cannot agree on a
plan to abate such
4
<PAGE>
infringement within one hundred eighty (180) days of receiving notice of such
infringement from the licensee, the licensee may, at its expense, initiate such
suit to abate such infringement or misappropriation; provided the licensee may
not enter into any settlement without the prior consent of the licensor, which
consent shall not be unreasonably withheld, and may not make any statement which
admits that any of the patents licensed pursuant to this Agreement are invalid
or unenforceable. Notwithstanding the 180 (one hundred and eighty) days' period
referred to in the preceding sentence, the licensee shall be entitled to
commence legal proceedings against the alleged infringer(s) even before expiry
of said period insofar as the licensee can demonstrate that such action is
necessary in order to preserve the licensee's ability to obtain an injunction,
whether on a final or preliminary basis. In the event the licensee brings such
an infringement suit, the licensor shall become a party to the lawsuit and shall
assist the licensee in the lawsuit at licensee's expense and using counsel
reasonably acceptable to licensee. Any cash recovery by such Party received as a
result of any such claim, suit or proceeding shall be used first to reimburse
the Parties hereto for all expenses (including court costs, attorneys and
professional fees and other expenses of all kinds) incurred in connection with
such claim, suit or proceeding. After reimbursement of such expenses, twenty-
five percent (25%) of the remainder shall be paid to the licensor and seventy-
five percent (75%) retained by the licensee.
If MAXYGEN notifies NOVO NORDISK that it intends to make an initial public
offering of MAXYGEN shares, then for a period of six (6) months from such notice
NOVO NORDISK shall not commence any new action or proceeding against any third
party with respect to any MAXYGEN patent without the prior written consent of
MAXYGEN; provided, however, NOVO NORDISK may respond to and participate in any
patent infringement action or other similar proceeding which has commenced as of
the date of such notice or which may be commenced by a third party.
Notwithstanding the 180 (one hundred and eighty) days' period referred to in the
preceding sentence, the licensee shall be entitled to commence legal proceedings
against the alleged infringer(s) even before expiry of said period insofar as
the licensee can demonstrate that such action is necessary in order preserve the
licensee's ability to obtain an injunction, whether on a final or preliminary
basis. In addition, MAXYGEN may not use this paragraph to require NOVO NORDISK
to delay any new actions or proceedings if more than 90 days have lapsed after
NOVO NORDISK has notified MAXYGEN of its reasonable suspicion of a commercially
significant infringement in the NOVO NORDISK Field of the MAXYGEN Patents,
MAXYGEN Future Patents, and/or the MAXYGEN Breakthrough Inventions.
(b) Jointly Owned Patents:
In the event MAXYGEN or NOVO NORDISK becomes aware of any actual or
threatened infringement of any Jointly Owned Patents, that Party shall promptly
notify
5
<PAGE>
the other and shall promptly discuss how to proceed in connection with such
actual or threatened infringement.
In the case of an act of infringement in the NOVO NORDISK Field, should
MAXYGEN not wish to participate in such a proceeding, NOVO NORDISK shall have
the right to proceed alone, at its expense, and may retain any cash recovery;
provided, at the request and expense of NOVO NORDISK.
MAXYGEN agrees to cooperate and join in any proceedings in the event that a
third party asserts or that a Court finds that MAXYGEN is necessary or
indispensable as a named party to such proceedings; provided, NOVO NORDISK may
not enter into any settlement with respect to any of the Jointly Owned Patents
without the prior consent of MAXYGEN, which consent shall not be unreasonably
withheld.
In the case of an act of infringement in the MAXYGEN Field, should NOVO
NORDISK not wish to participate in such a proceeding, MAXYGEN shall have the
right to proceed alone, at its expense, and may retain any cash recovery;
provided, at the request and expense of MAXYGEN, NOVO NORDISK agrees to
cooperate and join in any proceedings in the event that a third party asserts or
that a Court finds that NOVO NORDISK is necessary or indispensable as a named
party to such proceedings; provided, MAXYGEN may not enter into any settlement
with respect to any of the Jointly Owned Patents without the prior consent of
NOVO NORDISK, which consent shall not be unreasonably withheld.
Neither Party may make any statement as to the invalidity and/or
unenforceability of the Jointly Owned Patents.
8.7 Filing, Prosecution and Maintenance of Jointly Owned Patents. For
------------------------------------------------------------
Jointly Owned Patents describing and claiming Shuffled genes, proteins encoded
by Shuffled genes and uses of such proteins, NOVO NORDISK shall be responsible,
at its sole expense, for Patent Prosecution Activities with respect to
inventions made by MAXYGEN or NOVO NORDISK or jointly by the Parties. For all
other inventions, the Parties will agree upon which of them shall be responsible
for Patent Prosecution Activities of the Jointly Owned Patents, except that in
situations where all inventors are employed by the same Party, that Party shall
be responsible for Patent Prosecution Activities of such Jointly Owned Patents.
Except for Jointly Owned Patents describing and claiming Shuffled genes,
proteins encoded by Shuffled genes and uses of such proteins, the expenses of
the Patent Prosecution Activities shall be equally shared by the Parties unless
one of the Parties assigns all of its rights, on a country by country basis, to
the other Party. In each case, the Party responsible for Patent Prosecution
Activities shall assure that the other Party will have the opportunity to
provide meaningful and substantive review and comment on all major prosecution
events, and shall consider such
6
<PAGE>
comment in making decisions relating to the Patent Prosecution Activities. Such
major prosecution events shall include all substantive official communications
(such as patent application filings, including divisionals, reissue
applications, filing of continuations and continuations-in-part, requests for
examination or reexamination, responses to written opinion and office actions,
claim amendments and notices of allowance), with the examining division at the
European Patent Office, the United States' Patent and Trademark Office, and the
patent offices of other major countries in which Jointly Owned Patents are
filed.
IV) Original section 6.2 of the Agreement is retained and renumbered as section
6.3.
7
<PAGE>
V) The following Exhibits are amended as is set forth below.
EXHIBIT A
Development Program
-------------------
[*******]
[*******]
[Exhibit A describes the Development Program under this Agreement. Exhibit A
describes the status of certain research conducted prior to amendment of this
Agreement and future development plans of the parties.]
8
<PAGE>
EXHIBIT C
(MAXYGEN Patents and Patent Applications)
-----------------------------------------
[*******]
[Exhibit C identifies the Maxygen Patents and Patent Applications licensed to
Novo Nordisk under this Agreement.]
10
<PAGE>
EXHIBIT D
[*******]
[Exhibit D identifies the specific areas within the Novo Nordisk Field.]
11
<PAGE>
VI) The following new Exhibit is added to the Agreement.
EXHIBIT I
MAXYGEN Circular PCR Patents
----------------------------
Maxygen Case No. Townsend Case No. Patent/Appl. No. Filing Date
[*******]
VII. All other sections of the Agreement including the other exhibits are
unchanged. The previous amendments to the Agreement dated June 29, 1998 and
July 19, 1998 are also unchanged by this amendment.
Each person signing below and each Party on behalf such person executes
this Agreement warrants that he, she or it, as the case may be, has the
authority to amend the Agreement.
MAXYGEN, INC. NOVO NORDISK A/S
By: /s/ Russell Howard By: /s/ Soren Carlsen
-------------------- ----------------------------
Russell J. Howard Soren Carlsen
President & C.E.O. Corporate Vice President
Enzyme Research
Date: 4-12-99 Date: 4-19-99
------------------- -----------------------------
<PAGE>
EXHIBIT A
(Development Program)
[*******]
[Exhibit A summarized the original work plan under this Agreement. The work plan
was replaced in the April 19, 1999 amendment to this Agreement.]
<PAGE>
EXHIBIT B
Specific projects of NOVO NORDISK include:
* the use of Shuffling for development of [*******]
* the use of Shuffling for development of Industrial Proteins for use in
[*******]
If NOVO NORDISK should use MAXYGEN PATENTS, MAXYGEN FUTURE PATENTS, MAXYGEN
Break-through Inventions or MAXYGEN Know-How in the development of any product
resulting from the foregoing specific projects, it shall be royalty-bearing, as
provided in this Agreement.
<PAGE>
EXHIBIT C
(MAXYGEN Patents and Patent Applications)
-----------------------------------------
[*******]
[Exhibit C listed the Maxygen Patents and Patent Applications under this
Agreement. Exhibit C was replaced in the April 19, 1999 amendment to this
Agreement.]
<PAGE>
EXHIBIT D
[*******]
[Exhibit D identified the Novo Nordisk Field under this Agreement.
Exhibit D was replaced in the April 19, 1999 amendment to this Agreement.]
<PAGE>
EXHIBIT E
Projects and Project Areas within the NOVO NORDISK Field to which NOVO NORDISK
cannot be granted exclusivity by virtue of prior contractual relationships and
specific documented MAXYGEN discussions with other parties prior to the date of
this Agreement:
* Use of Shuffling for development of [*******].
<PAGE>
EXHIBIT F
DK 0907/95,
DK 1047/95, and
WO 97/07205; (NN 4439: in vivo gene shuffling)
DK 0988/95, and
WO 97/09446; (NN 4542: phage display in detergents)
DK 0018/96, and
WO 97/00014; (NN 4632: in vivo diversity generation)
DK 1471/96, and
DK 0592/97; (NN 4833: in vivo recombination in bacteria)
DK 0307/97,
DK 0434/97, and
DK 0625/97; (NN 4859: in vitro recombination)
DK 0304/97,
DK 0432/97,
DK 0624/97; (NN 5113: directed in vitro recombination)
DK 0306/97,
DK 0433/97, and
DK 0623/97; (NN 5114: low-identity in vitro recombination)
WO 96/10084 (NN 4126: Process for production of secondary metabolites -
nonexclusive)
<PAGE>
EXHIBIT G
[*******]
[Exhibit G identified the Novo Nordisk Preferred Areas under this Agreement.
Exhibit G was replaced in the July 29, 1998 amendment to this Agreement.]
<PAGE>
EXHIBIT H
Additional rights of NOVO NORDISK pursuant to Section 2.1 and retained rights of
NOVO NORDISK pursuant to Section 2.2 include:
The improvement of [*******] for use in the manufacture or synthesis of
[*******]. Any resulting products that are invented or developed by or on behalf
of NOVO NORDISK or its Affiliates or sublicensees through application of
Shuffling that are covered by MAXYGEN Patents, MAXYGEN Future Patents or MAXYGEN
Break-through Inventions, shall be royalty-bearing in accordance with the
provisions of Section 3 of this Agreement.
<PAGE>
Exhibit 10.12
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
BETWEEN
PIONEER HI-BRED INTERNATIONAL, INC.
AND
MAXYGEN, INC.
December 23, 1998
* CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-
PUBLIC INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
COLLABORATIVE RESEARCH AND LICENSE AGREEMENT
THIS COLLABORATIVE RESEARCH AND LICENSE AGREEMENT (the "Agreement") is
entered into as of December 23, 1998, by and between PIONEER HI-BRED
INTERNATIONAL, INC., a corporation organized and existing under the laws of the
State of Iowa at 800 Capital Square, 400 Locust Street, Des Moines, Iowa 50309
("PIONEER") and MAXYGEN, INC., a corporation organized and existing under the
laws of the State of Delaware, located at 3410 Central Expressway, Santa Clara,
California 95051 ("MAXYGEN").
WHEREAS, MAXYGEN has expertise in the rearrangement of DNA to produce and
discover genes utilizing proprietary technologies; and
WHEREAS, PIONEER has expertise in the breeding and development of
proprietary crop species; and
WHEREAS, PIONEER and MAXYGEN wish to enter into this Agreement in order to
perform research together to discover and develop new genes that can be used by
PIONEER to produce improved seeds and agricultural products; and
WHEREAS, MAXYGEN will perform research on projects funded and supported by
PIONEER in order to discover and develop such genes and will license the results
of such research to PIONEER for the purpose of the development, manufacture and
sale of products by PIONEER. MAXYGEN will also modify and adapt the MAXYGEN
Intellectual Property
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as set forth herein in order to facilitate the R&D Program and will work with
PIONEER to develop and modify screening methods for each project as needed; and
WHEREAS, PIONEER will perform research to develop products and technology
based on the research results discovered by MAXYGEN and/or PIONEER and will
grant to MAXYGEN a license to the results of such research for the purpose of
the development, testing, manufacture and sale of products by MAXYGEN.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the parties hereby agree as
follows:
SECTION 1. DEFINITIONS.
------------------------
1.1 "Affiliate" means any corporation, firm, limited liability company,
partnership or other entity that directly or indirectly controls or is
controlled by or is under common control with a party to this Agreement.
Notwithstanding the actual control exercised by PIONEER, Optimum Quality Grains,
L.L.C., is to be considered an Affiliate of PIONEER. As used in this Section,
"control" means ownership, directly or through one or more Affiliates, of 50
percent or more of the shares of stock entitled to vote for the election of
directors, in the case of a corporation, or 50 percent or more of the equity
interests in the case of any other type of legal entity, status as a general
partner
-2-
<PAGE>
in any partnership, or any other arrangement whereby a party controls or has the
right to control the Board of Directors or equivalent governing body of a
corporation or other entity, or if such level of ownership or control is
prohibited in any country, any entity owned or controlled by or owning or
controlling at the maximum control or ownership right permitted in the country
where such entity exists.
1.2 "Agent" means any corporation or other entity through which PIONEER or
MAXYGEN or one or more of their respective Affiliates produces, markets, or
sells PIONEER or MAXYGEN Licensed Products, as the case may be.
1.3 "Benchmark Product" shall mean a product that (i) does not contain a
Shuffled Gene and (ii) is not made or identified using any MAXYGEN Intellectual
Property or Joint Intellectual Property (including without limitation, any
method or process included therein), but which is otherwise identical to a
PIONEER Licensed Product (or if no such product exists, substantially similar to
a PIONEER Licensed Product) and is available in the same geographic market and
time period. A Benchmark Product shall be a commercial product sold by PIONEER
or its Affiliates or Agents; provided, if PIONEER or its Affiliates or Agents do
not sell such a Benchmark Product, then the most comparable product sold by a
third party in the applicable geographic market during the applicable time
period shall be used as the Benchmark Product. By way of
-3-
<PAGE>
illustration, and without limitation, the Benchmark Product for a PIONEER
Licensed Product which contained one or more Shuffled Genes would be an
otherwise comparable product not containing any Shuffled Genes.
1.4 "Confidential Information" means the Work Plans, and all information,
including, but not limited to, Know-How, biological materials (including the
PIONEER Material(s) and MAXYGEN Material(s)), and data, scientific, technical,
or non-technical, business plans, and marketing and sales information disclosed
by one party to the other hereunder or under the Confidentiality Agreement
between MAXYGEN and PIONEER and E.I. duPont de Nemours and Company dated
November 4, 1997, or under the Amendment to the Confidentiality Agreement
between MAXYGEN, E.I. duPont de Nemours and Company and PIONEER dated July 27,
1998, for the purposes of the R&D Program, or to fulfill obligations under this
Agreement, whether disclosed or provided in oral, written, graphic, photographic
or any other form, except to the extent that such information:
(i) as of the date of disclosure is known to the receiving
party or its Affiliates, as shown by written documentation, other than by virtue
of a prior confidential disclosure from the disclosing party to the receiving
party or its Affiliates;
-4-
<PAGE>
(ii) as of the date of disclosure is in, or subsequently
enters, the public domain, through no fault or omission of the receiving party;
or
(iii) as of the date of disclosure or thereafter is obtained
from a third party free from any obligation of confidentiality; or
(iv) after the date of disclosure or thereafter is developed by
the receiving party independent of the disclosure as shown by written
documentation.
1.5 "Controls" or "Controlled" means, with respect to intellectual
property, possession (other than by virtue of this Agreement and the licenses
granted herein) of the ability to grant licenses or sublicenses to the other
party hereto without violating the terms of any agreement or other arrangement
with, or the rights of, any agreement with a third party.
1.6 "Effective Date" means December 23, 1998.
1.7 "Enabling Technology" means such specific tools, technologies and/or
methods relating to [*******] as the parties may agree in writing to have
MAXYGEN develop in the R&D Program in accordance with an agreed upon written
Work Plan, to facilitate the development of PIONEER Licensed Products, in each
case, which is designated by written agreement by the parties as Enabling
Technology.
-5-
<PAGE>
1.8 "FTE" means the equivalent of one full year of work on a full time
basis by a scientist or other professional possessing skills and experience
necessary to carry out the R&D Program by MAXYGEN, determined in accordance with
MAXYGEN's normal policies and procedures.
1.9 "Gene" means any gene selected for Shuffling in the R&D Program by the
RDSC pursuant to (P)2.1D(a).
1.10 "Gene Library" means, with respect to a particular Gene, the complete
collection of Gene Variants produced from the Shuffling of such Gene in
connection with the R&D Program.
1.11 "Gene Variant" means any altered form of a Gene made in connection
with the R&D Program which is the result of Shuffling.
1.12 [*******]
1.13 [*******]
1.14 [*******]
1.15 "Intellectual Property" means all Patent Rights and Know-How. It is
understood that Intellectual Property does not include any intellectual property
owned or Controlled by MAXYGEN relating to the practice of Shuffling Technology.
It is further understood that Intellectual Property does not include any
intellectual property owned or Controlled by MAXYGEN or PIONEER as of the
-6-
<PAGE>
Effective Date or developed outside of and not in connection with the R&D
Program.
(a) "MAXYGEN Intellectual Property" means MAXYGEN Patent Rights
and MAXYGEN Know-How.
(b) "PIONEER Intellectual Property" means PIONEER Patent Rights
and PIONEER Know-How.
(c) "Joint Intellectual Property" means Joint Patent Rights and
Joint Know-How.
1.16 "Jointly Developed" or "Jointly Invented" means any item developed or
invented by both parties. If the item developed or invented is a patentable
invention, such invention is jointly developed if both parties' employees or
consultants are considered inventors under 35 U.S.C. (S)1 et. seq., and as
--------
interpreted by the U.S. Patent and Trademark Office and the United States
courts.
1.17 "Know-How" means all Research Results and all non-patented inventions,
improvements, discoveries, data, instructions, processes, formulas, information
(including, without limitation, chemical, physical and analytical, safety,
manufacturing and quality control data and information) and trade secrets
created, discovered, or developed during the Research Term and in connection
with the R&D Program. It is understood that Know-How does not include any (i)
Shuffling Technology or (ii) inventions within the Patent Rights.
-7-
<PAGE>
(a) "MAXYGEN Know-How" means Know-How owned or Controlled by
MAXYGEN or created, discovered, or developed solely by MAXYGEN in the R&D
Program.
(b) "PIONEER Know-How" means Know-How owned or Controlled by
PIONEER or created, discovered or developed solely by PIONEER in the R&D
Program.
(c) "Joint Know-How" means Know-How which is created,
discovered, or developed jointly by both parties in the R&D Program.
1.18 "Licensed Product" means a PIONEER Licensed Product or MAXYGEN
Licensed Product.
1.19 "MAXYGEN Crops" means [*******].
1.20 "MAXYGEN Licensed Product" means any product that is, or is derived
from:
(i) Plant cells, Plant parts, Plants or seeds of a MAXYGEN
Crop, which (a) [*******] or (b) is identified or produced utilizing PIONEER
Intellectual Property or Joint Intellectual Property; or
(ii) Plant cells, Plant parts, Plants or seeds of a PIONEER
Crop, which (a) incorporates or is made through the use of Research Materials
permitted pursuant to (P)2.1F(f), or (b) is
-8-
<PAGE>
identified or produced utilizing PIONEER Intellectual Property or Joint
Intellectual Property; or
(iii) any other product that (a) [*******] which Plant or
organism is not a PIONEER Crop or MAXYGEN Crop, and products derived from such a
Plant or other organism, or (b) is identified or produced utilizing PIONEER
Intellectual Property or Joint Intellectual Property.
It is understood and agreed that a MAXYGEN Licensed Product includes,
without limitation, (i) a Plant, (ii) macro, micro, and molecular parts of a
Plant, including, without limitation, seeds and DNA contained therein, and (iii)
extracts from a Plant, whether in unprocessed or processed form, including
[*******] in each case, that is or is from a MAXYGEN Crop in (i), above, or a
PIONEER Crop in (ii), above.
1.21 "Net Sales" means, for a particular PIONEER Licensed Product, the
gross monies or the monetary equivalent of all other consideration in any form,
whether or not invoiced, billed by or due to PIONEER or its Affiliates, or
Sublicensees for the use, sale, lease or transfer of such PIONEER Licensed
Product(s); less qualifying costs directly attributable to such use, sale,
lease, or transfer, to the extent actually allowed and borne by PIONEER. Such
qualifying costs shall be limited to [*******] costs for the following:
(i)credits or refunds, not exceeding the original or customary billing or
invoice amount, for such claims or returns,
-9-
<PAGE>
(ii) packaging, (iii) returnable containers, (iv) prepaid transportation
insurance premiums, (v) prepaid outbound transportation expenses, (vi)
discounts, in amounts customary in the trade, for quantity purchases, cash
payments, prompt payments, wholesalers, and distributors, and (vii) taxes,
including sales, use, excise, import, export, and other taxes or duties
(excluding taxes on income), separately billed or invoiced, and borne by
PIONEER, imposed by a government agency with the authority to do so on such use,
sale, lease or transfer. All sales of PIONEER Licensed Products shall be
recorded in U.S. dollars and recognized per U.S. Generally Accepted Accounting
Principles (GAAP), consistently applied. A PIONEER Licensed Product used, sold,
leased, or transferred by gift or for consideration other than money shall be
deemed to have a monetary value of the higher of [*******]. In the event that
any PIONEER Licensed Product(s) are sold, leased or transferred between PIONEER
and one of its Affiliates, Sublicensees, or Agents or between two of its
Affiliates, Sublicensees, or Agents or any PIONEER Licensed Product is used by
PIONEER or one of its Affiliates, Sublicensees, or Agents, the money or monetary
equivalent of such PIONEER Licensed Product(s) shall be the higher of [*******].
PIONEER Licensed Product(s) used in testing, clinical or feeding trials, or as
marketing samples to develop or promote the PIONEER Licensed Product(s) shall
not be included as PIONEER Licensed Product(s)
-10-
<PAGE>
used, sold, leased, or transferred; provided the PIONEER Licensed Product(s) are
supplied to the user at no cost.
For purposes of determining Net Sales, sales of PIONEER Licensed
Products shall not be discounted due to any product "bundling" unless PIONEER
and its Affiliates, Agents and Sublicensees do not offer the PIONEER Licensed
Product outside of a "bundle". In the case of discounts on "bundles" of products
or services which include PIONEER Licensed Products, PIONEER may with notice to
MAXYGEN calculate the Net Sales for the applicable PIONEER Licensed Product by
discounting the bona fide list price of a PIONEER Licensed Product by no more
than the average percentage discount of all products of PIONEER and/or its
Affiliates, Agents or Sublicensees in a particular "bundle", calculated as
follows:
Average percentage
discount on a = (1 - A/B) x 100
particular "bundle"
where A equals the total discounted price of a particular "bundle" of products,
and B equals the sum of the undiscounted bona fide list prices of each unit of
every product in such "bundle". PIONEER shall provide MAXYGEN documentation,
reasonably acceptable to MAXYGEN, establishing such average discount with
respect to each "bundle".
1.22 "Patent Rights" means (i) all patents and patent applications that
claim an invention conceived and reduced to practice by MAXYGEN and/or PIONEER
during the Research Term and in
-11-
<PAGE>
connection with the R&D Program or conceived in connection with the R&D Program
and reduced to practice within twelve (12) months after the end of the Research
Term, and (ii) any divisions, continuations, continuations-in-part, and patents
that issue therefrom, reissues, reexaminations, extensions or other governmental
actions that extend any of the subject matter of the patent applications or
patents in (i) above, and any substitutions, confirmations, registrations or
revalidations of any of the foregoing, in each case, which is owned or
Controlled, in whole or part, by license, assignment or otherwise by MAXYGEN or
PIONEER during the term of this Agreement.
(a) "MAXYGEN Patent Rights" means Patent Rights owned or
Controlled solely by MAXYGEN.
(b) "PIONEER Patent Rights" means Patent Rights owned or
Controlled solely by PIONEER.
(c) "Joint Patent Rights" shall mean Patent Rights owned or
Controlled by both PIONEER and MAXYGEN.
1.23 [*******]
1.24 "PIONEER Crop" means [*******].
1.25 "PIONEER Material" or "MAXYGEN Material" means the tangible assays or
biological materials, and protocols for using the same, provided by PIONEER or
MAXYGEN, respectively, to the
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<PAGE>
other in order so that the recipient can perform its obligations under the R&D
Program. All improvements to such assays, and derivatives and progeny of any
such biological materials, whether made by the recipient or the provider, shall
be considered to be owned by the provider of the original materials. By way of
illustration and without limitation, improvements to an assay provided by
PIONEER to MAXYGEN, whether made by MAXYGEN or PIONEER, would be considered
PIONEER Materials and owned by PIONEER.
1.26 "PIONEER Licensed Product" means any product that is, or is derived
from, Plant cells, Plant parts, Plants or seeds of a PIONEER Crop that: (a)
[*******], or (b) is identified or produced utilizing MAXYGEN Intellectual
Property or Joint Intellectual Property. It is understood and agreed that a
PIONEER Licensed Product includes, without limitation, (i) a Plant, (ii) macro,
micro, and molecular parts of a Plant, including, without limitation, seeds and
DNA contained therein, and (iii) extracts from a Plant, whether in unprocessed
or processed form, including [*******] in each case, that is or is from such a
PIONEER Crop.
1.27 "PIONEER Product Technology" means such specific technologies, tools,
assays and/or methods as the parties may agree in writing to have MAXYGEN
develop in the R&D Program in accordance with an agreed upon written Work Plan,
to facilitate PIONEER's development and testing of PIONEER Licensed Products, in
each case, which is designated in writing by the RDSC as PIONEER Product
Technology pursuant to (P)2.2A.
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<PAGE>
1.28 "Plant" means a monocotyledonous or dicotyledonous plant that may or
may not currently represent a commercial crop, excluding any organisms that are
not monocots or dicots, whether unicellular or multicellular, and whether or not
such organism can perform photosynthesis.
1.29 "Product Premium" means with respect to a particular PIONEER Licensed
Product, the difference between the Product Price of the PIONEER Licensed
Product and the Product Price of the applicable Benchmark Product in the same
geographic market and time period. It is understood and agreed that the Product
Premium shall also include any other consideration (e.g., technology access
fees, up-front payments, and licensing fees) which PIONEER and its Affiliates,
Agents and Sublicensees receive for the sale of a PIONEER Licensed Product as
compared to the applicable Benchmark Product.
1.30 "Product Price" means average, actual price of a PIONEER Licensed
Product or Benchmark Product, as the case may be, sold in a particular
geographic market during a particular time period.
1.31 "R&D Program" means the research and development program to be
conducted by MAXYGEN and PIONEER pursuant to Section 2 and as described in the
Work Plan.
1.32 "R&D Steering Committee" or "RDSC" means the committee created
pursuant to Section 2 hereof.
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<PAGE>
1.33 "Research Data" means all data, inventions, and any other information
obtained, developed, conceived and reduced to practice, or derived in the course
of performance of the R&D Program.
1.34 "Research Materials" mean all tangible property, including without
limitation, assays, invented, obtained, discovered, developed, or derived, or
the function or utility of which is discovered or determined, in the course of
performance of the R&D Program. It is understood and agreed that the Research
Materials shall not include any PIONEER Materials or MAXYGEN Materials, and that
any assay and/or biological materials developed solely by PIONEER or solely by
MAXYGEN for use in the R&D Program shall be deemed to be PIONEER Materials or
MAXYGEN Materials, respectively. It is understood and agreed that all Gene
Variants shall be Research Materials.
1.35 "Research Results" means all Research Data and Research Materials
collectively, including without limitation, all Enabling Technology.
A. "MAXYGEN Research Results" means Research Results invented or
developed solely by MAXYGEN.
B. "PIONEER Research Results" means Research Results invented or
developed solely by PIONEER.
C. "Joint Research Results" means Research Results invented or
developed jointly by both parties.
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<PAGE>
1.36 "Research Term" shall mean the period commencing on the Effective Date
and, unless extended by written agreement of the parties pursuant to (P)2.1E(b)
or sooner terminated as provided herein, terminating on the fifth anniversary of
the Effective Date.
1.37 "Shuffle," "Shuffled" and "Shuffling" mean the recombination and/or
rearrangement and/or mutation of genetic material for the creation of genetic
diversity using intellectual property and/or tangible property owned or
Controlled by MAXYGEN.
1.38 "Shuffled Gene" means (i) any Gene Variant that meets the applicable
activity criteria established by the RDSC, which PIONEER selects to commercially
develop, and which the RDSC designates pursuant to (P)2.1D(f), (ii) any PIONEER
SGD, and (iii) any MAXYGEN SGD.
1.39 "Shuffled Gene Derivative" means any modified form of a Shuffled Gene,
which modification is developed from or made to the Shuffled Gene by any means,
including without limitation, any codon modified variant, splice variant,
mutation, derivative or variant of a Shuffled Gene, and any fragment(s) of the
preceding.
(a) "MAXYGEN Shuffled Gene Derivative" or "MAXYGEN SGD" means a
Shuffled Gene Derivative which modification is developed or made by MAXYGEN or
its Affiliates or Sublicensees.
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<PAGE>
(b) "PIONEER Shuffled Gene Derivative" or "PIONEER SGD" means a
Shuffled Gene Derivative which modification is developed or made by PIONEER or
its Affiliates or Sublicensees.
1.40 "Shuffling Technology" means techniques, methodologies, processes,
materials and/or instrumentation useful for Shuffling, and generally applicable
screening techniques, methodologies, or processes of using the resulting genetic
material to identify potential usefulness. It is understood and agreed that
specific assays developed for screening Gene Variants for a particular
biological or chemical activity are not included in Shuffling Technology.
1.41 "Sublicensee" means an entity to whom PIONEER or MAXYGEN, as the case
may be, has granted a license or sublicense to make, have made, import, use,
sell, offer for sale, or otherwise exploit Licensed Products.
1.42 "Sublicense Payments" shall mean all consideration (other than pass-
through royalties on Net Sales of PIONEER Licensed Products by Sublicensees due
to MAXYGEN pursuant to (P)4.3A)received by PIONEER or MAXYGEN, as the case may
be, and their respective Affiliates and Agents from Sublicensees in respect of
any grant of rights to propagate, use or sell or otherwise distribute Licensed
Products (including, without limitation, technology access fees, milestone fees,
payments for the sale of or right to sell Licensed Products, and license and/or
sublicense fees, whether such consideration is in cash, payment in kind,
exchange or another form). Notwithstanding the above, Sublicense Payments shall
not
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include any amounts received by MAXYGEN or PIONEER, as the case may be, from a
third party for [*******].
1.43 "Trait" means a characteristic of a PIONEER Crop associated with one
or more genes sourced from any organism in any manner, that is manipulated or
tracked by PIONEER or its Affiliates or Sublicensees as part of the PIONEER
Licensed Product development process.
1.44 "Trait Categories" means, as shown in Appendix B, the areas of
interest from which the projects to be conducted pursuant to the R&D Program
will be selected and for which licenses under this Agreement will be granted.
In particular, the areas include, for the PIONEER Crops: [*******].
1.45 "Work Plan" means a written plan approved by the R&D Steering
Committee describing the activities to be carried out during each 12 month
period of the R&D Program, as modified from time to time by the parties. The
Work Plan for the twelve (12) month period starting on the Effective Date is
attached hereto as Appendix A.
1.46 The listed Appendices are:
A. Appendix A - Work Plan for 1998-1999; and
B. Appendix B - Trait Categories in PIONEER Crops.
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SECTION 2. R&D PROGRAM.
-----------------------
2.1 Implementation of the R&D Program.
---------------------------------
A. Basic Provisions of Program.
---------------------------
(a) The primary objective of the R&D Program shall be the
development of genes encoding enhanced or new Traits for PIONEER Crops within
the applicable Trait Categories in order to develop new PIONEER Licensed
Products. MAXYGEN and PIONEER shall use their reasonable efforts to conduct the
research activities set forth in the Work Plan, and to provide PIONEER Materials
and MAXYGEN Materials as set forth therein.
(b) In carrying out the R&D Program, MAXYGEN shall devote
an average of [*******] FTEs per year for each of the five years of the
Research Term ("Staffing Level"), and PIONEER shall pay MAXYGEN for the services
of such FTEs as set forth herein. At the request of PIONEER, MAXYGEN will in
good faith consider and discuss proposed increases or decreases to the Staffing
Level; provided, however, that the Staffing Level shall remain at [*******]
FTEs, unless the parties, in their sole discretion, agree in writing to
different staffing levels. Any increase or decrease to the Staffing Level agreed
to by the parties shall be reflected in the relevant Work Plan and budget
associated with such Work Plan.
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<PAGE>
(c) MAXYGEN and PIONEER shall each use reasonable efforts
to perform such tasks as are set forth to be performed by the respective party
in the relevant Work Plan, and to provide such facilities, materials, equipment,
and assay methods, as are necessary to perform the research activities set forth
in the Work Plans.
(d) It is understood and agreed that MAXYGEN shall not be
obligated to utilize on average per year more than [*******] FTEs in the R&D
Program. It is further understood that PIONEER shall be responsible for the
expense of its own research activities in the R&D Program that are not performed
at MAXYGEN.
B. Collaborative Efforts and Reports.
---------------------------------
(a) The parties agree that the successful execution of the
R&D Program will require the collaborative use of both parties' areas of
expertise. The parties shall keep the RDSC fully informed about the status of
the portions of the R&D Program they respectively perform. Without limiting the
foregoing, each party shall furnish to the RDSC quarterly written reports within
30 days after the end of each quarterly period, describing the progress of its
activities in connection with the R&D Program in reasonable detail, including:
(i) a detailed accounting of the FTEs used, (ii) a reasonably detailed synopsis
of the screening and testing of Gene Variants and Shuffled Genes, and the
development of Shuffled Genes and PIONEER Licensed Products, and (iii) a
description of
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<PAGE>
Intellectual Property arising from the R&D Program. It is understood and agreed
that reports regarding the development and commercialization of PIONEER Licensed
Products outside the scope of the R&D Program shall be subject to (P)5.3 below,
and that reports regarding the development and commercialization of MAXYGEN
Licensed Products outside the scope of the R&D Program shall be subject to
(P)5.4 below.
(b) MAXYGEN and PIONEER shall cooperate in the performance of the R&D
Program and, subject to any confidentiality obligations to third parties, shall
exchange information and materials as necessary to carry out the R&D Program,
pursuant to the provisions of this Agreement. Each party will attempt to
accommodate any reasonable request of the other party to send or receive
personnel for purposes of discussing the R&D Program. Such visits and access
will be at agreed times, have defined purposes, be of agreed limited duration
and be scheduled in advance. The requesting party will bear the travel and
lodging costs of any such personnel. It is understood that any such visiting
personnel may be subject to reasonable restrictions to protect intellectual
property outside the R&D Program and the rights of third parties, which may
include sequestration from research projects outside of the R&D Program.
(c) During the Research Program and for a period of three (3) years
thereafter, MAXYGEN and PIONEER shall maintain
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records of the R&D Program (or cause such records to be maintained) in
sufficient detail and good scientific manner as will properly reflect all work
done in the R&D Program and results achieved in the performance of the R&D
Program; provided, that laboratory notebooks relating to activities conducted
during and in connection with the R&D Program shall be retained, at a minimum,
for the term of the Agreement. Each party shall use reasonable efforts to
provide to the other pertinent Research Data generated by or on behalf of such
party in connection with the R&D Program as the other party may reasonably
request. Such Research Data shall include, without limitation: all results
obtained as a result of activities conducted pursuant to (P)2.1D(d) and (e), and
all results with respect to (i) any Gene Variants which had activity meeting the
applicable criteria established by the RDSC, (ii) all results of all assays in
which Gene Variants or protein pools, as the case may be, demonstrated such
activity, and (iii) the levels of such activity. It is understood that nothing
herein shall require, or be construed to require, MAXYGEN to disclose to PIONEER
any Shuffling Technology, except to the extent necessary for filing patent
applications claiming Shuffled Genes.
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<PAGE>
C. Work Plans.
----------
(a) For each 12-month period during the Research Term after the
period covered by the initial Work Plan of Appendix A, a Work Plan shall be
prepared by MAXYGEN and PIONEER and approved by the RDSC no later than 60 days
before the end of the then current 12-month period. Absent agreement by the
parties, MAXYGEN and PIONEER shall continue to conduct research activities
within the scope of the projects set forth in the previous Work Plan, within the
bounds of the then currently available FTEs.
(b) Each Work Plan shall, without limitation, set forth specific,
jointly-defined research and development objectives, research projects within
applicable Trait Categories for PIONEER Crops, research projects relating to
Enabling Technology and/or PIONEER Product Technology and resource allocations,
and shall be designed to facilitate the earliest practical development and
identification of new Shuffled Genes associated with applicable Trait Categories
for PIONEER Crops.
(c) The RDSC shall have the authority to redirect the activities
to be conducted in the R&D Program within and among the Trait Categories, and to
reallocate the FTEs in support of such activities.
(d) If the RDSC is unable to agree as to the terms of a Work Plan
for any given 12-month period by the date provided
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<PAGE>
in subsection (a), above, then the matter shall be addressed as provided in
Section 13, below.
(e) MAXYGEN shall have no obligation to conduct any research in
the R&D Program in any Trait Category or PIONEER Crop except as expressly
described in (P)2.6A or (P)2.6B below.
D. Activities.
----------
(a) Selection of Genes for Shuffling. Either party may propose
--------------------------------
genes to be Shuffled in the R&D Program, and the final selection of the Genes
which will be Shuffled will be made by the RDSC. PIONEER may also propose the
Shuffling of genes that PIONEER has licensed from a third party which PIONEER
does not have the right to sublicense to MAXYGEN for the development and
commercialization of MAXYGEN Licensed Products. At such time as either party
proposes a gene for Shuffling, it shall inform the RDSC, to the extent it is
able to do so without breaching any confidentiality obligations, of all rights
which it has to use and sublicense such gene, and any restrictions or
limitations thereon, and any information of which it is aware with respect to
third party patent applications or patents which may relate to the use of the
gene in the R&D Program and/or the development or commercialization of Licensed
Products; provided, neither party shall have any obligation to provide the RDSC
with any document which would result in a breach of the attorney/client
privilege with respect thereto. The RDSC shall have the sole authority to
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<PAGE>
select the Genes which will be Shuffled in the R&D Program. While the RDSC may
consider [*******] for both PIONEER and MAXYGEN, the primary criteria that the
RDSC shall use to select Genes for Shuffling shall be [*******]. It is
understood and agreed that where there is more than one gene which could be
Shuffled for a particular purpose, unless there are material issues relating to
[*******], the RDSC shall select for Shuffling a Gene for which the proposing
party has the right to sublicense. It is further understood and agreed that the
RDSC shall use all reasonable efforts to identify and select for Shuffling in
each Trait Category at least [*******]. Unless otherwise agreed in writing, the
RDSC shall accept or decline to accept a proposed gene as a Gene within ninety
(90) days of date of receipt of the information described above. If the RDSC
cannot agree on a particular Gene, the matter shall be resolved as provided for
in Section 13.1A.
(b) [*******] for Shuffled Genes. At such time as the RDSC selects a
----------------------------
Gene to be Shuffled in the R&D Program or within thirty (30) days thereafter,
the RDSC shall prepare a written description of [*******] which a Gene Variant
therefrom must meet to be considered for designation as a Shuffled Gene. Such
[*******] shall in all cases reflect a reasonable commercial level of activity
relevant for PIONEER Licensed Products and may be amended from time-to-time by
the RDSC.
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<PAGE>
(c) Preparation of Gene Libraries and Protein Pools. MAXYGEN shall
-----------------------------------------------
use its Shuffling Technology to prepare libraries of Gene Variants, and prepare
crude or purified protein pools from expression of such libraries as set forth
in the Work Plan.
(d) Screening. Except in those cases where MAXYGEN provides PIONEER
---------
[*******], for screening by PIONEER, MAXYGEN shall initially screen the Gene
Variant libraries as set forth in the Work Plan. PIONEER shall be responsible
for screening to identify optimized function in the applicable PIONEER Crop.
(e) Gene Variant Pools. In the event that MAXYGEN provides to PIONEER
------------------
pools of Gene Variants for screening by PIONEER, PIONEER agrees that,
notwithstanding any other provision of this Agreement, that PIONEER will not:
(i) transfer such Gene Variants to any third party (except PIONEER shall have
the license rights set forth in (P)3.1B with regard to Gene Variants which
become Shuffled Genes); (ii) sequence any Gene Variant provided to PIONEER
(except PIONEER shall have the license rights set forth in (P)3.1B with regard
to Gene Variants which become Shuffled Genes); or (iii) use the Gene Variants
except for screening in connection with the R&D Program during the Research Term
(except PIONEER shall have the license rights set forth in (P)3.1B with regard
to Gene Variants which become Shuffled Genes). Notwithstanding the above, if
PIONEER wishes to conduct or have conducted any of the prohibited
-26-
<PAGE>
activities in (i)-(iii) above in order to facilitate the conduct of the R&D
Program (e.g., to sequence Gene Variants in order to facilitate the transfer of
such Gene Variant(s) into another construct for enhanced expression), then
PIONEER shall notify the RDSC, providing a written description of the activities
it wishes to undertake and an explanation why it wishes to undertake such
activities. [*******] shall have the authority to authorize PIONEER to conduct
any or all of the foregoing for a particular purpose, and shall provide any such
authorization in writing. At the end of the Research Term, PIONEER shall
promptly return to MAXYGEN any remaining Gene Variants (i.e., those which have
not been designated Shuffled Genes), and provide MAXYGEN written confirmation
that all such Gene Variants have been returned. In the event of any conflict
between this (P)2.1D(e) and any other provision of this Agreement, the terms of
this (P)2.1D(e) shall govern.
(f) Selection of Shuffled Genes. [*******] PIONEER may notify MAXYGEN
---------------------------
that PIONEER wishes to have designated as Shuffled Genes one or more of the Gene
Variants which meet the [*******] established by the RDSC, with notice to the
RDSC identifying the particular Gene Variant(s). The RDSC shall have the sole
authority to determine which Gene Variants shall be designated as Shuffled
Gene(s), and shall make all such designations in writing, however, the RDSC
shall not unreasonably withhold the designation of Gene Variants as Shuffled
Genes as requested by PIONEER.
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<PAGE>
(g) Transfer of Clones; Limited Use. Following the selection of a
-------------------------------
Shuffled Gene, MAXYGEN shall transfer to PIONEER a DNA clone containing the
applicable Shuffled Gene. Except in connection with the practice of the rights
granted PIONEER in (P)3.1B and as clarified in (P)3.1D(a), PIONEER shall not
without the express prior written consent of MAXYGEN, (i) transfer any of the
Shuffled Genes or protein pools or DNA clones supplied to PIONEER to any
Affiliate, Sublicensee or third party, (ii) sequence any Shuffled Gene or
protein(s) provided by MAXYGEN, or (iii) permit any other person or entity to
obtain or use any of the protein pools or DNA clones supplied to PIONEER for any
purpose.
E. Additional Research Activities.
------------------------------
(a) In the event that prior to the end of the Research Term, the
parties agree that the FTEs involved in the R&D Program cannot be productively
used to conduct research on the Trait Categories, then PIONEER shall have the
right to propose to MAXYGEN additional research activities to be conducted in
connection with the R&D Program in new trait categories. If MAXYGEN does not
have prior obligations to a third party with respect to such research
activities, or have a prior intention to conduct activities relating to the
proposed activities on its own behalf or with a third party, it shall notify
PIONEER, and in such case, the parties shall negotiate in good faith the terms
on which such research activities could be conducted in connection with the R&D
Program. Such research activities will only be initiated if the parties reach
written agreement on the terms
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<PAGE>
thereof, including without limitation, milestone payments and royalties on
resulting products.
(b) If it appears that one or more research projects regarding the
Shuffling of Genes in the Trait Categories will not be completed by the end of
the Research Term and the RDSC agrees that such research projects are near
completion, PIONEER may with notice to MAXYGEN at least sixty (60) days prior to
the end of the Research Term extend the Research Term with respect to such
research projects for a period of [*******], or such other period as PIONEER and
MAXYGEN may agree in writing (the "Extension Period"). In any such event,
PIONEER shall provide FTE funding for such projects during the Extension Period
equal to the average level of FTE support provided in the R&D Program for such
research projects in the six (6) month period prior to the [*******] anniversary
of the Effective Date, such funding to be paid to MAXYGEN on the [*******]
anniversary of the Effective Date.
F. Research Results. Research Results shall be treated as described
----------------
below:
(a) Gene Variants. The treatment of Research Results which are Gene
-------------
Variants shall depend on whether the Gene which is Shuffled to produce the
applicable Gene Variant(s) is (x) [*******] ("a PIONEER Gene"), or (y) is
[*******] (a "Non-PIONEER Gene").
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<PAGE>
(i) If [*******], then MAXYGEN may not use the Gene Variants
resulting from such Shuffling for any purpose except the conduct of the R&D
Program (except such Gene Variants which become Shuffled Genes), without the
prior written consent of PIONEER.
(ii) If [*******], then MAXYGEN shall not use the Gene Variants
resulting from such Shuffling for any purpose except the conduct of the R&D
Program (except such Gene Variants which become Shuffled Genes), for a period of
[*******] (the "Non-Use Period"). Notwithstanding the above, at the suggestion
of a third party, during the Non-Use Period, MAXYGEN may [*******], in
connection with research conducted with or on behalf of a third party. It is
understood and agreed that, subject to subparagraph (iii) below, MAXYGEN shall
be free to Shuffle any one or more genes not Shuffled in the R&D Program on its
own behalf or on behalf of a third party outside the R&D Program, subject to the
limitations in (P)2.6A.
(iii) Notwithstanding (ii) above, during the R&D Program, PIONEER
may propose to the RDSC the Shuffling in the R&D Program of [*******]. In such
event, PIONEER shall present to the RDSC a detailed written explanation why
[*******]. If the RDSC agrees, then the RDSC shall describe in writing the set
of all other similar Non-PIONEER Genes (the "Non-PIONEER Gene Set") which relate
to the PIONEER proposal, and, except in connection with the
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R&D Program, MAXYGEN shall not conduct any Shuffling of [*******] during the
applicable Non-Use Period. Any Gene Variants resulting from the Shuffling of
any Genes in the Non-PIONEER Genes shall be treated as provided in (ii) above.
(iv) PIONEER shall not have any right to use any of the Gene
Variants (except such Gene Variants which become Shuffled Genes) for any use
outside the R&D Program.
(v) The identities of all Genes Shuffled in the R&D Program is
Confidential Information of PIONEER, which shall not be disclosed except
pursuant to Sections 6 or 7 below, or as otherwise agreed by PIONEER and
MAXYGEN.
(b) Shuffled Genes. Gene Variants which have become Shuffled Genes
--------------
shall be subject to the exclusive licenses set forth in (P)3.1B and (P)3.2B, and
neither MAXYGEN nor PIONEER shall disclose or use such Shuffled Genes except
pursuant to such licenses.
(c) Enabling Technology. Except for use in connection with the R&D
-------------------
Program or as expressly permitted pursuant to the licenses in (P)3.1B and C and
3.2B and C, PIONEER or MAXYGEN shall not have any right to use or disclose
Enabling Technology to any third party.
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<PAGE>
(d) PIONEER Product Technology. Except for use in connection with the
--------------------------
R&D Program, MAXYGEN shall have no right to use or disclose any PIONEER Product
Technology to any third party.
(e) Shuffling Technology. Except disclosure to MAXYGEN in connection
--------------------
with the R&D Program or to the extent necessary to file patent applications
claiming Shuffled Gene(s), PIONEER shall have no right to use or disclose any
Shuffling Technology to any third party.
(f) Research Materials. Except as set forth in (P)2.1F(a) through
------------------
(e) above, all Research Materials shall be treated as follows. Ownership of such
Research Materials shall depend on whether PIONEER or MAXYGEN or the parties
jointly made, conceived and/or reduced to practice, or otherwise developed such
Research Materials. Except for use in connection with the R&D Program or as
expressly permitted pursuant to the licenses in (P)3.1B and (P)3.2B, PIONEER or
MAXYGEN, as the case may be, shall have the sole right to use and disclose as it
deems appropriate, any Research Materials made, conceived and reduced to
practice or otherwise developed solely by its respective employees and
consultants. Any such Research Materials made, conceived and/or reduced to
practice or otherwise developed jointly by employees and/or consultants of
MAXYGEN and PIONEER may be used and disclosed by either party outside the R&D
Program, pursuant to the licenses granted in (P)3.1B and (P)3.2B.
(g) Research Results.
----------------
(i) Research Results that relate directly and/or specifically
to Gene Variants, Shuffled Genes, Research
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<PAGE>
Materials subject to (f) above which are solely owned by one party, PIONEER
Product Technology and/or Enabling Technology, shall not be used except in
connection with the R&D Program and as expressly permitted pursuant to the
licenses in (P)3.1B and 3.2B. All such Research Results shall be treated as
Confidential Information of the party(ies) making such Research Results and
shall not be disclosed except as otherwise expressly provided in this Agreement.
(ii) Research Results not subject to subparagraph (g)(i) above
may be disclosed and used by either party without accounting to the other party
hereto.
2.2 R&D Steering Committee.
----------------------
A. Establishment and Functions of RDSC.
-----------------------------------
(a) MAXYGEN and PIONEER hereby agree to the establishment of the
RDSC. The RDSC will act on behalf of the two companies and will be responsible
for the planning and monitoring of the R&D Program and for setting forth
specific research and development objectives, selecting research projects within
applicable Trait Categories for PIONEER Crops, and determining resource
allocation for the R&D Program.
(b) The RDSC shall be responsible for approving the conduct of
any research relating to (i) any Enabling Technology pursuant to (P)2.7, and
(ii) any PIONEER Product Technology. The RDSC will identify the research
activities that constitute the
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development of Enabling Technology and PIONEER Product Technology. In each case,
the RDSC will prepare written project descriptions setting forth the specific
starting materials and goals for research relating to Enabling Technology and
PIONEER Product Technology, and include descriptions of such activities as
appropriate in the Work Plans.
(c) In planning and monitoring the R&D Program, the RDSC shall
assign tasks and responsibilities taking into account each party's respective
specific capabilities and expertise in order to avoid duplication and enhance
efficiency and synergies.
B. RDSC Membership.
---------------
(a) MAXYGEN and PIONEER shall each appoint, in its sole
discretion, three members to the RDSC, including a Co-Chair designated by
PIONEER and a Co-Chair designated by MAXYGEN. Substitutes or alternates for the
Co-Chairs or other RDSC members may be appointed at any time by notice to the
other party.
(b) MAXYGEN shall, in consultation with PIONEER, appoint a full-
time Project Coordinator, who is one FTE. This Project Coordinator shall be a
MAXYGEN member of the RDSC or shall otherwise participate in RDSC meetings on
behalf of MAXYGEN.
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C. Meetings.
--------
The RDSC shall meet at least quarterly, with such meetings alternating
between Santa Clara, California and Des Moines, Iowa, unless the parties agree
otherwise. The first such meeting shall be held in Santa Clara, California
within thirty (30) days after the Effective Date. Any additional meetings shall
be held at places and on dates selected by the Co-Chairs of the RDSC. RDSC
members may agree that participation in any such meeting will be in person, by
telephone, or by televideo conference. In addition, the RDSC may act without a
formal meeting by a written memorandum signed by the Co-Chairs of the RDSC.
Subject to the obligations set forth in Section 5, representatives of each party
may, in addition to the members of the RDSC and the MAXYGEN Project Coordinator,
attend RDSC meetings as nonvoting observers at the invitation of either party
only with the prior approval of the other party, which consent shall not be
unreasonably withheld.
D. Minutes.
-------
The RDSC shall keep accurate minutes of its meetings that record all
decisions and all actions recommended or taken. Draft minutes shall be
delivered to the Co-Chairs of the RDSC within 20 days after each meeting. The
party hosting the meeting shall be responsible for the preparation and
circulation of the draft minutes. Draft minutes shall be edited by the Co-
Chairs and shall be issued in final form only with their approval and agreement
as
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evidenced by their signatures on the minutes. Minutes of the RDSC meetings shall
be Confidential Information.
E. Quorum; Voting; Decisions.
-------------------------
At each RDSC meeting, at least two members appointed by each party
shall constitute a quorum and decisions shall be made by unanimous vote. If the
RDSC is unable to reach agreement on any matter, it shall be referred for
resolution to the Chief Executive Officer of MAXYGEN and the Vice President &
Director, Trait and Technology Development of PIONEER, or their respective
successors. Such persons shall meet promptly in person or by telephone and
endeavor to reach agreement. If such persons are unable to unanimously resolve
any dispute, such dispute shall be settled pursuant to Section 13 below.
F. Expenses.
--------
MAXYGEN and PIONEER shall each bear all expenses of their respective
RDSC members related to their participation on the RDSC and attendance at RDSC
meetings.
2.3 Third Party Licenses.
--------------------
A. Responsibility.
--------------
(i) In the event that it is necessary for MAXYGEN to
acquire any third party license specifically for the conduct of the R&D Program,
PIONEER will be responsible for the
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payment of any amounts due to third parties for the license of intellectual
property necessary solely for the performance of the R&D Program and the costs
of negotiating and preparing any such license. Notwithstanding the above, it is
understood that MAXYGEN shall be responsible for all payments due to third
parties for the acquisition of licenses to intellectual property necessary for
the practice of Shuffling Technology per se and the costs of negotiating and
--- --
preparing such licenses.
(ii) If PIONEER is not able to grant to MAXYGEN a
sublicense to any Gene(s) which are Shuffled in the R&D Program for use in
development or commercialization of MAXYGEN Licensed Products, MAXYGEN will be
responsible for acquiring licenses to such Genes as needed for its own
commercialization activities. Notwithstanding the above, with respect to any
gene(s) to which PIONEER obtains license rights from a third party after the
Effective Date, which gene(s) PIONEER wishes to Shuffle in the R&D Program,
PIONEER shall use reasonable efforts to acquire from such other third party the
right to sublicense such Gene and Shuffled Genes based thereon to MAXYGEN for
use pursuant to (P)3.2B. Other than the rights granted in Section 3, PIONEER
will be responsible for acquiring, at its own expense, its own licenses to all
other technologies needed for development and commercialization of PIONEER
Licensed Products and MAXYGEN will be responsible for acquiring, at its own
expense, its own licenses to all other technologies needed for development and
commercialization of
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MAXYGEN Licensed Products. With respect to any gene(s) licensed from a third
party, PIONEER shall use reasonable efforts to acquire the right to sublicense,
without additional payments, provided if PIONEER is unable to acquire such
sublicense rights without additional charge, MAXYGEN shall be responsible for
paying any amounts due to acquire and practice such sublicenses.
B. Infringement Claims. In the event that during the Research Term
-------------------
PIONEER or MAXYGEN receives a written notice of an allegation of actual or
possible patent infringement from a third party based on the use of a particular
Gene which has been or is planned to be Shuffled in the conduct of the R&D
Program, such party shall promptly notify the other providing an explanation of
the circumstances.
2.4 Capital Expenditures. In the event that the conduct of the R&D
--------------------
Program can be facilitated by the purchase of specialized capital equipment, the
RDSC shall determine whether such equipment shall be purchased. If the RDSC
approves any such purchase, PIONEER will purchase or pay to MAXYGEN the full
cost (including costs for taxes, shipping, etc.) for such purchases and PIONEER
shall own such equipment. MAXYGEN shall have no obligation to purchase any such
equipment unless PIONEER provides reimbursement therefore. Unless otherwise
agreed, any capital equipment purchased under this paragraph 2.4 shall be
subject to the following: (i) any such equipment may not be used outside the R&D
Program, (ii) individual items of equipment may not cost less than
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$5,000, and (iii) budgets for equipment must be presented by the RDSC to
PIONEER on or before March 30 of the applicable year.
2.5 Post Research Term Cooperation. At least three (3) months prior to
------------------------------
the expiration of the Research Term, the parties shall meet to agree on
mechanisms for coordinating and managing activities (e.g., patent prosecution,
publication review) that will occur after the expiration of the Research Term
which would otherwise be addressed by the RDSC.
2.6 Research Exclusivity.
--------------------
A. During the Research Term, MAXYGEN will not collaborate with any
entity nor undertake any research activities not for the direct benefit of
PIONEER with the intent of using Shuffling Technology to [*******] ("the
Exclusive Trait Areas").
B. During the Research Term, MAXYGEN will conduct non-exclusive
research in connection with the R&D Program in the following Trait Categories:
[*******].
C. It is understood and agreed that, subject to its obligation to
conduct research pursuant to (P)2.6B, MAXYGEN may conduct research on its own
behalf and with third parties with respect to any gene and/or Plant, except with
regard to the Exclusive Trait Areas for which PIONEER retains exclusivity,
including without limitation, research with respect to the Trait Categories and
PIONEER Crops subject to (P)2.6B.
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2.7 Enabling Technology.
-------------------
A. The parties anticipate that the development of products within
the Trait Categories may be significantly enhanced by the application of
Shuffling Technology in the area of Enabling Technology. Unless mutually agreed
in writing, application of Shuffling Technology for development of Enabling
Technology will only be undertaken pursuant to the R&D Program and relating to
at least one Trait Category upon mutual agreement of the parties and inclusion
in the Work Plan. It is understood that any effort to develop Enabling
Technology shall be undertaken on a case-by-case basis, based on a written
project description which describes the specific starting materials and goals
and the successful outcome(s).
B. At such time as a party proposes that a project be conducted for
the development of Enabling Technology, it shall inform, to the extent it is
able to do so without breaching any confidentiality obligations, the RDSC of all
rights which it has with respect to the underlying technology on which such
Enabling Technology will be based or will require, including without limitation,
any rights it has to use and sublicense such underlying technology, and any
restrictions or limitations thereon, and any information of which it is aware
with respect to third party patent applications or patents which may relate to
the use of the proposed Enabling Technology in the R&D Program and/or for the
development
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<PAGE>
or commercialization of Licensed Products; provided, neither party shall have
any obligation to provide the RDSC with any document which would result in a
breach of the attorney/client privilege with respect thereto. The RDSC shall
have the sole authority to authorize the conduct and scope of projects in the
R&D Program intended to produce Enabling Technology. If the RDSC cannot agree on
a particular Enabling Technology project, the matter shall be resolved as
provided for in (P)13.1A.
C. Prior to such time as the RDSC approves the conduct of research
relating to any Enabling Technology, the parties shall negotiate in good faith
the rights, if any, which (i) PIONEER shall have to use such Enabling Technology
other than [*******], and/or (ii) MAXYGEN shall have to use such Enabling
Technology other than [*******]. In the event the parties fail to reach
agreement on such rights, the only rights that PIONEER and MAXYGEN shall have to
use the applicable Enabling Technology are those set forth in (P)3.1C and
(P)3.2C below, respectively.
D. Prior to commencing research with respect to any Enabling
Technology, the parties shall agree on an appropriate royalty or other value
capture mechanism therefore.
2.8 Rice. Immediately following the execution of this Agreement, and
----
until July 1, 1999, unless MAXYGEN earlier enters into an agreement with a third
party regarding the use of Shuffling Technology with respect to rice for those
projects which PIONEER
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wishes to conduct with MAXYGEN, MAXYGEN and PIONEER will negotiate in good faith
the terms of a further agreement regarding the use of Shuffling Technology for
agreed research projects with respect to rice, and corresponding license rights.
It is understood and agreed that neither party shall be obligated to enter into
any such agreement, and that MAXYGEN shall be free to enter into an agreement
with a third party with respect to rice at any time prior to or after July 1,
1999.
2.9 Shuffling Technology. During the Research Term, MAXYGEN shall use
--------------------
reasonable efforts to continue to develop and improve its Shuffling Technology;
provided, however, PIONEER acknowledges that technology development is
inherently an uncertain activity and agrees that MAXYGEN shall not have breached
its commitment under this paragraph in the event that any third party develops
or invents methods or technology relating to the creation of genetic diversity.
SECTION 3. LICENSE RIGHTS.
--------------------------
3.1 To PIONEER.
----------
A. Research License. Subject to the terms and conditions of this
----------------
Agreement, MAXYGEN agrees to grant, and hereby grants to PIONEER a non-
exclusive, nontransferable, non-sublicensable, royalty-free, worldwide license
under MAXYGEN's
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<PAGE>
interest in the Intellectual Property and MAXYGEN Materials solely to conduct
the R&D Program.
B. Commercial Licenses.
-------------------
(a) Subject to the terms and conditions of this Agreement,
MAXYGEN agrees to grant, and hereby grants, to PIONEER, worldwide, royalty-
bearing licenses, with the right to sublicense as set forth in (P)3.1(B)(b)
below, under MAXYGEN's interest in the Intellectual Property (whether solely or
jointly owned by MAXYGEN) as follows:
(i) an exclusive license to make, have made, and use
Shuffled Genes (excluding any MAXYGEN SGD) and Enabling Technology together with
Shuffled Genes (excluding any MAXYGEN SGD), in each case, in the PIONEER Crops,
to develop, make, have made, use, import, offer for sale, sell, and have sold
PIONEER Licensed Products; and
(ii) a non-exclusive license to make, have made, and use
Research Results subject to (P)2.1F(f) and (g) in the PIONEER Crops, to develop,
make, have made, use, import, offer for sale, sell, and have sold PIONEER
Licensed Products.
(b) Sublicenses. PIONEER shall have the right to sublicense
-----------
the rights granted in (P)3.1B(a) with respect to the PIONEER Crops and Trait
Categories for which it has licenses as set forth in (P)3.1B(a). Following the
execution of any sublicense, PIONEER shall provide to MAXYGEN the
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identity of the Sublicensee and a description of the PIONEER Licensed Products
and rights sublicensed to the Sublicensee and the territory of such sublicense.
Each sublicense granted by PIONEER shall be consistent with all the terms and
conditions of this Agreement, and subordinate thereto, and PIONEER shall remain
responsible to MAXYGEN for the financial obligations arising under this
Agreement based upon the activities of each such Sublicensee. No Sublicensee may
grant further sublicenses of such rights, or assign such sublicense, without
MAXYGEN's prior written consent. Upon termination of this Agreement, or of any
license to PIONEER hereunder, for any reason, any applicable sublicenses granted
by PIONEER hereunder shall survive, subject to the terms and conditions hereof.
C. Enabling Technology.
-------------------
(i) It is understood that the license set forth in
(P)3.1B includes a license, with the right to grant sublicenses, to make, have
made and use the Enabling Technology to develop, make, have made, use, offer for
sale, sell and have sold PIONEER Licensed Products incorporating Shuffled Genes
(excluding MAXYGEN SGD) in the applicable Trait Categories in the PIONEER Crops
in accordance with such license, but does not include a license to [*******]
(ii) In the event that PIONEER and MAXYGEN mutually
agree in writing pursuant to (P)2.7D upon an appropriate
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royalty or other value capture mechanism for other uses of Enabling Technology
by PIONEER [*******], MAXYGEN will grant to PIONEER a nonexclusive, royalty-
bearing, worldwide license for such uses of the applicable Enabling Technology.
D. No Other Products.
-----------------
(a) It is understood and agreed that pursuant to the
licenses granted in (P)3.1B that PIONEER may conduct such activities (e.g., the
sequencing and mutagenesis of Shuffled Genes) as it reasonably deems appropriate
to develop Shuffled Genes including PIONEER SGDs (but excluding MAXYGEN SGDs)
and PIONEER Licensed Products based thereon.
(b) Except in connection with the development or
commercialization of PIONEER Licensed Products, PIONEER and its Affiliates and
Sublicensees shall not develop or commercialize, or authorize the development or
commercialization of, any gene (or genetic element) which is based on or derived
from any Gene Variant, Shuffled Gene (or Enabling Technology, as the case may
be), or any Plant or product derived therefrom which contains or is made with
the use of such a gene (or genetic element), regardless of whether such gene (or
genetic element) is made or obtained through synthesis, or mutation of a
starting gene (or genetic element). Except in connection with the development or
commercialization of PIONEER Licensed Products, PIONEER will not itself, or
through any third party, use any MAXYGEN Intellectual
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<PAGE>
Property, Joint Intellectual Property and/or Research Results or structure-
function data relating to any Gene Variants, including without limitation,
consensus sequences or structural motifs, to reverse engineer, reconstruct,
synthesize or otherwise modify or copy any Gene Variant or Shuffled Gene or any
other gene or product with similar biological activities, or to attempt the
same.
(c) If a dispute arises between the parties which the
parties are unable to resolve regarding whether or not a product sold by PIONEER
or its Affiliates or Agents or Sublicensees is a PIONEER Licensed Product, the
dispute shall be settled by binding arbitration pursuant to (P)13.2 herein;
provided, however, PIONEER shall bear the burden of proof in establishing that
such product is not a PIONEER Licensed Product subject to this Agreement.
3.2 To MAXYGEN.
----------
A. Research License. Subject to the terms and conditions of this
----------------
Agreement, PIONEER agrees to grant, and hereby grants, to MAXYGEN (i) a non-
exclusive, nontransferable, non-sublicensable, royalty-free, worldwide license
under PIONEER's interest in the Intellectual Property and PIONEER Materials, and
(ii) a non-exclusive, nontransferable, non-sublicensable, royalty-free,
worldwide license under any patents, trade secrets and other intellectual
property owned or Controlled by PIONEER that are
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<PAGE>
necessary or useful for the conduct of the R&D Program, in each case, solely to
conduct the R&D Program.
B. Commercial License.
------------------
(a) Subject to the terms and conditions of this Agreement,
PIONEER agrees to grant, and hereby grants, to MAXYGEN, a worldwide, royalty-
bearing license under PIONEER's interest in the Intellectual Property (whether
solely or jointly owned by PIONEER), as follows:
(i) an exclusive license to make, have made, and use
Shuffled Genes (excluding any PIONEER SGD) and Enabling Technology together with
Shuffled Genes (excluding any PIONEER SGD) in each case, in MAXYGEN Crops, to
develop, make, have made, propagate, have propagated, use, import, offer for
sale, sell and have sold MAXYGEN Licensed Products, including the right to grant
sublicenses; and
(ii) a non-exclusive license to make, have made, and use
Research Results subject to (P)2.1F(f) and (g) in MAXYGEN Crops, to develop,
make, have made, use, import, offer for sale, sell and have sold MAXYGEN
Licensed Products, including the right to grant sublicenses.
(b) Subject to the terms and conditions of this Agreement,
PIONEER agrees to grant, and hereby grants, to MAXYGEN, a worldwide, royalty-
bearing license under PIONEER's interest in
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<PAGE>
the Intellectual Property (whether solely or jointly owned by PIONEER) as
follows:
(i) an exclusive license to make, have made, sell,
offer to sell, import and use Shuffled Genes (excluding PIONEER SGDs) in Plants
other than PIONEER Crops and MAXYGEN Crops, and for uses other than in Plants,
and to develop, make, have made, use, import, offer for sale, sell and have sold
MAXYGEN Licensed Products derived therefrom, including the right to grant
sublicenses; and
(ii) a non-exclusive license to make, have made, sell,
offer to sell, import and use Research Results subject to (P)2.1F(f) and (g) in
Plants other than PIONEER Crops and MAXYGEN Crops, and for uses other than in
Plants, and to develop, make, have made, use, import, offer for sale, sell and
have sold MAXYGEN Licensed Products derived therefrom, including the right to
grant sublicenses.
(c) It is understood that the license to MAXYGEN set forth
in (P)3.2B(a) does not convey any license to use Shuffled Genes or PIONEER SGDs
or MAXYGEN SGDs (i) [*******] or (ii) [*******]. It is further understood that
MAXYGEN shall not have the right to use or license any Shuffled Gene or any
PIONEER SGD or any MAXYGEN SGD which is Jointly Developed in the R&D Program to
any third party for use in [*******], so long as [*******], but shall have the
right to [*******]
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<PAGE>
(d) Sublicenses. MAXYGEN shall have the right to sublicense
-----------
the rights granted in (P)3.2B(a) and (b). Following the execution of any
sublicense, MAXYGEN shall provide to PIONEER the identity of the Sublicensee and
a description of the MAXYGEN Licensed Products and rights sublicensed to the
Sublicensee and the territory of such sublicense. Each sublicense granted by
MAXYGEN shall be consistent with all the terms and conditions of this Agreement,
and subordinate thereto, and MAXYGEN shall remain responsible to PIONEER for the
financial obligations arising under this Agreement based upon the activities of
each such Sublicensee. No Sublicensee may grant further sublicenses of such
rights, or assign such sublicense, without PIONEER's prior written consent. Upon
termination of this Agreement, or of any licenses granted to MAXYGEN hereunder,
for any reason, any applicable sublicenses granted by MAXYGEN hereunder shall
survive, subject to terms and conditions herein.
C. Enabling Technology.
-------------------
(i) It is understood that the licenses set forth in
(P)3.2B(a) include a license, with the right to grant and authorize sublicenses,
under PIONEER's interest in the Enabling Technology to make, have made, sell,
have sold, import, use, and have used MAXYGEN Licensed Products incorporating
Enabling Technology, together with Shuffled Genes (excluding [*******]) in
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<PAGE>
the MAXYGEN Crops in accordance with such license, but does not include a
license to [*******]
(ii) In the event that PIONEER and MAXYGEN mutually
agree in writing pursuant to (P)2.7D upon an appropriate royalty or other value
capture mechanism for other uses of Enabling Technology by MAXYGEN [*******],
PIONEER will grant to MAXYGEN a nonexclusive, royalty-bearing, worldwide license
for such uses of the applicable Enabling Technology.
3.3 Third Party Rights.
------------------
A. Overlapping Rights. It is understood that MAXYGEN is in the
------------------
business of Shuffling DNA on behalf of third parties, and that MAXYGEN will
grant such third parties rights after the Effective Date to acquire licenses for
genes derived from Shuffling that are similar to PIONEER's rights under this
Section 3. Notwithstanding the licenses granted PIONEER above, it is possible
that a third party may acquire rights from MAXYGEN with respect to one or more
genes of which MAXYGEN is a sole or joint owner; accordingly, MAXYGEN's grant of
rights in this Section 3 is limited to the extent that (i) a third party (either
alone or jointly with MAXYGEN) has filed a patent application with respect to
such gene prior to the filing by PIONEER (either alone or jointly with MAXYGEN)
of a patent application with respect to such a gene or (ii) MAXYGEN has, prior
to identification of the nucleotide sequence of a gene in the R&D Program
granted a third party a
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<PAGE>
license or other rights with respect to such a gene, and subject to any such
grant of rights to a third party.
B. Limited Liability. It is understood and agreed that, even if
-----------------
MAXYGEN complies with its obligations under this Agreement, genes derived
through Shuffling activities that are provided to third parties in the course of
MAXYGEN's other business activities may result in third party patent
applications and patents, including patent applications and patents owned by
such third parties, or owned jointly by MAXYGEN and such third parties, which
could conflict with patent applications and patents owned by PIONEER, or jointly
owned by PIONEER and MAXYGEN hereunder. MAXYGEN will use its reasonable efforts
to avoid such conflict and, unless PIONEER is damaged as a proximate result of a
material breach by MAXYGEN of the terms of (P)2.6 or any of the representations
and warranties in Section 11, then MAXYGEN shall have no liability under this
Agreement with respect to any such conflict.
3.4 Assignments. Each party shall have the further right to assign its
-----------
rights in the licenses granted herein (or any part thereof) to one or more of
its Affiliates; provided, however, that the party making such assignment shall
be responsible for the obligations of such Affiliates.
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<PAGE>
3.5 Retained Rights.
---------------
A. MAXYGEN. MAXYGEN shall retain all rights under its interest in
-------
the Shuffling Technology assigned to MAXYGEN pursuant to (P)7.3, and in the
MAXYGEN Intellectual Property and Joint Intellectual Property that are not
expressly granted to PIONEER in (P)3.1A, and to any intellectual property and/or
tangible materials developed by it or on its behalf after the Research Term or
outside the scope of this Agreement. It is understood that MAXYGEN may, among
other things, grant to third parties (i) licenses under its interest in such
Intellectual Property for the use of Shuffled Genes (excluding PIONEER SGDs) in
MAXYGEN Crops and other plants, and (ii) licenses under its interest in
intellectual property developed outside the R&D Program for any use; provided,
however, that during the term of this Agreement, MAXYGEN shall not grant any
license under such Intellectual Property which conflicts with the licenses
granted to PIONEER herein. Notwithstanding the exclusive licenses granted to
PIONEER in (P)3.1A, MAXYGEN shall retain the right to use all Shuffled Genes for
its own research purposes (i.e., to develop, improve and validate its technology
and intellectual property).
B. PIONEER. PIONEER shall retain all rights under its interest in
-------
the PIONEER Product Technology assigned to PIONEER pursuant to (P)7.3, and in
the PIONEER Intellectual Property and Joint Intellectual Property that are not
expressly granted to MAXYGEN in (P)3.1B, and to any intellectual property and/or
tangible materials developed by it or on its behalf after the Research Term
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<PAGE>
or outside the scope of this Agreement. It is understood that PIONEER may, among
other things, grant to third parties licenses under its interest in such
Intellectual Property for the use of Shuffled Genes (excluding MAXYGEN SGDs) to
which it retains license rights in the PIONEER Crops; provided, however, that
during the term of this Agreement, PIONEER shall not grant any license under
such Intellectual Property which conflicts with the licenses granted to MAXYGEN
herein. It is understood and agreed that nothing in this Agreement grants (or
shall be construed to grant) to PIONEER any licenses to intellectual property or
materials developed by or on behalf of third parties outside of the R&D Program.
3.6 Other Rights.
------------
A. MAXYGEN Covenant. In furtherance of the licenses granted to
----------------
PIONEER in (P)3.1B, MAXYGEN agrees that, to the extent necessary for PIONEER to
practice the license granted in (P)3.1B, for so long as PIONEER is not in
default with respect to any payment due to MAXYGEN hereunder by more than thirty
(30) days, MAXYGEN shall not bring any claim or action against PIONEER, or its
Affiliates or Sublicensees, based on or asserting that the making, using,
selling, importing or offering for sale or import of a PIONEER Licensed Product
in accordance with the license set forth in (P)3.1, infringes [*******];
provided, however, if any amounts are due from MAXYGEN to third parties as a
result of the practice of such third party patent rights by PIONEER and its
Affiliates and Sublicensees pursuant to the foregoing covenant, PIONEER or its
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Affiliates or Sublicensees shall pay to MAXYGEN or the third party, as agreed by
PIONEER and MAXYGEN, any amounts due to such third party; provided it is
understood that MAXYGEN shall be solely responsible for any amounts due to third
parties for the practice of the Shuffling Technology per se. This covenant does
--- --
not extend to any infringement by PIONEER or its Affiliates or Sublicensees of a
claim of a U.S. or foreign patent owned or Controlled by MAXYGEN outside the
scope of the specific covenant described above [*******].
B. PIONEER Covenant. In furtherance of the licenses granted to
----------------
MAXYGEN in (P)3.2, PIONEER agrees that, to the extent necessary for MAXYGEN to
practice the license granted in (P)3.2B, for so long as MAXYGEN is not in
default with respect to any payment due to PIONEER hereunder by more than thirty
(30) days, PIONEER shall not bring any claim or action against MAXYGEN, or its
Affiliates or Sublicensees, based on or asserting that the manufacture, use,
sale, offer for sale or import of a MAXYGEN Licensed Product in accordance with
the license set forth in (P)3.2 infringes [*******]; provided, however, if any
amounts are due from PIONEER to third parties as a result of the foregoing
covenant, MAXYGEN or its Affiliates or Sublicensees shall pay to PIONEER or the
third party, as agreed by MAXYGEN and PIONEER, any amounts due to such third
party as a result of the practice of such third party patent rights by MAXYGEN
and its Affiliates and Sublicensees. This covenant does not extend to any
infringement by MAXYGEN or its Affiliates or Sublicensees of a claim of a U.S.
or foreign patent
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<PAGE>
owned or Controlled by PIONEER outside the scope of the specific covenant
described above [*******].
SECTION 4. PAYMENTS.
--------------------
4.1 Payments Due Upon Execution of this Agreement. Within [*******]
---------------------------------------------
days after the Effective Date, PIONEER shall pay to MAXYGEN a non-refundable
license fee of [*******].
4.2 Equity Investment. In conjunction with the execution of this
-----------------
Agreement, PIONEER will enter into a Stock Purchase Agreement of even date
herewith.
4.3 Royalties to MAXYGEN.
--------------------
A. PIONEER Licensed Products. In consideration of the licenses
-------------------------
granted above, PIONEER shall pay to MAXYGEN a royalty on Net Sales of PIONEER
Licensed Products (except PIONEER Licensed Products subject to (P)4.3B below) at
the rate of:
(a) Where the Product Premium of the PIONEER Licensed
Product ranges from [*******] to [*******] compared to the applicable Benchmark
Product in the same geographic area, [*******] percent of Net Sales of the
applicable PIONEER Licensed Product.
(b) Where the Product Premium of the PIONEER Licensed
Product ranges from [*******] to [*******] compared to the applicable Benchmark
Product, [*******] percent of Net Sales of the applicable PIONEER Licensed
Product.
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(c) Where the Product Premium of the PIONEER Licensed
Product is [*******] compared to the applicable Benchmark Product, [*******]
percent of Net Sales of the applicable PIONEER Licensed Product.
(d) In cases where PIONEER and its Agents, Affiliates and
Sublicensees do not sell a Benchmark Product corresponding to a particular
PIONEER Licensed Product, and believe that the applicable Product Price of the
Benchmark Product is lower than the Product Price of a comparable Benchmark
Product sold by PIONEER would be due to generally higher PIONEER prices, then
PIONEER may notify MAXYGEN and provide a written explanation of its position. In
such event, the parties shall determine in good faith the Product Price of the
applicable Benchmark Product which will be used to determine the applicable
Price Premium; provided, however, such royalty shall be no less than [*******]
of Net Sales of the applicable PIONEER Licensed Product. In the event that the
parties are unable to agree on the royalty due, such matter shall be submitted
by either party to binding arbitration pursuant to Section 13.
(e) In cases where there is no Benchmark Product because no
comparable product exists, the parties shall determine in good faith the royalty
rate which will be applied prior to commercialization of the applicable PIONEER
Licensed Product; provided, however, such royalty shall be in the range of
[*******]
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to [*******] of Net Sales of the applicable PIONEER Licensed Product. In the
event that the parties are unable to agree on the royalty due, such matter shall
be submitted by either party to binding arbitration pursuant to Section 13.
(f) In any country where there are no Patent Rights covering the
applicable PIONEER Licensed Product, if a competitor of PIONEER is marketing a
product in commercially material quantities as a result of an unauthorized use
of MAXYGEN Shuffling Technology, which product would be within the definition of
a PIONEER Licensed Product if marketed by PIONEER, then PIONEER shall notify
MAXYGEN providing a written description of the product and the identity of the
party who is making and selling such product. MAXYGEN shall use such reasonable
efforts to inform PIONEER within ninety (90) days of receipt of such
information, whether it believes such product was made via an unauthorized use
of Shuffling Technology. If such product was made with the unauthorized use of
Shuffling Technology, then PIONEER's royalty obligations hereunder in such
country for the corresponding PIONEER Licensed Product with respect to sales
thereof occurring in such country after the date of PIONEER's notice to MAXYGEN
shall be reduced by [*******] for so long as commercially material sales of such
other product continue in such country.
(g) Notwithstanding the foregoing provisions of this (P)4.3, no
royalties shall be due to MAXYGEN with regard to
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PIONEER Licensed Products which do not incorporate and are not made with
[*******], and are identified or produced using only [*******].
B. [*******]. The royalty paid to MAXYGEN for any PIONEER Licensed
Product based on or a Shuffled Gene imparting [*******] and the value capture
strategy which will be the basis for payments to MAXYGEN will be determined in
good faith by MAXYGEN and PIONEER prior to commercialization of the first
applicable PIONEER Licensed Product; provided, however, such royalty shall be no
less than [*******] of Net Sales of the applicable PIONEER Licensed Product. In
the event that the parties are unable to agree on the royalty due, such matter
shall be submitted by either party to binding arbitration pursuant to Section
13.
C. Royalty Offset. [*******] percent [*******] of all milestone
--------------
payments paid by PIONEER to MAXYGEN pursuant to (P)4.4 below, are creditable
against the royalties due under (P)4.3 on PIONEER Licensed Products that contain
a Shuffled Gene within the same Trait Category for which the applicable
milestone payment was made. The milestone payments may offset up to a maximum of
[*******] percent [*******] of the royalties due to MAXYGEN from PIONEER with
respect to the applicable PIONEER Licensed Product(s) per year. All unexpended
milestone payment credits are to be carried forward and applied against
royalties until the full credit is taken by PIONEER.
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D. Enabling Technology - Payments.
------------------------------
(a) [*******].
(b) PIONEER shall pay to MAXYGEN additional amounts, to be
determined in good faith by MAXYGEN and PIONEER prior to MAXYGEN granting a
license, as set forth in (P)3.1 (C), for PIONEER Licensed Products which do not
contain a Shuffled Gene, but are, or incorporate, or are identified, or made
with the use of Enabling Technology. Unless otherwise agreed, such payments
shall be agreed by the parties at such time as the work plan for the research on
the applicable Enabling Technology is established; provided, such royalty shall
be no more than [*******] of Net Sales of the applicable PIONEER Licensed
Product. In the event that the parties are unable to agree on the royalty due
(or other value capture mechanism) for a particular PIONEER Licensed Product
and/or use of Enabling Technology within one hundred and twenty (120) days after
first negotiating such royalty, such matter may be submitted by either party to
binding arbitration pursuant to Section 13.
E. Sublicense Payments.
-------------------
(a) In addition to royalties due pursuant to (P)4.3.A on Net
Sales by Sublicensees, PIONEER shall pay to MAXYGEN [*******] of any and all
Sublicense Payments collected by PIONEER pursuant to this Agreement from any
Agent or Sublicensee.
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(b) If PIONEER or its Affiliates wishes to grant a third party a
sublicense under the MAXYGEN's interest in the MAXYGEN Intellectual Property or
Joint Intellectual Property, or rights under the MAXYGEN's interest in the
MAXYGEN Intellectual Property or Joint Intellectual Property with regard to a
PIONEER Licensed Product, in exchange for any consideration in a form other than
cash or a cash equivalent (e.g., a license under other intellectual property
owned or Controlled by PIONEER), then PIONEER shall notify MAXYGEN and the fair
market value of the non-cash consideration received by PIONEER and its
Affiliates for such rights or product, as the case may be, shall be agreed by
PIONEER and MAXYGEN, or if the parties are unable to agree on such fair market
value, either party may submit such matter to arbitration pursuant to Section 13
below, in order to determine the fair market value of such consideration.
4.4 Milestone Payments.
------------------
A. Payments to MAXYGEN for [*******]. In addition to the other
---------------------------------
payments contemplated herein, PIONEER shall pay to MAXYGEN the following
amounts, in each case within 30 days following the occurrence of the specific
event. The full payment amounts set forth below shall only be paid with respect
to [*******] to reach the applicable milestone. The specific events are:
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(i) Once PIONEER (i) obtains successful test results at a
level agreed upon by the parties in the Work Plan, [*******] that are based in
whole or in part on such Shuffled Gene, or (b) elects to pursue further
development of a plant or seed based in whole or part on a Shuffled Gene after
[*******], [*******]; and
(ii) Upon [*******] regulatory approval in any country that
allows commercial sale of PIONEER Licensed Product, [*******]; and
(iii) Upon [*******] commercial sale in any country of
PIONEER Licensed Product, [*******].
B. Payments to MAXYGEN for [*******]. Should PIONEER achieve any of
---------------------------------
the milestone events in (P)4.4A with respect to [*******] containing a Shuffled
Gene [*******], after PIONEER has paid the applicable milestone payment for
[*******] containing a Shuffled Gene expressing a Trait [*******] in accordance
with (P)4.4A, PIONEER shall pay MAXYGEN additional milestone payments at
[*******] set forth in subparagraph 3.2C(a) above. [*******].
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4.5 Payments to PIONEER.
-------------------
A. Direct Sales of MAXYGEN Licensed Products.
-----------------------------------------
(i) At the present time, it is not foreseen that MAXYGEN
shall be selling MAXYGEN Licensed Products that are developed, made or sold as a
part of MAXYGEN's day-to-day business, and that MAXYGEN shall be sublicensing
under the licenses granted in this Agreement. However, if during the life of
this Agreement, MAXYGEN or its successor company shall exercise the licenses
granted in a means other than by sublicensing to third parties, MAXYGEN or its
successor company shall enter into negotiations in good faith with PIONEER to
establish a royalty rate for MAXYGEN Licensed Products made from the use of
Shuffled Genes to be paid to PIONEER in consideration of the licenses granted
above. MAXYGEN shall inform PIONEER of its intent to sell MAXYGEN Licensed
Products at least 6 months prior to its sale of the first such product, in order
to allow time to negotiate the royalty rate that shall be due on Net Sales. Such
royalty rate shall be based on Product Premiums as set forth in (P)4.3A, and in
no event shall the royalty rate applied to MAXYGEN Licensed Products and due to
PIONEER exceed the royalty rate applied to PIONEER Licensed Products and due to
MAXYGEN in (P)4.3A.
(ii) Notwithstanding the foregoing (P)4.5A(i), no royalties
shall be due to PIONEER with regard to MAXYGEN Licensed
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Products which do not incorporate and are not made with [*******], and are
identified or produced using only [*******].
B. Sublicense Payments.
-------------------
MAXYGEN shall pay to PIONEER [*******] of any and all Sublicense
Payments collected by MAXYGEN pursuant to this Agreement from any Sublicensee
for the use of Shuffled Genes or [*******].
C. Non-PIONEER Genes. Notwithstanding (P)4.5A and B above, no
-----------------
royalties or Sublicense Payments shall be due to PIONEER with regard to MAXYGEN
Licensed Products which incorporate or are made with the use of [*******], or
are identified or produced using only [*******].
4.6 Royalty Term. The royalties due hereunder shall be payable on a
------------
country-by-country and Licensed Product-by-Licensed Product basis in each
country until the date which is: (i) the expiration of the last to expire of the
patents within the Patent Rights licensed from the other party hereto covering
the applicable Licensed Product, or the manufacture, use or sale of the Licensed
Product in such country, or (ii) if there are never any Patent Rights covering
the applicable Licensed Product or the manufacture, use or sale of such Licensed
Product in a particular country, until [*******] years following the first
commercial sale of such Licensed Product in such country.
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<PAGE>
4.7 Timing. Royalty payments on sales of Licensed Products made during
------
each party's fiscal quarter by each of the parties and any fees due from their
Sublicensees sales, shall be due to the other party within 30 days after
the end of each fiscal quarter, at which time a written report showing total
sales of Licensed Products made by a party hereto and its Affiliates, Agents and
Sublicensees stated separately for each, and the calculation of Net Sales based
thereon, including details on deductions for all qualified costs set forth in
(P)1.21, stated separately on a country-by-country and Licensed Product-by-
Licensed Product basis, accompanied by sufficient information to enable the
licensor to verify the accuracy of the royalty calculations made by PIONEER, and
a detailed explanation of the methodology used to determine the royalty payment,
by Licensed Product. Notwithstanding the above, if PIONEER is unable to meet the
foregoing obligation to provide quarterly reports and royalty payments, and
requests the right to make semi-annual or annual royalty payments, the parties
agree to discuss in good faith such a request.
4.8 Currency. Royalties due hereunder shall be paid in U.S. Dollars. As to
--------
sales occurring in a currency other than U.S. Dollars, the amount due shall
first be calculated in the currency in which sale occurred and then converted to
U.S. Dollars at the closing selling rate for U.S. Dollars, as quoted in the Wall
Street Journal for the last business day of the fiscal quarter for which royalty
payments are due.
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4.9 Payment Method; Late Payments. All payments due under this Agreement
-----------------------------
shall be made by bank wire transfer in immediately available funds to a bank
account designated by the party to which such royalties are due. In the event
that the due date of any payment subject to Section 4 hereof is a Saturday,
Sunday or national holiday, such payment may be paid on the following business
day. Any late payments shall bear interest to the extent permitted by applicable
law at the prime rate (as reported by the Bank of America, San Francisco,
California (or its successor), on the date such payment is due) plus an
additional two percent (2%) (on an annualized basis), calculated on the number
of days such payment is delinquent. The rights provided in this Section 4.9
shall in no way limit any other remedies available to the party to which such
royalties are due.
4.10 Records; Inspection. The parties shall keep, and shall require their
-------------------
Sublicensees to keep, for four years from the date of each payment of royalties
hereunder, complete and accurate records of sales of Licensed Products by it and
its Affiliates, Agents and Sublicensees in sufficient detail to allow the
accruing royalties to be determined accurately. Both parties shall have the
right during such four year period, but no more than twice every year, to
appoint an independent certified public accountant reasonably acceptable to the
other party to audit such records, during normal business hours and upon
reasonable advance notice, solely for the purpose of verifying the accuracy of
the royalty
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calculation made. Such inspection shall be at the auditing party's sole expense
unless it reveals an underpayment by the other party of at least [*******]
percent [*******] of the amount due, in which case the reasonable costs of such
inspection shall be reimbursed by the audited party together with payment for
any unpaid amounts that are discovered shall be paid promptly, together with
interest thereon from the date such payments were due at the prime rate (as
reported by the Bank of America, San Francisco, California (or its successor),
plus an additional two percent (2%) on an annualized basis.
4.11 Tax Matters. All royalty amounts and other payments required to be
-----------
paid by MAXYGEN or PIONEER to the other pursuant to this Agreement shall be paid
with deduction for withholding for or on account of any taxes (other than taxes
imposed on or measured by net income) or similar governmental charge imposed by
a jurisdiction other than the United States ("Withholding Taxes"). The party
paying such taxes shall provide the other party a certificate evidencing payment
of any Withholding Taxes hereunder.
4.12 Technology Enhancement Funding. In addition to the other payments to
------------------------------
MAXYGEN provided herein, PIONEER will pay to MAXYGEN non-refundable technology
enhancement funding of [*******] per year for each year of the R&D Program
(including any extension thereof), to perform research to further enhance the
Shuffling Technology. Such payments shall be used by MAXYGEN to [*******]. The
first
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such payment shall be due within [*******] days of the Effective Date, and each
additional annual payment shall be due on the successive anniversaries of such
date.
4.13 FTE Payments.
------------
A. In addition to the payment due pursuant to the other paragraphs
of this Section 4, PIONEER will pay to MAXYGEN, for the [*******] FTEs set forth
in (P)2.1A(b), a non-refundable amount of [*******] per year during [*******] of
the Research Term, commencing as of the Effective Date.
B. Payments due pursuant to (P)4.13 above shall be made in advance,
on or before the first day of each calendar quarter, with the first and last
payments prorated in the event that the Effective Date is not the first day of a
calendar quarter. In the event that the parties agree to a different Staffing
Level for any given calendar quarter as set forth in (P)2.1A(b), the payment set
forth in this (P)4.13 shall be pro-rated accordingly based on a level of funding
of [*******] per year per FTE.
4.14 PIONEER Activities. PIONEER shall fund its own activities under the
------------------
R&D Program.
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<PAGE>
SECTION 5. COMMERCIALIZATION.
-----------------------------
5.1 Due Diligence. PIONEER shall actively pursue commercialization of
-------------
each Shuffled Gene with commercially reasonable diligence with the same level of
efforts it makes with its own intellectual property of comparable commercial
potential and patent protection and include:
(a) [*******] within [*******] years of the date of delivery
of the applicable Shuffled Gene to PIONEER. This [*******] year limitation only
applies if any necessary and effective assays developed by MAXYGEN and/or
PIONEER for measuring efficacy of the Shuffled Gene are available at the date of
delivery of the applicable Shuffled Gene. If such assays are not available at
the date of delivery of the Shuffled Gene, the start of the [*******] year
limitation will not begin until the assays are available. This diligence
activity shall be satisfied when [*******]; and
(b) [*******] within [*******] years of initial demonstration
of [*******] in the first PIONEER Crop containing the applicable Shuffled Gene
(assuming [*******] continue to demonstrate the commercial level of efficacy).
If reasonable freedom-to-operate concerns arise during this period regarding the
Shuffled Gene and/or the other construct components involved [*******], and
PIONEER must substitute other construct components, then the start of the
[*******] year limitation will begin when the
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<PAGE>
new constructs are created. This diligence obligation shall be satisfied when
[*******]; and
(c) [*******] within [*******] years of [*******] (assuming
[*******] continue to demonstrate the commercial level of efficacy). The
ultimate number of individual hybrids or varieties carrying the applicable
Shuffled Gene will vary considerably depending upon the Trait and the breadth of
geographies where markets exist. This diligence obligation is determined to be
met when [*******]; and
(d) [*******] within [*******] years of first [*******] (assuming
[*******] continue to demonstrate the commercial level of efficacy). It is
recognized and accepted that the time to [*******] may vary widely among PIONEER
Licensed Products, depending upon the Trait and PIONEER Crop, and that [*******]
are continuing to change. If [*******] change during the [*******] year
limitation, then the term to meet this diligence obligation shall be reasonably
extended, as agreed by the parties, to reflect the change in the [*******]. This
diligence obligation is determined to be met when [*******]; and
(e) [*******] within [*******] years of [*******] (assuming
[*******] continue to demonstrate the commercial level of efficacy).
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<PAGE>
It is recognized and accepted that the efficacy of each Shuffled Gene will
typically be tested and demonstrated in the field in one PIONEER Crop before
PIONEER may wish to begin developing the Shuffled Gene in additional PIONEER
Crops. Therefore, the commercialization due diligence targets identified above
will not start for additional PIONEER Crops until selected events containing the
specific Shuffled Gene are [*******] in the first PIONEER Crop.
5.2 Lack of Diligence/Reversion Rights. The rights and licenses granted to
----------------------------------
PIONEER herein with respect to Shuffled Genes shall terminate on a PIONEER Crop
by Trait basis (as defined in (P)10.1) and such rights will revert to MAXYGEN
if:
(a) [*******]; and
(b) [*******].
5.3 PIONEER Development Reports. PIONEER shall keep MAXYGEN apprised of
---------------------------
the status of the development and commercialization of each Shuffled Gene and
PIONEER Licensed Product by providing MAXYGEN with a written report within
thirty (30) days after the end of each calendar half-year detailing such
activities with respect to each applicable Shuffled Gene and PIONEER Licensed
Product during the term of this Agreement, and at MAXYGEN's request, once per
year the director of PIONEER's development activities with regard to any
particular PIONEER Licensed Product shall meet with MAXYGEN to discuss the
status and stage of such development. The
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<PAGE>
reports described in this (P)5.3 shall describe all Shuffled Genes that have
been put into PIONEER Crops or tested in [*******], and all PIONEER Licensed
Products for which PIONEER has sought or obtained regulatory approval, or which
PIONEER has licensed to a Sublicensee for development or commercialization and
shall also contain sufficient other information to allow MAXYGEN to monitor
PIONEER's compliance with this Agreement, including without limitation,
PIONEER's obligations with respect to the accomplishment of the milestones set
forth in (P)4.4. All reports and information provided under this (P)5.3 shall be
deemed Confidential Information of PIONEER.
5.4 MAXYGEN Development Reports. MAXYGEN shall keep PIONEER apprised of
---------------------------
the status of the development and commercialization of each Shuffled Gene and
MAXYGEN Licensed Product by providing PIONEER with a written report within
thirty (30) days after the end of each calendar year detailing such activities
with respect to each applicable Shuffled Gene and MAXYGEN Licensed Product
during the term of this Agreement. All reports and information provided under
this (P)5.4 shall be deemed Confidential Information of MAXYGEN.
5.5 Technology Enhancement Funding Reporting. Within 60 days of the
----------------------------------------
Effective Date and on each anniversary of the Effective Date during the period
in which PIONEER is providing to MAXYGEN technology enhancement funding, MAXYGEN
will provide to PIONEER a
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<PAGE>
written summary indicating the activities relating to Shuffling Technology it
intends to fund in the course of the next year with funding paid pursuant to
(P)4.12. In addition, within 60 days after the first anniversary of the
Effective Date and on each anniversary of the Effective Date thereafter during
the period in which PIONEER is providing to MAXYGEN technology enhancement
funding, MAXYGEN will provide to PIONEER a written summary indicating the
results of the MAXYGEN research funded from the technology enhancement funding
and how such results are being applied to the R&D Program.
SECTION 6. TREATMENT OF CONFIDENTIAL INFORMATION.
-----------------------------------------------------
6.1 Confidentiality.
---------------
A. General.
-------
(a) MAXYGEN and PIONEER each recognize that the other party's
Confidential Information constitutes highly valuable and proprietary
confidential information. For the purposes hereof, PIONEER Material is PIONEER
Confidential Information and MAXYGEN Material is MAXYGEN Confidential
Information. Subject to the terms and conditions of Section 8, MAXYGEN and
PIONEER each agree that, except as required by applicable law or regulation
(including the filing and prosecution of patent applications) or judicial or
administrative order, during the term of this Agreement and for five years
thereafter:
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(i) it will keep confidential, and will cause its employees,
consultants, Affiliates, licensees and sublicenses to keep confidential, all
Confidential Information of the other party that is disclosed to it, or to any
of its employees, consultants, Affiliates and Agents, under or in connection
with this Agreement; and
(ii) neither it nor any of its respective employees, consultants,
Affiliates or Agents shall use Confidential Information of the other party for
any purpose whatsoever except as expressly permitted in this Agreement.
(b) Notwithstanding subsection (a), above:
(i) either party may disclose the other party's Confidential
Information to its Sublicensees or academic collaborators or subcontractors, to
the extent reasonably necessary in granting permitted sublicenses or otherwise
exercising license rights expressly granted to it under the terms of this
Agreement and the rights set forth in (P)2.1F, provided that prior to any such
disclosure such entities execute a written confidentiality agreement providing
protections similar to those contained herein;
(ii) either party may disclose the other party's Confidential
Information to the extent reasonably necessary in prosecuting or defending
litigation, complying with applicable governmental regulations or court orders
or otherwise submitting
-73-
<PAGE>
information to tax or other governmental authorities; provided that, if a party
is required to make any such disclosure of the other party's Confidential
Information, other than pursuant to a confidentiality agreement, it will give
reasonable advance notice to the other party of such disclosure and, will use
its reasonable efforts to secure confidential treatment of such Confidential
Information (whether through protective orders or otherwise); and
(iii) the parties will reasonably cooperate with each other in
the making of reasonable disclosures of Confidential Information to actual and
potential Agents, investment bankers, investors and potential investors of each
party; provided, however, that such disclosures shall only be made under the
terms of a confidentiality agreement providing protections similar to those
contained herein.
B. Restricted Access.
-----------------
(a) Disclosure of a party's Confidential Information to any of
the officers, employees, consultants or Agents of the other shall be made only
if and to the extent necessary to carry out rights and responsibilities under
this Agreement, shall be limited to the maximum extent possible consistent with
such rights and responsibilities and shall only be made to persons who are bound
to maintain the confidentiality thereof and not to use such Confidential
Information except as expressly permitted by this Agreement.
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<PAGE>
(b) Following termination or expiration of the term of this
Agreement, each party will return all the Confidential Information disclosed to
it by the other party pursuant to this Agreement, including all copies and
extracts of documents, within 60 days of the request of the disclosing party;
provided that a party may retain Confidential Information of the other party
relating to any license or right to use Intellectual Property that survives such
termination and one copy of all other Confidential Information may be retained
in confidential and inactive archives solely for the purpose of establishing the
contents thereof and to determine the continuing obligations of each party.
C. Employee Confidentiality Agreements.
-----------------------------------
MAXYGEN and PIONEER each represent that all of its employees and all
of the employees of its Affiliates, and any consultants to such party or its
Affiliates, participating in the R&D Program or who shall otherwise have access
to Confidential Information of the other party are bound by written agreements
to maintain such information in confidence and not to use such information
except as expressly permitted herein. Each party agrees to enforce
confidentiality obligations to which its employees and consultants (and those of
its Affiliates) are obligated.
6.2 Publicity. Except as expressly provided herein, neither party may
---------
disclose the existence or terms of this Agreement without the prior written
consent of the other party; provided, however,
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<PAGE>
that either party may make such a disclosure to the extent required by law and
that either party may make a disclosure of the existence and terms of this
Agreement to its attorneys, advisers, investors, prospective investors, lenders
and other financing sources, and to strategic partners or licensees for Licensed
Products under circumstances that reasonably ensure the confidentiality thereof.
Notwithstanding the foregoing, the parties may agree upon a press release to
announce the execution of this Agreement, together with a corresponding Q&A
outline for use in responding to inquiries about the Agreement; thereafter,
PIONEER and MAXYGEN may each disclose to third parties the information contained
in such press release and Q&A without the need for further approval by the
other. In addition, MAXYGEN may, following consultation with PIONEER and with
the prior written consent of PIONEER, (i) make public statements regarding
PIONEER Licensed Products by announcing the achievement of milestones and fees
therefor, and (ii) make public statements regarding the overall success rate(s)
achieved by and/or for its customers with the use of its technology, including a
general description of activities undertaken in connection with the R&D Program,
and success of such activities, provided it may not disclose PIONEER's identity;
provided, if PIONEER has not approved a particular proposed disclosure within
thirty (30) days of submission by MAXYGEN of such proposed disclosure, then
MAXYGEN shall be free to make the proposed disclosure. Once a particular
disclosure has been made, MAXYGEN shall be free to make further
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<PAGE>
disclosures which do not materially differ therefrom without any further review
from PIONEER. PIONEER is free to make public statements, press releases, and the
like, with respect to PIONEER Licensed Products.
6.3 Publication. A party wishing to publish or otherwise publicly
-----------
disclose the Research Results shall first submit a draft of the proposed
manuscripts to the RDSC for review at least ninety (90) days prior to any
submission for publication or other public disclosure. To avoid loss of patent
rights as a result of premature public disclosure of patentable information, the
RDSC shall notify the submitting party in writing within thirty (30) days after
receipt of such a proposed disclosure whether either party desires to file a
patent application on any invention disclosed in such proposed disclosure. In
the event that the reviewing party desires to file such a patent application,
the submitting party shall withhold publication or disclosure of such proposed
disclosure until the earlier of (i) the date a patent application is filed
thereon, or (ii) the date the parties determine after consultation that no
patentable invention exists. Further, if the proposed disclosure contains
Confidential Information of the reviewing party that is subject to nondisclosure
obligations under this Section 6, the submitting party agrees to remove such
Confidential Information upon request of the reviewing party.
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SECTION 7. INTELLECTUAL PROPERTY RIGHTS.
--------------------------------------------
7.1 Disclosure of Inventions. Each party shall promptly inform the
------------------------
RDSC of all Research Results relevant to consideration of the progress of each
project towards its pre-agreed goals, in accordance with a procedure established
by the RDSC; provided, MAXYGEN shall have no obligation to disclose any
Shuffling Technology to the RDSC or PIONEER, except to the extent necessary in
patent filings claiming Shuffled Genes.
7.2 Ownership.
---------
A. MAXYGEN Intellectual Property Rights.
------------------------------------
MAXYGEN shall have sole and exclusive ownership of all right, title
and interest on a worldwide basis in and to any Research Results developed or
invented solely by employees or consultants of MAXYGEN.
B. PIONEER Intellectual Property Rights.
------------------------------------
PIONEER shall have sole and exclusive ownership of all right, title
and interest on a worldwide basis in and to any Research Results developed or
invented solely by employees or consultants of PIONEER.
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C. Joint Intellectual Property Rights.
----------------------------------
PIONEER and MAXYGEN shall jointly own all Joint Research Results.
D. PIONEER Materials. PIONEER shall remain the sole owner of all
-----------------
PIONEER Materials.
E. MAXYGEN Materials. MAXYGEN shall remain the sole owner of all
-----------------
MAXYGEN Materials.
7.3 Assignment of Shuffling Technology and PIONEER Product Technology.
-----------------------------------------------------------------
A. Notwithstanding (P)7.2, PIONEER agrees to assign, and hereby
assigns, to MAXYGEN all right, title and interest in Joint Intellectual Property
and PIONEER Intellectual Property claiming Shuffling Technology.
B. Notwithstanding (P)7.2, MAXYGEN agrees to assign, and hereby
assigns, to PIONEER all right, title and interest in Joint Intellectual Property
and MAXYGEN Intellectual Property claiming PIONEER Product Technology.
C. MAXYGEN and PIONEER agree to timely execute such documents as are
necessary to result in (i) MAXYGEN's sole ownership of patent applications and
patents claiming Shuffling Technology as set forth in (P)7.3A and (ii) PIONEER's
sole ownership
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of patent applications and patents claiming PIONEER Product Technology as set
forth in (P)7.3B.
7.4 Inventorship. Inventorship of patentable inventions shall be
------------
determined by the Patent Coordinators by applying the standards embodied in
United States patent law.
SECTION 8. PROVISIONS CONCERNING THE FILING, PROSECUTION
------------------------------------------------------------
AND MAINTENANCE OF PATENT RIGHTS.
---------------------------------
The following provisions relate to the filing, prosecution and maintenance
of Patent Rights claiming inventions made in connection with the R&D Program.
8.1 Filing of Patents.
-----------------
A. Primary Responsibilities. In consultation with the Patent
------------------------
Coordinators, the RDSC will coordinate the determination of what patents will be
filed on Research Results. Unless the RDSC agrees otherwise in writing, the
parties shall have the following responsibilities for patent filing, prosecution
and maintenance (including the defense of interferences, oppositions and similar
proceedings) (collectively, "Patent Activities"):
(a) DNA Shuffling. MAXYGEN will be responsible, at its sole
-------------
expense, for Patent Activities for all inventions made by MAXYGEN or PIONEER or
jointly by the parties in connection with the R&D Program relating to Shuffling
Technology.
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(b) Plant Transformation, PIONEER Product Testing and Product
---------------------------------------------------------
Development. PIONEER will be responsible, at its sole expense, for Patent
- -----------
Activities with respect to all inventions made by MAXYGEN or PIONEER or jointly
by the parties in connection with the R&D Program relating to PIONEER Product
Technology, methods of plant transformation, PIONEER product testing and
development of PIONEER Licensed Products.
(c) Gene Libraries. MAXYGEN will be responsible, at its sole expense,
--------------
for Patent Activities with respect to inventions made solely by MAXYGEN in
connection with the R&D Program relating to the Gene Libraries produced by
Shuffling. PIONEER will be responsible, at its sole expense, for Patent
Activities with respect to inventions made solely by PIONEER (if any) relating
to the Gene Libraries produced by Shuffling. In the case of joint inventions
made in connection with the R&D Program relating to the Gene Libraries, Patent
Activities shall be conducted by outside counsel acceptable to both parties with
equal control and joint responsibility for costs incurred in connection with the
applicable Patent Activities.
(d) Shuffled Genes, Proteins Encoded by such Genes, Transgenic Plants
-----------------------------------------------------------------
Containing Shuffled Genes, and Uses Thereof. PIONEER will be responsible, at
- -------------------------------------------
its sole expense, for Patent Activities with respect to inventions made by
MAXYGEN or PIONEER or jointly by the parties in connection with the R&D Program
relating
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to Shuffled Genes (excluding MAXYGEN SGDs), proteins encoded by Shuffled Genes
(excluding MAXYGEN SGDs), transgenic plants containing Shuffled Genes (excluding
MAXYGEN SGDs), and uses thereof in the PIONEER Crops; however, if a patent
application or patent solely claims uses of such Shuffled Genes (other than
PIONEER SGDs), proteins, or transgenic plants outside of PIONEER Crops, then
MAXYGEN will be responsible, at its sole expense, for such Patent Activities.
(e) Screening Assays and Inventions not Covered in Other Groups.
-----------------------------------------------------------
PIONEER will be responsible, at its sole expense, for Patent Activities with
respect to inventions made solely by PIONEER in connection with the R&D Program
relating to screening assays and inventions not otherwise covered in the
subsections of (P)8.1A above. MAXYGEN will be responsible, at its sole expense,
for Patent Activities with respect to inventions made solely by MAXYGEN in
connection with the R&D Program relating to screening assays and inventions not
covered in this (P)8.1A above. In the case of joint inventions made in
connection with the R&D Program relating to screening assays and inventions not
covered in (P)8.1(A) above, Patent Activities shall be conducted by outside
counsel acceptable to both parties with equal control and joint responsibility
for costs incurred in connection with the applicable Patent Activities.
B. Cooperation. In each case above, the party responsible for
-----------
Patent Activities for the applicable patent
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<PAGE>
applications shall use reasonable efforts to obtain patent coverage that is as
broad as possible to cover all potential commercial applications thereof, and
shall assure that the other party will have the opportunity to provide
meaningful and substantive review and comment with respect thereto. Except as
otherwise expressly provided herein, applications filed on joint inventions
shall be written and filed by outside counsel acceptable to both parties, but
under the control of the responsible party. Each party shall be kept informed of
all substantive matters relating to the preparation and prosecution of all
patent applications claiming or disclosing inventions made in connection with
the R&D Program. Each party shall promptly provide the other with copies of all
patent prosecution and maintenance documentation and correspondence so that the
other shall be currently and promptly informed of the continuing prosecution and
maintenance of patent applications and patents claiming or disclosing inventions
made in connection with the R&D Program. Each party shall have the right to
review and comment upon such documentation and correspondence, as well as all
specifications, claims and responses to office actions prior to their submission
to the relevant government patent office.
C. Elective Termination of Prosecution and Maintenance of Patent
-------------------------------------------------------------
Rights. If at any time the party responsible for Patent Activities pursuant to
- ------
(P)8.1A above (the "Responsible Party") does not wish to file or wishes to
discontinue the prosecution or maintenance of any Jointly Invented Patent Rights
claiming
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inventions made in connection with the R&D Program filed in any country, on a
country-by-country basis, it shall promptly give notice of such intention to the
other party. The latter shall have the right, but not the obligation, to assume
responsibility for the prosecution of any such Patent Rights in the applicable
country at its own expense, by giving notice to the Responsible Party of such
intention within 30 days.
8.2 Expenses. Except as otherwise expressly provided above, the
--------
Responsible Party will bear the costs of Patent Activities with respect to all
Patent Rights for which it has responsibility pursuant to (P)8.1.
8.3 Patent Coordinators. MAXYGEN and PIONEER shall each appoint a patent
-------------------
coordinator ("Patent Coordinator") who shall serve as such party's primary
liaison with the other party on matters relating to patent filing, prosecution,
maintenance and enforcement. Each party may replace its Patent Coordinator at
any time by notice in writing to the other party. The initial Patent Coordinator
from MAXYGEN is [*******] and from PIONEER is [*******].
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SECTION 9. LEGAL ACTION.
--------------------------
9.1 Actual or Threatened Infringement.
---------------------------------
A. Notice. In the event either party becomes aware of any actual or
------
threatened commercially material infringement or use of any Patent Rights
(collectively, an "Infringement"), that party shall promptly notify the other
party and provide it with full details. The parties will meet to discuss the
appropriate course of action, and may collaborate in pursuing such course or
action.
B. Primary Responsibility. Notwithstanding the foregoing, if the
----------------------
parties do not otherwise agree on a course of action, PIONEER shall have primary
responsibility for the prosecution, prevention or termination of any
Infringement of PIONEER's sole Patent Rights hereunder, at PIONEER's expense and
with the sharing of recoveries as specified below and MAXYGEN shall have primary
responsibility for the prosecution, prevention or termination of any
Infringement of MAXYGEN's Patent Rights, at MAXYGEN's expense and with the
sharing of recoveries as specified below. If either party which has primary
responsibility as described above determines that it is necessary or desirable
for the other to join any such suit, action or proceeding, the second party
shall execute all papers and perform such other acts as may be reasonably
required in the circumstances, at the responsible party's expense.
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<PAGE>
C. Jointly-Owned Patents. In the event of an Infringement of Patent
---------------------
Rights owned jointly by MAXYGEN and PIONEER, the parties shall agree which party
will have the rights and responsibilities of abating such an Infringement, and
how the expenses of abating any such Infringement shall be shared. In the event
the responsible party becomes involved in any action or proceeding relating to
the applicable Patent Rights, the responsible party shall use patent counsel
reasonably acceptable to the other party, and shall keep the other party fully
informed as to the status of such matters. In the event only one party wishes to
pursue in such proceeding, it shall have the right to proceed alone, at its
expense, and may retain any recovery, subject to (P)9.1D below, and the other
party agrees, at the request and expense of the party initiating such action, to
cooperate and join in any proceedings in the event that a third party asserts
that the co-owner of such Joint Invention is necessary or indispensable to such
proceedings.
D. Costs. PIONEER shall bear the cost of any proceeding or suit
-----
under this (P)9.1 brought by PIONEER and MAXYGEN shall bear the cost of any such
proceeding or suit brought by MAXYGEN. In each such case, the responsible party
shall have the right first to reimburse itself out of any sums recovered in such
suit or in its settlement for all reasonable costs and expenses, including
reasonable attorney's fees, related to such suit or settlement. The remainder is
next to be used to reimburse the other
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party for its costs and expenses so incurred. Any remaining amounts or any non-
monetary recovery shall be kept by the responsible party.
E. Separate Counsel. Each party shall always have the right to be
----------------
represented by counsel of its own selection and at its own expense in any suit
instituted under this Section by the other party for an Infringement.
F. Standing. If either party lacks standing and the other party has
--------
standing to bring any such suit, action or proceeding as specified above, then
the responsible party may request the other party to do so at the responsible
party's expense. The party with standing is under no obligation to comply with
such request, but rather is free to refuse such request.
G. Cooperation. In any action under this (P)9.1, each party shall
-----------
fully cooperate with and assist the other as reasonably requested. No suit
regarding MAXYGEN or Joint Intellectual Property may be settled by PIONEER
without MAXYGEN's consent. No suit regarding PIONEER or Joint Intellectual
Property may be settled by MAXYGEN without PIONEER's consent. With respect to
Joint Intellectual Property, no suit shall be settled by either party without
the other party's consent, which consent shall not be unreasonably withheld.
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9.2 Defense of Claims Asserted by Third Parties.
-------------------------------------------
A. Infringement Claims Against MAXYGEN. If any action, suit or
-----------------------------------
proceeding is brought against MAXYGEN or any officer, director, employee,
Affiliate or Agent of MAXYGEN alleging the infringement of intellectual property
rights of a third party by reason of (i) the making or use of any Gene or Gene
Variants in the conduct of the R&D Program (except to the extent covered by
(P)9.2B(i)), or (ii) the discovery, development, manufacture, use, sale,
importation or offer for sale of a PIONEER Licensed Product by PIONEER or its
Affiliates, Agents or Sublicensees, PIONEER shall indemnify, defend and hold
harmless MAXYGEN and its officers, directors, employees, Affiliates and agents
from all liabilities arising out of or in connection with any such action, suit
or proceeding. MAXYGEN shall have the right to separate counsel at its own
expense in any such action, suit or proceeding. The parties will cooperate with
each other in the defense of any such suit, action or proceeding. PIONEER shall
not compromise, settle or otherwise dispose of any such suit, action or
proceeding without MAXYGEN's prior consent, provided that MAXYGEN shall not
unreasonably withhold its consent to any settlement which does not have a
material adverse effect on MAXYGEN or MAXYGEN's business.
B. Infringement Claims Against PIONEER. If any action, suit or
-----------------------------------
proceeding is brought against PIONEER or any officer, director, employee,
Affiliate or agent of PIONEER alleging the
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infringement of intellectual property rights of a third party by reason of (i)
the use of Shuffling Technology in the conduct of the R&D Program or in the
development and commercialization of a PIONEER Licensed Product; and (ii) the
discovery, development, manufacture, use, sale, importation or offer for sale of
an MAXYGEN Licensed Product by MAXYGEN or its Affiliates, agents or
Sublicensees, MAXYGEN shall indemnify, defend and hold harmless PIONEER and its
officers, directors, employees, Affiliates and agents from all liabilities
arising out of or in connection with any such action, suit or proceeding.
PIONEER shall have the right to separate counsel at its own expense in any such
action, suit or proceeding. The parties will cooperate with each other in the
defense of any such suit, action or proceeding. MAXYGEN shall not compromise,
litigate, settle or otherwise dispose of any such suit, action or proceeding
without PIONEER's advice and prior consent, provided that PIONEER shall not
unreasonably withhold its consent to any settlement which does not have a
material adverse effect on PIONEER or PIONEER's business.
C. Notice. In the event a suit or proceeding subject to this (P)9.2
------
is brought against either party that party shall promptly notify the other party
and provide it with details.
SECTION 10. TERMINATION AND DISENGAGEMENT.
--------------------------------------------
10.1 Term. This Agreement shall be effective as of the Effective Date and,
----
unless otherwise terminated earlier pursuant to
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the other provisions of this Section 10, shall continue in full force and effect
on a Licensed Product-by-Licensed Product and country-by-country basis until the
date that is the later of: (i) PIONEER has completed its payment obligations for
the R&D Program, or (ii) both PIONEER and MAXYGEN have completed all royalty
obligations due under any license acquired hereunder in such country.
10.2 Material Breach.
---------------
A. In the event either party has materially breached or defaulted in
the performance of any of its obligations hereunder, the other party may
terminate the licenses granted to the other party with respect to the applicable
Licensed Products on a Crop-and-Trait Category by Crop-and-Trait Category
("Crop-and-Trait Specific") basis [*******] or, in cases where Crop-and-Trait
Category basis does not apply, on a Licensed Product-by-Licensed Product basis.
If more than one Licensed Product is being commercially developed or exploited
by the breaching party or its Affiliates or Sublicensees hereunder, and a breach
only relates to a particular Licensed Product, the other party shall be entitled
to terminate the licenses only with respect to the applicable Licensed Product.
A material breach of this Agreement by a party shall be deemed to have occurred:
(a) upon the failure of a party to pay, when due, any amount due
hereunder to the other party, effective thirty (30)
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days after receiving notice from the non-breaching party of such failure to pay;
or
(b) upon the material breach by a party of the provisions of
Section 5 effective sixty (60) days after receiving notice from the non-
breaching party of such breach; or
(c) upon breach of any material obligation or condition by a
party, effective sixty (60) days after receiving written notice from the non-
breaching party of such breach.
B. The foregoing notwithstanding, if the default or breach is cured
or shown to be non-existent within the 30-day or 60-day notice period described
above, the notice shall be deemed automatically withdrawn and of no effect.
10.3 Bankruptcy.
----------
A. If either party (the "Insolvent Party") files for protection
under bankruptcy laws, makes an assignment for the benefit of creditors,
appoints or suffers appointment of a receiver or trustee over its property,
files a petition under any bankruptcy or insolvency act or has any such petition
filed against it which is not discharged within 60 days of the filing thereof,
then the other party may, at its sole election upon notice to the Insolvent
Party, terminate the entire Agreement by notice to such party.
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B. All rights and licenses granted under or pursuant to this
Agreement shall be deemed to be, for purposes of Section 365(n) of the U.S.
Bankruptcy Code, licenses or rights to "intellectual property" as defined under
Section 101(52) of the U.S. Bankruptcy Code. The parties agree that each party,
as a licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the U.S. Bankruptcy Code, subject
to performance by the licensee of its preexisting obligations under this
Agreement.
C. Notwithstanding Section B. above, the parties agree that under
this Agreement PIONEER has not been granted and shall not receive any right or
license to practice any Shuffling Technology, and the provisions of (P)10.3B
above do not apply to any intellectual property and materials relating thereto.
10.4 Limited Cause Termination.
-------------------------
A. If PIONEER or MAXYGEN or a third party does not demonstrate that
Shuffled Genes or other genes created or developed through the use of MAXYGEN
Shuffling Technology can be [*******], as shown by [*******], within thirty-six
(36) months after the Effective Date, PIONEER shall have the right to terminate
this Agreement on six (6) months notice to MAXYGEN; provided that such notice
shall be deemed automatically withdrawn if MAXYGEN makes such a demonstration
prior to the effective date of such termination. All payments due to MAXYGEN on
or before the effective date of
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termination shall be paid by PIONEER prior to early termination under this
clause.
B. If prior to the end of the Research Term all research activities
to be conducted in the R&D Program have been successfully completed or
terminated by written agreement of the parties, and PIONEER and MAXYGEN are
unable to agree on new research activities in new trait categories to be
conducted in the R&D Program and the terms thereof as provided in (P)2.1E(a),
then PIONEER shall have the right to terminate the R&D Program on six (6) months
notice to MAXYGEN. All payments due to MAXYGEN on or before the effective date
of termination shall be paid by PIONEER prior to early termination under this
clause.
10.5 Effect of Termination.
---------------------
A. Accrued Obligations. Termination of this Agreement, for any
-------------------
reason shall not release any party hereto from any liability which, at the time
of such termination, has already accrued to the other party or which is
attributable to a period prior to such termination, nor preclude either party
from pursuing any rights and remedies it may have hereunder or at law or in
equity which accrued or are based upon any event occurring prior to such
termination.
B. Return of Confidential Information and Materials. Upon any
------------------------------------------------
termination of this Agreement, PIONEER and MAXYGEN shall
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promptly return to the other party all Confidential Information received from
the other party hereto (except one copy of which may be retained by legal
counsel for archival purposes and ensuring compliance with Section 6) and other
pertinent obligations under this Agreement, and all PIONEER Materials and
MAXYGEN Materials shall be returned to the owner thereof.
C. Licenses.
--------
(i) In the event that PIONEER terminates the licenses to
MAXYGEN for a MAXYGEN Licensed Product pursuant to (P)10.2, the licenses granted
to MAXYGEN in Section 3 shall terminate solely with respect to such MAXYGEN
Licensed Product, and the licenses to MAXYGEN with respect to other MAXYGEN
Licensed Products shall remain in full force and effect, subject to all
applicable terms and conditions of this Agreement.
(ii) In the event that MAXYGEN terminates the licenses to
PIONEER for a PIONEER Licensed Product, or for a PIONEER Crop and Trait
Category, pursuant to (P)10.2, the licenses granted to PIONEER in Section 3
shall terminate solely with respect to such PIONEER Licensed Product, or PIONEER
Crop and Trait Category, as the case may be, and the licenses to PIONEER with
respect to other PIONEER Licensed Products, or other PIONEER Crops and Trait
Categories, as the case may be, shall remain in full force and effect, subject
to all applicable terms and conditions of this Agreement.
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(iii) In the event PIONEER terminates the Agreement pursuant
to (P)10.3(A), the licenses granted to MAXYGEN in Section 3 shall terminate.
(iv) In the event MAXYGEN terminates the Agreement pursuant
to (P)10.3(A), the licenses granted to PIONEER in Section 3 shall terminate.
(v) In the event that PIONEER terminates the Agreement
pursuant to (P)10.4A, all licenses granted to PIONEER and MAXYGEN in Section 3
shall terminate.
(vi) Except as expressly provided in this (P)10.5(C), in
the event of any termination of one or more licenses (but not the entire
Agreement) under (P)10.2 or (P)10.3, the remaining licenses granted pursuant to
(P)3.1 and (P)3.2, and the covenants in (P)3.6B solely to the extent they relate
to the surviving licenses, shall remain in effect.
10.6 Surviving Provisions. Paragraphs 2.1B(c), 2.1F, 2.5, 3.3, 3.4, 3.5,
--------------------
4.7, 4.9, 4.10, 4.11, 10.5 and 10.6, and Sections 6, 7, 8, 9, 11, 12, 13 and 14
of this Agreement shall survive the expiration or termination of this Agreement
for any reason.
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SECTION 11. REPRESENTATIONS AND WARRANTIES.
---------------------------------------------
11.1 Mutual Representations. MAXYGEN and PIONEER each represents and
----------------------
warrants as follows:
A. Organization.
------------
It is a corporation duly organized, validly existing and is in good
standing under the laws of the jurisdiction first set forth above, is qualified
to do business and in good standing as a foreign corporation in each
jurisdiction in which the performance of its obligations hereunder requires such
qualification and has all requisite power and authority, corporate or otherwise,
to conduct its business as now being conducted, to own, lease and operate its
properties and to execute, deliver and perform this Agreement.
B. Authorization.
-------------
The execution, delivery and performance by it of this Agreement have
been duly authorized by all necessary corporate action and do not and will not:
(a) require any consent or approval of its stockholders or (b) violate any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to it or
any provision of its charter documents.
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C. Binding Agreement.
-----------------
This Agreement is a legal, valid and binding obligation of it
enforceable against it in accordance with its terms and conditions.
D. Inventor's Assignment of Rights.
-------------------------------
It requires that every employee and consultant that is an inventor of
a patentable invention is under an obligation to assign their rights to it, and
that it actively requires the signing of such assignment.
E. Warranty Disclaimer. The parties acknowledge that the research
-------------------
activities contemplated hereunder are experimental, and that the R&D Program may
not be successful. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY REPRESENTATION AND EXTENDS NO WARRANTY OF ANY KIND WITH
RESPECT TO ANY CONFIDENTIAL INFORMATION, PATENT RIGHTS, KNOW-HOW, SHUFFLING
TECHNOLOGY, SHUFFLED GENES, LICENSED PRODUCTS, OR OTHER TECHNOLOGY, GOODS,
SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-
INFRINGEMENT, AND VALIDITY OF TECHNOLOGY OR PATENT CLAIMS, ISSUED OR PENDING,
WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
F. Limited Liability. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER
-----------------
MAXYGEN NOR PIONEER WILL BE LIABLE TO THE OTHER
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WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR (i) ANY
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST PROFITS OR (ii)
COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
SECTION 12. ADDITIONAL INDEMNIFICATION.
-----------------------------------------
12.1 Indemnification of MAXYGEN by PIONEER. PIONEER shall indemnify,
-------------------------------------
defend and hold harmless MAXYGEN, its Affiliates and their respective directors,
officers, employees, and Agents and their respective successors, heirs and
assigns (the "MAXYGEN Indemnitees"), against any liability, damage, loss or
expense (including reasonable attorneys' fees and expenses of litigation)
incurred by or imposed upon the MAXYGEN Indemnitees, or any of them, in
connection with any claims, suits, actions, demands or judgments of third
parties (except those subject to (P)9.2A, which shall be governed by the terms
thereof), including without limitation personal injury and product liability
matters (except to the extent such claims, suits, actions, demands or judgments
result from a willful material breach of this Agreement, gross negligence or
willful misconduct on the part of a MAXYGEN Indemnitee) arising directly out of
or in connection with (i) any actions of PIONEER in the performance of the R&D
Program, or (ii) the development, testing, production, manufacture, promotion,
import, sale or use by any person of any PIONEER Licensed Product manufactured
or sold by
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PIONEER or by an Affiliate, licensee, Sublicensee, distributor or Agent of
PIONEER.
12.2 Indemnification of PIONEER by MAXYGEN. MAXYGEN shall indemnify,
-------------------------------------
defend and hold harmless PIONEER, its Affiliates and their respective directors,
officers, employees, and Agents and their respective successors, heirs and
assigns (the "PIONEER Indemnitees"), against any liability, damage, loss or
expense (including reasonable attorneys' fees and expenses of litigation)
incurred by or imposed upon the PIONEER Indemnitees, or any of them, in
connection with any claims, suits, actions, demands or judgments of third
parties (except those subject to (P)9.2B, which shall be governed by the terms
thereof), including, without limitation, personal injury and product liability
matters (except to the extent such claims, suits, actions, demands or judgments
result from a willful material breach of this Agreement, gross negligence or
willful misconduct on the part of a PIONEER Indemnitee) arising out of or in
connection with (i) any actions of MAXYGEN in the performance of the R&D
Program, or (ii) the development, testing, production, manufacture, promotion,
import, sale or use by any person of any MAXYGEN Licensed Product manufactured
or sold by MAXYGEN or by an Affiliate, agent, licensee, Sublicensee, distributor
or Agent of MAXYGEN.
12.3 Procedure. A party (the "Indemnitee") that intends to claim
---------
indemnification under this Section 12 shall promptly notify
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the other party (the "Indemnitor") in writing of any loss, claim, damage,
liability or action in respect of which the Indemnitee or any of its Affiliates,
Sublicensees or their directors, officers, employees, agents, consultants or
counsel intend to claim such indemnification, and the Indemnitor shall have the
right to participate in, and, to the extent the Indemnitor so desires, to assume
the defense thereof with counsel mutually satisfactory to the parties. The
indemnity agreement in this Section 12 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such settlement is
made without the consent of the Indemnitor, which consent shall not be withheld
unreasonably. The failure to deliver written notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such Indemnitor of any liability to
the Indemnitee under this Section 12. At the Indemnitor's request, the
Indemnitee under this Section 12, and its employees and agents, shall cooperate
fully with the Indemnitor and its legal representatives in the investigation and
defense of any action, claim or liability covered by this indemnification and
provide full information with respect thereto.
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SECTION 13. DISPUTE RESOLUTION.
---------------------------------
13.1 Informal Dispute Resolution.
---------------------------
A. Senior Officials. The parties recognize that a bona fide dispute
----------------
as to certain matters may from time to time arise during the term of this
Agreement which relates to either party's rights or obligations hereunder. In
the event of the occurrence of such a dispute, either party may, by notice to
the other party, have such dispute referred to the Chief Executive Officer of
MAXYGEN and the Vice President, Trait and Technology Development of PIONEER, or
their successors or counterparts, for resolution by good faith negotiations
within 30 days after such notice is received.
B. Interim Conduct. If the parties are unable to reach agreement
---------------
with respect to the next Work Plan as provided above, they shall continue to
work at the Staffing Level then prevailing, in a manner consistent with and in
furtherance of the then current Work Plan, notwithstanding the expiration of the
then-current Work Plan. If the parties are unable to reach any agreement with
respect to a Work Plan by the expiration of the then-current Work Plan pursuant
to (P)13.1(A) above, then such dispute shall be resolved as described in (P)13.2
below. In addition, any dispute relating to the financial obligations of either
party to the other shall be subject to (P)13.2 below.
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13.2 Arbitration. Any dispute under this Agreement relating to the Work
-----------
Plans or the conduct of R&D Program or the payments due under this Agreement
and/or the financial obligations of the parties hereunder, which is not settled
by mutual consent pursuant to (P)13.1 above, shall be finally settled by binding
arbitration, conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association by three (3) independent, neutral
arbitrators appointed in accordance with said rules; provided, unless otherwise
agreed by the parties any dispute relating to the establishment of a royalty
rate to be arbitrated pursuant to (P)4.3A, (P)4.3B or (P)4.3E shall be resolved
by a single independent, neutral arbitrator. Any arbitration shall be held in
San Francisco, California. The arbitrators shall determine what discovery shall
be permitted, consistent with the goal of limiting the cost and time which the
parties must expend for discovery; provided the arbitrators shall permit such
discovery as they deem necessary to permit an equitable resolution of the
dispute. Any written evidence originally in a language other than English shall
be submitted in English translation accompanied by the original or a true copy
thereof. Except as otherwise expressly provided in this Agreement, the costs of
the arbitration, including administrative and arbitrator(s)' fees, shall be
shared equally by the parties and each party shall bear its own costs and
attorneys' and witness' fees incurred in connection with the arbitration. A
disputed performance or suspended performances pending the
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resolution of the arbitration must be completed within a reasonable time period
following the final decision of the arbitrator(s). The arbitrators shall be
directed that any arbitration subject to this Section shall be completed within
one (1) year from the filing of notice of a request for such arbitration. The
arbitration proceedings and the decision shall not be made public without the
joint consent of the parties and each party shall maintain the confidentiality
of such proceedings and decision unless otherwise permitted by the other party.
Any decision which requires a monetary payment shall require such payment to be
payable in United States dollars, free of any tax or other deduction. The
parties agree that the decision shall be the sole, exclusive and binding remedy
between them regarding any and all disputes, controversies, claims and
counterclaims presented to the arbitrators. Any award may be entered in a court
of competent jurisdiction for a judicial recognition of the decision and an
order of enforcement.
SECTION 14. MISCELLANEOUS.
----------------------------
14.1 Notices. All notices shall be in writing mailed via certified mail,
-------
return receipt requested, or overnight express mail, courier providing evidence
of delivery, addressed as follows, or to such other address as may be designated
by notice so given from time to time:
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If to PIONEER: PIONEER HI-BRED INTERNATIONAL, INC.
7300 NW 62/nd/ Avenue
Johnson, Iowa 50131-1004
Attention: Vice President, Trait and
Technology Development
with a copy to:
PIONEER HI-BRED INTERNATIONAL, INC.
800 Capital Square
400 Locust Street
Des Moines, Iowa 50309-234
Attention: General Counsel
If to MAXYGEN: MAXYGEN, INC.
3410 Central Expressway
Santa Clara, California 95051
Attention: Chief Executive Officer
Notices shall be deemed given as of the date received.
14.2 Governing Law and Jurisdiction. This Agreement, and any arbitration
------------------------------
relating hereto, shall be governed by and construed in accordance with the laws
of the State of California, without regard to the application of principles of
conflicts of law.
14.3 Venue. The exclusive venue of any dispute arising out of or in
-----
connection with the performance of or any breach of this Agreement which is not
subject to arbitration pursuant to (P)13.2, shall be the state courts or U.S.
district court located in or for MAXYGEN's principal place of business, and the
parties hereby irrevocably consent to the personal jurisdiction of such courts.
Notwithstanding the above, this (P)14.3 shall be terminated and have no further
force and effect if MAXYGEN is acquired by or merges with a third party having
assets of Five hundred million U.S. dollars ($500,000,000) or more prior to the
merger with or acquisition of MAXYGEN.
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14.4 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties and their respective legal representatives, successors
and permitted assigns.
14.5 Headings. Section and subsection headings are inserted for
--------
convenience of reference only and do not form a part of this Agreement.
14.6 Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed an original.
14.7 Amendment; Waiver. This Agreement may be amended, modified, superseded
-----------------
or canceled, and any of the terms may be waived, only by a written instrument
executed by each party or, in the case of waiver, by the party or parties
waiving compliance. The delay or failure of any party at any time or times to
require performance of any provisions shall in no manner affect the rights at a
later time to enforce the same. No waiver by any party of any condition or of
the breach of any term contained in this Agreement, whether by conduct, or
otherwise, in any one or more instances, shall be deemed to be, or considered
as, a further or continuing waiver of any such condition or of the breach of
such term or any other term of this Agreement.
14.8 No Agency or Partnership. Nothing contained in this Agreement shall
------------------------
give either party the right to bind the other, or
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be deemed to constitute the parties as agents for the other or as partners with
each other or any third party.
14.9 Assignment and Successors. Except as expressly provided herein, this
-------------------------
Agreement may not be assigned by either party without the consent of the other,
except that each party may, without such consent, assign this Agreement and the
rights, obligations and interests of such party, in whole or in part, to any of
its Affiliates, to any purchaser of all or substantially all of its assets in
the line of business to which this Agreement pertains, or to any successor
corporation resulting from any merger or consolidation of such party into such
successor corporation.
14.10 Force Majeure. Neither PIONEER nor MAXYGEN shall be liable for
-------------
failure of or delay in performing obligations set forth in this Agreement, and
neither shall be deemed in breach of its obligations, if such failure or delay
is due to natural disasters or any causes beyond the reasonable control of
PIONEER or MAXYGEN, as the case may be, and notice of such prevention of
performance promptly provided by the nonperforming party to the other party.
Such excuse shall be continued so long as the condition constituting force
majeure continues and the nonperforming party takes reasonable efforts to remove
the condition. In event of such force majeure, the party affected thereby shall
use reasonable efforts to cure or overcome the same and resume performance of
its obligations hereunder.
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14.11 Interpretation. The parties hereto acknowledge and agree that:
--------------
(i) each party and its counsel reviewed and negotiated the terms and provisions
of this Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto and not in a favor of or against any party, regardless
of which party was generally responsible for the preparation of this Agreement.
14.12 Integration: Severability. This Agreement is the sole agreement
-------------------------
with respect to the subject matter hereof and supersedes all other agreements
and understandings between the parties with respect to same, including but not
limited to the Confidentiality Agreement between MAXYGEN and PIONEER dated July
27, 1998. If any provision of this Agreement is or becomes invalid or is ruled
invalid by any court of competent jurisdiction or is deemed unenforceable, it is
the intention of the parties that the remainder of this Agreement shall not be
affected.
14.13 Approvals. Each party shall be responsible, at its expense, for
---------
obtaining any approvals from the governmental entities which may be required
under applicable law for the development, growth or sale of Licensed Products
sold by it or on its behalf.
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14.14 Export Controls. This Agreement is made subject to any
---------------
restrictions concerning the export of Licensed Products or Research Results or
Intellectual Property ("Technology") from the United States that may be imposed
upon or related to either party to this Agreement from time to time by the
Government of the United States. Neither party will export, directly or
indirectly, any Technology to any countries for which the United States
Government or any agency thereof at the time of export requires an export
license or other governmental approval, without first obtaining the license or
written approval to do so from the Department of Commerce or other agency of the
United States Government when required by applicable statute or regulation.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
this 23/rd/ day of December, 1998 by their duly authorized representatives.
PIONEER HI-BRED INTERNATIONAL, INC.
By: /s/ Anthony Cavalieri
---------------------
Anthony Cavalieri
Vice President
MAXYGEN, INC.
By: /s/ Russell Howard
------------------
Russell Howard
President and CEO
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APPENDIX A
----------
[*******]
[Appendix A contains the initial work plan for this Agreement, which details the
specific projects to be undertaken in the R&D Program, timelines for the
specified research activities, and technical information related to the conduct
of the specified research.]
<PAGE>
APPENDIX B
----------
[*******]
[Appendix B identifies the specific crops and trait categories that are the
subject of this Agreement.]
<PAGE>
Exhibit 10.13
AGREEMENT
This Agreement is made and entered into on this 15th day of March, 1999
("Effective Date"), by and between:
1. MAXYGEN INC., a company incorporated under the laws of the State of
Delaware and established at 3410 Central Expressway, Santa Clara, California,
95051, United States of America ("Maxygen"), of the one part; and
2. GIST-BROCADES B.V., a company incorporated under the laws of The
Netherlands and established at Wateringseweg 1, 2611 XT Delft, The Netherlands
("GB"), of the other part;
hereinafter sometimes individually referred to as "Party" and collectively
as "Parties".
WITNESSETH
----------
WHEREAS, GB is interested in having carried out research into new enzyme
compositions; and
WHEREAS, Maxygen possesses know-how, expertise and facilities to perform
the aforementioned research.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the Parties hereto have agreed and do
by these presents agree as follows:
ARTICLE I. DEFINITIONS
In addition to the terms defined elsewhere in this Agreement the following
terms shall, as used herein, have the following respective meanings:
(a) "Affiliate", shall mean:
i) any entity in which a Party to this Agreement, directly or
indirectly:
- owns at least half the capital or business assets;
- has the power to exercise at least half the voting rights;
or
- has the power to appoint at least half the members of the
supervisory board, board of directors or bodies legally
representing the entity;
* CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
ii) entities which directly or indirectly have in or over a Party
to this Agreement the rights or powers listed in (i); and
iii) entities in which an entity referred to in (ii) directly or
indirectly has the rights or powers listed in (i);
(b) "Commencement Date", shall mean: the Effective Date;
(c) "Cost Savings", shall mean: the cost savings in [*******] in the
Field, achieved by GB, a third party sublicensee appointed by GB or an Affiliate
of GB, generated through the use of GB Products. The methodology for calculating
GB's production costs in the Field prior to and after implementation of the
Results is attached as Annex 1. This cost difference shall be the basis for
calculating the royalty due to Maxygen under Article 11. The Annex in addition
provides for a methodology for calculating cost differences in the event GB on
its own account achieves any decrease in production costs in the Field after
implementation of the Research Results or Patent Rights;
(d) "Field", shall mean: [*******];
(e) "Force Majeure", shall mean: the event that either Party is
prevented from or is unable to perform any of its obligations under this
Agreement due to any act of God; fire; casualty; flood; war; strike; lockout;
failure of public utilities; injunction or any act, exercise, assertion or
requirement of governmental authority, including any governmental law, order, or
regulation permanently or temporarily prohibiting or reducing the level of
research and development work hereunder; epidemic; destruction of production
facilities; riots; insurrection; or any other cause beyond the reasonable
control of a Party;
(f) "FTE", shall mean: the equivalent of one full year of work on a full
time basis by a scientist or other professional possessing skills and experience
necessary to carry out the Study by Maxygen, determined in accordance with
Maxygen's normal policies and procedures. Maxygen's current standard FTE rate
equals a total of [*******] hours per year. This rate is subject to reasonable
fluctuations;
(g) "GB Information", shall mean: any and all patented and non-patented
data, organisms, know-how, instructions, strains and other information in the
field of [*******], specifically (i) vectors and plasmids for expression in
[*******], (ii) bioassays and HPLC methods, and (iii) information on the
kinetics of [*******] owned or controlled by GB as of the Effective Date or
acquired by GB thereafter, not being the Research Results or Patent Rights,
disclosed, either directly or indirectly, by GB to Maxygen;
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<PAGE>
(h) "GB Know-How", shall mean: Know-How owned or controlled exclusively by
GB;
(i) "GB Patent Rights", shall mean: Patent Rights owned or controlled
exclusively by GB;
(j) "GB Products", shall mean: Targets for use in the Field;
(k) "GB Research Results", shall mean: Research Results invented or
developed solely by GB;
(1) "Joint Know-How", shall mean: Know-How owned or controlled by both
Maxygen and GB;
(m) "Joint Patent Rights", shall mean: Patent Rights owned or controlled
by both Maxygen and GB;
(n) "Joint Research Results", shall mean: Research Results invented or
developed jointly by Maxygen and GB;
(o) "Know-How", shall mean: all non-patented Research Results which are
owned or controlled, in whole or in part, by license, assignment or otherwise,
by Maxygen and/or GB during the term of this Agreement. It is understood that
Know-How does not include the Maxygen Technology, GB Information or inventions
within the Patent Rights;
(p) "Maxygen Know-How", shall mean Know-How owned or controlled
exclusively by Maxygen;
(q) "Maxygen Products", shall mean: Targets for all uses outside the
Field. Maxygen Products shall additionally include [*******];
(r) "Maxygen Patent Rights", shall mean: Patent Rights owned or controlled
exclusively by Maxygen;
(s) "Maxygen Research Results", shall mean: Research Results invented or
developed solely by Maxygen;
(t) "Maxygen Technology", shall mean: any and all patented and non-
patented data, organisms, know-how, instructions, strains and other information
in the field of Shuffling Technology, owned or controlled by Maxygen as of the
Effective Date or acquired by Maxygen thereafter, not being the Research Results
or Patent Rights, including without limitation the Maxygen patents listed in
Annex 2;
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<PAGE>
(u) "Patent Rights", shall mean (i) all patents and patent applications
claiming inventions conceived and reduced to practice during the term of the
Study and derived from the Research Results, (ii) any divisions, continuations,
continuations-in-part, reissues, reexaminations, extensions or other
governmental actions which extend any of the subject matter of the patent
applications or patents in (i) above, and (iii) any substitutions,
confirmations, registrations or revalidations of any of the foregoing, in each
case which are owned or controlled, in whole or in part, by license, assignment
or otherwise by Maxygen and/or GB during the term of this Agreement;
(v) "Products", shall mean: GB Products and Maxygen Products;
(w) "Protocol", shall mean: Annex 3, attached to and forming an integral
part of this Agreement, said Annex containing provisions in respect of the
Study;
(x) "Research Data", shall mean all data, inventions, improvements,
discoveries, instructions, processes, formulas and other information (including,
without limitation, chemical, physical and analytical, safety, manufacturing and
quality control data and information) obtained, developed, conceived and reduced
to practice, or created, discovered or derived in the course of the performance
of the Study;
(y) "Research Materials", shall mean: all tangible property, including
without limitation, assays, invented, obtained, discovered, developed or
derived, or the function or utility of which is discovered or determined, in the
course of the performance of the Study;
(z) "Research Results", shall mean: all Research Data and Research
Materials collectively, including the Know-How but excluding GB Information and
Maxygen Technology;
(aa) "Shuffle", "Shuffled" and "Shuffling", shall mean: the recombination
and/or rearrangement and/or mutation of genetic material for the creation of
genetic diversity;
(bb) "Shuffled Gene", shall mean: (i) any gene variant identified in
the Study using Maxygen Technology, and (ii) any and all modified forms of any
such gene variants, and any fragments or derivatives or variants of the
preceding, made by GB or its Affiliates;
(cc) "Shuffling Technology", shall mean: techniques, methodologies,
processes, materials and/or instrumentation useful for Shuffling, and the
screening of resulting genetic material to identify potential usefulness;
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<PAGE>
(dd) "Study", shall mean research on behalf of and for GB, into developing
the Targets utilizing the Maxygen Technology on genes provided by GB;
(ee) "Study Management Committee", shall mean a committee to oversee the
Study, sometimes referred to as the "Research Management Committee";
(ff) "Targets", shall mean: the following specific enzyme compositions
encoded by Shuffled Genes developed in the Study:
- [*******];
- [*******];
- additional enzymes to be provided by GB involved in the [*******].
These additional enzymes shall only be deemed to be part of the
Study if and when, to be decided by the Study Management
Committee, the development of the above mentioned two (2) enzymes
does not fully occupy the time and/or costs allocated under this
Agreement to Maxygen and the Study Management Committee agrees to
make such enzymes part of the Study.
ARTICLE II. STUDY
2.1 As of the Commencement Date, Maxygen shall ensure that the Study will
be carried out in accordance with the Protocol, such that the same will be
completed within a period of three (3) consecutive years or such longer period
as mutually agreed upon by the Parties (the "Study Term").
2.2 The Parties shall, through the Study Management Committee, review the
Study one and a half (1.5) years after the Commencement Date. If at such moment
in time the progress of the Study is not deemed to be successful, the Parties
shall discuss reorienting the Study for the remaining term of the Study.
2.3 Should the Research Results at any time give rise to a mutual wish to
expand the Study or should the Parties wish to extend the duration of the Study
after completion thereof, the Parties shall discuss on the terms and conditions
therefor and decide on any expansion or extension of the Study.
ARTICLE III. CONTRIBUTION BY MAXYGEN
3.1 Maxygen shall have the Study performed under the responsibility and
scientific supervision of Dr. [*******] or such other senior scientific employee
of Maxygen that is reasonably satisfactory to GB.
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<PAGE>
3.2 Maxygen shall have the Study performed by [*******] FTE's per year,
consisting of scientists having training and experience relevant to the Study.
These scientists shall be reasonably approved by the Study Management Committee.
3.3 Maxygen shall furnish suitable equipment and the know-how of its
scientific staff for the work to be performed in connection with the Study,
provided, however, that Maxygen shall be under no obligation to purchase
equipment for the Study and Maxygen herewith declares to avail at present of all
equipment necessary to perform the Study.
ARTICLE IV. CONTRIBUTION BY GB
4.1 GB shall test those mutants resulting from the work performed by
Maxygen under this Agreement which pass both the primary and the secondary
screening as described in the Protocol, and provide Maxygen with a written
report on the Research Results obtained within the period of time as stated in
the Protocol.
4.2 GB shall provide Maxygen with the know-how of its scientific staff
connected with the work to be performed under this Agreement, as required by
Maxygen to proceed with the Study, and shall furnish Maxygen assistance insofar
as necessary for the performance of the Study.
4.3 GB shall provide Maxygen with the necessary genes as required by
Maxygen to conduct the Study. These materials remain the property of GB, shall
not be supplied to third parties and shall he used by Maxygen solely for the
purposes of this Agreement.
ARTICLE V. PRICE AND PAYMENT
5.1 In consideration of Maxygen's services rendered under this Agreement,
GB shall pay a total amount of [*******], being [*******] per year. Said latter
amount is based upon GB's support of [*******] FTE scientists per year, each FTE
to cost [*******] per year. The aforementioned amounts shall include any and all
costs, overhead and any and all applicable taxes.
5.2 GB shall pay the fee referred to in Article 5.1 at the rate of
[*******] in advance of each calender quarter the Study is being performed.
However, the last aforedescribed quarterly payment shall not be paid in advance
but upon receipt of the final report referred to in Article 7.2.
Maxygen shall send invoices for the attention of the GB Study leader,
being Mr. [*******] or his replacement, one (1) month in advance of each
payment, each invoice to mention the GB internal payment number, which for 1999
is [*******]. GB
6
<PAGE>
shall timely provide the [*******] for the following years of the Study. Payment
shall be made by GB within thirty (30) days upon receipt of the relevant invoice
by banktransfer in accordance with the following wire instructions:
Bank of America
Palo Alto Commercial Bldg. #1493
530 Lytton Avenue
Palo Alto, CA 94301
Bank Operating Account: Maxygen, Inc.
Contact Bank Person: Loretta Greco
Telephone: 1-650-8534683
Account Number: [*******]
Routing Transit Number: [*******]
ARTICLE VI. STUDY MANAGEMENT COMMITTEE
6.1 Promptly following the Commencement Date, the Parties shall establish
the Study Management Committee (SMC). The SMC shall have the responsibility for
monitoring the progress of the Study, establishing milestones, facilitating the
transfer of GB Information, Maxygen Technology and Research Results, approving
the reports written by Maxygen and GB as described in this Agreement, approving
applications for Patent Rights, amending the Protocol, approving the scientists
performing the Study, adjusting the allocation of effort on work undertaken in
the Study as necessary, and all other issues that arise between the Parties.
6.2 The SMC shall comprise two (2) members for Maxygen and two (2) members
for GB, each member to have appropriate knowledge and ongoing familiarity with
the Study. The SMC shall meet within forty-five (45) days or within a longer
period of time mutually agreed upon after every report provided by Maxygen to GB
under Articles 7.1 and 7.2, alternatively at Maxygen's and GB's address or any
other mutually agreed upon place, and at such specific times as shall be
mutually agreed upon by the Parties. Each Party shall pay its own travel costs.
The meetings of the SMC may be held by telephone if agreed by the members. The
SMC shall act by unanimous vote. In the event however that the GB and Maxygen
members cannot resolve an issue, the issue shall be submitted to the Manager
Technology DSM Anti Infectives of GB and the CEO of Maxygen for resolution. If
resolution is not achieved, Article 25 shall apply. For each meeting of the SMC
a secretary shall be appointed, alternatively a Maxygen and GB member of the
SMC. The secretary shall provide within two (2) weeks of every meeting of the
SMC draft minutes of the meeting to the other members of the SMC, which minutes
shall be deemed approved by the SMC if no comments have been received thereon
within two (2) weeks.
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<PAGE>
ARTICLE VII. REPORTING REQUIREMENT
7.1 Every six (6) months a progress report shall be written under the
supervision of Maxygen and shall be submitted to GB.
7.2 Maxygen shall present to GB the detailed Maxygen Research Results in a
final report written by Maxygen, said report to be completed within three (3)
months of the completion of the Study. Notwithstanding the above, Maxygen has no
obligation to disclose detailed Shuffling methodology.
7.3 Without prejudice to the above, Maxygen shall have its key scientists
performing the Study meet with representatives of GB in order for such persons
to inform themselves on the progress being made with Maxygen's activities to be
performed under this Agreement and the status of the same unless this would
conflict with a pre-arranged visit by another client. Said meetings shall be
made subject to at least five (5) business days notice and shall occur not more
than once in any reporting period.
7.4 GB shall have the right to have a certified public accountant
reasonably acceptable to Maxygen audit Maxygen's time reporting system to verify
if Maxygen has applied the agreed upon number of FTEs to the Study. If this
audit reveals inaccuracies, Maxygen agrees to correct the situation and make up
the difference.
ARTICLE VIII. SECRECY
8.1 Maxygen shall maintain the secrecy of the GB Information and GB shall
maintain the secrecy of the Maxygen Technology. The receiving Party shall not
disclose the same to any persons other than those of its employees or
consultants necessarily involved in the Study. Maxygen and GB shall obtain
undertakings from all such persons they provide the GB Information, respectively
Maxygen Technology to, prior to his or her receipt of such G3 Information or
Maxygen Technology, to maintain the secrecy thereof and not to use the same in
any way or at any time except as provided for in Sections 8.2 and 6.3 and to
conduct the Study.
In addition, Maxygen and GB shall maintain the secrecy of the Research
Results and the Patent Rights and shall not disclose the same to any persons
other than those of their
- employees or consultants necessarily involved in the Study; and
- Affiliates or sublicensees as necessary for the purpose of this
Agreement.
The Party providing the Research Results and the Patent Rights will obtain from
each such person, prior to his or her receipt of the Research Results and the
Patent Rights,
8
<PAGE>
undertakings to maintain the secrecy thereof and not to use the same in any way
or at any time except as provided for in Sections 8.2 and 8.3.
8.2 The obligations contained in Section 8.1 shall not apply to GB
Information, Maxygen Technology, Research Results or Patent Rights which:
(a) the receiving Party can establish by competent proof was/were in
its lawful possession at the time of disclosure thereof by the disclosing Party
and was/were not acquired, directly or indirectly, from the disclosing Party;
(b) was/were known to the public or generally available to the public
prior to the date of disclosure thereof by the disclosing Party to the receiving
Party;
(c) become(s) known to the public or generally available to the
public subsequent to the date of disclosure thereof by the disclosing Party to
the receiving Party through no breach of this Agreement, nor any act or failure
to act on the part of the receiving Party; or
(d) is/are disclosed or made available to the receiving Party at any
time by a third party who did not acquire such GB Information or Maxygen
Technology, directly or indirectly, from the disclosing Party.
8.3 The obligations set forth under Section 8.1 shall, furthermore, not
apply to:
- GB Information, Maxygen Technology, the Research Results or the
Patent Rights which a Party is required to disclose in
prosecuting or defending litigation, to comply with applicable
regulations or for conducting clinical trials, provided that the
disclosing Party shall have given its prior written consent
thereto, said consent not to be unreasonably withheld or delayed;
and
- Research Results published or disclosed according to the
following procedure. A Party wishing to publish or otherwise
publicly disclose its Research Results shall first submit a draft
of the proposed manuscript to the Study Management Committee for
review by the other Party at least sixty (60) days prior to any
submission for publication or other public disclosure. To avoid
loss of patent rights as a result of premature public disclosure
of patentable information, the reviewing Party shall notify the
submitting Party in writing within thirty (30) days after receipt
of such proposed disclosure whether the reviewing Party desires
that a patent application be filed on any invention disclosed in
such proposed disclosure. In the event that the reviewing Party
desires such filing, the submitting Party
9
<PAGE>
shall withhold publication or disclosure of such proposed
disclosure until the earlier of (i) the date a patent application
is filed thereon, or (ii) the date the Parties determine after
consultation that no patentable invention exists, or (iii) sixty
(60) days after receipt by the submitting Party of the reviewing
Party's written notice of the reviewing Party's desire to file
such patent application. Further, if the proposed disclosure
contains information that the reviewing Party reasonably deems as
likely to be harmful to its commercial interests, the submitting
Party agrees to remove such information upon request of the
reviewing Party.
ARTICLE IX. OWNERSHIP OF RESEARCH RESULTS AND PATENT RIGHTS
9.1 Maxygen shall have the sole and exclusive ownership of all right,
title and interest on a worldwide basis in and to any Maxygen Research Results
and Maxygen Patent Rights.
GB shall have the sole and exclusive ownership of all right, title and
interest on a worldwide basis in and to any GB Research Results and GB Patent
Rights.
Maxygen and GB shall jointly own all Joint Research Results and Joint
Patent Rights.
9.2 Notwithstanding Article 9.1, Maxygen agrees to assign, and hereby
assigns, to GB all right, title and interest in [*******].
Notwithstanding Article 9.1, GB agrees to assign, and hereby assigns,
to Maxygen all right, title and interest in [*******].
Maxygen and GB agree to execute such documents as are necessary to
result in (i) Maxygen's exclusive ownership of [*******], and (ii) GB's
exclusive ownership of [*******].
9.3 For the sake of clarity, it is understood by the Parties that Maxygen
shall retain all right, title and interest in and to the Maxygen Technology and
GB shall retain all right, title and interest in and to the GB Information.
9.4 In respect of the Research Results owned by the Parties, each Party
shall have the exclusive right to file for worldwide Patent Rights for its
Research Results and to enforce those Patent Rights. Rights to file for and to
enforce Patent Rights to Research Results shall be in accordance with the
assignments of Research Results as stated in Article 9.2. Inventorship of
patentable inventions shall be determined in accordance with the standards
embodied in United States patent law. The Parties agree that,
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<PAGE>
notwithstanding such inventorship, rights to Research Results and Patent Rights,
as between the Parties, shall be determined as set forth in this Agreement. The
Party prosecuting Patent Rights shall incur all expenses associated therewith
and all costs of defending any of the said rights and shall be entitled to
retain all monetary recoveries related thereto.
The Party responsible for filing for Patent Rights shall use
reasonable efforts to obtain patent coverage that is as broad as possible to
cover all potential commercial applications thereof, and shall assure that the
other Party will have the opportunity to provide meaningful and substantive
review and comment with respect thereto. Each Party shall be kept informed of
all substantive matters relating to the preparation and prosecution of all
patent applications on the Research Results and shall be provided with copies of
all patent prosecution and maintenance documentation and correspondence so that
the other Party shall be currently and promptly informed of the continuing
prosecution and maintenance of the Patent Rights. Each Party shall have the
right to review and comment upon such documentation and correspondence, as well
as all specifications, claims and responses to office actions prior to their
submission to the relevant government patent office.
Further, each Party shall fully cooperate with and assist the other as
reasonably requested in enforcing and defending Patent Rights.
At the request of either Party, the Study Management Committee shall
reasonably consider a recommendation that, for commercial reasons, there be no
filing for Patent Rights on Research Results.
ARTICLE X. LICENSES FOR MAXYGEN AND GB
10.1 GB herewith grants to Maxygen (i) a non-exclusive, nontransferable,
nonsublicensable, royalty-free, worldwide license under GB's interest in the
Research Results and Patent Rights, and (ii) a non-exclusive, nontransferable,
nonsublicensable, royalty-free, worldwide license under the GB Information
necessary for the conduct of the Study, in each case solely to conduct the
Study.
10.2 GB herewith grants Maxygen a worldwide, royalty-free exclusive
license under GB's interest in the Research Results and Patent Rights to make,
have made, use, have used, sell, have sold, import, have imported, export and
have exported the Maxygen Products and Shuffled Genes encoding Maxygen Products.
Should GB indicate its wish to use the Research Results and/or Patent Rights for
making, using or selling Maxygen Products, the Parties shall in good faith
negotiate on the terms and conditions for such GB use.
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<PAGE>
10.3 Maxygen herewith grants to GB a non-exclusive, nontransferable,
nonsublicensable, royalty-free, worldwide license under (i) Maxygen's interest
in the Research Results and Patent Rights, and (ii) any assay technology owned
or controlled by Maxygen determined by the Study Management Committee as
necessary for the performance by GB of its activities in the Study, in each case
solely to conduct the Study.
10.4 Maxygen herewith grants GB a worldwide exclusive license under
Maxygen's interest in the Research Results and Patent Rights to make, have made,
use, have used, sell, have sold, import, have imported, export and have exported
the GB Products and Shuffled Genes encoding GB Products. This license shall be
royalty-bearing in accordance with Article 11. This license shall be
nonsublicensable without Maxygen's prior written consent, which shall not be
unreasonably withheld, except to a third-party manufacturer appointed by GB to
manufacture GB Products for sale by GB or an Affiliate of GB.
10.5 In furtherance of the license granted to GB in Article 10.4, Maxygen
agrees that, to the extent necessary for GB to practice the license granted in
Article 10.4, for so long as GB is not in default with respect to any payment
due to Maxygen hereunder, Maxygen shall not bring any claim or action against
GB, its Affiliates, licensees, agents or customers based on or asserting that
the manufacture, use, sale, offer for sale, import or export of a GB Product in
accordance with the license set forth in Article 10.4 violates or infringes
any Maxygen patents related to GB Products, uses of GB Products and Shuffled
Genes encoding GB Products.
10.6 In the event GB wishes to discontinue any of its Patent Rights, GB
shall promptly inform Maxygen thereof in writing. Maxygen may within four (4)
weeks indicate in writing its interest in such Patent Right in which case the
same shall be transferred to Maxygen at no cost.
In the event Maxygen wishes to discontinue any of its Patent Rights,
Maxygen shall promptly inform GB thereof in writing. GE may within four (4)
weeks indicate in writing its interest in such Patent Right in which case the
same shall be transferred to GB at no cost.
ARTICLE XI. ROYALTIES
11.1 Following the first commercial use of a GB Product by GB, a third
party sublicensee appointed by GB or an Affiliate of GB, GB shall compile
records of the Cost Savings in accordance with Article 11.2 and shall pay to
Maxygen a royalty of [*******] percent [*******] of the Cost Savings per year
during the term of this Agreement as indicated in Article 26.1.
In the event that GB or a GB Affiliate receives any payments,
including without limitation up-front fees, royalties, milestones and rebates,
from a GB Affiliate or a third party sublicensee appointed by GB or an Affiliate
of GB, related to the use, manufacture or sale of a GB Product or a Shuffled
Gene encoding a GB Product,
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Maxygen shall in addition to any royalties due to it pursuant to the previous
paragraph of this Article 11.1, be entitled to receive [*******] percent
[*******] of such payments. Maxygen shall be entitled to an accounting of all
such payments in accordance with Articles 11.2 and 11.3.
11.2 Within sixty (60) days after the end of each six (6) calendar month
period during the term of the Agreement, GB shall render a written report to
Maxygen setting forth for the preceding six (6) calendar months a calculation of
the Cost Savings and a calculation of the royalty payments due for those six (6)
months.
Unless otherwise set forth elsewhere in this Agreement, all royalties
and payments due to Maxygen under this Agreement shall be computed on a six (6)
monthly basis as set forth above and shall be submitted with the report required
in this Article 11.2. Maxygen shall treat these reports as confidential as
provided under Article 8, whether or not they are marked as such.
11.3 GB will keep and maintain complete and accurate books and records as
are required accurately to determine the baseline variable costs as identified
in paragraph 4 of Annex 1 and royalties payable to Maxygen for two (2) years
following the date on which such royalties were paid or reported. Maxygen shall
have the right, at its own expense and through a certified public accountant
reasonably acceptable to GB, to examine such books and records during regular
business hours during the life of this Agreement and for two (2) years after its
termination; provided, however, that the accountant shall report to Maxygen only
as to the amount of Cost Savings and the accuracy of the royalty statements and
payments. If such examination reveals an underpayment, then GB shall promptly
make up such underpayment and if such underpayment is more than five percent
(5%) of the amount due, GB shall also reimburse Maxygen for the reasonable costs
of such examination.
11.4 All payments hereunder shall be made by bank transfer into the bank
account stated in Article 5.2. Where required to do so by applicable law or
treaty, GB shall withhold taxes required to be paid to a taxing authority on
account of such income to Maxygen, and GB shall furnish Maxygen with
satisfactory evidence of such withholding and payment in order to permit Maxygen
to obtain a tax credit or other relief as may be available under the applicable
law or treaty. GB shall cooperate with Maxygen in obtaining exemption from
withholding taxes where available under applicable laws and treaties.
11.5 All payments shall be in United States Dollars and shall be made on
the dates set forth herein. All late payments shall bear interest at a rate to
be determined according to the LIBOR one (1) year rate valid on the date late
payment commences. The monies due to Maxygen calculated hereunder shall first be
determined in the currency of
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the country where GB, its licensees, Affiliates or third parties appointed by GB
have achieved the Cost Savings and then converted into its equivalent United
States Dollars at the average monthly conversion rate for such foreign currency
based on the conversion rates as published in The Wall Street Journal for the
-----------------------
last month of the accounting period in a report made under Article 11.2.
ARTICLE XII. EXCLUSIVITY; DUE DILIGENCE
12.1 Maxygen agrees that during the Study Term it will not perform for or
otherwise collaborate in research programs with third parties in the Field.
Maxygen will give GB notice and a reasonable opportunity to negotiate rights to
expand the Field during the Study Term to potentially include [*******]. In such
event, if GB and Maxygen agree on terms, the Field shall include those
additional compounds covered by such agreement.
12.2 GB shall actively pursue commercialization of each Shuffled Gene as
described in Annex 1 and 3 and with commercially reasonable diligence at the
same level of effort it makes with its own intellectual property of comparable
potential, stage or development and patent protection. Such efforts shall
include the commercialization of a GB Product within [*******] of delivery of a
Shuffled Gene, said period to be extended if GB indicates a justifiable reason.
Diligence with respect to a particular Shuffled Gene or GB Product shall be
considered diligence with respect to all other Shuffled Genes or GB Products
which resulted from Shuffling of the same starting gene provided that such GB
Product of the gene catalyses the same reaction of compounds in the Field.
12.3 If GB fails to satisfy the diligence obligations in Article 12.2 with
respect to a Shuffled Gene or GB Product or discontinues the commercial sale of
any GB Product prior to the termination of this Agreement, the rights and
licenses granted GB in this Agreement with respect to the applicable Shuffled
Gene or GB Product shall terminate and such rights shall revert to Maxygen.
However, in the event more than one (1) GB Product is derived from the same
Shuffled Gene, and the commercial sale of other GB Products are continued, only
the rights with respect to the discontinued GB Product shall revert to Maxygen.
12.4 GB shall keep Maxygen apprised of the status of the development and
commercialization of each Shuffled Gene or GB Product by providing Maxygen
during the term of this Agreement with a written report within thirty (30) days
after the end of each six (6) month period detailing such activities with
respect to each applicable Shuffled Gene or GB Product. These reports shall
contain sufficient information to allow Maxygen to monitor GB's compliance with
this Agreement. In addition, Maxygen shall have access rights, at its own
expense and through two (2) mutually recognized independent scientific experts
reasonably acceptable to GB, to all pertinent data generated
14
<PAGE>
by or on behalf of GB with respect to the development of Shuffled Genes or GB
Products, during regular business hours during the life of this Agreement,
provided, however, that the scientific experts shall report to Maxygen only as
to the accuracy and sufficiency of the GB reports referred to above. Maxygen
shall treat these reports and information as confidential as provided under
Article 8, whether or not they are marked as such.
12.5 For the sake of clarity, it is understood by the Parties that if and
when GB has commercialized a Shuffled Gene or GB Product as described in this
Article 12, it shall not be obliged in any way to further improve the Shuffled
Gene or the GB Product derived therefrom.
ARTICLE XIII. PUBLICITY
Neither Party shall use the name of the other, its direct or indirect
Affiliates or of any member of its staff, in any publication, news release or
other public announcement without the prior written approval of an authorized
representative of such Party, except as may be required by applicable law or
regulation.
ARTICLE XIV. INDEPENDENT CONTRACTOR
In the performance of all obligations under this Agreement:
(a) Maxygen shall be deemed to be and shall be an independent contractor,
and as such, Maxygen shall not be entitled to any benefits applicable to
employees of GB;
(b) Neither Party is authorized or empowered to act as agent for the other
for any purpose and shall not on behalf of the other enter into any contract,
warranty or representation as to any matter. Neither Party shall be bound by the
acts or conduct of the other Party.
ARTICLE XV. GUARANTEES; LIABILITY; INDEMNIFICATION
15.1 To Maxygen's knowledge Maxygen Technology does not infringe on any
valid claim of an issued patent held by a third party. Maxygen will be
responsible for securing any licenses needed to use the Maxygen Technology in
the conduct of the Study. GB will be responsible for securing any licenses
needed for genes used in the conduct of the Study.
15.2 The Parties acknowledge that the research activities contemplated
hereunder are experimental, and that the Study may not be successful. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
REPRESENTATION AND EXTENDS NO WARRANTY OF ANY KIND WITH RESPECT TO ANY
CONFIDENTIAL INFORMATION, PATENT RIGHTS, KNOW-HOW, SHUFFLING TECHNOLOGY,
SHUFFLED GENES, PRODUCTS OR OTHER TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER
SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND VALIDITY
OF TECHNOLOGY OR
15
<PAGE>
PATENT CLAIMS, ISSUED OR PENDING, WITH RESPECT TO ANY AND ALL OF THE FOREGOING.
15.3 EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER MAXYGEN NOR GB WILL BE
LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER
ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY
FOR (i) ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST
PROFITS OR (ii) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
15.4 Except as expressly provided herein, GB shall indemnify, defend and
hold harmless Maxygen, its Affiliates and their respective directors, officers,
employees and agents and their respective successors, heirs and assigns (the
"Maxygen Indemnitees") , against any and all liability, damage, loss or expense
(including reasonable attorneys' fees and expenses of litigation) incurred by or
imposed upon the Maxygen Indemnitees, or any of them, in connection with any
claims, suits, actions, demands or judgments of third parties, including without
limitation the infringement of intellectual property rights of a third party,
personal injury and product liability matters (except to the extent such claims,
suits, actions, demands or judgments result from a wilful material breach of
this Agreement, gross negligence or wilful misconduct on the part of a Maxygen
Indemnitee) arising directly out of or in connection with or directly caused by
(i) any actions of GB in the performance of the Study as described in Article
4.1, (ii) the use, development outside the Study, testing, production,
manufacture, promotion, import, export or sale of any GB Product by GB or by an
Affiliate, third party licensee, sublicensee, distributor or agent of GB, (iii)
the use by any person of any GB Product manufactured or sold by GB or by an
Affiliate, third party licensee, sublicensee, distributor or agent of GB, or
(iv) the use by Maxygen or GB of any gene or GB Information in the conduct of
the Study.
15.5 Except as expressly provided herein, Maxygen shall indemnify, defend
and hold harmless GB, its Affiliates and their respective directors, officers,
employees and agents and their respective successors, heirs and assigns (the "GB
Indemnitees") , against any and all liability, damage, loss or expense
(including reasonable attorneys' fees and expenses of litigation) incurred by or
imposed upon the GB Indemnitees, or any of them, in connection with any claims,
suits, actions, demands or judgments of third parties, including without
limitation personal injury and product liability matters (except to the extent
such claims, suits, actions, demands or judgments result from a wilful material
breach of this Agreement, gross negligence or wilful misconduct on the part of a
GB Indemnitee) arising directly out of or in connection with or directly caused
by (i) any actions of Maxygen in the performance of the Study, (ii) the use,
development outside the Study, testing, production, manufacture, promotion,
import, export or sale of any Maxygen Product by Maxygen or by an Affiliate,
third party licensee, sublicensee,
16
<PAGE>
distributor or agent of Maxygen or (iii) the use by any person of any Maxygen
Product manufactured or sold by Maxygen or by an Affiliate, third party
licensee, sublicensee, distributor or agent of Maxygen; provided, however, that
notwithstanding anything to the contrary the foregoing indemnity obligation
shall expressly exclude any and all liability, damage, loss or expense incurred
by a GB Indemnitee in connection with any claims, suits, actions, demands or
judgments relating to the infringement of intellectual property rights of a
third party. In addition, Maxygen shall indemnify, defend and hold harmless GB
Indemnitees against any and all liability, damage, loss or expense (including
reasonable attorneys' fees and expenses of litigation) incurred by or imposed
upon the GB Indemnitees, or any of them, in connection with any claims, suits,
actions, demands or judgments of third parties (except to the extent such
claims, suits, actions, demands or judgments result from a wilful material
breach of this Agreement, gross negligence or wilful misconduct on the part of a
GB Indemnitee) arising directly out of or in connection with a breach by Maxygen
of Article 15.1.
ARTICLE XVI. FORCE MAJEURE
16.1 Any obligation of either Party under this Agreement shall be
suspended for as long as and to the extent that the performance of such
obligation is prevented by any Force Majeure situation.
16.2 The Party whose performance is thus suspended shall, however, use all
reasonable efforts to resume performance of the obligations under this Agreement
and after the Force Majeure situation shall have ceased, to accelerate the
progress of the work affected by that Force Majeure.
ARTICLE XVII. ASSIGNMENT
The benefit or burden of this Agreement may not be assigned by either Party
without the prior written consent of the other Party hereto, which consent shall
not be unreasonably withheld.
ARTICLE XVIII. FORCE AND EFFECT
The Parties undertake and agree to do all things and to sign all documents
that may be necessary in order to give full force and effect to the reasonable
intention of the present Agreement.
ARTICLE XIX. SEVERABILITY
The Parties agree that no provision of this Agreement which may be deemed
unenforceable shall in any way invalidate any other provision of this Agreement,
all of which shall remain in full force and effect.
17
<PAGE>
ARTICLE XX. ENTIRE AGREEMENT
This Agreement contains the entire Agreement between the Parties and may
not be altered, amended, modified, or otherwise changed except by the consent in
writing of both Parties.
ARTICLE XXI. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of and be binding upon the
respective Parties hereto and their respective heirs, executors, administrators,
successors and/or permitted assigns.
ARTICLE XXII. PARAGRAPH HEADINGS
The paragraph headings in this Agreement have been incorporated for the
sole purpose of more convenient reference but not for any interpretation of the
clauses to which they refer.
ARTICLE XXIII. WAIVERS
The failure of either Party hereto at any time to take action against the
other Party for breach of its obligations hereunder or the failure of either
Party to terminate this Agreement for cause as herein provided for, shall not
affect either Party's right to require full compliance with the terms of this
Agreement at any time thereafter, and the waiver by either Party of a breach of
any provision of this Agreement shall not constitute a waiver of any subsequent
breach thereof nor nullify the effectiveness of such provision nor the right of
such Party to demand redress for its respective losses, damages and claims.
ARTICLE XXIV. NOTICES
All notices shall be in writing mailed via certified mail, return receipt
requested, overnight express mail, courier providing evidence of delivery, or by
telefax with the original copy sent via certified mail, return receipt
requested, addressed as follows, or to such other address as may be designated
by notice so given from time to time:
If to GS: Gist-Brocades B.V.
Wateringseweg 1
2611 XT Delft
The Netherlands
Attention: Legal Counsel DSM Anti-Infectives
with a copy to the Manager
Technology DSM Anti-Infectives
If to Maxygen: Maxygen, Inc.
18
<PAGE>
3410 Central Expressway
Santa Clara, California 95051
United States of America
Attention: Chief Executive Officer
Notices shall be deemed given as of the date received.
ARTICLE XXV. SETTLEMENT OF DISPUTES
25.1 Any disputes arising in connection with or deriving from the present
Agreement, which cannot be settled in an amicable way, shall be finally settled
by Arbitration under the Rules of the International Chamber of Commerce by one
or more Arbitrators appointed in accordance with the said Rules.
The Arbitration shall take place in the place of domicile of the Party
sued.
25.2 This Agreement is subject to the Laws of the State of California.
ARTICLE XXVI. TERM AND TERMINATION
26.1 This Agreement shall be effective as from the Commencement Date and
will remain in force for the longer of the following events: ten (10) years as
of the first commercial use by GB, a third party sublicensee appointed by GB or
an Affiliate of GB, of a GB Product, or the life of the last-to-expire valid
claim in the patents listed as Maxygen Technology.
26.2 Without prejudice to the above, the Agreement may be terminated by
written notice on any of the following events:
(a) by either Party in the event of the liquidation or receivership of
the other Party or in the event of suspension of payment if an administrator is
appointed at the other Party; or
(b) by either Party in the event of a material breach by the other
Party of any of its obligations hereunder which, if it can be remedied, remains
unremedied on the expiry of ninety (90) days after receipt by the Party in
breach of written notice from the other Party specifying the breach and the
action required to remedy the same.
26.3 The following provisions shall survive the expiration or termination
of this Agreement for any reason: Articles 4.3, 8, 9, 11.2, 11.3, 13, 15, 17,
21, 25 and 26. Upon the expiration of this Agreement pursuant to Article 26.1,
the licenses as granted under Articles 10.2 and 10.4 shall remain in force with
the proviso that such licenses shall be fully paid-up and non-exclusive.
19
<PAGE>
26.4 Expiration or termination of this Agreement shall not affect the
rights of either Party against the other in respect of the period up to date of
termination.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed in duplicate by their respective duly authorized representatives as of
the date first written above.
MAXYGEN INC. GIST BROCADES B.V.
By: /s/ Russell Howard By: /s/
---------------------------------- -----------------------------
By: By: /s/
---------------------------------- -----------------------------
20
<PAGE>
Annex 1
[*******]
[Annex 1 details the Cost Savings Calculation and Commercialization Procedure
used for determining royalties under this Agreement.]
<PAGE>
Annex 2
[*******]
[Annex 2 identifies Maxygen Patents and Applications that are licensed to
GB under this Agreement.]
<PAGE>
Annex 3
[*******]
[Annex 3 details the specific research activities to be conducted under this
Agreement, timelines for conducting such activities, and technical information
related to the activities to be conducted.]
<PAGE>
Exhibit 10.14
COLLABORATION AGREEMENT
BETWEEN
MAXYGEN, INC.
AND
ZENECA LIMITED
June 18, 1999
* CERTAIN INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AND THE NON-PUBLIC
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
COLLABORATION AGREEMENT
This COLLABORATION Agreement (the Agreement), effective as of June 18, 1999
(the "Effective Date"), is made by and between Zeneca Limited , a corporation
organized under the laws of the United Kingdom, with a principal place of
business at 15 Stanhope Gate, London W1Y 6LN, United Kingdom (hereinafter
"Zeneca"), and Maxygen, Inc., a Delaware corporation, with a principal place of
business at 515 Galveston Drive, Redwood City, California 94063 (hereinafter
"Maxygen").
BACKGROUND
A. WHEREAS Maxygen has valuable intellectual property rights and
expertise in the rearrangement of DNA to produce, discover and optimize genes
utilizing proprietary technologies; and
B. WHEREAS Zeneca has expertise in the genetic modification of plants to
produce products for the global [*******] markets; and
C. WHEREAS Zeneca and Maxygen wish to enter into this Agreement in order
to perform research together to discover and develop new genes that can be used
to produce improved agricultural and other products to be commercialized by the
Parties; and
D. WHEREAS Zeneca, AstraZeneca Holdings B.V., a subsidiary of Zeneca, and
Maxygen have entered into a Stock Purchase Agreement, pursuant to which
AstraZeneca Holdings B.V., shall purchase shares of Maxygen preferred stock with
an option to purchase additional shares of Maxygen common and/or preferred
stock.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the parties hereby agree as
follows:
1. DEFINITIONS
The following capitalized terms shall have the meanings indicated for
purposes of this Agreement:
1.1 "Affiliate" means any corporation, firm, limited liability
---------
company, partnership or other entity that directly or indirectly controls or is
controlled by or is under common control with a Party to this Agreement. As used
in this Section, control means ownership, directly or through one or more
Affiliates, of fifty percent (50%) or more of the shares of stock entitled to
vote for the election of directors, in the case of a corporation, or fifty
percent (50%) or more of the equity interests in the case of any other type of
legal entity, status as a general partner in any partnership, or any other
arrangement whereby a Party controls or has the right to control the Board of
Directors or equivalent governing body of a corporation or other entity, or if
such level
<PAGE>
of ownership or control is prohibited in any country, any entity owned or
controlled by or owning or controlling at the maximum control or ownership right
permitted in the country where such entity exists.
1.2 "Agricultural Applications" means propagation of any Plant and
--------------------------
any use of any Plant parts and substances derived directly or indirectly
therefrom for purposes of [*******].
1.3 "Class A Shuffled Gene" means any Shuffled Gene which results
---------------------
is or derived from the Shuffling in the Research Program of [*******].
1.4 "Class B Shuffled Gene" means a Shuffled Gene that is not a
------------------
Class A Shuffled Gene.
1.5 "Class A Zeneca Product"means a product commercialized by
----------------------
Zeneca or its Affiliates or Sublicensees which incorporates or is made through
the use of one or more Class A Shuffled Genes.
1.6 "Class B Zeneca Product" means a product commercialized by Zeneca
----------------------
or Affiliates or Sublicensees which incorporates or is made through the use of
at least one Shuffled Gene, but which does not incorporate and is not made
through the use of any Class A Shuffled Gene.
1.7 "Collaborator" means a Third Party which has not received a
------------
Naked Sublicense, to which Zeneca sublicenses rights to make, use, import or
sell a Zeneca Product. As used in this Agreement, Collaborator shall also
include a Third Party to whom Zeneca or an Affiliate of Zeneca has granted the
right to distribute the applicable Zeneca Product.
1.8 "Consumer Price Index" or "CPI" means the Consumer Price Index,
--------------------
All Urban Consumers, as published by the U.S. Bureau of Labor Statistics.
1.9 "Control", "Controls", or "Controlled" means possession of the
------------------------------------
ability to grant the licenses or sublicenses in one or more Crops as provided
for herein without violating the terms of any agreement or other arrangement
with any Third Party.
1.10 "Core Country" means each of the United States, Canada, Japan,
------------
and any country in the European Union for which patent protection can be
obtained through the European Patent Office.
1.11 "Crop" means [*******].
----
1.12 "Downstream Income" means all income or other consideration or
-----------------
value and payments received by or due to Zeneca and its Affiliates and, subject
to Section 4.6.2(c), received by or due to Zeneca or its Affiliates from
Collaborators, in each case, reasonably attributable to the use or sale of any
Zeneca Agricultural Product (other than Net Sales Income
2
<PAGE>
and payments from Third Parties which have received a Naked Sublicense),
including, without limitation, technology access fees from growers and payments
for the sale of or right to sell Zeneca Agricultural Products, in each case,
whether such consideration is in cash, payment in kind, exchange or another
form.
1.13 "Enabling Technology" means (i) [*******] in one or more Plant
-------------------
types which has been modified by application of Shuffling Technology pursuant to
the Research Plan, and (ii) [*******], in each case, as the Research Committee
may agree in writing to develop in the Research Program to facilitate the
development of Zeneca Agricultural Products, and which is designated by written
agreement by the Research Committee as Enabling Technology.
1.14 "FTE" means a full time scientist who is an employee of Maxygen
---
(or in the case of less than a full-time dedicated scientist, a full-time,
equivalent scientist year), dedicated to research under the Research Program
consisting of an average of [*******] per year. All such FTE's shall be educated
to Ph.D., MS or BS level (or otherwise appropriately trained) in an appropriate
discipline, unless otherwise agreed.
1.15 "GAAP" means generally accepted accounting principles, as
----
applied in the United States.
1.16 "Gene" means a polynucleotide sequence encoding a protein,
----
optionally together with its regulatory sequences, which is selected for
Shuffling in the Research Program by the Research Committee pursuant to Section
2.5.1. Each Gene shall be designated by the Research Committee as (i) a Zeneca
Starting Gene or (ii) a Maxygen Starting Gene or (iii) an Other Starting Gene.
1.17 [*******]
1.18 "Gene Variant" means any altered form of a Gene made in
------------
connection with the Research Program which meets the applicable criteria
established by the Research Committee.
1.19 "Know-How" means all ideas, inventions, data, instructions,
--------
processes and formulae, including, without limitation, biological, chemical,
toxicological, physical and analytical, safety, manufacturing and quality
control data and information, in each case, which are developed or made or the
utility of which is determined or discovered by Maxygen and/or Zeneca or an
Affiliate or a Third Party on behalf of such a Party during the Research Term
and in connection with the Research Program. Know-How does not include any
Shuffling Technology or any inventions included in the Program Patent Rights.
1.20 "Materials" means any chemical or biological substances,
---------
including any: (i) organic or inorganic chemical element or compound; (ii) gene;
(iii) vector or construct, plasmid, phage or virus; (iv) host organism,
including bacteria and Plant cells; (v) eukaryotic or prokaryotic cell line or
expression system; (vi) protein, including any peptide or amino acid sequence,
enzyme, antibody or protein conferring targeting properties and any fragment of
a
3
<PAGE>
protein or peptide or enzyme; (vii) genetic material, including any genetic
control element (e.g., promoters), gene, Gene Variant or Shuffled Gene; or
(viii) assay or reagent.
1.21 "Maxygen Improvement" means any improvement to Maxygen
-------------------
Materials (e.g., improved assays, and/or derivatives and progeny of biological
materials which are Maxygen Materials), other than Nucleic Acid Sequence
Libraries, Gene Variants or Shuffled Genes, and any improvement to Shuffling
Technology whether made by Zeneca or Maxygen in the course of the Research
Program.
1.22 "Maxygen Materials" means all Materials provided by Maxygen to
-----------------
Zeneca in order that Zeneca can perform its obligations under the Research
Program or which Maxygen owns and Controls and uses internally in connection
with the Research Program. It is understood and agreed that all Nucleic Acid
Sequence Libraries, Gene Variants and Shuffled Genes shall be Maxygen Materials.
1.23 "Maxygen Product" means any product sold by Maxygen or its
---------------
Affiliates or Sublicensees which incorporates or is made through the use of a
Class B Shuffled Gene, or is derived from a Plant which incorporates or is made
through the use of a Class B Shuffled Gene.
1.24 "Maxygen Starting Gene" means a Gene which (i) as of the date
---------------------
that the Research Committee selects such Gene for Shuffling, is [*******] which
is owned or Controlled by Maxygen independent of the conduct of the Research
Program, or (ii) the Research Committee designates as a Maxygen Starting Gene as
set forth in Section 2.5.1(c).
1.25 "Naked Sublicense" means a license or sublicense granted by
----------------
Zeneca to a Third Party in which such Third Party receives only forbearance from
suit from Zeneca with respect to the use of a Shuffled Gene to make, use, import
or sell a Zeneca Product. It is understood and agreed that a Naked Sublicense
shall not include a license or other right to use any other intellectual
property or technology owned or Controlled by Zeneca or its Affiliates (e.g.,
germplasm) or forbearance from suit with respect to use of such intellectual
property or technology.
1.26 "Net Sales Income" means the gross sales price invoiced by
----------------
Zeneca, a Zeneca Affiliate or a Collaborator to purchasers of a Zeneca Product
less trade and cash discounts and returns actually granted to purchasers and
less taxes withheld, customs and freight charges. Net Sales Income shall be
calculated using Zeneca's standard accounting procedures in accordance with
United States GAAP, as consistently applied by Zeneca.
All sales of Zeneca Agricultural Products between Zeneca and any of its
Affiliates shall be disregarded for purposes of computing Net Sales Income. All
sales of Zeneca Agricultural Products between Zeneca or its Affiliates and
Collaborators shall also be disregarded for purposes of computing Net Sales
Income, unless such sale is the result of an arms-length sale of such Zeneca
Agricultural Product. A "sale" shall include any transfer or other disposition
for consideration, and Net Sales Income shall include all consideration received
by Zeneca or its
4
<PAGE>
Affiliates and Collaborators in respect of any sale of Zeneca Agricultural
Products, whether such consideration is in cash, payment in kind, exchange or
another form as detailed in Section 4.6.3.
In the case of discounts on "bundles" of products or services which include
Zeneca Agricultural Products, Zeneca may with notice to Maxygen calculate the
Net Sales Income by discounting the bona fide list price of a Zeneca
Agricultural Product by no more than the average percentage discount of all
products of Zeneca and/or its Affiliates and Collaborators in a particular
"bundle", calculated as follows:
Average percentage
discount on a = (1 - A/B) x 100
particular "bundle"
where A equals the total discounted price of a particular "bundle" of products,
and B equals the sum of the undiscounted bona fide list prices of each unit of
every product in such "bundle". Zeneca shall provide Maxygen documentation,
reasonably acceptable to Maxygen, establishing such average discount with
respect to each "bundle". If Zeneca cannot so establish the average discount of
a bundle, the Net Sales Income shall be based on the undiscounted list price of
the Zeneca Agricultural Product in the bundle. If a Zeneca Agricultural Product
in a bundle is not sold separately and no bona fide list price exists for such
Zeneca Agricultural Product, the Parties shall negotiate in good faith an
imputed list price for such Zeneca Agricultural Product, and Net Sales Income
with respect thereto shall be based on such imputed list price.
1.27 "Non-Ag Applications" means any use of a Shuffled Gene other
-------------------
than for an Agricultural Application.
1.28 "Nucleic Acid Sequence Library" means with respect to a
-----------------------------
particular Gene, the set of variants produced by the Shuffling of such Gene in
connection with the Research Program, excluding Gene Variants and Shuffled
Genes.
1.29 [*******].
1.30 [*******].
1.31 "Other Starting Gene" means a Gene which is neither a Zeneca
-------------------
Starting Gene nor a Maxygen Starting Gene.
1.32 "Output Trait" means each of (i) [*******], (ii) [*******], and
------------
(iii) [*******].
1.33 "Party" means Zeneca or Maxygen, and the "Parties" means Zeneca
-----
and Maxygen.
1.34 "Patent Rights" means (i) the Program Patent Rights and (ii)
-------------
any other United States or foreign patent or patent application claiming a
Zeneca Product or Maxygen
5
<PAGE>
Product or a method or process for the manufacture or use thereof, and any
division, continuation, continuation-in-part, reissue, reexamination, extension
or other governmental action that extends the subject matter of such patent or
patent application, substitution, confirmation, registration or revalidation of
the foregoing, in each case, that is owned or Controlled by Zeneca or Maxygen or
their respective Affiliates, or jointly by Zeneca and Maxygen, during the term
of this Agreement.
1.35 "Phenotypic Effect" means the particular [*******] agreed upon
-----------------
by the Research Committee [*******].
1.36 "Plant" means a monocotyledonous or dicotyledonous plant.
-----
1.37 "Program Materials" means all Materials which are developed or
-----------------
made or the utility of which is determined or discovered during the Research
Term and in connection with the Research Program, excluding the Maxygen
Materials and Maxygen Improvements and the Zeneca Materials and Zeneca
Improvements. It is understood and agreed that Program Materials do not include
any Shuffling Technology.
1.38 "Program Patent Rights" means (i) all United States and foreign
---------------------
patent applications and patents that claim an invention conceived and reduced to
practice by Maxygen and/or Zeneca or an Affiliate or a Third Party on the behalf
of such Party during the Research Term and in connection with the Research
Program, and (ii) any divisions, continuations, continuations-in-part, and
patents that issue therefrom, reissues, reexaminations, extensions or other
governmental actions that extend any of the subject matter of the patent
applications or patents in (i) above, and any substitutions, continuations,
confirmations, registrations or revalidations of any of the foregoing, in each
case, which is owned in whole or part, by assignment or otherwise by Maxygen or
Zeneca during the term of this Agreement. It is understood and agreed that
Program Patent Rights do not include any Shuffling Technology, any Zeneca
Improvements or any Maxygen Improvements.
1.39 "Program Technology" means all Program Patent Rights, Know-How
------------------
and Program Materials, in each case, which is necessary or useful for the
development, testing, use, manufacture or sale of Zeneca Products or Maxygen
Products. It is understood that the Program Technology does not include any
Shuffling Technology or Zeneca Proprietary Technology.
1.40 "Project" means those research activities undertaken in the
-------
Research Program with respect to one or more Gene(s) with the goal of producing
a [*******] as agreed in writing by the Parties.
1.41 "Regulatory Approval" means all approvals (including pricing
-------------------
and reimbursement approvals), licenses, registrations and authorizations of all
agencies necessary for the manufacture, distribution, use or sale of a Zeneca
Agricultural Product in the applicable country.
1.42 "Research Committee" shall have the meaning set forth in
------------------
Section 2.2.
6
<PAGE>
1.43 "Research Plan" means a written plan approved by the Research
-------------
Committee describing the activities to be carried out during each twelve (12)
month period of the Research Program, as modified from time to time by the
Parties.
1.44 "Research Program" means the research and development program
----------------
to be conducted by Maxygen and Zeneca pursuant to Article 2 and as described in
the applicable Research Plan.
1.45 "Research Results" means Know-How relating to Nucleic Acid
----------------
Sequence Libraries, Gene Variants, Shuffled Genes, Enabling Technology and/or
Program Materials.
1.46 "Research Term" shall have the meaning set forth in Section 2.
-------------
10.
1.47 "Shuffle", "Shuffled" and "Shuffling" means the recombination
-----------------------------------
and/or rearrangement and/or mutation of genetic material for the creation of
genetic diversity using intellectual property and/or tangible property owned or
Controlled by Maxygen during the Research Term.
1.48 "Shuffled Gene" means (i) any Gene Variant which the Research
-------------
Committee designates as such pursuant to Section 2.5.5, and (ii) any Shuffled
Gene Derivative.
1.49 "Shuffled Gene Derivative" means any modified form of a
------------------------
Shuffled Gene, which modification is developed from or made to the Shuffled Gene
by a Party or its Affiliates or Sublicensees by any means, including without
limitation, any codon modified variant, splice variant, mutation, derivative or
variant of a Shuffled Gene, and any fragment(s) of the preceding.
1.50 "Shuffling Technology" means techniques, methodologies,
--------------------
processes, materials and/or instrumentation useful for Shuffling, and generally
applicable screening techniques, methodologies, or processes of using the
resulting genetic material which are applicable to identifying genetic diversity
producing by Shuffling. It is understood and agreed that the specific assays
developed for screening Gene Variants for specific biological or chemical
activity and screens and screening methods developed by Zeneca independently of
the Research Program are not included in Shuffling Technology.
1.51 "Staffing Level" shall have the meaning set forth in Section
--------------
2.1.4.
1.52 [*******].
1.53 "Stock Purchase Agreement" means that certain Stock Purchase
------------------------
Agreement entered by Zeneca, AstraZeneca Holdings B.V. and Maxygen in
conjunction with this Agreement.
1.54 "Sublicensee" means (i) with respect to Maxygen, a Third Party
-----------
which receives a Naked Sublicense or a Collaborator, and (ii) with respect to
Zeneca, a Third Party which receives a Naked Sublicense or a Collaborator.
7
<PAGE>
1.55 "Third Party" means any party other than Zeneca or Maxygen or
-----------
an Affiliate of either of them.
1.56 "Trait" means a characteristic or property within one or more
-----
Trait Categories attributable in whole or part to the expression or modulation
of expression of one or more genetic elements.
1.57 "Trait Categories" means, as shown in Exhibit A, the areas of
----------------
Crop/technology interest from which the Projects to be conducted pursuant to the
Research Program will be selected. In particular, the areas for the applicable
Crops include: [*******]. It is understood and agreed that each Trait Category
includes multiple possible Phenotypic Effects.
1.58 "Trait Effect" means a particular Phenotypic Effect resulting
------------
from the use of one or more Shuffled Genes (with or without any Enabling
Technology).
1.59 "Zeneca Agricultural Product" means any Zeneca Product used for
---------------------------
an Agricultural Application.
1.60 "Zeneca Improvement" means any improvement to Zeneca Materials
------------------
(e.g., improved assays, and/or derivatives and progeny of biological materials
which are Zeneca Materials), other than Nucleic Acid Sequence Libraries, Gene
Variants and Shuffled Genes, whether made by Zeneca or Maxygen in the course of
the Research Program.
1.61 "Zeneca Materials" means all Materials provided by Zeneca to
----------------
Maxygen in order that Maxygen can perform its obligations under the Research
Program or which Zeneca owns and Controls and uses internally in connection with
the Research Program.
1.62 "Zeneca Non-Agricultural Product" means any Zeneca Product
-------------------------------
other than a Zeneca Agricultural Product.
1.63 [*******].
1.64 "Zeneca Product" means any product sold or intended to be sold
--------------
by Zeneca or its Affiliates or Sublicensees which incorporates or is made
through the use of a Shuffled Gene, or is derived from a Plant which
incorporates or is made through the use of a Shuffled Gene.
1.65 "Zeneca Starting Gene" means a Gene which (i) as of the date
--------------------
that the Research Committee selects such Gene for Shuffling, is [*******] which
is owned or Controlled by Zeneca independent of the conduct of the Research
Program, or (ii) the Research Committee designates as a Zeneca Starting Gene as
set forth in Section 2.5.1(c).
1.66 "Zeneca Proprietary Technology" means all technology owned or
-----------------------------
Controlled by Zeneca as of the Effective Date or developed or acquired
thereafter independently of the Research Program, which Zeneca has the right to
contribute to the Research Program and
8
<PAGE>
which Zeneca uses or makes available for the conduct of the Research Program
(including without limitation, for the Shuffling of Zeneca Starting Genes or
[*******]) or the design, development, testing, use, manufacture or sale of
Zeneca Products, including all such United States and foreign patents and patent
applications (including, without limitation, all reissues, extensions,
substitutions, confirmations, registrations, revalidations, additions,
continuations, continuations-in-part, and divisions thereof) and other
proprietary information, data and know-how.
2. RESEARCH PROGRAM
2.1 Collaborative Research. Subject to the terms and conditions
----------------------
set forth herein, Zeneca and Maxygen will diligently conduct mutually agreed
collaborative research pursuant to a Research Plan with the primary objective of
creating Shuffled Genes useful for the development of Zeneca Products. The
Parties may also agree to conduct research directed to development of Enabling
Technologies and GeneSwitch Technology.
2.1.1 Areas of Research.
-----------------
(a) Research Areas. With respect to Gene(s), research
--------------
may be conducted for the purpose of identifying Shuffled Gene(s) having Trait
Effects within the following Trait Categories in the indicated Crops:
(i) [*******];
(ii) [*******];
(iii) [*******];
(iv) [*******];
(v) [*******];
(vi) [*******];
(vii) [*******]
(viii) [*******].
In the case of [*******], it is understood and agreed that the research
activities, if any, conducted in these areas shall be in the areas of specific
Reserved Projects identified by the Parties as set forth in Section 2.1.1(b). A
table illustrating the areas of potential research in the Research Program is
attached as Exhibit A.
(b) Output Trait Reserved Projects.
------------------------------
9
<PAGE>
(i) By the Effective Date, Maxygen and Zeneca
shall agree in writing upon [*******] clearly defined Projects within the scope
of each of the [*******] Output Traits of [*******], and each such agreed upon
Project shall be deemed a "Reserved Project." At any time after the Effective
Date during the Research Term, Zeneca may request a revision or modification of
any of the Reserved Projects, in which event Maxygen and Zeneca shall promptly
confer and attempt in good faith to agree upon and describe in writing a new
Reserved Project to replace each Reserved Project so identified by Zeneca. It is
understood and agreed that there shall not at any time be more than [*******]
Reserved Projects for any particular Output Trait.
(ii) In connection with the definition of each
Reserved Project, the Parties shall discuss and must agree in writing on (a)
[*******], technical feasibility, freedom to operate risks, research activities
and goals, and successful outcomes, as illustrated in the initial Reserved
Project descriptions agreed in writing by the Parties as of the Effective Date.
A mutually agreed written description of all of the foregoing shall be required
for any definition of a Reserved Project.
(iii) It is understood by the Parties that there
shall be no obligation to conduct research activities in any Reserved Project,
except as agreed in the Research Plan. Before work is commenced on any Reserved
Project, the Research Committee shall agree in writing to the commercialization
rights each Party shall have to any Shuffled Genes resulting from the conduct of
such Reserved Projects, including without limitation, specific Non Ag
Applications and extraction rights and value capture strategy.
(iv) It is understood and agreed that neither
Party shall, without the unanimous consent of the Research Committee, be
obligated to conduct research activities in the Research Program directed to
[*******], other than with respect to Reserved Projects. Neither Party shall
have any obligation to agree to any changes proposed by the other Party to the
then current list of Reserved Projects.
(v) Unless otherwise expressly provided herein,
during the Research Term, Maxygen shall not to enter into any contract with any
Third Party to Shuffle any Gene intended to provide [*******] which are the
focus of any Reserved Project.
(vi) It is understood and agreed that, at such
time as the Research Program commences with respect to a particular Reserved
Project, it shall be treated as a Project for all purposes of this Agreement.
(c) Enabling Technology and [*******]. Any research
--------------------------------
conducted in the Research Program relating to any Enabling Technology and/or
[*******] shall be for use in Plants agreed upon by the Research Committee on a
case-by-case basis in accordance with the provisions of Section 2.8.
10
<PAGE>
2.1.2 Research Plan.
-------------
(a) At least annually, the Research Committee will prepare
and agree upon a written plan (the Research Plan) which will include (i) a
general overview and timetable for each Party's research activities and
appropriate resources and budgets for such research during the next year, and
(ii) a preliminary and non-binding plan for research activities to be conducted
by the Parties in the subsequent year which shall include, without limitation,
staffing and resource allocations. Each Research Plan shall set specific
objectives for such year, which objectives will be updated or amended, as
appropriate, by the Research Committee as research progresses, and shall set
forth specific research activities within applicable Trait Categories for the
Crops and Enabling Technology and [*******] as appropriate.
(b) A preliminary Research Plan has been agreed to by the
Parties as of the Effective Date, and the Parties will use their reasonable best
efforts to have the Research Committee agree on a formal Research Plan within
forty-five (45) days of the Effective Date. No Research Plan will include
staffing or funding for any Project, including without limitation any Reserved
Project, except with the written consent of the Research Committee.
(c) The Research Committee shall review the Research Plan on
an ongoing basis, but in no event less than quarterly, and may, in its
discretion, make changes that are consistent with this Agreement to the Research
Plan then in effect.
2.1.3 Efforts. Zeneca and Maxygen shall each use reasonable
-------
efforts to conduct the Research Program in a professional manner and within the
time schedules contemplated therein. The activities conducted in connection
with the Research Program will be overseen and administered by the Research
Committee pursuant to Section 2.2 below.
2.1.4 Staffing. In carrying out the Research Program, Maxygen
--------
shall devote an average of [*******] FTEs per year (the "Staffing Level") for
each year of the Research Term, at a rate of [*******] for each FTE, which
amount shall be CPI adjusted on the annual anniversary of the Effective Date,
applying the most recent published CPI figure, using 1999 as the base year. It
is understood and agreed that Maxygen shall not be obligated to utilize an
average per year of more than [*******] FTEs in the Research Program or conduct
any activities in the Research Program for which Zeneca fails to provide funding
in accordance with Section 4.3. It is anticipated that each Project will
utilize on average about [*******] per year, except as the Research Committee
may otherwise agree. At the request of Zeneca, Maxygen will in good faith
consider and discuss proposed increases or decreases to the Staffing Level;
provided, however, that the Staffing Level shall remain at the level of FTEs
specified above, unless the Parties agree in writing to different staffing
levels. Any increase or decrease to the Staffing Level agreed to by the Parties
shall be reflected in the relevant Research Plan and the budget associated with
such Research Plan.
11
<PAGE>
2.2 Research Committee. Promptly after the Effective Date, Zeneca
------------------
and Maxygen will each appoint three (3) representatives to a research committee
of six (6) persons (the "Research Committee").
2.2.1 Membership. A Maxygen representative will serve as
----------
chairperson of the Research Committee for the initial twelve (12) months.
Thereafter, the chair will rotate between a Zeneca member and a Maxygen member
every twelve (12) months. A Party may change any of its appointments to the
Research Committee at any time with written notice to the other Party. From
time to time, the Research Committee may establish subcommittees to oversee
particular activities. It is understood that each Party will designate at least
one business representative to the Research Committee.
2.2.2 Responsibilities. Generally, it will be Zeneca who
----------------
proposes Projects for the Research Committee to consider for inclusion in the
Research Plan, although either Party may propose such Projects. The Research
Committee will agree on and may, in its discretion, modify the research to be
performed under this Agreement in a manner consistent with this Agreement. The
Research Committee will oversee, review, direct and supervise all operational
and scientific aspects of the Research Program. The Research Committee shall be
responsible for:
(i) establishing the Research Plan;
(ii) monitoring and reporting research progress
and ensuring open and frequent exchange between the Parties with respect to
Research Program activities;
(iii) approving allocations of tasks and
resources required to carry out the goals of the Research Program;
(iv) approving all plans and annual budgets for
the various Projects within the Research Program;
(v) defining Phenotypic Effects, the scope of
Projects and the Genes which will be Shuffled for each Project;
(vi) redirecting, as it deems appropriate, the
activities to be conducted in the Research Program within and among the Trait
Categories, and reallocating the FTEs in support of such activities;
(vii) designating Gene Variants as Shuffled
Genes;
(viii) determining whether to acquire licenses
from Third Parties with respect to intellectual property necessary or useful for
the conduct of the Research Program;
12
<PAGE>
(ix) discussing patent matters relating to the
Program Technology;
(x) performing such other functions as
appropriate to further the purposes of this Agreement, as determined by the
Parties;
(xi) determining the financial terms of value
sharing for commercialization of products based on or resulting from Enabling
Technology or [*******], as set forth in Section 2.8.3, and based on or
resulting from [*******] as set forth in Section 2.8.4; and
(xii) determining the financial terms of value
sharing for commercialization of products based on or resulting from Reserved
Projects which become Projects.
2.2.3 Meetings. The Research Committee will meet on a quarterly
--------
basis alternating between the corporate offices of Maxygen and Zeneca, or at
such other sites as the Research Committee may agree, and will otherwise
communicate regularly by telephone, electronic mail, facsimile and/or video
conference. Attendance at meetings shall be at the respective expense of the
participating Parties. If personal attendance is not possible, voting by proxy
is permissible. Each Party recognizes the importance of the Research Committee
in the success of the Research Program and will use diligent efforts to cause
all of its representatives of such committee to attend all meetings of such
committee, and at least two representatives from each Party shall be required to
attend each Research Committee meeting in person or by telephone. With the
prior approval of the Research Committee, other full-time personnel of the
Parties and consultants approved by the other Party may attend, but not vote at,
Research Committee meetings. The Parties agree to use good faith reasonable
efforts to ensure that the Chief Executive Officer of Maxygen and Zeneca's
Agrochemicals Research Director meet at least annually to discuss the Research
Program.
2.2.4 Minutes. The Research Committee shall keep accurate
-------
minutes of its meetings that record all decisions and all actions recommended or
taken. The Party hosting the meeting shall be responsible for the preparation
and circulation of the draft minutes. Draft minutes shall be delivered to the
Research Committee within twenty (20) days after each meeting. Draft minutes
shall be edited by each Party's Research Committee representatives within twenty
(20) days of receipt thereof and shall be adopted in final form with their
approval and agreement as evidenced by their signatures on the minutes. Minutes
of the Research Committee meetings shall be treated as Confidential Information
of each Party in accordance with the provisions of Article 9 hereof.
2.2.5 Decision Making; Disputes. All decisions of the Research
-------------------------
Committee will be made by unanimous approval and recorded in writing. If the
Research Committee is unable to resolve after thirty (30) days a dispute
regarding any issue presented to it or arising in it, the matter shall be
resolved pursuant to Article 12. If the Research Committee
13
<PAGE>
does not agree upon whether a specific Project should become part of and be
conducted in the Research Program, then such Project shall not be the target of
research activities in the Research Program, and such matter shall not be
subject to dispute resolution as set forth in Sections 12.3 and/or 12.4.
2.3 Research Program Expenses
-------------------------
2.3.1 Zeneca Funding. Zeneca shall be responsible for paying to
--------------
Maxygen Research Funding for the Research Program as set forth in Section 4.3.
2.3.2 Zeneca Expenses. Zeneca shall be responsible for the
---------------
expense of its own participation in the Research Program.
2.3.3 Third Party Technology.
----------------------
(a) Maxygen shall be responsible for all payments due to
Third Parties for the acquisition and maintenance of licenses to intellectual
property necessary for the practice of Shuffling Technology per se in the
Research Program, and the costs of negotiating and preparing such licenses. In
the event that it is necessary to acquire any license to any other intellectual
property or technology from a Third Party for the conduct of the Research
Program, the Research Committee will set a budget and agree upon
responsibilities of the Parties in conjunction with obtaining such a license, or
shall determine not to proceed with such Project.
(b) If Zeneca is not able to grant to Maxygen a sublicense
to any Gene(s) which are Shuffled in the Research Program for use in development
or commercialization of a Maxygen Product, Maxygen will be responsible for
acquiring licenses to such Genes as needed for its own commercialization
activities. Notwithstanding the above, with respect to any gene(s) to which
Zeneca obtains license rights from a Third Party, which gene(s) Zeneca wishes to
Shuffle in the Research Program, Zeneca shall use reasonable efforts to acquire
from such other Third Party the right to sublicense such Gene and Shuffled Genes
based thereon to Maxygen for use pursuant to Article 3.
2.3.4 Research Program Subcontracts. With the prior approval of
-----------------------------
and budgeting by the Research Committee, Maxygen may enter into agreements with
Third Parties for the performance of activities in furtherance of the Research
Program. Zeneca shall have the right to review and comment on such agreements
prior to execution, and shall have the right to veto the acceptance of the best
draft achievable of such agreements. If the Research Committee approves such
funding, Zeneca shall be responsible for directly paying to the Third Party all
compensation required to be paid pursuant to such Agreement and/or for
reimbursing Maxygen for reasonable out of pocket costs not exceeding the budget
agreed by the Research Committee incurred in entering into such agreements.
2.3.5 Capital Expenditures. In the event that the conduct of the
--------------------
Research Program can be facilitated by the purchase of specialized capital
equipment, the Research Committee shall determine whether such equipment shall
be purchased. If the Research
14
<PAGE>
Committee approves any such purchase, Zeneca shall be responsible for purchasing
such equipment, unless otherwise agreed. Title to such equipment shall be vested
in Zeneca and Maxygen shall not use such equipment for the benefit of any other
party without Zeneca's prior written consent.
2.4 Records; Reports
----------------
2.4.1 Records. The Parties shall maintain records that will
-------
properly reflect all work done and results achieved in the performance of the
Research Program (including all data in the form required under any applicable
governmental regulations and as directed by the Research Committee), including
laboratory records sufficient to establish the dates of first conception and
reduction to practice of any inventions within the Program Technology; provided,
Maxygen shall have no obligation to disclose any Shuffling Technology to the
Research Committee or Zeneca; and further provided that (i) Zeneca shall be
under no obligation to disclose any proprietary Zeneca protocols or proprietary
assays or the like to the Research Committee or Maxygen, and (ii) Maxygen shall
be under no obligation to disclose any proprietary Maxygen protocols or the like
to the Research Committee or Zeneca. Upon request, during ordinary business
hours during the term of the Research Program, the Parties shall provide each
other access to such records relating to any Shuffled Gene. After the term of
the Research Program, the Parties shall continue to provide access to each other
as is reasonably required for the progression of patent related activities
initiated as a result of Research Committee decisions pursuant to this
Agreement.
2.4.2 Reports. During the Research Term, the Research Committee
-------
shall periodically, and not less often than quarterly, request, and the Parties
shall have the obligation to prepare and provide to the Research Committee,
written reports summarizing the progress of the research performed by or
sponsored by the Parties pursuant to the Research Plan during the preceding
half-year. The Parties shall also periodically, and not less than quarterly,
provide a written report (which may be provided as part of the report described
in the preceding sentence) summarizing Program Technology made by either Party,
with significant discoveries or advances being communicated at any time during
the Research Term as soon as practical after such information is obtained or its
significance is appreciated.
2.4.3 Research Program Expenditures. During the Research Term,
-----------------------------
Maxygen shall provide Zeneca with a quarterly accounting report regarding
Research Program expenditures by Maxygen in the preceding quarter. Maxygen
shall keep records of all expenses incurred in connection with the Research
Program, and annually during the Research Program within sixty (60) days
following the end of each twelve months from the Effective Date shall provide
Zeneca with a report describing the number of FTEs utilized in the Research
Program during the preceding twelve months. During the term of the Research
Program and for thirty-six (36) months thereafter, Zeneca shall have the right
to audit such records no more than once per twelve month period during ordinary
business hours, at mutually agreed times, to verify Maxygen's expenditures in
connection with the Research Program.
15
<PAGE>
2.5 Activities
----------
2.5.1 Selection of Genes for Shuffling.
--------------------------------
(a) Proposed Genes. Either Party may propose genes to be
--------------
Shuffled in the Research Program, and the final selection of Genes will be made
by the Research Committee. At such time as either Party proposes a gene for
Shuffling, it shall inform the Research Committee, to the extent it is able to
do so without breaching any confidentiality obligations, of all rights which it
has to use and sublicense such gene, and any restrictions or limitations
thereon, and any information of which it is aware with respect to Third Party
patent applications or patents which may relate to the use of the gene in the
Research Program and/or the development or commercialization of Zeneca Products
and, if applicable, Maxygen Products; provided, neither Party shall have any
obligation to provide the Research Committee with any document which would
result in a breach of the attorney/client privilege with respect thereto. At
such time, to the extent that Maxygen may do so without compromising its
confidentiality obligations to Third Parties, Maxygen shall additionally inform
Zeneca of any obligations or restrictions on commercialization of products for
Agricultural Applications with respect to any Plant other than a Crop as a
result of any exclusivity granted by Maxygen to a Third Party with respect to
Shuffling.
(b) Selection of Genes. The Research Committee shall
------------------
have the sole authority to select the Genes for use in the Research Program. The
Research Committee shall consider in the selection of Genes: commercialization
issues for each of Zeneca and Maxygen, technical feasibility and freedom to
operate risks for the commercialization of Zeneca Products and Maxygen Products.
It is understood and agreed that where there is more than one gene which could
be Shuffled for a particular purpose, [*******] the Research Committee shall
select for Shuffling in the Research Program a gene(s) for which sublicense
rights are available for both of Zeneca and Maxygen. It is further understood
and agreed that the Research Committee shall use all reasonable efforts to
identify and select for Shuffling in each Trait Category at least [*******] for
which sublicense rights are available for Maxygen. Unless otherwise agreed in
writing, the Research Committee shall accept or decline to accept a proposed
gene as a Gene within ninety (90) days of date of receipt of the information
described in Sections 2.5.1(a) and (b) above.
(c) Types of Genes. At the time a Gene is selected for
--------------
the Research Program, and prior to use of the Gene for Shuffling in the Research
Program, the Research Committee shall determine in writing if it is a Zeneca
Starting Gene, a Maxygen Starting Gene or an Other Starting Gene. In the event
that either Party desires to propose a Gene for Shuffling in the Research
Program which Gene is not [*******], but which Gene the proposing Party desires
to have designated as a Zeneca Starting Gene or Maxygen Starting Gene, as the
case may be, then the Party may request the Research Committee to consider
designation of such Gene as a Zeneca Starting Gene or Maxygen Starting Gene, as
the case may be. If the Party has a proprietary interest in the Gene which the
Research Committee agrees is sufficient to justify the designation of such Gene
as a Zeneca Starting Gene or Maxygen Starting Gene, then
16
<PAGE>
the Research Committee may, in its discretion, elect to designate such Gene a
Zeneca Starting Gene or Maxygen Starting Gene. Patent counsel for each of the
Parties may advise the Research Committee on various factors which the Research
Committee may want to consider in making such determination.
2.5.2 Activity Criteria for Gene Variants and Shuffled Genes.
------------------------------------------------------
At such time as the Research Committee selects a Gene to be Shuffled in the
Research Program or within thirty (30) days thereafter, the Research Committee
shall prepare a written description of the activity criteria required of Gene
Variant(s) and Shuffled Gene(s), respectively. Such criteria shall in all cases
reflect a reasonable commercial level of activity, including regulatory
requirements, relevant for Zeneca Agricultural Products and may be amended from
time-to-time by the Research Committee.
2.5.3 Preparation of Variants and Protein Pools. Maxygen shall
-----------------------------------------
use its Shuffling Technology to prepare Nucleic Acid Sequence Libraries, and
prepare crude or purified protein pools from expression of such libraries.
Maxygen and/or Zeneca shall be responsible for preparation of expression
constructs in appropriate non-Plant organism(s), non-plant cell culture(s) and
in planta, all as agreed by the Research Committee and set forth in the Research
Plan.
2.5.4 Screening. Maxygen shall carry out screening of Nucleic
---------
Acid Sequence Libraries, using high throughput screening including the use of
robotics and advanced data reduction techniques, as set forth in the Research
Plan. Maxygen shall not be under any obligation to share the design of Maxygen
proprietary screens or other proprietary tests with the Research Committee or
Zeneca. Maxygen shall provide Gene Variants and/or clones for such Gene
Variants and/or protein pools to Zeneca for screening in Zeneca
proprietary screens as set forth in Section 2.5.6 below. Where the Research
Committee determines that Zeneca has more efficient or effective proprietary
primary screens the Research Committee may decide to provide Zeneca with protein
pools from Nucleic Acid Sequence Libraries for such screening.
2.5.5 Selection of Shuffled Genes. At any time during the
---------------------------
Research Program, Zeneca may notify Maxygen that Zeneca wishes to have one or
more of the Gene Variants designated as a Shuffled Gene(s). Zeneca shall not be
obligated to consider Gene Variants which do not meet the criteria established
by the Research Committee. The Research Committee shall have the sole authority
to determine which Gene Variants shall be designated as Shuffled Gene(s), and
shall make all such designations in writing. The Research Committee shall not
unreasonably withhold the designation of Gene Variants as Shuffled Genes as
requested by Zeneca.
2.5.6 Transfer of Gene Variants, Protein Pools and Clones;
----------------------------------------------------
Limited Use. Maxygen shall transfer to Zeneca those Gene Variants that have
- -----------
been selected by the Research Committee as potential Shuffled Genes, which
Zeneca shall use solely for research activities approved in advance by the
Research Committee for the purpose of determining whether such Gene Variant
should be nominated as Shuffled Genes. No more than [*******] such Gene Variants
will be transferred to Zeneca per Project, unless determined otherwise by the
Research Committee. In addition, at the direction of the Research Committee,
Maxygen shall provide to
17
<PAGE>
Zeneca protein pools obtained from the expression of Gene Variants, which Zeneca
shall use solely for research activities approved in advance by the Research
Committee for the purpose of determining whether such Gene Variants should be
nominated as Shuffled Genes. Zeneca shall provide a summary of the results of
all research activities using such Gene Variants to the Research Committee.
Zeneca shall not be under any obligation to share the design of any Zeneca
proprietary screens or other proprietary tests with the Research Committee.
Except in connection with the practice of the rights granted to Zeneca in
Section 3.1 hereof, Zeneca shall not without the express prior written consent
of Maxygen, (i) transfer any of the Gene Variants or protein pools or DNA clones
supplied to Zeneca to any Third Party, (ii) use the data and information
obtained from the research activities conducted using such Gene Variants
(including without limitation any sequence information regarding the Gene
Variants or the proteins expressed by such Gene Variants) for any purpose other
than the purpose of determining whether such Gene Variant should be nominated as
Shuffled Genes, (iii) permit any Third Party to obtain or use any of the Gene
Variants, protein pools or DNA clones supplied to Zeneca for any purpose, or
(iv) use any data relating to any Gene Variants, including without limitation
consensus sequences or structural motifs, to reverse engineer, reconstruct,
synthesize or otherwise modify or copy any Gene Variant or any other gene or
product with similar biological activities, or to attempt the same.
2.6 Use of Materials and Technology
-------------------------------
2.6.1 Gene Variants.
-------------
(a) [*******]. It is understood and agreed that nothing in
this Section 2.6.1 shall limit Maxygen's license rights granted in Section 3.2
and that subject to the provisions of Section 2.7 and Article 9, Maxygen shall
be free to Shuffle any one or more genes not Shuffled in the Research Program on
its own behalf or on behalf of a Third Party outside the Research Program;
provided, however, it is understood and agreed that nothing in this Agreement
grants to Maxygen a license under patents owned or Controlled by Zeneca to
Shuffle genes, other than pursuant to Section 3.2.1 in connection with the
Research Program.
(b) Zeneca shall not, without the prior written consent of
Maxygen, have any right to use any of the Gene Variants for any use outside the
Research Program. For the avoidance of doubt, Zeneca shall have the licenses set
forth in Section 3.1 with respect to Shuffled Genes.
(c) The identities of all Genes Shuffled in the Research
Program is Confidential Information of Zeneca, which shall not be disclosed
except pursuant to Article 9 below, or as otherwise agreed by Zeneca and
Maxygen.
2.6.2 Shuffled Genes. Gene Variants which have become Shuffled
--------------
Genes shall be subject to the exclusive licenses set forth in Section 3.1.2 and
Section 3.2.2, and neither Maxygen nor Zeneca shall disclose or use such
Shuffled Genes except as permitted by the terms of this Agreement.
18
<PAGE>
2.6.3 Enabling Technology and Gene Switch Technology. Except
----------------------------------------------
for use in connection with the Research Program or as expressly permitted
pursuant to Sections 2.8, 3.1.2, and 3.2.2, Maxygen shall not have any right to
use or disclose Enabling Technology or [*******] to any Third Party.
2.6.4 Zeneca Proprietary Technology. Except for use in
-----------------------------
connection with the Research Program, Maxygen shall have no right to use or
disclose any Zeneca Proprietary Technology to any Third Party.
2.6.5 Shuffling Technology. Zeneca shall have no right to use
--------------------
or disclose any Shuffling Technology to any Third Party.
2.6.6 Program Materials. Except as set forth in Section 2.6.1
-----------------
through 2.6.5 above, all Program Materials shall be treated as follows.
Ownership of such Program Materials shall depend on whether Zeneca or Maxygen or
the Parties jointly made, conceived and/or reduced to practice, or otherwise
developed such Program Materials. Except for use in connection with the
Research Program or as expressly permitted pursuant to the licenses in Section
3.1.2 and Section 3.2.2, Zeneca or Maxygen, as the case may be, shall have the
sole right to use and disclose, as it deems appropriate, any such Program
Materials made, conceived and reduced to practice or otherwise developed solely
by its respective employees and consultants. Any such Program Materials made,
conceived and/or reduced to practice or otherwise developed jointly by employees
and/or consultants of Maxygen and Zeneca may be used and disclosed by either
Party outside the Research Program, pursuant to the licenses granted in Section
3.1.2 and Section 3.2.2. Notwithstanding the foregoing, (i) all Maxygen
Improvements shall be owned by Maxygen and may be exploited by Maxygen without
restraint and without any compensation to Zeneca, and (ii) all Zeneca
Improvements shall be owned by Zeneca and may be exploited by Zeneca without
restraint and without any compensation to Maxygen.
2.6.7 Research Results.
----------------
(a) Research Results that relate directly and/or
specifically to Nucleic Acid Sequence Libraries, Gene Variants and Shuffled
Genes, or to [*******] or Enabling Technology, shall not be used by the other
Party, except in connection with the Research Program or as permitted pursuant
to the licenses in Section 3.1.2 and 3.2.2. Program Materials subject to Section
2.6.6 above which are solely owned by one Party, shall not be used by the other
Party, except in connection with the Research Program or as permitted pursuant
to the licenses in Section 3.1.2 and 3.2.2. Unless agreed to the contrary by the
Research Committee (e.g., by the authorization to file a patent application or
to obtain regulatory approval), all such Research Results shall be treated as
Confidential Information of the Party(ies) developing or generating such
Research Results and shall not be disclosed except as otherwise expressly
provided in this Agreement.
(b) Research Results not subject to Subsection 2.6.7(a)
above may be disclosed and used by either Party, without accounting to the other
Party hereto.
19
<PAGE>
2.7 Research Exclusivity
--------------------
2.7.1 Exclusive and Co-Exclusive Trait Categories. During the
-------------------------------------------
Research Term, Maxygen (i) will conduct research exclusively with Zeneca in the
Trait Categories of [*******] and (ii) may only conduct research with Zeneca and
up to [*******] other [*******] in the Trait Categories of [*******].
2.7.2 Non-Exclusive Trait Categories.
------------------------------
(a) During the Research Term, Maxygen may conduct research
with Zeneca on a non-exclusive basis in connection with the Research Program in
the following Trait Categories: [*******]. In the case of [*******], it is
understood and agreed that the research activities, if any, conducted in these
areas shall be in the specific Reserved Projects identified by the Parties as
set forth in Section 2.1.1(b).
(b) In addition, during the Research Term, subject to the
provisions of this Section 2.7.2(b) and the payment of additional amounts for
Research Program funding as set forth in Section 4.3.1(b) with the agreement of
the Research Committee on the specific Projects which would be conducted, the
Research Program may be expanded to include one or more Projects (i) in the
Trait Category of [*******], and (ii) for [*******]. It is understood and agreed
that, unless otherwise agreed in writing, Zeneca's and Maxygen's commercial and
financial rights and obligations with respect to the Projects subject to this
Section 2.7.2(b), Shuffled Genes and any corresponding Products resulting from
the conduct of such Projects shall be the same as those resulting from other
Projects conducted in NE Trait Categories. It is further understood and agreed
that with respect to any Project conducted with regard to [*******], the value
sharing with respect to Zeneca Products resulting therefrom shall be determined
pursuant to Section 2.8.4.
(c) It is understood and agreed that Maxygen may enter
into research arrangements with one or more Third Parties for particular
projects within the Trait Categories in which Maxygen may conduct non-exclusive
research pursuant to this Section 2.7.2, so long as Maxygen retains during the
Research Term the right to conduct with Zeneca other Projects within the same
Trait Categories. It is further agreed that in the Trait Categories in which
Maxygen may conduct nonexclusive research with Third Parties, that Maxygen will
not [*******].
(d) For the avoidance of doubt, it is understood that with
respect to the co-exclusive Trait Categories described in Section 2.7.1 and the
non-exclusive Trait Categories described in Section 2.7.2(a) above, Maxygen must
retain for Zeneca the right to [*******].
(e) It is further understood that at the time the Research
Committee agrees to conduct a Project in a Trait Category in which Maxygen may
conduct non-exclusive research outside the Research Program, the Research
Committee may, but shall not be required
20
<PAGE>
to, agree upon additional specific activities which Maxygen will not conduct
with Third Parties during the Research Term; provided, however, that if the
Research Committee does not agree on such activities, such matter shall not be
subject to the dispute resolution procedures set forth in Article 12.
2.7.3 Other Permitted Research Activities. Maxygen shall have
-----------------------------------
no obligation to conduct any research in the Research Program in any Trait
Category or Crop except in the areas expressly described in Sections 2.7.1 or
Section 2.7.2, or as agreed in writing by the Research Committee. It is
understood and agreed that, subject to Section 3.5, Maxygen may conduct research
on its own behalf and with Third Parties with respect to any gene and/or Plant,
except during the Research Term with regard to those Trait Categories in the
applicable Crops for which Zeneca has research exclusivity as provided in
Section 2.7.1 with respect to Trait Categories with the designations "E" or "NA"
in Exhibit A or as expressly prohibited in Section 2.7.2(c).
2.7.4 Definition of Projects. Prior to the time as the Research
----------------------
Committee agrees to conduct a particular Project, the Research Committee shall
define the applicable [*******]. It is understood and agreed that the [*******]
shall be specifically and precisely defined and, in each case, the relevant
criteria shall include [*******] and other relevant criteria as determined by
the Research Committee. It is further understood and agreed that, on a case-by-
case basis, the Research Committee may agree to define a Project based on
[*******], as well as on the basis of [*******]. The initial Projects which
will be conducted in the Research Program, unless otherwise agreed by the
Research Committee, have been agreed in writing by the Parties as of the
Effective Date. In connection with the definition of each Project, the Research
Committee shall discuss and must agree on (a) staffing levels, duration,
starting materials (e.g., Genes), technical feasibility, freedom to operate
risks, research activities and goals, and successful outcomes, and (b) specific
product definitions and extraction rights, in each case, to the extent not
previously agreed in writing.
2.8 Enabling Technology/[*******]. The Parties anticipate that the
-----------------------------
development of Zeneca commercial products may be significantly enhanced by the
use of Shuffling to develop Enabling Technology or [*******]. It is understood
that the Research Committee may agree to include the optimization of Enabling
Technology and/or [*******] within the Research Plan, together with or
independently of any other part of the Research Program.
2.8.1 Case-by-Case Basis. Unless mutually agreed in writing by
------------------
the Research Committee, application of Shuffling Technology for development of
Enabling Technology and [*******] will only be undertaken on a case-by-case
basis in connection with the Research Program upon mutual agreement of the
Parties and inclusion in the Research Plan. Such Project plan shall include the
specific starting materials, goals, and the successful outcome(s).
2.8.2 Preliminary Disclosures. At such time as Zeneca proposes
-----------------------
that a Project be conducted for the development of Enabling Technology or
[*******], it shall inform
21
<PAGE>
the Research Committee of all rights which Zeneca has with respect to the
underlying technology on which such development will be based or will require
the use of, including without limitation, any rights it has to use and
sublicense such underlying technology, and any restrictions or limitations
thereon, and any information of which it is aware with respect to Third Party
patent applications or patents which may relate to the use of the proposed
Enabling Technology. The Research Committee shall have the sole authority to
authorize the conduct and scope of Projects in the Research Program intended to
produce Enabling Technology.
2.8.3 Negotiation of Value Capture Mechanisms. Prior to
---------------------------------------
approving any Project relating to Enabling Technology and/or [*******], the
Research Committee shall agree upon the Parties' respective commercialization
rights (including without limitation, definitions of products for which
royalties or other payment will be due, permitted fields of commercialization,
extraction rights, if any), and an appropriate royalty and/or other value
capture mechanism for any use of such Enabling Technology or [*******]. In the
event the Parties fail to reach agreement on all of the foregoing for the
applicable Enabling Technology or [*******] before the initiation of such
research, the proposed Project shall not become part of the Research Plan or
Research Program, such matter shall not be subject to the dispute resolution
procedures in Sections 12.3 and/or 12.4, and no research shall be conducted
thereon pursuant to this Agreement. Unless otherwise specifically agreed in
writing, it is understood that all commercial rights to [*******] shall be and
remain vested in Zeneca subject to the payment of agreed value sharing to
Maxygen.
2.8.4 [*******] Projects. Prior to approving any Project
------------------
relating to [*******], the Research Committee shall agree upon appropriate value
sharing mechanisms. It is understood and agreed that Maxygen shall be entitled
to share in the value created by the conduct of a Project with respect to any
[*******], and that such value may be captured by Zeneca or its Affiliates or
Sublicensees through the sale of Zeneca Agricultural Products and/or [*******]
and/or other mechanisms. Where the applicable [*******], Net Sales Income with
respect to the related Zeneca Agricultural Products shall also include Net Sales
Income with respect to [*******] (applying mutatis mutandi the definition in
---------------
Section 1.26) and Downstream Income may include, without limitation,
consideration received by Zeneca and its Affiliates and Sublicensees for
[*******]. Where the [*******], the Research Committee shall determine in good
faith the consideration to be paid to Maxygen with respect to the value share
for such applications, which consideration shall take into account the extent
such [*******] is used with or for Zeneca Agricultural Products. In the event
the Parties fail to reach agreement on all of the foregoing for [*******] before
the initiation of the applicable Project, such matter shall not be subject to
the dispute resolution procedures in Sections 12.3 and/or 12.4, the proposed
Project shall not become part of the Research Plan or Research Program.
2.9 Possible Expansion of Research Program. In the last quarter of each
--------------------------------------
year during the Research Term, the Research Committee shall discuss, without
obligation to agree, possible expansion of the Research Program.
22
<PAGE>
2.10 Term and Termination of Research Program. The term of the
----------------------------------------
Research Program shall commence on the Effective Date and, unless terminated
earlier due to the termination of the Agreement pursuant to Sections 11.2 or
11.3, or extended by mutual agreement of the Parties, or pursuant to Section
4.3.4, shall terminate on the fifth anniversary of the Effective Date (the
"Research Term").
3. LICENSE GRANTS
3.1 To Zeneca
---------
3.1.1 Research License. Subject to the terms and
----------------
conditions of this Agreement, Maxygen agrees to grant, and hereby grants to
Zeneca a non-exclusive, non-transferable and non-sublicensable (other than to
Zeneca Affiliates and, pursuant to Section 2.3.4, Third Parties as agreed by the
Research Committee), royalty-free, worldwide license under Maxygen's interest in
the Program Technology, Maxygen Materials and Maxygen Improvements, solely to
conduct the Research Program.
3.1.2 Commercial Licenses. Subject to the terms and
-------------------
conditions of this Agreement, including without limitation Section 3.1.3,
Maxygen agrees to grant, and hereby grants, to Zeneca, a worldwide, royalty-
bearing license, with the right to sublicense as set forth in Section 3.1.4
below, under Maxygen's interest in the Program Technology (whether solely or
jointly owned by Maxygen), Maxygen Improvements and the Maxygen Materials, as
follows:
(a) an exclusive license to develop, make, have
made, propagate and have propagated, use, import, offer for sale, sell and have
sold Class A Zeneca Products for [*******] and Class B Zeneca Products for
[*******]; and
(b) an exclusive license to develop, make, have
made, propagate and have propagated, use, import, offer for sale, sell and have
sold Class A Zeneca Products for [*******].
3.1.3 Exclusions and Limitations. It is understood
--------------------------
that until [*******] from the date that the applicable Shuffled Gene is
designated by the Research Committee or such earlier date as the Parties may
agree in writing, the licenses to Zeneca set forth in Sections 3.1.1 and 3.1.2
do not convey any license with respect to the use of any Shuffled Gene(s) for
[*******]. After such time, provided that Maxygen acquires the right to grant
such license rights, the licenses in Section 3.1.2 shall be expanded to include
the right to use Shuffled Genes for such purposes in [*******].
3.1.4 Acknowledgement. Zeneca hereby acknowledges
---------------
that, pursuant to Section 3.2.2(b) and subject to the requirements of Section
3.2.3(b), Maxygen has exclusive rights with respect to the use of Class B
Shuffled Genes in Plants other than [*******], subject to the value sharing
obligations in Section 4.5.1(d).
23
<PAGE>
3.1.5 Sublicenses. Zeneca shall have the right to
-----------
sublicense the rights granted in Section 3.1.2. Following the execution of any
sublicense, Zeneca shall provide to Maxygen the identity of the Sublicensee and
a description of the Zeneca Products and rights sublicensed to the Sublicensee
and the territory of such sublicense. Each sublicense granted by Zeneca shall be
consistent with all the terms and conditions of this Agreement, and subordinate
thereto. Zeneca shall remain responsible to Maxygen for all obligations arising
under this Agreement based upon the activities of each such Sublicensee. No
Sublicensee may grant further sublicenses of such rights, or assign such
sublicense, without Maxygen's prior written consent. Upon termination of this
Agreement, or of any license to Zeneca hereunder, for any reason, any applicable
sublicenses granted by Zeneca hereunder shall survive provided the Sublicensee
is not in breach of the terms of this Agreement and capable of meeting Zeneca's
obligations hereunder, subject to the terms and conditions hereof.
3.1.6 Enabling Technology and [*******]. In the event
---------------------------------
that Maxygen and Zeneca agree to conduct research activities in the Research
Program relating to Enabling Technology and/or [*******] as set forth in Section
2.8, Maxygen shall grant to Zeneca appropriate licenses under Maxygen's interest
in the Maxygen Materials, Maxygen Improvements and/or Program Technology needed
for Zeneca to commercialize such Enabling Technology and/or [*******] as agreed
by the Research Committee under Section 2.8.3.
3.1.7 Extraction. For the avoidance of doubt, Zeneca's
----------
right to commercialize Shuffled Genes for [*******] for Agricultural
Applications shall include the right to commercialize Zeneca Agricultural
Products obtained by extraction. Any other extraction rights for Zeneca
Agricultural Products shall be as agreed by the Research Committee.
3.1.8 Stacking of Shuffled Genes for Agricultural
-------------------------------------------
Applications. It is understood and agreed that the license to Zeneca in
- ------------
Section 3.1.2 (a) shall include a license to introduce any Shuffled Gene
resulting from the Research Program which is commercialized or intended to be
commercialized for Agricultural Applications into [*******].
3.1.9 "NA" Areas.
---------
(a) Maxygen agrees that it shall not, during the
Research Term, grant to any Third Party any commercial rights to exploit, or
itself exploit, any product developed with the use of a Shuffled gene to confer
[*******] (as illustrated by the boxes marked "NA" in Exhibit A), except as
Maxygen and Zeneca may agree in writing. If any such Shuffled gene developed by
Maxygen and a Third Party to confer another [*******] also confers commercially
significant levels of [*******], then the Parties shall discuss in good faith
possible modification of the restrictions of this subsection 3.1.9(a).
(b) If a Shuffled Gene has been designated in the
Research Program in a Project conducted in an NA Trait Category and Zeneca is
diligently developing Zeneca Products based on such Shuffled Gene, Maxygen shall
not grant to any Third Party any research rights or commercial rights to exploit
any product developed with the use of a Shuffled
24
<PAGE>
gene within the applicable Trait Category until [*******] from the date the
applicable Shuffled Gene was designated. Thereafter Maxygen may conduct research
in the applicable NA Trait Category itself or with a Third Party, and subject to
the exclusive licenses granted Zeneca in Section 3.1.2, may commercialize and
authorize Third Parties to commercialize products resulting from research in
such Trait Categories. If no Shuffled Gene is designated from a Project
conducted in a NA Trait Category in the Research Program, then Zeneca's research
and commercial rights with respect to Zeneca Products based on Shuffled Genes
from such Trait Category shall cease [*******] at the end of the Research Term.
3.1.10 No Other Products.
-----------------
(a) It is understood and agreed that pursuant to the
licenses granted to Zeneca in this Article 3 that Zeneca may conduct such
activities (e.g., the sequencing and mutagenesis of Shuffled Genes) as it
reasonably deems appropriate to develop Shuffled Genes and Zeneca Products based
thereon.
(b) Except in connection with the research, development
or commercialization of Zeneca Products subject to this Agreement, Zeneca and
its Affiliates and Sublicensees shall not develop or commercialize, or authorize
the development or commercialization of, any gene (or genetic element) which is
based on or derived from any Gene Variant, Shuffled Gene (or Enabling Technology
or improvements to [*******] developed in the Research Program, as the case may
be), or any Plant or product derived therefrom which contains or is made with
the use of such a gene (or genetic element), regardless of whether such gene (or
genetic element) is made or obtained through synthesis, or mutation of a
starting gene (or genetic element). Except in connection with the research,
development or commercialization of Zeneca Products subject to this Agreement,
Zeneca will not itself, or through any Third Party, use any Maxygen Materials,
Program Technology, and/or Research Results or structure-function data relating
to any Gene Variants, including without limitation, consensus sequences or
structural motifs, to reverse engineer, reconstruct, synthesize or otherwise
modify or copy any Gene Variant or Shuffled Gene or any other gene or product
with similar biological activities, or to attempt the same.
(c) If a dispute arises between the Parties which the
Parties are unable to resolve regarding whether or not a product sold by Zeneca
or its Affiliates or Sublicensees is a Zeneca Product, the dispute shall be
settled by dispute resolution pursuant to Article 12. Zeneca shall bear the
burden of proof in establishing that any such product is not a Zeneca Product
subject to this Agreement, except with respect to a question of whether such
product contains a Shuffled Gene created and identified in the Research Program
where the DNA sequence of such Shuffled Gene is known to Maxygen during the term
of the Research Program.
3.2 To Maxygen
----------
3.2.1 Research License. Subject to the terms and conditions
----------------
of this Agreement, Zeneca agrees to grant, and hereby grants, to Maxygen a non-
exclusive, non-
25
<PAGE>
transferable and non-sublicensable (except to Maxygen Affiliates and, pursuant
to Section 2.3.4, Third Parties as agreed by the Research Committee), royalty-
free, worldwide license under Zeneca's interest in the Zeneca Proprietary
Technology, Program Technology, Zeneca Improvements and the Zeneca Materials,
solely to conduct the Research Program.
3.2.2 Commercial License. Subject to the terms and conditions
------------------
of this Agreement, Zeneca agrees to grant, and hereby grants, to Maxygen, a
worldwide, royalty-bearing license, with the right to sublicense as set forth in
Section 3.2.4 below, under Zeneca's interest in the Program Technology (whether
solely or jointly owned by Zeneca), Zeneca Proprietary Technology, Zeneca
Improvements and Zeneca Materials as follows:
(a) an exclusive license, subject to the restrictions of
Section 3.2.3(a), to make, have made, and use Class B Shuffled Genes to develop,
make, have made, propagate, have propagated, use, import, offer for sale, sell
and have sold Maxygen Products for [*******];
(b) an exclusive license, subject to the restrictions of
Section 3.2.3(b), to make, have made, and use Class B Shuffled Genes to develop,
make, have made, propagate, have propagated, use, import, offer for sale, sell
and have sold Maxygen Products for [*******]; and
(c) In the event that Maxygen and Zeneca agree to conduct
research activities in the Research Program relating to Enabling Technology as
set forth in Section 2.8, Zeneca shall grant to Maxygen such licenses as are
necessary under Zeneca's interest in the Zeneca Proprietary Technology, Zeneca
Materials, Zeneca Improvements, Program Technology, and Research Results for
Maxygen to develop, make, have made, propagate, have propagated, use, import,
offer for sale, sell and have sold Maxygen Products containing or produced using
such Enabling Technology, as agreed by the Research Committee pursuant to
Section 2.8.
3.2.3 Right of Negotiation; Detriment to Zeneca Products.
--------------------------------------------------
(a) [*******]. Any commercialization of a Maxygen Product
---------
intended for [*******] (a "[*******] Product") pursuant to Maxygen's license
under Section 3.2.2(b) (including the grant of any sublicense of such rights
pursuant to Section 3.2.4) shall be subject to a first right of negotiation
[*******], as follows: If Maxygen intends to develop, directly or indirectly, in
a [*******] Product for a particular indication, Maxygen shall give written
notice to Zeneca describing the potential [*******] Product. For a period of
[*******] from the earlier of (i) such notice, or (ii) the date that Zeneca
provides Maxygen notice that [*******] wishes to initiate negotiations with
respect to the potential [*******] Product, [*******] shall have [*******] right
to negotiate with Maxygen [*******] license to any such [*******] Product,
unless during such [*******] period [*******] notifies Maxygen in writing that
it does not desire rights to commercialize such [*******] Product. In the event
that Maxygen and [*******] have not agreed in writing upon mutually acceptable
terms for
26
<PAGE>
commercialization of the applicable [*******] Product within the period
described above, or any longer time period the Parties may agree, Maxygen shall
thereafter be free to commercialize such [*******] Product, subject to its value
sharing obligations set forth in Section 4.5.1(d), on its own or with any Third
Parties. For the purpose of this Section 3.2.3(a), [*******].
(b) Detriment to Zeneca Products. Prior to commencing the
----------------------------
commercialization of any Maxygen Product utilizing Class B Shuffled Genes
[*******] under the license under Section 3.2.2(b) (including the grant of any
sublicense of such rights pursuant to Section 3.2.4), Maxygen shall notify
Zeneca and to the extent Maxygen may do so without violating its confidentiality
obligations to Third Parties, Maxygen shall provide Zeneca information regarding
its plans for regulatory approval regarding Maxygen Products made with the use
of such Class B Shuffled Gene for Zeneca's review. Within [*******] of such
notice, Zeneca shall provide to Maxygen a written explanation of any [*******]
and the Parties shall discuss in good faith Zeneca's concerns. Maxygen agrees
to use commercially reasonable efforts to cooperate with Zeneca to avoid or
reduce such [*******]; provided, in the event that Zeneca believes that the
plans for development or commercialization of a particular Maxygen Product would
have an adverse material impact on a Zeneca Agricultural Product, the matter may
be submitted to dispute resolution pursuant to Article 12.
3.2.4 Sublicenses. Maxygen shall have the right to sublicense
-----------
the rights granted in Section 3.2.2. Following the execution of any sublicense,
Maxygen shall provide to Zeneca the identity of the Sublicensee and a
description of the Maxygen Products and rights sublicensed to the Sublicensee
and the territory of such sublicense. Each sublicense granted by Maxygen shall
be consistent with all the terms and conditions of this Agreement, and
subordinate thereto. Maxygen shall remain responsible to Zeneca for all
obligations arising under this Agreement based upon the activities of each such
Sublicensee. No sublicensee may grant further sublicenses of such rights, or
assign such sublicense, without Zeneca's prior written consent. Upon termination
of this Agreement, or of any licenses granted to Maxygen hereunder for any
reason, any applicable sublicenses granted by Maxygen hereunder shall survive
provided the sublicensee is not in breach of the terms of this Agreement and is
capable of meeting Maxygen's obligations hereunder, subject to terms and
conditions herein.
3.3 Retained Rights
---------------
3.3.1 Maxygen. Subject to the other provisions of this
-------
Agreement, including but not limited to the provisions of Section 2.6, Maxygen
shall retain all rights under its interest in the Shuffling Technology, Maxygen
Materials, Maxygen Improvements, and Maxygen's interest in Program Technology
not expressly granted to Zeneca in Section 3.1, and to any other intellectual
property and/or tangible materials developed by it or on its behalf after the
Research Term or outside the scope of this Agreement. Notwithstanding the
exclusive license granted to Zeneca in Section 3.1, Maxygen shall retain the
right to use all Shuffled Genes in its own research to develop, improve and
validate its technology and intellectual property relating to Shuffling
Technology. Except as expressly permitted by Section 3.2 or Article 6, it is
further understood that Maxygen shall not have the right to [*******]. Except as
expressly
27
<PAGE>
provided by this Agreement, it is understood and agreed that nothing in this
Agreement grants (or shall be construed to grant) to Zeneca any licenses to
intellectual property or materials developed by or on behalf of Maxygen or Third
Parties outside of the Research Program.
3.3.2 Zeneca. Subject to the other provisions of this Agreement,
------
including but not limited to the provisions of Section 2.6, Zeneca shall retain
all rights under its interest in the Zeneca Proprietary Technology, and in the
Zeneca Materials and Zeneca Improvements, and to any intellectual property
and/or tangible materials developed by it or on its behalf after the Research
Term or outside the scope of this Agreement. Except as expressly provided by
this Agreement, it is understood and agreed that nothing in this Agreement
grants (or shall be construed to grant) to Maxygen any licenses to intellectual
property or materials developed by or on behalf of Zeneca or Third Parties
outside of the Research Program.
3.3.3 No Conflict. It is understood that either Party may, among
-----------
other things, grant to Third Parties licenses under its interest in such Program
Technology; provided, however, that during the term of this Agreement, neither
Party shall grant any license under any Program Technology which conflicts with
the licenses granted to the other Party hereto.
3.4 Third Party Rights.
------------------
3.4.1 Overlapping Rights. It is understood that Maxygen is in
------------------
the business of Shuffling genes on behalf of Third Parties, and that Maxygen may
grant such Third Parties rights after the Effective Date to acquire licenses for
genes derived from Shuffling in those fields which are not otherwise constrained
by Zeneca's prevailing rights with respect to this Agreement, and the formally
recorded agreements of the Research Committee. Notwithstanding the licenses
granted Zeneca above, it is possible that a Third Party may acquire rights from
Maxygen with respect to one or more genes of which Maxygen is a sole or joint
owner; accordingly, Maxygen's grant of rights in this Article 3 is limited to
the extent that (i) a Third Party (either alone or jointly with Maxygen) has
filed a patent application with respect to such gene prior to the filing by
Zeneca (either alone or jointly with Maxygen) of a patent application with
respect to such a gene or (ii) Maxygen has, prior to identification of the
nucleotide sequence of a Gene Variant in the Research Program granted a Third
Party a license or other rights with respect to such a Gene Variant.
3.4.2 Limited Liability. It is understood and agreed that, even
-----------------
if Maxygen complies with its obligations under this Agreement, genes derived
through Shuffling activities that are provided to Third Parties in the course of
Maxygen's other business activities may result in Third Party patent
applications and patents, including patent applications and patents owned by
such Third Parties, or owned jointly by Maxygen and such Third Parties, which
could conflict with patent applications and patents owned by Zeneca, or jointly
owned by Zeneca and Maxygen hereunder. Maxygen will use its reasonable efforts
to avoid such conflict and, unless Zeneca is damaged as a result of a material
breach by Maxygen of the terms of Section 3.1.2, then Maxygen shall have no
liability under this Agreement with respect to any such conflict.
28
<PAGE>
3.5 No Unauthorized Use. Maxygen hereby covenants that it will not
-------------------
practice the Zeneca Proprietary Technology, except as expressly permitted in
this Agreement. Zeneca hereby covenants that it will not practice the Program
Technology or Shuffling Technology, except as expressly permitted in this
Agreement. Notwithstanding the above, nothing in this Agreement shall prohibit
either Party from using outside the scope of this Agreement information which is
in the public domain, unless the use of such information would infringe issued,
valid patent rights owned or Controlled by the other Party hereto.
3.6 No Implied Licenses. No rights or licenses with respect to any
-------------------
intellectual property owned by Maxygen or Zeneca are granted or shall be deemed
granted hereunder or in connection herewith, other than those rights expressly
granted in this Agreement.
4. CONSIDERATION
4.1 High Technology Patent Enhancement Funding. In partial
------------------------------------------
consideration for the license and rights in high-technology patents granted
Zeneca herein and access to the Program Technology which relates to high-
technology patents during the Research Term, Zeneca shall pay to Maxygen a fee
of [*******] as soon as possible after the Effective Date and in no event later
than [*******] business days after the Effective Date and on or before each
anniversary of the Effective Date during the Research Term, Zeneca shall pay to
Maxygen the amount of [*******]. Such amounts shall not be refundable nor
creditable against other amounts due Maxygen under this Agreement, and shall be
paid in addition to any amounts due from Zeneca for Patent Activities pursuant
to Article 7.
4.2 Purchase of Maxygen Stock. AstraZeneca Holdings B.V. shall
-------------------------
purchase shares of Maxygen preferred stock from Maxygen, pursuant to the terms
and conditions of the Stock Purchase Agreement.
4.3 Research Program Funding.
------------------------
4.3.1 Research Program Funding Commitments.
------------------------------------
(a) Minimum Research Program Payments. Zeneca agrees to
---------------------------------
pay to Maxygen funding for the conduct of the Research Program of not less than
[*******] per year for a total of not less than [*******] over the Research
Term. Maxygen shall have no obligation to expend any amount or incur any expense
in connection with the Research Program except amounts paid by Zeneca to Maxygen
pursuant to this Section 4.3.
(b) Additional Research Funding. If pursuant to Section
---------------------------
2.7.2(b) the Research Committee agrees to conduct Projects in the Research
Program in the Trait Categories of (i) [*******], or (ii) [*******], Zeneca
shall pay to Maxygen additional Research Program funding. Unless otherwise
agreed, the funding for each such Project would utilize an average of [*******]
FTEs per Project per year, at the then current FTE funding rate. [*******].
29
<PAGE>
4.3.2 FTE Rate. Zeneca shall pay to Maxygen funding for the
--------
Research Program on an FTE basis, based on the average annual number of Maxygen
FTEs which will be involved in the Research Program, as described in Section
2.1.4. It is understood and agreed that Zeneca shall not be obligated to pay to
Maxygen more than [*******] in Research Program funding in any year during the
Research Term, and further agreed that if increases in the CPI result in
increases in the FTE funding rate then Zeneca may with notice to the Research
Committee at least one hundred and eighty (180) days prior to the start of the
next twelve (12) month period of the Research Program, elect to (i) increase its
Research Program funding to maintain the same number of FTEs, or (ii) reduce the
number of FTEs, as necessary, to limit its annual Research Program funding to
[*******].
4.3.3 Timing of Payments.
------------------
(a) The first year of the Research Program shall commence
on the Effective Date and each subsequent year of the Research Program shall
commence on the anniversary of the Effective Date. With respect to the first
year of the Research Program, [*******] of Zeneca's funding shall be paid to
Maxygen quarterly, in advance. The first payment of [*******] shall be paid to
Maxygen as soon as practicable but in no case later than [*******] business days
after the Effective Date. The remainder of the Zeneca funding for the first year
of the Research Program shall be paid by Zeneca to Maxygen during the year
within [*******] days following receipt of a quarterly invoice following
Maxygen's expenditure of or incurring the obligation to pay the invoiced amounts
(provided that the invoice is received by Zeneca at least [*******] days prior
to the end of the month in which the invoice is sent) up to an aggregate total
of [*******] for the first year. With respect to each subsequent year of the
Research Program, the amounts to be paid to Maxygen annually in connection with
the Research Program pursuant to Section 4.3.1 shall be paid in equal quarterly
installments, in advance following receipt of an invoice. It is understood and
agreed that such invoices for the second and subsequent years may be provided by
Maxygen annually with respect to payments due under this Section 4.3.3(a). The
initial payment for the first quarter of the first year of the Research Program
shall be made within [*******] business days after the Effective Date, and
except with respect to the amounts to be paid pursuant to invoices, subsequent
payments shall be made on or before the applicable quarterly anniversaries of
the Effective Date. Such payments shall be made without withholding for taxes or
any other charge and shall be non-refundable and non-creditable against other
payments due Maxygen under this Agreement.
(b) Notwithstanding Section 4.3.3(a) above, if in the
period from the Effective Date until the first anniversary of the Effective
Date, in any [*******] day period, an amount greater than or equal to [*******]
budgeted in the applicable Research Plan for such period has not been expended
or costs incurred for the Research Program, then Research Program payments due
from Zeneca for the subsequent quarter of the first year of the Research Program
shall be reduced by the applicable unexpended amount. Thereafter, if in any
period from an anniversary of the Effective Date until the next anniversary of
the Effective Date, an amount greater than or equal to [*******] budgeted in the
applicable Research Plan for such period has not been expended or costs incurred
for the Research Program, then Research
30
<PAGE>
Program payments due from Zeneca for the subsequent year of the Research Program
shall be reduced by the applicable unexpended amount, on an equal pro rata
basis. The provisions in this Section 4.3.3(b) shall not reduce Zeneca's
obligation to pay at least [*******] to Maxygen in Research Program payments, or
Maxygen's obligations to perform research pursuant to Section 4.3.4(b).
4.3.4 Carry Forward.
-------------
(a) In the event the amounts budgeted for any single
quarterly period or annual period are not expended on or incurred for the
Research Program during that quarter or year, the remainder shall be carried
forward to be expended on activities to be conducted by Maxygen in connection
with the Research Program during the subsequent periods, or any extension of the
Research Program subject to Section 4.3.4(b) below.
(b) It is understood and agreed that it is the intent of
the parties to expend the Research Program payments subject to Section 4.3.1
during the initial five (5) years of the Research Term. Neither Party shall
unreasonably seek to delay expenditure of such funds. In the event that
Maxygen's representatives on the Research Committee propose delays in the
expenditure of the Research Program funds, such that the funds are not entirely
expended by the fifth anniversary of the Effective Date, Zeneca may elect to (i)
terminate the Research Program as of the fifth anniversary of the Effective
Date, in which event the unexpended Research funds paid by Zeneca shall be
returned to it, or (ii) continue the Research Program until the remaining
Research Program funds paid by Zeneca are fully expended. In the event that
Zeneca's representatives on the Research Committee propose delays in the
expenditure of spending of the Research Program Funds, such that the funds are
not entirely expended by the fifth anniversary of the Effective Date, Maxygen
may elect to (x) terminate the Research Program as of the fifth anniversary of
the Effective Date, in which event the unexpended Research funds paid by Zeneca
shall be returned to it and any funds not previously obligated to be paid shall
become not due, or (y) continue the Research Program until the remaining
Research funds paid by Zeneca are fully expended. In no event shall the Research
Program be continued beyond [*******] after the Effective Date. In the event
that any Research Program funds paid by Zeneca remain unexpended as of [*******]
after the Effective Date, such amounts shall be returned to Zeneca. [*******].
4.3.5 Annual Report. Within forty-five (45) days of each
-------------
anniversary of the Effective Date during the Research Term and at least fourteen
(14) days prior to the Research Committee meeting at which such report will be
discussed, Maxygen shall provide to the Research Committee a report summarizing
the expenditures made by Maxygen in connection with the Research Program in the
preceding year.
4.3.6 Invoices. It is understood and agreed that any invoices
--------
which Maxygen is required to provide Zeneca under this Article 4 may be provided
annually or on a more frequent basis, at Maxygen's election and Zeneca shall pay
the invoiced amount(s) on or before the applicable specified due date(s), and
not later than thirty-three (33) days from the invoice date, provided that the
invoice is received by Zeneca at least three (3) days prior to the end of the
month in which the invoice is sent.
31
<PAGE>
4.4 Milestone Payments.
------------------
4.4.1 Milestones Based on Trait Effects. Subject to Section
---------------------------------
4.4.2 below, within thirty (30) days following the occurrence of the relevant
events specified below with respect to [*******] Zeneca Agricultural Product
achieving such event which has a particular Trait Effect, on a Trait Effect-by-
Trait Effect basis, Zeneca shall pay to Maxygen the applicable amount specified
below:
Milestones Amount (U.S.$)
--------------------------- --------------
[*******] [*******]
It is understood and agreed that the milestones due in Section 4.4.1 above are
to be paid based on the achievement of the foregoing milestones with respect to
any Zeneca Agricultural Product having a specific Trait Effect, and that the
obligation to pay milestone payments shall exist for [*******] Zeneca
Agricultural Product having a particular Trait Effect, regardless whether such
Zeneca Agricultural Product also has one or more other Trait Effects for which
milestone payments have previously been paid. By way of illustration and
without limitation, if Shuffled Genes conferring the Trait Effect of [*******]
were incorporated into a Plant which had previously been modified with the use
of one or more Shuffled Genes to confer the Trait Effect of [*******] for which
the milestone payments described above were paid, then the foregoing milestones
would also be paid with respect to such Zeneca Agricultural Product. By way of
further illustration, and without limitation, the above milestones will be due
with respect to such Zeneca Agricultural Product having a particular Trait
Effect but not [*******].
4.4.2 Milestone Adjustment. In the event that Zeneca believes
--------------------
that the sales of Zeneca Agricultural Products having a particular Trait Effect
will be so low that the payment of the milestone payments in Section 4.4.1 will
make the commercialization of such Zeneca Agricultural Products commercially
impracticable it shall notify Maxygen, providing a detailed written explanation
of its position, and in such event, the parties shall negotiate in good faith
revised milestone payment amounts or a rescheduling of the payments of the
amounts in Section 4.4.1 above with respect to such Trait Effect, which shall
reflect the potential commercial value of such Trait Effect; provided, the
provisions of Section 4.4.1 shall remain in effect unless and until such other
terms are agreed in writing.
4.4.3 Milestone Credits. [*******] of all milestone payments
-----------------
paid by Zeneca to Maxygen with respect to milestones C and D pursuant to Section
4.4.1 (the "Creditable Milestone Payments") shall be creditable against the
royalties due under Section 4.5 and Downstream Income (pursuant to Section
4.6.2), in each case, on Zeneca Agricultural Products that have the same Trait
Effect for which the applicable milestone payment was made, and on any Naked
Sublicense payments due pursuant to Section 4.6.1 as a result of payments
received by Zeneca from a Naked Sublicense relating to Zeneca Agricultural
Products that have
32
<PAGE>
the same Trait Effect for which the applicable milestone payment was made,
according to the following schedule:
(i) Until [*******], Zeneca may offset
[*******]of the Creditable Milestone Payments made by Zeneca with respect to
such Zeneca Agricultural Product having the applicable Trait Effect, against up
to a maximum of [*******] of the total of (a) all royalties (pursuant to Section
4.5), and Downstream Income (pursuant to Section 4.6.2), in each case, and (b)
any Naked Sublicense payments due pursuant to Section 4.6.1 as a result of
payments received by Zeneca from a Naked Sublicense due to Maxygen from Zeneca
with respect to the applicable Zeneca Agricultural Product(s) in any year. All
unexpended credits for Creditable Milestone Payments may be carried forward
until the full credit available under this Section 4.4.3 is taken by Zeneca; and
(ii) In each year in the period from [*******]
until [*******], Zeneca may offset [*******] of the remaining unapplied
Creditable Milestone Payments made by Zeneca with respect to such Zeneca
Agricultural Product having the applicable Trait Effect, against up to a maximum
of [*******] of the total of (a) all royalties (pursuant to Section 4.5), and
Downstream Income (pursuant to Section 4.6.2), in each case, and (b) any Naked
Sublicense payments due pursuant to Section 4.6.1 as a result of payments
received by Zeneca from a Naked Sublicense due to Maxygen from Zeneca with
respect to the applicable Zeneca Agricultural Product(s) in any year. All
unexpended credits for Creditable Milestone Payments may be carried forward
until the full credit available under this Section 4.4.3 is taken by Zeneca.
(iii) Following [*******], Zeneca may offset
[*******] remaining unapplied Creditable Milestone Payments made by Zeneca with
respect to such Zeneca Agricultural Product having the applicable Trait Effect,
against up to a maximum of [*******] of the total of (a) all royalties (pursuant
to Section 4.5), and Downstream Income (pursuant to Section 4.6.2), in each
case, and (b) any Naked Sublicense payments due pursuant to Section 4.6.1 as a
result of payments received by Zeneca from a Naked Sublicense due to Maxygen
from Zeneca with respect to the applicable Zeneca Agricultural Product(s) in any
year. All unexpended credits for Milestone Payments may be carried forward until
the full credit is taken by Zeneca.
4.4.4 Infringement Due to [*******]. If a Third Party brings
-----------------------------
suit against Zeneca alleging that [*******], and a court of competent
jurisdiction determines in a final judgment, which judgment is not timely
appealed or is unappealable, that such Third Party patent was infringed in the
Research Program and issues a permanent injunction prohibiting the sale of a
Zeneca Product as a result of such infringement, [*******]. Such remaining
milestone credits shall be applied as described in Section 4.4.3.
33
<PAGE>
4.5 Royalties
---------
4.5.1 Royalty Rate.
------------
(a) Zeneca Agricultural Products. In consideration of the
----------------------------
licenses granted above, except as otherwise expressly provided in this Section
4.5.1, Zeneca shall pay to Maxygen on a Zeneca Agricultural Product-by-Zeneca
Agricultural Product basis a royalty on aggregate worldwide Net Sales Income of
Zeneca Agricultural Products by Zeneca and its Affiliates and, subject to
Section 4.5.1(e) below, Collaborators, as follows:
Aggregate Net Sales
Income ($U.S.) Royalty Rate
------------------------ -----------------------------
[*******] [*******]
Notwithstanding the above, in the event that Zeneca believes that
contribution of Shuffled Genes to the value of a particular Zeneca Agricultural
Product is de minimus such that the payment of the royalty payments above with
-- -------
respect to such Zeneca Agricultural Product is commercially unjustifiable it
shall notify Maxygen, providing a detailed written explanation of its position,
and in such event, the parties shall negotiate in good faith royalty rates with
respect to such Zeneca Agricultural Product which shall reflect the potential
commercial value of such Zeneca Agricultural Product attributable to the
Shuffled Gene; provided, the above provisions of Section 4.5.1(a) shall remain
in effect unless and until such other terms are agreed in writing.
(b) Zeneca Non-Ag Products. In cases where Zeneca wishes
----------------------
to sell a Zeneca Non-Agricultural Product, the royalty and/or other value
capture mechanism shall reflect the customary standards in the applicable
industry for products of comparable value. Prior to the first sale of such a
Product for such an application the Parties shall determine in good faith the
value sharing mechanism which will be applied to Zeneca's income from the
applicable Zeneca Non-Agricultural Product. In the event that the Parties are
unable to agree on the royalty due, such matter shall be submitted by either
Party to dispute resolution pursuant to Article 12.
(c) Enabling Technology and [*******]. In cases where
---------------------------------
Zeneca wishes to sell a product containing or made with the use of Enabling
Technology and/or [*******] but no Shuffled Gene, Zeneca shall be obligated to
pay Maxygen that consideration agreed pursuant to the provisions of Section
2.8.3.
(d) Maxygen Products. With respect to Maxygen Products
----------------
used for [*******], it is understood and agreed the applicable value capture
mechanism shall be the payment to Zeneca of royalties on the sales of such
Maxygen Product on the terms specified for Zeneca Agricultural Products in
Section 4.5, and Downstream Income and Payments from Naked
34
<PAGE>
Sublicenses, except as the Parties may otherwise agree in writing. For purposes
of determining the amounts due to Zeneca pursuant to this Section 4.5.1(d),
Section 4.6.1(b), and Section 4.6.2(b), with respect to Maxygen Products, the
definitions in Sections 1.7, 1.12, 1.25 and 1.26 shall be applied mutatis
-------
mutandi to Maxygen and Maxygen Products. In cases where Maxygen wishes to sell a
- -------
Maxygen Product for [*******], the royalty and/or other value capture mechanism
shall reflect the customary standards in the applicable industry for products of
comparable value, subject to Section 3.2.3(a). With respect to Maxygen Products
for [*******], prior to the first sale of such a Product for such an application
the Parties shall determine in good faith the value sharing mechanism which will
be applied to Maxygen's income from the applicable Maxygen Product. In the event
that the Parties are unable to agree on the royalty due, such matter shall be
submitted by either Party to dispute resolution pursuant to Article 12.
(e) Royalties on Net Sales Income of Collaborators. It is
----------------------------------------------
understood and agreed that neither Party shall have any obligation to pay the
other Party royalties on Net Sales Income of its Collaborators unless such Party
or its Affiliates receives payments from such Collaborators with respect to such
Net Sales Income.
4.5.2 Computation of Royalties. Nothing herein contained shall
------------------------
obligate either Party to pay the other Party more than one royalty on any Zeneca
Product or Maxygen Product, as the case may be. In the event that a Zeneca
Product or Maxygen Product, as the case may be, incorporates or is made using
more than one (1) Shuffled Gene only one (1) royalty shall be due; provided such
royalty shall be at the highest applicable royalty rate.
4.5.3 Royalty Term. The royalties due hereunder shall be payable
------------
on a country-by-country and Zeneca Product-by-Zeneca Product basis, or in the
case of Maxygen Products, on a Maxygen Product-by-Maxygen Product basis, in each
country until the date which is: (i) the expiration of the last to expire of the
patents within the Patent Rights covering the applicable Zeneca Product or
applicable Maxygen Product, or the manufacture, use or sale of the Zeneca
Product or applicable Maxygen Product in such country, or (ii) if there are no
issued patents within the Patent Rights covering the Zeneca Product or
applicable Maxygen Product or the manufacture, use or sale of the Zeneca Product
or applicable Maxygen Product in a country, until [*******] years following the
first commercial sale of such Zeneca Product or applicable Maxygen Product in
such country.
4.6 Other Payments
4.6.1 Naked Sublicense Payments.
-------------------------
(a) In addition to royalties due pursuant to Section
4.5.1, and any amounts due pursuant to Section 4.6.2(a), Zeneca shall pay to
Maxygen [*******] of any and all consideration received by Zeneca or its
Affiliates pursuant to any Naked Sublicense.
35
<PAGE>
(b) In addition to royalties due pursuant to Section
4.5.1, and any amounts due pursuant to Section 4.6.2(b), Maxygen shall pay to
Zeneca [*******] of any and all consideration received by Maxygen or its
Affiliates pursuant to any Naked Sublicense.
4.6.2 Downstream Income.
-----------------
(a) In addition to royalties due pursuant to Section
4.5.1, and any amounts due pursuant to Section 4.6.1(a), Zeneca shall pay to
Maxygen [*******] of any and all Downstream Income.
(b) It addition to royalties due pursuant to Section
4.5.1(d), and any amounts due pursuant to Section 4.6.1(b), Maxygen shall pay to
Zeneca [********] of any and all Downstream Income.
(c) It is understood and agreed that neither Party shall
have any obligation to pay to the other Party any portion of Downstream Income
received by its Collaborators unless the commercializing Party or its Affiliates
receives payments from such Collaborators with respect to such consideration.
4.6.3 Consideration Other Than Cash. If either Party or its
-----------------------------
Affiliates wishes to grant a third party a sublicense under the other Party's
interest in the Program Intellectual Property, in exchange for any consideration
in a form other than cash or a cash equivalent (e.g., a license under other
intellectual property owned or Controlled by a Third Party), it shall have the
right to do so, provided before accepting consideration the Party wishing to
grant the sublicense shall notify the other Party and the fair market value of
the non-cash consideration received by the granting Party and its Affiliates for
such rights or product, as the case may be, shall be agreed by the Parties, or
if the Parties are unable to agree on such fair market value, either Party may
submit such matter to dispute resolution pursuant to Article 12 below, in order
to determine the fair market value of such consideration.
4.7 Third Party Royalties.
---------------------
4.7.1 Zeneca shall be responsible for the payment of any
royalties, license fees and milestone and other payments due to any other Third
Party(ies) under licenses or similar agreements necessary for the development,
manufacture, propagation, use, import or sale of Zeneca Products developed, made
and/or commercialized by Zeneca or its Affiliates or Sublicensees.
4.7.2 Maxygen shall be responsible for the payment of any
royalties, license fees and milestone and other payments due to any other Third
Party(ies) under licenses or similar agreements necessary for the development,
manufacture, propagation, use, import or sale of Maxygen Products developed,
made and/or commercialized by Maxygen or its Affiliates or Sublicensees.
36
<PAGE>
4.8 Withholding Taxes. Any income or other tax that one Party is
-----------------
required to withhold and pay on behalf of the other Party with respect to the
payments payable under this Agreement shall be deducted from and offset against
said payments prior to remittance to that other Party; provided, however, that
in regard to any tax so deducted, the withholding Party shall give or cause to
be given to the other Party such assistance as may reasonably be necessary to
enable that other Party to claim exemption therefrom or credit therefor, and in
each case shall furnish the other Party with proper evidence of the taxes paid
on its behalf.
4.9 Non-Ag Applications. In the event that either Zeneca or Maxygen,
-------------------
in its discretion, elects to commercialize one or more Shuffled Genes for Non-Ag
Applications by licensing rights thereto to an Affiliate or Third Party, such
Party shall be obligated to negotiate an arms-length agreement containing
reasonable and customary terms with respect to the granting of such license.
4.10 Acknowledgement. It is understood and agreed that where Zeneca
---------------
has the right to commercialize a Zeneca Agricultural Product in [*******], or
Maxygen has the right to commercialize a Maxygen Product in [*******], unless
otherwise agreed in writing, the consideration due the other Party with respect
thereto shall be the same as required with respect to commercialization of the
applicable Product in or derived from [*******].
4.11 Equity Purchase Option. At each anniversary of the Effective
----------------------
Date, instead of paying to Maxygen the amount of one million dollars
($1,000,000) pursuant to Section 4.1, and at the discretion of Zeneca, Zeneca
may elect to have AstraZeneca Holdings B.V. pay to Maxygen three million dollars
($3,000,000) for the purchase of shares of Maxygen stock at a price equal to one
hundred and fifty percent (150%) of the then fair market value (i.e., pay to
Maxygen $3,000,000 for shares of Maxygen stock having a fair market value of
$2,000,000) on terms and conditions set forth in the Stock Purchase Agreement.
5. BOOKS AND RECORDS
5.1 Reports and Payments.
5.1.1 Zeneca Products. After the first commercial sale of a
---------------
Zeneca Product, Zeneca shall make quarterly written reports to Maxygen for the
preceding calendar quarter, stating in each such report, separately for Zeneca
and each of its Affiliates, and to the extent necessary to substantiate the
amounts due to Maxygen under this Agreement, for each of Zeneca's Collaborators,
in each case, on a country-by-country and Zeneca Product-by-Zeneca Product
basis:
(i) the quantity and description of each Zeneca
Product sold;
(ii) the Net Sales Income for each Zeneca Product,
and the calculation of royalties due thereon, accompanied by sufficient
information to enable Maxygen to verify the accuracy of the royalty calculations
made by Zeneca, and a detailed explanation of the methodology used to determine
the royalty payment;
37
<PAGE>
(iii) separately for Zeneca and each Affiliate and
Collaborator, all Downstream Income relating thereto; and
(iv) separately for each Naked Sublicense, all
payments relating thereto.
In the event that research is conducted regarding Enabling Technology and/or
[*******] in the Research Program, such reports shall also contain the
information necessary to substantiate Zeneca's payment obligations as agreed by
the Research Committee pursuant to Section 2.8.3 with respect to products sold
by Zeneca, its Affiliates and its Sublicensees that contain or are made through
the use of such Enabling Technology and/or [*******].
Concurrently with the making of any such reports, Zeneca shall pay to Maxygen
all royalties due pursuant to Section 4.5 and any Downstream Income and payments
from any Naked Sublicense, together with all royalties due to Maxygen for (i)
Zeneca Products in [*******], (ii) Zeneca Products for [*******], (iii) use of
Enabling Technology, or (iv) use of [*******], or improvements thereof,
developed in the Research Program. If no royalties are due, Zeneca shall so
report.
5.1.2 Maxygen Products. After the first commercial sale of a
----------------
Maxygen Product, Maxygen shall make quarterly written reports to Zeneca for the
preceding calendar quarter, and in such report shall provide with respect to
Maxygen Products information as required from Zeneca pursuant to Section 5.1.1
with regard to Zeneca Products.
In the event that research is conducted regarding Enabling Technology in the
Research Program and Maxygen has the right to commercialize products utilizing
the same, such reports shall also contain the information described above with
respect to products sold by Maxygen, its Affiliates and its Sublicensees that
contain or are made through the use of such Enabling Technology to the extent
necessary to substantiate the amounts due to Zeneca under this Agreement.
Concurrently with the making of such reports, Maxygen shall pay to Zeneca all
royalties due and any Downstream Income and payments from any Naked Sublicense.
If no royalties are due, Maxygen shall so report.
5.2 Payment Method; Late Payments. All amounts due either Party
-----------------------------
hereunder shall be paid in U.S. dollars by wire transfer in immediately
available funds to a bank account designated by the receiving Party. Any
payments or portions thereof due hereunder which are not paid on the date such
payments are due under this Agreement shall bear interest at a rate equal to the
lesser of prime rate as reported by the Citibank, New York, New York (or its
successor in interest), plus two percent (2%), or the maximum rate permitted by
law, calculated on the number of days such payment is delinquent, compounded
monthly. This Section 5.2 shall in no way limit any other remedies available to
either Party.
5.3 Currency Conversion. Royalties and Naked Sublicense payments and
-------------------
Downstream Income subject to this Agreement shall first be determined in the
currency earned
38
<PAGE>
and then converted to its equivalent in United States currency. The buying rates
of exchange for converting the currencies involved into the currency of the
United States quoted by the Financial Times (or its successor in interest) on
the last business day of the quarterly period in which the royalties and Naked
Sublicense payments and Downstream Income were earned shall be used to determine
any such conversion.
5.4 Restrictions on Payment. The obligation to pay royalties under
-----------------------
this Agreement shall be waived and excused to the extent that statutes, laws,
codes or government regulations in a particular country prevent such royalty
payments; provided, however, in such event, if legally permissible, the paying
Party shall pay the royalties owed to the receiving Party by depositing such
amounts in a bank account in such country that has been designated by the
receiving Party and promptly report such payment to the receiving Party.
5.5 Records; Inspection. Each Party and its Affiliates shall keep
-------------------
(and cause its Sublicensees to keep) complete, true and accurate books of
account and records for the purpose of determining the royalty, Downstream
Income and Naked Sublicense payments payable under Article 4. Such books and
records shall be kept reasonably accessible for three (3) years following the
end of the calendar year to which they pertain. Such records will be open for
inspection during such three (3) year period by a representative or agent of the
receiving Party reasonably acceptable to the paying Party, which approval shall
not be unreasonably withheld, for the purpose of verifying the statements
provided pursuant to Section 5.1. Such inspections may be made no more than once
each calendar year, at reasonable times mutually agreed by Zeneca and Maxygen.
The inspecting Party's representative or agent will be obliged to execute a
reasonable confidentiality agreement prior to commencing any such inspection and
may only disclose to the inspecting Party the amount of any variance or error.
The inspecting Party shall bear the costs and expenses of inspections conducted
under this Section 5.5, unless a variation or error producing an underpayment in
amounts payable exceeding [*******] percent [*******] of the amount payable for
any quarter is established in the course of any such inspection, whereupon all
costs relating to the inspection and any unpaid amounts that are discovered will
be paid by the paying Party, together with interest on such unpaid amounts at
the rate specified in Section 5.2 above.
6. DILIGENCE
6.1 Commercially Reasonable Efforts. Zeneca will actively pursue
-------------------------------
commercialization of each Shuffled Gene with the same level of efforts it makes
with its own intellectual property of comparable commercial potential and patent
protection. Such determination may take account of a variety of commercial,
technical, regulatory, ethical and competitive judgments. Such diligence shall
include:
[*******]
39
<PAGE>
Notwithstanding the foregoing, Zeneca shall not be required to satisfy the
specific obligations in Section 6.1.1 and 6.1.2 if it is unable to achieve such
obligations due to [*******].
6.2 Commercial Development Committee
--------------------------------
6.2.1 Following the designation of any Shuffled Gene by the
Research Committee, Zeneca and Maxygen shall form a Commercial Development
Committee ("CDC") comprising two representatives from each Party, of which one
from each shall have commercial and one technical responsibilities. The CDC
shall meet twice annually, at mutually agreed times and places. Each Party shall
be responsible for all costs incurred by their representatives in attending such
meetings.
6.2.2 The agenda of each CDC meeting shall include a written
summary by Zeneca of Zeneca's development and commercialization activities with
respect to each Shuffled Gene and Zeneca Product, including without limitation a
description of all Shuffled Genes put into Crops, or tested, or used in field
trials, and all Zeneca Agricultural Products and Zeneca Non-Agricultural
Products sold commercially or in development as well as a report on anticipated
future developmental activities and time lines. Zeneca agrees to meet reasonable
requests by Maxygen for additional information regarding development and
commercialization of Zeneca Products. It is expressly acknowledged and agreed
that the CDC is a disclosure mechanism only, and that Zeneca shall retain full
discretion with respect to the development and commercialization of all Zeneca
Products. By agreement of Zeneca, other Maxygen or Zeneca employees may be
invited to CDC meetings .
6.2.3 Zeneca shall inform Maxygen at the CDC meetings if
Zeneca is not progressing the development of any Shuffled Gene and provide an
explanation of Zeneca's rationale for not so progressing such development.
6.2.4 Zeneca agrees to make good faith reasonable efforts to
make available, on request, the member of Zeneca's senior management responsible
for overseeing Zeneca's development and/or commercialization activities with
regard to each Zeneca Product for meetings with Maxygen, in England or such
other place as the Parties may agree, to discuss the status and stage of such
development.
6.3 Lack of Diligence. In the event that Zeneca (i) fails to use
-----------------
or continue to use diligent efforts to [*******] as set forth in Section 6.1
above and does not cure such failure within [*******] after written notice from
Maxygen thereof, or (ii) notifies Maxygen that it will not conduct further
commercialization with respect to a particular Shuffled Gene, then Zeneca's
rights under this Agreement with respect to such Shuffled Gene (and all
corresponding Zeneca Products) shall [*******] on a Shuffled Gene-by Shuffled
Gene basis; provided, however, that if Zeneca demonstrates a legitimate,
commercially reasonable, environmental, health or regulatory justification for
such failure, then such rights shall not [*******]. In the event of such a
[*******] of Zeneca's rights, Zeneca shall grant to Maxygen [*******] licenses
with the right to grant sublicenses with respect to the Program Technology and
all other intellectual property
40
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owned or Controlled by Zeneca and its Affiliates, to commercialize the
applicable Shuffled Gene (and corresponding Zeneca Products), In return, Maxygen
shall pay to Zeneca consideration to be agreed with respect to the applicable
Zeneca Products, which consideration shall reflect the [*******] of the license
rights.
7. INTELLECTUAL PROPERTY
7.1 Ownership of Research Results. Subject to Section 7.2 below, (i)
-----------------------------
title to all inventions and intellectual property made solely by Maxygen
employees or its agents in connection with the Research Program without
inventive contribution by Zeneca employees or its agents shall be owned by
Maxygen; (ii) title to all inventions and intellectual property made solely by
Zeneca employees or its agents in connection with the Research Program without
inventive contribution by Maxygen employees or its agents shall be owned by
Zeneca; and (iii) title to all inventions and intellectual property made jointly
by employees or the agents of Zeneca and Maxygen in connection with the Research
Program, shall be jointly owned by Maxygen and Zeneca. Inventorship and rights
of ownership of the Program Technology (whether or not patentable) shall be
determined in accordance with United States laws of inventorship or the law of
California, as applicable.
7.2 Assignment
----------
7.2.1 Notwithstanding Section 7.1, Zeneca agrees to assign, and
hereby assigns, to Maxygen all Zeneca's right, title and interest in all
Shuffling Technology invented, developed or made in the Research Program and all
Maxygen Improvements.
7.2.2 Notwithstanding Section 7.1, Maxygen agrees to assign, and
hereby assigns, to Zeneca all right, title and interest in all Zeneca
Improvements.
7.2.3 Maxygen and Zeneca agree to timely execute such documents
as are necessary assign title to Zeneca Improvements, Shuffling Technology
and/or Maxygen Improvements as set forth in Section 7.2.1 and 7.2.2.
7.3 Filing of Patents
-----------------
7.3.1 Responsibilities. The Research Committee will coordinate
----------------
the determination of what patents will be filed on Research Results and
countries in which patent applications will be filed. Unless Zeneca and Maxygen
agree otherwise in writing, the Parties shall have the responsibilities for
patent filing, prosecution and maintenance (including the defense of
interferences, oppositions and similar proceedings) (collectively, "Patent
Activities") as set forth in this Section 7.3.1. In the event that the
responsible Party elects to perform any of such Patent Activities in-house, the
non-responsible Party agrees to waive all causes of action for professional
negligence that the non-responsible Party may have against the individuals
conducting such Patent Activities; provided, however, that the responsible Party
shall be responsible to ensure the use of reasonable care of patent attorneys in
the conduct of such Patent Activities by the responsible Party's in-house
counsel, and nothing herein shall waive, or be
41
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construed to waive, claims against the responsible Party based on negligence of
the responsible Party's in-house counsel.
(a) DNA Shuffling. Maxygen will be responsible, at its sole
-------------
expense, for Patent Activities for all inventions made by Maxygen or Zeneca or
jointly by the Parties in connection with the Research Program relating to
Shuffling Technology or Maxygen Materials or Maxygen Improvements.
(b) Zeneca Agricultural Products. Zeneca will be responsible, at
----------------------------
its sole expense, for Patent Activities with respect to all inventions made by
Maxygen or Zeneca or jointly by the Parties in connection with the Research
Program relating to Zeneca Proprietary Technology, Zeneca Materials or Zeneca
Improvements, Zeneca Product testing and development of Zeneca Products.
(c) Nucleic Acid Sequence Libraries. Maxygen will be responsible,
-------------------------------
at its sole expense, for Patent Activities with respect to inventions made by
Maxygen in connection with the Research Program relating to the gene libraries
produced by Shuffling.
(d) Shuffled Genes, Proteins Encoded by Such Genes, Gene
----------------------------------------------------
Variants, Transgenic Plants Containing Shuffled Genes, and Uses Thereof. Zeneca
- -----------------------------------------------------------------------
will be responsible, at its sole expense, for Patent Activities with respect to
inventions made by Maxygen or Zeneca or jointly by the parties in connection
with the Research Program relating to Shuffled Genes, functional properties of
Gene Variants provided to Zeneca hereunder, proteins encoded by Shuffled Genes,
transgenic plants containing Shuffled Genes, and uses thereof in the Crops;
however, if a patent application or patent claims uses of Class B Shuffled
Genes, proteins, or transgenic plants solely for Non-Ag Applications, then
Maxygen will be responsible, at its sole expense, for such Patent Activities.
(e) Screening Assays and Inventions not Covered in Other Groups.
-----------------------------------------------------------
Zeneca will be responsible, at its sole expense, for Patent Activities with
respect to inventions made solely by Zeneca in connection with the Research
Program relating to screening assays and inventions not otherwise covered in
this Section 7.3.1. Maxygen will be responsible, at its sole expense, for Patent
Activities with respect to inventions made solely by Maxygen in connection with
the Research Program relating to screening assays and inventions not covered in
this Section 7.3.1. In the case of joint inventions made in connection with the
Research Program relating to screening assays and inventions not covered in this
Section 7.3.1, Patent Activities shall be conducted by outside counsel
acceptable to both Parties with equal control and joint responsibility for costs
incurred in connection with the applicable Patent Activities.
7.3.2 Cooperation. The Party responsible for Patent Activities
-----------
for the applicable patent applications pursuant to Section 7.3.1 shall use
reasonable efforts to obtain patent coverage that is as broad as possible to
cover all potential commercial uses thereof, in those countries specified by the
Research Committee, and shall assure that the other Party will
42
<PAGE>
have the opportunity to provide meaningful and substantive review and comment
with respect thereto. Except as otherwise expressly provided herein,
applications filed on joint inventions shall be written and filed by counsel
reasonably acceptable to both Parties (which shall include in-house patent
counsel), but under the control of the responsible Party. Each Party shall
notify the other of its intention to file any patent application claiming an
invention made in connection with the Research Program, and shall at the request
of the other Party promptly provide the other with copies of all patent
prosecution and maintenance documentation and correspondence so that the other
shall be currently and promptly informed of the continuing prosecution and
maintenance of patent applications and patents claiming or disclosing inventions
made in connection with the Research Program. Each Party shall have the right to
review and comment upon such documentation and correspondence, as well as all
specifications, claims and responses to office actions prior to their submission
to the relevant government patent office.
7.3.3 Elective Termination of Patent Activities. If at any time
-----------------------------------------
the Party responsible for Patent Activities pursuant to Section 7.3.1 above (the
"Responsible Party") does not wish to file or wishes to discontinue the
prosecution or maintenance of any patent application or patent filed in any
country, on a country-by-country basis, that either (i) is within the scope of
Section 7.3.1(c) or (d), or (ii) is within the scope of Section 7.3.1(e) and
claims a jointly-invented invention, it shall promptly give notice of such
intention to the other Party. The latter shall have the right, but not the
obligation, to assume responsibility for the prosecution of any such Patent
Rights in the applicable country, at its own expense, by giving notice to the
Responsible Party of such intention within thirty (30) days.
7.4 Patent Enforcement
------------------
7.4.1 Notice. In the event either Party becomes aware of any
------
actual or threatened commercially material infringement or use of any Program
Patent Rights (collectively, an "Infringement"), that Party shall promptly
notify the other Party and provide it with full details. The Parties will meet
to discuss the appropriate course of action, and may collaborate in pursuing
such course or action.
7.4.2 Rights. If the Parties do not otherwise agree on a course
------
of action, Zeneca shall have the initial right (but shall not have an
obligation) to conduct the prosecution, prevention or termination of any
Infringement of Zeneca's solely-owned Patent Rights hereunder, at Zeneca's
expense and with the sharing of recoveries as specified below, and Maxygen shall
have the initial right (but shall not have an obligation) to conduct the
prosecution, prevention or termination of any Infringement of Maxygen's solely-
owned Patent Rights, at Maxygen's expense, and with the sharing of recoveries as
specified below. If either Party which has the initial right as described above
determines that it is necessary or desirable for the other Party to join any
such suit, action or proceeding, the other Party shall execute all papers and
perform such other acts as may be reasonably required in the circumstances, at
the requesting Party's expense.
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<PAGE>
7.4.3 Jointly-Owned Patents. In the event of an Infringement of
---------------------
Program Patent Rights owned jointly by Maxygen and Zeneca, the Parties shall
agree which Party will have the rights and responsibilities of abating such an
infringement, and how the expenses of abating any such Infringement shall be
shared. In the event the responsible Party becomes involved in any action or
proceeding relating to the applicable Program Patent Rights, the responsible
Party shall use counsel reasonably acceptable to the other Party, and shall keep
the other Party fully informed as to the status of such matters. Each Party
shall have the right to be represented by counsel of its own selection and its
own expense in any suit initiated under this Section by the other Party for an
Infringement. In the event only one Party wishes to pursue in such proceeding,
it shall have the right to proceed alone, at its expense, and may retain any
recovery, subject to Section 7.4.4 below, and the other Party agrees, at the
request and expense of the Party initiating such action, to cooperate and join
in any proceedings in the event that a third party asserts that the co-owner of
such Joint Invention is necessary or indispensable to such proceedings;
provided, neither Party may enter into any settlement with respect to any of the
jointly owned Program Patent Rights without the prior consent of other Party,
which consent shall not be unreasonably withheld, and may not make any statement
which admits that any of the jointly owned Program Patent Rights are invalid or
unenforceable.
7.4.4 Costs. Zeneca shall bear the cost of any proceeding or
-----
suit under this Section 7.4 brought by Zeneca and Maxygen shall bear the cost of
any such proceeding or suit brought by Maxygen under this Section 7.4. In each
such case, the responsible Party shall have the right first to reimburse itself
out of any sums recovered in such suit or in its settlement for all reasonable
costs and expenses, including reasonable attorney's fees, related to such suit
or settlement. The remainder is next to be used to reimburse the other Party for
its costs and expenses so incurred. Any remaining amounts or any non-monetary
recovery shall be kept by the responsible Party.
7.4.5 Standing. If either Party lacks standing and the other
--------
Party has standing to bring any such suit, action or proceeding as specified
above, then the responsible Party may request the other Party to do so at the
responsible Party's expense. The Party with standing is under no obligation to
comply with such request, but rather is free to refuse such request.
7.4.6 Cooperation. In any action under this Section 7.4, each
-----------
Party shall fully cooperate with and assist the other as reasonably requested.
No suit regarding Maxygen Patent Rights may be settled by Zeneca without
Maxygen's consent. No suit regarding Zeneca Patent Rights may be settled by
Maxygen without Zeneca's consent.
7.4.7 Maxygen Initial Public Offering. Notwithstanding the
-------------------------------
above, if Maxygen notifies Zeneca that it intends to make an initial public
offering of Maxygen shares, then for a period of six (6) months from such notice
Zeneca shall not commence any new action or proceeding against any Third Party
with respect to any Maxygen patent without the prior written consent of Maxygen;
provided, however, Zeneca may respond to and participate in any
44
<PAGE>
patent infringement action or other similar proceeding which has commenced as of
the date of such notice or which may be commenced by a Third Party during such
six month period.
7.5 Allegations of Infringement by Third Parties.
--------------------------------------------
7.5.1 Zeneca. Zeneca shall be responsible for any threatened or
------
actual claims of infringement of Third Party patents or other Third Party
intellectual property right arising out of or in connection with the
manufacture, use, sale or importation of a Zeneca Product, except to the extent
such claims are directed to the use of Shuffling per se in the Research Program.
------
Upon receiving notice of any such actual or threatened claims, the Parties shall
promptly meet to discuss the course of action to be taken to resolve or defend
any such infringement litigation. If Maxygen is named as a party to such claim,
suit or proceeding but Zeneca is not named as a party, Zeneca may, at its own
expense and through counsel of its own choice, seek leave to intervene in such
claim, suit or proceeding. Maxygen agrees not to oppose such intervention. If
Zeneca, and not Maxygen, is named as a party to such claim, suit or proceeding,
Zeneca shall have the right to control the defense and settlement of such claim,
suit or proceeding, at its own expense, using counsel of its own choice. If
Maxygen shall, at any time, tender its defense to Zeneca in writing, then Zeneca
shall defend Maxygen in such claim, suit or proceeding, at Zeneca's own expense
and through counsel of its own choice, and Zeneca shall control the defense and
settlement of any such claim, suit or proceeding. In no event shall Zeneca enter
into any agreement which makes any admission regarding (i) wrongdoing on the
part Maxygen, or (ii) the invalidity, unenforceability or absence of
infringement of any Patent Rights owned or Controlled by Maxygen or any patent
jointly owned by Maxygen and Zeneca, without the prior written consent of
Maxygen, which consent shall not be unreasonably withheld. The Parties shall
cooperate with each other in connection with any such claim, suit or proceeding
and shall keep each other reasonably informed of all material developments in
connection with any such claim, suit or proceeding.
7.5.2 Maxygen. Maxygen shall be responsible for any threatened
-------
or actual claims of infringement of Third Party patents or other Third Party
intellectual property right arising out of or in connection with the
manufacture, use, sale or importation of a Maxygen Product, except to the extent
such claims are directed to the use of Zeneca Proprietary Technology in the
Research Program. Upon receiving notice of any such actual or threatened claims,
the Parties shall promptly meet to discuss the course of action to be taken to
resolve or defend any such infringement litigation. If Zeneca is named as a
party to such claim, suit or proceeding but Maxygen is not named as a party,
Maxygen may, at its own expense and through counsel of its own choice, seek
leave to intervene in such claim, suit or proceeding. Zeneca agrees not to
oppose such intervention. If Maxygen, and not Zeneca, is named as a party to
such claim, suit or proceeding, Maxygen shall have the right to control the
defense and settlement of such claim, suit or proceeding, at its own expense,
using counsel of its own choice. If Zeneca shall, at any time, tender its
defense to Maxygen in writing, then Maxygen shall defend Zeneca in such claim,
suit or proceeding, at Maxygen's own expense and through counsel of its own
choice, and Maxygen shall control the defense and settlement of any such claim,
suit or proceeding. In no event shall Maxygen enter into any agreement which
makes any admission
45
<PAGE>
regarding (i) wrongdoing on the part Zeneca, or (ii) the invalidity,
unenforceability or absence of infringement of any Patent Rights owned or
Controlled by Zeneca or any patent jointly owned by Maxygen and Zeneca, without
the prior written consent of Zeneca, which consent shall not be unreasonably
withheld. The Parties shall cooperate with each other in connection with any
such claim, suit or proceeding and shall keep each other reasonably informed of
all material developments in connection with any such claim, suit or proceeding.
8. REPRESENTATIONS AND WARRANTIES
8.1 Legal Authority. Each Party represents and warrants to the other
---------------
that it has the legal power, authority and right to enter into this Agreement
and to perform its respective obligations set forth herein.
8.2 No Conflicts. Each Party represents and warrants that as of the
------------
date of this Agreement it is not a Party to any agreement or arrangement with
any Third Party or under any obligation or restriction, including pursuant to
its Certificate of Incorporation or Bylaws, which in any way limits or conflicts
with its ability to fulfill any of its obligations under this Agreement, and
shall not enter into any such agreement during the term of this Agreement.
8.3 Performance Warranty. Each Party warrants and guarantees the
--------------------
performance of any and all rights and obligations of this Agreement by its
Affiliate(s), and Zeneca further warrants to (i) make all payments due to
Maxygen hereunder as a result of actions of Zeneca's Sublicensees and (ii)
enforce with respect to its Sublicensees all restrictions and obligations of
Zeneca in this Agreement. Zeneca agrees to cooperate with all reasonable
requests by Maxygen for information or involvement in any such enforcement
activities.
8.4 Disclaimer of Warranties. Maxygen and Zeneca each specifically
------------------------
disclaim that the Research Program will be successful, in whole or part. MAXYGEN
AND ZENECA EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, WITH RESPECT TO THE CONFIDENTIAL INFORMATION, PATENT
RIGHTS OR KNOW-HOW, RESEARCH RESULTS, SHUFFLING TECHNOLOGY, PROGRAM TECHNOLOGY,
GENE(S), GENE VARIANT(S), SHUFFLED GENE(S), MAXYGEN PRODUCTS, OR ZENECA
PRODUCT(S), INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF INTELLECTUAL PROPERTY
RIGHTS OF THIRD PARTIES, OR VALIDITY OF ANY SHUFFLING TECHNOLOGY OR PROGRAM
TECHNOLOGY, PATENTED OR UNPATENTED.
9. CONFIDENTIALITY
9.1 Confidential Information. Except as expressly provided herein,
------------------------
the Parties agree that, for the term of this Agreement and for five (5) years
thereafter, the receiving Party shall keep completely confidential and shall not
publish or otherwise disclose and shall not use for any purpose except for the
purposes contemplated by this Agreement or the Stock Purchase
46
<PAGE>
Agreement any confidential information of the other Party or any data, technical
and economic information (including the economic terms hereof),
commercialization, and research strategies and know-how and other information
provided by the other Party (the Disclosing Party) during the Term of this
Agreement or during the negotiation of this Agreement, or the Stock Purchase
Agreement, or in connection with the transactions contemplated thereby, or any
Program Technology and data, results and information developed pursuant to the
Research Program and solely owned by the Disclosing Party (collectively, the
"Confidential Information") furnished to it by the Disclosing Party pursuant to
this Agreement, the Stock Purchase Agreement, or the transactions contemplated
thereby. The foregoing restrictions shall not apply to any:
(a) information that is or becomes part of the public domain
through no fault of the non-Disclosing Party or its Affiliates; and
(b) information that is obtained after the date hereof by
the non-Disclosing Party or one of its Affiliates from any Third Party which is
lawfully in possession of such Confidential Information and not in violation of
any contractual or legal obligation to the Disclosing Party with respect to such
Confidential Information;
(c) information that is known to the non-Disclosing Party or
one or more of its Affiliates prior to disclosure by the Disclosing Party, as
evidenced by the non-Disclosing Party's written records; and
(d) information that is necessary to be disclosed to any
governmental authorities or pursuant to any regulatory filings, but only to the
limited extent of such legally required disclosure; or
(e) information which has been independently developed by
the non-Disclosing Party without the aid or use of any Confidential Information,
as shown by contemporaneous written records.
9.2 Permitted Disclosures. Confidential Information may be disclosed
---------------------
to employees, agents, consultants and actual or bona fide potential Sublicensees
of the non-Disclosing Party or its Affiliates, but only to the extent reasonably
required to accomplish the purposes of this Agreement and only if the non-
Disclosing Party obtains prior written agreement from such employees, agents,
consultants and actual or potential bona fide Sublicensees to whom disclosure is
to be made to hold in confidence and not make use of such information for any
purpose other than those permitted by this Agreement. Each Party will use at
least the same standard of care as it uses to protect proprietary or
confidential information of its own to ensure that such employees, agents,
consultants and Sublicensees do not disclose or make any unauthorized use of the
Confidential Information. Notwithstanding any other provision of this Agreement,
each Party may disclose the terms of this Agreement to prospective investors
(other than those which Maxygen has or plans to enter into a research
arrangement) and/or lenders, investment bankers and other financial institutions
of its choice solely for purposes of financing the business operations of such
Party, and may disclose the terms of the Stock Purchase
47
<PAGE>
Agreement to prospective investors and/or lenders, investment bankers and other
financial institutions of its choice solely for purposes of financing the
business operations of such Party.
9.3 Publicity. All publicity, press releases and other announcements
---------
relating to this Agreement or the transaction contemplated hereby shall be
reviewed in advance by, and shall be subject to the approval of, both Parties;
provided, however, that either Party may disclose the terms of this Agreement
only to the extent required to comply with applicable securities or other laws,
in which case the disclosing Party shall use reasonable efforts to provide the
non-disclosing Party the opportunity to review and comment on such disclosure
prior to its submission. Notwithstanding the foregoing, the Parties shall use
their reasonable best efforts to agree upon a press release to announce the
existence and general subject matter of this Agreement by the later of (i) five
(5) business days after the date that any required Hart-Scott-Rodino approval
for the transaction is received, or (ii) thirty (30) days after the Effective
Date. In addition, at such time that Zeneca makes written determination to
[*******] for which a milestone payment is due pursuant to Section 4.4.1, Zeneca
shall promptly notify Maxygen, and the Parties shall promptly make a joint press
release announcing Zeneca's decision and that a milestone payment will be paid
to Maxygen. Once a particular disclosure has been approved for disclosure,
either Party may make disclosures which do not differ materially therefrom
without any need for further consents. All such disclosures shall be copied to
the other party for information.
9.4 Publication. The Parties shall cooperate in appropriate
-----------
publication of the results of research and development work performed pursuant
to this Agreement, but subject to the predominating interest to obtain patent
protection for any patentable subject matter. To this end, it is agreed that
prior to any public disclosure of such results, the Party proposing disclosure
shall send the other Party a copy of the information to be disclosed, and shall
allow the other Party thirty (30) days from the date of receipt in which to
determine whether the information to be disclosed contains subject matter for
which patent protection should be sought prior to disclosure, or otherwise
contains Confidential Information of the reviewing Party which such Party
desires to maintain as a trade secret. If such notification is not received
during the thirty (30) day period, the Party proposing disclosure shall be free
to proceed with the disclosure. If due to a valid business reason or a
reasonable belief by the non-disclosing Party that the disclosure contains
subject matter for which a patentable invention should be sought or Confidential
Information of the non-disclosing party, then prior to the expiration of the
thirty (30) day period, the non-disclosing Party shall so notify the disclosing
Party, who shall then delete the Confidential Information of the non-disclosing
Party and, at the request of the non-disclosing Party, delay public disclosure
of the remainder of the disclosure for an additional period of up to sixty (60)
days to permit the preparation and filing of a patent application on the subject
matter to be disclosed or other action to be taken. The Party proposing
disclosure shall thereafter be free to publish or disclose the information. The
determination of authorship for any paper shall be in accordance with accepted
scientific practice.
10. INDEMNIFICATION
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<PAGE>
10.1 Zeneca. Zeneca agrees to indemnify, defend and hold harmless
------
Maxygen and its Affiliates and Sublicensees and their respective employees,
agents, officers, directors and permitted assigns (each a "Maxygen Indemnitee")
from and against any claims, actions or suits by a Third Party resulting in any
liabilities, damages, settlements, claims, penalties, fines, and reasonable
costs or reasonable expenses incurred (including, without limitation, reasonable
attorneys' fees and other expenses of litigation, and consequential and/or
indirect damages, if any, of Third Parties awarded by the court in a final
decision which is not appealed or is unappealable) (any of the foregoing, a
"Claim") arising out of or resulting from (i) the use of any Zeneca Gene or the
use or making of any Gene Variants and/or Shuffled Genes derived therefrom in
the conduct of the Research Program (except to the extent subject to Section
10.2(i) or (v) below), (ii) negligence or willful misconduct by Zeneca in the
Research Program, (iii) a breach of any of the representations or warranties of
Zeneca hereunder, or (iv) the development or manufacture, use, promotion,
marketing, sale or other distribution of any Zeneca Product by Zeneca or its
Affiliates or Sublicensees, except, in each case, to the extent that such Claim
arises out of or results from the negligence or misconduct of a Maxygen
Indemnitee; provided, however, that notwithstanding the foregoing, with respect
to Claims specifically arising out of or relating solely from matters in (i)
above, Zeneca shall only be obligated to indemnify Maxygen Indemnitees against
actual damages, if any, awarded to a Third Party or actual settlement amounts,
as applicable.
10.2 Maxygen. Maxygen agrees to indemnify, defend and hold harmless
-------
Zeneca and its Affiliates and Sublicensees and their respective employees,
agents, officers, directors and permitted assigns (each a "Zeneca Indemnitee")
from and against any claims, actions or suits by a Third Party resulting in any
liabilities, damages, settlements, claims, penalties, fines, and reasonable
costs or reasonable expenses incurred (including, without limitation, reasonable
attorneys' fees and other expenses of litigation, and consequential and/or
indirect damages, if any, of Third Parties awarded by a court in a final
decision which is not appealed or is unappealable) (any of the foregoing, a
"Claim") arising out of or resulting from (i) the use of Shuffling Technology
per se in the conduct of the Research Program (i.e., not due to the Shuffling of
- --- --
a particular Gene), (ii) the use of any Maxygen Gene or the use or making of any
Gene Variants and/or Shuffled Genes derived therefrom in the conduct of the
Research Program (except to the extent subject to Section 10.1(iv) above), (iii)
the negligence or willful misconduct of Maxygen in the Research Program, (iv) a
breach of any of the representations or warranties by Maxygen hereunder, or (v)
the development or manufacture, use, promotion, marketing, sale or other
distribution of any Maxygen Product by Maxygen or its Affiliates, except, in
each case, to the extent that such Claim arises out of or results from the
negligence or misconduct of a Zeneca Indemnitee; provided, however, that
notwithstanding the foregoing, with respect to Claims specifically arising out
of or resulting solely from matters in (i) or (ii) above, Maxygen shall only be
obligated to indemnify Zeneca Indemnitees against actual damages, if any,
awarded to a Third Party or actual settlement amounts, as applicable.
10.3 Procedure. A Party or person (the Indemnitee) that intends to
---------
claim indemnification under this Article 10 shall promptly notify the other
Party (the Indemnitor) in writing of any loss, claim, damage, liability or
action in respect of which the Indemnitee or any of its Affiliates, Sublicensees
or their directors, officers, employees, agents or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in, and,
to the extent the Indemnitor so desires, to assume the defense thereof with
counsel chosen by Indemnitor, with consent of Indemnitee, which consent shall
not be unreasonably withheld. The Indemnitee shall not enter into negotiations
or enter into any agreement with respect to the settlement of any Claim without
the prior written approval of the Indemnitor, and the indemnity agreement in
this Article 10 shall not apply to amounts paid in settlement of any loss,
claim,
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<PAGE>
damage, liability or action if such settlement is made without the consent of
the Indemnitor, which consent shall not be withheld unreasonably. The failure to
deliver written notice to the Indemnitor within a reasonable time after the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such Indemnitor of any liability to the Indemnitee under
this Article 10. At the Indemnitor's request, the Indemnitee under this Article
10, and its employees and agents, shall cooperate fully with the Indemnitor and
its legal representatives in the investigation and defense of any action, claim
or liability covered by this indemnification and provide full information with
respect thereto.
11. TERM AND TERMINATION
11.1 Term. This Agreement shall be effective as of the Effective Date
----
and, unless otherwise terminated earlier pursuant to the other provisions of
this Article 11, shall continue in full force and effect on a country-by-country
basis and Zeneca Product-by-Zeneca Product, or Maxygen Product-by-Maxygen
Product basis, as the case may be, until the date that neither Party has
remaining royalty obligations to the other for such Zeneca Product or Maxygen
Product, as applicable, in such country. Following the expiration of royalty
obligations in any country within the Territory with respect to a particular
Zeneca Product or Maxygen Product, as the case may be, Zeneca or Maxygen shall
retain a non-exclusive fully paid license under the other Party's interest in
the Know-How within the Program Technology to commercialize such Zeneca Product
or Maxygen Product, as the case may be.
11.2 Termination for Cause. Either Party may terminate this Agreement
---------------------
in the event the other Party has materially breached or defaulted in the
performance of any of its obligations hereunder and such default has continued
for sixty (60) days after written notice thereof was provided to the breaching
Party by the non-breaching Party, or if a cure of such default cannot reasonably
be effected within such sixty (60) day period, the defaulting Party has failed
to deliver within such period a plan for curing such breach or default which is
reasonably sufficient to effect a cure. It is understood and agreed that Maxygen
may terminate this Agreement based upon the conduct of any Zeneca Sublicensee
that would constitute a material breach of this Agreement if Zeneca undertook
such conduct, unless Zeneca promptly and diligently acts (and continues to act)
to enforce the restrictions and obligations set forth in this Agreement against
such Sublicensee. Any termination shall become effective at the end of such
sixty (60) day period unless the breaching Party has cured any such breach or
default prior to the expiration of the sixty (60) day period, or has delivered
to the other Party a plan for curing such breach is reasonably acceptable to the
other Party. Notwithstanding the above, if Zeneca fails to timely pay any
amounts due pursuant to Sections 4.4, 4.5 or 4.6 hereunder, which in the
aggregate are greater than [*******], and at any time prior to such failure to
pay Zeneca has previously failed [*******] within any immediately preceding
three (3) year period to pay any amount due hereunder when due, then the period
for cure of any such default following notice thereof shall be twenty (20) days
and, unless payment is made within such period, the termination with respect to
the applicable Zeneca Product shall become effective at the end of such period.
If more than one Zeneca Product or Maxygen Product, as applicable, is being
commercially developed or exploited by Zeneca or Maxygen (or their Affiliates
and
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Sublicensees) hereunder, and Maxygen or Zeneca breach or default in the
performance of this Agreement in a manner relating only to a single Zeneca
Product or Maxygen Product, as the case may be, developed or exploited by or
under authority of such Party, then the other Party may only terminate the
licenses granted to the breaching Party with respect to the applicable Zeneca
Products or Maxygen Products, as the case may be, on a Zeneca Product-by-Zeneca
Product basis or Maxygen Product-by-Maxygen Product basis.
11.3 Effect of Bankruptcy. If voluntary or involuntary proceedings by
--------------------
or against a Party are instituted in bankruptcy under any insolvency law, or a
receiver or custodian is appointed for such Party, or proceedings are instituted
by or against such Party for corporate reorganization or the dissolution of such
Party, which proceedings, if involuntary, shall not have been dismissed within
sixty (60) days after the date of filing, or if such Party makes an assignment
for the benefit of creditors, or substantially all of the assets of such Party
are seized or attached and not released within sixty (60) days thereafter, the
other Party may immediately terminate this Agreement effective upon notice of
such termination.
11.4 Effect of Termination.
---------------------
11.4.1 Accrued Rights and Obligations. Termination of this
------------------------------
Agreement for any reason shall not release any Party hereto from any liability
which, at the time of such termination, has already accrued to the other Party
or which is attributable to a period prior to such termination, nor preclude
either Party from pursuing any rights and remedies it may have hereunder or at
law or in equity which accrued or are based upon any event occurring prior to
such termination.
11.4.2 Return of Confidential Information and Materials. Upon any
------------------------------------------------
termination of this Agreement, Zeneca and Maxygen shall promptly return to the
other Party hereto all Confidential Information received from the other Party
(except one copy of which may be retained by legal counsel for archival purposes
and ensuring compliance with Article 9), and all Zeneca Materials and Maxygen
Materials shall be returned to the owner thereof.
11.4.3 Licenses.
--------
(a) In the event of any termination by Maxygen pursuant to
Section 11.2, the licenses granted to Zeneca in Article 3 shall terminate
concurrently. Notwithstanding the foregoing, if more than one Zeneca Product is
being commercially developed or exploited by Zeneca or its Affiliates and
Sublicensees hereunder, and Maxygen terminates the licenses to Zeneca as to a
particular Zeneca Product pursuant to Section 11.2, then the license granted to
Zeneca with respect to the applicable Zeneca Product shall terminate. In the
event of any termination by Maxygen pursuant to Section 11.3, the licenses
granted to Zeneca in Article 3 shall terminate concurrently.
(b) In the event of any termination of this Agreement by
Zeneca pursuant to Section 11.2, the licenses granted to Maxygen in Article 3
shall terminate
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concurrently. Notwithstanding the foregoing, if more than one Maxygen Product is
being commercially developed or exploited by Maxygen or its Affiliates and
Sublicensees hereunder, and Zeneca terminates the licenses to Maxygen as to a
particular Maxygen Product pursuant to Section 11.2, then the license granted to
Maxygen with respect to the applicable Maxygen Product shall terminate. In the
event of any termination by Zeneca pursuant to Section 11.3, the licenses
granted to Maxygen in Article 3 shall terminate concurrently.
11.5 Survival. Sections 2.4.1, 2.4.3, 2.5.6, 2.6, 3.1.9(b), 3.1.10,
--------
3.3, 3.4, 3.5, 3.6, 4.8, 8.3, 8.4 and 11.4 and 11.5, and Article 5 (until all
royalty and reporting obligations relating to the period prior to the date of
expiration or termination have been satisfied) and Articles 7, 9, 10, 11, 12 and
13 shall survive the expiration or termination of this Agreement for any reason.
12. DISPUTE RESOLUTION
12.1 Acknowledgement. Notwithstanding any other provision of this
---------------
Agreement, it is understood and agreed that the following matters shall not be
subject to dispute resolution under this Article 12: (i) the selection of
[*******] which will be the target of research activities in the Research
Program, (ii) the selection of which Projects, including without limitation,
Reserved Projects, will be conducted in the Research Program, (iii) the
selection of Genes to be Shuffled in the Research Program, and (iv) the
designation of Shuffled Genes.
12.2 Consultation. If an unresolved dispute arises out of or relates to
------------
this Agreement, or the breach thereof, either Party may refer such dispute to
the Chief Executive Officer of Maxygen and Zeneca's Business Director for
Agricultural Biotechnology for good faith resolution. If such dispute is not
settled within forty-five (45) days of such referral, then either Party may
thereafter initiate mediation in accordance with Section 12.3 and, where
applicable, arbitration in accordance with Section 12.4.
12.3 Mediation. If a dispute arises out of or relates to this
---------
Agreement, or the breach thereof, and if said dispute cannot be settled through
negotiation or through consultation as set forth in Section 12.2, the Parties
agree to try in good faith to settle the dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association, before
resorting to arbitration, litigation, or some other dispute resolution
procedure.
12.4 Arbitration. Any dispute, controversy or claim arising out of the
-----------
performance of this Agreement, including termination thereof, or any alleged
breach thereof which is not settled by mutual consent pursuant to Section 12.2
or 12.3 above, shall be finally settled by binding arbitration as set forth in
Section 12.4.1 or 12.4.2 below. Any arbitration award may be entered in a court
of competent jurisdiction for a judicial recognition of the decision and an
order of enforcement.
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12.4.1 Full Arbitration. Except as otherwise provided in Section
----------------
12.4.2 below, arbitration of any dispute, controversy or claim shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association by three (3) independent, neutral arbitrators appointed
in accordance with said rules. Any arbitration shall be held in Chicago,
Illinois. The arbitrators shall determine what discovery shall be permitted,
consistent with the goal of limiting the cost and time which the Parties must
expend for discovery; provided the arbitrators shall permit such discovery as
they deem necessary to permit an equitable resolution of the dispute. Any
written evidence originally in a language other than English shall be submitted
in English translation accompanied by the original or a true copy thereof.
Except as otherwise expressly provided in this Agreement, the costs of the
arbitration, including administrative and arbitrators' fees, shall be shared
equally by the parties and each Party shall bear its own costs and attorneys'
and witness' fees incurred in connection with the arbitration. A disputed
performance or suspended performances pending the resolution of the arbitration
must be completed within a reasonable time period following the final decision
of the arbitrators. The arbitrators shall be directed that any arbitration
subject to this Section 12.4.1 shall be completed within one (1) year from the
filing of notice of a request for such arbitration. The arbitration proceedings
and the decision shall not be made public without the joint consent of the
Parties and each Party shall maintain the confidentiality of such proceedings
and decision unless otherwise permitted by the other Party. Any decision which
requires a monetary payment shall require such payment to be payable in United
States dollars, free of any tax or other deduction. The Parties agree that the
decision shall be the sole, exclusive and binding remedy between them regarding
any and all disputes, controversies, claims and counterclaims presented to the
arbitrators.
12.4.2 Short Form Arbitration. If the Parties do not agree upon
----------------------
(i) the value sharing arrangements for commercialization of Zeneca Products or
Maxygen Products for Non-Ag Applications under Section 3.4, or (ii) the
financial value of non-financial consideration pursuant to Section 4.6.3, then
such matters shall be determined by binding arbitration pursuant to this Section
12.4.2 by one (1) independent, neutral arbitrator that is mutually acceptable to
the Parties and who is an expert in the appropriate industry (e.g., agriculture,
pharmaceuticals, etc.) to which the applicable Zeneca Products or Maxygen
Products or non-financial consideration, as the case may be, relate. If the
Parties are unable to agree upon a mutually acceptable arbitrator, the
arbitrator shall be an independent expert as described in the preceding sentence
selected by the chief executive of the office of the American Arbitration
Association encompassing Chicago, Illinois. For arbitration of disputes subject
to this Section 12.4.2, each Party to the arbitration shall prepare and submit
one written proposal setting forth its proposed royalty rate (or, in the case of
commercialization in Non-Ag Applications, the financial terms, or in the case of
non-financial consideration the fair market value thereof, all expressed in U.S.
Dollars) for the commercialization at issue, together with a written explanation
setting forth the reasons for its position. After the arbitrator has received
proposals from both Maxygen and Zeneca, the arbitrator shall forward a copy of
the other Party's proposal to each. No oral presentations shall be permitted.
The arbitrator shall select the proposal of one of the Parties as his decision,
and shall not have the authority to render any substantive decision other than
to so select in its
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entirety the proposal of one Party or the other. Except as otherwise expressly
provided in this Agreement, the costs of the arbitration, including
administrative and arbitrator's fees, shall be shared equally by the Parties and
each Party shall bear its own costs and attorneys' fees incurred in connection
with the arbitration. A disputed performance or suspended performances pending
the resolution of the arbitration must be completed within a reasonable time
period following the final decision of the arbitrator. The arbitrator shall be
directed that any arbitration subject to this Section 12.4.2 shall be completed
within four (4) months from the filing of notice of a request for such
arbitration. The arbitration proceedings and the decision shall not be made
public without the joint consent of the Parties and each Party shall maintain
the confidentiality of such proceedings and decision unless otherwise permitted
by the other Party. Any decision which requires a monetary payment shall require
such payment to be payable in United States dollars, free of any tax or other
deduction. The Parties agree that the decision shall be the sole, exclusive and
binding remedy between them regarding determination of the matters presented to
the arbitrator.
13. MISCELLANEOUS
13.1 Governing Law. This Agreement and any dispute arising from
-------------
the performance or any breach hereof, including without limitation, any
arbitration, shall be governed by and construed in accordance with the laws of
the State of California, without reference to conflicts of laws principles.
13.2 Waiver. No failure on the part of Maxygen or Zeneca to
------
exercise and no delay in exercising any right under this Agreement, or provided
by statute or at law or in equity or otherwise, shall impair, prejudice or
constitute a waiver of any such right, nor shall any partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right.
13.3 Assignment. This Agreement shall not be assignable by
----------
either Party to any Third Party hereto without the written consent of the other
Party hereto; except either Party may assign this Agreement, without such
consent, to (i) an Affiliate of such Party; or (ii) an entity that acquires all
or substantially all of the business or assets of such Party (and or with
respect to Zeneca, all or substantially all of Zeneca's Agrochemicals or
Zeneca's agricultural biotechnology research and development business or assets)
to which this Agreement pertains, whether by merger, reorganization,
acquisition, sale, or otherwise. The terms and conditions of this Agreement
shall be binding on and inure to the benefit of the permitted successors and
assigns of the Parties.
13.4 Notices. All notices, requests and other communications
-------
hereunder shall be in writing and shall be personally delivered or sent by
internationally recognized express delivery service, registered or certified
mail, return receipt requested, postage prepaid, in each case to the respective
address specified below, or such other address as may be specified in writing to
the other Parties hereto:
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Zeneca: Zeneca Agrochemicals
Fernhurst Haslemere
Surrey GU27 3JE
United Kingdom
Attn: The Secretary
With a copy to: Commercial Manager, Biotechnology Group
Maxygen: Maxygen, Inc.
515 Galveston Drive
Redwood City, CA 94063
United States of America
Attn: Chief Executive Officer
With a copy to: Chief Financial Officer
Each Party providing notice, shall as a matter of courtesy, use reasonable
efforts to transmit an electronic or facsimile copy of any such notice, but a
failure to do so shall not constitute a failure to provide notice or a breach of
this Agreement.
13.5 Force Majeure. Neither Party shall be liable to the other for
-------------
failure or delay in the performance of any of its obligations under this
Agreement for the time and to the extent such failure or delay is caused by
earthquake, riot, civil commotion, war, hostilities between nations,
governmental law, order or regulation, embargo, action by the government or any
agency thereof, act of God, storm, fire, accident, labor dispute or strike,
sabotage, explosion or other similar or different contingencies, in each case,
beyond the reasonable control of the respective Party. The Party affected by
Force Majeure shall provide the other Party with full particulars thereof as
soon as it becomes aware of the same (including its best estimate of the likely
extent and duration of the interference with its activities), and will use its
best endeavors to overcome the difficulties created thereby and to resume
performance of its obligations as soon as practicable. If the performance of any
obligation under this Agreement is delayed owing to a force majeure for any
continuous period of more than six (6) months, the Parties hereto shall consult
with respect to an equitable solution, including the possible termination of
this Agreement.
13.6 Independent Contractors. Both Parties hereto are independent
-----------------------
contractors and are engaged in the operation of their own respective businesses,
and neither Party hereto is to be considered the agent or partner of the other
Party for any purpose whatsoever. Neither Party has any authority to enter into
any contracts or assume any obligations for the other Party or make any
warranties or representations on behalf of the other Party.
13.7 Advice of Counsel. Maxygen and Zeneca have each consulted
-----------------
counsel of their choice regarding this Agreement, and each acknowledges and
agrees that this Agreement
55
<PAGE>
shall not be deemed to have been drafted by one Party or another and will be
construed accordingly.
13.8 Severability. In the event that any provisions of this
------------
Agreement are determined to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of the Agreement shall remain in full force and
effect without said provision. The Parties shall in good faith negotiate a
substitute clause for any provision declared invalid or unenforceable, which
shall most nearly approximate the intent of the Parties in entering this
Agreement; provided, if the Parties are unable to agree on such a substitute
clause and the deletion of the provision held invalid or unenforceable would
produce material adverse financial consequences for one Party, such Party shall
have the right to terminate the Agreement with one hundred eighty (180) days
notice.
13.9 Patent Marking. To the extent commercially desirable, Zeneca
--------------
agrees to use reasonable efforts to mark and have its Affiliates and
Sublicensees mark all Zeneca Products they sell or distribute pursuant to this
Agreement in accordance with the applicable statute or regulations in the
country or countries of manufacture and sale thereof.
13.10 Compliance with Laws. Each Party shall furnish to the other
--------------------
Party any information requested or required by that Party during the term of
this Agreement or any extensions hereof to enable that Party to comply with the
requirements of any U.S. or foreign federal, state and/or government agency.
Each Party shall comply with all applicable U.S., foreign, state, regional and
local laws, rules and regulations relating to its activities to be performed
pursuant to this Agreement, including without limitation, the United States
Foreign Corrupt Practices Act, United States export regulations and such other
United States and foreign laws and regulations as may be applicable, and to
obtaining all necessary approvals, consents and permits required by the
applicable agencies of the government of the United States and foreign
jurisdictions.
13.11 Entire Agreement. This Agreement together with the attached
----------------
Exhibit, the written Project descriptions referred to in Section 2.7.4, and the
Stock Purchase Agreement entered by the Parties of even date herewith,
constitute the entire agreement, both written or oral, with respect to the
subject matter hereof, and supersede all prior or contemporaneous understandings
or agreements, whether written or oral, between Zeneca and Maxygen with respect
to such subject matter.
13.12 Headings. The captions to the several Sections and Articles
--------
hereof are not a part of this Agreement, but are included merely for convenience
of reference only and shall not affect its meaning or interpretation.
13.13 Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of the parties and their respective legal representatives,
successors and permitted assigns.
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13.14 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and which together shall
constitute one instrument.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed by their authorized representatives as of the Effective Date.
ZENECA LIMITED MAXYGEN, INC.
By: /s/ Lynton D. Boardman By: /s/ Isaac Stein
------------------------------ -------------------------------
Name: Lynton D. Boardman Name: Isaac Stein
--------------------------- ----------------------------
Title: Assistant Secretary Title: Chairman
--------------------------- ----------------------------
Zeneca Agrochemicals
58
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Exhibit A
[*******]
[Exhibit A identifies the specific crops and trait categories that are the
subject of this Agreement.]
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS]
EXHIBIT 16.2
November 22, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the paragraph comprising Change in Independent Auditors included in
the Form S-1 (Registration No. 333-89413) dated November 22, 1999, of Maxygen
Inc. and are in agreement with the third through fifth sentences, as revised
from the initial Form S-1 filing dated October 20, 1999, of the paragraph. We
have no basis to agree or disagree with any other statements contained in that
paragraph.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data", "Change in Independent Auditors", and "Experts" and to the use
of our report dated October 29, 1999, in Amendment No. 2 to the Registration
Statement (Form S-1, No. 333-89413) and related Prospectus of Maxygen, Inc. for
the registration of 6,325,000 shares of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
December 14, 1999
