<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ADVANCED MEDICINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
Delaware 2834 94-3265960
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
901 Gateway Boulevard
South San Francisco, California 94080
(650) 808-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
James B. Tananbaum, M.D.
President and Chief Executive Officer
901 Gateway Boulevard
South San Francisco, California 94080
(650) 808-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Jay K. Hachigian, Esq. Alan F. Denenberg, Esq.
Eric S. Palace, Esq. Shearman & Sterling
Kevin J. Sullivan, Esq. 1550 El Camino Real
Gunderson Dettmer Stough Menlo Park, CA 94025-4100
Villeneuve Franklin & Hachigian, LLP (650) 330-2200
1000 Winter Street, Suite 1100 (650) 330-2200
Waltham, MA 02451
(781) 890-8800
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common stock, $.01 par value................................ $172,500,000 $45,540
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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.
<PAGE>
Subject to Completion. Dated March , 2000.
Shares
[LOGO]
ADVANCED MEDICINE, INC.
Common Stock
-------------
This is an initial public offering of shares of common stock of Advanced
Medicine, Inc. All of the shares of common stock are being sold by
Advanced Medicine.
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 $ and $ . Advanced Medicine has applied for
quotation of its common stock on the Nasdaq National Market under the symbol
"ADVM".
At the request of Advanced Medicine, the underwriters have reserved up to
shares of common stock for sale to some of the existing stockholders of
Advanced Medicine. The underwriters have also reserved up to an additional
shares of common stock for sale to directors, officers and employees of
Advanced Medicine and others that Advanced Medicine believes have contributed to
its growth. Any sales of common stock made to these persons will be at the
initial public offering price.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT CERTAIN 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 UPON 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 Advanced Medicine............. $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Advanced Medicine 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 , 2000.
------------------
JOINT BOOK-RUNNING MANAGERS
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
-------------
BEAR, STEARNS & CO. INC.
-------------
Prospectus dated , 2000.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THOSE
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE
THEIR OVER-ALLOTMENT OPTION AND ASSUMES CONVERSION OF ALL OF OUR PREFERRED STOCK
INTO COMMON STOCK UPON COMPLETION OF THIS OFFERING.
ADVANCED MEDICINE
We are pioneering the discovery and development of multivalent drugs, a new
class of small molecule drugs that we believe have the potential to treat a
broad range of diseases. A multivalent drug simultaneously attaches to a
biological target at multiple sites, unlike a conventional drug that attaches to
only one site. We have shown that simultaneously attaching to multiple sites on
a target can multiply the binding strength and selectivity of a drug, thereby
significantly improving one or more of its key therapeutic properties, such as
potency, duration of action or safety. We have developed a proprietary,
interdisciplinary approach that combines biology and chemistry to efficiently
discover multivalent drugs. We believe that we are the leader in multivalent
technology. We have assembled a world-class scientific team from the
pharmaceutical and biotechnology industries to assist us in discovering
important new drugs.
We are initially applying our technology to discover and develop multivalent
drug candidates in substantial markets where current drugs fail to fully address
medical needs due to limitations in potency, duration of action or safety. We
have focused on several disease categories in a broad range of markets where we
believe our technology will provide a competitive advantage. These markets
currently include post-operative pain, neuropathic pain, asthma, bacterial
infection and urinary incontinence. In less than 30 months, our approach has
yielded multivalent lead compounds in programs related to these five markets. In
animal models that we believe are predictive of activity in humans, our
multivalent lead compounds have demonstrated substantial improvements in
potency, duration of action or safety when compared to leading conventional
drugs. One compound in our post-operative pain program has been advanced to
pre-clinical testing. In addition, we have initiated exploratory research
efforts into other significant therapeutic areas.
We expect that a variety of important new drug targets for chronic diseases
such as cancer, inflammation, and central nervous system disorders will emerge
from biomedical research. We expect that the majority of these targets will be
enzymes, receptors and ion channels, target types for which we have already
demonstrated the advantages of multivalency. We therefore believe that our
multivalent drug discovery technology will allow us to produce drug candidates
for some of these new targets. We plan to pursue some of these opportunities in
collaboration with partners.
BACKGROUND
Drugs achieve their desired effects by attaching to biological targets at
matching binding sites. Most drugs are small molecules. In 1999, 47 of the top
50 selling drug products were small molecules, with total annual worldwide sales
of approximately $69 billion. Conventional drug discovery focuses on optimizing
the strength and selectivity of binding between a small molecule and a single
binding site.
Many current drugs have limitations in potency, duration of action or safety
that have not been overcome through conventional approaches. We believe that
multivalent drugs have the potential to achieve substantial improvements in
these key properties because of the multiplicative effects on binding strength
and selectivity associated with simultaneous attachment at multiple sites.
2
<PAGE>
STRATEGY
Our objective is to discover, develop and commercialize important new drugs.
Currently, the pharmaceutical industry expends significant effort and resources
to make new compounds both for proven targets and for new targets that come from
biomedical research. Improving existing drugs for proven targets continues to be
a successful strategy; for example, seven of the top ten selling drug products
in 1999 were significant improvements to existing drugs that failed to fully
address medical needs. In addition, we believe that the many new targets
emerging from biomedical research and exploration of the human genome will
represent a significant opportunity to create new drugs. We intend to apply our
technology to both proven and emerging targets, initially focusing on targets
for which there are existing drugs that fail to fully address medical needs. To
achieve our objective, we intend to:
- discover and develop drug candidates for proven targets in large markets;
- retain significant commercial rights to multivalent drugs for proven
targets;
- collaborate with partners to discover and develop drug candidates for new
targets; and
- continue to enhance our technology platform.
OUR TECHNOLOGY
Our multivalent drug technology is based on an integration of the following
biological and chemical insights:
- many biological targets have multiple binding sites;
- molecules that simultaneously attach to multiple binding sites can do so
with greater strength and selectivity than molecules that attach to only
one binding site; and
- greater strength and selectivity in binding provides the basis for
superior therapeutic effects, including enhanced potency, increased
duration of action or improved safety.
We design multivalent compounds that consist of multiple individual drug
molecule components joined together by chemical linkers. A multivalent compound
can attach simultaneously to multiple binding sites on its intended target,
unlike a conventional drug that attaches to a single binding site. We optimize
the interactions between our multivalent compounds and multiple binding sites by
varying a unique series of multivalent drug design characteristics, including
the individual drug molecule components, the linker attachment points on these
components, linker length, geometry and physical properties. The result is a
multiplication of binding strength and selectivity, which in turn can yield
substantial improvements in potency, duration of action or safety.
We believe that we will be able to efficiently develop important drugs
because:
- multivalent compounds can achieve levels of binding strength and
selectivity that have not been achieved through conventional approaches;
- multivalent drug discovery enables us to determine early in the drug
discovery process whether we may be able to substantially improve potency,
duration of action, or safety as compared with the best current drugs; and
- we have selected initial projects with predictive animal models that we
believe improve the probability of success in human clinical trials.
3
<PAGE>
COMPANY INFORMATION
We were incorporated in Delaware in November 1996 and began operations in
May 1997. Our principal executive offices are located at 901 Gateway Boulevard,
South San Francisco, California 94080, and our telephone number is
(650) 808-6000. "Advanced Medicine" and the Advanced Medicine logo are
trademarks of Advanced Medicine, Inc. Other trademarks and tradenames appearing
in this prospectus are the property of their holders.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by Advanced Medicine.......... [ ] shares
Shares to be outstanding after the
offering................................... [ ] shares
Use of proceeds.............................. To provide working capital and for other
general corporate purposes, including
investment in the development of our
proprietary technologies. See "Use of
Proceeds".
Proposed Nasdaq National Market symbol....... ADVM
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the 10,232,000 shares of common stock outstanding as of March 1, 2000,
assuming conversion of all of our outstanding preferred stock into 28,802,000
shares of our common stock. This number does not include:
- 2,354,000 shares of common stock issuable upon the exercise of stock
options outstanding as of March 1, 2000 with a weighted average exercise
price of $0.83 per share;
- 53,000 shares of common stock issuable upon exercise of outstanding
warrants to purchase preferred stock as of March 1, 2000 with a weighted
average exercise price of $8.49 per share;
- an additional 1,254,000 shares reserved as of March 1, 2000 for future
stock option grants and purchases under our existing equity compensation
plans. See "Management--Employee Benefit Plans" and notes 8 and 10 of the
notes to our consolidated financial statements; and
- shares of common stock issuable upon conversion of our Series D
Preferred Stock. On March 20, 2000, we irrevocably committed to sell
1,666,667 shares of Series D Preferred Stock.
4
<PAGE>
SUMMARY FINANCIAL DATA
We were incorporated in November 1996 and began operations in May 1997. See
note 1 of the notes to our consolidated financial statements for an explanation
of the method used to determine the shares used in computing net loss and pro
forma net loss per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM INCEPTION
--------------------------------------- (NOVEMBER 19, 1996) TO
1997 1998 1999 DECEMBER 31, 1999
----------- ----------- ----------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development................ $ 1,834 $ 10,434 $ 32,729 $ 44,997
General and administrative.............. 1,313 2,665 4,901 8,879
Acquired in-process research............ -- -- 6,934 6,934
Amortization of deferred stock-based
compensation.......................... -- -- 2,424 2,424
Other stock-based compensation.......... -- -- 779 779
------- -------- -------- --------
Total operating expenses.................. 3,147 13,099 47,767 64,013
------- -------- -------- --------
Loss from operations...................... (3,147) (13,099) (47,767) (64,013)
Interest income, net...................... 183 834 6,636 7,653
------- -------- -------- --------
Net loss.................................. $(2,964) $(12,265) $(41,131) $(56,360)
======= ======== ======== ========
Net loss per share........................ $ (5.24) $ (6.65) $ (11.99)
======= ======== ========
Shares used in computing net loss per
share................................... 566 1,843 3,430
======= ======== ========
Pro forma net loss per share.............. $ (1.34)
========
Shares used in computing pro forma net
loss per share.......................... 30,776
========
</TABLE>
The following table presents a summary of our balance sheet at December 31,
1999:
- on an actual basis;
- on a pro forma basis to reflect the sale of 1,666,667 shares of Series D
preferred stock for proceeds of approximately $25 million; and
- on a pro forma as adjusted basis to reflect the sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share after deducting the underwriting
discount and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------- PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.......... $114,428 139,428
Working capital........................................... 105,847 130,847
Total assets.............................................. 147,175 172,175
Long-term liabilities..................................... 4,203 4,203 4,203
Deficit accumulated during the development stage.......... (56,360) (56,360) (56,360)
Total stockholders' equity................................ 132,272 157,272
</TABLE>
5
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK.
RISKS RELATED TO ADVANCED MEDICINE
MULTIVALENT DRUGS ARE UNPROVEN, MAY BE UNSAFE OR INEFFECTIVE IN HUMANS AND MAY
NEVER ACHIEVE COMMERCIAL SUCCESS.
Our multivalent technologies are new, in an early stage of development and
are commercially unproven. Because we are still in the preliminary stages of
drug discovery, we are uncertain whether any of our drug candidates will:
- be safe and effective in humans;
- meet applicable regulatory standards;
- be capable of being manufactured at reasonable costs; or
- achieve market acceptance.
We are not aware of any multivalent small molecule drugs on the market. To
date, the data supporting our concept is derived solely from laboratory and
animal testing. Therefore, our multivalent compounds may not be safe or
effective in the human body.
All of our multivalent compounds are in an early stage of development and
their risk of failure is high. We do not expect any of our drug candidates to be
commercially available for at least several years. Based on results at any stage
of development, however, we may decide to discontinue development of any of our
multivalent compounds. If we fail to establish that multivalent drugs are
effective, our business may not succeed.
THERE IS SIGNIFICANT UNCERTAINTY ASSOCIATED WITH OUR PRE-CLINICAL TESTING AND
CLINICAL DEVELOPMENT.
Pre-clinical testing and clinical development are long, expensive and
uncertain processes. It may take us several years to complete our testing, and
failure can occur at any stage of testing. Interim results of trials do not
necessarily predict final results, and acceptable results in early trials may
not be repeated in later trials.
A number of pharmaceutical and biotechnology companies have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. Commercialization of our drug candidates depends upon
successful completion of clinical trials. We must provide the Food and Drug
Administration and foreign regulatory authorities with clinical data that
demonstrates the safety and efficacy of our products before they can be approved
for commercial sale. None of our multivalent compounds have advanced into human
testing.
Any clinical trial may fail to produce results satisfactory to the FDA.
Pre-clinical and clinical data can be interpreted in different ways, which could
delay, limit or prevent regulatory approval. Negative or inconclusive results or
adverse medical events during a clinical trial could cause a clinical trial to
be repeated or a program to be terminated. We intend to rely on third-party
clinical investigators to conduct our clinical trials and other third-party
organizations to perform data collection and analysis, and as a result, we may
face additional delays outside of our control.
We do not know when or if we will begin clinical trials. Further, we do not
know whether, if undertaken, any clinical trials will result in marketable
products. Our product development costs will increase if we have delays in
testing or approvals or if we need to perform more or larger clinical
6
<PAGE>
trials than planned. If the delays are significant, our financial results and
the commercial prospects for our products will be harmed.
OUR INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES COULD AFFECT
OUR COMPETITIVE POSITION.
Our success will depend on our ability to obtain patents and maintain
adequate protection of the intellectual property related to our technologies and
products. We have invested in developing proprietary technologies and, as of
March 1, 2000, have filed 85 patent applications in the United States. We have
also filed 48 Patent Cooperation Treaty applications, which permit the pursuit
of patents outside of the United States. However, the patent positions of
pharmaceutical companies, including our patent position, are generally uncertain
and involve complex legal and factual questions. Our applications, therefore,
may be challenged or fail to result in issued patents.
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 currently have no issued patents protecting our multivalent technologies, and
any future patents we may obtain may be too narrow to prevent others from using
our technologies or from developing or designing around our patents. In
addition, any patents we may be issued could be challenged or invalidated by
third parties or fail to provide us with any competitive advantages. The laws of
some foreign countries do not protect proprietary rights to the same extent as
the laws of the United States. As a result, we may encounter significant
problems in protecting and defending our proprietary rights in foreign
countries.
For proprietary know-how that is not patentable and for processes for which
patents are difficult to enforce, we rely on trade secret protection and
confidentiality agreements to protect our interests. We believe that there are
elements of our drug discovery process that involve proprietary know-how and
technology that is not covered by patent applications. We have taken measures to
protect our proprietary know-how, technology and confidential data and continue
to explore further methods of protection. While we require all of our employees,
consultants and advisors to enter into confidentiality agreements, we cannot be
certain that proprietary information will not be disclosed, that competitors
will not independently develop substantially equivalent information and
techniques or otherwise gain access to our trade secrets, or that we can
meaningfully protect our trade secrets. Where it is necessary to share our
proprietary information or data with outside parties, our policy is to make
available only that information and data required to accomplish the desired
purpose and only pursuant to a duty of confidentiality on the part of those
parties. However, these measures may not adequately protect our information and
data. Any material disclosure of confidential information or data into the
public domain or to third parties may harm our business and financial condition.
IF THE DRUGS WE DEVELOP ARE NOT APPROVED BY REGULATORY AGENCIES, INCLUDING THE
FOOD AND DRUG ADMINISTRATION, WE WILL BE UNABLE TO COMMERCIALIZE THEM.
The Food and Drug Administration must approve any new drug before it can be
marketed and sold in the United States. The regulatory agencies of foreign
governments must also approve our drug candidates before they can be sold in
those countries. Before we can file a New Drug Application with the FDA or any
foreign governmental entity, the product candidate must undergo extensive
testing, including animal testing and human trials. These tests and trials can
take many years and require substantial expenditures and resources. Data
obtained from these tests and trials are susceptible to varying interpretations
that could delay, limit or prevent regulatory approval. In addition, changes in
regulatory policy during the period of product development and regulatory review
of each submitted new application may cause delays or rejections of the product.
Because our drug candidates are created using new technologies, they may be
subject to more intense review by United States and foreign regulatory
authorities. These government
7
<PAGE>
regulatory authorities may grant approvals more slowly for our drug candidates
than for drug candidates using more conventional technologies or may not grant
approval at all. We have not submitted any applications to the FDA or any
foreign regulatory agency for any drug candidate. We may not be permitted to
conduct human clinical trials to obtain the necessary approvals from the FDA or
foreign regulatory agencies for our drug candidates.
Even after investing significant time and expenditures, we may fail to
obtain regulatory approval for our drug candidates. In addition, even if we
receive regulatory approval, this approval may include limitations on the
indicated uses for which we can market the drugs. Further, if we obtain
regulatory approval, a marketed drug and its manufacturer are subject to
continual review, including review and approval of the manufacturing facilities.
Discovery of previously unknown problems with a drug may result in restrictions
on permissible uses of the drug or the manufacturer, including withdrawal of the
drug from the market.
WE MAY NEVER BECOME PROFITABLE, AND IF WE DO ACHIEVE PROFITABILITY WE MAY FAIL
TO MAINTAIN IT.
We have incurred operating losses in each year since our inception and
expect to continue to incur substantial and increasing losses for the
foreseeable future. We have not generated any revenue and we cannot estimate the
extent of our future losses. As a result, we are uncertain when or if we will
achieve profitability and, if so, whether we will be able to sustain it. We have
been engaged in discovering and developing drugs since mid 1997. As of
December 31, 1999, we had an accumulated deficit of approximately
$56.4 million. Failure to become and remain profitable may adversely affect the
market price of our common stock and our ability to raise capital and continue
operations.
OUR LACK OF MANUFACTURING, SALES, MARKETING AND DISTRIBUTION EXPERIENCE MAY
PREVENT US FROM SUCCESSFULLY COMMERCIALIZING OUR PRODUCTS.
We currently have no commercial manufacturing, sales, marketing or
distribution capabilities. In addition, we have not produced any drugs for
commercial use. We expect to incur substantial costs to develop a manufacturing,
sales, marketing and distribution network to commercialize our products. We may
outsource these functions to third parties that may not employ the same controls
that we would have if we kept these operations in-house. In addition, third
parties may be less responsive in meeting time sensitive deadlines than we would
because of their obligations to multiple clients. We may fail to develop these
functions internally or establish relationships with third parties in a timely
or cost effective manner. If we enter into co-promotion, licensing or
distribution arrangements with third parties, we would be dependent on the
efforts of third parties, and our share of product revenue may be less than if
we marketed and sold our products directly.
WE MAY LACK THE FINANCIAL AND OPERATIONS RESOURCES NEEDED TO COMPETE EFFECTIVELY
WITH OTHER PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES.
We face, and will continue to face, intense competition from other
pharmaceutical and biotechnology companies, as well as academic and research
institutions and governmental agencies. Any drug candidates that we successfully
develop may compete with existing therapies that have long histories of safe and
effective use. Our major competitors include fully integrated pharmaceutical
companies and biotechnology companies that have substantial drug discovery
efforts and are discovering and developing novel pharmaceuticals. Competition
may also arise from other drug development technologies and methods of
preventing and reducing the incidence of disease that now exist or may exist in
the future. In addition, as the principles of multivalent drug design become
more widely known, we expect to face increasing competition from organizations
that pursue the same or similar approaches. Further, many of these companies and
institutions,
8
<PAGE>
either alone or together with their collaborative partners, have substantially
greater financial resources and have significantly greater experience than we do
in:
- developing products;
- undertaking pre-clinical testing and clinical trials;
- obtaining FDA and other regulatory approvals of products; and
- manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing superior multivalent drugs or other
competing drugs before us.
IF WE LOSE KEY SCIENTISTS, MANAGEMENT PERSONNEL OR SCIENTIFIC ADVISORS, OR IF WE
FAIL TO RECRUIT ADDITIONAL HIGH-QUALITY PERSONNEL, IT WILL IMPAIR OUR ABILITY TO
DISCOVER AND DEVELOP PRODUCTS.
We are highly dependent on principal members of our management team and
scientific staff, including our Chief Executive Officer, James B. Tananbaum; our
Chairman of the Board of Directors, P. Roy Vagelos; and our Senior Vice
President of Research, Burton G. Christensen. The loss of any one or more of
these persons may prevent us from executing our business strategy. In addition,
recruiting and retaining qualified scientific personnel or advisors to perform
future research and development work will be critical to our success. There is
currently a shortage of skilled executives and employees with technical
expertise, and this shortage is likely to continue. As a result, competition for
skilled personnel is intense. If we are unable to preserve our relationships
with existing employees and advisors, or cannot attract additional qualified
employees or advisors, it will impair our ability to discover and develop
products.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO SUCCESSFULLY DEVELOP OUR PRODUCTS AND EXECUTE OUR BUSINESS STRATEGY.
Our strategy of investing in and retaining rights to our proprietary
technologies creates a need for large amounts of capital. We expect our capital
requirements to increase in the future as we:
- continue our drug discovery and development efforts;
- develop our sales, marketing and distribution capabilities; and
- take advantage of new opportunities in drug discovery, development and
commercialization.
We believe that the proceeds from this offering, together with our cash and
cash equivalents and marketable securities, will be sufficient to meet our
anticipated operating needs for at least the next twelve months. We expect to
require additional capital after that period. We may need to raise additional
funds prior to that time if we expand more rapidly than we anticipate. We may
seek to sell additional equity or debt securities or obtain a bank credit
facility. The sale of additional equity or debt securities, if convertible,
could result in dilution to our stockholders. The incurrence of indebtedness
would result in increased fixed obligations and could also result in covenants
that would restrict our operations. In addition, we cannot guarantee that future
financing will be available in amounts or on terms acceptable to us, if at all.
IF WE LOSE OUR RELATIONSHIPS WITH THIRD-PARTY SERVICE PROVIDERS, OUR DRUG
DEVELOPMENT EFFORTS COULD BE DELAYED.
We are dependent on third-party vendors and clinical research organizations
for selected service functions related to our drug discovery and development
efforts. These third parties provide bulk manufacturing and pharmaceutical
formulation services and conduct pre-clinical testing and clinical trials. We
generally have relationships with only one provider for each of these services.
If we lose our relationship with any one or more of these providers, we could
experience a significant delay in both identifying another comparable provider
and then contracting for its services. Even if
9
<PAGE>
we locate an alternative provider, it is likely that this provider may need
additional time to respond to our needs and may not provide the same type or
level of services as the original provider. In addition, we may be unable to
retain an alternative provider on reasonable terms, if at all. The occurrence of
any of these events may delay the development or commercialization of our drug
candidates.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH. THESE DIFFICULTIES COULD
INCREASE OUR LOSSES.
We have experienced a period of substantial growth that has placed and, if
this growth continues, will continue to place a strain on our human and capital
resources. If we are unable to manage this growth effectively, our losses could
increase. Our headcount increased from 26 at December 31, 1997 to 176 at
December 31, 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. 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 our day-to-day operations.
IF WE ENGAGE IN ANY ACQUISITION, WE WILL INCUR A VARIETY OF COSTS, AND WE MAY
NEVER REALIZE THE ANTICIPATED BENEFITS OF THAT 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, such as our recent acquisition of the net assets of
Incara Research Laboratories. We currently have no commitments or agreements
with respect to any other acquisitions. However, if we do undertake any
acquisitions, the process of integrating an acquired business, technology,
service or product into our business may result in unforeseen operating
difficulties and expenditures, including diversion of resources and management
attention from ongoing development of our core business. Future acquisitions
could result in the additional issuances of equity securities that would dilute
the ownership of existing stockholders. Future acquisitions could also result in
the incurrence of debt, contingent liabilities or the amortization of expenses
related to other intangible assets, any of which could adversely affect our
operating results. In addition, we may fail to realize the anticipated benefits
of any acquisition.
OUR OUTSIDE SCIENTIFIC ADVISORS MAY DEVOTE INSUFFICIENT TIME TO US OR MAY HAVE
CONFLICTS OF INTEREST.
We work with scientific advisors at academic and other institutions. In
addition, many of our advisors are retired executives from major pharmaceutical
companies. These scientists are not our employees and have other commitments
that limit their availability to us. Some of our advisors provide services to
companies or institutions that currently have or may develop competing products
or technologies. Although each of our scientific advisors generally agrees not
to do competing work, if a conflict of interest between an advisor's work for us
and his services for another entity arises, we may lose his services.
LITIGATION OR THIRD PARTY CLAIMS OF INTELLECTUAL PROPERTY COULD REQUIRE US TO
DIVERT RESOURCES AND MAY PREVENT US FROM EXECUTING OUR BUSINESS STRATEGY.
Our commercial success depends in part on not infringing upon the patents
and proprietary rights of third parties. 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 upon these patents. Defense of these claims or enforcing our rights
against others would divert substantial financial and employee resources from
our business. Furthermore, parties making claims against us may obtain
injunctive or other equitable relief, which
10
<PAGE>
could effectively block our ability to further develop and commercialize our
drug candidates. In the event of a successful claim of infringement against us,
we may have to pay substantial damages, obtain one or more licenses from third
parties or pay royalties. We may fail to obtain these licenses at a reasonable
cost or on reasonable terms, if at all. In that event, we would be unable to
execute our business strategy.
PRODUCT LIABILITY LAWSUITS COULD DIVERT OUR RESOURCES, RESULT IN SUBSTANTIAL
LIABILITIES AND REDUCE THE COMMERCIAL POTENTIAL OF OUR DRUGS.
The risk that we may be sued on product liability claims is inherent in the
development of pharmaceutical products. These lawsuits may divert our management
from pursuing our business strategy and may be costly to defend. In addition, if
we are held liable in any of these lawsuits, we may incur substantial
liabilities and may be forced to limit or forego further commercialization of
those products. Although we intend to obtain general liability and product
liability insurance, this insurance may not fully cover potential liabilities.
In addition, inability to obtain sufficient insurance coverage at an acceptable
cost or to otherwise protect against potential product liability claims could
prevent or inhibit the commercial production and sale of our drugs.
HEALTH CARE REFORM AND RESTRICTIONS ON REIMBURSEMENTS MAY LIMIT OUR RETURNS ON
PHARMACEUTICAL PRODUCTS.
Our ability to commercialize pharmaceutical products may depend in part on
the extent to which reimbursement for the cost of these products to the consumer
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 pharmaceutical 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.
IF WE USE HAZARDOUS AND BIOLOGICAL MATERIALS IN A MANNER THAT CAUSES INJURY OR
VIOLATES APPLICABLE LAW, WE MAY BE LIABLE FOR DAMAGES.
Our research and development activities involve the controlled use of
potentially hazardous substances, including chemical, biological and radioactive
materials. In addition, our operations produce hazardous waste products. We
cannot eliminate the risk of accidental contamination or discharge and the
resultant injury which may result from a discharge of these materials and may
subject us to substantial federal and state criminal and civil liability.
Federal, state and local laws and regulations govern the use, manufacture,
storage, handling and disposal of hazardous materials. Compliance with these
laws and regulations may be expensive, and current or future environmental
regulations may impair our research, development and production efforts.
OUR PRINCIPAL FACILITY IS 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 principal facility is located in the San Francisco Bay Area near known
earthquake fault zones and therefore is vulnerable to damage from earthquakes.
In October 1989, a major earthquake struck this area and caused significant
property damage and a number of fatalities. 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 facility could be seriously 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 this type of disaster.
The insurance we maintain may not be adequate to cover our losses resulting from
disasters or other similar business interruptions.
11
<PAGE>
RISKS RELATED TO THIS OFFERING
CONCENTRATION OF OWNERSHIP WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE
MATTERS.
Immediately following this offering, our directors, executive officers and
affiliates will beneficially own approximately % of our outstanding common
stock or % if some of our existing stockholders purchase all of the
shares which we have reserved for them in this offering. These stockholders
could determine the outcome of actions taken by us that require stockholder
approval. For example, these stockholders could elect all of our directors,
delay or prevent a transaction in which stockholders might receive a premium
over the prevailing market price for their shares and control changes in
management. As a result, our non-affiliated stockholders, by themselves, will be
unable to direct or influence the direction of corporate matters through their
votes.
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
Prior to this offering, there has been no public market for our common
stock. Following this offering, the price at which our common stock will trade
may be extremely volatile and may fluctuate significantly. Negotiations between
the underwriters and us will determine the initial public offering price and may
not be indicative of future market prices. Among the factors to be considered in
determining the initial public offering price of our common stock, in addition
to prevailing market conditions, will be:
- our historical performance;
- estimates of our business potential and earnings prospects;
- an assessment of our management; and
- the consideration of the above factors in relation to market valuations of
companies in related businesses.
The market prices for securities of biotechnology companies in general have
been highly volatile and may continue to be volatile in the future. The
following factors, in addition to the other risk factors described in this
section, may have a significant impact on the market price of our common stock:
- announcements of technological innovations or new commercial products by
us or our competitors;
- developments concerning proprietary rights, including patents;
- developments concerning any collaboration we may undertake;
- publicity regarding actual or potential testing or trial results relating
to products under development by us or our competitors;
- regulatory developments in the United States and foreign countries;
- product liability, intellectual property or other material litigation;
- economic and other external factors beyond our control; or
- period-to-period fluctuations in financial results.
As a result of these various factors, after this offering you might be
unable to resell your shares at or above the initial public offering price.
12
<PAGE>
A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD BE SOLD INTO THE PUBLIC
MARKET SOON AFTER THIS OFFERING, WHICH COULD DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering or the perception that these sales could occur. Once a trading market
develops for our common stock, many of our stockholders will have an opportunity
to sell their stock for the first time. More than shares, or
times the number of shares sold in this offering, assuming no exercise of the
underwriters' over-allotment option, will become eligible for sale in the public
market at various dates beginning 180 days after the date of this prospectus,
including shares which may be purchased by some of our existing
stockholders in this offering. These factors could also make it difficult for us
to raise additional capital by selling stock. See "Shares Eligible for Future
Sale".
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE PRO FORMA AS ADJUSTED
NET TANGIBLE BOOK VALUE OF THE STOCK YOU PURCHASE.
We estimate that the initial public offering price of our common stock will
be $ per share. This amount is substantially higher than the pro forma as
adjusted net tangible book value, assuming exercise of the over-allotment
option, of $ per share that our outstanding common stock will have
immediately after this offering. Accordingly, if you purchase shares of our
common stock at its assumed initial public offering price, you will incur
immediate and substantial dilution of $ per share. If the holders of
outstanding options or warrants exercise those options or warrants, you will
suffer further dilution.
In addition, the issuance or exercise of additional options or warrants to
purchase our common stock could be dilutive to purchasers of shares in this
offering.
BECAUSE AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP AFTER THIS
OFFERING, IT MAY BE DIFFICULT FOR YOU TO SELL YOUR SHARES.
There was no public market for our common stock before this offering. We do
not know the extent to which investor interest will lead to the development of a
trading market. If an active and liquid trading market does not develop for our
common stock, you may have difficulty selling your shares.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expects", "plans",
"anticipates", "believes", "estimated", "predicts", "potential", or "continue"
or the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by those forward-looking statements. These factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform
forward-looking statements to actual results.
13
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of shares of common
stock in this offering to be approximately $ at an estimated initial public
offering price of $ per share and after deducting the underwriting discount
and estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, we estimate the net proceeds will be $ .
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets.
We expect to use the net proceeds for working capital and other general
corporate purposes, including investment in the development of our proprietary
technologies and the expansion of our business. We have not allocated any
specific portion of the net proceeds to any particular purpose, and our
management will have the discretion to allocate the proceeds at its determines.
We may use a portion of the net proceeds for the acquisition of businesses,
products and technologies that are complementary to our own. We intend to invest
the net proceeds of this offering in short-term, interest-bearing,
investment-grade securities until they are used.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We presently
intend to retain future earnings, if any, to finance the development of our
proprietary technologies and the expansion of our business. Payment of future
dividends, if any, will be at the discretion of our board of directors after
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization of as of December 31,
1999:
- on an actual basis;
- on a pro forma basis to reflect:
- the sale of 1,666,667 shares of Series D preferred stock for proceeds
of approximately $25 million which will convert into shares of our
common stock; and
- the conversion of all of our outstanding Series A, Series B and
Series C preferred stock into 28,802,000 shares of common stock, which
will occur upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of the
shares of common stock offered in this offering at an assumed
initial public offering price of $ per share after deducting the
underwriting discount and estimated offering expenses.
You should read this information together with our consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion................. $ 4,203 $ 4,203 $ 4,203
-------- -------- -------
Stockholders' equity:
Preferred stock, $0.01 par value; no shares authorized,
issued and outstanding, actual and pro forma; 10,000,000
shares authorized, no shares issued and outstanding, pro
forma as adjusted....................................... -- -- --
Convertible preferred stock, $0.01 par value; 40,000,000
shares authorized, 28,802,000 shares issued and
outstanding, actual; shares authorized, none
issued and outstanding pro forma and pro forma as
adjusted................................................ 185,209 -- --
Common stock, $0.01 par value; 100,000,000 shares
authorized 9,406,000 shares issued and outstanding,
actual; 190,000,000 shares authorized, shares
issued and outstanding, pro forma; shares issued
and outstanding, pro forma as adjusted.................. 2,348 212,557
Additional paid-in capital................................ 12,722 12,722 12,722
Notes receivable from stockholders........................ (2,128) (2,128) (2,128)
Deferred stock-based compensation......................... (9,519) (9,519) (9,519)
Deficit accumulated during the development stage.......... (56,360) (56,360) (56,360)
-------- -------- -------
Total stockholders' equity.............................. 132,272 157,272
-------- -------- -------
Total capitalization.................................. $136,475 $161,475 $
======== ======== =======
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of December 31, 1999 and excludes:
- 1,260,000 shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $0.82 per share;
- 73,000 shares of common stock issuable upon exercise of outstanding
warrants to purchase common and preferred stock with a weighted average
exercise price of $6.40 per share; and
- an additional 604,000 shares reserved as of December 31, 1999 for future
stock option grants and purchases under our existing equity compensation
plans.
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<PAGE>
DILUTION
Our net tangible book value per share immediately after this offering will
be substantially less than the initial public offering price. Our pro forma net
tangible book value as of December 31, 1999 was $153,856,000 or per share. Pro
forma net tangible book value per share represents the pro forma amount of total
tangible assets less total liabilities, divided by the number of pro forma
shares of common stock outstanding after giving effect to the conversion of our
outstanding preferred stock into shares of common stock and the effect of our
sale of 1,666,667 shares of Series D preferred stock for proceeds of
approximately $25 million. After giving effect to the sale by us of the
shares of common stock in this offering at an assumed initial
public offering price of $ per share, after deducting the underwriting
discount and estimated offering expenses, our pro forma as adjusted net tangible
book value as of December 31, 1999 would have been $ million, or $ per
share. This represents an immediate increase in pro forma as adjusted net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to investors purchasing common stock in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
December 31, 1999....................................... $
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment option,
our pro forma as adjusted net tangible book value at December 31, 1999 would
have been approximately $ per share, representing an immediate increase in
the pro forma net tangible book value of $ per share to our existing
stockholders and an immediate decrease in net tangible book value of $ per
share to new investors.
The following table summarizes, on a pro forma as adjusted basis, as of
December 31, 1999, the difference between the number of shares of common stock
purchased from us, the total consideration paid to us, and the average price per
share paid by existing stockholders and by new investors at an assumed initial
public offering price of $ per share, before deducting the underwriting
discount and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $218,283,000 % $
New investors............................. $
---------- ------ ------------ ------
Total................................... 100.0% $ 100.0%
========== ====== ============ ======
</TABLE>
The discussion and the tables above assume no exercise of stock options or
warrants outstanding on December 31, 1999 and no issuance of shares reserved for
future issuance under our equity plans. As of December 31, 1999, there were:
- 1,260,000 shares of common stock issuable upon exercise of outstanding
options with a weighted average exercise price of $0.82 per share;
- 73,000 shares of common stock issuable upon exercise of outstanding
warrants to purchase common and preferred stock with a weighted average
exercise price of $6.40 per share; and
- an additional 604,000 shares reserved for future stock option grants and
purchases under our existing equity compensation plans.
16
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data presented below for the fiscal years ended
December 31, 1997, 1998 and 1999, and the balance sheet data as of December 31,
1998 and 1999, have been derived from our consolidated financial statements
which have been audited by Ernst & Young LLP, independent auditors, and are
included elsewhere in this prospectus. The period from our inception
(November 19, 1996) to December 31, 1996 has been included in the consolidated
statement of operations for the year ended December 31, 1997 because the
operating loss in this period was less than $1,000. The balance sheet data as of
December 31, 1997 has been derived from our audited financial statements which
are not included in this prospectus. You should read the data presented below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM INCEPTION
------------------------------------ (NOVEMBER 19, 1996) TO
1997 1998 1999 DECEMBER 31, 1999
-------- -------- -------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development............. $ 1,834 $ 10,434 $ 32,729 $ 44,997
General and administrative........... 1,313 2,665 4,901 8,879
Acquired in-process research......... -- -- 6,934 6,934
Amortization of deferred stock-based
compensation....................... -- -- 2,424 2,424
Other stock-based compensation....... -- -- 779 779
------- -------- -------- --------
Total operating expenses............... 3,147 13,099 47,767 64,013
------- -------- -------- --------
Loss from operations................... (3,147) (13,099) (47,767) (64,013)
Interest income, net................... 183 834 6,636 7,653
------- -------- -------- --------
Net loss............................... $(2,964) $(12,265) $(41,131) $(56,360)
======= ======== ======== ========
Net loss per share..................... $ (5.24) $ (6.65) $ (11.99)
======= ======== ========
Shares used in computing net loss per
share................................ 566 1,843 3,430
======= ======== ========
Pro forma net loss per share........... $ (1.34)
========
Shares used in computing pro forma net
loss per share....................... 30,776
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $3,471 $15,242 $114,428
Working capital............................................. 2,916 12,637 105,847
Total assets................................................ 4,395 20,874 147,175
Long-term liabilities....................................... 499 1,610 4,203
Deficit accumulated during development stage................ (2,964) (15,229) (56,360)
Total stockholders' equity.................................. 3,296 16,437 132,272
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS".
OVERVIEW
We are pioneering the discovery and development of multivalent drugs, a new
class of small molecule drugs that we believe have the potential to treat a
broad range of diseases. We have incurred net losses in each of the last three
years of approximately $3.0 million in 1997, $12.3 million in 1998 and
$41.1 million in 1999. As of December 31, 1999, we had an accumulated deficit of
approximately $56.4 million. We expect to incur substantial and increasing
losses for at least the next several years as we continue to invest in research
and development. We also expect to incur additional substantial charges related
to stock-based compensation.
RECENT ACQUISITION
On December 29, 1999, we acquired the net assets of Incara Research
Laboratories, a division of Incara Pharmaceuticals Corporation, for
$11.0 million in cash. We agreed to pay Incara Pharmaceuticals Corporation up to
an additional $4.0 million if we receive milestone payments under a research
collaboration and license agreement assumed by us as part of the acquisition.
The transaction has been recorded as a purchase for accounting purposes.
Consequently, the operating results of Incara Research Laboratories have been
included in our consolidated financial statements from the date of acquisition.
The purchase price has been allocated to the acquired net tangible and
intangible assets based upon their respective estimated fair values as of the
date of acquisition. Net tangible and intangible assets totaling $4.1 million
will be amortized over their estimated useful lives, generally between three and
seven years, resulting in charges to the consolidated statement of operations in
future periods. In-process research totaling $6.9 million was charged to
operations in 1999 because in our opinion, the technological feasibility of the
acquired in-process research had not yet been established at the time of the
acquisition. See note 2 of the notes to our consolidated financial statements.
In connection with the acquisition, we assumed the rights and obligations
under some sponsored research agreements and several license agreements. Under
the sponsored research agreements, we are obligated to fund research in return
for the right to license inventions resulting from the research. The license
agreements generally provide us with exclusive worldwide rights to some
technologies in exchange for license fees and royalties. We may terminate these
agreements generally with six months' notice. Unless these agreements are
amended or terminated, we expect to incur up to $1.0 million in annual research
related expenses until at least 2007.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other personnel-related expenses, laboratory supplies,
contract research costs for pre-clinical testing, and facility-related costs,
including depreciation. Research and development expenses were $1.8 million in
the year ended December 31, 1997, compared to $10.4 million in 1998 and
$32.7 million in 1999. The increases in these expenditures were primarily due to
increased staffing, contract research, and facility costs. The expenses in 1999
include $4.2 million in
18
<PAGE>
additional amortization resulting from the reduction in the useful lives of
leasehold improvements to coincide with the remaining period in which we
expected to use the related facility. We intend to continue to devote
substantial resources to research and development. We expect research and
development expenses to increase in future periods as a result of our
acquisition of the net assets of Incara Research Laboratories, increased
personnel costs, higher costs associated with a new facility, and as product
candidates advance into later stages of development.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel costs to support our research and development activities,
facility-related costs and professional fees. General and administrative
expenses were $1.3 million for the year ended December 31, 1997, compared to
$2.7 million in 1998 and $4.9 million in 1999. The increase from year to year
was primarily attributable to higher employee and facility costs to manage and
support our rapid growth. We expect that general and administrative expenses
will increase as we increase staffing to manage and support continued growth of
our research and development efforts and as we accommodate new demands
associated with operating as a public company.
ACQUIRED IN-PROCESS RESEARCH. Acquired in-process research of $6.9 million
was expensed during 1999 in connection with our acquisition of the net assets of
Incara Research Laboratories, which was effective December 29, 1999. See note 2
of the notes to our consolidated financial statements.
AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION. Deferred stock-based
compensation is the difference between the deemed fair value for financial
accounting purposes of our common stock on the date such stock options were
granted and their exercise price. During 1999, approximately $11.9 million of
deferred stock-based compensation was recorded. This amount is being amortized
over the vesting period of the related options, generally four years. We
recorded amortization of deferred stock-based compensation of $2.4 million in
1999. There was no amortization of deferred stock-based compensation in the
years ended December 31, 1997 and 1998.
In February 2000, we recorded an additional $14.0 million in deferred
stock-based compensation related to new stock options granted to employees. We
also recorded $22.0 million in stock-based compensation expense in February 2000
and $8.9 million in deferred stock-based compensation as a result of shortening
the vesting periods for some stock options from nine years to six years, which
resulted in a new measurement date for financial accounting purposes. The
amortization of deferred stock-based compensation related to stock options
granted through February 2000 as well as the charge recorded for the options
with accelerated vesting will aggregate $36.6 million for the year ending
December 31, 2000.
OTHER STOCK-BASED COMPENSATION. Other stock-based compensation consists of
options granted to non-employees, which are valued using the Black-Scholes
method. These options may be subject to periodic re-valuation over their vesting
terms based on changes in the value of our common stock. As a result, other
stock-based compensation charges in future periods may vary significantly. Other
stock-based compensation expense is recorded over the period that service is
being rendered by these non-employees. We recorded other stock-based
compensation expenses of $779,000 in 1999. There was no other stock-based
compensation recorded in the years ended December 31, 1997 and 1998. The charge
in 1999 consisted of $673,000 for the stock options issued to non-employees and
$106,000 to record the value of warrants granted to a broker in connection with
securing the lease agreement for our new facility. See note 7 of the notes to
our consolidated financial statements.
19
<PAGE>
INTEREST INCOME, NET
Net interest income represents income earned on our cash, cash equivalents
and marketable securities balances, offset by interest expense incurred on notes
and capital leases. Net interest income was $183,000 in the year ended
December 31, 1997, compared to $834,000 in 1998 and $6.6 million in 1999. The
increases in 1998 and 1999 were due to higher average cash balances resulting
from the proceeds received from our preferred stock financings.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the net
proceeds from private placements of preferred stock, totaling $185.2 million in
aggregate net proceeds. As of December 31, 1999, we had $114.4 million in cash,
cash equivalents and marketable securities, excluding $4.7 million in restricted
cash and cash equivalents. We maintain our cash and investment portfolio in
depository accounts and highly liquid, interest bearing, investment grade
securities.
Our operating activities used cash of $2.4 million for the year ended
December 31, 1997, compared to $10.1 million in 1998 and $20.2 million in 1999.
Cash used in operating activities related primarily to funding net operating
losses, excluding non-cash charges primarily associated with depreciation,
amortization, acquired in-process research and stock-based compensation.
Our investing activities used cash of $2.6 million for the year ended
December 31, 1997, compared to $12.8 million in 1998 and $25.2 million in 1999.
Additions of property and equipment were $470,000 during the year ended
December 31, 1997, compared to $3.0 million in 1998 and $17.9 million in 1999.
Of the total property and equipment additions in 1999, approximately
$12.3 million related to leasehold improvements and equipment for our new
facility, which we occupied in February 2000. Our investing activities in 1999
also included $11.0 million in cash related to the acquisition of the net assets
of Incara Research Laboratories. We expect to continue to make significant
investments in research and development and our administrative infrastructure,
including the purchase of property and equipment to support our expanding
operations.
Financing activities provided cash of $6.4 million for the year ended
December 31, 1997, compared to $24.9 million in 1998 and $153.4 million in 1999.
These amounts consist primarily of net proceeds we received from the sale of
preferred stock and proceeds from the issuance of common stock. As of
December 31, 1999, we had $6.6 million available under an equipment financing
arrangement, which we expect to utilize fully in 2000. As a result, we expect
that payments under our capital lease obligations will increase in 2000.
We believe that the net proceeds from this offering, together with our
current cash, cash equivalents and marketable securities, will be sufficient to
satisfy our anticipated operating needs for working capital, capital
expenditures, and commitments for at least the next twelve months. However, it
is possible that we may seek additional financing within this timeframe. We may
raise 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, if at all. 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.
YEAR 2000
To date, we have not experienced any significant disruptions in critical
information and non-information technology systems and believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues,
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either with our internal systems, or the products and services of third parties
that we rely on for our operations. We will continue to monitor our critical
computer applications and those of our suppliers and vendors throughout the year
2000 to ensure that latent Year 2000 matters that may arise are addressed
promptly.
DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial
position, operating results or cash flows due to changes in United States
interest rates. 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 and highly liquid, interest bearing,
investment grade securities. The securities in our investment portfolio are not
leveraged, are classified as available-for-sale and, due to their very
short-term nature, are 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
significant negative impact on the realized value of our investment portfolio.
Our outstanding capital lease obligations and notes payable are all at fixed
interest rates, and therefore, have minimal exposure to changes in interest
rates.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement of Financial Accounting Standards No. 133
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. In July 1999, the Financial
Accounting Standards Board announced the delay of the effective date of
Statement of Financial Accounting Standards No. 133 for one year, to the first
quarter of 2001. To date, we have not engaged in derivative or hedging
activities.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1
requires that entities capitalize certain costs related to internal use software
once certain criteria have been met. We have adopted the provisions of SOP 98-1
on January 1, 1999. We capitalized costs totaling approximately $856,000 related
to software placed in service during December 1999 in accordance with SOP 98-1.
The expected asset life is 36 months.
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BUSINESS
We are pioneering the discovery and development of multivalent drugs, a new
class of small molecule drugs that we believe have the potential to treat a
broad range of diseases. We have developed a proprietary, interdisciplinary
approach that combines biology and chemistry to efficiently discover multivalent
drugs. We believe that we are the leader in multivalent technology. We have
assembled a world-class scientific team from the pharmaceutical and
biotechnology industries to assist us in discovering important new drugs.
CONVENTIONAL SMALL MOLECULE DRUG DISCOVERY
Most drugs are small molecules. In 1999, 47 of the top 50 selling drug
products were small molecules, with total annual worldwide sales of
approximately $69 billion. Small molecule drugs work by attaching to biological
targets at matching binding sites. Biological targets generally fall into one of
three types: enzymes, receptors and ion channels. Enzymes promote biochemical
reactions, while receptors and ion channels regulate biological responses and
cellular communication. A binding site is a specific region on a biological
target into which a drug is designed to fit, analogous to a key fitting into a
lock.
The initial step in designing a drug to treat a specific disease is to
identify a biological target that plays a role in the disease process.
Scientists have identified several hundred targets for which drugs have been
proven effective. We expect that advances in biomedical research will add
significantly to this number. Once scientists have identified a target, they can
attempt to treat the disease by creating a drug that is safe and interacts with
this target effectively.
Safety and efficacy considerations are addressed by creating a drug that is
well matched to the binding site on its intended target, allowing it to bind
tightly and precisely. Tight binding between a drug and its binding site permits
more effective and longer interaction between the drug and the target, resulting
in greater potency and duration of action. The more precise the fit between the
drug and the binding site on its intended target, the better the drug can
discriminate between its intended target and similar binding sites on unintended
targets. A precise fit can therefore minimize undesired and possibly toxic side
effects. The physical properties of a drug, such as charge and solubility, also
affect how it can be administered into the body, how it distributes within the
body and how readily it is cleared from the body.
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[LOGO]
[Diagram depicting the attachment of a small molecule drug to an intended target
and to an unintended target.]
It is difficult to create a superior drug because optimizing a structure
often requires accepting a compromise among potency, duration of action and
safety.
POTENCY. Potency is a measure of a drug's ability to exert its desired
therapeutic effect. Sub-optimal binding strength between a drug and its intended
target limits the potency of many existing drugs. For example, many
drug-resistant bacteria have targets that are not tightly bound by existing
antibiotics. As a result, these drugs lack sufficient potency to effectively
treat infections caused by these organisms.
DURATION OF ACTION. Duration of action is a measure of the length of time a
drug exerts its therapeutic effect. The duration of action of many existing
drugs is limited by sub-optimal binding strength between the drugs and their
intended targets. For example, current local anesthetics used for the treatment
of post-operative pain provide insufficient duration of action, resulting in
substantial post-operative discomfort.
SAFETY. Safety is a measure of the number and severity of side effects
produced by a drug. Side effects are often the result of a drug binding to
unintended targets. For example, current drugs for the treatment of urinary
incontinence do not effectively discriminate between intended and unintended
targets, and therefore produce side effects such as severe dry mouth,
constipation and blurred vision.
Pharmaceutical companies seek to create superior drugs by improving upon
existing drugs or by identifying new classes of drugs. Conventional drug
discovery involves systematic trial and error that includes making incremental
atom-by-atom changes to find the best fit between a drug and a
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single binding site. This process is expensive and time-consuming, with an
average cost from discovery through development of approximately $500 million.
THE ADVANCED MEDICINE ADVANTAGE
We are pioneering the discovery and development of multivalent drugs, a new
class of small molecule drugs that we believe have the potential to treat a
broad range of diseases. A multivalent drug simultaneously attaches to a
biological target at multiple sites, unlike a conventional drug that attaches to
only one site. We have shown that simultaneously attaching to multiple sites on
a target can multiply the binding strength and selectivity of a drug, thereby
significantly improving one or more of its key therapeutic properties, such as
potency, duration of action or safety. We have developed a proprietary,
interdisciplinary approach that combines biology and chemistry to efficiently
discover multivalent drugs. We believe that we are the leader in multivalent
technology. We have assembled a world-class scientific team from the
pharmaceutical and biotechnology industries to assist us in discovering
important new drugs.
We are initially applying our technology to discover and develop multivalent
drug candidates in substantial markets where current drugs fail to fully address
medical needs due to limitations in potency, duration of action, or safety. We
have focused on several disease categories in a broad range of markets where we
believe our technology will provide a competitive advantage. These markets
currently include post-operative pain, neuropathic pain, asthma, bacterial
infection and urinary incontinence. In less than 30 months, our approach has
yielded multivalent lead compounds in programs related to these five markets. In
animal models that we believe are predictive of activity in humans, our
multivalent lead compounds have demonstrated substantial improvements in
potency, duration of action, or safety when compared to leading conventional
drugs. One compound in our post-operative pain program has been advanced to
pre-clinical testing. In addition, we have initiated exploratory research
efforts into other significant therapeutic areas.
We expect that a variety of important new drug targets for diseases such as
cancer, chronic inflammation, and central nervous system disorders will emerge
from biomedical research. We expect that the majority of these targets will be
enzymes, receptors, and ion channels, target types for which we have already
demonstrated the advantages of multivalency. We therefore believe that our
multivalent drug discovery technology will allow us to produce drug candidates
for some of these new targets. We plan to pursue some of these opportunities in
collaboration with partners.
OUR STRATEGY
Our objective is to discover, develop and commercialize important new drugs.
To discover new drug compounds, the pharmaceutical industry expends significant
effort and resources to make new compounds for proven targets as well for new
targets that come from biomedical research. Improving existing drugs for proven
targets continues to be a successful strategy; seven of the top ten selling drug
products in 1999 were significant improvements to existing drugs that failed to
fully address medical needs. In addition, we believe that the many new targets
that emerge from biomedical research and the exploration of the human genome
will represent a significant opportunity to create new drugs. We intend to apply
our technology to both proven and emerging targets, initially focusing on
targets for which there are existing drugs that fail to fully address medical
needs. To achieve our objective, we intend to:
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DISCOVER AND DEVELOP DRUG CANDIDATES FOR PROVEN TARGETS IN LARGE MARKETS
We are initially concentrating our efforts on discovering and developing
drug candidates for proven targets. We are focused on opportunities where:
- existing drugs, although proven effective against a biological target, do
not fully address medical needs relating to potency, duration of action or
safety;
- we believe our multivalent technology can be applied to create superior
drug candidates that satisfy these unmet medical needs;
- there are well-established and predictive animal models for pre-clinical
testing that we believe will improve the probability of success in human
clinical trials; and
- there is a large market.
Consistent with these criteria, we are currently focusing on the following
areas:
- pain management, a market with approximately $17.0 billion in 1999
worldwide drug sales;
- bacterial infection, a market with approximately $24.7 billion in 1999
worldwide drug sales;
- asthma, a market with approximately $8.9 billion in 1999 worldwide drug
sales; and
- urinary incontinence, a market with approximately $0.7 billion in 1999
worldwide drug sales.
In addition, we have initiated exploratory efforts into other significant
therapeutic areas.
RETAIN SIGNIFICANT COMMERCIAL RIGHTS TO MULTIVALENT DRUGS FOR PROVEN TARGETS
In countries and medical markets where we can reach the market with a modest
sales organization, we intend to retain the rights to commercialize our
multivalent drugs developed against proven targets. We also intend to
commercialize hospital-based products in the United States and possibly in
Europe. In addition, we plan to enter into strategic alliances to commercialize
products in therapeutic markets that require greater sales efforts and in
countries where we may not be able to reach the market on our own, such as
Japan.
COLLABORATE WITH PARTNERS TO DISCOVER AND DEVELOP DRUG CANDIDATES FOR NEW
TARGETS
We expect many new biological targets to emerge from advances in biomedical
research and the exploration of the human genome. We expect that the majority of
these targets will be enzymes, receptors and ion channels, target types for
which we have already demonstrated the advantages of multivalency. We therefore
believe that our multivalent technology will be applicable to many of these
targets. We plan to enter into strategic alliances to pursue some of these
opportunities because they will require substantially more time and resources
than our current projects directed toward proven targets.
CONTINUE TO ENHANCE OUR TECHNOLOGY PLATFORM
We will continue to invest significantly in multivalent and other related
technologies to maintain our leadership position. We may license or acquire
technologies that complement our core capabilities. We intend to vigorously
protect and build on our existing intellectual property portfolio. In addition,
we intend to augment our scientific and clinical expertise by hiring and working
with leading scientists in academia and the pharmaceutical and biotechnology
industries.
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OUR TECHNOLOGY
Multivalency refers to a single molecule simultaneously binding to multiple
sites on a target. Multivalency can multiply both the strength and the
selectivity of individual binding interactions. When applied to the interactions
between drugs and biological targets, multivalency provides the basis for a
novel approach to drug discovery. Multivalent drugs consist of multiple
individual small molecule drug components joined by chemical linkers.
[LOGO]
[Diagram depicting a multivalent drug, composed of drug components and a linker
Diagram depicting the attachment of a multivalent drug to a target with multiple
binding sites.]
Our multivalent drug technology is based on an integration of the following
biological and chemical insights:
- many biological targets have multiple binding sites;
- molecules that simultaneously attach to multiple binding sites can do so
with considerably greater strength and selectivity than molecules that
attach to only one binding site; and
- greater strength and selectivity in binding provides the basis for
superior therapeutic effects, including enhanced potency, increased
duration of action or improved safety.
MANY BIOLOGICAL TARGETS HAVE MULTIPLE BINDING SITES
The existence, location and orientation of multiple binding sites on a
target can be
- visualized through structural methods such as x-ray crystallography and
molecular modeling;
- indicated by biochemical experiments using unlinked compounds; or
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- inferred from gene sequencing information.
Application of these methods has provided clear evidence for the existence
of multiple binding sites on the major types of biological targets.
MULTIVALENT DRUGS MAY BE DESIGNED FOR THESE BIOLOGICAL TARGETS
Our approach takes advantage of the increased binding strength and
selectivity that comes from simultaneous interactions at multiple binding sites.
Our technology platform enables us to optimize these interactions by varying a
unique series of multivalent drug design characteristics, including the
individual drug molecule components, linker attachment points on these
components, linker length, geometry and physical properties.
DRUG MOLECULE COMPONENTS. We may choose identical or different drug
molecule components depending upon the nature of the multiple binding sites on
the target. Our choice of the individual components is guided by the extensive
efforts that have gone into the discovery and optimization of conventional drugs
that attach at single binding sites.
POSITIONS OF ATTACHMENT. The position where a linker is attached to an
individual drug component determines that component's orientation relative to
its intended binding site. We use target structural information and information
about the effects of structural modifications on the activity of drug components
to choose the points at which to attach linkers to the drug molecule components.
LINKER LENGTH AND GEOMETRY. The spatial relationships between multiple
binding sites on a target determine the linker lengths and angles that allow for
multivalent binding. Therefore, the relative geometry in which the multiple drug
components are displayed upon a linker is a key factor in determining the
quality of multivalent binding. We use target structure information to guide our
selection of linker length and geometry. We vary linker lengths and angles in
order to optimize the fit between the multivalent compounds and their intended
targets.
LINKER PHYSICAL PROPERTIES. The physical properties of linkers, such as
their charge or solubility, provide another means for influencing multivalent
binding interactions. Linker physical properties can also impact key drug
properties such as absorption, distribution, metabolism and excretion.
MULTIVALENT DRUGS MAY HAVE ENHANCED THERAPEUTIC PROPERTIES
The pronounced increases in binding strength and selectivity that we have
observed with multivalent interactions are typically greater than increases
achieved through incremental atom-by-atom modifications of drugs that attach to
single binding sites. Our studies to date indicate that these significant
increases in binding strength and selectivity may translate into enhanced
therapeutic effects by improving potency, duration of action or safety.
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[LOGO]
[Diagram comparing the multivalent drug discovery process with the conventional
drug discovery process.]
STRENGTH OF BINDING. A drug's potency and duration of action are influenced
by the strength of its attachment to its target. Often, a drug's fit with its
target is not tight enough to achieve optimal potency and duration. Because the
attachment of one component of a multivalent drug facilitates and
synergistically improves the attachment of the other components, multivalent
drugs can bind more tightly than drugs that are able to attach to only one
binding site.
SELECTIVITY OF BINDING. A drug's safety profile depends upon its ability to
discriminate among biological targets. Often, a drug will attach to a binding
site on an unintended biological target that is similar to that of the intended
target, thereby exerting undesired and potentially toxic side effects. Unlike
conventional drugs, multivalent compounds can distinguish among biological
targets on the basis of differences in the spatial relationships of their
multiple binding sites. We believe this provides a unique advantage for
discovering more selective drug candidates.
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[LOGO]
[Diagram depicting increased binding selectivity of a multivalent drug.]
INTEGRATED DRUG DISCOVERY AND DEVELOPMENT PLATFORM
We have established an interdisciplinary approach to drug discovery and
development that involves a unique combination of biology and chemistry. We use
our insight into biological structures to systematically identify and evaluate
targets with multiple binding sites. We combine this insight with our
capabilities in multivalent chemical design and synthesis to create novel small
molecules that can attach to multiple binding sites. Once we are able to produce
multivalent lead compounds that are comparable or superior to the best compounds
made by conventional methods and we believe that we can substantially improve
upon them, we use our expertise in medicinal chemistry, analytical chemistry,
biochemistry and pharmacology to refine these lead compounds into drug
candidates. This interdisciplinary approach has yielded multivalent lead
compounds in five programs. One compound in our post-operative pain program has
been advanced to pre-clinical testing. Our drug discovery process involves the
following four steps:
TARGET IDENTIFICATION AND PROJECT SELECTION
Consistent with our strategy, we identify large markets where current
therapies fail to fully address medical needs. To best evaluate these
opportunities, we supplement our internal expertise with that of external
scientific and research and development advisory boards that include leading
scientists, clinicians and pharmaceutical executives. Using our knowledge and
perspective of structural biology, we analyze proven targets relevant to unmet
medical needs to determine which targets have multiple binding sites. Among
these targets, we further evaluate whether the
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application of multivalent technology can be expected to lead to improved
therapeutic benefit. We prioritize these targets to focus our discovery efforts
where we believe we can create multivalent drugs that are the best drugs in
their therapeutic classes. We then identify the critical limitations we must
overcome and the animal models that will allow us to determine our probability
for success.
We also believe we can apply our multivalent technology to the discovery of
drug candidates for new targets that emerge from advances in biomedical research
and exploration of the human genome. We expect that the majority of these new
targets will be enzymes, receptors and ion channels. We have demonstrated the
benefits of multivalency when applied to these target types.
MULTIVALENT CHEMICAL DESIGN AND SYNTHESIS
Once we have identified a target that meets our selection criteria and have
chosen it for exploratory research, we design and create ordered libraries of
multivalent compounds, known as arrays. The goal of array design and synthesis
is to generate lead compounds for optimization. We use advanced techniques to
create these arrays, including combinatorial chemistry, parallel synthesis and
high throughput purification and analysis. In these arrays, we systematically
vary the distinctive characteristics of the multivalent compounds, including the
individual drug molecule components, linker attachment points on these
components, and linker length, geometry and physical properties.
LEAD IDENTIFICATION AND OPTIMIZATION
We identify lead compounds from arrays of multivalent compounds by
performing a series of biochemical and pharmacological tests known as screens.
We design high throughput screens that are specific to each target and from
which results can be obtained rapidly and reproduced consistently.
We test our multivalent compounds in cell-free assays to study their binding
to the desired target in isolation. From these results, we are able to identify
which compounds bind most tightly to their intended targets. In whole-cell
assays, we analyze the activity of our multivalent compounds in a representative
cellular environment. Whole-cell assays test a compound's effectiveness,
cellular toxicity and ability to penetrate the cell.
We use pharmacological screens in animal models to predict the activity of
our multivalent compounds in the human body. These screens test potency,
duration of action and safety, as well as other important drug properties such
as absorption, distribution, metabolism and excretion.
Multivalent compounds that exhibit activities comparable or superior to the
best current drugs are advanced to the next stage as lead compounds. To date, we
have identified lead compounds in five programs.
Once a lead compound has been identified, we focus on making further
improvements in the strength and selectivity of its binding to its intended
target. This is achieved by systematically altering the lead compound's
characteristics in smaller increments and conducting more refined biological and
pharmacological assays. We focus on achieving potency, duration of action or
safety profiles in animal models that we believe are predictive of superior
therapeutic profiles in human patients. We also concentrate on pharmacological
properties that are predictive of convenience of use, such as oral delivery or
once-daily dosing.
DRUG CANDIDATE SELECTION AND DEVELOPMENT
We conclude the lead identification and optimization process with the
selection of a drug candidate to be advanced to pre-clinical testing. A
candidate must display a clear potential to be the best drug in its therapeutic
class. Furthermore, we only advance compounds that have well
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understood, acceptable safety profiles in animal toxicology models. The
selection of drug candidates is made by our internal management team in
conjunction with our research and development board. Our lead optimization
efforts have yielded a drug candidate for post-operative pain, AMI-3817, that
has entered pre-clinical testing.
We have assembled a team of internal and external experts in drug
development and marketing. This team prepares detailed development plans for our
lead compounds and establishes rigorous target profiles for the selection of
drug candidates. This team may also initiate early development activities on
lead compounds based on the likelihood that these activities might significantly
accelerate or improve the drug development process. These activities may include
early pre-clinical safety studies, formulation activities, early manufacturing
and market and competitive research.
Once we select a drug candidate for development, we plan and manage drug
manufacturing and formulation, pre-clinical safety studies and clinical trials.
We possess expertise in pharmaceutical research and development,
safety/toxicology, project management and clinical trial design. We have
qualified a group of contract research organizations with expertise in our
therapeutic areas of interest. These contract research organizations provide us
with bulk manufacturing, formulation services and conduct our pre-clinical
testing and will conduct clinical trials.
OUR DRUG DISCOVERY AND DEVELOPMENT PROGRAMS
We have applied our multivalent technology in programs spanning a range of
target types and therapeutic areas. We have shown in predictive animal models
substantial increases in potency and duration of action for enzyme, receptor and
ion channel targets, and increases in selectivity for receptor targets. We
currently have one drug candidate for the management of post-operative pain in
pre-clinical testing and lead compounds in four additional programs. In
addition, we have initiated exploratory efforts in other therapeutic areas.
The following table summarizes information relating to our drug discovery
and development programs. As used in the table, the term "pre-clinical testing"
refers to pharmacology and toxicology testing in animal models required to
gather data necessary to comply with applicable regulatory protocols prior to
submission of an Investigational New Drug application to the FDA. The
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term "lead identification and optimization" refers to the stage in which we are
identifying and refining multivalent lead compounds from arrays through
biochemical and pharmacological screens.
<TABLE>
<CAPTION>
<S> <C> <C>
PROGRAM STATUS KEY ACHIEVEMENTS
PAIN MANAGEMENT
Post-operative pain Pre-clinical Testing - Discovered compounds with increased
duration of action in predictive animal
models
- Advanced AMI-3817 to pre-clinical
testing
Neuropathic pain Lead Identification and - Discovered compounds that are potent
Optimization against a proven neuropathic pain
target
- Demonstrated activity, oral
availability and ability to penetrate the
central nervous system in predictive
animal models
ASTHMA Lead Identification and - Discovered compounds that are potent
Optimization and selective against a proven asthma
target
- Demonstrated extended duration of
action in a predictive animal model
BACTERIAL INFECTION Lead Identification and - Discovered compounds that rapidly kill
Optimization certain drug-resistant bacteria and are
active in predictive animal models of
drug-resistant infection
URINARY INCONTINENCE Lead Identification and - Discovered compounds that are potent
Optimization against a proven urinary incontinence
target
- Demonstrated increased potency while
minimizing known side effects in
predictive animal models
</TABLE>
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PAIN MANAGEMENT
POST-OPERATIVE PAIN. Local anesthetics are widely used during surgical
procedures, both to anesthetize incisions as well as to provide post-operative
pain relief. According to the Centers for Disease Control and Prevention, there
are approximately 50 million operations performed in the United States annually.
A large number of these involve the use of local anesthetics. Current local
anesthetics provide insufficient duration of action, resulting in substantial
post-operative discomfort.
We are developing AMI-3817, a novel multivalent local anesthetic. Animal
models indicate that AMI-3817 has a duration of action of approximately
24 hours. If our results are reproduced in humans, AMI-3817 would represent a
breakthrough relative to the longest-acting local anesthetic currently
available, bupivacaine, which generally provides four to six hours of
post-operative pain relief. Our data in relevant animal models also indicate
that AMI-3817 is at least as safe as bupivacaine. Pre-clinical testing of
AMI-3817 to enable the filing of an Investigational New Drug application is
underway.
NEUROPATHIC PAIN. Neuropathic pain is a chronic condition resulting from
nerve damage. Current therapies typically provide only partial pain relief and
produce side effects, including dizziness, constipation, sedation and,
potentially, respiratory depression.
Our goal is to produce a drug that is a significant advance in safely
alleviating neuropathic pain. Using biochemical assays, we have identified a
series of lead compounds that have demonstrated potency against a proven target
for neuropathic pain. In predictive animal models, our lead compounds have
demonstrated activity against neuropathic pain, oral availability or the ability
to penetrate the central nervous system.
ASTHMA
Asthma is a disease characterized by episodic constriction of the bronchial
airways. It is one of the most prevalent chronic conditions, affecting more than
14 million people in the United States alone. Current treatment options consist
primarily of inhaled therapies that typically require multiple dosing regimens,
generally two to four times per day, and have significant side effects.
Our goal is to produce a drug to control asthma that is long-acting and
safe. Using biochemical assays, we have identified potent and selective
compounds for a proven asthma target. We have demonstrated extended duration of
action in a predictive animal model.
BACTERIAL INFECTIONS
Despite the variety of antibiotics currently available, bacterial infections
are a significant and growing medical problem. According to statistics from the
Centers for Disease Control and Prevention, an estimated two million patients
develop hospital-acquired bacterial infections in the United States each year,
resulting in approximately 90,000 deaths. The need for more effective drugs is
particularly acute because many bacterial strains, including some staphylococci,
have become resistant to current drugs. As staphylococci can be particularly
virulent and rapid-growing, there is a need for an antibiotic that is capable of
not only killing these organisms but doing so rapidly.
Our objective is to produce a drug that rapidly kills drug-resistant
bacteria. Using biochemical assays, we have discovered potent lead compounds
that rapidly kill disease-causing bacteria, including certain drug-resistant
strains. In predictive animal models of drug-resistant infections, these
compounds exhibit activity superior to that of existing leading antibiotics.
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URINARY INCONTINENCE
Urinary incontinence is characterized by the involuntary discharge of urine
from the bladder. According to the Agency for Health Care Policy and Research,
13 million Americans suffer from urinary incontinence. Current therapies for the
treatment of urinary incontinence lack selectivity for the bladder and produce
side effects such as severe dry mouth, constipation and blurred vision.
Our goal is to produce a drug that controls urinary incontinence without
causing significant side effects. Using biochemical assays, we have identified
potent compounds for a proven incontinence target. In predictive animal models,
one of these compounds demonstrates potency with reduced side effects when
compared to existing drugs.
GOVERNMENT REGULATION
The development and commercialization of our drug candidates and our ongoing
research will be subject to extensive regulation by governmental authorities in
the United States and abroad. Before marketing in the United States, any drug we
develop must undergo rigorous pre-clinical testing and clinical trials and an
extensive regulatory clearance process implemented by the FDA under the federal
Food, Drug and Cosmetic Act. Outside the United States, our ability to market a
product depends upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. In any country, however, we will only be permitted to
commercialize our drugs if the appropriate regulatory authority is satisfied
that we have presented adequate evidence of the safety, quality and efficacy of
our drugs.
Before commencing clinical trials in humans in the United States, we must
submit to, and receive approval from, the FDA for an Investigational New Drug
application. The application is required to include the results of pre-clinical
testing. Clinical trials are usually carried out in three phases and must be
conducted under FDA oversight. Before receiving FDA clearance to market a
product, we must demonstrate that the product is safe and effective on the
patient population. If we obtain regulatory clearance of a product, this
clearance will be limited to those disease states and conditions for which the
product is effective, as demonstrated through clinical trials. Even if this
regulatory clearance is obtained, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections by the FDA. Discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on the product or
manufacturer, including costly recalls or withdrawal of the product from the
market.
CORPORATE COLLABORATIONS
We have retained the rights to all of our compounds, with the exception of
some compounds acquired in connection with our acquisition of the net assets of
Incara Research Laboratories. We intend to continue to invest our own funds to
retain rights to significant product opportunities that we plan to commercialize
ourselves. However, in the future we may pursue strategic collaborations to
leverage the sales organizations of third parties in product markets we will be
unable to effectively reach with a modest sales force. We may also enter into
collaborations in countries where our potential products will need additional
sales support, such as Japan. In addition, we plan to pursue strategic
collaborations to develop and commercialize drugs for targets emerging from
biomedical research.
COMPETITION
Our research and development efforts are at an early stage. As the
principles of multivalent drug design become more widely known and appreciated
based on patent publications, scientific publications and regulatory filings, we
expect the field to become highly competitive.
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Pharmaceutical companies, biotechnology companies and academic and research
institutions may seek to develop drug candidates based upon the principles
underlying our multivalent technologies.
In addition, any drug candidate that we successfully develop may compete
with existing drugs that have long histories of safe and effective use and new
therapeutic agents.
Many of our potential competitors have substantially greater financial,
technical and personnel resources than we do. In addition, many of these
competitors have significantly greater drug commercialization experience than we
do.
Our ability to compete successfully will depend, in part, on our ability to:
- discover and develop products that are superior to other products in the
market;
- attract qualified scientific and product development personnel;
- obtain patent or other proprietary protection for our products and
technologies;
- obtain required regulatory approvals; and
- successfully manufacture, market and sell any product that we develop.
PATENTS AND PROPRIETARY RIGHTS
We will be able to protect our technology from unauthorized use by third
parties only to the extent that our technology is covered by valid and
enforceable patents or is effectively maintained as trade secrets. Our
commercial success will depend in part on obtaining this patent protection.
Accordingly, patents and other proprietary rights are essential elements of our
business. Our policy is to seek United States and international patent
protection for novel technologies and compositions of matter that are
commercially important to the development of our business. We also seek
protection through confidentiality and proprietary information agreements. We
are a party to various license agreements that give us rights to compounds and
technologies for use in our research and development processes. In connection
with our acquisition of Incara Research Laboratories, we assumed a license
agreement under which Incara exclusively licensed to Merck & Co., Inc. rights to
certain anti-infective compounds discovered in a research program that
terminated in 1999. As a result of our assumption of this agreement, we are
entitled to receive certain royalties if Merck commercializes products arising
out of this research program.
As of March 1, 2000, we had filed 85 patent applications in the United
States. We have also filed 48 Patent Cooperation Treaty applications which
permit us to pursue patents outside of the United States. These applications
include claims covering compositions of matter, including our potential drug
candidates, methods of use, pharmaceutical formulations, and processes for
making compounds along with methods of design, synthesis, selection and use
relevant to multivalent drugs in general and to our research and development
programs in particular.
EMPLOYEES
As of December 31, 1999, we had 176 full-time employees, 49 of whom hold
Ph.D. or M.D. degrees and 148 of whom were primarily engaged in research
activities. None of our employees are represented by a labor union. We have not
experienced any work stoppages and consider our employee relations to be good.
ADVISORY BOARDS
We have assembled a core team of scientific advisors and consultants who
assist in evaluating our development approach and focusing our research strategy
and direction.
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SCIENTIFIC ADVISORY BOARD
Our scientific advisors include researchers in the basic and clinical
sciences in areas related to our technologies and therapeutic programs. Current
members of our scientific advisory board include:
- GEORGE WHITESIDES, SCIENTIFIC ADVISORY BOARD CHAIRMAN
Mallinckrodt Professor of Chemistry, Harvard University
- JOSEPH BONVENTRE
Robert H. Ebert Professor of Molecular Medicine, Harvard University
Medical School
- GERALD CRABTREE
Professor of Pathology & Developmental Biology, Investigator, Howard
Hughes Medical Institute, Stanford University
- DANIEL KAHNE
Professor of Chemistry, Princeton University
- ARNOLD LEVINE
President, The Rockefeller University
- STUART SCHREIBER
Professor of Chemistry & Chemical Biology and Molecular & Cellular
Biology, Harvard University
- THOMAS WANDLESS
Assistant Professor of Chemistry, Stanford University
RESEARCH AND DEVELOPMENT BOARD
A research and development board, consisting of current and former industry
leaders, reviews all of our potential drug candidates. Current members of our
research and development board include:
- P. ROY VAGELOS, RESEARCH AND DEVELOPMENT BOARD CHAIRMAN
Retired Chairman and Chief Executive Officer, Merck & Co., Inc.
- DEL BOKELMAN
Retired Vice President, Safety Assessment, Merck Research Laboratories
- PAUL FRIEDMAN
President, DuPont Pharmaceuticals Research Laboratories
- SEEMON PINES
Retired Vice President, Process Research & Development, Merck & Co., Inc.
- LEON ROSENBERG
Retired President of Research & Development, Bristol-Myers Squibb Company
- REYNOLD SPECTOR
Retired Executive Vice President Clinical Sciences, Merck & Co., Inc.
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FACILITIES
Our headquarters are currently located in a facility in South San Francisco,
California, consisting of approximately 110,000 square feet under a lease that
will expire on March 31, 2012, This lease may be extended for two additional
five-year periods. The current annual rental expense under this lease is
approximately $1.9 million, subject to annual increases beginning in the year
2001. We also have an option to lease an additional 40,000 square feet in a
second building which would be constructed adjacent to our facility in South San
Francisco. In addition, we also maintain a facility in Cranbury, New Jersey,
consisting of approximately 31,000 square feet under a lease that will expire in
May 2007. The current annual rental expense under this lease is approximately
$824,000. We believe that we will require additional space as our business
expands.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. However, we may become
involved in litigation from time to time in the ordinary course of our business.
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MANAGEMENT
The following table sets forth our executive officers, directors and key
employees, their ages and the positions they held as of March 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
James B. Tananbaum, M.D................. 36 President, Chief Executive Officer,
Director
Burton G. Christensen, Ph.D............. 69 Senior Vice President, Research
Marty Glick............................. 50 Senior Vice President, Finance and Chief
Financial Officer
Ted W. Love, M.D........................ 40 Senior Vice President, Development
Bradford J. Shafer...................... 39 Senior Vice President, General Counsel
and Secretary
P. Roy Vagelos, M.D. (1)(2)............. 70 Chairman of the Board of Directors
Julian C. Baker (1)(2).................. 33 Director
Jeffrey M. Drazan (1)(2)................ 41 Director
Robert V. Gunderson, Jr. (1)............ 48 Director
Arnold J. Levine, Ph.D.................. 60 Director
Wesley D. Sterman, M.D.(2).............. 39 Director
George M. Whitesides, Ph.D. (1)......... 60 Director
KEY EMPLOYEES
David E. Boone.......................... 56 Vice President and Chief Patent Counsel
John H. Griffin, Ph.D................... 38 Vice President and Chief Scientific
Officer
A. Gregory Sturmer...................... 37 Vice President, Finance
</TABLE>
- ------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
EXECUTIVE OFFICERS AND DIRECTORS
JAMES B. TANANBAUM, M.D., co-founded Advanced Medicine in 1996 and has
served as our President and Chief Executive Officer and a director since our
inception. From 1994 to 1996, he was a partner of Sierra Ventures, a private
venture capital firm.
Earlier in his career, Dr. Tananbaum held a variety of line operating
management positions at Merck & Co., Inc. In 1991, Dr. Tananbaum founded GelTex
Pharmaceuticals. While at Sierra Ventures, Dr. Tananbaum was also a founding
investor and member of the board of directors of Intensiva Healthcare, Novamed
Eyecare Management, and a founding investor in Healtheon.
Dr. Tananbaum is the Vice-Chairman of the Harvard Medical School Advisory
Council for Cell Biology and Pathology, a founding member of the Harvard/MIT
Health Sciences and Technology Advisory Group and a member of the board of
directors of the California Healthcare Institute. He is also a member of the
Young Presidents' Organization. Dr. Tananbaum holds an M.D. degree from Harvard
Medical School, an M.B.A. degree from Harvard Business School and B.S.E.E. and
B.S. degrees from Yale University.
BURTON G. CHRISTENSEN, Ph.D., co-founded Advanced Medicine in 1996 and has
served as our Senior Vice President, Research since 1998. From 1992 until 1998,
he served as a consultant to a number of pharmaceutical and biotechology
companies. Dr. Christensen was employed by Merck
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Research Laboratories, where he held various positions from 1956 until 1992,
when he retired as a Senior Vice President.
Dr. Christensen is a member of the American Chemical Society and the
American Institute of Chemists and a fellow in the American Association for the
Advancement of Science. Among his honors are the sixth Cecil L. Brown
lectureship, the Thomas Alva Edison Patent Award, the Merck Directors Scientific
Award and the Chemical Pioneer Award. Dr. Christensen holds a Ph.D. and an A.M.
degree in Chemistry from Harvard University and a B.S. degree in Chemistry from
Iowa State University.
MARTY GLICK has been our Senior Vice President, Finance and Chief Financial
Officer, since 1998. From 1987 to 1997 he was employed with Genentech, Inc.,
most recently as a Vice President of Finance. He earned an M.B.A. in Finance
from the Kellogg School of Management at Northwestern University and a B.S.B.A.
from Creighton University, where he graduated MAGNA CUM LAUDE. Mr. Glick is also
a Certified Public Accountant and a Chartered Accountant (Canada).
Mr. Glick is chair of the Biotechnology Industry Organization's Tax and
Finance Committee.
TED W. LOVE, M.D., has been our Senior Vice President, Development since
1998. From 1992 to 1998 he was employed with Genentech, Inc., most recently as
Vice President of Product Development and Regulatory.
Dr. Love holds an M.D. degree from Yale Medical School and a B.A. degree in
Molecular Biology from Haverford College. He was a Robert Wood Johnson
Foundation Scholar from 1988 to 1992 and received the International Thrombosis
and Haemostasis Young Investigator Award in 1989. He serves as a Trustee on the
Board of Managers of Haverford College.
BRADFORD J. SHAFER, Esq. has been our Senior Vice President, General Counsel
and Secretary since August 1999. From 1996 to 1999, he served as General Counsel
of Heartport, Inc. From 1993 to 1996, Mr. Shafer was a partner in the Business
and Technology Group at the law firm of Brobeck, Phleger & Harrison LLP.
Mr. Shafer holds a J.D. from the University of California, Hastings College
of the Law, where he was Editor-in-Chief of THE HASTINGS CONSTITUTIONAL LAW
QUARTERLY from 1984 to 1985, and a B.A. MAGNA CUM LAUDE from the University of
the Pacific.
P. ROY VAGELOS, M.D., co-founded Advanced Medicine in 1996 and has served as
Chairman of our board of directors since inception. He was Chairman of the Board
of Trustees of the University of Pennsylvania from 1994 to 1999, and has served
as a trustee since 1988. Dr. Vagelos served as Chief Executive Officer of
Merck & Co., Inc., from 1985 to 1994, and Chairman of the board of directors of
Merck from 1986 until 1994.
Dr. Vagelos received the Enzyme Chemistry Award of the American Chemical
Society in 1967. He is a member of the National Academy of Arts and Sciences and
the American Philosophical Society. He has received honorary Doctor of Science
degrees from Washington University, Brown University, the University of Medicine
and Dentistry of New Jersey, New York University, Columbia University, the New
Jersey Institute of Technology and Mount Sinai Medical Center; an honorary
Doctor of Laws degree from Princeton University; and an honorary Doctor of
Humane Letters from Rutgers University. He has received the Thomas Alva Edison
Award from the State of New Jersey, the Lawrence A. Wien Prize from Columbia
University, and the C. Walter Nichols Award from New York University's Stern
School of Business.
Dr. Vagelos is a Director of The Prudential Insurance Company of America,
PepsiCo, Inc. and The Estee Lauder Companies, Inc. He is Chairman of the Board
of Regeneron Pharmaceuticals, Inc. He is Co-Chairman of the New Jersey
Performing Arts Center, a Trustee of The Danforth Foundation and a member of The
Business Council.
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Dr. Vagelos holds an A.B. degree from the University of Pennsylvania and an
M.D. from Columbia University College of Physicians and Surgeons.
JULIAN C. BAKER has served as a director since January 1999. Together with
his brother Felix J. Baker, he has managed healthcare investments for the Tisch
family since 1994. The Baker brothers and their affiliates also manage other
investment funds focused on the life sciences industry. Prior to his partnership
with the Tisch family, Mr. Baker was employed by the merchant banking divisions
of Credit Suisse First Boston and its affiliates.
Mr. Baker is also a director of Neurogen Corporation, a pharmaceutical
company, and several private companies. Mr. Baker holds an A.B MAGNA CUM LAUDE
from Harvard University.
JEFFREY M. DRAZAN has served as a director since December 1999. Mr. Drazan
has been a General Partner with Sierra Ventures, a private venture capital firm,
since 1985. Mr. Drazan currently serves as a Director of Vertel Corporation, as
well as several private companies.
Mr. Drazan holds a B.S.E. degree in Engineering from Princeton University
and an M.B.A. degree from New York University's Graduate School of Business
Administration.
ROBERT V. GUNDERSON, JR., Esq. has served as a director since September
1999. He is a founding partner of the law firm of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, where he has practiced since 1995.
Mr. Gunderson holds a J.D. from the University of Chicago where he was
Executive Editor of THE UNIVERSITY OF CHICAGO LAW REVIEW and is currently a
member of the Law School's Visiting Committee. Mr. Gunderson also received an
M.B.A. in finance from The Wharton School, University of Pennsylvania and an
M.A. from Stanford University. Mr. Gunderson is a director of Heartport, Inc.,
as well as several private companies.
ARNOLD J. LEVINE, Ph.D., has served as a director since inception. He has
been President of The Rockefeller University since 1998. He was the Harry C.
Wiess Professor in Life Sciences and former Chairman of the Department of
Molecular Biology at Princeton University from 1984 until 1996.
Dr. Levine has been a member of the board of directors of Baxter
International, Inc., a healthcare life sciences company, since 1994. He is a
member of the National Academy of Sciences and has won the Lila Gruber Award
from the American Academy of Dermatology, the first Charles Rodolphe Brupbacher
Foundation Award from Zurich, Switzerland, the Memorial Sloan-Kettering
Katharine Berkan Judd Award, the Josef Steiner Cancer Foundation Prize from
Berne, Switzerland and the 17th Annual Bristol-Myers Squibb Award for
Distinguished Achievement in Cancer Research. He has received honorary
doctorates from the University Pierre and Marie Curie in Paris and the
University of Pennsylvania. Most recently he has been elected to The Institute
of Medicine of the National Academy of Sciences and has received the Thomas A.
Edison Science Award from the State of New Jersey and the Ciba Drew Award in
Biomedical Research. Dr. Levine was Editor-in-Chief of the JOURNAL OF VIROLOGY
from 1984 to 1994 and is a member of scientific advisory boards of several
cancer centers. Dr. Levine holds a B.A. from Harpur College, SUNY at Binghampton
and a Ph.D. in Microbiology from the University of Pennsylvania.
WESLEY D. STERMAN, M.D., has served as a director since April 1997.
Dr. Sterman co-founded Heartport, Inc., a cardiovascular medical device company,
in 1992, and served as its President and Chief Executive Officer until 1998. He
previously founded Endovascular Technologies, Inc., a vascular medical device
company which is now a division of Guidant Corporation, and served as its
President and Chief Executive Officer from 1989 to 1991.
Dr. Sterman earned B.S. degrees with honors in Biology and in Chemistry from
Stanford University, an M.B.A. from Stanford University Graduate School of
Business, where he was selected
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<PAGE>
as Arjay Miller Scholar, and an M.D. from Stanford University School of
Medicine. He holds a California Medical License. He is currently a director of
Heartport, Inc., Healthcentral.com, Inc., and several private companies. He is
also a member of the Young President's Organization.
GEORGE M. WHITESIDES, Ph.D., co-founded Advanced Medicine in 1996 and has
served as a member of our board of directors since that time. He has been
Mallinckrodt Professor of Chemistry at Harvard University since 1986. From 1982
until 1991 he was a member of the Department of Chemistry at Harvard University,
and Chairman of the Chemistry Department from 1986 until 1989. He was a faculty
member of the Massachusetts Institute of Technology from 1963 until 1982.
Dr. Whitesides was a 1998 recipient of the National Medal of Science. In
addition, he was recently awarded the Defense Advanced Research Projects Agency
Award for Significant Technical Achievement and the Madison Marshall Award of
the American Chemical Society, both in 1996. Among his recent advisory roles are
positions with the National Research Council, the National Science Foundation,
the Department of Commerce and the Department of Defense. He is a member of the
American Academy of Arts and Sciences, the National Academy of Sciences, and the
American Philosophical Society, and a fellow of the American Association for the
Advancement of Science. He is a member of the editorial boards of 14 scientific
journals and a reviewing editor for SCIENCE. Dr. Whitesides holds a Ph.D. in
Chemistry from California Institute of Technology and a B.A. from Harvard
University.
KEY EMPLOYEES
DAVID E. BOONE, Esq., has been our Vice President and Chief Patent Counsel
since January 2000. From March 1999 to December 1999, he was Of Counsel in the
Intellectual Property Department at the law firm of Dorsey & Whitney LLP. From
1990 to 1998, Mr. Boone held a variety of positions in the patent department of
Eli Lilly and Company, most recently as General Patent Counsel and Deputy
General Counsel.
Mr. Boone holds a J.D. from DePaul University, and a Ph.D. in Organic
Chemistry and a B.S. in Chemistry from Oklahoma State University.
JOHN H. GRIFFIN, Ph.D., co-founded Advanced Medicine in 1996 and has served
as our Chief Scientific Officer since inception. From 1990 to 1997, he was an
Assistant Professor of Chemistry at Stanford University.
Dr. Griffin is the recipient of a number of research and teaching awards,
including an Arthur C. Cope Scholar Award from the American Chemical Society and
the Dean's Award for Distinguished Teaching from Stanford University. He is a
member of the American Chemical Society and the American Academy of Arts and
Sciences. Dr. Griffin earned a B.S. degree in Chemistry SUMMA CUM LAUDE from
Hope College and a Ph.D. degree in Chemistry from the California Institute of
Technology.
A. GREGORY STURMER has been our Vice President, Finance since 1998. He was
Corporate Controller of Vivus, Inc. from 1995 to 1998, Chief Financial Officer
of a Northern California hospital from 1991 to 1995 and a manager with Arthur
Andersen, LLP from 1984 to 1991. Mr. Sturmer is a Certified Public Accountant
and has an M.B.A. from Pepperdine University and a B.S. SUMMA CUM LAUDE from
California State University, Hayward.
ELECTION OF OFFICERS AND DIRECTORS
Our executive officers are elected by our board of directors on an annual
basis and serve until their successors are duly elected and qualified. There are
no family relationships among any of our executive officers or directors.
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<PAGE>
All of our current directors were elected under the Amended and Restated
Voting Agreement dated January 25, 1999, between us and some of our
stockholders. Prior to the completion of this offering, we will increase the
size of the board of directors by three members. We will fill two of these seats
with directors nominated by current holders of a majority of our Series C
Preferred Stock and approved by a majority of our directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has appointed a compensation committee consisting of
Messrs. Baker, Drazan, Gunderson, Vagelos and Whitesides. The compensation
committee reviews and evaluates the compensation and benefits of all of our
officers, reviews general policy matters relating to compensation and benefits
and makes recommendations concerning these matters to the board of directors.
The compensation committee also administers our equity benefit plans.
Our board of directors has also appointed an audit committee consisting of
Messrs. Baker, Drazan, Sterman and Vagelos. The audit committee reviews, with
our independent auditors, the scope and timing of the auditors' services, the
independent auditors' report on our financial statements following completion of
their audit, and our internal accounting and financial control policies and
procedures. In addition, the audit committee will make annual recommendations to
the board of directors for the appointment of independent auditors for the
ensuing year.
DIRECTOR COMPENSATION
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors and for meetings of any committees
of the board of directors on which they serve. Directors are also eligible to
participate in our 2000 Director Option Plan and our 2000 Equity Incentive Plan.
See "--Employee Benefit Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our compensation committee of our board of directors
are Messrs. Baker, Drazan, Gunderson, Vagelos and Whitesides. No member of our
board of directors serves as 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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EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by James B.
Tananbaum, our chief executive officer, and the executive officers during the
fiscal year ended December 31, 1999 whose salary and bonus exceeded $100,000 for
such fiscal year for services rendered in all capacities to us during the fiscal
year ended December 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
-------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION ($)
- --------------------------- --------- -------- --------------------- ----------------
<S> <C> <C> <C> <C>
James B. Tananbaum,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER................................ 343,031 160,000 -- --
Burton G. Christensen,
SENIOR VICE PRESIDENT, RESEARCH...... 264,440 100,000 -- 129,633(1)
Marty Glick,
SENIOR VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER.............. 245,347 71,051 -- --
Ted W. Love,
SENIOR VICE PRESIDENT, DEVELOPMENT... 215,558 62,808 -- --
</TABLE>
- --------------------------
(1) Consists of reimbursement of housing and transportation expenses.
EMPLOYMENT AGREEMENTS
We have not entered into employment agreements with any of our executive
officers.
CHANGE IN CONTROL SEVERANCE ARRANGEMENTS
The compensation committee of the board of directors, as plan administrator
of the 2000 Equity Incentive Plan, has the authority to provide for accelerated
vesting of the shares of common stock subject to outstanding options under these
plans in connection with a change in control of our company. Also, in connection
with our adoption of the 2000 Equity Incentive Plan, we have provided that upon
a change in control, each outstanding option and all shares of restricted stock
will generally not accelerate vesting as long as the surviving corporation
assumes the option or award or replaces it with a comparable award. In addition,
an assumed option or award will become fully exercisable and fully vested if the
holder's employment or service is involuntarily terminated within twenty-four
months following a change in control.
Our board of directors has adopted a Change in Control Severance Plan. Under
our Change in Control Severance Plan, an employee is entitled to a cash payment
equal to 100% of his then current base salary plus target bonus if he is
involuntarily terminated within twenty-four months after a change in control.
The Chief Executive Officer is entitled to a cash payment equal to 150% of his
then current base salary plus target bonus if he is involuntarily terminated
within twenty-four months after a change in control. A change in control
includes:
- a merger of Advanced Medicine after which our own stockholders own 50% or
less of the surviving corporation or its parent company;
- a sale of all or substantially all of our assets;
- a proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or
- an acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Advanced Medicine, such as a holding
company owned by our stockholders.
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EMPLOYEE BENEFIT PLANS
1997 STOCK PLAN AND THE LONG TERM STOCK OPTION PLAN
Our 1997 Stock Plan was adopted by our board of directors and approved by
our stockholders in June 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 March 1, 2000, 5,994,000 shares of common stock
were reserved for issuance under this plan. Of these shares, 2,571,000 were
issued upon exercise of stock options, 2,169,000 shares were subject to
outstanding options and 1,254,000 shares were available for future grant.
Our Long Term Stock Option Plan was adopted by our board of directors in
June 1998 and approved by our stockholders in August 1998. 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 March 1, 2000,
2,265,000 shares of common stock were reserved for issuance under this plan. Of
these shares, 2,180,000 shares were issued upon exercise of stock options, and
85,000 shares were subject to outstanding options and no shares were available
for future grant.
No further option grants will be made under our 1997 Stock Plan or the Long
Term Stock Option Plan after this offering. The options outstanding after this
offering under the 1997 Stock Plan and the Long Term Stock Option Plan will
continue to be governed by their existing terms, except that our board of
directors has elected to extend the change in control acceleration feature of
the 2000 Equity Incentive Plan, described below, to awards outstanding under
these two plans.
2000 EQUITY INCENTIVE PLAN
Our board of directors adopted our 2000 Equity Incentive Plan on
February 26, 2000 to be effective on the effective date of the registration
statement of which this prospectus is a part.
SHARE RESERVE. We have reserved a number of shares of our common stock for
issuance under our 2000 Equity Incentive Plan equal to the difference between
(i) twelve percent of the number of shares of common stock outstanding after
this offering and (ii) the shares reserved under the 2000 Director Option Plan.
In general, if options or shares awarded under our 2000 Equity Incentive Plan
are forfeited, then those options or shares will become available for awards
under our 2000 Equity Incentive Plan.
ADMINISTRATION. The compensation committee of our board of directors
administers the 2000 Equity Incentive Plan. The committee has the complete
discretion to make all decisions relating to our 2000 Equity Incentive Plan. The
compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
ELIGIBILITY. Employees, members of our board of directors who are not
employees and consultants are eligible to participate in our 2000 Equity
Incentive Plan:
TYPES OF AWARD. Our 2000 Equity Incentive Plan provides for the following
types of awards:
- incentive and nonstatutory stock options to purchase shares of our common
stock;
- restricted shares of our common stock; and
- stock appreciation rights and stock units.
CHANGE IN CONTROL. If a change in control occurs, an option or restricted
stock award under our 2000 Equity Incentive Plan will generally not accelerate
vesting if the the surviving corporation assumes the option or award or replace
it with a comparable award. An option or award will become fully exercisable and
fully vested if the holder's employment or service is involuntarily terminated
within 24 months following the effective date of the change in control.
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<PAGE>
AMENDMENTS OR TERMINATION. Our board may amend or terminate the 2000 Equity
Incentive Plan at any time. If our board amends the plan, it does not need to
ask for stockholder approval of the amendment unless applicable law requires it.
The 2000 Equity Incentive Plan will continue in effect indefinitely, unless the
board decides to terminate the plan.
2000 DIRECTOR OPTION PLAN
Our board of directors adopted our 2000 Director Option Plan on
February 26, 2000.
SHARE RESERVE. We have reserved 500,000 shares of our common stock for
issuance under the plan. In general, if options granted under our 2000 Director
Option Plan are forfeited, then those options will again become available for
grants under the plan.
ADMINISTRATION. The Director Option Plan will be administered by the
compensation committee of our board of directors, although all grants under the
plan are automatic and non-discretionary.
ELIGIBILITY. Only the non-employee members of our board of directors will
be eligible for option grants under the 2000 Director Option Plan.
INITIAL GRANTS. Each non-employee director who first joins our board after
the effective date of the 2000 Director Option Plan will receive an initial
option for 50,000 shares. The initial grant of this option will occur when the
director takes office. The initial options vest in three equal annual
installments following the date of grant.
ANNUAL GRANTS. At the time of each of our annual stockholders' meetings,
beginning in 2001, each non-employee director who will continue to be a director
after that meeting will automatically be granted an option for 10,000 shares of
our common stock. However, a new non-employee director who is receiving the
initial option will not receive this option in the same calendar year. These
options are fully vested on the date of grant.
AMENDMENTS OR TERMINATION. Our board may amend or terminate the 2000
Director Option Plan at any time. If our board amends the plan, it does not need
to ask for stockholder approval of the amendment unless applicable law requires
it. The 2000 Director Option Plan will continue in effect indefinitely, unless
the board decides to terminate the plan.
EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our Employee Stock Purchase Plan on
February 26, 2000, to be effective on the effective date of the registration
statement of which this prospectus is a part. Our Employee Stock Purchase Plan
is intended to qualify under Section 423 of the Internal Revenue Code.
SHARE RESERVE. We have reserved 750,000 shares of our common stock for
issuance under the plan. In addition, on January 1 of each year, starting with
the year 2001, the number of shares in the reserve will automatically increase
by 0.5% of the total number of shares of common stock that are outstanding at
that time or, if less, by 500,000 shares.
ADMINISTRATION The compensation committee of our board of directors will
administer the plan.
ELIGIBILITY. All of our employees are eligible to participate if we employ
them for more than 20 hours per week and for more than five months per year.
Eligible employees may begin participating in the Employee Stock Purchase Plan
at the start of any offering period.
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PURCHASE PRICE. The price of each share of common stock purchased under our
Employee Stock Purchase Plan will be 85% of the lower of:
- the fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will not exceed 85% of the initial price per share to the public in this
offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Upon the closing of this offering, we will adopt and file a new Amended and
Restated Certificate of Incorporation and will restate our By-Laws. Our new
Amended and Restated Certificate of Incorporation and Amended and Restated
By-Laws provide that we will indemnify our directors and officers to the fullest
extent permitted by Delaware law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with their service for or on behalf of us. In addition, the new Amended and
Restated Certificate of Incorporation provides that our directors will not be
personally liable for monetary damages to us for breaches of their fiduciary
duty as directors, unless they violated their duty of loyalty to us or our
stockholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors. We intend to obtain liability insurance
which insures our directors and officers against certain losses and which
insures us against our obligations to indemnify our directors and officers.
In addition, we have entered into indemnification agreements with each of
our directors and officers. These agreements, among other things, require us to
indemnify each director and officer to the fullest extent permitted by Delaware
law, including indemnification of expenses such as attorneys' fees, judgments,
fines and settlement amounts incurred by the director or officer in any action
or proceeding, including any action or proceeding by or in right of us, arising
out of the person's services as a director or officer. At present, we are not
aware of any pending or threatened litigation or proceeding involving any of our
directors, officer, employees or agents in which indemnification would be
required or permitted. We believe provisions in our new Amended and Restated
Certificate of Incorporation and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
TRANSACTIONS WITH AFFILIATES
In April 1997, we entered into a consulting agreement with Dr. George M.
Whitesides, one of our directors. Under the agreement, Dr. Whitesides has agreed
to provide us with research, consulting, advisory and other technical services
in exchange for an annual fee of $50,000. This agreement expires on April 6,
2001. In connection with this agreement, we sold 1,000,000 shares of our common
stock to Dr. Whitesides for an aggregate purchase price of $10,000. We are
permitted to repurchase these shares at cost from Dr. Whitesides upon his
termination of service. Our repurchase right lapses in monthly installments
through September 30, 2000. At December 31, 1999 our repurchase right had lapsed
with respect to 811,703 of these shares.
In November 1998, we entered into an agreement with Dr. P. Roy Vagelos in
connection with his role as chairman of our board of directors. Under the
agreement, Dr. Vagelos has agreed to provide half of his time assisting us with
strategic management matters. This agreement is at-will and may be terminated by
us or Dr. Vagelos at any time. In connection with this agreement, we loaned
Dr. Vagelos $400,000 to assist him with the exercise of an option to purchase
800,000 shares of common stock at an exercise price of $0.50 per share. The
agreement provides that the
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loan is due upon the completion of vesting of the stock options granted to
Dr. Vagelos. We are permitted to repurchase these shares at cost from
Dr. Vagelos upon his termination of service. This repurchase right lapses in
equal monthly increments ending in November 2008. We may accelerate the vesting
of Dr. Vagelos' options in the discretion of our board of directors. We have
also agreed to assist Dr. Vagelos with the purchase of a residence on the West
Coast by providing him with $10,000 per month in housing support upon his
request. To date, we have made no payments to Dr. Vagelos under this provision.
During the fiscal year ended December 31, 1999, we retained the services of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, a law firm of
which Mr. Gunderson, one of directors, is a founding partner. We expect to
continue to retain the services of Gunderson Dettmer in the future.
On October 2, 1998, we loaned James B. Tananbaum, our chief executive
officer, $400,000 to exercise an option to purchase 800,000 shares of our common
stock at a purchase price of $0.50 per share. We are permitted to repurchase
these shares at cost from Dr. Tananbaum if he resigns without cause or is
terminated for good reason. This repurchase right lapses in equal monthly
increments ending in October 2002. This loan bears no interest and is due
September 30, 2005. As of March 1, 2000, the full amount of the loan remained
outstanding. The entire amount of this loan will be forgiven at the time of full
vesting if Dr. Tananbaum is then an employee.
On December 14, 1998, we loaned Burton G. Christensen, our senior vice
president, research, $110,250 to exercise an option to purchase 225,000 shares
of our common stock at a purchase price of $0.50 per share. On October 2, 1998
we loaned Dr. Christensen $37,050 to exercise an option to purchase 285,000
shares of our common stock at a purchase price of $0.13 per share. We are
permitted to repurchase these shares at cost from Dr. Christensen if he resigns
without cause or is terminated for good reason. This repurchase right lapses in
equal monthly increments ending in February 2002. These loans bear no interest
and are due on May 20, 2007 and January 17, 2002. As of March 1, 2000, the full
amount of these loans remained outstanding. The entire amount of these loans
will be forgiven at the time of full vesting if Dr. Christensen is then an
employee.
On October 2, 1998, we made two loans to Marty Glick, our senior vice
president, finance and chief financial officer, for $100,000 each to purchase
400,000 shares of our common stock a purchase price of at $0.50 per share. We
are permitted to repurchase these shares at cost from Mr. Glick if he resigns
without cause or is terminated for good reason. This repurchase right lapses in
equal monthly increments ending in July 2002 and July 2004. These loans bear no
interest and are due on June 30, 2002 and June 30, 2007. As of March 1, 2000,
the full amount of these loans remained outstanding. The entire amount of these
loans will be forgiven at the time of full vesting if Mr. Glick is then an
employee.
On October 2, 1998, we made three loans to Ted W. Love, our senior vice
president, development, for $74,000, $26,000 and $100,000 to purchase an
aggregate of 400,000 shares of our common stock at a purchase price of $0.50 per
share. We are permitted to repurchase these shares at cost from Dr. Love if he
resigns without cause or is terminated for good reason. This repurchase right
lapses in equal monthly increments ending in February 2002 and February 2004.
These loans bear no interest and are due February 27, 2007 and February 27,
2002. As of March 1, 2000, the full amount of these loans remained outstanding.
The entire amount of these loans will be forgiven at the time of full vesting if
Dr. Love is then an employee.
On June 28, 1999, we sold 11,765 shares of our Series C Convertible
Preferred Stock to Dr. Wesley D. Sterman, one of our directors, at a purchase
price of $8.50 per share.
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On March 9, 1999, we sold 28,325 shares of our Series C Convertible
Preferred Stock to G&H Partners for a purchase price of $8.50 per share.
Mr. Gunderson, one of our directors, is a partner in G&H Partners.
On January 25, 1999, we sold 2,441,176 shares of our Series C Convertible
Preferred Stock to Four Partners, L.P. for a purchase price of $8.50 per share.
Mr. Baker, one of our directors, is a partner in Four Partners.
On January 25, 1999, we sold 429,412 shares of Series C Convertible
Preferred Stock to Sierra Ventures VI, L.P. for a purchase price of $8.50 per
share and 41,176 shares of Series C Preferred Stock to Sierra Ventures
Associates VI, L.P. for a purchase price of $8.50 per share. Mr. Drazan, one of
our directors, is a general partner of SV Associates VI, L.P., the general
partner of Sierra Ventures VI, L.P. and Sierra Ventures Associates VI, L.P.
On January 25, 1999 we sold 235,924 shares of our Series C Convertible
Preferred Stock to P. Roy Vagelos, chairman of our board of directors, for a
purchase price of $8.50 per share.
On October 5, 1999, we sold 10,000 shares of our Series C Convertible
Preferred Stock to Bradford J. Shafer for a purchase price of $8.50 per share
and 10,000 shares of Series C Preferred Stock to a trust for the benefit of
Mr. Shafer's children, for a purchase price of $8.50 per share.
On February 11, 2000, we loaned Bradford J. Shafer, our senior vice
president, general counsel, $255,000 to purchase 300,000 shares of our common
stock at a purchase price of $0.85 per share. We are permitted to repurchase
these shares at cost from Mr. Shafer if he resigns without cause or is
terminated for good reason. This repurchase right lapses in equal monthly
increments ending in August 2003 and August 2005. These loans bear no interest
and are due in August 2003 and August 2005. As of March 1, 2000 the full amount
of these loans remained outstanding. The full amount of these loans will be
forgiven at the full time of vesting if Mr. Shafer is then an employee.
We believe that all transactions set forth above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
We have adopted a policy providing that all future transactions between us and
any of our officers, directors and affiliates will be on terms no less favorable
to us than could be obtained from unaffiliated third parties and will be
approved by a majority of the disinterested members of our board of directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of March 1, 2000 and as adjusted to
reflect the sale of the shares of common stock in this offering of and the
conversion of all outstanding shares of our convertible preferred stock by:
- each person known by us to be the beneficial owner of more than 5% of our
common stock;
- our named executive officers;
- each of our directors; and
- all executive officers and directors as a group.
Unless otherwise indicated, to our knowledge, each stockholder possesses
sole voting and investment power over the shares listed, except for shares owned
jointly with that person's spouse.
The number of shares of common stock deemed outstanding includes shares
issuable upon exercise of options and warrants held by the respective person or
group which may be exercised within 60 days after March 1, 2000. For purposes of
calculating each person's or group's percentage of beneficial ownership, stock
options and warrants exercisable within 60 days after March 1, 2000 are included
for that person or group but not the stock options and warrants of any other
person or group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING
- --------------------------------------- ---------------- -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS
Sierra Ventures VI, L.P.(2)............................... 4,450,588 11.4%
Sierra Ventures Associates VI, L.P.(3).................... 4,450,588 11.4%
William H. Gates, III(4).................................. 2,941,175 7.5%
Baker/Tisch Madison Partners, L.P.(5)..................... 2,376,940 6.1%
MSD Portfolio L.P. - Investments.......................... 2,117,647 5.4%
EXECUTIVE OFFICERS AND DIRECTORS
James B. Tananbaum, M.D.(6)............................... 2,600,000 6.7%
Marty Glick(7)............................................ 412,000 1.1%
Burton G. Christensen, Ph.D(8)............................ 525,000 1.3%
Ted W. Love, M.D.(9)...................................... 400,000 1.0%
Julian C. Baker(10)....................................... 2,441,176 6.3%
Jeffrey M. Drazan(11)..................................... 4,450,588 11.4%
Robert V. Gunderson, Jr.(12).............................. 141,641 *
Arnold J. Levine, Ph.D.(13)............................... 110,000 *
Wesley D. Sterman, M.D.(14)............................... 679,765 1.7%
George M. Whitesides, Ph.D.(15)........................... 1,213,000 3.1%
P. Roy Vagelos, M.D.(16).................................. 2,135,294 5.5%
All executive officers and directors as a group
(12 persons)............................................ 15,428,464 39.6%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than one percent of our outstanding
common stock.
(1) Unless otherwise indicated, the address for each beneficial owner is c/o
Advanced Medicine, Inc., 901 Gateway Boulevard, South San Francisco,
California 94080.
(2) c/o Sierra Ventures, 3000 Sand Hill Road, Building 4, Suite 210, Menlo
Park, California 94025. Includes 389,497 shares held by Sierra Ventures
Associates VI, L.P. SV Associates VI, L.P. is the general partner of
Sierra Ventures Associates VI, L.P. and Sierra Ventures VI, L.P.
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(3) c/o Sierra Ventures, 3000 Sand Hill Road, Building 4, Suite 210, Menlo
Park, California 94025. Includes 4,061,091 shares held by Sierra Ventures
VI, L.P. SV Associates VI, L.P. is the general partner of Sierra Ventures
Associates VI, L.P. and Sierra Ventures VI, L.P.
(4) c/o 2365 Carillon Point, Kirkland, Washington 98033. Includes 1,764,705
shares held by Castle Gate LLC and 1,176,470 shares held by Cascade
Investment LLC, each of which are affiliated with Mr. Gates.
(5) c/o 667 Madison Avenue, New York, New York 10021 Mr. Baker, one of our
directors, is the managing member of Baker/Tisch Capital, LLC, which is the
general partner of Baker/Tisch Madison Partners, LP.
(6) Includes 599,652 shares subject to repurchase by us if Dr. Tananbaum
resigns without cause or is terminated for good reason. Also includes
2,000,000 shares held by various trusts of which Dr. Tananbaum is a
trustee. Does not include 87,500 shares of common stock subject to a stock
option granted to Dr. Tananbaum on March 16, 2000.
(7) Includes 261,111 shares subject to repurchase by us if Mr. Glick resigns
without cause or is terminated by us for good reason. Does not include
43,750 shares of common stock subject to an immediately exercisable stock
option granted to Mr. Glick on March 16, 2000.
(8) Includes 365,041 shares subject to repurchase by us if Dr. Christensen
resigns without cause or is terminated by us for good reason. Does not
include 43,750 shares of common stock subject to an immediately exercisable
stock option granted to Dr. Christensen on March 16, 2000.
(9) Includes 233,334 shares subject to repurchase by us if Dr. Love resigns
without cause or is terminated by us for good reason. Does not include
43,750 shares of common stock subject to an immediately exercisable stock
option granted to Dr. Love on March 16, 2000.
(10) Includes 2,376,940 shares held by Baker/Tisch Madison Partners, LP, and
64,236 shares held by FBB Associates. Mr. Baker is the managing member of
Baker/Tisch Capital, LLC, which is the general partner of Baker/Tisch
Madison Partners, LP. Mr. Baker is a general partner of FBB Associates.
(11) c/o Sierra Ventures, 3000 Sand Hill Road, Building 4, Suite 210, Menlo
Park, California 94025. Includes 4,061,091 shares held by Sierra Ventures
VI, L.P. and 389,497 shares held by Sierra Ventures Associates VI, L.P.
Mr. Drazan, one of our directors, is a general partner of SV Associates
VI, L.P. SV Associates VI, L.P. is the general partner of Sierra Ventures
VI, L.P. and Sierra Ventures Associates VI, L.P. Mr. Drazan disclaims
beneficial ownership of the shares held by Sierra Ventures VI, L.P. and
Sierra Ventures Associates VI, L.P.
(12) c/o Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
155 Constitution Drive, Menlo Park, California 94025. Includes 81,641
shares held by G&H Partners, of which Mr. Gunderson is a general partner.
Mr. Gunderson disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest in G&H Partners. Also includes 50,000
shares subject to repurchase by us if Mr. Gunderson resigns as a director.
(13) Includes 75,937 shares subject to repurchase by us if Dr. Levine resigns
as a director.
(14) Includes 50,000 shares subject to repurchase by us if Dr. Sterman resigns
as a director.
(15) Includes 339,257 shares subject to our right to repurchase if
Dr. Whitesides ceases providing consulting services other than that of a
director to us.
(16) Includes 946,296 shares subject to our right to repurchase if Dr. Vagelos
ceases providing services to us. Also includes 180,000 shares of common
stock held in trust for the benefit of Dr. Vagelos' grandchildren, of
which Dr. Vagelos is a trustee.
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DESCRIPTION OF CAPITAL STOCK
We intend to file a new Amended and Restated Certificate of Incorporation
upon the closing of this offering. Effective upon the closing of this offering
and the filing of our new Amended and Restated Certificate of Incorporation, our
authorized capital stock will consist of 190,000,000 shares of common stock, par
value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01
per share.
Prior to the closing of this offering, and in accordance with our current
Restated Certificate of Incorporation, as amended and then in effect, we were
authorized to issue up to 100,000,000 shares of common stock, par value $0.01
per share, of which 10,232,000 shares were issued and outstanding as of
March 1, 2000 and 40,000,000 shares of preferred stock, par value $0.01 per
share, of which 28,802,000 shares were issued and outstanding as of March 1,
2000. Upon the closing of this offering, all outstanding shares of our preferred
stock will automatically convert into 28,802,000 shares of common stock.
The following summary description of our capital stock is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our new Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws, both of which will be in effect at the time of closing of this
offering filed as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
As of March 1, 2000, there were 10,232,000 shares of common stock
outstanding held by stockholders of record. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the
shares of common stock offered by us in this offering and the conversion of the
outstanding shares of preferred stock, there will be shares of common
stock outstanding upon the closing of this offering. In addition, as of
March 1, 2000, there were outstanding stock options for the purchase of
2,354,000 shares of common stock and outstanding warrants for the purchase an
aggregate of 53,000 shares of preferred stock, which will convert into warrants
to purchase shares of common stock on a one to one basis upon closing of this
offering.
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Directors are elected by a plurality of the votes of the shares
present in person or by proxy at the meeting and entitled to vote in such
election. Holders of our common stock are entitled to receive ratably such
dividends, if any, as the board of directors may declare out of funds legally
available therefor, after provision has been made for any preferential dividend
rights of outstanding preferred stock. Upon the liquidation, dissolution or
winding up of our affairs, the holders of our common stock are entitled to
receive ratably our net assets available after the payment of all our debts and
other liabilities, and after the satisfaction of the rights of any of our
outstanding preferred stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights, nor are they entitled to the
benefit of any sinking fund. The outstanding shares of our common stock are, and
the shares offered by us in this offering will be, when issued and paid for,
validly issued, fully paid and non-assessable. The rights, powers, preferences
and privileges of holders of our common stock are subordinate to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which our board of directors may designate and issue in the
future.
PREFERRED STOCK
Upon closing of this offering, our new Amended and Restated Certificate of
Incorporation authorizes 10,000,000 shares, all of which are undesignated.
BLANK CHECK PREFERRED STOCK
Our board of directors will be authorized, without further stockholder
approval, to issue from time to time up to an additional 10,000,000 shares of
preferred stock in the aggregate, in one or
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more series. Each series of preferred stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the board of directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights.
Our stockholders have granted our board of directors authority to issue the
preferred stock and to determine its rights and preferences in order to
eliminate delays associated with a stockholder vote on specific issuances. The
rights of the holders of common stock will be subordinate to the rights of
holders of any preferred stock issued in the future.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAWS PROVISIONS; ANTI-TAKEOVER EFFECTS
EXCLUSION FROM SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law is a business
combination statute that generally prohibits an "interested stockholder"
(defined generally as a person beneficially owning 15% or more of a
corporation's voting stock or an affiliate or associate of such person) from
engaging in a "business combination" (defined to include a variety of
transactions, including mergers and sales of 10% or more of a corporation's
assets) with a Delaware corporation for three years following the time at which
this person became an interested stockholder. This prohibition does not apply
if:
- the transaction resulting in a person becoming an interested stockholder,
or the business combination, is approved by the board of directors of the
corporation before the person becomes an interested stockholder;
- the interested stockholder acquired 85% or more of the outstanding voting
stock of the corporation in the same transaction that makes it an
interested stockholder (excluding shares owned by persons who are both
officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or
- at or subsequent to the time the person becomes an interested stockholder,
the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares
owned by the interested stockholder.
Section 203 permits the board of directors of a corporation to defend
against takeover attempts and could act as a deterrent to potential takeover
attempts as well. By electing not to be governed by Section 203, the board has
concluded that it is in the best interests of the company not to preclude the
company from entering into transactions with its large stockholders in the
future.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices from time to time. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of our common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price and our ability to raise equity capital in the future.
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SALES OF RESTRICTED SHARES
Based on shares outstanding on March 1, 2000, upon completion of this
offering, we will have outstanding an aggregate of shares of common
stock, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants. Of these shares, the shares
sold in this offering (with the exception of up to shares which may be
sold to some of our existing stockholders) will be freely tradable without
restrictions or further registration under the Securities Act, unless one of our
existing affiliates as that term is defined in Rule 144 under the Securities Act
purchases such shares.
The remaining shares of our common stock held by existing
stockholders are restricted shares or are restricted by the contractual
provisions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 of the Securities Act, which are summarized below. Of
these restricted shares, shares will be available for resale in the public
market in reliance on Rule 144(k), all of which shares are restricted by the
terms of the lock-up agreements described below. An additional
shares will be available for resale in the public market in reliance on
Rule 144, all of which shares are restricted by the terms of the lock-up
agreements. The remaining shares become eligible for resale in the public
market at various dates thereafter, all of which shares are restricted by the
terms of the lock-up agreements.
Under Rule 144 as currently in effect, beginning 90 days after the date of
this prospectus, a person who has beneficially owned restricted shares for at
least one year and has complied with the requirements described below would be
entitled to sell some of its shares within any three-month period. That number
of shares cannot exceed the greater of one percent of the number of shares of
our common stock then outstanding, which will equal approximately shares
immediately after this offering, or the average weekly trading volume of our
common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 reporting the sale. Sales under
Rule 144 are also restricted by manner of sale provisions, notice requirements
and the availability of current public information about our company. Rule 144
also provides that our affiliates who are selling shares of our common stock
that are not restricted shares must nonetheless comply with the same
restrictions applicable to restricted shares with the exception of the holding
period requirement.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates 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 those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Accordingly,
unless otherwise restricted, these shares may be sold immediately upon the
completion of this offering.
OPTIONS
Rule 701 provides that the shares of common stock acquired upon the exercise
of currently outstanding options or other rights granted under our equity plans
may be resold, to the extent not restricted by the terms of the lock-up
agreements, by persons, other than affiliates, beginning 90 days after the date
of this prospectus, restricted only by the manner of sale provisions of
Rule 144, and by affiliates in accordance with Rule 144, without compliance with
its one-year minimum holding period. As of March 1, 2000, shares will be
available for resale in the public market in reliance on Rule 701, all of which
shares are restricted by the terms of the lock-up agreements. As of March 1,
2000, our board of directors had authorized an aggregate of up to
shares of common stock for issuance under our existing equity plans. As of
March 1, 2000 options to purchase a total of shares of common stock were
outstanding, all of which options are exercisable but restricted by our right to
repurchase unvested shares upon the termination of an optionee's business
relationship with us. Of these options, shares are no longer restricted by
our right of repurchase and will be eligible for sale, if not restricted by the
terms
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of the lock-up agreements, in the public market in accordance with Rule 701
under the Securities Act beginning 90 days after the date of this prospectus.
All of the shares issuable upon exercise of these options are restricted by the
terms of the lock-up agreements.
We intend to file one or more registration statements on Form S-8 under the
Securities Act following this offering to register all shares of our common
stock which have been issued or are issuable upon exercise of outstanding stock
options or other rights granted under our equity plans. These registration
statements are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
market, upon the expiration or release from the terms of the lock-up agreements,
to the extent applicable.
WARRANTS
As of March 1, 2000, we had outstanding warrants exercisable for a total of
53,000 shares of our preferred stock, all of which are currently exercisable.
All of these shares are restricted by the terms of the lock-up agreements. These
shares of preferred stock are convertible into common stock on a one for one
basis upon closing of this offering.
LOCK-UP AGREEMENTS
Except for sales of common stock to the underwriters in accordance with the
terms of the underwriting agreement, we and our executive officers, directors,
stockholders and substantially all of our optionholders have agreed not to sell
or otherwise dispose of, directly or indirectly, any shares of our common stock
(or any security convertible into or exchangeable or exercisable for common
stock) without the prior written consent of Goldman, Sachs & Co. and Merrill
Lynch & Co. for a period of 180 days from the date of this prospectus. In
addition, for a period of 180 days from the date of this prospectus, except as
required by law, we have agreed that our board of directors will not consent to
any offer for sale, sale or other disposition, or any transaction which is
designed or could be expected to result in the disposition by any person,
directly or indirectly, of any shares of our common stock without the prior
written consent of Goldman Sachs and Merrill Lynch. Goldman Sachs and Merrill
Lynch, in their sole discretion, at any time or from time to time and without
notice, may release for sale in the public market all or any portion of the
shares restricted by the terms of the lock-up agreements. In addition, up to
shares of our common stock which may be purchased by some of our
existing stockholders will also be subject to similar lock-up agreements.
REGISTRATION RIGHTS
Upon the expiration of the contractual lock-up period, certain of our
stockholders will be entitled to require us to register under the Securities Act
up to a total of shares of outstanding common stock under the terms
of an Amended and Restated Investors' Rights Agreement dated March 20, 2000. The
Investor Rights Agreement provides that if we propose to register in a firm
commitment underwritten offering any of our securities under the Securities Act
at any time or times, if not restricted by the underwriters of the offering, the
stockholders having registration rights shall be entitled to include shares of
our common stock held by them in such registration. However, the managing
underwriter of any offering may exclude for marketing reasons some or all of the
shares from the registration. Some of these stockholders also have the right to
require us, on no more than one occasion, to prepare and file a registration
statement under the Securities Act registering the shares of common stock held
by them. The Investor Rights Agreement terminates in 2005 on the fifth
anniversary of this offering.
54
<PAGE>
UNDERWRITING
Advanced Medicine 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., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Bear, Stearns & Co. Inc. are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Bear, Stearns & Co. Inc.....................................
----------
Total.....................................................
==========
</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
shares from Advanced Medicine to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to of 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 Advanced Medicine. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares.
Paid by Advanced Medicine
<TABLE>
<CAPTION>
No Full
Exercise Exercise
----------- -----------
<S> <C> <C>
Per Share................................................ $ $
Total.................................................... $ $
</TABLE>
In addition, Bear, Stearns & Co. Inc. will receive a fee of $ from
Advanced Medicine at the closing of this offering.
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 such
securities dealers may resell any shares purchased from the underwriters to
certain 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
offering price, the representatives may change the offering price and the other
selling terms.
Advanced Medicine and its officers, directors, and security holders have
agreed with the underwriters not to dispose of or hedge any of its 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. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
55
<PAGE>
At the request of Advanced Medicine, the underwriters have reserved at the
initial public offering price up to shares of common stock for sale to
some of the holders of Advanced Medicine's preferred stock. Any shares purchased
by these stockholders will be subject to a lock-up agreement pursuant to which
these stockholders will agree not to dispose or hedge any 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. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. At the request of Advanced Medicine, the underwriters have also
reserved for sale at the initial public offering price up to shares of
common stock for sale to directors, officers and employees of Advanced Medicine
and others that Advanced Medicine believes have contributed to its growth. 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 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.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be negotiated among Advanced
Medicine and the representatives. Among the factors to be considered in
determining the initial public offering price of the shares, in addition to
prevailing market conditions, will be Advanced Medicine's historical
performance, estimates of Advanced Medicine's business potential and earnings
prospects, an assessment of Advanced Medicine's management and the consideration
of the above factors in relation to market valuation of companies in related
businesses.
Advanced Medicine has applied for quotation of its common stock on the
Nasdaq National Market under the symbol "ADVM".
In connection with this offering, the underwriters may purchase and sell
shares of the 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 certain 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 also may 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.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If the underwriters commence these activities, the underwriters may
discontinue them 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.
Advanced Medicine estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $ .
Advanced Medicine has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
56
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock to be issued in this offering
will be passed upon for Advanced Medicine by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California, and for the underwriters by
Shearman & Sterling, Menlo Park, California. Members of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, participating in the consideration of
legal matters related to the common stock offered by us in this offering are the
beneficial owners of 159,059 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial
statements of Advanced Medicine, Inc. at December 31, 1998 and 1999, and for
each of the three years in the period ended December 31, 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 on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Incara Research Laboratories at December 31, 1998 and 1999, and
for each of the two years in the period ended December 31, 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 on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act registering the common stock to
be sold in this offering. As permitted by the rules and regulations of the
Commission, this prospectus omits certain information contained in the
registration statement and the exhibits and schedules filed as a part of the
registration statement. For further information concerning our company and the
common stock to be sold in this offering, you should refer to the registration
statement and to the exhibits and schedules filed as part of the registration
statement. Statements contained in this prospectus regarding the contents of any
agreement or other document filed as an exhibit to the registration statement
are not necessarily complete, and in each instance reference is made to the copy
of the agreement filed as an exhibit to the registration statement each
statement being qualified by this reference. The registration statement,
including the exhibits and schedules filed as a part of the registration
statement, may be inspected at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its regional offices located at Seven World Trade Center, New
York, New York 10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies of all or any part thereof may be obtained from such offices
upon payment of the prescribed fees. You may call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms and you can request copies of the documents upon payment of a duplicating
fee, by writing to the Commission. In addition, the Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants (including us) that file electronically with
the Commission which can be accessed at http://www.sec.gov.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ADVANCED MEDICINE, INC., AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statement of Stockholders' Equity............ F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
<TABLE>
<S> <C>
INCARA RESEARCH LABORATORIES, AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors......... F-25
Balance Sheets............................................ F-26
Statements of Operations.................................. F-27
Statements of Cash Flows.................................. F-28
Notes to Financial Statements............................. F-29
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Unaudited Pro Forma Combined Statement of Operations...... F-34
Notes to the Unaudited Pro Forma Combined Statement of
Operations.............................................. F-36
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Advanced Medicine, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Medicine, Inc. (a development stage company) as of December 31, 1998 and 1999
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999 and
for the period from inception (November 19, 1996) to December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Advanced
Medicine, Inc. at December 31, 1998 and 1999 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 and for the period from inception (November 19, 1996) to
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 4, 2000, except for Notes 1, 8, and 10,
as to which the date is March 20, 2000
F-2
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------- DECEMBER 31,
1998 1999 1999
-------- --------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 3,438 $111,428
Marketable securities................................... 11,804 3,000
Receivables............................................. -- 1,448
Prepaid and other current assets........................ 222 671
-------- --------
Total current assets...................................... 15,464 116,547
Property and equipment, net............................... 5,243 21,988
Intangible assets......................................... -- 3,416
Restricted cash and cash equivalents...................... -- 4,701
Other long-term assets.................................... 167 523
-------- --------
Total assets.............................................. $ 20,874 $147,175
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 1,212 $ 5,817
Accrued personnel-related expenses...................... 788 1,564
Accrued expenses........................................ 212 1,273
Current portion of notes payable........................ 67 433
Current portion of capital lease obligations............ 548 1,613
-------- --------
Total current liabilities................................. 2,827 10,700
Long-term portion of notes payable........................ 84 934
Long-term portion of capital lease obligations............ 1,526 3,269
Commitments
Stockholders' equity:
Convertible preferred stock, $0.01 par value; 40,000
shares authorized; 10,057 and 28,802 issued and
outstanding at December 31, 1998 and 1999,
respectively, at amount paid in (none pro forma);
issuable in series; aggregate liquidation preference
of $190,913 at December 31, 1999...................... 31,592 185,209
Common stock, $0.01 par value; 100,000 shares
authorized; 9,346 and 9,406 shares issued and
outstanding at December 31, 1998 and 1999,
respectively, at amount paid in (38,208 shares pro
forma)................................................ 2,265 2,348 $187,557
Additional paid-in capital.............................. -- 12,722 12,722
Notes receivable from stockholders...................... (2,201) (2,128) (2,128)
Deferred stock-based compensation....................... -- (9,519) (9,519)
Accumulated other comprehensive income.................. 10 -- --
Deficit accumulated during the development stage........ (15,229) (56,360) (56,360)
-------- -------- --------
Total stockholders' equity................................ 16,437 132,272 $132,272
-------- -------- ========
Total liabilities and stockholders' equity................ $ 20,874 $147,175
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM INCEPTION
------------------------------ (NOVEMBER 19, 1996) TO
1997 1998 1999 DECEMBER 31, 1999
-------- -------- -------- -----------------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development................. $ 1,834 $ 10,434 $ 32,729 $ 44,997
General and administrative............... 1,313 2,665 4,901 8,879
Acquired in-process research............. -- -- 6,934 6,934
Amortization of deferred stock-based
compensation........................... -- -- 2,424 2,424
Other stock-based compensation........... -- -- 779 779
------- -------- -------- --------
Total operating expenses................... 3,147 13,099 47,767 64,013
------- -------- -------- --------
Loss from operations....................... (3,147) (13,099) (47,767) (64,013)
Interest income, net....................... 183 834 6,636 7,653
------- -------- -------- --------
Net loss................................... $(2,964) $(12,265) $(41,131) $(56,360)
======= ======== ======== ========
Net loss per share......................... $ (5.24) $ (6.65) $ (11.99)
======= ======== ========
Shares used in computing net loss per
share.................................... 566 1,843 3,430
======= ======== ========
Pro forma net loss per share............... $ (1.34)
========
Shares used in computing pro forma net loss
per share................................ 30,776
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 19, 1996) TO DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE COMMON NOTES
PREFERRED STOCK STOCK ADDITIONAL RECEIVABLE DEFERRED
-------------------- ------------------- PAID-IN FROM STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
-------- --------- -------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders for cash at $0.01 and
$0.13 per share in March, April,
and September 1997............... -- $ -- 4,310 $ 46 $ -- $ -- $ --
Issuance of Series A convertible
preferred stock to private
investors and warrant exercises
for cash at $1.25 per share in
April, June, and December 1997,
net of issuance costs of $10..... 4,980 $ 6,215 -- -- -- -- --
Net loss and comprehensive loss for
the period from inception
(November 19,1996) to
December 31, 1997................ -- -- -- -- -- -- --
------- -------- ----- ------ ------- ------- --------
Balance at December 31, 1997....... 4,980 6,215 4,310 46 -- -- --
Issuance of Series A convertible
preferred stock to private
investors for cash at $4.00 per
share in November 1998........... 8 32 -- -- -- -- --
Issuance of Series B convertible
preferred stock to private
investors and warrant exercises
for cash at $5.00 per share in
March, April, November, and
December 1998.................... 5,069 25,345 -- -- -- -- --
Stock option exercises at prices
ranging from $0.13 to $0.50 per
share for cash and notes during
the year......................... -- -- 5,036 2,219 -- (2,201) --
Comprehensive loss:
Net loss......................... -- -- -- -- -- -- --
Net unrealized gain on marketable
securities..................... -- -- -- -- -- -- --
Total comprehensive loss....... -- -- -- -- -- -- --
------- -------- ----- ------ ------- ------- --------
Balance at December 31, 1998....... 10,057 31,592 9,346 2,265 -- (2,201) --
Issuance of Series C convertible
preferred stock to private
investors for cash at $8.50 per
share in January, February, and
March 1999, net of issuance costs
of $5,716........................ 18,745 153,617 -- -- -- -- --
Stock option and warrant exercises
at prices ranging from $0.13 to
$0.85 per share for cash and
notes during the year, net of
repurchases...................... -- -- 60 83 -- 73 --
Other stock-based compensation
related to grants of warrants,
and stock options to
non-employees.................... -- -- -- -- 779 -- --
Deferred stock-based
compensation..................... -- -- -- -- 11,943 -- (11,943)
Amortization of deferred
stock-based compensation......... -- -- -- -- -- -- 2,424
Comprehensive loss:
Net loss......................... -- -- -- -- -- -- --
Net change in accumulated
unrealized gain/loss on
marketable securities.......... -- -- -- -- -- -- --
Total comprehensive loss....... -- -- -- -- -- -- --
------- -------- ----- ------ ------- ------- --------
Balance at December 31, 1999....... 28,802 $185,209 9,406 $2,348 $12,722 $(2,128) $ (9,519)
======= ======== ===== ====== ======= ======= ========
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
OTHER DURING THE TOTAL
COMPREHENSIVE DEVELOPMENT STOCKHOLDERS'
INCOME STAGE EQUITY
--------------- ------------- --------------
<S> <C> <C> <C>
Issuance of common stock to
founders for cash at $0.01 and
$0.13 per share in March, April,
and September 1997............... $ -- $ -- $ 46
Issuance of Series A convertible
preferred stock to private
investors and warrant exercises
for cash at $1.25 per share in
April, June, and December 1997,
net of issuance costs of $10..... -- -- 6,215
Net loss and comprehensive loss for
the period from inception
(November 19,1996) to
December 31, 1997................ -- (2,964) (2,964)
---- -------- --------
Balance at December 31, 1997....... -- (2,964) 3,297
Issuance of Series A convertible
preferred stock to private
investors for cash at $4.00 per
share in November 1998........... -- -- 32
Issuance of Series B convertible
preferred stock to private
investors and warrant exercises
for cash at $5.00 per share in
March, April, November, and
December 1998.................... -- -- 25,345
Stock option exercises at prices
ranging from $0.13 to $0.50 per
share for cash and notes during
the year......................... -- -- 18
Comprehensive loss:
Net loss......................... -- (12,265) (12,265)
Net unrealized gain on marketable
securities..................... 10 -- 10
--------
Total comprehensive loss....... -- -- (12,255)
---- -------- --------
Balance at December 31, 1998....... 10 (15,229) 16,437
Issuance of Series C convertible
preferred stock to private
investors for cash at $8.50 per
share in January, February, and
March 1999, net of issuance costs
of $5,716........................ -- -- 153,617
Stock option and warrant exercises
at prices ranging from $0.13 to
$0.85 per share for cash and
notes during the year, net of
repurchases...................... -- -- 156
Other stock-based compensation
related to grants of warrants,
and stock options to
non-employees.................... -- -- 779
Deferred stock-based
compensation..................... -- -- --
Amortization of deferred
stock-based compensation......... -- -- 2,424
Comprehensive loss:
Net loss......................... -- (41,131) (41,131)
Net change in accumulated
unrealized gain/loss on
marketable securities.......... (10) -- (10)
--------
Total comprehensive loss....... -- -- (41,141)
---- -------- --------
Balance at December 31, 1999....... $ -- $(56,360) $132,272
==== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM INCEPTION
------------------------------- (NOVEMBER 19, 1996) TO
1997 1998 1999 DECEMBER 31, 1999
-------- -------- --------- ----------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(2,964) $(12,265) $(41,131) $(56,360)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 154 570 6,262 6,986
Acquired in-process research............................ -- -- 6,934 6,934
Amortization of deferred stock-based compensation....... -- -- 2,424 2,424
Other stock-based compensation.......................... -- -- 779 779
Changes in operating assets and liabilities:
Receivables, prepaids and other current assets........ (45) (177) (1,897) (2,119)
Accounts payable and accrued expenses................. 229 1,195 5,607 7,031
Accrued personnel-related expenses.................... 183 605 776 1,564
------- -------- -------- --------
Net cash used in operating activities....................... (2,443) (10,072) (20,246) (32,761)
------- -------- -------- --------
INVESTING ACTIVITIES
Acquisition of net assets of IRL............................ -- -- (11,000) (11,000)
Purchases of property and equipment......................... (470) (2,957) (17,919) (21,346)
Purchases of marketable securities.......................... (2,151) (19,598) (17,023) (38,772)
Maturities of marketable securities......................... -- 9,955 25,817 35,772
Restricted cash and cash equivalents and other long-term
assets.................................................... (11) (156) (5,057) (5,224)
------- -------- -------- --------
Net cash used in investing activities....................... (2,632) (12,756) (25,182) (40,570)
------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from notes payable................................. 205 -- 680 885
Repayments of notes payable................................. -- (54) (160) (214)
Payments of capital lease obligations....................... (71) (395) (875) (1,341)
Net proceeds from issuances of convertible preferred
stock..................................................... 6,215 25,377 153,617 185,209
Net proceeds from issuances of common stock................. 46 18 156 220
------- -------- -------- --------
Net cash provided by financing activities................... 6,395 24,946 153,418 184,759
------- -------- -------- --------
Net increase in cash and cash equivalents................... 1,320 2,118 107,990 111,428
Cash and cash equivalents at beginning of period............ -- 1,320 3,438 --
------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 1,320 $ 3,438 $111,428 $111,428
======= ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Property and equipment acquired under capital lease
arrangements.............................................. $ 552 $ 1,988 $ 2,923 $ 5,463
======= ======== ======== ========
Issuances of common stock for notes receivable.............. $ -- $ 2,201 $ 22 $ 2,223
======= ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Advanced Medicine, Inc. ("Advanced Medicine" or the "Company"), an emerging
pharmaceutical company, is developing a novel class of small molecules known as
multivalent drugs. The period from inception (November 19, 1996) to
December 31, 1996 has been included in the consolidated statement of operations
for the year ended December 31, 1997 because the operating loss in this period
was less than $1,000. Through December 31, 1999, the Company has been primarily
involved in performing research and development activities, hiring personnel,
and raising capital to support and expand these activities. Accordingly, the
Company is in the development stage.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
In February 2000, 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. Unaudited pro forma stockholders' equity has been adjusted for the
assumed conversion to common stock of all shares of preferred stock outstanding
at December 31, 1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Advanced Medicine include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated 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 a
maturity of three months or less from the date of purchase to be cash
equivalents. Cash equivalents are carried at cost, which approximated fair value
at December 31, 1998 and 1999.
Under certain lease agreements and letters of credit, the Company may be
required from time to time to set aside cash as collateral. At December 31,
1999, there was $4.7 million of restricted cash and cash equivalents related to
such agreements.
MARKETABLE SECURITIES
The Company classifies its marketable securities as available-for-sale.
Available-for-sale securities are carried at estimated fair value, with the
unrealized gains and losses, if any, reported in stockholders' equity and
included in accumulated other comprehensive income or loss. The cost of
securities in this category is adjusted for amortization of premiums and
accretion of discounts from
F-7
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the date of purchase to maturity. Such amortization is included in "interest
income, net." Realized gains and losses and declines in value judged to be other
than temporary on available-for-sale securities are also included in interest
income. The cost of securities sold is based on the specific identification
method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
three to seven years. Leasehold improvements and assets under capital leases are
amortized over the shorter of their estimated useful lives or the related lease
term.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over their
estimated useful lives, ranging from three to seven years.
LONG-LIVED ASSETS
Long-lived assets include property, equipment, and intangible assets. The
carrying value of long-lived assets is reviewed for impairment whenever events
or changes in circumstances indicate that the asset may not be recoverable. An
impairment loss would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition is less than its
carrying amount. No impairment losses have been recognized to date.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development costs consist of direct and indirect internal costs related to
specific projects as well as fees paid to other entities which conduct certain
research and development activities on behalf of the Company. Costs to acquire
technologies to be used in research and development but which have no
alternative future use or have not reached technological feasibility are
expensed when incurred.
NET LOSS PER SHARE
Net loss per share is calculated based on the weighted-average number of
common shares outstanding during the period, less the weighted-average shares
subject to repurchase. The computation of pro forma net loss per share includes
shares issuable upon the conversion of outstanding shares of convertible
preferred stock (using the as-if converted method) from the original date of
issuance.
F-8
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculations of actual and pro forma net
loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Actual:
Net loss...................................... $(2,964) $(12,265) $(41,131)
======= ======== ========
Weighted average shares of common stock
outstanding................................. 2,469 5,022 9,376
Less: weighted average shares subject to
repurchase.................................. (1,903) (3,179) (5,946)
------- -------- --------
Shares used in computing net loss per share... 566 1,843 3,430
======= ======== ========
Net loss per share............................ $ (5.24) $ (6.65) $ (11.99)
======= ======== ========
Pro forma:
Shares used above............................. 3,430
Pro forma adjustment to reflect weighted
average effect of assumed conversion of
preferred stock............................. 27,346
--------
Shares used in computing pro forma net loss
per share................................... 30,776
========
Pro forma net loss per share.................. $ (1.34)
========
</TABLE>
The Company has excluded all convertible securities, shares subject to
repurchase, outstanding options, and outstanding warrants from the calculation
of net loss per share because such securities are antidilutive for all periods
presented. Had the Company been in a net income position, these securities would
have been included in the calculation. These potentially dilutive securities
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Convertible preferred stock........................ 4,980 10,057 28,802
Repurchasable common shares outstanding............ 2,936 6,926 5,298
Outstanding common stock options................... 361 132 1,260
Outstanding warrants............................... 4 8 73
----- ------ ------
Total.............................................. 8,281 17,123 35,433
===== ====== ======
</TABLE>
F-9
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for grants of stock options and common stock purchase
rights to its employees according to the intrinsic value method and, thus,
recognizes no stock-based 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 grant. The Company records deferred stock-based compensation when
the deemed fair value of the Company's common stock for financial accounting
purposes exceeds the exercise price of the stock options or purchase rights on
the date of grant. Any such deferred stock-based compensation is amortized over
the vesting period of the individual options. Pro forma net loss information
using the fair value method of accounting for grants of stock options to
employees is included in Note 8.
Options granted to non-employees are accounted for at fair value using the
Black-Scholes method and may be subject to periodic re-valuation over their
vesting terms. The resulting stock-based compensation expense is recorded over
the service period in which the individual provides services to the Company.
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and other comprehensive income
or loss. Other comprehensive income or loss includes certain changes in equity
that are excluded from net loss. Specifically, unrealized holding gains and
losses on available-for-sale securities, which are reported separately in
stockholders' equity, are included in accumulated other comprehensive loss.
Comprehensive loss approximates net loss for all periods presented.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. In July 1999, the Financial Accounting Standards Board
announced the delay of the effective date of SFAS 133 for one year, to the first
quarter of 2001. To date, the Company has not engaged in derivative or hedging
activities.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires that entities capitalize certain costs related to
internal use software once certain criteria have been met. The Company adopted
the provisions of SOP 98-1 on January 1, 1999. The Company capitalized costs
totaling approximately $856,000 related to software placed in service during
December 1999 in accordance with SOP 98-1. The expected asset life is 36 months.
2. RECENT ACQUISITION
On December 29, 1999, the Company acquired substantially all of the net
assets of Incara Research Laboratories ("IRL"), a division of Incara
Pharmaceuticals Corporation ("Incara") for $11.0 million in cash. The Company
agreed to pay Incara up to an additional $4.0 million if the
F-10
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. RECENT ACQUISITION (CONTINUED)
company receives milestone payments under a research collaboration and license
agreement assumed by the Company as part of the acquisition. The transaction has
been recorded as a purchase for accounting purposes. Consequently, the operating
results of IRL have been included in the Company's consolidated financial
statements from the date of acquisition. The purchase price has been allocated
to the acquired net tangible and intangible assets based upon their respective
fair values as of the date of the acquisition, as follows:
<TABLE>
<CAPTION>
AMOUNT ESTIMATED USEFUL LIFE
-------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment..................... $ 2,165 3-7 years
Assumed liabilities and acquisition
costs.................................... (1,515)
-------
Fair value of net tangible assets...... 650
-------
Intangible assets:
Core technology and other intangible
assets............................... 3,063 7 years
Assembled workforce.................... 353 3 years
-------
Fair value of intangible assets...... 3,416
-------
Fair value of acquired assets.............. 4,066
Fair value of aquired in-process
research................................. 6,934
-------
Total purchase price....................... $11,000
=======
</TABLE>
Management determined the allocation of the purchase price. The fair value
of fixed assets purchased and assumed liabilities were determined to equal their
respective historical net book value. The amount assigned to in-process research
was determined based upon the estimated present value of the estimated risk
adjusted future net cash flows from each potential product that could result
from research projects in process at the time of the acquisition. The net cash
flows of each in-process research project were estimated by forecasting total
estimated revenues from sales and related operating expenses and other cash
outlays. The resultant net cash flows were then multiplied by each project's
estimated percentage of completion as of the purchase date to arrive at a risk
adjusted forecast of cash flows attributable to projects prior to the purchase
date. Finally, the net present value of these risk adjusted forecasts of net
cash flows were calculated by applying discount rates of 35% to 40%, which
reflect the level of risk and early stage of the research. The resulting risk
adjusted net present value of $6.9 million was charged to operations in 1999
because the Company concluded that technological feasibility of the acquired
in-process research had not yet been established at the acquisition date.
The fair value of the core technology was estimated using the relief from
royalty methodology, which estimates the present value of the technology based
on the amount of royalties the Company might pay to an unrelated third party for
the use of the technology. Core technology was valued at $2.0 million.
Forecasted revenues expected to result from the technology were multiplied by
F-11
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. RECENT ACQUISITION (CONTINUED)
assumed royalty rates ranging from 0.75% to 1.50%. The resulting royalty stream
was calculated by applying a discount rate of 23%.
The assembled workforce was valued using the replacement cost method. This
method estimates the value of the assembled workforce based on the cost to
recruit and train a replacement workforce.
The following pro forma consolidated results of operations have been
prepared as if the acquisition of the net assets of IRL had occurred at the
beginning of 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Pro Forma:
Collaborative revenue.............................. $ 927 $ 1,975
Net loss........................................... $(28,096) $(47,505)
Net loss per share................................. $ (15.24) $ (13.85)
Shares used in computing pro forma net loss per
share............................................ 1,843 3,430
</TABLE>
Collaborative revenue represents research support and milestone payments
that IRL received under a research collaboration and license agreement. There
will be no additional research support revenue under this agreement as the
research collaboration expired in December 1999. These revenues are not
reflected in the Company's consolidated financial statements as the payments
preceded the acquisition of the net assets of IRL. The pro forma net loss and
net loss per share amounts for each period above include the acquired in-process
research charge. The pro forma consolidated results do not purport to be
indicative of results that would have occurred had the acquisition been in
effect for the period presented, nor do they purport to be indicative of the
results that will be obtained in the future.
3. COLLABORATIVE AGREEMENTS
In connection with the acquisition of the net assets of IRL, the Company
assumed the rights and obligations under some sponsored research and several
license agreements. Under the sponsored research agreements, the Company is
obligated to fund certain research in return for the right to license inventions
resulting from the research. The license agreements generally provide the
Company with exclusive worldwide rights to some technologies in exchange for
license fees and royalties. The Company is obligated to pay annual maintenance
fees until the termination of the agreements. In some cases, if the product
covered under these agreements is commercialized, royalties paid will reduce
these annual maintenance fees. The Company may terminate the agreements
generally with six months' notice. Unless these agreements are amended or
terminated, the Company will incur up to $1.0 million in annual research-related
expenses until at least 2007.
F-12
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. MARKETABLE SECURITIES
The following is a summary of the Company's available-for-sale securities:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1998 1999
---------------------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED UNREALIZED FAIR AMORTIZED FAIR
COST GAINS VALUE COST VALUE
--------- ---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. government agencies.................... $ 3,925 $ 5 $ 3,930 $ -- $ --
U.S. corporate notes........................ 2,220 -- 2,220 -- --
U.S. commercial paper....................... 5,753 4 5,757 98,701 98,701
Certificates of deposit..................... 1,185 1 1,186 11,274 11,274
Money market funds.......................... 71 -- 71 3,252 3,252
------- --- ------- --------- ---------
Total....................................... 13,154 10 13,164 113,227 113,227
Less amounts classified as cash and cash
equivalents............................... (1,360) -- (1,360) (105,526) (105,526)
Less restricted amounts classified as
long-term assets.......................... -- -- -- (4,701) (4,701)
------- --- ------- --------- ---------
Amounts classified as marketable
securities................................ $11,794 $10 $11,804 $ 3,000 $ 3,000
======= === ======= ========= =========
</TABLE>
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. Realized gains or losses on
available-for-sale securities for all periods presented were not significant. At
December 31, 1999, the remaining contractual maturity of marketable securities
was approximately four months.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Construction in progress.................................. $ -- $12,256
Leasehold improvements.................................... 2,537 6,564
Laboratory equipment...................................... 2,722 7,343
Computer equipment, software, and systems implementation
costs................................................... 508 2,566
Furniture and fixtures.................................... 200 245
------ -------
5,967 28,974
Less accumulated depreciation and amortization............ (724) (6,986)
------ -------
Property and equipment, net............................... $5,243 $21,988
====== =======
</TABLE>
F-13
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. PROPERTY AND EQUIPMENT (CONTINUED)
In anticipation of the Company's occupancy of its new facility in
February 2000, the Company shortened the remaining estimated useful lives of
leasehold improvements in its existing facility to coincide with the remaining
period in which the Company expected to utilize the related facility. This
change in estimate resulted in an increase in amortization expense of
$4.2 million which was included in research and development expense in the
statement of operations in 1999.
6. LONG-TERM OBLIGATIONS
At December 31, 1999, the Company's aggregate commitments under notes
payable and capital lease agreements was as follows:
<TABLE>
<CAPTION>
NOTES PAYABLE CAPITAL LEASES
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31,
2000........................................... $ 551 $ 1,996
2001........................................... 522 1,558
2002........................................... 229 1,010
2003........................................... 84 573
2004........................................... 84 542
Thereafter..................................... 206 --
------ -------
Total minimum note or lease payments............. 1,676 5,679
Amount representing interest..................... (309) (797)
------ -------
Present value of future payments................. 1,367 4,882
Current portion.................................. (433) (1,613)
------ -------
Long-term portion................................ $ 934 $ 3,269
====== =======
</TABLE>
CAPITAL LEASE AGREEMENTS
Equipment and leasehold improvements financed under capital lease
arrangements are included in property and equipment and the related amortization
is included in depreciation and amortization expense. The cost of assets
financed under capital leases was $2.5 million and $5.6 million for the years
ended December 31, 1998 and 1999, respectively. The related accumulated
amortization was $510,000 and $1.5 million at December 31, 1998 and 1999,
respectively.
In March 1999, the Company completed all lease draws available under a
capital lease agreement entered into in May 1997, which provided for an
aggregate draw of up to $3.0 million. Each lease is scheduled to be repaid over
48 months and the Company has the option to purchase the assets at the end of
the term at the then fair value. In connection with this capital lease
agreement, the Company issued warrants in May 1997 and April 1998 to purchase
32,000 and 24,000 shares of the Company's Series A and Series B convertible
preferred stock at a purchase price of $1.25 and $5.00 per share, respectively.
The warrants are exercisable for seven years after the date of issuance or three
years after the Company's initial public offering, whichever is longer.
F-14
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. LONG-TERM OBLIGATIONS (CONTINUED)
The value of the warrants was not considered significant, and therefore, no
value for the warrants was recorded in the Company's consolidated financial
statements.
In May 1999, the Company entered into a capital lease agreement for up to
$9.0 million with a financing company. At December 31, 1999, $2.4 million in
equipment has been financed under this arrangement. Each lease is scheduled to
be repaid over 60 months, and the Company has the option to purchase the assets
at the end of the term at the then fair value. The agreement includes a
liquidity covenant that requires the Company to maintain an unrestricted cash
balance of at least $50.0 million on the last day of each calendar quarter
during the 60-month term of any lease schedule. Each lease schedule is
collateralized by the underlying assets and, from time to time, the Company is
also required to set aside cash as collateral.
As part of the acquisition of the net assets of IRL, the Company assumed
capital lease agreements which have remaining lease terms ranging from one to
four years and interest rates ranging from 5% to 10%. The agreements require the
purchase of the leased assets at the end of the term at up to 25% of the
original cost.
NOTES PAYABLE
In 1999, the Company financed, through notes payable to a financing company,
approximately $732,000 of costs related to software licensing and systems
implementation. The notes are payable in equal quarterly installments over
36 months at effective interest rates ranging from approximately 8.3% to 9.0%.
At December 31, 1999, $587,000 of principal was outstanding under these notes.
As part of the acquisition of the net assets of IRL, the Company assumed two
notes issued for the purchase of computer and laboratory equipment and leasehold
improvements. These notes are payable in monthly installments, bear interest at
an annual rate between 11.5% and 13.4%, and expire in June 2002 and June 2007,
respectively. At December 31, 1999, $695,000 of principal was outstanding under
these notes.
7. OPERATING LEASES
At December 31, 1999, the Company's future minimum lease payments under
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
MINIMUM LEASE PAYMENTS
----------------------
(IN THOUSANDS)
<S> <C>
Year ending December 31,
2000............................................... $ 2,757
2001............................................... 3,321
2002............................................... 3,411
2003............................................... 3,498
2004............................................... 3,578
Thereafter......................................... 24,431
-------
$40,996
=======
</TABLE>
F-15
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
7. OPERATING LEASES (CONTINUED)
Rent expense for the years ended December 31, 1997, 1998 and 1999, and for
the period from inception (November 19, 1996) to December 31, 1999 was $112,000,
$563,000, $650,000, and $1.3 million, respectively.
In February 1999, the Company entered into an operating lease agreement for
a new facility comprising approximately 110,000 square feet. The 12-year term of
the lease commenced upon the Company's occupancy of the facility in
February 2000. The lease agreement provides for scheduled rent increases
annually over the lease term and future minimum lease payments total
approximately $34.8 million. The Company also has an option to lease an
additional 40,000 square feet in a building which would be constructed adjacent
to its current facility.
The Company will recognize rent expense on a straight-line basis and record
deferred rent up to an aggregate of $1.5 million through December 2005. The
lease agreement provides the Company with a tenant improvement allowance of
$5.0 million (the "Allowance") of which $1.7 million has been drawn and
$1.4 million is recorded as a receivable at December 31, 1999. In addition, the
landlord will provide the Company, at its request, a loan of up to $2.8 million
to be applied toward the completion of tenant improvements after the Allowance
is disbursed. The loan will bear interest at 12% per annum and must be repaid by
the Company over the lease term. Concurrently with the execution of the lease
agreement, the Company delivered a letter of credit in the amount of
$2.8 million as security for the Company's performance of its future obligations
under the lease. An equal amount of $2.8 million has been set aside as
restricted cash in connection with the letter of credit. In addition, the
Company issued warrants to a broker in February 1999 for the purchase of 20,000
shares of the Company's Series C convertible preferred stock at a purchase price
of $8.50 per share. The warrants are exercisable for five years after the date
of issuance and remain outstanding at December 31, 1999. The Company calculated
the fair value of the warrants using the Black-Scholes method. A charge of
$106,000 was recorded as commission expense in 1999 for the value of the
warrants.
The Company's operating lease commitments for its previously occupied
facilities extend through the year 2005 and aggregate $5.2 million. This amount
has been excluded from the table above as the Company is currently negotiating
with several parties to sublease this facility at rates that are higher than the
Company's lease commitment.
As part of the acquisition of the net assets of IRL, the Company assumed an
operating lease commitment for a 32,000 square foot facility with a remaining
lease term of eight years. Aggregate future minimum lease payments under this
commitment total approximately $6.2 million.
8. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
During 1997, the Company sold 4,980,000 shares of Series A convertible
preferred stock to private investors for net proceeds of $6.2 million. During
1998, the Company sold an additional 8,000 shares of Series A convertible
preferred stock and 5,069,000 shares of Series B convertible preferred stock for
net proceeds of $32,000 and $25.3 million, respectively. During 1999, the
F-16
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
Company sold 18,745,000 shares of Series C convertible preferred stock for net
proceeds of $153.6 million.
In connection with the Series C convertible preferred stock financing in
January 1999, the Company issued warrants to purchase 50,000 shares of the
Company's common stock at a purchase price of $0.85 per share and 25,000 shares
of the Company's Series C convertible preferred stock at a purchase price of
$10.20 per share. Of these, warrants to purchase 20,000 and shares of the
Company's common stock and 25,000 shares of the Company's Series C convertible
preferred stock remain outstanding at December 31, 1999. Because these warrants
are considered equity issuance costs, no value was recorded since the net impact
on stockholders' equity would have been zero.
All series of preferred stock are convertible at the option of the holder at
any time into common stock on a one-for-one basis, subject to certain
adjustments for antidilution, and carry voting rights equivalent to common
stock. Each share of preferred stock automatically converts into one share of
common stock in the event of an initial public offering of the Company's common
stock in which gross offering proceeds exceed $30.0 million and the offering
price is at least $10.00 per share, or as of the date specified by consent of
the holders of at least 66 2/3% of the then outstanding shares of preferred
stock. Holders of convertible preferred stock are entitled to noncumulative
dividends if and when declared by the board of directors. No dividends have been
declared through December 31, 1999. Upon liquidation, the Series A, B, and C
preferred stockholders are entitled to receive an amount equal to $1.25, $5.00,
and $8.50 per share, respectively, plus the aggregate amount of any declared but
unpaid dividends. After the above distributions have been made, remaining
amounts shall be distributed among the holders of common stock.
The convertible preferred stock authorized, issued, and outstanding at
December 31, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
AUTHORIZED SHARES ISSUED AGGREGATE LIQUIDATION
SHARES AND OUTSTANDING PREFERENCE
---------- --------------- ---------------------
<S> <C> <C> <C>
Series A....................... 5,020 4,988 $ 6,235
Series B....................... 5,100 5,069 25,345
Series C....................... 18,823 18,745 159,333
------ ------ --------
28,943 28,802 $190,913
====== ========
Undesignated................... 11,057
------
40,000
======
</TABLE>
STOCK OPTION PLANS
In June 1997, the board of directors adopted the 1997 Stock Option Plan (the
"1997 Plan"). In June 1998, the board of directors adopted the Long-Term Option
Plan (the "Long-Term Plan"). These plans provide for the granting of incentive
and nonstatutory stock options to employees, officers, directors, and
consultants of the Company. Incentive stock options may be granted with
F-17
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
exercise prices not less than fair value, and nonstatutory stock options may be
granted with an exercise price not less than 85% of the fair value of the common
stock on the date of grant. Stock options granted to a stockholder owning more
than 10% of voting stock of the Company may be granted with an exercise price of
not less than 110% of the fair value of the common stock on the date of grant.
The board of directors determines the fair value of common stock. Stock options
are generally granted with terms of up to ten years and vest over a period of
four years under the 1997 Plan and over five years beginning after the fourth
year of employment or service under the Long-Term Plan.
In February 2000, the board of directors approved the shortening of the
vesting period of options granted under the Long-Term Plan from the original
vesting period of nine years to six years, with vesting beginning as of the
employee's respective hire date. This change will result in a remeasurement for
financial accounting purposes, and the Company expects to record a stock-based
compensation charge of $22.0 million and deferred stock-based compensation of
$8.9 million in February 2000 related to these options which will be amortized
over the remaining vesting periods.
In addition to options granted under the 1997 Plan and the Long-Term Plan,
in December 1998 the Company granted options to purchase 1,350,000 shares of
common stock at an exercise price of $0.50 per share to certain outside
directors and a key employee, of which 85,000 shares were repurchased in 1999.
These options were exercised in full for full-recourse notes (see below) during
1998, subject to the Company's repurchase rights which lapse over a period
ranging from four to nine years or upon the achievement of certain milestones.
During 1998, the Company allowed all stock option holders to exercise their
options at the date of grant by executing stock purchase agreements and
full-recourse notes payable to the Company. The stock purchase agreements
provide the Company with the right to repurchase these shares upon terms
consistent with the vesting schedules of the underlying options. The Company
shall forgive the entire unpaid principal sum of the note if the optionee
remains in continuous service from the date of the note until its maturity date.
Such maturity date corresponds to the end of the vesting period of the
underlying option and ranges from four to nine years from the date of the
original option grant. As of December 31, 1999, the unpaid balance on the notes
totaled $2.1 million.
The Company accounts for employee stock options using their intrinsic value
at the date of grant. Pro forma information regarding net loss has been
determined as if the Company had accounted for its employee stock options
granted since inception under the fair value method. The effect of applying the
minimum value method to the Company's stock option grants did not result in pro
forma net loss materially different from historical amounts reported. As a
result, pro forma information regarding net loss is not presented. The
assumptions used to value these options were as follows for 1997, 1998, and
1999, respectively: weighted-average risk-free interest rates of 6.0%, 6.0%, and
5.5%, respectively; no dividend yield; and a weighted-average expected life of
the option of four years and nine years under the 1997 Plan and Long Term Plan,
respectively. The weighted-average estimated fair value of stock options granted
during 1997, 1998 and 1999 was $0.04, $0.18, and $9.73, respectively.
F-18
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
During the year ended December 31, 1999, in connection with the grant of
certain stock options to employees, the Company recorded deferred stock-based
compensation of $11.9 million representing the difference between the exercise
price and the deemed fair value of the Company's common stock for financial
accounting purposes on the date these stock options were granted. Deferred
stock-based compensation is included as a reduction of stockholders' equity and
is being amortized over the vesting periods of the related options. During the
year ended December 31, 1999, the Company recorded amortization of deferred
stock-based compensation of approximately $2.4 million. At December 31, 1999,
the Company had a total of approximately $9.5 million remaining to be amortized
over the corresponding vesting period of each respective option, generally four
years. Additional deferred stock-based compensation of approximately
$14.0 million is expected to be recorded based on the deemed fair value of
common stock options granted to employees in February 2000.
Through December 31, 1999, the Company has granted options to purchase
322,000 shares of common stock to non-employees with exercise prices ranging
from $0.50 to $0.85 per share. These stock options may be periodically subject
to re-valuation using a Black-Scholes model. The following weighted average
assumptions were used for 1999: estimated volatility of 0.7, risk-free interest
rate of 5.5%, no dividend yield, and an expected life of the option equal to the
full term, generally ten years from the date of grant. In 1999, the Company
recognized an expense of $673,000 in connection with these transactions. No
expense was recognized in prior years as such amounts were not significant. In
February 2000, the Company granted an additional 801,000 common stock options to
non-employees that may be periodically subject to re-valuation using a
Black-Scholes model beginning in 2000.
F-19
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes option activity under the 1997 Plan and the
Long-Term Plan, and related information:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE
AVAILABLE EXERCISE PRICE
FOR GRANT OPTIONS OUTSTANDING PER SHARE
--------- ------------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Shares authorized............. 1,800 -- --
Options granted............... (361) 361 $0.13
------ ------ -----
Balance at December 31, 1997.... 1,439 361 $0.13
Additional shares
authorized.................. 2,615 -- --
Options granted............... (3,499) 3,499 $0.44
Options exercised............. -- (3,686) $0.42
Options forfeited............. 42 (42) $0.40
------ ------ -----
Balance at December 31, 1998.... 597 132 $0.21
Additional shares
authorized.................. 1,300 -- --
Options granted............... (1,402) 1,402 $0.85
Options exercised............. -- (230) $0.70
Options forfeited............. 44 (44) $0.52
Shares repurchased............ 65 -- $0.42
------ ------ -----
Balance at December 31, 1999.... 604 1,260 $0.82
====== ====== =====
</TABLE>
At December 31, 1999, all the outstanding options to purchase common stock
of the Company were exercisable. These options are summarized in the following
table:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED AVERAGE
PRICE PER NUMBER OF OPTIONS NUMBER OF REMAINING
SHARE OUTSTANDING OPTIONS VESTED CONTRACTUAL LIFE
- --------------------- ----------------- -------------- ----------------
(IN THOUSANDS) (IN THOUSANDS) (IN YEARS)
<S> <C> <C> <C>
$0.13 45 25 7.72
$0.50 7 2 8.93
$0.85 1,208 84 9.64
----- ---
1,260 111 9.57
===== ===
</TABLE>
STOCK SUBJECT TO REPURCHASE
At December 31, 1999, 5,298,000 shares of the Company's common stock were
subject to the Company's right to repurchase. Giving effect to the February 2000
reduction of the vesting periods of the Long-Term Options, 4,532,000 shares of
the Company's common stock would have been subject to the Company's right to
repurchase at December 31, 1999. These shares are the result of the exercise of
unvested stock options by employees and the execution of certain stock purchase
agreements. The Company's repurchase rights lapse pursuant to the terms of the
underlying agreements, which is generally four years.
F-20
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
The following is a summary of outstanding warrants and stock issuance
agreements to purchase the Company's stock at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF YEAR OF
SHARES EXERCISE PRICE TERM IN YEARS EXPIRATION
-------------- -------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Common stock............. 20 $ 0.85 10 2009
Series A convertible
preferred stock........ 4 $ 1.25 7 2004
Series B convertible
preferred stock........ 4 $ 5.00 7 2005
Series C convertible
preferred stock........ 45 $8.50 - 10.20 5 2004
--
Total.................... 73
==
</TABLE>
RESERVED SHARES
At December 31, 1999, the Company has reserved shares of common stock for
future issuance as follows (in thousands):
<TABLE>
<S> <C>
Outstanding warrants........................................ 73
Stock option plans
Outstanding............................................. 1,260
Reserved for future grants.............................. 604
Conversion of preferred stock............................... 28,802
----------
Total....................................................... 30,739
==========
</TABLE>
9. INCOME TAXES
Due to operating losses and the inability to recognize an income tax benefit
therefrom, there is no provision for income taxes for 1997, 1998 and 1999.
F-21
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 5,100 $ 12,232
Research and development tax credit carryforwards..... 300 2,700
Capitalized research and development expenditures..... 700 1,960
Reserves and accruals................................. 200 812
Deferred compensation................................. -- 1,300
Fixed assets and acquired intangible assets........... -- 5,835
Valuation allowance................................... (6,300) (24,839)
------- --------
Net deferred tax assets................................. $ -- $ --
======= ========
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any,
the timing and the amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax asset as of December 31,
1998 and 1999 has been established to reflect these uncertainties. The change in
the valuation allowance was a net increase of approximately $1.3 million,
$5.0 million, and $18.5 million for the fiscal years ended December 31, 1997,
1998 and 1999, respectively.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $35.8 million and $800,000, respectively,
which will expire at various dates from 2004 through 2019, if not utilized. As
of December 31, 1999, the Company also had federal and state research and
development tax credit carryforwards of approximately $1.8 million and
$1.4 million, respectively, which will expire at various dates from 2011 through
2019, if not utilized.
Utilization of net operating loss and tax credit carryforwards may be
subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended, and
similar state provisions. The annual limitation may result in expiration of net
operating loss and tax credit carryforwards before full utilization.
10. SUBSEQUENT EVENTS (UNAUDITED)
INITIAL PUBLIC OFFERING
In February 2000, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public Offering
(the "Offering"). If the Offering is consummated, the preferred stock
outstanding as of the closing date will be converted into shares of the
Company's common stock. The pro forma stockholders' equity in the accompanying
consolidated balance sheet as of
F-22
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
10. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
December 31, 1999 reflects conversion of the outstanding preferred stock into
28,802,000 shares of common stock. Pro forma net loss per share is computed as
if the outstanding preferred stock had been converted into common stock on the
date of issuance.
Following the Offering, the Company will file a new Amended and Restated
Certificate of Incorporation to increase the number of shares authorized for
issuance to 190,000,000 shares of common stock and 10,000,000 shares of
preferred stock for which the board of directors will have the power to
determine designations and preferences and to issue at some future time without
additional stockholder action.
The new Amended and Restated Certificate of Incorporation includes
provisions governing the rights and preferences of the preferred stock and
common stock, provisions governing director and stockholder meeting and
provisions governing the indemnification of directors. Holders of common stock
are entitled to one vote for each share held on all matters submitted to the
stockholders.
2000 EMPLOYEE STOCK PURCHASE PLAN
In February 2000, the board of directors approved the 2000 Employee Stock
Purchase Plan ("2000 Purchase Plan"), subject to stockholder approval. The 2000
Purchase Plan will have four overlapping offering periods commencing in each
calendar year, with each period consisting of 27 months. Eligible employees may
only participate in one offering period at a time and may authorize payroll
deductions of up to 15% of their base compensation to purchase common stock at a
price equal to 85% of the lower of the fair market value as of the beginning of
the offering period and the fair market value as of the end of each purchase
period.
The Company has reserved 750,000 shares of common stock for issuance under
the 2000 Purchase Plan. This reserve amount will be increased each January 1
beginning January 1, 2001 equal to the lesser of 0.5% of the number of shares of
common stock outstanding on that date or 500,000 shares.
CHANGES IN OPTION PLANS
In February 2000, the board of directors approved the 2000 Equity Incentive
Plan (the "2000 Plan"), subject to stockholder approval. A number of shares of
common stock equal to the difference between 12% of the number of shares of
common stock outstanding after the offering and the shares reserved under the
2000 Director Option Plan are reserved for issuance under the 2000 Equity
Incentive Plan plus any remaining available shares under the 1997 Plan and the
Long-Term Plan. The 2000 Plan provides for acceleration of vesting equal to 100%
upon a change in control of the Company for awards that are not assumed by the
successor corporation. In addition, if an optionee suffers involuntary
termination within twenty-four months following the change of control, the
individual's options will accelerate and become fully vested.
In February 2000, the board of directors also approved the 2000 Director
Option Plan, subject to stockholder approval. 500,000 shares of common stock
have been reserved for issuance under the 2000 Director Option Plan. This
reserve amount will be increased each January 1 beginning January 1, 2001 and
ending January 1, 2005, by 100,000 shares of common stock or such lesser
F-23
<PAGE>
ADVANCED MEDICINE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
10. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
number as the board of directors may determine. Upon election to the board of
directors, each non-employee director will receive options to purchase 50,000
shares of common stock that vest in three equal annual installments follwoing
the date of grant. Beginning in 2001, each non-employee directors will receive
an annual grant of options to purchase 10,000 shares of common stock, which
shall become fully vested upon the first anniversary of the grant date. However,
a new non-employee director who is also receiving the initial option will not
receive the follow-on until the next calender year. All options granted under
the plan will become fully vested upon a change in control of the Company.
SALE OF SERIES D PREFERRED STOCK
In March 2000, the Company irrevocably committed to issue 1,666,667 shares
of Series D convertible preferred stock to investors for an aggregate purchase
price of approximately $25.0 million. The rights and preferences of these shares
are generally consistent with the Series A, B, and C convertible preferred
stock, except that the ratio at which the shares will convert into common stock
depends upon the initial public offering price. The conversion formula will
result in the shares of Series D preferred stock converting into common stock at
a conversion price ranging from 80% to 90% of the initial public offering price.
The dividend rate is $1.20 per share of Series D preferred stock and the
liquidation preference is $15.00 per share of Series D preferred stock. In
connection with this preferred stock issuance, the company will record a deemed
dividend, representing the difference between the conversion price and the
deemed fair value, for financial accounting purposes, of the security at the
date of issuance.
F-24
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Advanced Medicine, Inc.
We have audited the accompanying balance sheets of Incara Research
Laboratories ("Incara") as of December 31, 1998 and 1999, and the related
statements of operations and cash flows for the years then ended. These
financial statements are the responsibility of Incara's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits 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 Incara at December 31, 1998
and 1999, and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
February 9, 2000
F-25
<PAGE>
INCARA RESEARCH LABORATORIES
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Security deposits and other current assets.................. $ 26 $ 10
---------- ----------
Total current assets........................................ 26 10
Property and equipment, net................................. 2,799 2,165
Other assets................................................ 76 76
---------- ----------
Total assets................................................ $ 2,901 $ 2,251
========== ==========
LIABILITIES AND PARENT EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 425 $ 33
Accrued expenses.......................................... 602 268
Current portion of notes payable.......................... 152 172
Current portion of capital lease obligations.............. 322 508
---------- ----------
Total current liabilities................................... 1,501 981
Long-term portion of notes payable.......................... 685 523
Long-term portion of capital lease obligations.............. 881 251
Commitments
Parent equity (deficit)..................................... (166) 496
---------- ----------
Total liabilities and parent equity (deficit)............... $ 2,901 $ 2,251
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
INCARA RESEARCH LABORATORIES
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Collaborative revenue....................................... $ 927 $ 1,975
Operating expenses:
Research and development.................................. 6,080 6,531
General and administrative................................ 844 724
Amortization of deferred stock-based compensation......... 1,175 631
Write-off of property and equipment....................... 852 --
----------- -----------
Total operating expenses 8,951 7,886
----------- -----------
Loss from operations........................................ (8,024) (5,911)
Interest expense............................................ 742 332
----------- -----------
Net loss.................................................... $ (8,766) $ (6,243)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-27
<PAGE>
INCARA RESEARCH LABORATORIES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (8,766) $ (6,243)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 698 658
Write-off of property and equipment................... 852 --
Amortization of deferred stock-based compensation..... 1,175 631
Gain on sale of equipment............................. -- (11)
Changes in operating assets and liabilities:
Security deposits and other assets.................. 150 16
Accounts payable.................................... (71) (392)
Accrued expenses.................................... (1,167) (334)
Deferred revenues................................... (334) --
----------- -----------
Net cash used in operating activities................... (7,463) (5,675)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (392) (13)
FINANCING ACTIVITIES
Payments on notes payable and capital lease obligations..... (227) (585)
Advances from Parent........................................ 7,976 6,273
----------- -----------
Net cash provided by financing activities................... 7,749 5,688
----------- -----------
Net decrease in cash and cash equivalents................... (106) --
Cash and cash equivalents at beginning of year.............. 106 --
----------- -----------
Cash and cash equivalents at end of year.................... $ -- $ --
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
INCARA RESEARCH LABORATORIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION
Incara Research Laboratories ("Incara") was a division of Incara
Pharmaceuticals Corporation ("the Parent"). Incara is engaged in the research
and development of human therapeutic health care products based on proprietary
technologies. Prior to the Parent's purchase of Incara on May 8, 1998, Incara
was a development stage company which was a majority-owned subsidiary of
Interneuron Pharmaceuticals, Inc. ("Interneuron"). On December 29, 1999, Incara
was sold to Advanced Medicine, Inc. ("Advanced Medicine"). For financial
reporting purposes, results for the year ended December 31, 1999 represent
Incara's operations for the period January 1, 1999 through December 29, 1999
(date of acquisition by Advanced Medicine). Further, "Parent" refers to Incara
or Interneuron, depending on the period of ownership.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared as if Incara had
existed as a separate, stand-alone entity during the periods presented and
include the historical assets, liabilities, revenues and expenses that are
directly related to Incara's operations. However, these financial statements are
not necessarily indicative of the financial position and results of operations
which would have occurred had Incara been an independent company.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Historically, revenues have represented contract fees under strategic
alliances as certain agreed upon milestones are achieved or license fees are
earned. Cash received in advance of revenue recognition is recorded as deferred
revenue.
INCOME TAXES
The results of Incara's operations were included in the consolidated income
tax returns of the Parent. No provision for income taxes has been included in
these financial statements since the business's significant operating losses
would have precluded recording any deferred tax assets if Incara was a
stand-alone taxpayer.
PARENT EQUITY (DEFICIT)
Because Incara operated as a division of the Parent, its equity accounts
have been combined and presented as "Parent Equity (Deficit)" which includes net
amounts advanced to Incara by the Parent and deferred stock-based compensation
from issuance of stock options.
F-29
<PAGE>
INCARA RESEARCH LABORATORIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the individual assets,
ranging from three to five years. In connection with the Parent's acquisition of
Incara, Incara wrote off $852,000 of property and equipment.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Research and
development costs consist of direct and indirect internal costs related to
specific projects as well as fees paid to other entities which conduct certain
research and development activities on behalf of Incara.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1999
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software................... $ 350 $ 350
Laboratory equipment.............................. 1,128 1,141
Leasehold improvements............................ 1,716 1,716
----------- ----------
3,194 3,207
Accumulated depreciation and amortization......... (395) (1,042)
----------- ----------
Property and equipment, net..................... $ 2,799 $ 2,165
=========== ==========
</TABLE>
The cost of equipment and leasehold improvements financed under capital
lease arrangements was $642,000 at December 31, 1998 and 1999, respectively. The
related accumulated amortization was $149,000 and $371,000 at December 31, 1998
and 1999, respectively.
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Employee bonuses, benefits and severance.............. $ 351 $ 85
Legal................................................. 154 173
Amount due to Interneuron............................. 85 --
Other................................................. 12 10
-------- --------
$ 602 $ 268
======== ========
</TABLE>
F-30
<PAGE>
INCARA RESEARCH LABORATORIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. LONG-TERM OBLIGATIONS
At December 31, 1999, Incara's aggregate commitments under notes payable and
capital lease agreements was as follows:
<TABLE>
<CAPTION>
NOTES PAYABLE CAPITAL LEASES
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31:
2000........................................................ $ 261 $ 597
2001........................................................ 221 245
2002........................................................ 84 14
2003........................................................ 84 7
2004........................................................ 84 --
Thereafter.................................................. 204 --
--------- ---------
Total minimum note or lease payments........................ 938 863
Amounts representing interest............................... (243) (104)
--------- ---------
Present value of future payments............................ 695 759
Current portion............................................. (172) (508)
--------- ---------
Long-term portion........................................... $ 523 $ 251
========= =========
</TABLE>
NOTES PAYABLE
Incara is obligated under two note payable agreements for the purchase of
computer and laboratory equipment and leasehold improvements. These notes are
payable monthly, bear interest at an annual rate between 11.5% and 13.4% and
expire in June 2002 and June 2007, respectively.
CAPITAL LEASES
Incara also has various equipment under non-cancelable capital lease
agreements which have remaining lease terms ranging from one to four years and
interest rates ranging from 5% to 10%. The agreements require the purchase of
the leased assets at the end of the term at up to 25% of the original cost.
6. LEASES
Incara leases its facilities under a non-cancelable operating lease
agreement, which has a remaining lease term of eight years. Rent expense under
these leases was approximately $824,000 in each of the years ended December 31,
1998 and 1999.
F-31
<PAGE>
INCARA RESEARCH LABORATORIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. LEASES (CONTINUED)
At December 31, 1999, Incara's future minimum payments under non-cancelable
operating lease arrangements were as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
--------------
(IN THOUSANDS)
<S> <C>
Year ending December 31
2000...................................................... $ 824
2001...................................................... 824
2002...................................................... 839
2003...................................................... 849
2004...................................................... 849
Thereafter................................................ 2,052
----------
Total lease payments........................................ $ 6,237
==========
</TABLE>
7. CORPORATE ALLOCATIONS
The Parent provided substantial services to Incara, including, but not
limited to, general administration, treasury, tax, financial accounting and
reporting, payroll administration, insurance, human resources and legal
functions. The Parent has traditionally not charged Incara for certain of these
services. An approximate allocation of these costs based on management's time
and effort related to Incara has been estimated. The amount of corporate
allocations was dependent upon the total amount of anticipated allocable costs
incurred by the Parent, less amounts charged as a specific cost or expense
rather than by allocation. The amounts allocated are not necessarily indicative
of amounts that would have been incurred by Incara had it operated on a
stand-alone basis. Management believes that the method of expense allocation is
reasonable. This allocation has been included in general and administrative
expense in the statement of operations and was $385,000 for the period beginning
on May 8, 1998, the date of acquisition by Incara Pharmaceuticals Corporation,
and ending on December 31, 1998 and $724,000 for the year ended December 31,
1999.
8. DEFERRED STOCK-BASED COMPENSATION
During the year ended December 31, 1998, in connection with the grant of
certain stock options to employees, Incara recorded deferred stock-based
compensation of $1.8 million representing the difference between the exercise
price and the deemed fair value of the Parent's common stock for financial
reporting purposes on the date these stock options were granted. Deferred
stock-based compensation is included as a reduction of Parent equity. During the
years ended December 31, 1998 and 1999, Incara recorded amortization of deferred
stock-based compensation of approximately $1.2 million and $631,000,
respectively.
9. COLLABORATIVE AGREEMENTS
Until the acquisition by Advanced Medicine, Incara had rights and
obligations under two sponsored research and several license agreements. Under
the sponsored research agreements,
F-32
<PAGE>
INCARA RESEARCH LABORATORIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. COLLABORATIVE AGREEMENTS (CONTINUED)
Incara funded some research at a university in return for the right to license
inventions resulting from the research. The license agreements generally
provided Incara with exclusive worldwide rights to some technologies in exchange
for license fees and royalties. Incara was obligated to pay annual maintenance
fees until the termination of the agreements. Incara incurred $767,000 and $1.1
million in research and development expenses under these agreements in the years
ended December 31, 1998 and 1999, respectively. In connection with Advanced
Medicine's acquisition of Incara, these sponsored research and license
agreements were assumed by Advanced Medicine.
In July 1997, Incara and Interneuron entered into a research collaboration
and licensing agreement (the "Collaboration Agreement") with a pharmaceutical
company (the "Collaborator") to discover and commercialize certain novel agents.
The agreement provided for the Collaborator to make initial payments totaling
$2.5 million, which included a non-refundable commitment fee of $1.5 million and
a non-refundable option payment of $1.0 million. In addition, the Collaborator
was obligated to pay research support during the first two years of the
agreement, which ended in 1999. Based upon estimated relative value of such
licenses and rights, the commitment fee and option payment was shared two-thirds
by Incara and one-third by Interneuron, Incara's former parent. Incara's share
of revenue in conjunction with this agreement was approximately $927,000 and
$475,000 for the years ended December 31, 1998 and 1999, respectively. The
Collaborator also paid Incara $1.5 million in 1999 upon reaching first milestone
under the agreement. In connection with Advanced Medicine's acquisition of
Incara, Advanced Medicine assumed the Collaboration Agreement.
F-33
<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............................. 2
Risk Factors................................... 6
Special Note Regarding Forward-Looking
Statements.................................... 13
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business....................................... 22
Management..................................... 38
Transactions with Affiliates................... 46
Principal Stockholders......................... 49
Description of Capital Stock................... 51
Shares Eligible for Future Sale................ 52
Underwriting................................... 55
Legal Matters.................................. 57
Experts........................................ 57
Where You Can Find More Information............ 57
Index to Financial Statements.................. F-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.
Shares
ADVANCED MEDICINE, INC.
Common Stock
------------
[LOGO]
------------
JOINT BOOK-RUNNING MANAGERS
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
------------
BEAR, STEARNS & CO. INC.
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable in connection with the sale of the common stock
in this offering are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 45,540
NASD filing fee............................................. $ 17,500
Nasdaq National Market listing fee.......................... $ 95,000
Printing and engraving expenses............................. $ 300,000
Legal fees and expenses..................................... $ 800,000
Accounting fees and expenses................................ $ 400,000
Transfer agent and registrar fees and expenses.............. $ 15,000
Miscellaneous............................................... $ 170,000
Total....................................................... $1,800,040
==========
</TABLE>
The registrant will bear all of the expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law, the registrant's charter and by-laws
provide for indemnification of the registrant's directors and officers for
liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the registrant, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to the registrant's corporate charter filed as
Exhibit 3.2 hereto and the registrant's by-laws filed as Exhibit 3.4 hereto.
The Registrant has entered into Indemnification Agreements with its officers
and directors, a form of which is attached as Exhibit 10.7 hereto and
incorporated herein by reference. The Indemnification Agreements provide the
Registrant's "officers and directors with further indemnification to the maximum
extent permitted by the Delaware General Corporation Law. The underwriting
agreement provides that the underwriters are obligated, under certain
circumstances, to indemnify directors, officers and controlling persons of the
registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of underwriting agreement filed as
Exhibit 1.1 hereto.
The registrant intends to apply for a directors' and officers' insurance
policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
registrant has sold the following securities that were not registered under the
Securities Act:
During the period between March 31, 1997 and March 1, 2000, the registrant
sold an aggregate of 10,232,000 shares of its common stock to 156 investors, for
a price ranging from $0.01 to $0.85 per share.
During the period between April 17, 1997 and November 1, 1998 the registrant
sold an aggregate at 4,952,000 shares of its Series A Convertible Preferred
Stock to 43 investors for prices ranging from $1.25 to $4.00 per share.
During the period between March 4, 1998 and March 3, 1999, the registrant
sold an aggregate of 5,039,000 shares of its Series B Convertible Preferred
Stock to 90 investors for a price of $5.00 per share.
II-1
<PAGE>
During the period between January 1, 1999 and October 20, 1999, the
registrant sold an aggregate of 18,745,166 shares of its Series C Convertible
Preferred Stock to 88 investors for a purchase price of $8.50 per share.
On March 20, 2000, the registrant irrevocably committed to sell an aggregate
of 1,666,667 shares of its Series D Preferred Stock to 5 investors for a
purchase price of $15.00 per share.
On May 7, 1997, the registrant granted a warrant to purchase 32,000 shares
of its Series A Preferred Stock at an exercise price of $1.25 per share.
On April 28, 1998, the registrant granted a warrant to purchase
24,000 shares of its Series B Preferred Stock at an exercise price of $5.00 per
share.
On October 2, 1998, the registrant granted a warrant to to purchase two
warrants to purchase 5,000 shares of its Series B Preferred Stock at an exercise
price of $5.00 per share.
On January 25, 1999, the registrant granted a warrant to purchase 25,000
shares of its Series C Preferred Stock at an exercise price of $10.20 per share.
On February 17, 1999, the registrant granted a warrant to purchase 13,000
shares and a warrant to purchase 7,000 shares of its Series C Preferred Stock at
an exercise price of $8.50 per share.
On January 25, 1999, the registrant granted two warrants to purchase 20,000
shares and one warrant to to purchase 10,000 shares of its common stock at a
exercise price of $0.85 per share.
From September 20, 1997 to February 26, 2000, the registrant granted options
to purchase an aggregate of 4,567,345 shares of its common stock under its 1997
Stock Plan, with a weighted average exercise price of $0.63 per share.
From June 27, 1998 to February 26, 2000, the registrant granted options to
purchase an aggregate of 2,295,000 shares of its common stock under its Long
Term Stock Option Plan, with a weighted average exercise price of $0.55 per
share.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon the exemption provided by Section 4(2) of the
Securities Act for transactions not involving a public offering and/or Rule 701
under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT INDEX
- --------------------- ------------------------------------------------------------
<C> <S>
1.1+ Form of Underwriting Agreement
3.1+ Restated Certificate of Incorporation, as amended, of the
registrant (currently in effect)
3.2 Form of Amended and Restated Certificate of Incorporation of
the registrant to be filed upon the closing of the offering
3.3 By-laws of the registrant
3.4 Form of Amended and Restated By-laws to take effect as of
the closing of the offering
4.1+ Specimen certificate representing the common stock of the
registrant
5.1+ Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
10.1 1997 Stock Plan
10.2 Long-Term Stock Option Plan
10.3 2000 Equity Incentive Plan
10.4 2000 Director Option Plan
10.5 Employee Stock Purchase Plan
10.6 Change in Control Severance Plan
10.7+ Form of Warrant
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT INDEX
- --------------------- ------------------------------------------------------------
<C> <S>
10.8+ Amended and Restated Investor Rights Agreement by and among
the registrant and the parties listed therein, dated as of
March 20, 2000
10.9 Form of Indemnification Agreement for directors and officers
of the registrant
10.10 Lease between the registrant and HMS Gateway Office, L.P.
dated February 17, 1999
10.11*+ Asset Purchase Agreement between the registrant and Incara
Pharmaceuticals, Inc., dated December 17, 1999
23.1+ Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
+ To be filed by amendment.
(B) FINANCIAL STATEMENTS 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, the required information is disclosed in the notes to the
financial statements or the schedules are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes (1) 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; (2) that for purposes of determining
any liability under the Securities Act, the information omitted from the form of
prospectus filed as part of a registration statement in reliance upon Rule 430A
and contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective;
and (3) that 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 that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in South San Francisco, California on
March 21, 2000.
<TABLE>
<S> <C> <C>
Advanced Medicine, Inc.
By: /s/ JAMES B. TANANBAUM
-----------------------------------------
James B. Tananbaum
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY AND SIGNATURES
The undersigned officers and directors of Advanced Medicine, Inc. hereby
constitute and appoint James B. Tananbaum, Marty Glick and Bradford J. Shafer,
and each of them singly, with full power of substitution, our true and lawful
attorneys-in-fact and agents to take any actions to enable Advanced
Medicine, Inc. to comply with the Securities Act, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
registration statement, including the power and authority to sign for us in our
names in the capacities indicated below any and all amendments to this
registration statement and any other registration statement filed pursuant to
the provisions of Rule 462 under the Securities Act.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President and Chief
/s/ JAMES B. TANANBAUM Executive Officer
------------------------------------------- (principal executive March 21, 2000
James B. Tananbaum officer)
/s/ MARTY GLICK Chief Financial Officer
------------------------------------------- (principal financial March 21, 2000
Marty Glick and accounting officer)
/s/ JULIAN C. BAKER
------------------------------------------- Director March 21, 2000
Julian C. Baker
/s/ JEFFREY M. DRAZAN
------------------------------------------- Director March 21, 2000
Jeffrey M. Drazan
/s/ ROBERT V. GUNDERSON, JR.
------------------------------------------- Director March 21, 2000
Robert V. Gunderson, Jr.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARNOLD J. LEVINE
------------------------------------------- Director March 21, 2000
Arnold J. Levine
/s/ WESLEY D. STERMAN
------------------------------------------- Director March 21, 2000
Wesley D. Sterman
/s/ GEORGE M. WHITESIDES
------------------------------------------- Director March 21, 2000
George M. Whitesides
/s/ P. ROY VAGELOS
------------------------------------------- Director March 21, 2000
P. Roy Vagelos
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT INDEX
- --------------------- ------------------------------------------------------------
<C> <S>
1.1+ Form of Underwriting Agreement
3.1+ Restated Certificate of Incorporation, as amended, of the
registrant (currently in effect)
3.2 Form of Amended and Restated Certificate of Incorporation of
the registrant to be filed upon the closing of the offering
3.3 By-laws of the registrant
3.4 Form of Amended and Restated By-laws to take effect as of
the closing of the offering
4.1+ Specimen certificate representing the common stock of the
registrant
5.1+ Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
10.1 1997 Stock Plan
10.2 Long-Term Stock Option Plan
10.3 2000 Equity Incentive Plan
10.4 2000 Director Option Plan
10.5 Employee Stock Purchase Plan
10.6 Change in Control Severance Plan
10.7+ Form of Warrant
10.8+ Amended and Restated Investor Rights Agreement by and among
the registrant and the parties listed therein, dated as of
March 20, 2000
10.9 Form of Indemnification Agreement for directors and officers
of the registrant
10.10 Lease between the registrant and HMS Gateway Office, L.P.
dated February 17, 1999
10.11*+ Asset Purchase Agreement between the registrant and Incara
Pharmaceuticals, Inc., dated December 17, 1999
23.1+ Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
+ To be filed by amendment.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADVANCED MEDICINE, INC.
----------------------------------------------------
Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware
----------------------------------------------------
Advanced Medicine, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The name of the Corporation is Advanced Medicine, Inc. The original
certificate of incorporation of the Corporation was filed with the office of the
Secretary of State of Delaware on November 19, 1996.
2. This Amended and Restated Certificate of Incorporation was recommended
to the stockholders for approval as being advisable and in the best interests of
the Corporation at a meeting of the Board of Directors on February 26, 2000.
3. That in lieu of a meeting and vote of stockholders, consents in writing
have been signed by holders of outstanding stock having not less than the
minimum number of votes that is necessary to consent to this amendment and
restatement, and, if required, prompt notice of such action shall be given in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
4. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended or supplemented.
The text of the Corporation's second amended and restated certificate
of incorporation is amended and restated in its entirety as follows:
FIRST. The name of the Corporation is Advanced Medicine, Inc.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 15 East North Street, Dover, County of Kent. The name of
its registered agent at such address is Incorporating Services, Ltd.
<PAGE>
THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 200,000,000 shares
consisting of shares of 190,000,000 Common Stock with a par value of $.01 per
share (the "Common Stock") and 10,000,000 shares of Preferred Stock with a par
value of $.01 per share, (the "Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions of the Common Stock and Preferred Stock are as
follows:
A. COMMON STOCK
1. GENERAL. All shares of Common Stock will be identical and will
entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of the Preferred Stock.
2. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
3. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.
4. VOTING RIGHTS. Except as otherwise required by law or this Amended
and Restated Certificate of Incorporation, each holder of Common Stock shall
have one vote in respect of each share of stock held of record by such holder on
the books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation. Except as otherwise
required by law or provided herein, holders of Common Stock shall vote together
with holders of the Preferred Stock as a single class, subject to any special or
preferential voting rights of any then outstanding Preferred Stock. There shall
be no cumulative voting.
B. PREFERRED STOCK
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors of
the Corporation may determine. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
Except as otherwise provided in this Amended and Restated Certificate of
2
<PAGE>
Incorporation, different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes.
I. UNDESIGNATED PREFERRED STOCK
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the undesignated Preferred Stock in one or more
series, each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such series, and a certificate of said
resolution or resolutions (a "Certificate of Designation") shall be filed in
accordance with the General Corporation Law of the State of Delaware. The
authority of the Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to provide that the
shares of each such series may be: (i) subject to redemption at such time or
times and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; (iv) convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock of the Corporation at such price or prices or at such rates
of exchange and with such adjustments, if any; (v) entitled to the benefit of
such limitations, if any, on the issuance of additional shares of such series or
shares of any other series of Preferred Stock; or (vi) entitled to such other
preferences, powers, qualifications, rights and privileges, all as the Board of
Directors may deem advisable and as are not inconsistent with law and the
provisions of this certificate of incorporation.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. The following provisions are included for the management
of the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its Board of Directors and stockholders:
1. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors of the
Corporation.
2. The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the by-laws of the Corporation, subject to
any limitation thereof contained in the by-laws. The stockholders shall also
have the power to adopt, amend or repeal the by-laws of the Corporation.
3. Special meetings of stockholders may be called at any
time only by the Chief Executive Officer, the President, the Chairman of the
Board of Directors (if any), a majority of the Board of Directors or a
majority of the stockholders. Business transacted at any special meeting of
stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
5. The books of the Corporation may be kept at such place
within or without the State of Delaware as the by-laws of the Corporation may
provide or as may be designated from time to time by the Board of Directors
of the Corporation.
SEVENTH. The provisions of this Article are subject to the rights of
the holders of any series of Preferred Stock from time to time outstanding.
1. NUMBER OF DIRECTORS. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of
a majority of the Board of Directors or by action of the stockholders, but in
no event shall the number of directors be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by
reason of the death, resignation, removal or expiration of the
3
<PAGE>
term of one or more directors or, for any reason, by action of the
stockholders. The directors shall be elected at the annual meeting of
stockholders, at any special meeting called for that purpose or by written
consent by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the Corporation.
2. ELECTION OF DIRECTORS. Elections of directors need not be by
written ballot except as and to the extent provided in the by-laws of the
Corporation.
3. TERMS OF OFFICE. Each director shall serve for a term ending on
the date of the annual meeting at which such director was elected or until
earlier removed.
6. TENURE. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
7. VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board of Directors, may be filled by
vote of a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director or by action of the stockholders. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office, if applicable, and a director chosen to
fill a position resulting from an increase in the number of directors shall
hold office
4
<PAGE>
until the next election of directors and until his or her successor is
elected and qualified, or until his or her earlier death, resignation or
removal.
8. QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
9. ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law or
the Corporation's by-laws.
EIGHTH. No director (including any advisory director) of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director notwithstanding
any provision of law imposing such liability; provided, however, that, to the
extent provided by applicable law, this provision shall not eliminate the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State of Delaware
as so amended. No amendment to or repeal of this provision shall apply to or
have any effect on the liability or alleged liability of any director for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
5
<PAGE>
NINTH. The Corporation reserves the right to amend or repeal any
provision contained in this Amended and Restated Certificate of Incorporation in
the manner prescribed by the laws of the State of Delaware and all rights
conferred upon stockholders are granted subject to this reservation.
TENTH. The provisions of Section 203 of the Delaware General
Corporation Law shall not apply to the Corporation.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made in this Amended and Restated Certificate of
Incorporation are true under the penalties of perjury this ____ day of [ ],
2000.
By:
---------------------------------
Name: James B. Tananbaum
Title: President
Attest:
By:
-------------------------------
Bradford J. Shafer
Secretary
7
<PAGE>
EXHIBIT 3.3
BYLAWS OF
ADVANCED MEDICINE, INC.
A DELAWARE CORPORATION
Date: November 19, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE I. MEETINGS OF STOCKHOLDERS..............................................................................1
Section 1. Place of Meetings....................................................................................1
Section 2. Annual Meeting.......................................................................................1
Section 3. Special Meetings.....................................................................................1
Section 4. Notice of Meetings...................................................................................1
Section 5. Voting List..........................................................................................1
Section 6. Quorum...............................................................................................2
Section 7. Adjournments.........................................................................................2
Section 8. Action at Meetings...................................................................................2
Section 9. Voting and Proxies...................................................................................2
Section 10. Action Without Meeting..............................................................................3
ARTICLE II. DIRECTORS............................................................................................3
Section 1. Number, Election, Tenure and Qualification...........................................................3
Section 2. Enlargement..........................................................................................3
Section 3. Vacancies............................................................................................3
Section 4. Resignation and Removal..............................................................................4
Section 5. General Powers.......................................................................................4
Section 6. Chairman of the Board................................................................................4
Section 7. Place of Meetings....................................................................................4
Section 8. Regular Meetings.....................................................................................4
Section 9. Special Meetings.....................................................................................4
Section 10. Quorum, Action at Meeting, Adjournments.............................................................4
Section 11. Action by Consent...................................................................................5
Section 12. Telephonic Meetings.................................................................................5
Section 13. Committees..........................................................................................5
Section 14. Compensation........................................................................................6
ARTICLE III. OFFICERS............................................................................................6
Section 1. Enumeration..........................................................................................6
Section 2. Election.............................................................................................6
Section 3. Tenure...............................................................................................6
Section 4. President............................................................................................6
Section 5. Vice-Presidents......................................................................................7
Section 6. Secretary............................................................................................7
Section 7. Assistant Secretaries................................................................................7
Section 8. Treasurer............................................................................................7
Section 9. Assistant Treasurers.................................................................................8
Section 10. Bond................................................................................................8
ARTICLE IV. NOTICES..............................................................................................8
Section 1. Delivery.............................................................................................8
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Section 2. Waiver of Notice.....................................................................................8
ARTICLE V. INDEMNIFICATION.......................................................................................9
Section 1. Actions other than by or in the Right of the Corporation.............................................9
Section 2. Actions by or in the Right of the Corporation........................................................9
Section 3. Success on the Merits................................................................................9
Section 4. Specific Authorization..............................................................................10
Section 5. Advance Payment.....................................................................................10
Section 6. Nonexclusivity......................................................................................10
Section 7. Insurance...........................................................................................10
Section 8. Continuation of Indemnification and Advancement of Expenses.........................................10
Section 9. Severability........................................................................................10
Section 10. Intent of Article..................................................................................11
ARTICLE VI. CAPITAL STOCK.......................................................................................11
Section 1. Certificates of Stock...............................................................................11
Section 2. Lost Certificates...................................................................................11
Section 3. Transfer of Stock...................................................................................11
Section 4. Record Date.........................................................................................12
Section 5. Registered Stockholders.............................................................................12
ARTICLE VII. CERTAIN TRANSACTIONS...............................................................................12
Section 1. Transactions with Interested Parties................................................................12
Section 2. Quorum..............................................................................................13
ARTICLE VIII. GENERAL PROVISIONS................................................................................13
Section 1. Dividends...........................................................................................13
Section 2. Reserves............................................................................................13
Section 3. Checks..............................................................................................13
Section 4. Fiscal Year.........................................................................................13
Section 5. Seal................................................................................................13
ARTICLE IX. AMENDMENTS..........................................................................................14
</TABLE>
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BYLAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders shall
be held at such place within or without the State of Delaware as may be fixed
from time to time by the board of directors or the chief executive officer,
not so designated, at the registered of office of the corporation.
Section 2. ANNUAL MEETING. Annual meetings of stockholders shall be
held on the SECOND TUESDAY OF JUNE in each year if not a legal holiday, and if
a legal holiday, then on the next secular day following, at 10:00 a.m., or at
such other date and time as shall be designated from time to time by the board
of directors or the chief executive officer, at which meeting the stockholders
shall elect by a plurality vote a board of directors and shall transact such
other business as may properly be brought before the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the board of
directors shall cause the meeting to be held as soon thereafter as convenient,
which meeting shall be designated a special meeting in lieu of annual meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, may, unless otherwise prescribed by statute or by
the certificate of incorporation, be called by the board of directors or the
chief executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors,
or at the request in writing of stockholders owning a MAJORITY in amount of
the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting shall be limited
to matters relating to the purpose or purposes stated in the notice of meeting.
Section 4. NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten or more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 5. VOTING LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city or town where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
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meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
Section 6. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these bylaws. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter. If no quorum
shall be present or represented at any meeting of stockholders, such meeting
may be adjourned in accordance with Section 7 hereof, until a quorum shall be
present or represented.
Section 7. ADJOURNMENTS. Any meeting of stockholders may be
adjourned from time to time to any other time and to any other place at which
a meeting of stockholders may be held under these bylaws, which time and place
shall be announced at the meeting, by a majority of the stockholders present
in person or represented by proxy at the meeting and entitled to vote,
(whether or not a quorum is present), or, if no stockholder is present or
represented by proxy, by any officer entitled to preside at or to act as
secretary of such meeting, without notice other than announcement at the
meeting. At such adjourned meeting, any business may be transacted which might
have been transacted at the original meeting. If any meeting of stockholders
at which a quorum is present or represented is adjourned, then, at such
adjourned meeting, any business may be transacted that might have been
transacted at the original meeting, whether or not a quorum shall be present
or represented at such adjourned meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. ACTION AT MEETINGS. When a quorum is present at any
meeting, the affirmative vote of the holders of a majority of the stock
present in person or represented by proxy, entitled to vote and voting on the
matter (or where a separate vote by a class or classes is required, the
affirmative vote of the majority of shares of such class or classes present in
person or represented by proxy at the meeting) shall decide any matter (other
than the election of directors) brought before such meeting, unless the matter
is one upon which by express provision of law, the certificate of
incorporation or these bylaws, a different vote is required, in which case
such express provision shall govern and control the decision of such matter.
The stock of holders who abstain from voting on any matter shall be deemed not
to have been voted on such matter. Directors shall be elected by a plurality
of the votes of the shares present in person or represented by proxy at the
meeting, entitled to vote and voting on the election of directors.
Section 9. VOTING AND PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to
corporate action in writing without a meeting, may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period.
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Section 10. ACTION WITHOUT MEETING. Any action required to be taken
at any annual or special meeting of stockholders, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be (1) signed
and dated by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted
and (2) delivered to the corporation within sixty days of the earliest dated
consent by delivery to its registered office in the State of Delaware (in
which case delivery shall be by hand or by certified or registered mail,
return receipt requested), its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. NUMBER, ELECTION, TENURE AND QUALIFICATION. The number of
directors which shall constitute the whole board shall be not less than one.
Within such limit, the number of directors shall be determined by resolution
of the board of directors or by the stockholders at the annual meeting or at
any special meeting of stockholder. The directors shall be elected at the
annual meeting or at any special meeting of the stockholders, except as
provided in Section 3 of this Article, and each director elected shall hold
office until his successor is elected and qualified, unless sooner displaced.
Directors need not be stockholders.
Section 2. ENLARGEMENT. The number of the board of directors may be
increased at any time by vote of a majority of the directors then in office.
Section 3. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall
hold office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors
in office, then an election of directors may be held in the manner provided by
statute. In the event of a vacancy in the board of directors, the remaining
directors, except as otherwise provided by law or these bylaws, may exercise
the powers of the full board until the vacancy is filled.
Section 4. RESIGNATION AND REMOVAL. Any director may resign at any
time upon written notice to the corporation at its principal place of business
or to the chief executive of officer or secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event. Any director or the entire
board of directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors,
unless otherwise specified by law or the certificate of incorporation.
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Section 5. GENERAL POWERS. The business and affairs of the
corporation shall be managed by its board of directors, which may exercise all
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
Section 6. CHAIRMAN OF THE BOARD. If the board of directors appoints
a chairman of the board, he shall, when present, preside at all meetings of
the stockholders and the board of directors. He shall perform such duties and
possess such powers as are customarily vested in the officer of the chairman
of the board or as may be vested in him by the board of directors.
Section 7. PLACE OF MEETINGS. The board of directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 8. REGULAR MEETINGS. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board; provided that any director who
is absent when such a determination is made shall be given prompt notice of
such determination. A regular meeting of the board of directors may be held
without notice immediately after and at the same place as the annual meeting
of stockholders.
Section 9. SPECIAL MEETINGS. Special meetings of the board may be
called by the chief executive officer, secretary, or on the written request of
two or more directors, or by one director in the event that there is only one
director in office. Two days' notice to each director, either personally or by
telegram, cable, telecopy, commercial delivery service, telex or similar means
sent to his business or home address, or three days' notice by written notice
deposited in the mail, shall be given to each director by the secretary or by
the officer or one of the directors calling the meeting. A notice or waiver of
notice of a meeting of the board of directors need not specify the purposes of
the meeting.
Section 10. QUORUM, ACTION AT MEETING, ADJOURNMENTS. At all meetings
of the board a majority of directors then in office, but in no event less than
one third of the entire board, shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the board of directors, except
as may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall
mean the number of directors last fixed by the stockholders or directors, as
the case may be, in accordance with law and these bylaws; provided, however,
that if less than all the number so fixed of directors were elected, the
"entire board" shall mean the greatest number of directors so elected to hold
office at any one time pursuant to such authorization. If a quorum shall not
be present at any meeting of the board of directors, a majority of the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 11. ACTION BY CONSENT. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee
thereof may be taken without a meeting, if all
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members of the board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the board or committee.
Section 12. TELEPHONIC MEETINGS. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the board of
directors or of any committee thereof may participate in a meeting of the
board of directors or of any committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 13. COMMITTEES. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the board of directors, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall
have the power or authority in reference to amending the certificate of
incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the bylaws of the corporation; and, unless the resolution designating such
committee or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors. Each committee shall keep regular minutes of its
meetings and make such reports to the board of directors as the board of
directors may request. Except as the board of directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rule, its business shall
be conducted as nearly as possible in the same manner as is provided in these
bylaws for the conduct of its business by the board of directors.
Section 14. COMPENSATION. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the board of directors shall
have the authority to fix from time to time the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and the performance of their responsibilities as
directors may be paid a fixed sum for attendance at each meeting of the board
of directors and/or a stated salary as director. No such payment shall
preclude any director from serving the corporation or its parent or subsidiary
corporations in any other capacity and receiving compensation therefor. The
board of directors may also allow compensation for members of special or
standing committees for service on such committees.
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ARTICLE III
OFFICERS
Section 1. ENUMERATION. The officers of the corporation shall be
chosen by the board of directors and shall be a president, a secretary and a
treasurer and such other officers with such titles, terms of office and duties
as the board of directors may from time to time determine, including a
chairman of the board, one or more vice-presidents, and one or more assistant
secretaries and assistant treasurers. If authorized by resolution of the board
of directors, the chief executive officer may be empowered to appoint from
time to time assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. ELECTION. The board of directors at its first meeting
after each annual meeting of stockholders shall choose a president, a
secretary and a treasurer. Other officers may be appointed by the board of
directors at such meeting, at any other meeting, or by written consent.
Section 3. TENURE. The officers of the corporation shall hold office
until their successors are chosen and qualify, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal. Any officer elected or appointed by the board of
directors or by the chief executive officer may be removed at any time, with
or without cause, by the affirmative vote of a majority of the board of
directors or a committee duly authorized to do so, except that any officer
appointed by the chief executive officer may also be removed at any time, with
or without cause, by the chief executive officer. Any vacancy occurring in any
office of the corporation may be filled by the board of directors, at its
discretion. Any officer may resign by delivering his written resignation to
the corporation at its principal place of business or to the chief executive
officer or the secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event.
Section 4. PRESIDENT. The president shall be the chief operating
officer of the corporation. He shall also be the chief executive officer
unless the board of directors otherwise provides. If no chief executive
officer shall have been appointed by the board of directors, all references
herein to the "chief executive officer" shall be to the president. The
president shall, unless the board of directors provides otherwise in a
specific instance or generally, preside at all meetings of the stockholders
and the board of directors, have general and active management of the business
of the corporation and see that all orders and resolutions of the board of
directors are carried into effect. The president shall execute bonds,
mortgages, and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent
of the corporation.
Section 5. VICE-PRESIDENTS. In the absence of the president or in
the event of his inability or refusal to act, the vice-president, or if there
be more than one vice-president, the vice presidents in the order designated
by the board of directors or the chief executive officer (or in the absence of
any designation, then in the order determined by their tenure in office) shall
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perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The
vice-presidents shall perform such other duties and have such other powers as
the board of directors or the chief executive officer may from time to time
prescribe.
Section 6. SECRETARY. The secretary shall have such powers and
perform such duties as are incident to the office of secretary. He shall
maintain a stock ledger and prepare lists of stockholders and their addresses
as required and shall be the custodian of corporate records. The secretary
shall attend all meetings of the board of directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and of the board of directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give,
or cause to be given, notice of all meetings of the stockholders and special
meetings of the board of directors, and shall perform such other duties as may
be from time to time prescribed by the board of directors or chief executive
officer, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing
by his signature.
Section 7. ASSISTANT SECRETARIES. The assistant secretary, or if
there be more than one, the assistant secretaries in the order determined by
the board of directors, the chief executive officer or the secretary (or if
there be no such determination, then in the order determined by their tenure
in office), shall, in the absence of the secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as
the board of directors, the chief executive officer or the secretary may from
time to time prescribe. In the absence of the secretary or any assistant
secretary at any meeting of stockholders or directors, the person presiding at
the meeting shall designate a temporary or acting secretary to keep a record
of the meeting.
Section 8. TREASURER. The treasurer shall perform such duties and
shall have such powers as may be assigned to him by the board of directors or
the chief executive officer. In addition, the treasurer shall perform such
duties and have such powers as are incident to the office of treasurer. The
treasurer shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories
as may be designated by the board of directors. He shall disburse the funds of
the corporation as may be ordered by the board of directors, taking proper
vouchers for such disbursements, and shall render to the chief executive
officer and the board of directors, when the chief executive officer or board
of directors so requires, an account of all his transactions as treasurer and
of the financial condition of the corporation.
Section 9. ASSISTANT TREASURERS. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by
the board of directors, the chief executive officer or the treasurer (or if
there be no such determination, then in the order determined by their tenure
in office), shall, in the absence of the treasurer or in the event of his
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inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as
the board of directors, the chief executive officer or the treasurer may from
time to time prescribe.
Section 10. BOND. If required by the board of directors, any officer
shall give the corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the board of
directors, including without limitation a bond for the faithful performance of
the duties of his office and for the restoration to the corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. DELIVERY. Whenever, under the provisions of law, or of
the certificate of incorporation or these bylaws, written notice is required
to be given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in
the United States mail. Unless written notice by mail is required by law,
written notice may also be given by telegram, cable, telecopy, commercial
delivery service, telex or similar means, addressed to such director or
stockholder at his address as it appears on the records of the corporation, in
which case such notice shall be deemed to be given when delivered into the
control of the persons charged with effecting such transmission, the
transmission charge to be paid by the corporation or the person sending such
notice and not by the addressee. Oral notice or other in hand delivery (in
person or by telephone) shall be deemed given at the time it is actually given.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of law or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
ARTICLE V
INDEMNIFICATION
Section 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good
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faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery of the State of Delaware or such other court shall deem proper.
Section 3. SUCCESS ON THE MERITS. To the extent that any person
described in Section 1 or 2 of this Article V has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to
in said Sections, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 4. SPECIFIC AUTHORIZATION. Any indemnification under Section
1 or 2 of this Article V (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections is proper in the
circumstances because he has met the applicable standard of conduct set forth
in said Sections. Such determination shall be made (1) by the board of
directors by a majority vote of directors who were not parties to such action,
suit or proceeding (even though less than a quorum), or (2) if there are no
disinterested directors or if a majority of disinterested directors so
directs, by independent legal counsel (who may be regular legal counsel to the
corporation) in a written opinion, or (3) by the stockholders of the
corporation.
Section 5. ADVANCE PAYMENT. Expenses incurred in defending a pending
or threatened civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of any person
described in said Section to repay such amount if it shall ultimately be
9
<PAGE>
determined that he is not entitled to indemnification by the corporation as
authorized in this Article V.
Section 6. NONEXCLUSIVITY. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this
Article V shall not be deemed exclusive of any other rights to which those
provided indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 7. INSURANCE. The board of directors may authorize, by a
vote of the majority of the full board, the corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Article V.
Section 8. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 9. SEVERABILITY. If any word, clause or provision of this
Article V or any award made hereunder shall for any reason be determined to be
invalid, the provisions hereof shall not otherwise be affected thereby but
shall remain in full force and effect.
Section 10. INTENT OF ARTICLE. The intent of this Article V is to
provide for indemnification and advancement of expenses to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware. To the
extent that such Section or any successor section may be amended or
supplemented from time to time, this Article V shall be amended automatically
and construed so as to permit indemnification and advancement of expenses to
the fullest extent from time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Any or all of the signatures on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the
10
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
ADVANCED MEDICINE, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
ARTICLE 1 - STOCKHOLDERS.................................................................................1
1.1 Place of Meetings...............................................................................1
1.2 Annual Meeting..................................................................................1
1.3 Special Meetings................................................................................1
1.4 Notice of Meetings..............................................................................1
1.5 Voting List.....................................................................................1
1.6 Quorum..........................................................................................2
1.7 Adjournments....................................................................................2
1.8 Voting and Proxies..............................................................................2
1.9 Action at Meeting...............................................................................3
ARTICLE 2 - DIRECTORS....................................................................................6
2.1 General Powers..................................................................................6
2.2 Number; Election and Qualification..............................................................7
2.3 Terms in Office.................................................................................7
2.4 Tenure..........................................................................................8
2.5 Vacancies.......................................................................................8
2.6 Resignation.....................................................................................8
2.7 Regular Meetings................................................................................8
2.8 Special Meetings................................................................................8
2.9 Notice of Special Meetings......................................................................8
2.10 Meetings by Telephone Conference Calls..........................................................9
2.11 Quorum..........................................................................................9
2.12 Action at Meeting...............................................................................9
2.13 Action by Written Consent.......................................................................9
2.14 Removal.........................................................................................9
2.15 Committees......................................................................................9
2.16 Compensation of Directors......................................................................10
ARTICLE 3 - OFFICERS....................................................................................10
3.1 Enumeration....................................................................................10
3.2 Election.......................................................................................10
3.3 Qualification..................................................................................11
<PAGE>
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3.4 Tenure.........................................................................................11
3.5 Resignation and Removal........................................................................11
3.6 Vacancies......................................................................................11
3.7 Chairman of the Board and Vice-Chairman of the Board...........................................11
3.8 President......................................................................................11
3.9 Vice Presidents................................................................................12
3.10 Secretary and Assistant Secretaries............................................................12
3.11 Treasurer and Assistant Treasurers.............................................................12
3.12 Salaries.......................................................................................13
3.13 Action with Respect to Securities of Other Corporations........................................13
ARTICLE 4 - CAPITAL STOCK...............................................................................13
4.1 Issuance of Stock..............................................................................13
4.2 Certificates of Stock..........................................................................13
4.3 Transfers......................................................................................14
4.4 Lost, Stolen or Destroyed Certificates.........................................................14
4.5 Record Date....................................................................................14
ARTICLE 5 - GENERAL PROVISIONS..........................................................................15
5.1 Fiscal Year....................................................................................15
5.2 Corporate Seal.................................................................................15
5.3 Notices........................................................................................15
5.4 Waiver of Notice...............................................................................15
5.5 Evidence of Authority..........................................................................15
5.6 Facsimile Signatures...........................................................................15
5.7 Reliance upon Books, Reports and Records.......................................................16
5.8 Time Periods...................................................................................16
5.9 Certificate of Incorporation...................................................................16
5.10 Transactions with Interested Parties...........................................................16
5.11 Reserves.......................................................................................17
5.12 Checks.........................................................................................17
5.13 Severability...................................................................................17
5.14 Pronouns.......................................................................................17
ARTICLE 6 - INDEMNIFICATION.............................................................................17
6.1 Actions Other Than by or in the Right of the Corporation.......................................17
6.2 Actions by or in the Right of the Corporation..................................................18
6.3 Success on the Merits..........................................................................18
6.4. Authorization..................................................................................18
6.5 Expense Advance................................................................................18
6.6 Nonexclusivity.................................................................................19
6.7 Insurance......................................................................................19
6.8 "The Corporation"..............................................................................19
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6.9 Other Indemnification..........................................................................19
6.10 Other Definitions..............................................................................19
6.11 Continuation of Indemnification................................................................20
ARTICLE 7 - AMENDMENTS..................................................................................20
</TABLE>
<PAGE>
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Chairman of the Board (if any), the board of directors of
the Corporation (the "Board of Directors") or the President or, if not so
designated, at the principal office of the Corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Chairman of the Board (if any), the Board of Directors, the Chief
Executive Officer or the President (which date shall not be a legal holiday in
the place where the meeting is to be held) at the time and place to be fixed
by the Chairman of the Board, the Board of Directors, the Chief Executive
Officer or the President and stated in the notice of the meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the Chairman of the Board (if any), a majority of the Board of
Directors, the Chief Executive Officer or the President and shall be held at
such place, on such date and at such time as shall be fixed by the Board of
Directors or the person calling the meeting. Business transacted at any
special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the
meeting is called. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his or her
address as it appears on the records of the Corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of
the Corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time of the meeting, and may be inspected by
any stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
<PAGE>
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1.6 QUORUM. Except as otherwise provided by law, the Corporation's
Certificate of Incorporation, as such may be amended from time to time, or
these Amended and Restated By-Laws, as such may be amended from time to time
(the "Restated By-Laws"), the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
at the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. Shares held by brokers which such
brokers are prohibited from voting (pursuant to their discretionary authority
on behalf of beneficial owners of such shares who have not submitted a proxy
with respect to such shares) on some or all of the matters before the
stockholders, but which shares would otherwise be entitled to vote at the
meeting ("Broker Non-Votes") shall be counted, for the purpose of determining
the presence or absence of a quorum, both (a) toward the total voting power of
the shares of capital stock of the Corporation and (b) as being represented by
proxy. If a quorum has been established for the purpose of conducting the
meeting, a quorum shall be deemed to be present for the purpose of all votes
to be conducted at such meeting, provided that where a separate vote by a
class or classes, or series thereof, is required, a majority of the voting
power of the shares of such class or classes, or series, present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter. If a quorum shall fail to attend any
meeting, the chairman of the meeting or the holders of a majority of the
voting power of the shares of stock entitled to vote who are present, in
person or by proxy, may adjourn the meeting to another place, date, or time.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be
held under these Restated By-Laws by the stockholders present or represented
at the meeting and entitled to vote, although less than a quorum, or, if no
stockholder is present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify any stockholder
of any adjournment of less than 30 days if the time and place of the adjourned
meeting are announced at the meeting at which adjournment is taken, unless
after the adjournment a new record date is fixed for the adjourned meeting. At
the adjourned meeting, the Corporation may transact any business which might
have been transacted at the original meeting.
1.8 VOTING AND PROXIES. At any meeting of the stockholders, each
stockholder shall have one vote for each share of stock entitled to vote at
such meeting held of record by such stockholder and a proportionate vote for
each fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting (to the extent not otherwise prohibited by the Certificate
of Incorporation or these By-laws), may vote or express such consent or
dissent in person or may authorize another person or persons to vote or act
for such stockholder by written proxy executed by such stockholder or his or
her authorized agent or by a transmission permitted by law and delivered to
the Secretary of the Corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
Section 1.8 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that
<PAGE>
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such copy, facsimile telecommunication or reproduction shall be a complete
reproduction of the entire original writing or transmission.
In the election of directors, voting shall be by written ballot, and
for any other action, voting need not be by ballot.
The Corporation may, and to the extent required by law or the
Certificate of Incorporation, shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at such meeting may, and to the extent required by law or the
Certificate of Incorporation, shall, appoint one or more inspectors to act at
such meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability.
1.9 ACTION AT MEETING. When a quorum is present at any meeting of
stockholders, the holders of a majority of the stock present or represented
and voting on a matter (or if there are two or more classes of stock entitled
to vote as separate classes, then in the case of each such class, the holders
of a majority of the stock of that class present or represented and voting on
such matter) shall decide any matter to be voted upon by the stockholders at
such meeting (other than the election of directors), except when a different
vote is required by express provision of law, the Certificate of Incorporation
or these Restated By-Laws. Any election of directors by the stockholders shall
be determined by a plurality of the votes cast by the stockholders entitled to
vote at such election, except as otherwise provided by the Certificate of
Incorporation. For the purposes of this paragraph, Broker Non-Votes
represented at the meeting but not permitted to vote on a particular matter
shall not be counted, with respect to the vote on such matter, in the number
of (a) votes cast, (b) votes cast affirmatively, or (c) votes cast negatively.
<PAGE>
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the Corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the Corporation except as otherwise provided by law or
the Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled. Without limiting the foregoing, the
Board of Directors may:
(a) declare dividends from time to time in accordance with law;
(b) purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(c) authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, to borrow funds and guarantee
obligations, and to do all things necessary in connection therewith;
(d) remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
(e) confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(f) adopt from time to time such stock option, stock purchase, bonus
or other compensation plans for directors, officers, employees,
consultants and agents of the Corporation and its subsidiaries as it may
determine;
<PAGE>
-7-
(g) adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees, consultants and agents
of the Corporation and its subsidiaries as it may determine; and
(h) adopt from time to time regulations, not inconsistent herewith,
for the management of the Corporation's business and affairs.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be determined by
resolution of the Board of Directors or by action of the stockholders, but in
no event shall be less than three. The number of directors may be decreased
at any time and from time to time by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors, or,
for any reason, by action of the stockholders. The directors shall be elected
at the annual meeting of stockholders at any special meeting called for that
purpose or by written consent by such stockholders as have the right to vote
on such election. Directors need not be stockholders of the Corporation.
2.3 TERMS IN OFFICE. Each director shall serve for a term ending on
the date of the third annual meeting following the annual meeting at which
such director was elected or until earlier removed.
<PAGE>
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2.4 TENURE. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
2.5 VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement thereof, may be filled by vote of a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director or by action of the stockholders. A director elected to
fill a vacancy shall be elected for the unexpired term of his or her
predecessor in office, if any, and a director chosen to fill a position
resulting from an increase in the number of directors shall hold office until
the next election of directors and until his or her successor is elected and
qualified, or until his or her earlier death, resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his or her
written resignation to the Corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; PROVIDED that any director who is absent when such a determination
is made shall be given notice of the determination.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated by the Chairman of the Board (if any), the Chief Executive Officer,
the President, two or more directors, or by one director in the event that
there is only a single director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be duly given to
each director (i) by giving notice to such director in person or by telephone
at least 48 hours in advance of the meeting, (ii) by sending a telegram or
delivering written notice by facsimile transmission or by hand, to his or her
last known business or home address at least 48 hours in advance of the
meeting, or (iii) by mailing written notice to his or her last known business
or home address at least 72 hours in advance of the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall be deemed to constitute presence in person at such meeting.
<PAGE>
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2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; PROVIDED, HOWEVER, that in no case shall less than one-third
(1/3) of the total number of the whole Board of Directors constitute a quorum.
In the absence of a quorum at any such meeting, a majority of the directors
present may adjourn the meeting from time to time without further notice other
than announcement at the meeting, until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Restated By-Laws.
2.13 ACTION BY WRITTEN CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee of the Board
of Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to such action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors or committee.
2.14 REMOVAL. Unless otherwise provided in the Certificate of
Incorporation, any one or more or all of the directors may be removed with or
without cause by the holders of a majority of the shares entitled
to vote at an election of directors.
2.15 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at such meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine or as provided herein, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Restated By-Laws for the
Board of Directors. Adequate provisions shall be made for notice to members of
all meeting of committees. One-third (1/3) of the members of any committee shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be
<PAGE>
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determined by a majority vote of the members present. Action may be taken by
any committee without a meeting if all members thereof consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
2.18 COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
Corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including, but not limited to,
a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice
Presidents, Assistant Treasurers and Assistant Secretaries. The Board of
Directors may appoint such other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate
of Incorporation or by these Restated By-Laws, each officer shall hold office
until his or her successor is elected and qualified, unless a different term
is specified in the vote choosing or appointing such officer, or until his or
her earlier death, resignation or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
or her written resignation to the Chairman of the Board (if any), to the Board
of Directors at a meeting thereof, to the Corporation at its principal office or
to the President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.
<PAGE>
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Any officer may be removed at any time, with or without cause, by vote
of a majority of the directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his or her resignation or removal, or any right to
damages on account of such removal, whether his or her compensation be by the
month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the Corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his or her successor is elected and qualified, or
until his or her earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Chairman
of the Board, if any, shall preside at all meetings of the Board of Directors
and stockholders at which he or she is present and shall perform such duties and
possess such powers as are designated by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he or she shall, in the absence
or disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be designated by the Board of
Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
Corporation. Unless otherwise provided by the Board of Directors, and provided
that there is no Chairman of the Board or that the Chairman and Vice-Chairman,
if any, are not available, the President shall preside at all meetings of the
stockholders, and, if a director, at all meetings of the Board of Directors.
Unless the Board of Directors has designated another officer as the Chief
Executive Officer, the President shall be the Chief Executive Officer of the
Corporation. The President shall perform such other duties and shall have such
other powers as the Board of Directors may from time to time prescribe. The
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and, when so performing, shall have all the powers of
and be subject to all the restrictions upon the President. The Board of
Directors may assign to any Vice President the title of Executive Vice
President, Senior Vice President or any other title selected by the Board of
Directors. Unless otherwise determined by the Board of Directors, any Vice
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
<PAGE>
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3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to deposit funds of
the Corporation in depositories selected in accordance with these Restated
By-Laws, to disburse such funds as ordered by the Board of Directors, to make
proper accounts for such funds, and to render as required by the Board of
Directors statements of all such transactions and of the financial condition of
the Corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any
<PAGE>
-13-
and all rights and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation.
ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any issued, authorized capital stock of the
Corporation held in its treasury may be issued, sold, transferred or otherwise
disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the Corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by such stockholder in the Corporation. Each such certificate shall be
signed by, or in the name of the Corporation by, the Chairman or Vice-Chairman,
if any, of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation. Any or all of the signatures on such certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Restated By-Laws, applicable securities laws or any agreement among any number
of shareholders or among such holders and the Corporation shall have
conspicuously noted on the face or back of such certificate either the full text
of such restriction or a statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the Corporation by the
surrender to the Corporation or its transfer agent of the certificate
representing such shares, properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the Corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by
the Certificate of Incorporation or by these Restated By-Laws, the
Corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment
of dividends and the right to vote with respect to such stock, regardless of
any transfer, pledge or other disposition of such stock, until the shares
have been transferred on the books of the Corporation in accordance with the
requirements of these Restated By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue
a new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
President may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such
<PAGE>
-14-
indemnity as the President may require for the protection of the Corporation
or any transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date
as a record date for the determination of the stockholders entitled to notice
of or to vote at any meeting of stockholders or, to the extent permitted by
the Certificate of Incorporation and these Restated By-laws, to express
consent (or dissent) to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or
allotment of any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action. Such record date shall
not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any other action to which such record date
relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting (to the
extent permitted by the Certificate of Incorporation and these Restated By-laws)
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed. If no record date is fixed, the
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - GENERAL PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 NOTICES. Except as otherwise specifically provided herein or
required by law or the Certificate of Incorporation, all notices required to be
given to any stockholder, director, officer, employee or agent of the
Corporation shall be in writing and may in every instance be effectively given
by hand delivery to the recipient thereof, by depositing such notice in the
mails, postage paid, or by sending such notice by prepaid telegram or facsimile
transmission. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received shall be
deemed to be the time of the giving of the notice.
<PAGE>
-15-
5.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these Restated
By-Laws, a waiver of such notice either in writing signed by the person
entitled to such notice or such person's duly authorized attorney, or by
telegraph, facsimile transmission or any other available method, whether
before, at or after the time stated in such waiver, or the appearance of such
person or persons at such meeting in person or by proxy, shall be deemed
equivalent to such notice.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
Corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of such action.
5.6 FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Restated
By-Laws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors or a committee
thereof.
5.7 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees or committees
of the Board of Directors so designated, or by any other person as to matters
which such director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
5.8 TIME PERIODS. In applying any provision of these Restated By-Laws
that requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
5.9 CERTIFICATE OF INCORPORATION. All references in these Restated
By-Laws to the Certificate of Incorporation shall be deemed to refer to the
Amended and Restated Certificate of Incorporation of the Corporation, as amended
and in effect from time to time.
5.10 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because such director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his, her or their votes are counted for such purpose, if:
(1) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the Board
of Directors or the committee, and the
<PAGE>
-16-
Board or committee in good faith authorizes the contract or transaction
by the affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum;
(2) The material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.11 RESERVES. The directors may set apart out of any funds of the
Corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve.
5.12 CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
5.13 SEVERABILITY. Any determination that any provision of these
Restated By-Laws is for any reason inapplicable, illegal or ineffective shall
not affect or invalidate any other provision of these Restated By-Laws.
5.14 PRONOUNS. All pronouns used in these Restated By-Laws shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the persons or persons so designated may require.
ARTICLE 6 - INDEMNIFICATION
6.1 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify and hold harmless, to the fullest extent permitted
by applicable law as it presently exists or may hereafter be amended, any person
who was or is a party or is threatened to be made a party or is otherwise
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that such person,
or a person for whom such person is the legal representative, is or was a
director, trustee, partner, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise or non-profit entity, against all liability, losses, expenses
(including attorneys' fees), judgments,
<PAGE>
-17-
fines, and amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interest of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that such person
did not act in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interest of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, trustee, partner, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or non-profit entity against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon application that
despite the adjudication of liability but in view of all the circumstances of
the case, such person fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other
court shall deem proper.
6.3 SUCCESS ON THE MERITS. To the extent that any person referred
to in Sections 6.1 or 6.2 has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to therein, or in defense
of any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection therewith.
6.4. AUTHORIZATION. Any indemnification under Sections 6.1, 6.2 or
6.3 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, trustee, partner, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Sections 6.1 and 6.2. Such determination shall be made: (a) by the Board
of Directors, by a majority vote of directors who are not parties to such
action, suit or proceeding (whether or not a quorum), or (b) if there are no
disinterested directors or if a majority of disinterested directors so
directs, by independent legal counsel (who may be regular legal counsel to
the Corporation) in a written opinion, or (c) by the stockholders.
<PAGE>
-18-
6.5 EXPENSE ADVANCE. Expenses (including attorneys' fees) incurred by
an officer or director of the Corporation in defending any pending or threatened
civil, criminal, administrative or investigative action, suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the manner
provided in Section 6.4 of this Article upon receipt of an undertaking by or on
behalf of such officer or director to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article. Such expenses (including attorneys' fees) incurred
by other employees or agents of the Corporation may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate.
6.6 NONEXCLUSIVITY. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other Sections of this Article shall
not be deemed exclusive of any other rights to which any person seeking
indemnification or advancement of expenses may be entitled under any statute,
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
6.7 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, partner, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise or
non-profit entity against any liability asserted against and incurred by such
person in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article or Section 145 of
the Delaware General Corporation Law.
6.8 "THE CORPORATION". For the purposes of this Article,
references to "the Corporation" shall include the resulting corporation in a
consolidation and, to the extent that the Board of Directors of the resulting
corporation so decides, all constituent corporations (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees or agents so that any person
who is or was a director, officer, employee or agent of such a constituent
corporation or is or was serving at the request of such constituent
corporation as director, trustee, partner, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise or
non-profit entity shall stand in the same position under the provisions of
this Article with respect to the resulting or surviving corporation as he or
she would have with respect to such constituent corporation if its separate
existence had continued.
6.9 OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
trustee, partner, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or non-profit entity shall
be reduced by any amount such person may collect as indemnification from such
<PAGE>
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other corporation, partnership, joint venture, trust or other enterprise or
non-profit entity or from insurance.
6.10 OTHER DEFINITIONS. For purposes of this Article, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, trustee, officer, employee or agent of
the Corporation which imposes duties on, or involves services by, such director,
trustee, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
6.11 CONTINUATION OF INDEMNIFICATION. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall,
unless otherwise provided when authorized or ratified, continue as a person who
has ceased to be a director, trustee, partner, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE 7 - AMENDMENTS
Except as is otherwise set forth in these Restated By-Laws, these
Restated By-Laws may be altered, amended or repealed, or new by-laws may be
adopted, by the stockholders or by the Board of Directors, when such powers
are conferred upon the Board of Directors by the Certificate of
Incorporation, at any meeting of the stockholders or of the Board of Directors.
<PAGE>
EXHIBIT 10.1
ADVANCED MEDICINE, INC.
1997 STOCK PLAN
ADOPTED ON JUNE 23, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE..................................................................1
SECTION 2. ADMINISTRATION.............................................................................1
(a) Committees of the Board of Directors........................................................1
(b) Authority of the Board of Directors.........................................................1
SECTION 3. ELIGIBILITY................................................................................1
(a) General Rule................................................................................1
(b) Ten-Percent Stockholders....................................................................1
SECTION 4. STOCK SUBJECT TO PLAN......................................................................2
(a) Basic Limitation............................................................................2
(b) Additional Shares...........................................................................2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES....................................................2
(a) Stock Purchase Agreement....................................................................2
(b) Duration of Offers and Nontransferability of Rights.........................................2
(c) Purchase Price..............................................................................3
(d) Withholding Taxes...........................................................................3
(e) Restrictions on Transfer of Shares and Minimum Vesting......................................3
(f) Accelerated Vesting.........................................................................3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS............................................................3
(a) Stock Option Agreement......................................................................3
(b) Number of Shares............................................................................4
(c) Exercise Price..............................................................................4
(d) Withholding Taxes...........................................................................4
(e) Exercisability..............................................................................4
(f) Accelerated Exercisability..................................................................4
(g) Basic Term..................................................................................5
(h) Nontransferability..........................................................................5
(i) Termination of Service (Except by Death)....................................................5
(j) Leaves of Absence...........................................................................5
(k) Death of Optionee...........................................................................6
(l) No Rights as a Stockholder..................................................................6
(m) Modification, Extension and Assumption of Options...........................................6
(n) Restrictions on Transfer of Shares and Minimum Vesting......................................6
i
<PAGE>
(o) Accelerated Vesting.........................................................................7
SECTION 7. PAYMENT FOR SHARES.........................................................................7
(a) General Rule................................................................................7
(b) Surrender of Stock..........................................................................7
(c) Services Rendered...........................................................................7
(d) Promissory Note.............................................................................7
(e) Exercise/Sale...............................................................................8
(f) Exercise/Pledge.............................................................................8
SECTION 8. ADJUSTMENT OF SHARES.......................................................................8
(a) General.....................................................................................8
(b) Mergers and Consolidations..................................................................8
(c) Reservation of Rights.......................................................................9
SECTION 9. SECURITIES LAWS REQUIREMENTS...............................................................9
(a) General.....................................................................................9
(b) Financial Reports...........................................................................9
SECTION 10. NO RETENTION RIGHTS.......................................................................9
SECTION 11. DURATION AND AMENDMENTS...................................................................9
(a) Term of the Plan............................................................................9
(b) Right to Amend or Terminate the Plan.......................................................10
(c) Effect of Amendment or Termination.........................................................10
SECTION 12. DEFINITIONS..............................................................................10
SECTION 13. EXECUTION................................................................................13
</TABLE>
ii
<PAGE>
ADVANCED MEDICINE, INC. 1997 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an
opportunity to acquire a proprietary interest in the success of the Company,
or to increase such interest, by purchasing Shares of the Company's Stock.
The Plan provides both for the direct award or sale of Shares and for the
grant of Options to purchase Shares. Options granted under the Plan may
include Nonstatutory Options as well as ISOs intended to qualify under
Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of one
or more members of the Board of Directors who have been appointed by the
Board of Directors. Each Committee shall have such authority and be
responsible for such functions as the Board of Directors has assigned to it.
If no Committee has been appointed, the entire Board of Directors shall
administer the Plan. Any reference to the Board of Directors in the Plan
shall be construed as a reference to the Committee (if any) to whom the Board
of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion
to take any actions it deems necessary or advisable for the administration of
the Plan. All decisions, interpretations and other actions of the Board of
Directors shall be final and binding on all Purchasers, all Optionees and all
persons deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Options or the direct award or
sale of Shares. Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT STOCKHOLDERS. An individual who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for
designation as an Optionee or Purchaser unless (i) the Exercise Price is at
least 110% of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price (if any) is at least 100% of the Fair Market Value of a Share
and (iii) in the case of an ISO, such ISO by its terms is not exercisable
after the expiration of five years from the date of grant. For purposes of
this Subsection (b), in determining stock ownership, the attribution rules of
Section 424(d) of the Code shall be applied.
1
<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares that may be issued under the Plan (upon exercise of Options or other
rights to acquire Shares) shall not exceed 2,415,000(1) Shares, subject to
adjustment pursuant to Section 8. The number of Shares that are subject to
Options or other rights outstanding at any time under the Plan shall not
exceed the number of Shares that then remain available for issuance under the
Plan. The Company, during the term of the Plan, shall at all times reserve
and keep available sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated,
the Shares allocable to the unexercised portion of such Option or other right
shall again be available for the purposes of the Plan. In the event that
Shares issued under the Plan are reacquired by the Company pursuant to any
forfeiture provision, right of repurchase or right of first refusal, such
Shares shall again be available for the purposes of the Plan, except that the
aggregate number of Shares which may be issued upon the exercise of ISOs
shall in no event exceed 2,415,000 Shares (subject to adjustment pursuant to
Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under
the Plan (other than upon exercise of an Option) shall be evidenced by a
Stock Purchase Agreement between the Purchaser and the Company. Such award or
sale shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for
inclusion in a Stock Purchase Agreement. The provisions of the various Stock
Purchase Agreements entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of
such right was communicated to the Purchaser by the Company. Such right shall
not be transferable and shall be exercisable only by the Purchaser to whom
such right was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered
under the Plan shall not be less than 85% of the Fair Market Value of such
Shares, and a higher percentage may be required by Section 3(b). Subject to
the preceding sentence, the Purchase Price shall be determined by the Board
of Directors at its sole discretion. The Purchase Price shall be payable in a
form described in Section 7.
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(1) Includes the 615,000-share increase authorized by the Board of
Directors on February 27, 1998, subject to stockholder approval.
2
<PAGE>
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares,
the Purchaser shall make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any
Shares awarded or sold under the Plan shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and
other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Purchase Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally. In the case of a Purchaser who is not an officer of the
Company, an Outside Director or a Consultant, any right to repurchase the
Purchaser's Shares at the original Purchase Price (if any) upon termination
of the Purchaser's Service shall lapse at least as rapidly as 20% per year
over the five-year period commencing on the date of the award or sale of the
Shares. Any such right may be exercised only within 90 days after the
termination of the Purchaser's Service for cash or for cancellation of
indebtedness incurred in purchasing the Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase
Agreement provides otherwise, any right to repurchase a Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's
Service shall lapse and all of such Shares shall become vested if (i) the
Company is subject to a Change in Control before the Purchaser's Service
terminates and (ii) the repurchase right is not assigned to the entity that
employs the Purchaser immediately after the Change in Control or to its
parent or subsidiary. Notwithstanding the foregoing, in the event that (i)
there is an Involuntary Termination within twelve months after a Change in
Control and (ii) the repurchase right had been assigned to the entity that
employs the Purchaser immediately after the Change in Control or to its
parent or subsidiary, then the repurchase right shall lapse and an additional
number of the Purchaser's Shares shall vest, as if the Purchaser performed
Service for an additional twelve months.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions
of the Plan and may be subject to any other terms and conditions which are
not inconsistent with the Plan and which the Board of Directors deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the
various Stock Option Agreements entered into under the Plan need not be
identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify
the number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of
the Fair Market Value of a Share on
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the date of grant, and a higher percentage may be required by Section 3(b).
The Exercise Price of a Nonstatutory Option shall not be less than 85% of the
Fair Market Value of a Share on the date of grant, and a higher percentage
may be required by Section 3(b). Subject to the preceding two sentences, the
Exercise Price under any Option shall be determined by the Board of Directors
at its sole discretion. The Exercise Price shall be payable in a form
described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an
Option, the Optionee shall make such arrangements as the Board of Directors
may require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such exercise.
The Optionee shall also make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with the disposition
of Shares acquired by exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. In
the case of an Optionee who is not an officer of the Company, an Outside
Director or a Consultant, an Option shall become exercisable at least as
rapidly as 20% per year over the five-year period commencing on the date of
grant. Subject to the preceding sentence, the exercisability provisions of
any Stock Option Agreement shall be determined by the Board of Directors at
its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control
before the Optionee's Service terminates, (ii) such Options do not remain
outstanding, (iii) such Options are not assumed by the surviving corporation
or its parent and (iv) the surviving corporation or its parent does not
substitute options with substantially the same terms for such Options.
Notwithstanding the foregoing, in the event that (i) there is an Involuntary
Termination within twelve months after a Change in Control and (ii) the
Options had been assumed or substituted by the surviving corporation or its
parent, then the repurchase right with respect to the Options shall lapse and
an additional number of Shares subject to the Optionee's Options shall become
exercisable and vest, as if the Optionee performed Service for an additional
twelve months.
(g) BASIC TERM. The Stock Option Agreement shall specify the term
of the Option. The term shall not exceed 10 years from the date of grant, and
a shorter term may be required by Section 3(b). Subject to the preceding
sentence, the Board of Directors at its sole discretion shall determine when
an Option is to expire.
(h) NONTRANSFERABILITY. No Option shall be transferable by the
Optionee other than by beneficiary designation, will or the laws of descent
and distribution. An Option may be exercised during the lifetime of the
Optionee only by the Optionee or by the Optionee's guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's
Service terminates for any reason other than the Optionee's death, then the
Optionee's Options shall expire on the
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earliest of the following occasions, unless the periods of time for which the
Options remain exercisable are otherwise extended by the Board of Directors
or Committee:
(i) The expiration date determined pursuant to
Subsection (g) above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability; or
(iii) The date six months after the termination of the
Optionee's Service by reason of Disability.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only
to the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall
lapse when the Optionee's Service terminates. In the event that the Optionee
dies after the termination of the Optionee's Service but before the
expiration of the Optionee's Options, all or part of such Options may be
exercised (prior to expiration) by the executors or administrators of the
Optionee's estate or by any person who has acquired such Options directly
from the Optionee by beneficiary designation, bequest or inheritance, but
only to the extent that such Options had become exercisable before the
Optionee's Service terminated (or became exercisable as a result of the
termination) and the underlying Shares had vested before the Optionee's
Service terminated (or vested as a result of the termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above,
Service shall be deemed to continue while the Optionee is on a bona fide
leave of absence, if such leave was approved by the Company in writing and if
continued crediting of Service for this purpose is expressly required by the
terms of such leave or by applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is
in Service, then the Optionee's Options shall expire on the earlier of the
following dates, unless the periods of time for which the Options remain
exercisable are otherwise extended by the Board of Directors or Committee:
(i) The expiration date determined pursuant to
Subsection (g) above; or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired
such Options directly from the Optionee by beneficiary designation, bequest
or inheritance, but only to the extent that such Options had become
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exercisable before the Optionee's death or became exercisable as a result of
the death. The balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to
receive such Shares by filing a notice of exercise and paying the Exercise
Price pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Optionee, impair the Optionee's
rights or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any
Shares issued upon exercise of an Option shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and
other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
shall apply in addition to any restrictions that may apply to holders of
Shares generally. In the case of an Optionee who is not an officer of the
Company, an Outside Director or a Consultant, any right to repurchase the
Optionee's Shares at the original Exercise Price upon termination of the
Optionee's Service shall lapse at least as rapidly as 20% per year over the
five-year period commencing on the date of the option grant. Any such
repurchase right may be exercised only within 90 days after the termination
of the Optionee's Service for cash or for cancellation of indebtedness
incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option
Agreement provides otherwise, any right to repurchase an Optionee's Shares at
the original Exercise Price upon termination of the Optionee's Service shall
lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control before the Optionee's Service terminates and
(ii) the repurchase right is not assigned to the entity that employs the
Optionee immediately after the Change in Control or to its parent or
subsidiary. Notwithstanding the foregoing, in the event that (i) there is an
Involuntary Termination within twelve months after a Change in Control and
(ii) the repurchase right had been assigned to the entity that employs the
Optionee immediately after the Change in Control or to its parent or
subsidiary, then the repurchase right shall lapse and an additional number of
Shares shall become vested as if the Optionee performed Service for an
additional twelve months.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at
the time when such Shares are purchased, except as otherwise provided in this
Section 7.
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(b) SURRENDER OF STOCK. To the extent that a Stock Option
Agreement so provides, all or any part of the Exercise Price may be paid by
surrendering, or attesting to the ownership of, Shares that are already owned
by the Optionee. Such Shares shall be surrendered to the Company in good form
for transfer and shall be valued at their Fair Market Value on the date when
the Option is exercised. The Optionee shall not surrender, or attest to the
ownership of, Shares in payment of the Exercise Price if such action would
cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
(c) SERVICES RENDERED. At the discretion of the Board of
Directors, Shares may be awarded under the Plan in consideration of services
rendered to the Company, a Parent or a Subsidiary prior to the award. At the
discretion of the Board of Directors, Shares may also be awarded under the
Plan in consideration of services to be rendered to the Company, a Parent or
a Subsidiary after the award, except that the par value of such Shares, if
newly issued, shall be paid in cash or cash equivalents.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement
or Stock Purchase Agreement so provides, all or a portion of the Exercise
Price or Purchase Price (as the case may be) of Shares issued under the Plan
may be paid with a full-recourse promissory note. However, the par value of
the Shares, if newly issued, shall be paid in cash or cash equivalents. The
Shares shall be pledged as security for payment of the principal amount of
the promissory note and interest thereon. The interest rate payable under the
terms of the promissory note shall not be less than the minimum rate (if any)
required to avoid the imputation of additional interest under the Code.
Subject to the foregoing, the Board of Directors (at its sole discretion)
shall specify the term, interest rate, amortization requirements (if any) and
other provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell Shares and
to deliver all or part of the sales proceeds to the Company in payment of all
or part of the Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement
so provides, and if Stock is publicly traded, payment may be made all or in
part by the delivery (on a form prescribed by the Company) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and
any withholding taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding
Stock, a declaration of a dividend payable in Shares, a declaration of an
extraordinary dividend payable in a form other than Shares in an amount that
has a material effect on the Fair Market Value of the Stock, a
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combination or consolidation of the outstanding Stock into a lesser number of
Shares, a recapitalization, a spin-off, a reclassification or a similar
occurrence, the Board of Directors shall make appropriate adjustments in one
or more of (i) the number of Shares available for future grants under
Section 4, (ii) the number of Shares covered by each outstanding Option or
(iii) the Exercise Price under each outstanding Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement, without the
Optionees' consent, may provide for:
(i) The continuation of such outstanding Options by the
Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding
Options by the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its
parent of options with substantially the same terms for such
outstanding Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8,
an Optionee or Purchaser shall have no rights by reason of (i) any
subdivision or consolidation of shares of stock of any class, (ii) the
payment of any dividend or (iii) any other increase or decrease in the number
of shares of stock of any class. Any issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or Exercise Price of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of
its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder,
state securities laws and regulations, and the regulations of any stock
exchange or other securities market on which the Company's securities may
then be traded.
(b) FINANCIAL REPORTS. The Company each year shall furnish to
Optionees, Purchasers and stockholders who have received Stock under the Plan
its balance sheet and income statement, unless such Optionees, Purchasers or
stockholders are key Employees whose duties with the Company assure them
access to equivalent information. Such balance sheet and income statement
need not be audited.
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SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Company (or any Parent or Subsidiary employing
or retaining the Purchaser or Optionee) or of the Purchaser or Optionee,
which rights are hereby expressly reserved by each, to terminate his or her
Service at any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to
the approval of the Company's stockholders. In the event that the
stockholders fail to approve the Plan within 12 months after its adoption by
the Board of Directors, any grants of Options or sales or awards of Shares
that have already occurred shall be rescinded, and no additional grants,
sales or awards shall be made thereafter under the Plan. The Plan shall
terminate automatically 10 years after its adoption by the Board of Directors
and may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors
may amend, suspend or terminate the Plan at any time and for any reason;
provided, however, that any amendment of the Plan which increases the number
of Shares available for issuance under the Plan (except as provided in
Section 8), or which materially changes the class of persons who are eligible
for the grant of ISOs, shall be subject to the approval of the Company's
stockholders. Stockholder approval shall not be required for any other
amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued
or sold under the Plan after the termination thereof, except upon exercise of
an Option granted prior to such termination. The termination of the Plan, or
any amendment thereof, shall not affect any Share previously issued or any
Option previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CAUSE" shall mean (i) the unauthorized use or disclosure of
the confidential information or trade secrets of the Company, which use
causes material harm to the Company, (ii) conviction of a felony under the
laws of the United States or any state thereof, (iii) gross negligence or
(iv) repeated failure to perform lawful assigned duties for thirty days after
receiving written notification from the Board of Directors.
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(c) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Company immediately prior
to such merger, consolidation or other reorganization;
(ii) The acquisition, directly or indirectly, by any person
or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders;
or
(iii) The sales, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" shall mean a committee of the Board of Directors,
as described in Section 2(a).
(f) "COMPANY" shall mean Advanced Medicine, Inc., a Delaware
corporation.
(g) "CONSULTANT" shall mean an individual who performs bona fide
services for the Company, a Parent or a Subsidiary as a consultant or
advisor, excluding Employees and Outside Directors.
(h) "DISABILITY" shall mean that the Optionee is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment.
(i) "EMPLOYEE" shall mean any individual who is a common-law
employee of the Company, a Parent or a Subsidiary.
(j) "EXERCISE PRICE" shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the Board of
Directors in the applicable Stock Option Agreement.
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(k) "FAIR MARKET VALUE" shall mean the fair market value of a
Share, as determined by the Board of Directors in good faith. Such
determination shall be conclusive and binding on all persons.
(l) "INVOLUNTARY TERMINATION" shall mean the termination of
Service which occurs by reason of:
(i) an involuntary dismissal or discharge by the Company
for reasons other than for Cause; or
(ii) a voluntary resignation following (i) a change in
Optionee's or Purchaser's position with the Company (or Parent or
Subsidiary employing Optionee or Purchaser) which materially reduces
Optionee's or Purchaser's level of responsibility, (ii) a reduction in
Optionee's or Purchaser's level of compensation (including base
salary, fringe benefits and participation in corporate-performance
based bonus or incentive programs) by more than fifteen percent or
(iii) a relocation of the workplace of Optionee or Purchaser more
than fifty miles away from the workplace designated by the Company
on Optionee's or Purchaser's initial date of service.
(m) "ISO" shall mean an employee incentive stock option described
in Section 422(b) of the Code.
(n) "NONSTATUTORY OPTION" shall mean a stock option not described
in Sections 422(b) or 423(b) of the Code.
(o) "OPTION" shall mean an ISO or Nonstatutory Option granted
under the Plan and entitling the holder to purchase Shares.
(p) "OPTIONEE" shall mean an individual who holds an Option.
(q) "OUTSIDE DIRECTOR" shall mean a member of the Board of
Directors who is not an Employee.
(r) "PARENT" shall mean any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
(s) "PLAN" shall mean this Advanced Medicine, Inc. 1997 Stock Plan.
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(t) "PURCHASE PRICE" shall mean the consideration for which one
Share may be acquired under the Plan (other than upon exercise of an Option),
as specified by the Board of Directors.
(u) "PURCHASER" shall mean an individual to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).
(v) "SERVICE" shall mean service as an Employee, Outside Director
or Consultant.
(w) "SHARE" shall mean one share of Stock, as adjusted in
accordance with Section 8 (if applicable).
(x) "STOCK" shall mean the Common Stock of the Company, with a par
value of $0.01 per Share.
(y) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(z) "STOCK PURCHASE AGREEMENT" shall mean the agreement between
the Company and a Purchaser who acquires Shares under the Plan which contains
the terms, conditions and restrictions pertaining to the acquisition of such
Shares.
(aa) "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same.
ADVANCED MEDICINE, INC.
By:____________________________________
Title:_________________________________
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EXHIBIT 10.2
ADVANCED MEDICINE, INC.
LONG-TERM STOCK OPTION PLAN
ADOPTED ON JUNE 27, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE.............................................................................1
SECTION 2. ADMINISTRATION........................................................................................1
(a) Committees of the Board of Directors.....................................................................1
(b) Authority of the Board of Directors......................................................................1
SECTION 3. ELIGIBILITY...........................................................................................1
(a) General Rule.............................................................................................1
(b) Ten-Percent Stockholders.................................................................................2
SECTION 4. STOCK SUBJECT TO PLAN.................................................................................2
(a) Basic Limitation.........................................................................................2
(b) Additional Shares........................................................................................2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES...............................................................2
(a) Stock Purchase Agreement.................................................................................2
(b) Duration of Offers and Nontransferability of Rights......................................................2
(c) Purchase Price...........................................................................................3
(d) Withholding Taxes........................................................................................3
(e) Restrictions on Transfer of Shares.......................................................................3
(f) Accelerated Vesting......................................................................................3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.......................................................................3
(a) Stock Option Agreement...................................................................................3
(b) Number of Shares.........................................................................................3
(c) Exercise Price...........................................................................................4
(d) Withholding Taxes........................................................................................4
(e) Exercisability...........................................................................................4
(f) Accelerated Exercisability...............................................................................4
(g) Basic Term...............................................................................................4
(h) Nontransferability.......................................................................................4
(i) No Rights as a Stockholder...............................................................................5
(j) Modification, Extension and Assumption of Options........................................................5
(k) Restrictions on Transfer of Shares.......................................................................5
(l) Accelerated Vesting......................................................................................5
SECTION 7. PAYMENT FOR SHARES....................................................................................5
(a) General Rule.............................................................................................5
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(b) Surrender of Stock.......................................................................................6
(c) Services Rendered........................................................................................6
(d) Promissory Note..........................................................................................6
(e) Exercise/Sale............................................................................................6
(f) Exercise/Pledge..........................................................................................6
SECTION 8. ADJUSTMENT OF SHARES..................................................................................6
(a) General..................................................................................................6
(b) Mergers and Consolidations...............................................................................7
(c) Reservation of Rights....................................................................................7
SECTION 9. SECURITIES LAWS REQUIREMENTS..........................................................................7
SECTION 10. NO RETENTION RIGHTS..................................................................................7
SECTION 11. DURATION AND AMENDMENTS..............................................................................8
(a) Term of the Plan.........................................................................................8
(b) Right to Amend or Terminate the Plan.....................................................................8
(c) Effect of Amendment or Termination.......................................................................8
SECTION 12. DEFINITIONS..........................................................................................8
SECTION 13. EXECUTION...........................................................................................11
</TABLE>
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ADVANCED MEDICINE, INC. LONG-TERM STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity
to acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. Participation in the
Plan is limited to individuals to whom the Company may offer and sell securities
pursuant to the exemption from qualification afforded by Section 25102(f) of the
California Corporations Code or who do not reside in the State of California.
The Plan provides both for the direct award or sale of Shares and for the grant
of Options to purchase Shares. Options granted under the Plan may include
Nonstatutory Options as well as ISOs intended to qualify under Section 422 of
the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered
by one or more Committees. Each Committee shall consist of one or more members
of the Board of Directors who have been appointed by the Board of Directors.
Each Committee shall have such authority and be responsible for such functions
as the Board of Directors has assigned to it. If no Committee has been
appointed, the entire Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of
the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of the
Plan. All decisions, interpretations and other actions of the Board of Directors
shall be final and binding on all Purchasers, all Optionees and all persons
deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Options or the direct award or sale of
Shares. Only Employees shall be eligible for the grant of ISOs. Participation in
the Plan shall be limited to individuals to whom the Company may offer and sell
securities pursuant to the exemption from qualification afforded by Section
25102(f) of the California Corporations Code or who do not reside in the State
of California.
(b) TEN-PERCENT STOCKHOLDERS. An individual who owns more than 10% of
the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for the
grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair
Market Value of a Share on the date of grant and (ii) such ISO by its terms is
not exercisable after the expiration of five years from the date of grant. For
purposes of this
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Subsection (b), in determining stock ownership, the attribution rules of
Section 424(d) of the Code shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be authorized
but unissued Shares or treasury Shares. The aggregate number of Shares that may
be issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 2,000,000 Shares, subject to adjustment pursuant to
Section 8. The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated, the
Shares allocable to the unexercised portion of such Option or other right shall
again be available for the purposes of the Plan. In the event that Shares issued
under the Plan are reacquired by the Company pursuant to any forfeiture
provision, right of repurchase or right of first refusal, such Shares shall
again be available for the purposes of the Plan, except that the aggregate
number of Shares which may be issued upon the exercise of ISOs shall in no event
exceed 2,000,000 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under
the Plan, if newly issued, shall not be less than the par value of such Shares.
Subject to the preceding sentence, the Purchase Price shall be determined by the
Board of Directors at its sole discretion. The Purchase Price shall be payable
in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any
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federal, state, local or foreign withholding tax obligations that may arise
in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold
under the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, any right to repurchase a Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
and all of such Shares shall become vested if (i) the Company is subject to a
Change in Control before the Purchaser's Service terminates and (ii) the
repurchase right is not assigned to the entity that employs the Purchaser
immediately after the Change in Control or to its parent or subsidiary. The
foregoing notwithstanding, if (i) the repurchase right has been assigned to the
entity that employs the Purchaser immediately after the Change in Control or to
its parent or subsidiary and (ii) the Purchaser is subject to an Involuntary
Termination within 12 months after the Change in Control, then the repurchase
right shall lapse and an additional number of the Purchaser's Shares shall vest,
calculated as if the Purchaser's Service had continued for an additional 12
months.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate
for inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of a Nonstatutory Option to
purchase newly issued Shares shall not be less than the par value of such
Shares. Subject to the preceding two sentences, the Exercise Price under an
Option shall be determined by the Board of Directors at its sole discretion. The
Exercise Price shall be payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require
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for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with the disposition of Shares
acquired by exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. The
exercisability provisions of a Stock Option Agreement shall be determined by the
Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control before
the Optionee's Service terminates, (ii) such Options do not remain outstanding,
(iii) such Options are not assumed by the surviving corporation or its parent
and (iv) the surviving corporation or its parent does not substitute options
with substantially the same terms for such Options. The foregoing
notwithstanding, if (i) the Optionee's Options do not become exercisable in full
under the preceding sentence and (ii) the Optionee is subject to an Involuntary
Termination within 12 months after the Change in Control, then the Optionee's
Options shall become exercisable with respect to an additional number of Shares,
calculated as if the Optionee's Service had continued for an additional 12
months.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of
the Option. The term shall not exceed 10 years from the date of grant, and in
the case of an ISO a shorter term may be required by Section 3(b). Subject to
the preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire. A Stock Option Agreement may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee's Service or death.
(h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(j) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
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(k) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Option Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.
(l) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse and all of
such Shares shall become vested if (i) the Company is subject to a Change in
Control before the Optionee's Service terminates and (ii) the repurchase right
is not assigned to the entity that employs the Optionee immediately after the
Change in Control or to its parent or subsidiary. A Stock Option Agreement may
also provide for accelerated vesting in the event of the Optionee's death or
disability or other events. The foregoing notwithstanding, if (i) the repurchase
right has been assigned to the entity that employs the Optionee immediately
after the Change in Control or to its parent or subsidiary and (ii) the Optionee
is subject to an Involuntary Termination within 12 months after the Change in
Control, then the repurchase right shall lapse and an additional number of the
Optionee's Shares shall vest, calculated as if the Optionee's Service had
continued for an additional 12 months.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award. At the discretion
of the Board of Directors, Shares may also be awarded under the Plan in
consideration of services to be rendered to the Company, a Parent or a
Subsidiary after the award, except that the par value of such Shares, if
newly issued, shall be paid in cash or cash equivalents.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. However, the par value of the Shares, if
newly issued, shall be paid in cash or cash equivalents. The Shares shall be
pledged as security for payment of the promissory note. Subject to the
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foregoing, the Board of Directors (at its sole discretion) shall specify the
term, interest rate (if any), amortization requirements (if any) and other
provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by the
Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options
by the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its
parent of options with substantially the same terms for such
outstanding Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any
6
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class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or
assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any Parent or Subsidiary employing or
retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service at
any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors. The Plan shall
terminate automatically 10 years after its adoption by the Board of Directors
and may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason. Stockholder
approval shall not be required for any amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
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(b) "CAUSE" shall mean (i) the unauthorized use or disclosure of the
confidential information or trade secrets of the Company, which use causes
material harm to the Company, (ii) conviction of a felony under the laws of the
United States or any state thereof, (iii) gross negligence or (iv) repeated
failure to perform lawful assigned duties for 30 days after receiving written
notification from the Board of Directors.
(c) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if persons who were not shareholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (A) the continuing or surviving entity and (B)
any direct or indirect parent corporation of such continuing or
surviving entity;
(ii) The acquisition, directly or indirectly, by any person
or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under
common control with, the Company) of beneficial ownership (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as amended) of securities possessing more than 50% of the total
combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the
Company's stockholders; or
(iii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(f) "COMPANY" shall mean Advanced Medicine, Inc., a Delaware
corporation.
(g) "CONSULTANT" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.
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(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(k) "INVOLUNTARY TERMINATION" shall mean the termination of the
Optionee's pr Purchaser's Service by reason of:
(i) The involuntary dismissal or discharge of the Optionee or
Purchaser by the Company (or the Parent or Subsidiary employing him or
her) for reasons other than for Cause; or
(ii) The voluntary resignation of the Optionee or Purchaser
following (A) a change in his or her position with the Company (or the
Parent or Subsidiary employing him or her) that materially reduces his
or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation
in bonus or incentive programs based on corporate performance) by more
than 15% or (C) a relocation of his or her workplace more than 50 miles
from the workplace designated by the Company on his or her initial date
of service.
(l) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(m) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(n) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(o) "OPTIONEE" shall mean an individual who holds an Option.
(p) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.
(q) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(r) "PLAN" shall mean this Advanced Medicine, Inc. Long-Term Stock
Option Plan.
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(s) "PURCHASE PRICE" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Board of Directors.
(t) "PURCHASER" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).
(u) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(v) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(w) "STOCK" shall mean the Common Stock of the Company, with a par
value of $0.01 per Share.
(x) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(y) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(z) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same.
ADVANCED MEDICINE, INC.
By:
-----------------------------------
Title:
--------------------------------
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EXHIBIT 10.3
ADVANCED MEDICINE, INC.
2000 EQUITY INCENTIVE PLAN
(AS ADOPTED FEBRUARY 26, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. INTRODUCTION..........................................................................................1
ARTICLE II. ADMINISTRATION.......................................................................................1
2.1 Committee Composition...............................................................................1
2.2 Committee Responsibilities..........................................................................1
2.3 Committee for Non-Officer Grants....................................................................1
ARTICLE III. SHARES AVAILABLE FOR GRANTS.........................................................................2
3.1 Basic Limitation....................................................................................2
3.2 Additional Shares...................................................................................2
3.3 Dividend Equivalents................................................................................2
ARTICLE IV. ELIGIBILITY..........................................................................................2
4.1 Incentive Stock Options.............................................................................2
4.2 Other Grants........................................................................................3
ARTICLE V. OPTIONS...............................................................................................3
5.1 Stock Option Agreement..............................................................................3
5.2 Number of Shares....................................................................................3
5.3 Exercise Price......................................................................................3
5.4 Exercisability and Term.............................................................................3
5.5 Modification or Assumption of Options...............................................................4
5.6 Buyout Provisions...................................................................................4
ARTICLE VI. PAYMENT FOR OPTION SHARES............................................................................4
6.1 General Rule........................................................................................4
6.2 Surrender of Stock..................................................................................4
6.3 Exercise/Sale.......................................................................................4
6.4 Exercise/Pledge.....................................................................................4
6.5 Promissory Note.....................................................................................5
6.6 Other Forms of Payment..............................................................................5
ARTICLE VII. STOCK APPRECIATION RIGHTS...........................................................................5
7.1 SAR Agreement.......................................................................................5
7.2 Number of Shares....................................................................................5
7.3 Exercise Price......................................................................................5
7.4 Exercisability and Term.............................................................................5
7.5 Exercise of SARs....................................................................................6
7.6 Modification or Assumption of SARs..................................................................6
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ARTICLE VIII. RESTRICTED SHARES..................................................................................6
8.1 Restricted Stock Agreement..........................................................................6
8.2 Payment for Awards..................................................................................6
8.3 Vesting Conditions..................................................................................6
8.4 Voting and Dividend Rights..........................................................................6
ARTICLE IX. STOCK UNITS..........................................................................................7
9.1 Stock Unit Agreement................................................................................7
9.2 Payment for Awards..................................................................................7
9.3 Vesting Conditions..................................................................................7
9.4 Voting and Dividend Rights..........................................................................7
9.5 Form and Time of Settlement of Stock Units..........................................................7
9.6 Death of Recipient..................................................................................8
9.7 Creditors' Rights...................................................................................8
ARTICLE X. CHANGE IN CONTROL.....................................................................................8
10.1 Effect of Change in Control........................................................................8
10.2 Acceleration.......................................................................................8
ARTICLE XI. PROTECTION AGAINST DILUTION..........................................................................9
11.1 Adjustments........................................................................................9
11.2 Dissolution or Liquidation.........................................................................9
11.3 Reorganizations....................................................................................9
ARTICLE XII. DEFERRAL OF AWARDS..................................................................................9
ARTICLE XIII. AWARDS UNDER OTHER PLANS..........................................................................10
ARTICLE XIV. PAYMENT OF FEES IN SECURITIES......................................................................10
14.1 Effective Date....................................................................................10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units.......................................10
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units........................................11
ARTICLE XV. LIMITATION ON RIGHTS................................................................................11
15.1 Retention Rights..................................................................................11
15.2 Stockholders' Rights..............................................................................11
15.3 Regulatory Requirements...........................................................................11
ARTICLE XVI. WITHHOLDING TAXES..................................................................................12
16.1 General...........................................................................................12
16.2 Share Withholding.................................................................................12
ARTICLE XVII. FUTURE OF THE PLAN................................................................................12
17.1 Term of the Plan..................................................................................12
17.2 Amendment or Termination..........................................................................12
ARTICLE XVIII. LIMITATION ON PAYMENTS...........................................................................13
18.1 Scope of Limitation...............................................................................13
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18.2 Application to Award..............................................................................13
18.3 Basic Rule........................................................................................13
18.4 Reduction of Payments.............................................................................13
18.5 Overpayments and Underpayments....................................................................14
18.6 Related Corporations..............................................................................14
ARTICLE XIX. DEFINITIONS........................................................................................14
</TABLE>
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ADVANCED MEDICINE, INC.
2000 EQUITY INCENTIVE PLAN
ARTICLE I. INTRODUCTION.
The Plan was adopted by the Board to be effective at the
IPO. The purpose of the Plan is to promote the long-term success of the
Corporation and the creation of stockholder value by (a) encouraging
Employees, Outside Directors and Consultants to focus on critical long-range
objectives, (b) encouraging the attraction and retention of Employees,
Outside Directors and Consultants with exceptional qualifications, and (c)
linking Employees, Outside Directors and Consultants directly to stockholder
interests through increased stock ownership. The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares, Stock
Units, Options (which may constitute incentive stock options or nonstatutory
stock options) or stock appreciation rights.
The Plan shall be governed by, and construed in accordance
with, the laws of the State of Delaware (except their choice-of-law
provisions).
ARTICLE II. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered
by the Committee. The Committee shall consist exclusively of two or more
directors of the Corporation, who shall be appointed by the Board. In
addition, the composition of the Committee shall satisfy:
(a) Such requirements as the Securities and
Exchange Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its successor) under
the Exchange Act; and
(b) Such requirements as the Internal Revenue
Service may establish for outside directors acting under plans intended to
qualify for exemption under section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a)
select the Employees, Outside Directors and Consultants who are to receive
Awards under the Plan, (b) determine the type, number, vesting requirements
and other features and conditions of such Awards, (c) interpret the Plan and
(d) make all other decisions relating to the operation of the Plan. The
Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also
appoint a secondary committee of the Board, which shall be composed of one or
more directors of the Corporation who need not satisfy the requirements of
Section 2.1. Such secondary committee may administer the Plan with respect to
Employees and Consultants who are not considered officers or directors of the
Corporation under section 16 of the Exchange Act, may grant Awards
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under the Plan to such Employees and Consultants and may determine all
features and conditions of such Awards. Within the limitations of this
Section 2.3, any reference in the Plan to the Committee shall include such
secondary committee.
ARTICLE III. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Shares of Common Stock issued
pursuant to the Plan may be authorized but unissued shares or treasury
shares. The aggregate number of Options, SARs, Stock Units and Restricted
Shares awarded under the Plan shall not exceed (a) that number equal to the
difference between (i) 12% of the number of shares of Common Stock
outstanding or the effective date of the Plan (including shares issued in the
IPO) and (ii) 500,000, rounded up to the nearest 1,000, plus (b) the
additional shares of Common Stock described in Section 3.2. The limitations
of this Section 3.1 shall be subject to adjustment pursuant to Article 11.
3.2 ADDITIONAL SHARES. If Restricted Shares or shares of
Common Stock issued upon the exercise of Options are forfeited, then such
shares of Common Stock shall again become available for Awards under the
Plan. If Stock Units, Options or SARs are forfeited or terminate for any
other reason before being exercised, then the corresponding shares of Common
Stock shall again become available for Awards under the Plan. If Stock Units
are settled, then only the number of shares of Common Stock (if any) actually
issued in settlement of such Stock Units shall reduce the number available
under Section 3.1 and the balance shall again become available for Awards
under the Plan. If SARs are exercised, then only the number of shares of
Common Stock (if any) actually issued in settlement of such SARs shall reduce
the number available under Section 3.1 and the balance shall again become
available for Awards under the Plan. The foregoing notwithstanding, the
aggregate number of shares of Common Stock that may be issued under the Plan
upon the exercise of ISOs shall not be increased when Restricted Shares or
other shares of Common Stock are forfeited.
3.3 DIVIDEND EQUIVALENTS. Any dividend equivalents paid or
credited under the Plan shall not be applied against the number of Restricted
Shares, Stock Units, Options or SARs available for Awards, whether or not
such dividend equivalents are converted into Stock Units.
ARTICLE IV. ELIGIBILITY.
4.1 INCENTIVE STOCK OPTIONS. Only Employees who are
common-law employees of the Corporation, a Parent or a Subsidiary shall be
eligible for the grant of ISOs. In addition, an Employee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Corporation or any of its Parents or Subsidiaries shall not be eligible
for the grant of an ISO unless the requirements set forth in section
422(c)(6) of the Code are satisfied.
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4.2 OTHER GRANTS. Only Employees, Outside Directors and
Consultants shall be eligible for the grant of Restricted Shares, Stock
Units, NSOs or SARs.
ARTICLE V. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under
the Plan shall be evidenced by a Stock Option Agreement between the Optionee
and the Corporation. Such Option shall be subject to all applicable terms of
the Plan and may be subject to any other terms that are not inconsistent with
the Plan. The Stock Option Agreement shall specify whether the Option is an
ISO or an NSO. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical. Options may be granted in
consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically
to the Optionee when he or she exercises a prior Option and pays the Exercise
Price in the form described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall
specify the number of shares of Common Stock subject to the Option and shall
provide for the adjustment of such number in accordance with Article 10.
Options granted to any Optionee in a single fiscal year of the Corporation
shall not cover more than 1,500,000 shares of Common Stock, except that
Options granted to a new Employee in the fiscal year of the Corporation in
which his or her service as an Employee first commences shall not cover more
than 2,000,000 shares of Common Stock. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Article
11.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall
specify the Exercise Price; provided that the Exercise Price under an ISO
shall in no event be less than 100% of the Fair Market Value of a Common
Share on the date of grant and the Exercise Price under an NSO shall in no
event be less than 75% of the Fair Market Value of a Common Share on the date
of grant. In the case of an NSO, a Stock Option Agreement may specify an
Exercise Price that varies in accordance with a predetermined formula while
the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement
shall specify the date or event when all or any installment of the Option is
to become exercisable. The Stock Option Agreement shall also specify the term
of the Option; provided that the term of an ISO shall in no event exceed 10
years from the date of grant. A Stock Option Agreement may provide for
accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end
of its term in the event of the termination of the Optionee's service.
Options may be awarded in combination with SARs, and such an Award may
provide that the Options will not be exercisable unless the related SARs are
forfeited.
5.5 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or assume
outstanding options or may accept the cancellation of outstanding options
(whether granted by the Corporation or by another issuer) in return for the
grant of new options for the same or a different number of shares and at the
same or a different exercise price. The foregoing notwithstanding, no
modification of an Option shall,
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without the consent of the Optionee, alter or impair his or her rights or
obligations under such Option.
5.6 BUYOUT PROVISIONS. The Committee may at any time (a)
offer to buy out for a payment in cash or cash equivalents an Option
previously granted or (b) authorize an Optionee to elect to cash out an
Option previously granted, in either case at such time and based upon such
terms and conditions as the Committee shall establish.
ARTICLE VI. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of shares of
Common Stock issued upon exercise of Options shall be payable in cash or cash
equivalents at the time when such shares of Common Stock are purchased,
except as follows:
(a) In the case of an ISO granted under the Plan,
payment shall be made only pursuant to the express provisions of the
applicable Stock Option Agreement. The Stock Option Agreement may specify
that payment may be made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at
any time accept payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2
is applicable, all or any part of the Exercise Price may be paid by
surrendering, or attesting to the ownership of, shares of Common Stock that
are already owned by the Optionee. Such shares of Common Stock shall be
valued at their Fair Market Value on the date when the new shares of Common
Stock are purchased under the Plan. The Optionee shall not surrender, or
attest to the ownership of, shares of Common Stock in payment of the Exercise
Price if such action would cause the Corporation to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is
applicable, all or any part of the Exercise Price and any withholding taxes
may be paid by delivering (on a form prescribed by the Corporation) an
irrevocable direction to a securities broker approved by the Corporation to
sell all or part of the shares of Common Stock being purchased under the Plan
and to deliver all or part of the sales proceeds to the Corporation.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is
applicable, all or any part of the Exercise Price and any withholding taxes
may be paid by delivering (on a form prescribed by the Corporation) an
irrevocable direction to pledge all or part of the shares of Common Stock
being purchased under the Plan to a securities broker or lender approved by
the Corporation, as security for a loan, and to deliver all or part of the
loan proceeds to the Corporation.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is
applicable, all or any part of the Exercise Price and any withholding taxes
may be paid by delivering (on a form prescribed by the Corporation) a
full-recourse promissory note. However, the par value of the
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shares of Common Stock being purchased under the Plan, if newly issued, shall
be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section
6.6 is applicable, all or any part of the Exercise Price and any withholding
taxes may be paid in any other form that is consistent with applicable laws,
regulations and rules.
ARTICLE VII. STOCK APPRECIATION RIGHTS.
7.1 SAR AGREEMENT. Each grant of an SAR under the Plan
shall be evidenced by an SAR Agreement between the Optionee and the
Corporation. Such SAR shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the
Plan. The provisions of the various SAR Agreements entered into under the
Plan need not be identical. SARs may be granted in consideration of a
reduction in the Optionee's other compensation.
7.2 NUMBER OF SHARES. Each SAR Agreement shall specify the
number of shares of Common Stock to which the SAR pertains and shall provide
for the adjustment of such number in accordance with Article 11. SARs granted
to any Optionee in a single calendar year shall in no event pertain to more
than 1,500,000 shares of Common Stock, except that SARs granted to a new
Employee in the fiscal year of the Corporation in which his or her service as
an Employee first commences shall not pertain to more than 2,000,000 shares
of Common Stock. The limitations set forth in the preceding sentence shall be
subject to adjustment in accordance with Article 11.
7.3 EXERCISE PRICE. Each SAR Agreement shall specify the
Exercise Price. An SAR Agreement may specify an Exercise Price that varies in
accordance with a predetermined formula while the SAR is outstanding.
7.4 EXERCISABILITY AND TERM. Each SAR Agreement shall
specify the date when all or any installment of the SAR is to become
exercisable. The SAR Agreement shall also specify the term of the SAR. An SAR
Agreement may provide for accelerated exercisability in the event of the
Optionee's death, disability or retirement or other events and may provide
for expiration prior to the end of its term in the event of the termination
of the Optionee's service. SARs may be awarded in combination with Options,
and such an Award may provide that the SARs will not be exercisable unless
the related Options are forfeited. An SAR may be included in an ISO only at
the time of grant but may be included in an NSO at the time of grant or
thereafter. An SAR granted under the Plan may provide that it will be
exercisable only in the event of a Change in Control.
7.5 EXERCISE OF SARS. Upon exercise of an SAR, the Optionee
(or any person having the right to exercise the SAR after his or her death)
shall receive from the Corporation (a) shares of Common Stock, (b) cash or
(c) a combination of shares of Common Stock and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of shares of
Common Stock received upon exercise of SARs shall, in the aggregate, be equal
to the amount by which the Fair Market Value (on the date of surrender) of
the shares of Common Stock subject to the SARs exceeds the Exercise Price.
If, on the date when an SAR expires, the
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Exercise Price under such SAR is less than the Fair Market Value on such date
but any portion of such SAR has not been exercised or surrendered, then such
SAR shall automatically be deemed to be exercised as of such date with
respect to such portion.
7.6 MODIFICATION OR ASSUMPTION OF SARS. Within the
limitations of the Plan, the Committee may modify, extend or assume
outstanding SARs or may accept the cancellation of outstanding SARs (whether
granted by the Corporation or by another issuer) in return for the grant of
new SARs for the same or a different number of shares and at the same or a
different exercise price. The foregoing notwithstanding, no modification of
an SAR shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such SAR.
ARTICLE VIII. RESTRICTED SHARES.
8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted
Shares under the Plan shall be evidenced by a Restricted Stock Agreement
between the recipient and the Corporation. Such Restricted Shares shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various
Restricted Stock Agreements entered into under the Plan need not be identical.
8.2 PAYMENT FOR AWARDS. Subject to the following sentence,
Restricted Shares may be sold or awarded under the Plan for such
consideration as the Committee may determine, including (without limitation)
cash, cash equivalents, full-recourse promissory notes, past services and
future services. To the extent that an Award consists of newly issued
Restricted Shares, the consideration shall consist exclusively of cash, cash
equivalents or past services rendered to the Corporation (or a Parent or
Subsidiary) or, for the amount in excess of the par value of such newly
issued Restricted Shares, full-recourse promissory notes, as the Committee
may determine.
8.3 VESTING CONDITIONS. Each Award of Restricted Shares may
or may not be subject to vesting. Vesting shall occur, in full or in
installments, upon satisfaction of the conditions specified in the Restricted
Stock Agreement. A Restricted Stock Agreement may provide for accelerated
vesting in the event of the Participant's death, disability or retirement or
other events.
8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted
Shares awarded under the Plan shall have the same voting, dividend and other
rights as the Corporation's other stockholders. A Restricted Stock Agreement,
however, may require that the holders of Restricted Shares invest any cash
dividends received in additional Restricted Shares. Such additional
Restricted Shares shall be subject to the same conditions and restrictions as
the Award with respect to which the dividends were paid.
ARTICLE IX. STOCK UNITS.
9.1 STOCK UNIT AGREEMENT. Each grant of Stock Units under
the Plan shall be evidenced by a Stock Unit Agreement between the recipient
and the Corporation. Such Stock Units shall be subject to all applicable
terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Stock Unit
Agreements
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entered into under the Plan need not be identical. Stock Units may be granted
in consideration of a reduction in the recipient's other compensation.
9.2 PAYMENT FOR AWARDS. To the extent that an Award is
granted in the form of Stock Units, no cash consideration shall be required
of the Award recipients.
9.3 VESTING CONDITIONS. Each Award of Stock Units may or
may not be subject to vesting. Vesting shall occur, in full or in
installments, upon satisfaction of the conditions specified in the Stock Unit
Agreement. A Stock Unit Agreement may provide for accelerated vesting in the
event of the Participant's death, disability or retirement or other events.
9.4 VOTING AND DIVIDEND RIGHTS. The holders of Stock Units
shall have no voting rights. Prior to settlement or forfeiture, any Stock
Unit awarded under the Plan may, at the Committee's discretion, carry with it
a right to dividend equivalents. Such right entitles the holder to be
credited with an amount equal to all cash dividends paid on one Common Share
while the Stock Unit is outstanding. Dividend equivalents may be converted
into additional Stock Units. Settlement of dividend equivalents may be made
in the form of cash, in the form of shares of Common Stock, or in a
combination of both. Prior to distribution, any dividend equivalents which
are not paid shall be subject to the same conditions and restrictions as the
Stock Units to which they attach.
9.5 FORM AND TIME OF SETTLEMENT OF STOCK UNITS. Settlement
of vested Stock Units may be made in the form of (a) cash, (b) shares of
Common Stock or (c) any combination of both, as determined by the Committee.
The actual number of Stock Units eligible for settlement may be larger or
smaller than the number included in the original Award, based on
predetermined performance factors. Methods of converting Stock Units into
cash may include (without limitation) a method based on the average Fair
Market Value of shares of Common Stock over a series of trading days. Vested
Stock Units may be settled in a lump sum or in installments. The distribution
may occur or commence when all vesting conditions applicable to the Stock
Units have been satisfied or have lapsed, or it may be deferred to any later
date. The amount of a deferred distribution may be increased by an interest
factor or by dividend equivalents. Until an Award of Stock Units is settled,
the number of such Stock Units shall be subject to adjustment pursuant to
Article 11.
9.6 DEATH OF RECIPIENT. Any Stock Units Award that becomes
payable after the recipient's death shall be distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Corporation. A beneficiary designation may be
changed by filing the prescribed form with the Corporation at any time before
the Award recipient's death. If no beneficiary was designated or if no
designated beneficiary survives the Award recipient, then any Stock Units
Award that becomes payable after the recipient's death shall be distributed
to the recipient's estate.
9.7 CREDITORS' RIGHTS. A holder of Stock Units shall have
no rights other than those of a general creditor of the Corporation. Stock
Units represent an unfunded and unsecured obligation of the Corporation,
subject to the terms and conditions of the applicable Stock Unit Agreement.
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ARTICLE X. CHANGE IN CONTROL.
10.1 EFFECT OF CHANGE IN CONTROL. In the event of any
Change in Control, each outstanding Award shall automatically accelerate so
that each such Award shall, immediately prior to the effective date of the
Change in Control, become fully exercisable for all of the shares of Common
Stock at the time subject to such Award and may be exercised for any or all
of those shares as fully-vested shares of Common Stock. However, an
outstanding Award shall NOT so accelerate if and to the extent such Award is,
in connection with the Change in Control, either to be assumed by the
successor corporation (or parent thereof) or to be replaced with a comparable
Award for shares of the capital stock of the successor corporation (or parent
thereof). The determination of Award comparability shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
10.2 ACCELERATION. In the event of any Change in Control,
each outstanding Award that is assumed by the successor corporation (or
parent thereof) shall automatically accelerate so that each such Award shall,
immediately prior to the effective date of the Change in Control, become
exercisable for such additional number of shares of Common Stock at the time
subject to such Award as would result in vesting the balance of such Award
over a period equal to the lesser of 24 months (in equal monthly
installments) or over the remainder of the original vesting schedule in
effect for such Award.. In addition, in the event that the Award is assumed
by the successor corporation (or parent thereof) and the Participant
experiences an Involuntary Termination within twenty-four months following a
Change in Control, each outstanding Award shall automatically accelerate so
that each such Award shall, immediately prior to the effective date of the
Involuntary Termination, become fully exercisable for all of the shares of
Common Stock at the time subject to such Award and may be exercised for any
or all of those shares as fully-vested shares of Common Stock.
ARTICLE XI. PROTECTION AGAINST DILUTION.
11.1 ADJUSTMENTS. In the event of a subdivision of the
outstanding shares of Common Stock, a declaration of a dividend payable in
shares of Common Stock, a declaration of a dividend payable in a form other
than shares of Common Stock in an amount that has a material affect on the
price of shares of Common Stock, a combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
lesser number of shares of Common Stock, a recapitalization, a spin-off or a
similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of:
(a) The number of Options, SARs, Restricted Shares
and Stock Units available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and
7.2;
(c) The number of shares of Common Stock covered
by each outstanding Option and SAR;
(d) The Exercise Price under each outstanding
Option and SAR; or
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(e) The number of Stock Units included in any
prior Award which has not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Corporation of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class.
11.2 DISSOLUTION OR LIQUIDATION. To the extent not
previously exercised or settled, Options, SARs and Stock Units shall
terminate immediately prior to the dissolution or liquidation of the
Corporation.
11.3 REORGANIZATIONS. In the event that the Corporation is
a party to a merger or other reorganization, outstanding Awards shall be
subject to the agreement of merger or reorganization. Such agreement shall
provide for (a) the continuation of the outstanding Awards by the
Corporation, if the Corporation is a surviving corporation, (b) the
assumption of the outstanding Awards by the surviving corporation or its
parent or subsidiary, (c) the substitution by the surviving corporation or
its parent or subsidiary of its own awards for the outstanding Awards, (d)
full exercisability or vesting and accelerated expiration of the outstanding
Awards or (e) settlement of the full value of the outstanding Awards in cash
or cash equivalents followed by cancellation of such Awards.
ARTICLE XII. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or
require a Participant to:
(a) Have cash that otherwise would be paid to such
Participant as a result of the exercise of an SAR or the settlement of Stock
Units credited to a deferred compensation account established for such
Participant by the Committee as an entry on the Corporation's books;
(b) Have shares of Common Stock that otherwise
would be delivered to such Participant as a result of the exercise of an
Option or SAR converted into an equal number of Stock Units; or
(c) Have shares of Common Stock that otherwise
would be delivered to such Participant as a result of the exercise of an
Option or SAR or the settlement of Stock Units converted into amounts
credited to a deferred compensation account established for such Participant
by the Committee as an entry on the Corporation's books. Such amounts shall
be determined by reference to the Fair Market Value of such shares of Common
Stock as of the date when they otherwise would have been delivered to such
Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by
the Committee. A Participant for whom such an account is established shall
have no rights other than those of a general creditor of the Corporation.
Such an account shall represent an unfunded and unsecured obligation of the
Corporation and shall be subject to the terms and conditions of the
applicable agreement between such Participant and the Corporation. If the
deferral or conversion of Awards is permitted or
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required, the Committee (in its sole discretion) may establish rules,
procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established
under this Article 12.
ARTICLE XIII. AWARDS UNDER OTHER PLANS.
The Corporation may grant awards under other plans or
programs. Such awards may be settled in the form of shares of Common Stock
issued under this Plan. Such shares of Common Stock shall be treated for all
purposes under the Plan like shares of Common Stock issued in settlement of
Stock Units and shall, when issued, reduce the number of shares of Common
Stock available under Article 3.
ARTICLE XIV. PAYMENT OF FEES IN SECURITIES.
14.1 EFFECTIVE DATE. No provision of this Article 14 shall
be effective unless and until the Board has determined to implement such
provision.
14.2 ELECTIONS TO RECEIVE NSOS, RESTRICTED SHARES OR STOCK
UNITS. An Outside Director may elect to receive his or her annual retainer
payments or meeting fees from the Corporation in the form of cash, NSOs,
Restricted Shares or Stock Units, or a combination thereof, as determined by
the Board. Such NSOs, Restricted Shares and Stock Units shall be issued under
the Plan. An election under this Article 14 shall be filed with the
Corporation on the prescribed form.
14.3 NUMBER AND TERMS OF NSOS, RESTRICTED SHARES OR STOCK
UNITS. The number of NSOs, Restricted Shares or Stock Units to be granted to
Outside Directors in lieu of annual retainers or meeting fees that would
otherwise be paid in cash shall be calculated in a manner determined by the
Board. The Board shall also determine the terms of such NSOs, Restricted
Shares or Stock Units.
ARTICLE XV. LIMITATION ON RIGHTS.
15.1 RETENTION RIGHTS. Neither the Plan nor any Award
granted under the Plan shall be deemed to give any individual a right to
remain an Employee, Outside Director or Consultant. The Corporation and its
Parents, Subsidiaries and Affiliates reserve the right to terminate the
service of any Employee, Outside Director or Consultant at any time, with or
without cause, subject to applicable laws, the Corporation's certificate of
incorporation and by-laws and a written employment agreement (if any).
15.2 STOCKHOLDERS' RIGHTS. A Participant shall have no
dividend rights, voting rights or other rights as a stockholder with respect
to any shares of Common Stock covered by his or her Award prior to the time
when a stock certificate for such shares of Common Stock is issued or, if
applicable, the time when he or she becomes entitled to receive such shares
of Common Stock by filing any required notice of exercise and paying any
required Exercise Price. No adjustment shall be made for cash dividends or
other rights for which the record date is prior to such time, except as
expressly provided in the Plan.
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15.3 REGULATORY REQUIREMENTS. Any other provision of the
Plan notwithstanding, the obligation of the Corporation to issue shares of
Common Stock under the Plan shall be subject to all applicable laws, rules
and regulations and such approval by any regulatory body as may be required.
The Corporation reserves the right to restrict, in whole or in part, the
delivery of shares of Common Stock pursuant to any Award prior to the
satisfaction of all legal requirements relating to the issuance of such
shares of Common Stock, to their registration, qualification or listing or to
an exemption from registration, qualification or listing.
ARTICLE XVI. WITHHOLDING TAXES.
16.1 GENERAL. To the extent required by applicable federal,
state, local or foreign law, a Participant or his or her successor shall make
arrangements satisfactory to the Corporation for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Corporation shall not be required to issue any shares of Common Stock or make
any cash payment under the Plan until such obligations are satisfied.
16.2 SHARE WITHHOLDING. The Committee may permit a
Participant to satisfy all or part of his or her withholding or income tax
obligations by having the Corporation withhold all or a portion of any shares
of Common Stock that otherwise would be issued to him or her or by
surrendering all or a portion of any shares of Common Stock that he or she
previously acquired. Such shares of Common Stock shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
ARTICLE XVII. FUTURE OF THE PLAN.
17.1 TERM OF THE PLAN. The Plan, as set forth herein, shall
become effective the date of effectiveness of the IPO. The Plan shall remain
in effect until it is terminated under Section 17.2, except that no ISOs
shall be granted on or after the 10th anniversary of the later of (a) the
date when the Board adopted the Plan or (b) the date when the Board adopted
the most recent increase in the number of shares of Common Stock available
under Article 3 which was approved by the Corporation's stockholders. The
Plan shall serve as the successor to the Predecessor Plans, and no further
option grants shall be made under the Predecessor Plans after the Plan
effective date. All options outstanding under the Predecessor Plans as of
such date shall, immediately upon effectiveness of the Plan, remain
outstanding in accordance with their terms. Each outstanding option under the
Predecessor Plans shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be
deemed to affect or otherwise modify the rights or obligations of the holders
of such options with respect to their acquisition of shares of Common Stock,
except that the vesting acceleration provisions of Article 10 relating to
Change in Control shall be extended to the options outstanding under the
Predecessor Plans.
17.2 AMENDMENT OR TERMINATION. The Board may, at any time
and for any reason, amend or terminate the Plan. An amendment of the Plan
shall be subject to the approval of the Corporation's stockholders only to
the extent required by applicable laws, regulations or rules. No Awards shall
be granted under the Plan after the termination thereof. The termination of
the Plan, or any amendment thereof, shall not affect any Award previously
granted under the Plan.
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ARTICLE XVIII. LIMITATION ON PAYMENTS.
18.1 SCOPE OF LIMITATION. This Article 18 shall apply to an
Award only if:
(a) The independent auditors most recently
selected by the Board (the "Auditors") determine that the after-tax value of
such Award to the Participant, taking into account the effect of all federal,
state and local income taxes, employment taxes and excise taxes applicable to
the Participant (including the excise tax under section 4999 of the Code),
will be greater after the application of this Article 18 than it was before
the application of this Article 18; or
(b) The Committee, at the time of making an Award
under the Plan or at any time thereafter, specifies in writing that such
Award shall be subject to this Article 18 (regardless of the after-tax value
of such Award to the Participant).
18.2 APPLICATION TO AWARD. If this Article 18 applies to an
Award, it shall supersede any contrary provision of the Plan or of any Award
granted under the Plan.
18.3 BASIC RULE. In the event that the Auditors determine
that any payment or transfer by the Corporation under the Plan to or for the
benefit of a Participant (a "Payment") would be nondeductible by the
Corporation for federal income tax purposes because of the provisions
concerning "excess parachute payments" in section 280G of the Code, then the
aggregate present value of all Payments shall be reduced (but not below zero)
to the Reduced Amount. For purposes of this Article 18, the "Reduced Amount"
shall be the amount, expressed as a present value, which maximizes the
aggregate present value of the Payments without causing any Payment to be
nondeductible by the Corporation because of section 280G of the Code.
18.4 REDUCTION OF PAYMENTS. If the Auditors determine that
any Payment would be nondeductible by the Corporation because of section 280G
of the Code, then the Corporation shall promptly give the Participant notice
to that effect and a copy of the detailed calculation thereof and of the
Reduced Amount, and the Participant may then elect, in his or her sole
discretion, which and how much of the Payments shall be eliminated or reduced
(as long as after such election the aggregate present value of the Payments
equals the Reduced Amount) and shall advise the Corporation in writing of his
or her election within 10 days of receipt of notice. If no such election is
made by the Participant within such 10-day period, then the Corporation may
elect which and how much of the Payments shall be eliminated or reduced (as
long as after such election the aggregate present value of the Payments
equals the Reduced Amount) and shall notify the Participant promptly of such
election. For purposes of this Article 18, present value shall be determined
in accordance with section 280G(d)(4) of the Code. All determinations made by
the Auditors under this Article 18 shall be binding upon the Corporation and
the Participant and shall be made within 60 days of the date when a Payment
becomes payable or transferable. As promptly as practicable following such
determination and the elections hereunder, the Corporation shall pay or
transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to
him or her under the Plan.
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18.5 OVERPAYMENTS AND UNDERPAYMENTS. As a result of
uncertainty in the application of section 280G of the Code at the time of an
initial determination by the Auditors hereunder, it is possible that Payments
will have been made by the Corporation which should not have been made (an
"Overpayment") or that additional Payments which will not have been made by
the Corporation could have been made (an "Underpayment"), consistent in each
case with the calculation of the Reduced Amount hereunder. In the event that
the Auditors, based upon the assertion of a deficiency by the Internal
Revenue Service against the Corporation or the Participant which the Auditors
believe has a high probability of success, determine that an Overpayment has
been made, such Overpayment shall be treated for all purposes as a loan to
the Participant which he or she shall repay to the Corporation, together with
interest at the applicable federal rate provided in section 7872(f)(2) of the
Code; provided, however, that no amount shall be payable by the Participant
to the Corporation if and to the extent that such payment would not reduce
the amount which is subject to taxation under section 4999 of the Code. In
the event that the Auditors determine that an Underpayment has occurred, such
Underpayment shall promptly be paid or transferred by the Corporation to or
for the benefit of the Participant, together with interest at the applicable
federal rate provided in section 7872(f)(2) of the Code.
18.6 RELATED CORPORATIONS. For purposes of this Article 18,
the term "Corporation" shall include affiliated corporations to the extent
determined by the Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE XIX. DEFINITIONS.
19.1 "AFFILIATE" means any entity other than a Subsidiary,
if the Corporation and/or one or more Subsidiaries own not less than 50% of
such entity.
19.2 "AWARD" means any award of an Option, an SAR, a
Restricted Share or a Stock Unit under the Plan.
19.3 "BOARD" means the Corporation's Board of Directors, as
constituted from time to time.
19.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation
of the Corporation with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Corporation
immediately prior to such merger, consolidation or other reorganization own
immediately after such merger, consolidation or other reorganization 50% or
more of the voting power of the outstanding securities of each of (i) the
continuing or surviving entity and (ii) any direct or indirect parent
corporation of such continuing or surviving entity;
(b) The sale, transfer or other disposition of all
or substantially all of the Corporation's assets;
(c) A change in the composition of the Board, as a
result of which fewer than 50% of the incumbent directors are directors who
either (i) had been directors of the Corporation on the date 24 months prior
to the date of the event that may constitute a Change in Control (the
"original directors") or (ii) were elected, or nominated for election, to the
Board
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with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or
(d) Any transaction as a result of which any
person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation representing
at least 50% of the total voting power represented by the Corporation's then
outstanding voting securities. For purposes of this Paragraph (d), the term
"person" shall have the same meaning as when used in sections 13(d) and 14(d)
of the Exchange Act but shall exclude(i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or of a Parent
or Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions as
their ownership of the common stock of the Corporation.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Corporation's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Corporation's securities immediately before such
transaction.
19.5 "CODE" means the Internal Revenue Code of 1986, as
amended.
19.6 "COMMITTEE" means a committee of the Board, as
described in Article 2.
19.7 "COMMON STOCK" means the common stock of the
Corporation.
19.8 "CORPORATION" means Advanced Medicine, Inc., a
Delaware corporation.
19.9 "CONSULTANT" means a consultant or adviser who
provides bona fide services to the Corporation, a Parent, a Subsidiary or an
Affiliate as an independent contractor. Service as a Consultant shall be
considered employment for all purposes of the Plan, except as provided in
Section 4.1.
19.10 "EMPLOYEE" means a common-law employee of the
Corporation, a Parent, a Subsidiary or an Affiliate.
19.11 "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
19.12 "EXERCISE PRICE," in the case of an Option, means the
amount for which one Common Share may be purchased upon exercise of such
Option, as specified in the applicable Stock Option Agreement. "Exercise
Price," in the case of an SAR, means an amount, as specified in the
applicable SAR Agreement, which is subtracted from the Fair Market Value of
one Common Share in determining the amount payable upon exercise of such SAR.
19.13 "FAIR MARKET VALUE" means the market price of one
share of Common Stock, determined by the Committee in good faith on such
basis as it deems appropriate. Whenever possible, the determination of Fair
Market Value by the Committee shall be based on the prices reported in THE
WALL STREET JOURNAL. Such determination shall be conclusive and binding on
all persons.
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19.14 "INVOLUNTARY TERMINATION" means the termination of
the Service of any individual which occurs by reason of:
(a) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(b) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation which
materially reduces his or her level of responsibility, (B) a reduction in his
or her level of compensation (including base salary, fringe benefits and
participation in bonus or incentive programs) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided and
only if such change, reduction or relocation is effected by the Corporation
without the individual's consent.
19.15 "ISO" means an incentive stock option described in
section 422(b) of the Code.
19.16 "MISCONDUCT" means the commission of any act of
fraud, embezzlement or dishonesty by the Optionee or Participant, any
unauthorized use or disclosure by such person of confidential information or
trade secrets of the Corporation (or any Parent or Subsidiary), or any other
intentional misconduct by such person adversely affecting the business or
affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. The foregoing definition shall not be deemed to be inclusive of all
the acts or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of any Optionee or
Participant or other person in the Service of the Corporation (or any Parent
or Subsidiary).
19.17 "NSO" means a stock option not described in sections
422 or 423 of the Code.
19.18 "OPTION" means an ISO or NSO granted under the Plan
and entitling the holder to purchase shares of Common Stock.
19.19 "OPTIONEE" means an individual or estate who holds an
Option or SAR.
19.20 "OUTSIDE DIRECTOR" shall mean a member of the Board
who is not an Employee. Service as an Outside Director shall be considered
employment for all purposes of the Plan, except as provided in Section 4.1.
19.21 "PARENT" means any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the
Corporation, if each of the corporations other than the Corporation owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption
of the Plan shall be considered a Parent commencing as of such date.
19.22 "PARTICIPANT" means an individual or estate who holds
an Award.
19.23 "PLAN" means this Advanced Medicine, Inc. 2000 Equity
Incentive Plan, as amended from time to time.
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19.24 "PREDECESSOR PLANS" means the Corporation's existing
1997 Stock Plan and Long-Term Stock Option Plan.
19.25 "RESTRICTED SHARE" means a Common Share awarded under
the Plan.
19.26 "RESTRICTED STOCK AGREEMENT" means the agreement
between the Corporation and the recipient of a Restricted Share which
contains the terms, conditions and restrictions pertaining to such Restricted
Share.
19.27 "SAR" means a stock appreciation right granted under
the Plan.
19.28 "SAR AGREEMENT" means the agreement between the
Corporation and an Optionee which contains the terms, conditions and
restrictions pertaining to his or her SAR.
19.29 "STOCK OPTION AGREEMENT" means the agreement between
the Corporation and an Optionee that contains the terms, conditions and
restrictions pertaining to his or her Option.
19.30 "STOCK UNIT" means a bookkeeping entry representing
the equivalent of one Common Share, as awarded under the Plan.
19.31 "STOCK UNIT AGREEMENT" means the agreement between
the Corporation and the recipient of a Stock Unit which contains the terms,
conditions and restrictions pertaining to such Stock Unit.
19.32 "SUBSIDIARY" means any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, if each of the corporations other than the last corporation in
the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain. A corporation that attains the status of a Subsidiary on a date after
the adoption of the Plan shall be considered a Subsidiary commencing as of
such date.
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EXHIBIT 10.4
ADVANCED MEDICINE, INC.
2000 DIRECTOR OPTION PLAN
(AS ADOPTED FEBRUARY 26, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION..........................................................................................1
ARTICLE 2. ADMINISTRATION........................................................................................1
2.1 Committee Composition...............................................................................1
2.2 Committee Responsibilities..........................................................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS...........................................................................1
3.1 Basic Limitation....................................................................................1
3.2 Additional Shares...................................................................................2
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.....................................................2
4.1 Eligibility.........................................................................................2
4.2 Initial Grants......................................................................................2
4.3 Annual Grants.......................................................................................2
4.4 Accelerated Exercisability..........................................................................2
4.5 Exercise Price......................................................................................2
4.6 Term................................................................................................3
4.7 Affiliates of Non-Employee Directors................................................................3
4.8 Stock Option Agreement..............................................................................3
ARTICLE 5. PAYMENT FOR OPTION SHARES.............................................................................3
5.1 Cash................................................................................................3
5.2 Surrender of Stock..................................................................................3
5.3 Exercise/Sale.......................................................................................3
5.4 Other Forms of Payment..............................................................................3
ARTICLE 6. PROTECTION AGAINST DILUTION...........................................................................4
6.1 Adjustments.........................................................................................4
6.2 Dissolution or Liquidation..........................................................................4
6.3 Reorganizations.....................................................................................4
ARTICLE 7. LIMITATION ON RIGHTS..................................................................................4
7.1 Stockholders' Rights................................................................................4
7.2 Regulatory Requirements.............................................................................4
7.3 Withholding Taxes...................................................................................5
ARTICLE 8. FUTURE OF THE PLAN....................................................................................5
8.1 Term of the Plan....................................................................................5
8.2 Amendment or Termination............................................................................5
ARTICLE 9. DEFINITIONS...........................................................................................5
</TABLE>
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ADVANCED MEDICINE, INC.
2000 DIRECTOR OPTION PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on February 26, 2000 to be
effective at the effectiveness of the IPO. The purpose of the Plan is to promote
the long-term success of the Corporation and the creation of stockholder value
by (a) encouraging Non-Employee Directors to focus on critical long-range
objectives, (b) encouraging the attraction and retention of Non-Employee
Directors with exceptional qualifications and (c) linking Non-Employee Directors
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for automatic and non-discretionary
grants of Options to Non-Employee Directors.
The Plan shall be governed by, and construed in accordance
with, the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Corporation, who shall be appointed by the Board. In addition, the
composition of the Committee shall satisfy such requirements as the Securities
and Exchange Commission may establish for administrators acting under plans
intended to qualify for exemption under Rule 16b-3 (or its successor) under the
Exchange Act.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall interpret the
Plan and make all decisions relating to the operation of the Plan. The Committee
may adopt such rules or guidelines as it deems appropriate to implement the
Plan. The Committee's determinations under the Plan shall be final and binding
on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Common Shares subject to Options granted under the Plan shall not exceed (a)
500,000 plus (b) the additional Common Shares described in Section 3.2. The
limitations of this Section 3.1 shall be subject to adjustment pursuant to
Article 6.
3.2 ADDITIONAL SHARES. If Options are forfeited or terminate for
any other reason before being exercised, then the Common Shares subject to such
Options shall again become available for the grant of Options under the Plan.
<PAGE>
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE
DIRECTORS.
4.1 ELIGIBILITY. Only Non-Employee Directors shall be eligible
for the grant of Options under the Plan.
4.2 INITIAL GRANTS. Each Non-Employee Director who first becomes a
member of the Board after the date of the IPO shall receive a one-time grant of
an Option covering 50,000 Common Shares (subject to adjustment under Article 6).
Such Option shall be granted on the date when such Non-Employee Director first
joins the Board and shall become exercisable for 33% of the shares upon the
optionee's completion of one year of service from the date of grant, 33% of the
shares upon the optionee's completion of two years of service from the date of
grant and as to the balance of the shares upon the optionee's completion of
three years of service from the date of grant. A Non-Employee Director who
previously was an Employee shall not receive a grant under this Section 4.2.
4.3 ANNUAL GRANTS. Upon the conclusion of each regular annual
meeting of the Corporation's stockholders held in the year 2001 or thereafter,
each Non-Employee Director who will continue serving as a member of the Board
thereafter shall receive an Option covering 10,000 Common Shares (subject to
adjustment under Article 6), except that such Option shall not be granted in the
calendar year in which the same Non-Employee Director received the Option
described in Section 4.2. Options granted under this Section 4.3 shall become
exercisable in full at the date of grant. A Non-Employee Director who previously
was an Employee shall be eligible to receive grants under this Section 4.3.
4.4 ACCELERATED EXERCISABILITY. All Options granted to a
Non-Employee Director under this Article 4 shall also become exercisable in full
in the event of a Change in Control with respect to the Corporation.
4.5 EXERCISE PRICE. The Exercise Price under all Options granted
to a Non-Employee Director under this Article 4 shall be equal to 100% of the
Fair Market Value of a Common Share on the date of grant, payable in one of the
forms described in Article 5.
4.6 TERM. All Options granted to a Non-Employee Director under
this Article 4 shall terminate on the earliest of (a) the 10th anniversary of
the date of grant, or (b) the date 12 months after the termination of such
Non-Employee Director's service for any reason.
4.7 AFFILIATES OF NON-EMPLOYEE DIRECTORS. The Committee may
provide that the Options that otherwise would be granted to a Non-Employee
Director under this Article 4 shall instead be granted to an affiliate of such
Non-Employee Director. Such affiliate shall then be deemed to be a Non-Employee
Director for purposes of the Plan, provided that the service-related vesting and
termination provisions pertaining to the Options shall be applied with regard to
the service of the Non-Employee Director.
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4.8 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Corporation. Such Option shall be subject to all applicable terms of the Plan
and may be subject to any other terms that are not inconsistent with the Plan.
ARTICLE 5. PAYMENT FOR OPTION SHARES.
5.1 CASH. All or any part of the Exercise Price may be paid in
cash or cash equivalents.
5.2 SURRENDER OF STOCK. All or any part of the Exercise Price may
be paid by surrendering, or attesting to the ownership of, Common Shares that
are already owned by the Optionee. Such Common Shares shall be valued at their
Fair Market Value on the date when the new Common Shares are purchased under the
Plan. The Optionee shall not surrender, or attest to the ownership of, Common
Shares in payment of the Exercise Price if such action would cause the
Corporation to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes.
5.3 EXERCISE/SALE. All or any part of the Exercise Price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Corporation) an irrevocable direction to a securities broker approved by the
Corporation to sell all or part of the Common Shares being purchased under the
Plan and to deliver all or part of the sales proceeds to the Corporation.
5.4 OTHER FORMS OF PAYMENT. At the sole discretion of the
Committee, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 6. PROTECTION AGAINST DILUTION.
6.1 ADJUSTMENTS. In the event of a subdivision of the outstanding
Common Shares, a declaration of a dividend payable in Common Shares, a
declaration of a dividend payable in a form other than Common Shares in an
amount that has a material effect on the price of Common Shares, a combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off
or a similar occurrence, the Committee shall make such adjustments as it, in its
sole discretion, deems appropriate in one or more of (a) the number of Common
Shares available for future grants under Article 3, (b) the number of Options to
be granted to Non-Employee Directors under Article 4, (c) the number of Common
Shares covered by each outstanding Option or (d) the Exercise Price under each
outstanding Option. Except as provided in this Article 6, an Optionee shall have
no rights by reason of any issue by the Corporation of stock of any class or
securities convertible into stock of any class, any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class.
6.2 DISSOLUTION OR LIQUIDATION. To the extent not previously
exercised, Options shall terminate immediately prior to the dissolution or
liquidation of the Corporation.
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6.3 REORGANIZATIONS. In the event that the Corporation is a party
to a merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Options by the Corporation, if the Corporation
is a surviving corporation, (b) the assumption of the outstanding Options by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own options for the
outstanding Options, or (d) settlement of the full value of the outstanding
Options in cash or cash equivalents followed by cancellation of such Options.
ARTICLE 7. LIMITATION ON RIGHTS.
7.1 STOCKHOLDERS' RIGHTS. An Optionee shall have no dividend
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Option prior to the time he or she becomes
entitled to receive such Common Shares by filing a notice of exercise and paying
the Exercise Price. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to such time, except as expressly
provided in the Plan.
7.2 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Corporation to issue Common Shares under
the Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Corporation reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Option prior to the satisfaction of all legal requirements relating to
the issuance of such Common Shares, to their registration, qualification or
listing or to an exemption from registration, qualification or listing.
7.3 WITHHOLDING TAXES. To the extent required by applicable
federal, state, local or foreign law, an Optionee or his or her successor shall
make arrangements satisfactory to the Corporation for the satisfaction of any
withholding tax obligations that arise in connection with the Plan. The
Corporation shall not be required to issue any Common Shares or make any cash
payment under the Plan until such obligations are satisfied.
ARTICLE 8. FUTURE OF THE PLAN.
8.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on effectiveness of the IPO. The Plan shall remain in effect until it
is terminated under Section 8.2.
8.2 AMENDMENT OR TERMINATION. The Board may, at any time and for
any reason, amend or terminate the Plan. An amendment of the Plan shall be
subject to the approval of the Corporation's stockholders only to the extent
required by applicable laws, regulations or rules. No Options shall be granted
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Option previously granted under the
Plan.
ARTICLE 9. DEFINITIONS.
9.1 "BOARD" means the Corporation's Board of Directors, as
constituted from time to time.
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9.2 "CHANGE IN CONTROL" means:
(a) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate reorganization,
if persons who were not stockholders of the Corporation immediately prior to
such merger, consolidation or other reorganization own immediately after such
merger, consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (i) the continuing or surviving entity and
(ii) any direct or indirect parent corporation of such continuing or surviving
entity;
(b) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets;
(c) A change in the composition of the Board, as a result of
which fewer than 50% of the incumbent directors are directors who either (i) had
been directors of the Corporation on the date 24 months prior to the date of the
event that may constitute a Change in Control (the "original directors") or (ii)
were elected, or nominated for election, to the Board with the affirmative votes
of at least a majority of the aggregate of the original directors who were still
in office at the time of the election or nomination and the directors whose
election or nomination was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing at least 50% of the
total voting power represented by the Corporation's then outstanding voting
securities. For purposes of this Subsection (d), the term "person" shall have
the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act
but shall exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or of a Parent or Subsidiary and (ii) a
corporation owned directly or indirectly by the stockholders of the Corporation
in substantially the same proportions as their ownership of the common stock of
the Corporation.
A transaction shall not constitute a Change in Control if its sole
purpose is to change the state of the Corporation's incorporation or to create a
holding company that will be owned in substantially the same proportions by the
persons who held the Corporation's securities immediately before such
transaction.
9.3 "CODE" means the Internal Revenue Code of 1986, as amended.
9.4 "COMMITTEE" means a committee of the Board, as described in
Article 2.
9.5 "COMMON SHARE" means one share of the common stock of the
Corporation.
9.6 "CORPORATION" means Advanced Medicine, Inc., a Delaware
corporation.
9.7 "EMPLOYEE" means a common-law employee of the Corporation, a
Parent or a Subsidiary.
9.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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9.9 "EXERCISE PRICE" means the amount for which one Common Share
may be purchased upon exercise of such Option, as specified in the applicable
Stock Option Agreement.
9.10 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in THE WALL STREET JOURNAL. Such determination
shall be conclusive and binding on all persons.
9.11 "IPO" means the initial offering of common stock of the
Corporation to the public pursuant to a registration statement filed by the
Corporation with the Securities and Exchange Commission.
9.12 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not
an Employee.
9.13 "OPTION" means an option granted under the Plan and entitling
the holder to purchase Common Shares. Options do not qualify as incentive stock
options described in section 422(b) of the Code.
9.14 "OPTIONEE" means an individual or estate who holds an Option.
9.15 "PARENT" means any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the
Corporation, if each of the corporations other than the Corporation owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption
of the Plan shall be considered a Parent commencing as of such date.
9.16 "PLAN" means this Advanced Medicine, Inc. 2000 Director Option
Plan, as amended from time to time.
9.17 "STOCK OPTION AGREEMENT" means the agreement between the
Corporation and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.
9.18 "SUBSIDIARY" means any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
6
<PAGE>
EXHIBIT 10.5
ADVANCED MEDICINE, INC.
EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED FEBRUARY 26, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
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<S> <C>
SECTION 1. PURPOSE OF THE PLAN...................................................................................1
SECTION 2. ADMINISTRATION OF THE PLAN............................................................................1
(a) Committee Composition...............................................................................1
(b) Committee Responsibilities..........................................................................1
SECTION 3. ENROLLMENT AND PARTICIPATION..........................................................................1
(a) Offering Periods....................................................................................1
(b) Accumulation Periods................................................................................1
(c) Enrollment..........................................................................................1
(d) Duration of Participation...........................................................................2
(e) Applicable Offering Period..........................................................................2
SECTION 4. EMPLOYEE CONTRIBUTIONS................................................................................2
(a) Frequency of Payroll Deductions.....................................................................2
(b) Amount of Payroll Deductions........................................................................2
(c) Changing Withholding Rate...........................................................................3
(d) Discontinuing Payroll Deductions....................................................................3
(e) Limit on Number of Elections........................................................................3
SECTION 5. WITHDRAWAL FROM THE PLAN..............................................................................3
(a) Withdrawal..........................................................................................3
(b) Re-Enrollment After Withdrawal......................................................................3
SECTION 6. CHANGE IN EMPLOYMENT STATUS...........................................................................3
(a) Termination of Employment...........................................................................3
(b) Leave of Absence....................................................................................4
(c) Death...............................................................................................4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES..................................................................4
(a) Plan Accounts.......................................................................................4
(b) Purchase Price......................................................................................4
(c) Number of Shares Purchased..........................................................................4
(d) Available Shares Insufficient.......................................................................5
(e) Issuance of Stock...................................................................................5
(f) Unused Cash Balances................................................................................5
(g) Stockholder Approval................................................................................5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP........................................................................5
(a) Five Percent Limit..................................................................................5
(b) Dollar Limit........................................................................................6
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<PAGE>
SECTION 9. RIGHTS NOT TRANSFERABLE...............................................................................6
SECTION 10. NO RIGHTS AS AN EMPLOYEE.............................................................................6
SECTION 11. NO RIGHTS AS A STOCKHOLDER...........................................................................7
SECTION 12. SECURITIES LAW REQUIREMENTS..........................................................................7
SECTION 13. STOCK OFFERED UNDER THE PLAN.........................................................................7
(a) Authorized Shares...................................................................................7
(b) Anti-Dilution Adjustments...........................................................................7
(c) Reorganizations.....................................................................................7
SECTION 14. AMENDMENT OR DISCONTINUANCE..........................................................................8
SECTION 15. DEFINITIONS..........................................................................................8
(a) Accumulation Period.................................................................................8
(b) Board...............................................................................................8
(c) Code................................................................................................8
(d) Committee...........................................................................................8
(e) Corporation.........................................................................................8
(f) Compensation........................................................................................8
(g) Corporate Reorganization............................................................................8
(h) Eligible Employee...................................................................................9
(i) Exchange Act........................................................................................9
(j) Fair Market Value...................................................................................9
(k) IPO.................................................................................................9
(l) Offering Period.....................................................................................9
(m) Participant........................................................................................10
(n) Participating Corporation..........................................................................10
(o) Plan...............................................................................................10
(p) Plan Account.......................................................................................10
(q) Purchase Price.....................................................................................10
(r) Stock..............................................................................................10
(s) Subsidiary.........................................................................................10
</TABLE>
ii
<PAGE>
ADVANCED MEDICINE, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board on February 26, 2000 to be effective
as of the date of the IPO. The purpose of the Plan is to provide Eligible
Employees with an opportunity to increase their proprietary interest in the
success of the Corporation by purchasing Stock from the Corporation on favorable
terms and to pay for such purchases through payroll deductions. The Plan is
intended to qualify under section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Corporation, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, four overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 27-month periods commencing on each February 1, May 1,
August 1, and November 1 except that the first Offering Period shall commence on
the date of the IPO and end on July 31, 2002.
(b) ACCUMULATION PERIODS. While the Plan is in effect, four
Accumulation Periods shall commence in each calendar year. The Accumulation
Periods shall consist of the three-month periods commencing on each February 1,
May 1, August 1 and November 1, except that the first Accumulation Period shall
commence on the date of the IPO and end on October 31, 2000.
(c) ENROLLMENT. Any individual who, on the day preceding the first day
of an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Corporation at the prescribed location on or before the start
date of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or
<PAGE>
her employee contributions were discontinued under Section 4(d) or 8(b). A
Participant who discontinued employee contributions under Section 4(d) or
withdrew from the Plan under Section 5(a) may again become a Participant, if
he or she then is an Eligible Employee, by following the procedure described
in Subsection (c) above. A Participant whose employee contributions were
discontinued automatically under Section 8(b) shall automatically resume
participation at the beginning of the earliest Accumulation Period ending in
the next calendar year, if he or she then is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the
Purchase Price under Section 7(b), the applicable Offering Period shall be
determined as follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until the
earliest of (A) the end of such Offering Period, (B) the end of his or her
participation under Subsection (d) above or (C) re-enrollment for a subsequent
Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of Stock on the
last trading day before the commencement of the Offering Period for which the
Participant is enrolled is higher than on the last trading day before the
commencement of any subsequent Offering Period, the Participant shall
automatically be re-enrolled for such subsequent Offering Period.
(iii) Any other provision of the Plan notwithstanding, the
Corporation (at its sole discretion) may determine prior to the commencement of
any new Offering Period that all Participants shall be re-enrolled for such new
Offering Period.
(iv) When a Participant reaches the end of an Offering Period
but his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences immediately
after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares
of Stock under the Plan solely by means of payroll deductions. Payroll
deductions, as designated by the Participant pursuant to Subsection (b) below,
shall occur on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate
on the enrollment form the portion of his or her Compensation that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Corporation at the prescribed location at any time. The new withholding
rate shall be effective as soon as reasonably practicable after such form has
been received by the Corporation. The new withholding rate shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
2
<PAGE>
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Corporation at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Corporation. (In addition, employee contributions
may be discontinued automatically pursuant to Section 8(b).) A Participant who
has discontinued employee contributions may resume such contributions by filing
a new enrollment form with the Corporation at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Corporation.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than 2
elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Corporation at the prescribed location at
any time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Corporation to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another BONA FIDE leave of absence, if the leave was approved by the
Corporation in writing. Employment, however, shall be deemed to terminate 90
days after the Participant goes on a leave, unless a contract or statute
guarantees his or her right to return to work. Employment shall be deemed to
terminate in any event when the approved leave ends, unless the Participant
immediately returns to work.
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Corporation at
the prescribed location before the Participant's death.
3
<PAGE>
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Corporation shall maintain a Plan Account on its
books in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Corporation's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock
purchased at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last
trading day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period (as
determined under Section 3(e)) or, in the case of the first Offering Period
under the Plan, the lower of: (A) 85% of the price at which one share of Stock
is offered to the public in the IPO; or (B) 85% of the Fair Market Value of such
share on the purchase date.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Corporation with the funds in the Participant's Plan Account. The
foregoing notwithstanding, no Participant shall purchase more than 2,500 shares
of Stock with respect to any Accumulation Period or more than the amounts of
Stock set forth in Sections 8(b) and 13(a). The Committee may determine with
respect to all Participants that any fractional share, as calculated under this
Subsection (c), shall be (i) rounded down to the next lower whole share or (ii)
credited as a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate
number of shares that all Participants elect to purchase during an Accumulation
Period exceeds the maximum number of shares remaining available for issuance
under Section 13(a), then the number of shares to which each Participant is
entitled shall be determined by multiplying the number of shares available for
issuance by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be
4
<PAGE>
registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship
or as community property.
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Corporation's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan
notwithstanding, no Participant shall be granted a right to purchase Stock under
the Plan if such Participant, immediately after his or her election to purchase
such Stock, would own stock possessing more than 5% of the total combined voting
power or value of all classes of stock of the Corporation or any parent or
Subsidiary of the Corporation. For purposes of this Subsection (a), the
following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he
or she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to
purchase 2,500 shares of Stock under this Plan with respect to each Accumulation
Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period
that commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Stock that the Participant
previously purchased in the current calendar year (under this Plan and all other
employee stock purchase plans of the Corporation or any parent or Subsidiary of
the Corporation).
(ii) In the case of Stock purchased during an Offering Period
that commenced in the immediately preceding calendar year, the limit shall be
equal to (A) $50,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased (under this Plan and all other employee stock
purchase plans of the Corporation or any parent or Subsidiary of the
Corporation) in the current calendar year and in the immediately preceding
calendar year.
5
<PAGE>
(iii) In the case of Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall be equal
to (A) $75,000 minus (B) the Fair Market Value of the Stock that the Participant
previously purchased (under this Plan and all other employee stock purchase
plans of the Corporation or any parent or Subsidiary of the Corporation) in the
current calendar year and in the two preceding calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock
shall be determined in each case as of the beginning of the Offering Period in
which such Stock is purchased. Employee stock purchase plans not described in
section 423 of the Code shall be disregarded. If a Participant is precluded by
this Subsection (b) from purchasing additional Stock under the Plan, then his or
her employee contributions shall automatically be discontinued and shall resume
at the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Corporation for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Corporation's securities may then be traded.
The issuance of Stock under this Plan may be conditioned on the Participant's
agreement to be bound by an agreement between the Company and its
underwriters prohibiting resale of the shares of Stock.
6
<PAGE>
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be 750,000 (subject to adjustment pursuant to this
Section 13). On January 1 of each year, commencing with January 1, 2001, the
aggregate number of shares of Stock available for purchase during the life of
the Plan shall automatically be increased by the lesser of 0.5% of the total
number of shares of Common Stock then outstanding, or 500,000 shares (subject to
adjustment pursuant to this Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 2,500 share limitation described in Section 7(c),
the 750,000-share limitation described in Section 13(a), the 500,000 share
limitation on annual increases, and the price of shares that any Participant has
elected to purchase shall be adjusted proportionately by the Committee for any
increase or decrease in the number of outstanding shares of Stock resulting from
a subdivision or consolidation of shares or the payment of a stock dividend, any
other increase or decrease in such shares effected without receipt or payment of
consideration by the Corporation, the distribution of the shares of a Subsidiary
to the Corporation's stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period(s) and Accumulation Period(s) then in progress shall terminate
and shares shall be purchased pursuant to Section 7, unless the Plan is
continued or assumed by the surviving corporation or its parent corporation. The
Plan shall in no event be construed to restrict in any way the Corporation's
right to undertake a dissolution, liquidation, merger, consolidation or other
reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan
at any time and without notice. The Corporation's Chief Executive Officer may
also amend the Plan to the extent allowable under applicable law to effect
non-material amendments. Except as provided in Section 13, any increase in the
aggregate number of shares of Stock to be issued under the Plan shall be subject
to approval by a vote of the stockholders of the Corporation. In addition, any
other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Corporation to the extent required by an applicable law or
regulation.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a three-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
(b) "BOARD" means the Board of Directors of the Corporation, as
constituted from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
7
<PAGE>
(d) "COMMITTEE" means a committee of the Board, as described in
Section 2.
(e) "CORPORATION" means Advanced Medicine, Inc., a Delaware
corporation.
(f) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Corporation, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the
Corporation with or into another entity or any other corporate reorganization;
or
(ii) The sale, transfer or other disposition of all or
substantially all of the Corporation's assets or the complete liquidation or
dissolution of the Corporation.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating
Corporation who meets both of the following requirements:
(i) His or her customary employment is for more than five
months per calendar year and for more than 20 hours per week; and
(ii) He or she has been an employee of a Participating
Corporation for not less than five consecutive months.
The foregoing notwithstanding, an individual shall not be considered an
Eligible Employee if his or her participation in the Plan is prohibited by the
law of any country which has jurisdiction over him or her or if he or she is
subject to a collective bargaining agreement that does not provide for
participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on
the date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National Market;
(ii) If the Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
8
<PAGE>
(iii) If none of the foregoing provisions is applicable,
then the Fair Market Value shall be determined by the Committee in good faith
on such basis as it deems appropriate. Whenever possible, the determination
of Fair Market Value by the Committee shall be based on the prices reported
in THE WALL STREET JOURNAL or as reported directly to the Corporation by
Nasdaq or a stock exchange. Such determination shall be conclusive and
binding on all persons.
(k) "IPO" means the initial offering of Stock to the public pursuant to
a registration statement filed by the Corporation with the Securities and
Exchange Commission.
(l) "OFFERING PERIOD" means a 27-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan, as provided in Section 3(c).
(n) "PARTICIPATING CORPORATION" means (i) the Corporation and (ii) each
present or future Subsidiary designated by the Committee as a Participating
Corporation.
(o) "PLAN" means this Advanced Medicine, Inc. Employee Stock Purchase
Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Corporation.
(s) "SUBSIDIARY" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE>
EXHIBIT 10.6
ADVANCED MEDICINE, INC.
CHANGE IN CONTROL SEVERANCE PLAN
AND
SUMMARY PLAN DESCRIPTION
Plan Effective Date: [ ] __, 2000
<PAGE>
ADVANCED MEDICINE, INC.
CHANGE IN CONTROL SEVERANCE PLAN
AND
SUMMARY PLAN DESCRIPTION
The Advanced Medicine, Inc. Change in Control Severance Plan (the "Plan") is
primarily designed to provide eligible employees of Advanced Medicine, Inc. (the
"Corporation") whose employment is terminated in connection with a change in
control occurring after an initial public offering with separation pay and other
benefits in the event of involuntary termination.
This Plan is designed to be an "employee welfare benefit plan," as defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). This Plan is governed by ERISA and, to the extent applicable, the
laws of the State of California. This document constitutes both the official
plan document and the required summary plan description under ERISA.
I. ELIGIBILITY
You will be eligible for severance benefits under the Plan if:
- you are an employee of the Corporation;
- your active employment is Involuntarily Terminated other than
for Misconduct within the designated period following a Change
in Control;
- you execute the General Release of All Claims, a copy of which
is attached, within the prescribed number of days following
your date of termination, as set forth in the attached General
Release of All Claims; and
- you are NOT in one of the excluded categories listed below.
You are NOT eligible for severance benefits under this Plan if:
- you are a temporary employee, part-time employee working fewer
than 32 hours per week, probationary employee or student
employee;
- you are employed with a successor employer following a Change
in Control. However, you would be eligible for severance
benefits pursuant to the terms of the Plan upon a subsequent
Involuntary Termination other than for Misconduct within the
designated period following a Change in Control; or
- you are dismissed for Misconduct.
II. HOW THE PLAN WORKS
<PAGE>
If you are eligible for severance benefits under the Plan, the amount of your
severance pay will be determined in accordance with the guidelines set forth
below, subject to the Golden Parachute Tax limitation set forth below:
SEVERANCE GUIDELINES
IF YOUR EMPLOYMENT IS INVOLUNTARILY TERMINATED WITHIN TWENTY-FOUR (24) MONTHS
AFTER A CHANGE IN CONTROL, YOU WILL BE PAID:
- 150% of the Eligible Employee's Annual Base Pay plus Target
Bonus, if the Eligible Employee was the Chief Executive
Officer of the Corporation immediately before the Change in
Control; and
- 100% of the Eligible Employee's Annual Base Pay plus Target
Bonus, if the Eligible Employee was an employee (other than
the Chief Executive Officer) of the Corporation immediately
before the Change in Control.
ANNUAL BASE PAY generally means your base salary at the rate in effect during
the last regularly scheduled payroll period immediately preceding the occurrence
of the Change in Control and does NOT include, for example, bonuses, overtime
compensation, incentive pay, sales commissions or expense allowances.
TARGET BONUS means 100% of the bonus potential established for you by the
Corporation for the applicable fiscal year.
INVOLUNTARY TERMINATION shall have the meaning assigned to such term in the
Corporation's 2000 Equity Incentive Plan.
MISCONDUCT shall have the meaning assigned to such term in the Corporation's
2000 Equity Incentive Plan.
CHANGE IN CONTROL shall have the meaning assigned to such term in the
Corporation's 2000 Equity Incentive Plan.
GOLDEN PARACHUTE TAX LIMITATION
The Internal Revenue Code imposes a 20% excise tax on certain payments and other
benefits received by certain officers and shareholders in connection with a
change of control involving the Corporation. Such payments can include severance
pay and acceleration of option vesting. In the event that the cash severance
payment you would receive under this Plan, when added to any other payments or
benefits received by you, would (i) constitute a "parachute payment" within the
meaning of Section 280G of the Internal Revenue Code ("Code") and (ii) be
subject to the 20% excise tax imposed by Section 4999 of the Code, then your
cash severance payments shall be either
- payable in full or
- payable as to such lesser amount which would result in no
portion of the
2
<PAGE>
compensation payable to you being subject to excise tax under
Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable Federal,
state and local income taxes and the 20% excise tax imposed by Code Section
4999, results in your receipt, on an after-tax basis, of the greatest amount. If
a reduction is to be effected, your bonus severance payment shall be reduced
first and your salary severance payment next. No payments due you outside of
this Plan shall be reduced by reason of this paragraph. Unless you and the
Corporation agree otherwise in writing, any determination required to make this
adjustment shall be made in writing by the Corporation's independent public
accountants or other outside auditors selected by the Corporation immediately
prior to the change of control triggering the parachute payments, whose
determination shall be binding upon you and the Corporation. You and the
Corporation are obligated to furnish to the accountants such information and
documents as the accountants may reasonably request. The Corporation shall bear
all costs of engaging the accountants in connection with these calculations.
III. OTHER IMPORTANT INFORMATION
PLAN ADMINISTRATION. As the Plan Administrator, the Corporation has full
discretionary authority to administer and interpret the Plan, including
discretionary authority to determine eligibility for benefits under the Plan and
the amount of benefits (if any) payable per participant. Any determination by
the Plan Administrator will be final and conclusive upon all persons. The Plan
Administrator hereby delegates to the Chief Financial Officer all of its
administrative duties. Accordingly, the Chief Financial Officer, on behalf of
the Plan Administrator, has full discretionary authority to carry out its
delegated duties. Any determination by the Chief Financial Officer will be final
and conclusive upon all persons. The Corporation, as the Plan Administrator,
will indemnify and hold harmless the Chief Financial Officer for carrying out
the responsibilities of the Plan Administrator; provided, however, such person
does not act with gross negligence or willful misconduct.
BENEFITS. When benefits are due, they will be paid from the general assets of
the Corporation. The Corporation is not required to establish a trust to fund
the Plan. The benefits provided under this Plan are not assignable and may be
conditioned upon your compliance with any confidentiality agreement you have
entered into with the Corporation or upon your compliance with any Corporation
policy or program.
CLAIMS PROCEDURE. If you believe you are incorrectly denied a benefit or are
entitled to a greater benefit than the benefit you receive under the Plan, you
may submit a signed, written application to the Plan Administrator within ninety
(90) days of your Termination Date. You will be notified of the approval or
denial of this claim within ninety (90) days of the date that the Plan
Administrator receives the claim, unless special circumstances require an
extension of time for processing the claim. If your claim is denied, the
notification will state specific reasons for the denial and you will have sixty
(60) days from receipt of the written notification of the denial of your claim
to file a signed, written request for a review of the denial with the Plan
Administrator. This request should include the reasons you are requesting a
review, facts supporting your
3
<PAGE>
request and any other relevant comments. Pursuant to its discretionary
authority to administer and interpret the Plan and to determine eligibility
for benefits under the Plan, the Plan Administrator will generally make a
final, written determination of your eligibility for benefits within sixty
(60) days of receipt of your request for review.
PLAN TERMS. This Plan supersedes any and all prior separation, severance and
salary continuation arrangements, programs and plans which were previously
offered by the Corporation, for which you are eligible, but excluding terms of
the Corporation's stock option plans and individual letter agreements which
address the vesting of stock options or restricted stock.
PLAN AMENDMENT OR TERMINATION. The Corporation, acting through its Board of
Directors or its Compensation Committee, reserves the right to terminate or
amend the Plan at any time and in any manner. Any termination or amendment of
the Plan may be made effective immediately with respect to any benefits not yet
paid, whether or not prior notice of such amendment or termination has been
given to affected employees. However, no amendment or termination may be
approved following any Change in Control involving the Corporation.
TAXES. The Corporation will withhold taxes and other payroll deductions from
any severance payment.
NO RIGHT TO EMPLOYMENT. This Plan does not provide you with any right to
continue employment with the Corporation or affect the Corporation's right,
which right is hereby expressly reserved, to terminate the employment of any
individual at any time for any reason with or without cause.
IV. STATEMENT OF ERISA RIGHTS
As a participant in the Plan, you are entitled to certain rights and protections
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
ERISA provides that all Plan participants shall be entitled to:
1. Examine, without charge, at the Plan Administrator's office,
all Plan documents, including all documents filed by the Plan
with the U.S. Department of Labor.
2. Obtain copies of all Plan documents and other Plan information
upon written request to the Plan Administrator. The Plan
Administrator may make a reasonable charge for the copies.
3. File suit in a federal court, if you, as a participant,
request materials and do not receive them within thirty (30)
days of your request. In such a case, the court may require
the Plan Administrator to provide the materials and to pay you
a fine of up to $100 for each day's delay until the materials
are received, unless the materials were not sent because of
reasons beyond the control of the Plan Administrator.
In addition to creating rights for certain employees of the Corporation under
the Plan, ERISA imposes obligations upon the people who are responsible for the
operation of the Plan. The people
4
<PAGE>
who operate the Plan (called "fiduciaries") have a duty to do so prudently
and in the interest of the Corporation's employees who are covered by the
Plan.
No one, including your employer or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a benefit to
which you are entitled under the Plan or from exercising your rights under
ERISA.
If your claim for a severance benefit is denied or ignored, in whole or in part,
you have a right to file suit in a federal or a state court. If Plan fiduciaries
are misusing the Plan's assets (if any) or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of Labor
or file suit in a federal court. The court will decide who will pay court costs
and legal fees. If you are successful in your lawsuit, the court may, if it so
decides, order the party you have sued to pay your legal costs, including
attorney fees. However, if you lose, the court may order you to pay these costs
and fees, for example, if it finds that your claim or suit is frivolous.
If you have any questions about the Plan, this statement or your rights under
ERISA, you should contact the Plan Administrator or the nearest Area Office of
the U.S. Labor-Management Services Administration, Department of Labor.
5
<PAGE>
ADDITIONAL PLAN INFORMATION
<TABLE>
================================================================================
<S> <C>
Name of Plan: Advanced Medicine, Inc. Change in Control
Severance Plan
- --------------------------------------------------------------------------------
Corporation Sponsoring Plan: Advanced Medicine, Inc.
901 Gateway Boulevard
South San Francisco, CA 94080
650-808-6000
- --------------------------------------------------------------------------------
Employer Identification Number: 94-3265960
- --------------------------------------------------------------------------------
Plan Number: 50_
- --------------------------------------------------------------------------------
Plan Year: The calendar year; the first plan year shall
end December 31, 2000
- --------------------------------------------------------------------------------
Plan Administrator: Advanced Medicine, Inc.
901 Gateway Boulevard
South San Francisco, CA 94080
650-808-6000
- --------------------------------------------------------------------------------
Agent for Service of Legal Plan Administrator
Process:
- --------------------------------------------------------------------------------
Type of Plan: Severance Plan/Employee Welfare Benefit Plan
- --------------------------------------------------------------------------------
Plan Costs: The cost of the Plan is paid by Advanced
Medicine, Inc.
================================================================================
</TABLE>
6
<PAGE>
GENERAL RELEASE OF ALL CLAIMS
In consideration of the severance benefit to be paid to me by Advanced
Medicine, Inc. under the Advanced Medicine, Inc. Severance Plan, I hereby fully
and forever release and discharge Advanced Medicine, Inc. and its directors,
officers, employees, agents, successors, predecessors, subsidiaries,
shareholders, employee benefit plans and assigns (together called "the
Corporation"), from all claims and causes of action arising out of or relating
in any way to my employment with the Corporation, including the termination of
my employment.
1. I understand and agree that this RELEASE is a full and complete
waiver of all claims, including (without limitation) claims of wrongful
discharge, breach of contract, breach of the covenant of good faith and fair
dealing, violation of public policy, defamation, personal injury or emotional
distress and claims under Title VII of the Civil Rights Act of 1964, as amended,
the Fair Labor Standards Act, the Equal Pay Act of 1963, the Americans With
Disabilities Act, the Civil Rights Act of 1866, the California Fair Employment
and Housing Act or any other federal or state law or regulation relating to
employment or employment discrimination. I further understand and agree that
this RELEASE is a full and complete waiver of all claims, including (without
limitation) claims under the Employee Retirement Income Security Act of 1974, as
amended (ERISA), related to severance benefits. I further understand that by
this RELEASE I agree not to assist, encourage, institute or cause to be
instituted the filing of any administrative charge or legal proceeding against
the Corporation relating to employment discrimination.
2. I also hereby agree that nothing contained in this RELEASE shall
constitute or be treated as an admission of liability or wrongdoing by the
Corporation or me.
3. I agree to abide by the Corporation's Proprietary Information and
Inventions Agreement that I previously executed.
4. In addition, I hereby expressly waive any and all rights and
benefits conferred upon me by the provisions of Section 1542 of the Civil Code
of the State of California or any analogous provision under any other state law,
which states as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
5. I understand that I have until the close of business on __________,
____, to review and consider this RELEASE, discuss it with an attorney of my own
choosing, and decide to execute it or not execute it. I hereby acknowledge that
I have read and understand the foregoing RELEASE and that I sign it voluntarily
and without coercion. I further acknowledge that I was given an opportunity to
consider and review this RELEASE and to consult with an attorney of my own
choosing concerning the waivers contained in this RELEASE and that the waivers
are knowing, conscious and with full appreciation that I am forever foreclosed
from pursuing any of the rights that I waived.
____________,_____ __________________________________________________
Signature
_____________________________________________
Print Full Name
<PAGE>
--------------------------------------------
YOU ARE ADVISED TO CONSULT AN ATTORNEY
BEFORE SIGNING THIS RELEASE.
--------------------------------------------
GENERAL RELEASE OF ALL CLAIMS
In consideration of the severance benefit to be paid to me by Advanced
Medicine, Inc. under the Advanced Medicine, Inc. Severance Plan, I hereby fully
and forever release and discharge Advanced Medicine, Inc. and its directors,
officers, employees, agents, successors, predecessors, subsidiaries,
shareholders, employee benefit plans and assigns (together called "the
Corporation"), from all claims and causes of action arising out of or relating
in any way to my employment with the Corporation, including the termination of
my employment.
1. I understand and agree that this RELEASE is a full and complete waiver of all
claims, including (without limitation) claims of wrongful discharge, breach of
contract, breach of the covenant of good faith and fair dealing, violation of
public policy, defamation, personal injury or emotional distress and claims
under Title VII of the Civil Rights Act of 1964, as amended, the Fair Labor
Standards Act, the Equal Pay Act of 1963, the Americans With Disabilities Act,
the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967,
as amended (ADEA), the California Fair Employment and Housing Act or any other
federal or state law or regulation relating to employment or employment
discrimination. I further understand and agree that this RELEASE is a full and
complete waiver of all claims, including (without limitation) claims under the
Employee Retirement Income Security Act of 1974, as amended (ERISA), related to
severance benefits. I further understand that by this RELEASE I agree not to
assist, encourage, institute or cause to be instituted the filing of any
administrative charge or legal proceeding against the Corporation relating to
employment discrimination.
2. I also hereby agree that nothing contained in this RELEASE
shall constitute or be treated as an admission of liability or wrongdoing by me
or by the Corporation.
3. I agree to abide by the Corporation's Proprietary
Information and Inventions Agreement that I previously executed.
4. In addition, I hereby expressly waive any and all rights
and benefits conferred upon me by the provisions of Section 1542 of the Civil
Code of the State of California, or any analogous provision under any other
state law, which states as follows:
A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.
5. I hereby acknowledge that I have read and understand the
foregoing RELEASE and that I sign it voluntarily and without coercion. I further
acknowledge that I was given an opportunity to consider and review this RELEASE
and to consult with an attorney of my own choosing concerning the waivers
contained in this RELEASE and that the waivers are knowing, conscious and with
full appreciation that I am forever foreclosed from pursuing any of the rights
that I waived.
6. I understand that I have the right to consult with an
attorney before signing this Release. I also understand that, as provided under
the Older Workers Benefit Protection Act of 1990, I have 45 days after receipt
of this RELEASE to review and consider this RELEASE, discuss it with an attorney
of my own choosing, and decide to execute it or not execute it. I also
understand that I may
<PAGE>
revoke this RELEASE during a period of seven days after I sign it and that
this RELEASE will not become effective for seven days after I sign it (and
then only if I do not revoke it). In order to revoke this RELEASE, I must
deliver to the __________ of Advanced Medicine, Inc., within seven days after
I executed this RELEASE, a letter stating that I am revoking it.
7. I acknowledge that I have been provided with a notice, as required
by the Older Workers Benefit Protection Act of 1990, that contains information
about the individuals covered under the Advanced Medicine, Inc. Change in
Control Severance Plan, the eligibility factors for participation in the Plan,
the time limits applicable to the Plan, the job titles and ages of the employees
designated to participate in the Plan, and the job titles and ages of the
employees who have not been designated to participate in the Plan. (See
ATTACHMENT 1.)
8. I understand that if I choose to revoke this RELEASE within seven
days after I signed it, I will not receive any severance benefit and the RELEASE
will have no effect.
9. Before signing my name to this RELEASE, I state that:
I have read it,
I understand it,
I know that I am giving up important rights,
I am aware of my right to consult an attorney before signing it, and
I have signed it knowingly and voluntarily.
____________,_____ __________________________________________________
Signature
_____________________________________________
Print Full Name
<PAGE>
ATTACHMENT 1
NOTICE ABOUT
THE ADVANCED MEDICINE, INC. CHANGE IN CONTROL SEVERANCE PLAN
As required by the Older Workers Benefit Protection Act of 1990, this
notice contains information about the individuals covered under the Advanced
Medicine, Inc. Change in Control Severance Plan (the "Plan"), the eligibility
factors for participation in the Plan, the time limits applicable to the Plan,
the job titles and ages of the employees designated to participate in the Plan,
and the job titles and ages of the employees who have not been designated to
participate in the Plan.
1. The Plan applies to regular employees of the Corporation whose
employment is terminated following a Change in Control on or after ________ __,
2000, and on or before ________ __, 2000 (provided that they meet the other
requirements of the Plan).
Employees are not eligible to receive a benefit under the Plan unless
they sign a General Release of All Claims (the "Release"). Employees who have
attained age 40 must return the Release to the Corporation within 45 days after
receiving the form. Once the signed Release is returned to the Corporation, the
employees have seven days to revoke the Release.
The following is a listing of the ages and job titles of employees of
the Corporation who were and were not selected for termination and participation
in the Plan:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
JOB TITLE AGE NUMBER SELECTED NUMBER NOT SELECTED
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.9
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as
of March __, 2000, between ADVANCED MEDICINE INC., a Delaware corporation ("the
Company"), and ________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the
Company; and
WHEREAS, the Board of Directors of the Company has adopted
Bylaws (the "Bylaws") providing for the indemnification of the officers and
directors of the Company to the maximum extent authorized by Section 145 of the
Delaware General Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature,
permit contracts between the Company and the officers or directors of the
Company with respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by
the Law, the Company may purchase and maintain a policy or policies of
directors' and officers' liability insurance ("D & O Insurance"), covering
certain liabilities which may be incurred by its officers or directors in the
performance of their obligations to the Company; and
WHEREAS, in recognition of past services and in order to
induce Indemnitee to continue to serve as an officer or director of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an
officer or director after the date hereof, the parties hereto agree as follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
VI of the Bylaws, as such may be amended from time to time. In furtherance of
the foregoing indemnification, and without limiting the generality thereof:
(a) PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE
RIGHT OF THE COMPANY. Indemnitee shall be entitled to the rights of
indemnification provided in this
<PAGE>
Section 1(a) if, by reason of his Corporate Status (as hereinafter defined),
he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the
right of the Company. Pursuant to this Section 1(a), Indemnitee shall be
indemnified against all Expenses (as hereinafter defined), judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such Proceeding or any
claim, issue or matter therein, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal Proceeding, had no reasonable cause
to believe his conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 1(b) if, by reason of his Corporate Status, he is, or is threatened to
be made, a party to or participant in any Proceeding brought by or in the right
of the Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS
WHOLLY OR PARTLY SUCCESSFUL. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate Status,
a party to and is successful, on the merits or otherwise, in any Proceeding, he
shall be indemnified to the maximum extent permitted by law against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
2. ADDITIONAL INDEMNITY. In addition to, and without regard to
any limitations on, the indemnification provided for in Section 1, the Company
shall and hereby does indemnify and hold harmless Indemnitee against all
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee
2
<PAGE>
that is finally determined (under the procedures, and subject to the
presumptions, set forth in Sections 6 and 7 hereof) to be unlawful under
Delaware law.
3. CONTRIBUTION IN THE EVENT OF JOINT LIABILITY.
(a) Whether or not the indemnification provided in
Sections 1 and 2 hereof is available, in respect of any threatened, pending or
completed action, suit or proceeding in which Company is jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), Company
shall pay, in the first instance, the entire amount of any judgment or
settlement of such action, suit or proceeding without requiring Indemnitee to
contribute to such payment and Company hereby waives and relinquishes any right
of contribution it may have against Indemnitee. Company shall not enter into any
settlement of any action, suit or proceeding in which Company is jointly liable
with Indemnitee (or would be if joined in such action, suit or proceeding)
unless such settlement provides for a full and final release of all claims
asserted against Indemnitee.
(b) Without diminishing or impairing the obligations
of the Company set forth in the preceding subparagraph, if, for any reason,
Indemnitee shall elect or be required to pay all or any portion of any judgment
or settlement in any threatened, pending or completed action, suit or proceeding
in which Company is jointly liable with Indemnitee (or would be if joined in
such action, suit or proceeding), the Company shall contribute to the amount of
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Indemnitee in
proportion to the relative benefits received by the Company and all officers,
directors or employees of the Company other than Indemnitee who are jointly
liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, from the
transaction from which such action, suit or proceeding arose; provided, however,
that the proportion determined on the basis of relative benefit may, to the
extent necessary to conform to law, be further adjusted by reference to the
relative fault of Company and all officers, directors or employees of the
Company other than Indemnitee who are jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), on the one hand, and
Indemnitee, on the other hand, in connection with the events that resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
equitable considerations which the law may require to be considered. The
relative fault of Company and all officers, directors or employees of the
Company other than Indemnitee who are jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), on the one hand, and
Indemnitee, on the other hand, shall be determined by reference to, among other
things, the degree to which their actions were motivated by intent to gain
personal profit or advantage, the degree to which their liability is primary or
secondary, and the degree to which their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold
Indemnitee harmless from any claims of contribution which may be brought by
officers, directors or employees of the Company other than Indemnitee who may be
jointly liable with Indemnitee.
3
<PAGE>
4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
5. ADVANCEMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement, the Company shall advance all Expenses incurred by
or on behalf of Indemnitee in connection with any Proceeding by reason of
Indemnitee's Corporate Status within ten (10) days after the receipt by the
Company of a statement or statements from Indemnitee requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and undertakings to repay pursuant to this
Section 5 shall be unsecured and interest free. Notwithstanding the foregoing,
the obligation of the Company to advance Expenses pursuant to this Section 5
shall be subject to the condition that, if, when and to the extent that the
Company determines that Indemnitee would not be permitted to be indemnified
under applicable law, the Company shall be entitled to be reimbursed, within
thirty (30) days of such determination, by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. PROCEDURES AND PRESUMPTIONS FOR DETERMINATION OF
ENTITLEMENT TO INDEMNIFICATION. It is the intent of this Agreement to secure for
Indemnitee rights of indemnity that are as favorable as may be permitted under
the law and public policy of the State of Delaware. Accordingly, the parties
agree that the following procedures and presumptions shall apply in the event of
any question as to whether Indemnitee is entitled to indemnification under this
Agreement:
(a) To obtain indemnification (including, but not
limited to, the advancement of Expenses and contribution by the Company) under
this Agreement, Indemnitee shall submit to the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 6(a) hereof, a
determination, if required by applicable law, with
4
<PAGE>
respect to Indemnitee's entitlement thereto shall be made in the specific
case by one of the following three methods, which shall be at the election of
Indemnitee: (1) by a majority vote of the disinterested directors, even
though less than a quorum, or (2) by independent legal counsel ("Independent
Counsel") in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b)
hereof, the Independent Counsel shall be selected as provided in this Section
6(c). The Independent Counsel shall be selected by Indemnitee (unless Indemnitee
shall request that such selection be made by the Board of Directors). Indemnitee
or the Company, as the case may be, may, within 10 days after such written
notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection; provided,
however, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of "Independent
Counsel" as defined in Section 13 of this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. Absent a proper
and timely objection, the person so selected shall act as Independent Counsel.
If a written objection is made and substantiated, the Independent Counsel
selected may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6(a) of this Agreement. Anyone seeking to overcome
this presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good
faith if Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the
5
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knowledge and/or actions, or failure to act, of any director, officer, agent
or employee of the Enterprise shall not be imputed to Indemnitee for purposes
of determining the right to indemnification under this Agreement. Whether or
not the foregoing provisions of this Section 6(e) are satisfied, it shall in
any event be presumed that Indemnitee has at all times acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company. Anyone seeking to overcome this presumption shall
have the burden of proof and the burden of persuasion, by clear and
convincing evidence.
(f) If the person, persons or entity empowered or
selected under Section 6 to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30 day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 6(f) shall
not apply if the determination of entitlement to indemnification is to be made
by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or
other disposition short of final judgment may be successful if it permits a
party to avoid expense, delay,
6
<PAGE>
distraction, disruption and uncertainty. In the event that any action, claim
or proceeding to which Indemnitee is a party is resolved in any manner other
than by adverse judgment against Indemnitee (including, without limitation,
settlement of such action, claim or proceeding with or without payment of
money or other consideration) it shall be presumed that Indemnitee has been
successful on the merits or otherwise in such action, suit or proceeding.
Anyone seeking to overcome this presumption shall have the burden of proof
and the burden of persuasion, by clear and convincing evidence.
7. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made
pursuant to Section 6 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not timely
made pursuant to Section 5 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 6(b) of
this Agreement within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification. Indemnitee
shall commence such proceeding seeking an adjudication within 180 days following
the date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 7(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication.
(b) In the event that a determination shall have been
made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled
to indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a DE NOVO trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant
to Section 6(b) of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding commenced pursuant to this Section 7, absent a prohibition
of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this
Section 7, seeks a judicial adjudication of his rights under, or to recover
damages for breach of, this Agreement, or to recover under any directors' and
officers' liability insurance policies maintained by the Company the Company
shall pay on his behalf, in advance, any and all expenses (of the types
described in the definition of Expenses in Section 13 of this Agreement)
actually and reasonably incurred by him in such judicial adjudication,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advancement of expenses or insurance recovery.
7
<PAGE>
(e) The Company shall be precluded from asserting in
any judicial proceeding commenced pursuant to this Section 7 that the procedures
and presumptions of this Agreement are not valid, binding and enforceable and
shall stipulate in any such court that the Company is bound by all the
provisions of this Agreement.
8. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification as provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee
may at any time be entitled under applicable law, the certificate of
incorporation of the Company, the Bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise. No amendment, alteration or repeal
of this Agreement or of any provision hereof shall limit or restrict any right
of Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal. To the extent that a change in the Law, whether by statute or judicial
decision, permits greater indemnification than would be afforded currently under
the Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors,
officers, employees, or agents or fiduciaries of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Company, Indemnitee
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage available for any such director,
officer, employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.
(d) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
9. EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any
other provision of this Agreement, Indemnitee shall not be entitled to
indemnification under this Agreement with respect to any Proceeding brought by
Indemnitee, or any claim therein, unless (a) the bringing of such Proceeding or
making of such claim shall have been approved by the
8
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Board of Directors of the Company or (b) such Proceeding is being brought by
the Indemnitee to assert, interpret or enforce his rights under this
Agreement.
10. DURATION OF AGREEMENT. All agreements and obligations of
the Company contained herein shall continue during the period Indemnitee is an
officer or director of the Company (or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 7 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or any
other Enterprise at the Company's request.
11. SECURITY. To the extent requested by the Indemnitee and
approved by the Board of Directors of the Company, the Company may at any time
and from time to time provide security to the Indemnitee for the Company's
obligations hereunder through an irrevocable bank line of credit, funded trust
or other collateral. Any such security, once provided to the Indemnitee, may not
be revoked or released without the prior written consent of the Indemnitee.
12. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on it hereby
in order to induce Indemnitee to serve as an officer or director of the Company,
and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral, written and implied,
between the parties hereto with respect to the subject matter hereof.
13. DEFINITIONS. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a
person who is or was a director, officer, employee or agent or fiduciary of the
Company or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
express written request of the Company.
9
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(b) "Disinterested Director" means a director of the
Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, participating, or
being or preparing to be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party (other than with respect to matters concerning the Indemnitee under this
Agreement, or of other indemnitees under similar indemnification agreements), or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
(f) "Proceeding" includes any threatened, pending or
completed action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
10
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14. SEVERABILITY. If any provision or provisions of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, illegal or otherwise unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby and shall remain enforceable to the
fullest extent permitted by law; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested thereby.
15. MODIFICATION AND WAIVER. No supplement, modification,
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
16. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise unless and only
to the extent that such failure or delay materially prejudices the Company.
17. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to the address set forth below
Indemnitee signature hereto.
(b) If to the Company, to:
901 Gateway Blvd.
South San Francisco, California 94080
Attention:
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which
11
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together shall constitute one and the same Agreement. Only one such
counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
19. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
20. GOVERNING LAW. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. GENDER. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate.
12
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
ADVANCED MEDICINE, INC.
By:
--------------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address: 901 Gateway Blvd.
South San Francisco, California 94080
INDEMNITEE
-----------------------------------------------
Address:
-----------------------------------------------
-----------------------------------------------
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<PAGE>
LEASE AGREEMENT
BY AND BETWEEN
HMS GATEWAY OFFICE L.P.,
A DELAWARE LIMITED PARTNERSHIP
AS LANDLORD,
AND
ADVANCED MEDICINE, INC.,
A DELAWARE CORPORATION
AS TENANT
DATED FEBRUARY 17,1999
<PAGE>
TABLE OF CONTENT
<TABLE>
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Basic Lease Information....................................................viii
1. Demise....................................................................1
2. Premises..................................................................1
2.1. Definition of Premises, Building, Project, Parking Areas,
Common Areas.......................................................1
2.2. Construction of Base Building Improvements and Tenant
Improvements.......................................................2
2.3. Changes to Common Area.............................................2
3. Term......................................................................3
3.1. Commencement Date..................................................3
3.2. Commencement and Expiration Date Memorandum; Expiration
Date...............................................................3
4. Rent......................................................................3
4.1. Monthly Base Rent..................................................3
4.2. Additional Rent....................................................3
4.3. Adjustment to Additional Rent......................................6
4.4. Payment of Additional Rent.........................................7
4.4.1. Expense Statement.........................................7
4.4.2. Calculation of Additional Rent............................7
4.4.3. Tenant's Proportionate Share(s)...........................7
4.4.4. Tenant's Audit Rights.....................................8
4.5. General Payment Terms..............................................8
5. Utility Expenses..........................................................9
5.1. Tenant's Obligation to Pay.........................................9
5.2. Limitation of Landlord's Liability for Interruption of Utilities...9
6. Late Charge..............................................................10
7. Letter of Credit.........................................................10
8. Possession...............................................................13
8.1. Tenant's Right of Possession......................................13
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8.2. Delay in Performance of Covenants Related to Base Building
Improvements......................................................13
8.3. Tenant's Right to Terminate Lease.................................13
8.4. Early Occupancy...................................................14
9. Use of Premises..........................................................15
9.1. Permitted Use.....................................................15
9.2. Compliance with Governmental Regulations and Private
Restrictions......................................................16
9.3. Compliance with Americans with Disabilities Act...................17
10. Acceptance of Premises...................................................18
11. Surrender................................................................18
11.1. Surrender at Expiration or Termination............................18
11.2. Removal Obligations and Abandonment of Tenant's Property..........18
11.3. Indemnification...................................................19
12. Alterations And Additions................................................19
12.1. Landlord's Consent Required.......................................19
12.2. Alterations Permitted Without Landlord's Consent; Removal
Requirements......................................................19
12.3. Alterations at Tenant's Expense...................................19
12.4. Requirements of Request for Approval..............................20
12.5. Permits Required; Insurance Required..............................21
12.5.1. Permits..................................................21
12.5.2. Insurance................................................21
12.6. Title to Improvements Removal Rights; Financing...................21
12.7. Computer, Utility and Telecommunications Equipment................22
12.8. Notice and Opportunity to Post Notice of Nonresponsibility........22
13. Maintenance and Repairs of Premises......................................22
13.1. Maintenance by Tenant.............................................22
13.2. Maintenance by Landlord...........................................23
13.3. Landlord's Right to Perform Tenant's Obligations..................23
13.4. Tenant's Waiver of Rights.........................................24
14. Landlord's Insurance.....................................................24
</TABLE>
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<TABLE>
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15. Tenant's Insurance................................................... 24
15.1. Commercial General Liability Insurance........................ 24
15.2. Property Insurance............................................ 25
15.3. Worker's Compensation Insurance; Employer's Liability
Insurance..................................................... 25
15.4. Business Interruption Insurance............................... 25
15.5. Insurance Standards and Evidence of Coverage.................. 25
16. Indemnification...................................................... 26
16.1. Of Landlord................................................... 26
16.2. Of Tenant..................................................... 27
16.3. No Impairment of Insurance.................................... 27
17. Subrogation.......................................................... 27
18. Signs................................................................ 27
19. Free From Liens...................................................... 28
20. Entry By Landlord.................................................... 28
21. Destruction And Damage............................................... 29
21.1. Damage Covered by Extended Coverage Insurance................. 29
21.1.1. Material Damage; Insured Loss........................ 29
21.1.2. Minor Damage; Insured Loss........................... 29
21.1.3. Calculation of Restoration Period.................... 29
21.2. Uninsured Loss................................................ 30
21.3. Casualty During Last Twelve Months of Term.................... 30
21.4. Tenant's Right to Terminate Lease............................. 30
21.5. Rent Abatement................................................ 30
21.6. Restoration of Base Building Improvements and Tenant
Improvements.................................................. 31
21.7. Waiver........................................................ 31
22. Condemnation......................................................... 31
23. Assignment And Subletting............................................ 32
23.1. Landlord's Consent Required Except for Permitted Transfers.... 32
23.2. Requirements of Request for Consent........................... 33
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23.3. Criteria To Be Considered in Connection with Request
for Consent................................................... 34
23.4. Permitted Transfers........................................... 34
23.5. Excess Rent................................................... 34
23.6. No Release of Tenant.......................................... 35
23.7. Payment of Landlord's Fees.................................... 35
23.8. No Consent to Further Assignment.............................. 35
23.9. Constraints Reasonable........................................ 36
24. Tenant's Default..................................................... 36
25. Landlord's Remedies.................................................. 38
25.1. Termination................................................... 38
25.2. Continuation of Lease......................................... 39
25.3. Re-entry...................................................... 40
25.4. Reletting..................................................... 40
25.5. Termination................................................... 41
25.6. Cumulative Remedies........................................... 41
25.7. No Surrender.................................................. 41
26. Landlord's Right to Perform Tenant's Obligations..................... 41
26.1. Landlord's Right to Perform................................... 41
26.2. In Emergencies................................................ 42
26.3. Tenant's Obligation to Reimburse Landlord..................... 42
27. Attorneys' Fees...................................................... 42
27.1. Prevailing Party Entitled to Fees............................. 42
27.2. Costs of Collection........................................... 42
28. Taxes................................................................ 43
29. Effect Of Conveyance................................................. 43
30. Tenant's Estoppel Certificate........................................ 43
31. Subordination........................................................ 44
32. Environmental Covenants.............................................. 44
32.1. Disclosure Certificate........................................ 44
32.2. Tenant's Obligation to Update Disclosure Certificate.......... 45
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32.3. Definition of Hazardous Materials............................. 45
32.4. Definition of Environmental Laws.............................. 45
32.5. Tenant's Use of Hazardous Materials........................... 46
32.6. Tenant's Remediation Obligations.............................. 46
32.7. Landlord's Inspections........................................ 46
32.8. Landlord's Right to Remediate................................. 47
32.9. Condition of Premises Upon Expiration or Termination.......... 47
32.10. Tenant's Indemnification of Landlord.......................... 48
32.11. Landlord's Indemnification of Tenant.......................... 48
32.12. Limitation of Tenant's Liability.............................. 48
32.13. Survival...................................................... 48
33. Notices.............................................................. 48
34. Waiver............................................................... 49
35. Holding Over......................................................... 49
36. Successors And Assigns............................................... 49
36.1. Binding on Successors, Etc.................................... 49
36.2. Landlord's Right to Sell...................................... 50
37. Time................................................................. 50
38. Brokers.............................................................. 50
39. Limitation Of Liability.............................................. 50
40. Financial Statements................................................. 51
41. Rules And Regulations................................................ 51
42. Mortgagee Protection................................................. 51
42.1. Modifications for Lender...................................... 51
42.2. Rights to Cure................................................ 51
43. Entire Agreement..................................................... 52
44. Interest............................................................. 52
45. Interpretation....................................................... 52
46. Representations And Warranties....................................... 52
46.1. Of Tenant...................................................... 52
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<TABLE>
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46.2. Of Landlord.................................................. 53
47. Security............................................................ 53
47.1. Landlord Not Obligated to Provide Security................... 53
47.2. Tenant's Obligation to Comply with Security Measures......... 54
48. Jury Trial Waiver................................................... 54
49. Option to Renew..................................................... 54
49.1. Commencement Dates........................................... 55
49.2. Renewal Option is Personal; Non-Transferable................. 55
49.3. Tenant's Notice of Exercise.................................. 55
49.4. Monthly Base Rent During Renewal Term........................ 55
49.4.1. Fair Market Rent Definition......................... 55
49.4.2. Determination of Fair Market Rent................... 56
49.4.3. Arbitrator Qualifications........................... 56
49.4.4. Fees and Costs of Arbitrators....................... 56
49.4.5. Arbitration Period Base Rent........................ 57
50. Parking............................................................. 57
50.1. Grant of Parking License..................................... 57
50.2. No Assignment of Parking License............................. 57
50.3. Visitor Parking.............................................. 58
51. Right of First Offer................................................ 58
51.1. Offer Notice................................................. 58
51.2. Election Notice.............................................. 58
51.3. Purchase and Sale Agreement.................................. 58
51.4. Failure to Exercise or Sign Agreement........................ 58
51.5. Net Operating Income......................................... 59
51.6. Landlord's Sale to Affiliate; Survival of Option............. 59
52. Memorandum of Lease................................................. 60
</TABLE>
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EXHIBIT
A Parcel Map
B Base Building Construction Agreement
B-1 Preliminary Specifications for Base
Building Improvements
B-2 Site Plan
C Premises Construction Agreement
C-1 Description of "Warm Shell"
Improvements
C-2 Example of Tenant Improvement Loan
Amortization
D Commencement and Expiration Date
Memorandum
E Additional Operational Guidelines
F Rules and Regulations
G Hazardous Materials Disclosure Certificate
H Tenant's Property
I Memorandum of Lease
J Tenant Improvement Loan Amortization
Memorandum
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LEASE AGREEMENT
BASIC LEASE INFORMATION
LEASE DATE: February 17, 1999
LANDLORD: HMS Gateway Office, L.P.
a Delaware limited partnership
LANDLORD'S ADDRESS: c/o Hines Interests Limited Partnership
101 California Street, Suite 1000
San Francisco, California 94111-5848
Attn: Tom Kruggel
ALL NOTICES SENT TO LANDLORD UNDER THIS
LEASE SHALL BE SENT TO THE ABOVE ADDRESS,
WITH COPIES TO:
Hines
651 Gateway Boulevard, Suite 1140
South San Francisco, California 94080
Attn: Lisa Burke
TENANT: Advanced Medicine, Inc.,
a Delaware corporation
- --------------------------------------------------------------------------------
TENANT'S CONTACT PERSON: Marty Glick
TENANT'S ADDRESS PRIOR TO 280 Utah Avenue
THE COMMENCEMENT DATE: South San Francisco, CA 94080
AFTER THE COMMENCEMENT 901 Gateway Boulevard
DATE: South San Francisco, California 94080
- --------------------------------------------------------------------------------
PREMISES SQUARE FOOTAGE: One hundred ten thousand (110,000) square feet,
subject to final determination by Landlord's
Architect upon the commencement of the Term, such
measurement to be made in accordance with BOMA
standard definition of gross square footage.
- --------------------------------------------------------------------------------
PREMISES ADDRESS: 901 Gateway Boulevard
South San Francisco, California
- --------------------------------------------------------------------------------
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<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
PROJECT: Parcel 5 of Lot 9 of the Gateway, as shown on
the Parcel Map dated February, 1999 and
attached hereto as EXHIBIT A (as such lot and
parcel now exist or may hereafter be modified
through the filing of parcel maps, the
consummation of lot line adjustments or other
legal means), together with all improvements
constructed thereon.
- --------------------------------------------------------------------------------
BUILDING (IF NOT THE SAME AS: 901 Gateway Boulevard
THE PROJECT): South San Francisco, California
TENANT'S PROPORTIONATE SHARE
OF PROJECT: 100%
- --------------------------------------------------------------------------------
TENANT'S PROPORTIONATE SHARE
OF BUILDING: 100%
LENGTH OF TERM: One hundred forty-four (144) months
- --------------------------------------------------------------------------------
ESTIMATED COMMENCEMENT
DATE: April 1, 2000
- --------------------------------------------------------------------------------
ESTIMATED EXPIRATION DATE: March 31, 2012
- --------------------------------------------------------------------------------
MONTHLY BASE RENT: 1. Monthly Base Rent for the first Lease
Year shall be $203,500.00;
2. Monthly Base Rent for the second Lease
Year shall be $209,605.00;
3. Monthly Base Rent for the third Lease
Year shall be $215,893.15;
4. Monthly Base Rent for the fourth Lease
Year shall be $222,369.94;
5. Monthly Base Rent for the fifth Lease
Year shall be $229,041.04;
6. Monthly Base Rent for the sixth Lease
Year shall be $235,912.27;
7. Monthly Base Rent for the seventh Lease
Year shall be $242,989.64;
8. Monthly Base Rent for the eighth Lease
Year shall be $250,279.33;
9. Monthly Base Rent for the ninth Lease
Year shall be $257,787.71;
10. Monthly Base Rent for the tenth Lease
Year shall be $265,521.34;
11. Monthly Base Rent for the eleventh Lease
Year shall be $273,486.98;
- --------------------------------------------------------------------------------
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12. Monthly Base Rent for the twelfth Lease
Year shall be $281,691.59.
The above monthly Base Rent calculations are
subject to change after final determination
of the Premises gross square footage by
Landlord's Architect and any such adjustment
shall be based on a monthly Base Rent for the
first Lease Year of $1.85 per square foot
multiplied by the Premises gross square
footage, and a monthly Base Rent for each
subsequent Lease Year of 103% of the
preceding Lease Year's monthly Base Rent.
LETTER OF CREDIT: Two Million Seven Hundred Fifty Thousand
Dollars ($2,750,000) subject to reduction in
accordance with Paragraph 7(c) hereof.
PERMITTED USE: General office and research and development
activities associated with
biotechnology/pharmaceutical services. All
uses must be in accordance with all
applicable Laws.
- --------------------------------------------------------------------------------
UNRESERVED PARKING SPACES: Three Hundred Eight (308) non-exclusive and
undesignated parking spaces.
Except as otherwise provided in this Lease to
the contrary, the foregoing parking
calculation shall remain fixed and shall not
be adjusted based upon the final
determination of the Premises gross square
footage by Landlord's Architect.
- --------------------------------------------------------------------------------
BROKER: BT Commercial Real Estate
- --------------------------------------------------------------------------------
TENANT IMPROVEMENT Four Million Nine Hundred Fifty Thousand
ALLOWANCE: Dollars ($4,950,000.00) (VIZ. $45.00 per
square foot), subject to adjustment upon the
final determination of the Premises square
footage by Landlord's Architect.
- --------------------------------------------------------------------------------
TENANT IMPROVEMENT LOAN: Up to Two Million Seven Hundred Fifty
Thousand Dollars ($2,750,000.00) (VIZ. $25.00
per square foot), subject to adjustment upon
the final determination of the Premises gross
square footage by Landlord's Architect.
Subject to the right of Tenant to prepay the
Tenant Improvement Loan in accordance with
and to the extent provided in Section D of
EXHIBIT C, the Tenant Improvement Loan shall
be amortized over the initial Ten and repaid,
together with interest at the per annum rate
of 12%, in accordance with said Section D of
EXHIBIT C.
</TABLE>
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LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into by and between Landlord and
Tenant on the Lease Date. The defined terms used in this Lease which are defined
in the Basic Lease Information attached to this Lease Agreement ("BASIC LEASE
INFORMATION") shall have the meaning and definition given them in the Basic
Lease Information. The Basic Lease Information, the exhibits, the addendum or
addenda described in the Basic Lease Information, and this Lease Agreement are
and shall be construed as a single instrument and are referred to herein as the
"Lease".
1. DEMISE
In consideration for the rents and all other charges and payments payable
by Tenant, and for the agreements, terms and conditions to be performed by
Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND TENANT DOES
HEREBY HIRE AND TAKE FROM LANDLORD, the Premises described below (the
"Premises"), upon the agreements, terms and conditions, of this Lease for the
Term hereinafter stated.
2. PREMISES
2.1. DEFINITION OF PREMISES, BUILDING, PROJECT PARKING AREAS, COMMON
AREAS
The "Premises" demised by this Lease consist of that certain three
(3) story building (the "BUILDING") shown on the Site Plan attached hereto as
Exhibit BA-1, which Building is to be located in that certain real estate
development (the "PROJECT") specified in the Basic Lease Information. Subject to
the provisions of this Lease, Landlord shall have the right to revise the
definition of "PROJECT" from time to time as Landlord develops and improves the
Project and surrounding real property now or hereafter owned by Landlord or its
Affiliates (as hereinafter defined), or sells to third parties portions of the
Project or such adjacent properties. If at any time during the Term, Tenant is
leasing, in accordance with the terms and conditions of this Lease, less than
the entire Building, the "Premises" shall be deemed to include only that portion
of the Building then leased by Tenant pursuant to this Lease. Tenant shall have
the non exclusive right (in common with the other tenants, Landlord and any
other person granted use by Landlord) to use the Common Areas (as hereinafter
defined), except that, with respect to the Project's parking areas (the "PARKING
AREAS"), Tenant shall have only the rights set forth in Paragraph 50 below. No
easement for light or air is incorporated in the Premises. For purposes of this
Lease, the term "COMMON AREAS" shall mean all areas and facilities outside the
Premises and outside other buildings occupied or intended to be occupied by
tenants and within the exterior boundary line of the Project that are from time
to time provided and designated by Landlord for the non-exclusive use of
Landlord, Tenant and other tenants of the Project and their respective
employees, guests and invitees, including, without limitation, the Parking
Areas.
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2.2. CONSTRUCTION OF BASE BUILDING IMPROVEMENTS AND TENANT IMPROVEMENTS
Landlord shall cause the construction of the Base Building
Improvements in accordance with the terms and conditions of the Base Building
Construction Agreement attached hereto as EXHIBIT B. The Base Building
Improvements are generally described on EXHIBIT B-1 hereto. Additionally, Tenant
shall cause the construction of certain tenant improvements in the interior of
the Premises in accordance with the terms and conditions of the Premises
Construction Agreement attached hereto as EXHIBIT C.
2.3. CHANGES TO COMMON AREA
(a) Landlord has the right, in its sole and absolute
discretion, from time to time, to: (i) make changes to the Common Areas,
including, without limitation, changes in the location, size, shape and number
of driveways, entrances, parking spaces (provided, however, Landlord shall not
have the right, except as otherwise provided herein, to reduce the total number
of parking spaces below the number allocated to Tenant in the Basic Lease
Information), Parking Areas, ingress, egress, direction of driveways, entrances,
corridors and walkways; (ii) close temporarily any of the Common Areas for
maintenance or construction purposes so long as reasonable access to the
Premises remains available; (iii) add additional buildings and improvements to
the Common Areas or remove existing buildings or improvements therefrom; (iv)
use the Common Areas while engaged in making additional improvements, repairs or
alterations to the Project or any portion thereof so long as reasonable access
to the Premises and the loading area serving the Premises remains available; and
(v) do and perform any other acts or make any other changes in, to or with
respect to the Common Areas and the Project as Landlord may, in its sole and
absolute discretion, deem to be appropriate.
(b) In the event Tenant fails to exercise the Expansion Option
(as hereinafter defined), then notwithstanding anything to the contrary
contained in this Lease, including without limitation, Paragraph 2.3(a) above,
Landlord shall have the right in its sole discretion to improve, develop, alter
or make changes to the real property shown on the Site Plan upon which the
Expansion Building would otherwise have been situated.
(c) Notwithstanding the terms of Paragraph 2.3(a) above, Tenant
understands and acknowledges that Landlord will during the Term be developing
the Project and other lands owned by Landlord for Tenant and other tenants or
occupants and that from time to time, whether during periods of construction or
otherwise, Landlord may be unable to provide the full number of parking spaces
allocated to Tenant under this Lease in the Parking Areas. During such periods,
Landlord shall have the right to provide parking to Tenant on properties
reasonably proximate to the Project (the "ADJACENT PROPERTIES") or through the
use of valets or parking attendants on the Parking Areas or the Adjacent
Properties, provided only that Tenant shall at all times have parking for the
number of automobiles contemplated under this Lease.
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<PAGE>
3. TERM
3.1. COMMENCEMENT DATE
The term of this Lease (the "TERM") shall commence on April 1,
2000 or such later date as may be established pursuant to Section D.4 of EXHIBIT
B hereto (the "COMMENCEMENT DATE")
3.2. COMMENCEMENT AND EXPIRATION DATE MEMORANDUM; EXPIRATION DATE
In the event the actual Commencement Date, as determined pursuant
to the foregoing, is a date other than April 1, 2000, then Landlord and Tenant
shall promptly execute a Commencement and Expiration Date Memorandum in the form
attached hereto as EXHIBIT D, wherein the parties shall specify the Commencement
Date, the Expiration Date and the date on which Tenant is to commence paying
Rent. The Term of this Lease shall expire on March 31, 2012 (the "EXPIRATION
DATE") if the Commencement Date occurs on or before April 1, 2000; provided,
however, that if the actual Commencement Date occurs after April 1, 2000 in
accordance with Section D.4 of EXHIBIT B hereto, then the Expiration Date shall
be the day immediately preceding the twelfth (12th) anniversary of such actual
Commencement Date.
As used in this Lease, the term "LEASE YEAR" shall mean a period
of twelve (12) full calendar months commencing on the Commencement Date of this
Lease with respect to the first Building occupied by Tenant hereunder and each
subsequent sequential twelve (12) full calendar month period thereafter.
4. RENT
4.1. MONTHLY BASE RENT
Commencing on the Commencement Date, Tenant shall pay to Landlord,
in advance on the first day of each month, without further notice or demand and
without offset or deduction, the monthly installments of rent specified in the
Basic Lease Information (the "MONTHLY BASE RENT"). If the actual Commencement
Date does not occur on the first (1st) day of a calendar month, or if the
expiration or termination of the Term of this Lease is not the last day of a
calendar month, a prorated installment of Rent based on a per diem calculation
shall be paid for the fractional calendar month during which the Rent commences
or the Term expires or terminates.
4.2. ADDITIONAL RENT
This Lease is intended to be a triple-net Lease with respect to
Landlord; and subject to Paragraph 13.2 below, the Base Rent owing hereunder is
(1) to be paid by Tenant absolutely net of all costs and expenses relating to
Landlord's ownership and operation, of the Project and the Building, and (2) not
to be reduced, offset or diminished, directly or indirectly, by any cost, charge
or expense payable hereunder by Tenant or by others in connection with the
Premises, the Building and/or the Project or any part
3
<PAGE>
thereof. The provisions of this Paragraph 4.2 for the payment of Tenant's
Proportionate Share(s) of Expenses (as hereinafter defined) are intended to pass
on to Tenant its share of all such costs and expenses. In addition to the Base
Rent, Tenant shall pay to Landlord, in accordance with this Paragraph 4.
Tenant's Proportionate Share(s) of all costs and expenses paid or incurred by
Landlord in connection with the ownership, operation, maintenance, management
and repair of the Premises, the Building and/or the Project or any part thereof
(collectively, the "EXPENSES"), including, without limitation, all the following
items (the "ADDITIONAL RENT"):
1. TAXES AND ASSESSMENTS. ALL real estate taxes and
assessments, which shall include any form of tax, assessment, fee, license fee,
business license fee, levy, penalty (if a result of Tenant's delinquency), or
tax (other than net income, estate, succession, inheritance, transfer or
franchise taxes), imposed by any authority having the direct or indirect power
to tax, or by any city, county, state or federal government or any improvement
or other district or division thereof, whether such tax is (i) determined by the
area of the Premises, the Building and/or the Project or any part thereof, or
the Rent and other sums payable hereunder by Tenant or by other tenants,
including, but not limited to, any gross income or excise tax levied by any of
the foregoing authorities with respect to receipt of Rent and/or other sums due
under this Lease; (ii) upon any legal or equitable interest of Landlord in the
Premises, the Building and/or the Project or any part thereof; (iii) upon this
transaction or any document to which Tenant is a party creating or transferring
any interest in the Premises, the Building and/or the Project; (iv) levied or
assessed in lieu of, in substitution for, or in addition to, existing or
additional taxes against the Premises, the Building and/or the Project, whether
or not now customary or within the contemplation of the parties; or (v)
surcharged against the parking area. Tenant and Landlord acknowledge that
Proposition 13 was adopted by the voters of the State of California in the June,
1978 election and that assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such purposes as fire protection, street,
sidewalk, road, utility construction and maintenance, refuse removal and for
other governmental services which may formerly have been provided without charge
to property owners or occupants. It is the intention of the parties that all new
and increased assessments, taxes, fees, levies and charges due to any cause
whatsoever are to be included within the definition of real property taxes for
purposes of this Lease. "TAXES AND ASSESSMENTS" shall also include legal and
consultants' fees, costs and disbursements incurred in connection with
proceedings to contest, determine or reduce taxes, Landlord specifically
reserving the right, but not the obligation, to contest by appropriate legal
proceedings the amount or validity of any taxes. In the event Landlord elects
not to contest the real property taxes and assessments levied against the
Building with respect to any calendar year during the Term, and if Tenant
demonstrates to Landlord's reasonable satisfaction that such a contest would
likely result in a reduction of such taxes and assessments, then Tenant shall
have the right to retain a consultant to prosecute such contest, subject to
Landlord's reasonable approval of the identity of such consultant. Such contest
shall be conducted at Tenant's sole cost and expense, provided that if Tenant
prevails in such contest, the reasonable fees and costs of Tenant's consultants
shall, to the extent of any actual savings resulting from such contest, be
equitably shared by Tenant and other tenant(s) who receive the benefit of such
savings. Tenant shall have
4
<PAGE>
the right to deduct from its payments of Additional Rent the shares of such
fees and costs to be charged to other tenants, as reasonably determined by
Landlord, and Landlord shall cause such amounts to be billed or charged to
the other benefited tenant(s).
2. INSURANCE. All insurance premiums for the Building and/or
the Project or, subject to clause (i) of the paragraph immediately following
Paragraph 4.2(8) below, any part thereof, including premiums for "all risk" fire
and extended coverage insurance, commercial general liability insurance, rent
loss or abatement insurance, earthquake insurance, flood or surface water
coverage, and other insurance as Landlord deems necessary in its sole
discretion, and any deductibles paid under policies of any such insurance.
3. UTILITIES. The cost of all Utilities (as hereinafter
defined) serving the Premises, the Building and the Common Areas that are not
separately metered to Tenant, any assessments or charges for Utilities or
similar purposes included within any tax bill for the Building or the Common
Areas, including without limitation, entitlement fees, allocation unit fees,
and/or any similar fees or charges and any penalties (if a result of Tenant's
delinquency) related thereto, and any amounts, taxes, charges, surcharges,
assessments or impositions levied, assessed or imposed upon the Building or the
Common Areas, or any part thereof, or upon Tenant's use and occupancy thereof,
as a result of any rationing of Utility services or restriction on Utility use
affecting the Building and/or the Common Areas, as contemplated in Paragraph 5
below (collectively, "UTILITY EXPENSES").
4. COMMON AREA EXPENSES. All costs to operate, maintain,
repair, replace, supervise, insure and administer the Common Areas, including
supplies, materials, labor and equipment used in or related to the operation and
maintenance of the Common Areas, including parking areas (including, without
limitation, all costs of resurfacing and restriping parking areas), signs and
directories on the Building and/or the Project, landscaping (including
maintenance contracts and fees payable to landscaping consultants), amenities,
sprinkler systems, sidewalks, walkways, driveways, curbs, lighting systems and
security services, if any, provided by Landlord for the Common Areas, and any
charges, assessments, costs or fees levied by any association or entity of which
the Project or any part thereof is a member or to which the Project or any part
thereof is subject.
5. PARKING CHARGES. Any parking charges or other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any governmental
authority or insurer in connection with the use or occupancy of the Building or
the Project.
6. MAINTENANCE AND REPAIR COSTS. Except for costs which are
the responsibility of Landlord pursuant to Paragraph 13.2 below, all costs to
maintain, repair, and replace the Premises, the Building and/or the Common Areas
or any part thereof, including without limitation, (i) all costs paid under
maintenance, management and service agreements such as contracts for janitorial,
security and refuse removal, (ii) all
5
<PAGE>
costs to maintain, repair and replace the roof coverings of the Building, (iii)
all costs to maintain, repair and replace the heating, ventilating, air
conditioning, plumbing, sewer, drainage, electrical, fire protection, life
safety and security systems and other mechanical and electrical systems and
equipment serving the Premises, the Building and/or the Common Areas or any part
thereof (collectively, the "SYSTEMS"), all to the extent that Landlord or
Landlord's Agents perform such tasks.
7. LIFE SAFETY COSTS. ALL costs to install, maintain, repair
and replace all life safety systems, including, without limitation, all fire
alarm systems, serving the Premises, the Building and/or the Common Areas or any
part thereof (including all maintenance contracts and fees payable to life
safety consultants) whether such systems are or shall be required by Landlord's
insurance carriers, Laws (as hereinafter defined) or otherwise, all to the
extent that Landlord or Landlord's Agents perform such tasks.
8. MANAGEMENT AND ADMINISTRATION. All costs for management and
administration of the Premises, the Building and/or the Project or any part
thereof, including, without limitation, a property management fee equal to two
percent (2%) of the annual Rent derived from the Building, accounting, auditing,
billing, postage, legal and accounting costs and fees for licenses and permits
related to the ownership and operation of the Project (but specifically
excluding any salaries and benefits of employees of Landlord or the property
manager of the Building).
Notwithstanding anything in this Paragraph 4.2 to the
contrary, (i) Tenant shall not be responsible for the payment of any Expenses
which relate to or benefit solely another building within the Project occupied
or intended to be occupied by tenants or for which Landlord receives full
reimbursement from other tenants, and (ii) with respect to all sums payable by
Tenant as Additional Rent under this Paragraph 4.2 for the replacement of any
item or the construction of any new item in connection with the physical
operation of the Premises, the Building or the Project (i.e., HVAC, roof
membrane or coverings and parking area) which is a capital item the replacement
of which would be capitalized under generally accepted accounting principles
consistently applied, Tenant shall be required to pay only the prorata share of
the cost of the item failing due within the Term (including any Renewal Term)
based upon the amortization of the same over the useful life of such item, as
reasonably determined by Landlord. Such share shall be paid by Tenant on a
monthly basis throughout the Term (rather than in a lump sum when incurred by
Landlord).
4.3. ADJUSTMENT TO ADDITIONAL RENT
Notwithstanding any other provision herein to the contrary, if the
Building is not fully occupied during any year of the Term, an adjustment shall
be made in computing Additional Rent for such year so that Additional Rent shall
be computed as though the Building had been fully occupied during such year;
provided, however, that in no event shall Landlord collect in total, from Tenant
and all other tenants of the Building, an amount greater than one hundred
percent (100%) of the actual Expenses during any year of the Term.
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4.4. PAYMENT OF ADDITIONAL RENT
4.4.1. EXPENSE STATEMENT
Upon the Commencement Date, Landlord shall submit to Tenant
an estimate of monthly Additional Rent for the period between the Commencement
Date and the following December 31 and Tenant shall pay such estimated
Additional Rent on a monthly basis, in advance, on the first day of each month.
Tenant shall continue to make said monthly payments until notified by Landlord
of a change therein. By April 1 of each calendar year, Landlord shall endeavor
to provide to Tenant a statement (the "EXPENSE STATEMENT") showing the actual
Additional Rent due to Landlord for the prior calendar year, to be prorated
during the first year from the Commencement Date. If the total of the monthly
payments of Additional Rent that Tenant has made for the prior calendar year is
less than the actual Additional Rent chargeable to Tenant for such prior
calendar year, then Tenant shall pay the difference in a lump sum within ten
(10) days after receipt of such statement from Landlord. Any overpayment by
Tenant of Additional Rent for the prior calendar year shall be credited towards
the Additional Rent next due.
4.4.2. CALCULATION OF ADDITIONAL RENT
Landlord's then-current annual operating and capital
budgets for the Building and the Project shall be used for purposes of
calculating Tenant's monthly payment of estimated Additional Rent for the
current year. Landlord shall make the final determination of Additional Rent for
the year in which this Lease terminates as soon as possible after termination of
such year. Even though the Term has expired and Tenant has vacated the Premises,
Tenant shall remain liable for payment of any amount due to Landlord in excess
of the estimated Additional Rent previously paid by Tenant, and, conversely,
Landlord shall promptly return to Tenant any overpayment. Failure of Landlord to
submit statements as called for herein shall not be deemed a waiver of Tenant's
obligation to pay Additional Rent as herein provided.
4.4.3. TENANT'S PROPORTIONATE SHARE(S)
With respect to Expenses which Landlord allocates to the
Building, Tenant's "PROPORTIONATE SHARE" shall be the percentage set forth in
the Basic Lease Information as Tenant's Proportionate Share of the Building, as
adjusted by Landlord from time to time for a remeasurement of or changes in the
physical size of the Premises or the Building. With respect to Expenses which
Landlord allocates to the Project, Tenant's "PROPORTIONATE SHARE" shall be the
percentage set forth in the Basic Lease Information as Tenant's Proportionate
Share of the Project as adjusted by Landlord from time to time in connection
with the construction of additional buildings within the Project or a
remeasurement of or changes in the physical size of the Premises or the Project,
whether such changes in size are due to an addition to or a sale or conveyance
of a portion of the Project or otherwise. Notwithstanding the foregoing,
Landlord may equitably adjust Tenant's Proportionate Share(s) for all or part of
any item of expense or cost reimbursable by Tenant that relates to a repair,
replacement, or service that benefits
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only the Premises or only a portion of the Building and/or the Project or that
varies with the occupancy of the Building and/or the Project; provided, however,
that Tenant's prorata allocation of any such Expense shall not be
disproportionate to any other tenant's prorata allocation of such Expense.
4.4.4. TENANT'S AUDIT RIGHTS
Provided Tenant is not in Default under the terms of
this Lease, Tenant, at its sole cost and expense, shall have the right within
sixty (60) days after the delivery of each Expense Statement to review and
audit Landlord's books and records regarding such Expense Statement for the
sole purpose of determining the accuracy of such Expense Statement. Such
review or audit shall be performed by a nationally recognized accounting firm
that calculates its fees with respect to hours actually worked and that does
not discount its time or rate (as opposed to a calculation based upon
percentage of recoveries or other incentive arrangement), shall take place
during normal business hours in the office of Landlord or Landlord's property
manager and shall be completed within three (3) business days after the
commencement thereof. If Tenant does not so review or audit Landlord's books
and records, Landlord's Expense Statement shall be final and binding upon
Tenant. In the event that Tenant determines on the basis of its review of
Landlord's books and records that the amount of Expenses paid by Tenant
pursuant to this Paragraph 4 for the period covered by such Expense Statement
is less than or greater than the actual amount properly payable by Tenant
under the terms of this Lease, Tenant shall promptly pay any deficiency to
Landlord or, if Landlord concurs with the results of Tenant's audit, Landlord
shall promptly refund any excess payment to Tenant, as the case may be.
Landlord shall pay for any reasonable audit expenses if such excess payment
exceeds the aggregate Expenses in Landlord's Expense Statement by seven
percent (7%).
4.5. GENERAL PAYMENT TERMS
The Base Rent, Additional Rent and all other sums payable by
Tenant to Landlord hereunder, including, without limitation, any Late Charges,
as defined below, assessed pursuant to Paragraph 6 below, any interest assessed
pursuant to Paragraph 44 below and any payments of principal and/or interest on
the Tenant Improvement Loan, are referred to collectively as the "RENT." All
Rent shall be paid without deduction, offset or abatement (except as
specifically provided in this Lease) in lawful money of the United States of
America. Checks are to be made payable to HMS Gateway Office, L.P. and shall be
mailed: c/o Hines Interests Limited Partnership, 101 California Street, Suite
1000, San Francisco, California 94111-5848, Attn: Tom Kruggel, or to such other
person or place as Landlord may, from time to time, designate to Tenant in
writing. The Rent for any fractional part of a calendar month at the
commencement or termination of the Lease term shall be a prorated amount of the
Rent for a full calendar month based upon the number of days in the month of the
commencement or termination of the Lease term, as applicable.
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5. UTILITY EXPENSES
5.1. TENANT'S OBLIGATION TO PAY
Tenant shall pay the cost of all water, sewer use, sewer
discharge fees, gas, heat, electricity, refuse pick-up, janitorial service
(including, without limitation, exterior and interior window washing),
telephone, cable T.V., telecommunications facilities and all materials and
services or other utilities (collectively, "UTILITIES") billed or metered
separately to the Premises and/or Tenant, together with all taxes,
assessments, charges and penalties added to or included within such cost.
Tenant acknowledges that the Premises, the Building and/or the Project may
become subject to the rationing of Utility services or restrictions on
Utility use as required by a public utility company, governmental agency or
other similar entity having jurisdiction thereof. Tenant acknowledges and
agrees that its tenancy and occupancy hereunder shall be subject to such
rationing or restrictions as may be imposed upon Landlord, Tenant, the
Premises, the Building and/or the Project, and Tenant shall in no event be
excused or relieved from any covenant or obligation to be kept or performed
by Tenant by reason of any such rationing or restrictions. Tenant agrees to
comply with energy conservation programs implemented by Landlord by reason of
rationing, restrictions or Laws.
5.2. LIMITATION OF LANDLORD'S LIABILITY FOR INTERRUPTION OF UTILITIES
(a) Landlord shall not be liable for any loss, injury or damage
to property caused by or resulting from any variation, interruption, or failure
of Utilities due to any cause whatsoever, or from failure to make any repairs or
perform any maintenance. No temporary interruption or failure of such services
incident to the making of repairs, alterations, improvements, or due to
accident, strike, or conditions or other events shall be deemed an eviction of
Tenant or relieve Tenant from any of its obligations hereunder; provided,
however, that Landlord shall give Tenant not less than forty-eight (48) hours'
notice of any interruption of Utilities planned in advance by Landlord. Landlord
shall also use reasonable efforts to notify Tenant of any planned interruption
of Utilities by any Utility service provider, provided that Landlord obtains
actual knowledge of such planned interruption. In no event shall Landlord be
liable to Tenant for any damage to the Premises or for any loss, damage or
injury to any property therein or thereon occasioned by bursting, rupture,
leakage, failure or overflow of any plumbing or other pipes (including, without
limitation, water, steam, and/or refrigerant lines), sprinklers, tanks, drains,
drinking fountains or washstands, or other similar cause in, above, upon or
about the Premises, the Building or the Project.
(b) Notwithstanding the provisions of Paragraph 5.2(a) above,
if any Utility Services to the Premises are interrupted or interfered with as
the result of the negligence or willful misconduct of any contractors engaged by
Landlord to perform services at the Project, then Landlord shall use
commercially reasonable efforts to pursue any claims for compensation or
reimbursement available to Landlord against such contractors to the extent of
any losses suffered by Tenant and shall make any monies received available to
Tenant after allowance for Landlord's costs of collection. In
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addition to the foregoing, if any policy of insurance maintained by Landlord
with respect to the Premises provides coverage for losses incurred due to the
failure of Utilities, then Landlord shall make a claim under such policy to the
extent of any losses suffered by Tenant, and shall make the proceeds received,
if any, available to Tenant after allowance for Landlord's costs of collection.
6. LATE CHARGE
Notwithstanding any other provision of this Lease, Tenant hereby
acknowledges that late payment to Landlord of Rent, or other amounts due
hereunder will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. If any Rent or
other sums due from Tenant are not received by Landlord or by Landlord's
designated agent when due, and if Tenant does not cure such failure within five
(5) days after the due date (the "GRACE PERIOD"), then Tenant shall pay to
Landlord a late charge equal to five percent (5%) of such overdue amount (the
"LATE CHARGE"), plus any costs and reasonable attorneys' fees incurred by
Landlord by reason of Tenant's failure to pay Rent and/or other charges when due
hereunder; provided, however, that Tenant shall have the right to pay Rent
during the Grace Period only five (5) times during the Term and, after Tenant
has paid Rent during the Grace Period an aggregate of five (5) times, Tenant
shall pay to Landlord a Late Charge on any Rent or other sums due hereunder that
are not received by Landlord or Landlord's designated agent when due.
Notwithstanding the foregoing, if Tenant establishes and maintains throughout
the Term a direct payment or debit arrangement with a bank or financial
institution pursuant to which the Rent due hereunder is automatically paid to
Landlord by electronic transfer on the first day of each month, and if Tenant
provides Landlord with evidence of such arrangement, then Landlord shall provide
Tenant with notice of any late payment of Rent prior to the imposition of a Late
Charge. Landlord and Tenant hereby agree that such Late Charge represent a fair
and reasonable estimate of the cost that Landlord will incur by reason of
Tenant's late payment and shall not be construed as a penalty. Landlord's
acceptance of such Late Charge shall not constitute a waiver of Tenant's default
with respect to such overdue amount or estop Landlord from exercising any of the
other rights and remedies granted under this Lease.
INITIALS: LANDLORD /s/ [Illegible] TENANT /s/ [Illegible]
--------------- ---------------
7. LETTER OF CREDIT
(a) DELIVERY OF LETTER OF CREDIT. Concurrently with the execution
hereof, Tenant shall deliver to Landlord, at Tenant's sole cost and expense, the
Letter of Credit described below in the amount of Two Million Seven Hundred
Fifty Thousand Dollars ($2,750,000) as security for the full and faithful
performance of Tenant's covenants and obligations under this Lease. Upon the
date that is forty-five (45) days after the expiration of the Term or earlier
termination of this Lease, the Letter of Credit (as reduced pursuant to this
Paragraph 7) shall be returned to Tenant, reduced by any
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amounts that Landlord reasonably estimates to be required to remedy any Defaults
on the part of Tenant hereunder.
(b) LANDLORD'S RIGHT TO DRAW ON LETTER OF CREDIT; LETTER OF
CREDIT PROCEEDS. Landlord may (but shall not be required to) draw upon the
Letter of Credit from time to time, in a singular draw or by partial draws at
Landlord's election, as permitted by the Letter of Credit, and use the proceeds
therefrom (the "LETTER OF CREDIT PROCEEDS") or any portion thereof to (i) cure
or remedy any Default of Tenant under this Lease, (ii) repair damage to the
Premises caused by Tenant, (iii) clean the Premises upon termination of this
Lease, (iv) reimburse Landlord for the payment of any amount which Landlord may
spend or be required to spend by reason of Tenant's Default, or (v) compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's Default, including, without limitation, all costs incurred by Landlord
in releasing the Premises and any tenant improvement costs and leasing
commissions associated therewith; it being understood that any use of the Letter
of Credit Proceeds shall not constitute a bar or defense to any of Landlord's
remedies set forth in this Lease. In such event and upon written notice from
Landlord to Tenant specifying the amount of the Letter of Credit Proceeds so
utilized by Landlord, Tenant shall immediately deliver to Landlord an amendment
to the Letter of Credit restoring the Letter of Credit to the full amount
required under Paragraph 7(a) above, less any reductions theretofore permitted
pursuant to Paragraph 7(c) below. Tenant's failure to deliver such amendment to
Landlord within ten (10) business days of Landlord's notice shall constitute a
Default hereunder.
(c) REDUCTION OF AMOUNT OF LETTER OF CREDIT. As used herein,
"Letter of Credit" shall mean an unconditional, stand-by irrevocable letter of
credit (hereinafter referred to as the "LETTER OF CREDIT") issued by Mellon Bank
or the San Francisco Bay Area office of another major national bank mutually
satisfactory to Landlord and Tenant (collectively, the "PHASE I LC ISSUING
BANK"), naming Landlord as beneficiary, in the amount specified above; provided,
however, that the amount of the Letter of Credit shall be subject to reduction
from time to time as provided below:
(1) If Tenant elects to and actually repays the
unamortized principal balance of and all accrued interest on the Tenant
Improvement Loan on the first, second or third anniversary of the Commencement
Date in accordance with Section D of EXHIBIT C hereto, the then-current amount
of the Letter of Credit shall be reduced by twenty-five percent (25%) (in
addition to any other reduction to which Tenant is entitled under subparagraphs
(2) and (3) below);
(2) If Tenant achieves actual annual net sales revenues
of Twenty Million Dollars ($20,000,000) or more during any calendar year during
the Term, the then-current amount of the Letter of Credit shall be reduced by
twenty-five percent (25%) (in addition to any other reduction to which Tenant is
entitled under subparagraph (1) above and subparagraph (3) below); for purposes
of this subparagraph (2), "net sales revenues" shall mean the gross revenues
actually realized by Tenant from the operation of its core business (as opposed
to non-recurring income or
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revenues not generated by Tenant's core business), less actual expenses incurred
by Tenant during the applicable calendar year; and
(3) commencing on the fourth (4th) anniversary of the
Commencement Date, the then-current amount of the Letter of Credit shall be
reduced on the first day of each Lease Year in substantially equal annual
amounts such that the balance of the Letter of Credit shall be zero on the
Expiration Date.
The Letter of Credit shall be for no less than a one-year term and in any event
shall be maintained in effect from the date hereof through the date that is
forty-five (45) days after expiration of the Term or the earlier termination of
this Lease.
(d) FORM OF LETTER OF CREDIT. The Letter of Credit shall
provide: (i) that Landlord may make partial and multiple draws thereunder, up
to the face amount thereof, (ii) that Landlord may draw upon the Letter of
Credit up to the full amount thereof, and the Phase I LC Issuing Bank will
pay to Landlord the amount of such draw upon receipt by the Phase I LC
Issuing Bank of a draft signed by Landlord (which draft may be presented by
Landlord to the Phase I LC Issuing Bank in person, by overnight mail or by
telefacsimile), accompanied by a written statement from Landlord that Tenant
is in Default under the Lease or that Landlord is otherwise entitled to draw
upon the Letter of Credit, and (iii) that, in the event of Landlord's
assignment or other transfer of its interest in this Lease, the Letter of
Credit shall be freely transferable by Landlord, without recourse, to the
assignee or transferee of such interest and the Phase I LC Issuing Bank shall
confirm the same to Landlord and such assignee or transferee.
(e) FAILURE TO PROVIDE FOR ANNUAL RENEWAL OR REPLACEMENT OF
LETTER OF CREDIT. In the event that the Phase I LC Issuing Bank shall fail to
notify Landlord at least forty-five (45) days prior to expiration of the
Letter of Credit that the Letter of Credit will be renewed for at least one
(1) year beyond the then applicable expiration date, and deliver to Landlord
a replacement Letter of Credit or a modification to the existing Letter of
Credit effectuating such renewal at least forty-five (45) days prior to
expiration of the Letter of Credit, and Tenant shall not have otherwise
delivered to Landlord, at least forty-five (45) days prior to the relevant
annual expiration date, a replacement Letter of Credit in the amount required
hereunder and otherwise meeting the requirements set forth above, then
Landlord shall be entitled to draw on the Letter of Credit as provided above,
and shall hold the proceeds of such draw in a segregated interest bearing
cash collateral account in the name of Landlord and with a bank selected by
Landlord, as security for the full and faithful performance of Tenant's
obligations hereunder, until Tenant shall have provided a new Letter of
Credit satisfying the requirements of this Paragraph 7, in which event
Landlord shall promptly return the proceeds of such draw plus all accrued
interest thereon, not otherwise used in accordance with the terms of the
Lease, to Tenant.
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8. POSSESSION
8.1. TENANT'S RIGHT OF POSSESSION
Subject to Paragraph 8.2, Tenant shall be entitled to possession of the
Premises upon the substantial completion of the Base Building Improvements.
8.2. DELAY IN PERFORMANCE OF COVENANTS RELATED TO BASE BUILDING
IMPROVEMENTS
Except as expressly provided in Paragraph 8.3 below, if for any reason
whatsoever Landlord cannot perform any covenant contained in this Lease or in
any exhibit hereto relating to the design and construction of the Base Building
Improvements, this Lease shall not be void or voidable and shall not entitle
Tenant to terminate this Lease, nor shall Landlord, or Landlord's agents,
advisors, employees, partners, shareholders, directors, invitees or independent
contractors (collectively, "LANDLORD'S AGENTS"), be liable to Tenant for any
loss or damage resulting therefrom, nor shall such failure affect the
obligations of Tenant under this Lease, including, without limitation, the
obligation to pay Rent commencing on the Commencement Date.
8.3. TENANT'S RIGHT TO TERMINATE LEASE
(a) Subject to Paragraph 8.3(b) below, if for any reason
Landlord fails to complete the milestones set forth below (each, a "MILESTONE")
on or before the outside date for performance specified below (each, a
"MILESTONE DATE"), then Tenant shall have the right, as its sole and exclusive
remedy for such failure, to terminate this Lease by written notice given to
Landlord on or before the tenth (10th) day after the applicable Milestone Date.
In the event Tenant has the right and fails to deliver a termination notice to
Landlord in a timely manner as provided herein, then Tenant shall be deemed to
have waived its right to terminate this Lease with respect to the applicable
Milestone and this Lease shall continue in full force and effect. The Milestones
and Milestone Dates are as follows:
<TABLE>
<CAPTION>
MILESTONE MILESTONE DATE
<S> <C>
Certificate from Landlord's December 15, 1999
Architect that the
foundation of the Building
has been completed ("INITIAL
MILESTONE").
Concrete for the third (3rd) March 1, 2000
floor metal deck has been
poured ("SECONDARY
MILESTONE").
</TABLE>
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(b) Notwithstanding anything to the contrary contained in
Paragraph 8.3(a) above, if Landlord is delayed in completing any Milestone due
to Tenant Delays or Force Majeure Events (as hereinafter defined), the Milestone
Dates shall be extended for a period equal to the length of such delay. As used
herein, "TENANT DELAYS" means any delays caused by Tenant or any employee, agent
or representative of Tenant, including, without limitation, delays caused by (i)
failure to furnish information in accordance with EXHIBIT B or EXHIBIT C of this
Lease; (ii) Tenant's request for any special, long lead time materials or
installations as part of the Tenant Improvements or the Tenant Requested Base
Building Improvements (as defined in EXHIBIT B hereto); (iii) Tenant's changes
in the Approved Plans (as defined in EXHIBIT C hereto); (iv) any changes
initiated by reason of the disapproval of any plans or drawings or any cost
proposals or authorizations resulting in the preparation of revised plans,
drawings, cost proposals or authorizations; (v) field changes to construction
work; (vi) the delivery, installation or completion of the Tenant Improvements
work performed by Contractor (as defined in EXHIBIT C hereto); (vii) Tenant's
request for any Tenant Requested Base Building Improvements; or (viii) any other
act or omission of Tenant. As used herein, "FORCE MAJEURE EVENTS" means
strikes, embargoes, governmental regulations, acts of God, war, civil commotion
or other strife, and other events beyond the reasonable control of the party
whose performance is affected thereby.
8.4. EARLY OCCUPANCY
In the event that, prior to April 1, 2000, the Tenant Improvements have
been substantially completed (as determined in accordance with this Paragraph
8.4), then Tenant shall have the right to occupy the Premises and to commence
business operations therein (such period commencing on Tenant's actual occupancy
of the Premises and expiring on March 31, 2000 being herein referred to as the
"EARLY OCCUPANCY PERIOD"), provided that (A) Tenant shall pay Base Monthly Rent
during the Early Occupancy Period equal to twenty-five percent (25%) of the Base
Monthly Rent first payable hereunder from and after April 1, 2000, (B) Tenant
shall not be required to commence paying monthly installments on the Tenant
Improvement Loan until April 1, 2000, and (C) except as expressly provided to
the contrary in the foregoing clauses (A) and (B), Tenant's occupancy of the
Premises during the Early Occupancy Period shall be subject to all of the terms
and conditions of this Lease, including, without limitation, the covenant to pay
Additional Rent in accordance with the terms of Paragraph 4.2 above. For
purposes of this Paragraph 8.4, the Premises shall be deemed to be
"substantially completed" when the following conditions have been satisfied:
(a) The Tenant Improvements have been approved by the
appropriate governmental agency as being in accordance with its building code
and the building permit issued for such improvements, as evidenced by the
issuance of a certificate of occupancy or final building inspection approval, as
applicable; and
(b) Tenant's Architect and Contractor have both certified in
writing that the Tenant Improvements have been substantially completed in
accordance with the
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plans and specifications therefor, subject only to items of a "punch-list"
nature which do not materially affect the use or functionality of the space.
9. USE OF PREMISES
9.1. PERMITTED USE
(a) The use of the Premises by Tenant and Tenant's agents,
advisors, employees, partners, shareholders, directors, invitees and independent
contractors (collectively, "TENANT'S AGENTS") shall be solely for the Permitted
Use specified in the Basic Lease Information and for no other use. Tenant shall
not permit any objectionable or unpleasant smoke, dust, gas, noise or vibration
to emanate from or near the Premises, and shall use its best efforts to prevent
any objectionable odor from emanating from or near the Premises. Tenant shall
strictly comply with the measures set forth on EXHIBIT E hereto and any
additional measures reasonably required by Landlord from time to time to
eliminate the emanation of objectionable odors. Tenant shall promptly provide
Landlord with copies of all permits issued to Tenant by the Bay Area Air
Quality Management District (the "AIR MANAGEMENT DISTRICT") and any other
governmental agency responsible for or having jurisdiction over matters related
to air quality, together with copies of all correspondence between Tenant and
the Air Management District or such other agencies. Tenant acknowledges that The
Gateway, the real estate development in which the Project is located, is a
first-class office and R&D campus and that "objectionable odors" is a subjective
standard. Accordingly, Tenant agrees that if odors in the area of the Building
lead to complaints from other tenants and occupants of The Gateway, and if
Landlord reasonably determines, based upon observation and/or a review of
Tenant's records, that such odors emanated from the Premises, Tenant shall
promptly use its best efforts to correct the situation at Tenant's sole cost and
expense. Such measures to be taken by Tenant shall include, without limitation,
the hiring of special consultants and the making of capital improvements to the
Premises. Tenant shall make its laboratory records available to Landlord for
review in connection with any complaints by tenants or occupants of the Gateway
and as otherwise reasonably requested by Landlord. Any failure of Tenant to
comply with its obligations under this Paragraph 9.1(a) shall constitute an
immediate Default under this Lease.
(b) The Premises shall not be used to create any nuisance or
trespass, for any illegal purpose, for any purpose not permitted by Laws, for
any purpose that would invalidate the insurance or increase the premiums for
insurance on the Premises, the Building or the Project or for any purpose or in
any manner that would unreasonably interfere with other tenants' use or
occupancy of the Project. Tenant agrees to pay to Landlord, as Additional Rent,
any increases in premiums on policies resulting from Tenant's Permitted Use or
any other use or action by Tenant or Tenant's Agents which increases Landlord's
premiums or requires additional coverage by Landlord to insure the Premises.
Tenant agrees not to overload the floor(s) of the Building.
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9.2. COMPLIANCE WITH GOVERNMENTAL REGULATIONS AND PRIVATE RESTRICTIONS
(a) Subject to the terms and conditions of the Lease, Landlord
covenants that the Base Building Improvements shall be constructed in compliance
with all applicable building code requirements in effect and actively being
enforced by the City of South San Francisco on the date the building permits are
issued to the Contractor therefor and substantially in accordance with the Base
Building Plans and Specifications (as defined in EXHIBIT B hereto). Any claims
by Tenant under this Paragraph 9.2 shall be made in writing not later than one
(1) year after the Commencement Date of the Lease. In the event Tenant fails to
deliver a written claim to Landlord on or before such date, then Landlord shall
be conclusively deemed to have satisfied its obligations under this paragraph.
The covenants contained in this paragraph are subject to Paragraph 39 below of
the Lease and are made specifically and exclusively for the benefit of the
original Tenant and any assignee or sublessee under a Permitted Transfer
pursuant to Paragraph 23.4 below.
(b) Tenant and Tenant's Agents shall, at Tenant's expense,
faithfully observe and comply with (1) all municipal, state and federal laws,
statutes, codes, rules, regulations, ordinances, requirements, and orders
(collectively, "LAWS"), now in force or which may hereafter be in force
pertaining to the Premises or Tenant's use of the Premises, the Building or the
Project, including without limitation, any Laws requiring installation of fire
sprinkler systems, seismic reinforcement and related alterations, whether
substantial in cost or otherwise, provided, however, that except as provided in
Paragraph 9.3 below, Tenant shall not be required to make or, except as provided
in Paragraph 4 above, pay for, structural changes to the Premises or the
Building not related to Tenant's specific use of the Premises unless the
requirement for such changes is imposed as a result of any improvements or
additions made or proposed to be made at Tenant's request; (2) all recorded
covenants, conditions and restrictions affecting the Project ("PRIVATE
RESTRICTIONS") now in force or which may hereafter be in force, Landlord hereby
specifically reserving the right to hereafter adopt such Private Restrictions
and to impose the same on the Project or any portion thereof; provided that such
Private Restrictions adopted after the date hereof shall not unreasonably impair
Tenant's use of the Premises for any Permitted Use; and (3) any and all rules
and regulations set forth in EXHIBIT E and any other rules and regulations now
or hereafter promulgated by Landlord (collectively, the "RULES AND
REGULATIONS"). Without limiting the generality of the foregoing, Tenant hereby
covenants and agrees for itself, its successors and assigns, and all persons
claiming under or through it, that this Lease is made and accepted upon and
subject to the condition that there shall be no discrimination against, or
segregation of, any person or group of persons on account of race, color, creed,
religion, sex, marital status, national origin or ancestry in the leasing,
subleasing, transferring, use, occupancy, tenure or enjoyment of the Premises
herein leased, nor shall Tenant, or any person claiming under or through it,
establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use or occupancy
of tenants, lessees, subtenants, sublessees or vendees in the premises herein
leased. The judgment of any court of competent jurisdiction, or the admission of
Tenant in any action or proceeding against Tenant, whether Landlord be a party
thereto or not,
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that Tenant has violated any such Laws or Private Restrictions, shall be
conclusive of that fact as between Landlord and Tenant.
9.3. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Landlord and Tenant hereby agree and acknowledge that the Premises, the
Building and/or the Project may be subject to, among other Laws, the
requirements of the Americans with Disabilities Act, a federal law codified at
42 U.S.C. 12101 ET SEQ., including, but not limited to Title III thereof, and
all regulations and guidelines related thereto, together with any and all laws,
rules, regulations, ordinances, codes and statutes now or hereafter enacted by
local or state agencies having jurisdiction thereof, including all requirements
of Title 24 of the State of California, as the same may be in effect on the date
of this Lease and may be hereafter modified, amended or supplemented
(collectively, the "ADA"). Landlord shall cause the Base Building Improvements
to be constructed in compliance with the ADA as currently administered by the
City of South San Francisco. Any Tenant Improvements to be constructed hereunder
or Alterations (as hereinafter defined) made during the Term shall be in
compliance with the requirements of the ADA, and all costs incurred for purposes
of compliance therewith shall be a part of and included in the costs of the
Tenant Improvements or the Alterations, as applicable. Tenant shall be solely
responsible for conducting its own independent investigation of this matter and
for ensuring that the design of all Tenant Improvements strictly complies with
all requirements of the ADA. Subject to reimbursement pursuant to Paragraph 4
above, if any barrier removal work or other work is required to the Building,
the Common Areas or the Project under the ADA, then such work shall be the
responsibility of Landlord; provided, if such work is required under the ADA as
a result of Tenant's use of the Premises or any work or Alteration made to the
Premises by or on behalf of Tenant, then such work shall be performed by
Landlord at the sole cost and expense of Tenant; and, provided further, that if
any such work is required under the ADA as a result of another tenant's specific
use of its premises or improvements made by another tenant to its premises, then
the cost of such work shall be solely chargeable to such tenant and Tenant shall
have no responsibility therefor. Except as otherwise expressly provided in this
provision, Tenant shall be responsible at its sole cost and expense for fully
and faithfully complying with all applicable requirements of the ADA, including
without limitation, not discriminating against any disabled persons in the
operation of Tenant's business in or about the Premises, and offering or
otherwise providing auxiliary aids and services as, and when, required by the
ADA. Within ten (10) days after receipt, Tenant shall advise Landlord in
writing, and provide Landlord with copies of (as applicable), any notices
alleging violation of the ADA relating to any portion of the Premises, the
Building or the Project; any claims made or threatened orally or in writing
regarding noncompliance with the ADA and relating to any portion of the
Premises, the Building or the Project; or any governmental or regulatory actions
or investigations instituted or threatened regarding noncompliance with the ADA
and relating to any portion of the Premises, the Building or the Project. Tenant
shall and hereby agrees to protect, defend (with counsel acceptable to Landlord)
and hold Landlord and Landlord's Agents harmless and indemnify Landlord and
Landlord's Agents from and against all liabilities, damages, claims, losses,
penalties, judgments, charges and expenses (including attorneys'
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<PAGE>
fees, costs of court and expenses necessary in the prosecution or defense of any
litigation including the enforcement of this provision) arising from or in any
way related to, directly or indirectly, Tenant's or Tenant's Agents' violation
or alleged violation of the ADA. Landlord shall and hereby agrees to protect,
defend (with counsel acceptable to Tenant) and hold Tenant and Tenant's Agents
harmless and indemnify Tenant and Tenant's Agents from and against all
liabilities, damages, claims, losses, penalties, judgments, charges and expenses
(including attorneys' fees, costs of court and expenses necessary in the
prosecution or defense of any litigation including the enforcement of this
provision) arising from or in any way related to, directly or indirectly,
Landlord's failure to have the Base Building Improvements constructed in
compliance with the ADA as currently administered by the City of South San
Francisco.
10. ACCEPTANCE OF PREMISES
By taking possession of the Premises hereunder Tenant accepts the
Premises as suitable for Tenant's intended use and as being in good and sanitary
operating order, condition and repair, AS IS, and without representation or
warranty by Landlord as to the condition, use or occupancy which may be made
thereof, except for Landlord's express obligations described in EXHIBIT B and
Landlord's covenant set forth in Section 9.2(a) above. Any exceptions to the
foregoing must be by written agreement executed by Landlord and Tenant.
11. SURRENDER
11.1. SURRENDER AT EXPIRATION OR TERMINATION
Tenant agrees that on the last day of the Term, or on the sooner
termination of this Lease, Tenant shall surrender the Premises to Landlord (i)
in good condition and repair (damage by acts of God, fire, and normal wear and
tear excepted), but with all interior walls painted or cleaned so they appear
painted and, where appropriate, patched, any carpets cleaned, all floors cleaned
and waxed, and all plumbing fixtures in good condition and working order and,
where appropriate, capped, and (ii) otherwise in accordance with Paragraph 32.9.
Normal wear and tear shall not include any damage or deterioration that would
have been prevented by proper maintenance by Tenant, or Tenant otherwise
performing all of its obligations under this Lease.
11.2. REMOVAL OBLIGATIONS AND ABANDONMENT OF TENANT'S PROPERTY
On or before the expiration or sooner termination of this Lease, Tenant
shall, in accordance with this Paragraph 11, and at Tenant's sole cost and
expense, remove, and repair any damage caused by such removal, (A) all of
Tenant's Property (as hereinafter defined) and Tenant's signage from the
Premises, the Building and the Project, and (B) all Tenant Improvements and
Alterations required to be removed pursuant to Paragraph 12 below and Section 5
of EXHIBIT B hereto. Any of Tenant's Property not so removed by Tenant as
required herein shall be deemed abandoned and may be stored, removed, and
disposed of by Landlord at Tenant's expense, and Tenant waives all claims
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against Landlord for any damages resulting from Landlord's retention and
disposition of such property; provided, however, that Tenant shall remain liable
to Landlord for all costs incurred in storing and disposing of such abandoned
property of Tenant. All Tenant Improvements and Alterations except those which
Tenant is required to remove pursuant to Paragraph 12 below hereto shall remain
in the Premises as the property of Landlord.
11.3. INDEMNIFICATION
If the Premises are not surrendered at the end of the Term or sooner
termination of this Lease, and in accordance with the provisions of this
Paragraph 11 and Paragraph 32.9 below, Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all loss or liability resulting from
delay by Tenant in so surrendering the Premises including, without limitation,
any loss or liability resulting from any claim against Landlord made by any
succeeding tenant or prospective tenant founded on or resulting from such delay
and losses to Landlord due to lost opportunities to lease any portion of the
Premises to any such succeeding tenant or prospective tenant, together with, in
each case, reasonable attorneys' fees and costs.
12. ALTERATIONS AND ADDITIONS
12.1. LANDLORD'S CONSENT REQUIRED
Tenant shall not make, or permit to be made, any alteration, addition or
improvement (hereinafter referred to individually as an "ALTERATION" and
collectively as the "ALTERATIONS") to the Premises or any part thereof without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed; provided, however, that Landlord shall have
the right in its sole and absolute discretion to consent or to withhold its
consent to any Alteration which affects the structural portions of the Premises,
the Building or the Project or the Systems serving the Premises, the Building
and/or the Project or any portion thereof.
12.2. ALTERATIONS PERMITTED WITHOUT LANDLORD'S CONSENT; REMOVAL
REQUIREMENTS
Notwithstanding the foregoing, but subject to the conditions set forth
below, Tenant may, without Landlord's consent, make Alterations within the
Premises provided that (i) such Alterations do not affect the structural
portions of the Premises, the Building or the Project or the Systems, and (ii)
the cost, on an individual project basis, of any Alteration or related series of
Alterations is less than $50,000, and all Alterations in the aggregate do not
exceed $500,000 over the Term. The Alterations made by Tenant without the
consent of Landlord in accordance with this Paragraph 12.2 shall be herein
referred to as the "PERMITTED ALTERATIONS."
12.3. ALTERATIONS AT TENANT'S EXPENSE
Any Alteration to the Premises shall be at Tenant's sole cost and
expense, in compliance with all applicable Laws and all requirements requested
by Landlord,
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including, without limitation, the requirements of any insurer providing
coverage for the Premises or the Project or any part thereof, and in accordance
with plans and specifications approved in writing by Landlord (except for
Permitted Alterations). which approval shall not be unreasonably withheld,
conditioned or delayed. Notwithstanding the foregoing, with respect to
Alterations that may be made without Landlord's prior consent as permitted
above, Landlord agrees that Tenant shall not be required to submit plans and
specifications for prior approval of the Landlord and that Landlord shall not
require prior approval of the installing contractor; provided, however, if
Tenant does not obtain the prior approval of plans and specifications for any
Alteration, then subject to the terms of Paragraph 12.4(b) below, Landlord may,
by notice to Tenant given not later than ninety (90) days prior to the
Expiration Date (except in the event of a termination of this Lease prior to the
scheduled Expiration Date, in which event no advance notice shall be required),
require Tenant, at Tenant's expense, to remove, and repair any damage caused by
removal of, any and all such Alterations. If Tenant does not obtain Landlord's
prior consent as to the installing contractor, Tenant shall be responsible for
maintaining harmonious labor relations with all contractors and service
providers servicing the Premises, Building and/or Project. In addition, with
respect to any Permitted Alterations made without Landlord's prior consent as
permitted above, Tenant agrees to meet with Landlord, at Landlord's request, not
more than once in every calendar year, to discuss any such Permitted Alterations
that have been made to the Premises (each such meeting being herein referred to
as an "ALTERATIONS MEETING"). Tenant shall provide to Landlord within forty five
(45) days after written request as-built plans and specifications for any
Alterations (including, without limitation, any Permitted Alterations) made by
Tenant to the Premises. Notwithstanding anything in this Lease to the contrary,
any approval by Landlord of any drawings, plans or specifications prepared on
behalf of Tenant shall not in any way bind Landlord, create any responsibility
or liability on the part of Landlord for the completeness of the same, their
design sufficiency or compliance with applicable statutes, ordinances or
regulations or constitute a representation or warranty by Landlord as to the
adequacy or sufficiency of such drawings, plans or specifications, or the
improvements to which they relate, but such approval shall merely evidence the
consent of Landlord to such drawings, plans or specifications.
12.4. REQUIREMENTS OF REQUEST FOR APPROVAL
(a) Any Alterations requiring the prior consent of Landlord
shall contain a request that Landlord specify in writing to Tenant those
Alterations that Tenant will be required to remove in accordance with Paragraph
11.1 upon expiration or sooner termination of this Lease. Upon receipt of such
request, Landlord shall make such determination and respond to Tenant within
twenty (20) business days of such request. Landlord's failure to respond within
such time shall be deemed to mean that Tenant shall not be required to remove
such Alterations upon the expiration or sooner termination of this Lease.
(b) In the event Tenant constructs or installs any Permitted
Alterations without the consent of Landlord, then Tenant shall have the right at
the next succeeding Alterations Meeting to request that Landlord specify in
writing whether Tenant will be
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required to remove all or any portion of such Permitted Alterations upon
expiration or sooner termination of this Lease. Upon receipt of such request,
Landlord shall make such determination and respond to Tenant within twenty (20)
business days of such request. Landlord's failure to respond within such time
shall conclusively be deemed to be an irrevocable waiver of Landlord's right to
demand their removal.
12.5. PERMITS REQUIRED; INSURANCE REQUIRED
12.5.1. PERMITS
Before Alterations may begin, valid building permits or
other permits or licenses required must be furnished to Landlord, and, once the
Alterations begin, Tenant will diligently and continuously pursue their
completion. Landlord may monitor construction of the Alterations, either through
its own employees or through a construction manager retained by Landlord.
12.5.2. INSURANCE
Tenant shall maintain during the course of any
construction (including, without limitation, during the construction of the
Tenant Improvements and any Alterations), at its sole cost and expense,
builders' risk insurance for the amount of the completed value of the
Alterations and Tenant Improvements on an all-risk nonreporting form covering
all improvements under construction, including building materials, and other
insurance in amounts and against such risks as Landlord shall reasonably require
in connection with the Alterations and Tenant Improvements, including without
limitation naming Landlord and Landlord's lender as loss payee under any such
policy. In addition to and without limitation on the generality of the
foregoing, Tenant shall ensure that its contractor(s) procure and maintain in
full force and effect during the course of construction a "broad form"
commercial general liability and property damage policy of insurance naming
Landlord, Tenant and Landlord's lenders as additional insureds. The minimum
limit of coverage of the aforesaid policy shall be in the amount of not less
than Three Million Dollars ($3,000,000.00) for injury or death of one person in
any one accident or occurrence and in the amount of not less than Three Million
Dollars ($3,000,000.00) for injury or death of more than one person in any one
accident or occurrence, and shall contain a severability of interest clause or a
cross liability endorsement. Such insurance shall further insure Landlord and
Tenant against liability for property damage of at least One Million Dollars
($1,000,000.00).
12.6. TITLE TO IMPROVEMENTS; REMOVAL RIGHTS; FINANCING
Except as otherwise expressly stated herein or agreed to in writing
between the parties, the Tenant Improvements actually paid for by Tenant,
including, without limitation, any Tenant Improvements exclusively paid for with
the proceeds of the Tenant Improvement Loan, and all Alterations, including, but
not limited to, heating, lighting, electrical, air conditioning, fixed
partitioning, drapery, wall covering and paneling, built-in cabinet work and
carpeting installations made by Tenant, together with all property
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that has become an integral part of the Premises or the Building, shall upon
installation become the property of Tenant; provided, however, that title to all
such Tenant Improvements, Alterations and property shall automatically transfer
to Landlord upon the expiration of the Term or the sooner termination of this
Lease without the payment of any consideration or the execution of any transfer
documents. Notwithstanding the foregoing, Tenant shall retain title to and
ownership of Tenant's Property at all times.
12.7. COMPUTER, UTILITY AND TELECOMMUNICATIONS EQUIPMENT
No private telephone systems, utilities and/or other related
computer, utility or telecommunications equipment or lines may be installed
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. If Landlord gives such consent, all equipment must be
installed within the Premises and, unless Landlord, at the time of installation,
notifies Tenant in writing that removal will be required, left in the Premises
and surrendered to Landlord upon the expiration or sooner termination of this
Lease.
12.8. NOTICE AND OPPORTUNITY TO POST NOTICE OF NONRESPONSIBILITY
Tenant agrees not to proceed to make any Alterations,
notwithstanding consent from Landlord to do so, without fifteen (15) days prior
written notice to Landlord, in order that Landlord may post appropriate notices
to avoid any liability to contractors or material suppliers for payment for
Tenant's improvements. Tenant will at all times permit such notices to be posted
and to remain posted until the completion of work.
13. MAINTENANCE AND REPAIRS OF PREMISES
13.1. MAINTENANCE BY TENANT
Subject to the provisions of Paragraph 13.2, 21 and 22 below,
throughout the Term, Tenant shall, at its sole expense, (1) keep and maintain in
good order and condition the Building and the Premises and repair the Building
and the Premises and every part thereof, including interior and exterior glass,
windows, window frames and casements, interior and exterior doors and door
frames and door closers; interior and exterior lighting (including, without
limitation, light bulbs and ballasts), the roof covering; the Systems serving
the Premises and the Building; interior and exterior signage, interior demising
walls and partitions, equipment, interior painting and interior walls and
floors, and the roll-up doors, ramps and dock equipment, including, without
limitation, dock bumpers, dock plates, dock seals, dock levelers and dock lights
located in or on the Premises (excepting only those portions of the Building or
the Project to be maintained by Landlord, as provided in Paragraph 13.2 below),
(2) furnish all expendables, including light bulbs, paper goods and soaps, used
in the Premises, and (3) keep and maintain in good order and condition and
repair and replace all of Tenant's security systems in or about or serving the
Premises. Tenant shall not do nor shall Tenant allow Tenant's Agents to do
anything to cause any damage, deterioration or unsightliness
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to the Premises, the Building or the Project. Tenant shall perform its
obligations under this Paragraph 13.1 in accordance with maintenance and repair
standards adopted by Landlord from time to time for the Project. Tenant shall
cause to be furnished to Landlord on not less than a quarterly basis maintenance
reports on all Systems and the roof of the Building prepared by a qualified
vendor or consultant, and Tenant shall promptly perform any maintenance tasks
recommended by such reports or otherwise required by Landlord to cause the
Premises and the Systems to comply with Landlord's maintenance and repair
standards.
13.2. MAINTENANCE BY LANDLORD
Subject to the provisions of Paragraphs 13.1, 21 and 22, and
further subject to Tenant's obligation under Paragraph 4 to reimburse Landlord,
in the form of Additional Rent, for Tenant's Proportionate Share(s) of the
Project and the Building, as applicable, of the cost and expense of the
following items, Landlord agrees to repair and maintain the Common Areas in good
order and condition, including, without limitation, the Parking Areas, pavement,
landscaping, sprinkler systems, sidewalks, driveways, curbs, and lighting
systems in the Common Areas. Subject to the provisions of Paragraphs 13.1, 21
and 22, Landlord, at its own cost and expense, agrees to repair and maintain the
following items: the structural portions of the roof (specifically excluding the
roof coverings), the foundation, the footings, the floor slab, and the load
bearing walls and exterior walls of the Building (excluding any glass and any
routine maintenance, including, without limitation, any painting, sealing,
patching and waterproofing of such walls).
13.3. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
Notwithstanding anything in this Paragraph 13 to the contrary,
Landlord shall have the right to either repair or to require Tenant to repair
any damage to any portion of the Premises, the Building and/or the Project
caused by or created due to any act, omission, negligence or willful misconduct
of Tenant or Tenant's Agents and to restore the Premises, the Building and/or
the Project, as applicable, to the condition existing prior to the occurrence of
such damage; provided, however, that in the event Landlord elects to perform
such repair and restoration work, Tenant shall reimburse Landlord upon demand
for all costs and expenses incurred by Landlord in connection therewith.
Landlord's obligation hereunder to repair and maintain is subject to the
condition precedent that Landlord shall have received written notice of the need
for such repairs and maintenance and a reasonable time to perform such repair
and maintenance. Tenant shall promptly report in writing to Landlord any
defective condition which Landlord is required to repair, and failure to so
report such defects shall make Tenant responsible to Landlord for the costs and
expenses of repairing any Preventable Damage occurring after the date Tenant
obtains actual knowledge of such defective condition and any liability incurred
by Landlord by reason of Tenant's failure to notify Landlord of such defective
condition in a timely manner as provided herein. As used herein, "PREVENTABLE
DAMAGE" means any damage or deterioration which could have been prevented had
Landlord received timely notice of the defective condition. Nothing
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contained herein shall be deemed or construed to limit Tenant's obligations
under Paragraph 16 below.
13.4. TENANT'S WAIVER OF RIGHTS
Tenant hereby expressly waives all rights to make repairs at the
expense of Landlord or to terminate this Lease, as provided for in California
Civil Code Sections 1941 and 1942, and 1932(1), respectively, and any similar or
successor statute or law in effect or any amendment thereof during the Term.
14. LANDLORD'S INSURANCE
At all times during the Term of this Lease, Landlord shall purchase and
keep in force "all risk" property insurance covering the Base Building
Improvements, the Tenant Improvements and all Alterations made to the Premises
by Tenant in accordance with the terms of Paragraph 12 above, in accordance with
Landlord's customary insurance program for comparable properties. Tenant shall
provide Landlord with such information as may be requested by Landlord or its
insurers concerning the value of the Tenant Improvements or any Alterations.
Tenant acknowledges and agrees that Landlord shall have no obligation to
maintain property insurance covering any alterations, additions or improvements
made to the Premises other than Alterations made in strict accordance with
Paragraph 12 (such other alterations, additions or improvements being herein
referred to as "UNPERMITTED ALTERATIONS"), and Tenant hereby agrees to indemnify
and hold harmless Landlord and Landlord's Agents from and against any and all
Losses (as hereinafter defined) resulting from or arising out of the making of
any such Unpermitted Alterations. Tenant shall, at its sole cost and expense,
comply with any and all reasonable requirements pertaining to the Premises, the
Building and the Project of any insurer necessary for the maintenance of
reasonable property damage and commercial general liability insurance, covering
the Building and the Project. Landlord, at Tenant's cost, may maintain "Loss of
Rents" insurance, insuring that the Rent will be paid in a timely manner to
Landlord for a period of at least twelve (12) months if the Building or any
portion thereof are destroyed or rendered unusable or inaccessible by any cause
insured against under this Lease.
15. TENANT'S INSURANCE
15.1. COMMERCIAL GENERAL LIABILITY
At all times during the Term of this Lease, Tenant shall, at Tenant's
expense, secure and keep in force a Commercial General Liability insurance
policy covering the Premises, insuring Tenant, and naming Landlord and its
lenders as additional insureds, against liability arising out of the ownership,
use, occupancy or maintenance of the Premises. The minimum limit of coverage of
such policy shall be in the amount of not less than Three Million Dollars
($3,000,000.00) for each occurrence combined single limit for bodily injury and
property damage, shall include contractual liability coverage (which shall
include coverage for Tenant's indemnification obligations in this Lease,
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provided that the amount of such coverage shall not be construed to limit
Tenant's indemnification obligations hereunder), and shall contain severability
of interests and cross liability coverage clauses and/or endorsements. Such
insurance shall be endorsed to be primary and non-contributory to any insurance
Landlord may carry. Landlord may from time to time require reasonable increases
in any such limits if Landlord believes that additional coverage is necessary or
desirable. The limit of any insurance shall not limit the liability of Tenant
hereunder. No policy maintained by Tenant under this Paragraph 15.1 shall
contain a deductible greater than Five Thousand Dollars ($5,000.00). Such
policies of insurance shall be issued as primary policies and not contributing
with or in excess of coverage that Landlord may carry.
15.2. PROPERTY INSURANCE
At all times during the Term of this Lease, Tenant shall, at Tenant's
expense, maintain in full force and effect special form property insurance on
all of its personal property, possessions, furniture, furnishings, trade or
business fixtures, equipment and such other items listed on EXHIBIT H
(collectively, "TENANT'S PROPERTY") located on the Premises. Such special form
property insurance shall be on a full replacement cost basis and shall be
written to cover all risks of direct loss or damage, including, but not be
limited to, theft, water damage and sprinkler leakage. No such policy shall
contain a deductible greater than Five Thousand Dollars ($5,000.00). During the
Term of this Lease the proceeds from any such policy or policies of insurance
shall be used for the repair or replacement of Tenant's Property. Landlord shall
have no interest in the insurance upon Tenant's Property and will sign all
documents reasonably necessary in connection with the settlement of any claim or
loss by Tenant. Landlord will not carry insurance on Tenant's Property.
15.3. WORKER'S COMPENSATION INSURANCE; EMPLOYER'S LIABILITY INSURANCE
At all times during the Term of this Lease, Tenant shall, at Tenant's
expense, maintain in full force and effect worker's compensation insurance with
not less than the minimum limits required by Law, and employer's liability
insurance with a minimum limit of coverage of One Million Dollars ($1,000,000)
per accident.
15.4. BUSINESS INTERRUPTION INSURANCE
Tenant shall, at all times during the Term of this Lease, maintain in
full force and effect loss of income and extra expense insurance in such amounts
as will reimburse Tenant for direct or indirect loss of earnings or extra
expenses attributable to or resulting from all perils commonly insured under a
special form policy of property insurance.
15.5. INSURANCE STANDARDS AND EVIDENCE OF COVERAGE
All insurance required to be carried by Tenant hereunder shall be
maintained with insurance companies authorized to do business in the State of
California for the issuance of the applicable type of insurance coverage and
rated A:XIII or better in
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Best's Key Rating Guide. Notwithstanding the foregoing, Landlord hereby approves
General Star Indemnity as the carrier of the insurance required under Paragraph
15.1 above, provided that General Star Indemnity shall at all times during the
Term maintain a Best's Key Rating of not less than A++:VIII. Tenant shall
deliver to Landlord certificates of insurance and true and complete copies of
any and all endorsements required herein for all insurance required to be
maintained by Tenant hereunder at the time of execution of this Lease by Tenant.
Tenant shall, at least thirty (30) days prior to expiration of each policy,
furnish Landlord and the other parties named as additional insureds with
certificates of renewal or "binders" thereof. Each certificate shall expressly
provide that such policies shall not be cancelable except after thirty (30) days
prior written notice to Landlord and the other parties named as additional
insureds as required in this Lease (except for cancellation for nonpayment of
premium, in which event cancellation shall not take effect until at least ten
(10) days' notice has been given to Landlord and the parties named as additional
insureds hereunder).
16. INDEMNIFICATION
16.1. OF LANDLORD
Tenant shall indemnify and hold harmless Landlord and Landlord's
advisors, employees. partners, shareholders and directors against and from any
and all claims, liabilities, judgments, costs, demands, causes of action and
expenses (including, without limitation, reasonable attorneys' fees)
(collectively, "LOSSES") arising from (1) the use of the Premises, the Building
or the Project by Tenant or Tenant's Agents, or from any activity done,
permitted or suffered by Tenant or Tenant's Agents in or about the Premises, the
Building or the Project, and (2) any act, neglect, fault, willful misconduct or
omission of Tenant or Tenant's Agents, or from any breach or default in the
terms of this Lease by Tenant or Tenant's Agents, and (3) any action or
proceeding brought on account of any matter in items (1) or (2); provided,
however, that in no event shall Tenant be required to indemnify Landlord against
any claims, demands or losses resulting from any failure of Landlord to observe
any of the terms and conditions of this Lease, including, without limitation,
the covenant set forth in Paragraph 9.2(a) above, in each case to the extent
such failure or breach has persisted for an unreasonable period of time after
written notice of such failure or breach. If any action or proceeding is brought
against Landlord by reason of any such claim, upon notice from Landlord, Tenant
shall defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. As a material part of the consideration to Landlord, Tenant hereby
releases Landlord and Landlord's Agents from responsibility for, waives its
entire claim of recovery for and assumes all risk of (i) damage to property or
injury to persons in or about the Premises, the Building or the Project from any
cause whatsoever (except that which is caused by the gross negligence or willful
misconduct of Landlord or Landlord's Agents or by the failure of Landlord to
observe any of the terms and conditions of this Lease, if such failure has
persisted for an unreasonable period of time after written notice of such
failure), or (ii) loss resulting from business interruption or loss of income at
the Premises. The obligations of Tenant under this paragraph 16.1 shall survive
the expiration or earlier termination of this Lease.
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16.2. OF TENANT
Landlord shall indemnify and hold harmless Tenant and Tenant's employees,
partners, shareholders and directors against and from any and all Losses
relating to the Project and arising from (1) the gross negligence or willful
misconduct of Landlord or Landlord's Agents, (2) the failure of Landlord to
observe any of the terms and conditions of this Lease, if such failure has
persisted for an unreasonable period of time after written notice of such
failure, and (3) any action or proceeding brought on account of any matter in
items (1) or (2). If any action or proceeding is brought against Tenant by
reason of any such claim, upon notice from Tenant, Landlord shall defend the
same at Landlord's expense by counsel reasonably satisfactory to Landlord. The
obligations of Landlord under this Paragraph 16.2 shall survive any termination
of this Lease.
16.3. NO IMPAIRMENT OF INSURANCE
The foregoing indemnity shall not relieve any insurance carrier of its
obligations under any policies required to be carried by either party pursuant
to this Lease, to the extent that such policies cover the peril or occurrence
that results in the claim that is subject to the foregoing indemnity.
17. SUBROGATION
Landlord and Tenant hereby mutually waive any claim against the other and
its Agents for any loss or damage to any of their property located on or about
the Premises, the Building or the Project that is caused by or results from
perils covered by the property insurance required to be carried by the
respective parties in accordance with Paragraphs 14 and 15 of this Lease,
whether or not due to the negligence of the other party or its Agents. Because
the foregoing waivers will preclude the assignment of any claim by way of
subrogation to an insurance company or any other person, each party now agrees
to immediately give to its insurer written notice of the terms of these mutual
waivers and shall have their insurance policies endorsed to prevent the
invalidation of the insurance coverage because of these waivers. Nothing in this
Paragraph 17 shall relieve a party of liability to the other for failure to
carry insurance required by this Lease.
18. SIGNS
Tenant shall not place or permit to be placed in, upon, or about the
Premises, the Building or the Project any exterior lights, decorations,
balloons, flags, pennants, banners, advertisements or notices, or erect or
install any signs, windows or door lettering, placards, decorations, or
advertising media of any type which can be viewed from the exterior of the
Premises without obtaining Landlord's prior written consent or without complying
with Landlord's signage program, as the same may be modified by Landlord from
time to time, and with all applicable Laws, and will not conduct, or permit to
be conducted, any sale by auction on the Premises or otherwise on the Project.
Tenant shall remove any sign, advertisement or notice placed on the Premises,
the Building or
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the Project by Tenant upon the expiration of the Term or sooner termination of
this Lease, and Tenant shall repair any damage or injury to the Premises, the
Building or the Project caused thereby, all at Tenant's expense. If any signs
are not removed, or necessary repairs not made, Landlord shall have the right to
remove the signs and repair any damage or injury to the Premises, the Building
or the Project at Tenant's sole cost and expense.
19. FREE FROM LIENS
Tenant shall keep the Premises, the Building and the Project free from
any liens arising out of any work performed, material furnished or obligations
incurred by or for Tenant in accordance with the provisions of this Paragraph
19. In the event that Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the lien to be released of record by payment
or posting of a proper bond, Landlord shall have in addition to all other
remedies provided herein and by law the right but not the obligation to cause
same to be released by such means as it shall deem proper, including payment of
the claim giving rise to such lien. All such sums paid by Landlord and all
expenses incurred by it in connection therewith (including, without limitation,
reasonable attorneys' fees) shall be payable to Landlord by Tenant upon demand.
Landlord shall have the right at all times to post and keep posted on the
Premises any notices permitted or required by law or that Landlord shall deem
proper for the protection of Landlord, the Premises, the Building and the
Project, from mechanics' and materialmen's liens. Tenant agrees not to proceed
to perform any repairs or construction on the Premises without fifteen (15) days
prior written notice to Landlord in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Tenant's work.
20. ENTRY BY LANDLORD
Tenant shall permit Landlord and Landlord's Agents to enter into and upon
the Premises at all reasonable times upon twenty-four (24) hours' notice (except
in the case of an emergency, in which event no advance notice shall be required)
for the purpose of inspecting the same or showing the Premises to prospective
purchasers, lenders or tenants or to alter, improve, maintain and repair the
Premises or the Building as required or permitted of Landlord under the terms
hereof, or for any other reasonable business purpose, without any rebate of Rent
and without any liability to Tenant for any loss of occupation or quiet
enjoyment of the Premises thereby occasioned; and Tenant shall permit Landlord
to post notices of non-responsibility and ordinary "for sale" or "for lease"
signs. Notwithstanding the foregoing, Landlord shall only enter the Premises for
the purpose of showing the same to prospective tenants during the last ten (10)
months of the Term. No such entry shall be construed to be a forcible or
unlawful entry into, or a detailer of, the Premises, or an eviction of Tenant
from the premises. Tenant's representatives shall have the right to accompany
landlord on any inspection of the Premises, provided that Tenant's
representatives are available at the time of such inspections. Landlord may
temporarily close entrances, doors, corridors, elevators or
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other facilities without liability to Tenant by reason of such closure in the
case of an emergency and when Landlord otherwise reasonably deems such closure
necessary.
21. DESTRUCTION AND DAMAGE
21.1. DAMAGE COVERED BY EXTENDED COVERAGE INSURANCE
If the Premises are damaged by fire or other perils covered by extended
coverage insurance, Landlord shall, at Landlord's option:
21.1.1. MATERIAL DAMAGE; INSURED LOSS
In the event of material damage to the Premises (which
shall mean damage or destruction of a nature such that all required permits
cannot be reasonably obtained and/or the Premises can not be substantially
repaired and restored to the condition existing immediately prior to such damage
or destruction within three hundred sixty-five (365) days after the date
Landlord obtains actual knowledge of such destruction (the "Casualty Discovery
Date")), Landlord may elect either to commence promptly to repair and restore
the Premises and prosecute the same diligently to completion, in which event
this Lease shall remain in full force and effect; or not to repair or restore
the Premises, in which event this Lease shall terminate. Landlord shall give
Tenant written notice of its intention within sixty (60) days after the Casualty
Discovery Date. If Landlord elects in writing not to restore the Premises, this
Lease shall be deemed to have terminated as of the date of such destruction.
21.1.2. MINOR DAMAGE; INSURED LOSS
In the event of minor damage to the Premises (which shall
mean damage or destruction of a nature such that all required permits can be
reasonably obtained and the Premises may be substantially repaired or restored
to the condition existing immediately prior to such damage or destruction within
three hundred sixty-five (365) days after the Casualty Discovery Date) for
which Landlord will receive insurance proceeds sufficient to cover the cost to
repair and restore such partial destruction, Landlord shall commence and proceed
diligently with the work of repair and restoration, in which event this Lease
shall continue in full force and effect. If the insurance proceeds (plus any
amounts Tenant may elect or is obligated to contribute) are not sufficient to
cover the cost of such repair and restoration, Landlord may elect either to so
repair and restore, in which event this Lease shall continue in full force and
effect, or not to repair or restore, in which event this Lease shall terminate.
In either case, Landlord shall give written notice to Tenant of its intention
within sixty (60) days after the Casualty Discovery Date. If Landlord elects, in
writing, not to restore the Premises, this Lease shall be deemed to have
terminated as of the date of such partial destruction.
21.1.3. CALCULATION OF RESTORATION PERIOD.
Following the occurrence of any casualty event, Landlord shall obtain
from a licensed general contractor selected by Landlord (the "Restoration
Contractor") an
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estimate of the time required to obtain all permits and to fully repair and
restore the Premises. In the event the Restoration Contractor determines that
the work of repair and restoration shall require more than three hundred
sixty-five (365) days to complete, Tenant shall have the right to discuss such
timing with the Restoration Contractor and, with the approval of Landlord, to
discuss modifications to the scope of work in an effort to reduce the repair and
restoration time to a period of less than three hundred sixty-five days;
provided, however, that in the event of any disagreement between the parties as
to the estimated length of the restoration period or the scope of work required,
the determination of Landlord and the Restoration Contractor shall control.
21.2. UNINSURED LOSS
If the Premises are damaged by any peril not covered by Landlord's
property insurance, and the cost to repair such damage exceeds any amount Tenant
may agree to contribute, Landlord may elect either to commence promptly to
repair and restore the Premises and prosecute the same diligently to completion,
in which event this Lease shall remain in full force and effect; or not to
repair or restore the Premises, in which event this Lease shall terminate.
Landlord shall give Tenant written notice of its intention within sixty (60)
days after the Casualty Discovery Date. If Landlord elects, in writing, not to
restore the Premises, this Lease shall be deemed to have terminated as of the
date on which Tenant surrenders possession of the Premises to Landlord.
21.3. CASUALTY DURING LAST TWELVE MONTHS OF TERM
If fifty percent (50%) or more of the Building is damaged or
destroyed during the last twelve (12) months of the Term (unless Tenant has
remaining extension options and has previously validly exercised such options or
validly exercises such options within ten (10) days after the Casualty Discovery
Date), Landlord shall have the option to terminate this Lease, exercisable by
notice to Tenant within sixty (60) days after the Casualty Discovery Date.
21.4. TENANT'S RIGHT TO TERMINATE LEASE
If the Premises is damaged or destroyed to the extent that the
Premises cannot be substantially repaired or restored by Landlord within three
hundred sixty-five (365) days after the Casualty Discovery Date, Tenant may
terminate this Lease immediately upon notice thereof to Landlord, which notice
shall be given, if at all, not later than fifteen (15) days after Landlord
notifies Tenant of Landlord's estimate of the period of time required to repair
such damage or destruction.
21.5. RENT ABATEMENT
In the event of repair and restoration as herein provided, the
monthly installments of Base Rent and Additional Rent shall be abated
proportionately to the extent Tenant's use of the Premises is impaired during
the period of such repair or restoration, but only to the extent of rental
abatement insurance proceeds actually
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received by Landlord. The number of parking spaces allocated to Tenant hereunder
shall be reduced on a proportionate basis in the event any of the parking spaces
in the Parking Areas are eliminated as a result of such damage or destruction
affecting such Parking Areas. Except as expressly provided above with respect to
abatement of Base Rent, Tenant shall have no claim against Landlord for, and
hereby releases Landlord and Landlord's Agents from responsibility for and
waives its entire claim of recovery for any cost, loss or expense suffered or
incurred by Tenant as a result of any damage to or destruction of the Premises,
the Building or the Project or the repair or restoration thereof, including,
without limitation, any cost, loss or expense resulting from any loss of use of
the whole or any part of the Premises, the Building or the Project and/or any
inconvenience or annoyance occasioned by such damage, repair or restoration.
21.6. RESTORATION OF BASE BUILDING IMPROVEMENTS AND TENANT IMPROVEMENTS
If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall repair or restore only the Base Building Improvements
constructed pursuant to the terms of this Lease, substantially to their
condition existing immediately prior to the occurrence of the damage or
destruction; and Tenant shall promptly repair and restore, at Tenant's expense,
the Tenant Improvements and Tenant's Alterations. Landlord shall make available
to Tenant to pay Restoration Costs (as hereinafter defined) any insurance
proceeds actually collected by Landlord allocable to the Tenant Improvements and
Alterations. Such proceeds shall be disbursed by Landlord in accordance with
customary construction-lending practices and disbursement procedures (including,
without limitation, the creation of a retention). As used herein, "RESTORATION
COSTS" means costs actually incurred by Tenant in repairing and restoring the
Tenant Improvements and any Alterations made by Tenant to the Premises.
21.7. WAIVER
Tenant hereby waives the provisions of California Civil Code Section
1932(2) and Section 1933(4) which permit termination of a lease upon destruction
of the leased premises, and the provisions of any similar law now or hereinafter
in effect, and the provisions of this Paragraph 21 shall govern exclusively in
case of such destruction.
22. CONDEMNATION
(a) If twenty-five percent (25%) or more of the Building or fifty percent
(50%) or more of the Designated Parking Areas (as hereinafter defined) is taken
for any public or quasi-public purpose by any lawful governmental power or
authority, by exercise of the right of appropriation, inverse condemnation,
condemnation or eminent domain, or sold to prevent such taking (each such event
being referred to as a "CONDEMNATION"), Landlord may, at its option, terminate
this Lease as of the date title vests in the condemning party. If twenty-five
percent (25%) or more of the Premises is taken and if the Premises remaining
after such Condemnation and any
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repairs by Landlord would be untenantable for the conduct of Tenant's business
operations, Tenant shall have the right to terminate this Lease as of the date
title vests in the condemning party. If either party elects to terminate this
Lease as provided herein, such election shall be made by written notice to the
other party given within thirty (30) days after the nature and extent of such
Condemnation have been finally determined. If neither Landlord nor Tenant elects
to terminate this Lease to the extent permitted above, Landlord shall promptly
proceed to restore the Premises, to the extent of any Condemnation award
received by Landlord, to substantially the same condition as existed prior to
such Condemnation, allowing for the reasonable effects of such Condemnation, and
a proportionate abatement shall be made to the Base Rent and Additional Rent
corresponding to the time during which, and to the portion of the floor area of
the Premises (adjusted for any increase thereto resulting from any
reconstruction) of which, Tenant is deprived on account of such Condemnation and
restoration, as reasonably determined by Landlord. Except as expressly provided
in the immediately preceding sentence with respect to abatement of Rent, Tenant
shall have no claim against Landlord for, and hereby releases Landlord and
Landlord's Agents from responsibility for and waives its entire claim of
recovery for any cost, loss or expense suffered or incurred by Tenant as a
result of any Condemnation or the repair or restoration of the Premises, the
Building, the Project or the Parking Areas following such Condemnation,
including, without limitation, any cost, loss or expense resulting from any loss
of use of the whole or any part of the Premises, the Building, the Project or
the parking areas, and/or any inconvenience or annoyance occasioned by such
Condemnation, repair or restoration. The provisions of California Code of Civil
Procedure Section 1265.130, which allows either party to petition the Superior
Court to terminate the Lease in the event of a partial taking of the Premises,
the Building or the Project or the parking areas for the Building or the
Project, and any other applicable law now or hereafter enacted, are hereby
waived by Tenant.
(a) Landlord shall be entitled to any and all compensation, damages,
income, rent, awards, or any interest therein whatsoever which may be paid or
made in connection with any Condemnation, and Tenant shall have no claim against
Landlord for the value of any unexpired term of this Lease or otherwise;
provided, however, that Tenant shall be entitled to receive any award separately
allocated by the condemning authority to Tenant for Tenant's relocation expenses
or the value of Tenant's Property (specifically excluding fixtures, Alterations
and other components of the Premises which under this Lease or by law are or at
the expiration of the Term will become the property of Landlord), provided that
such award does not reduce any award otherwise allocable or payable to Landlord.
23. ASSIGNMENT AND SUBLETTING
23.1. LANDLORD'S CONSENT REQUIRED EXCEPT FOR PERMITTED TRANSFERS
Except as specifically provided for in Paragraph 23.3 below,
Tenant shall not voluntarily or by operation of law, (1) mortgage, pledge,
hypothecate or encumber
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this Lease or any interest herein, (2) assign or transfer this Lease or any
interest herein, (3) sublease the Premises or any part thereof, or any right or
privilege appurtenant thereto, or (4) allow any other person (the employees and
invitees of Tenant excepted) to occupy or use the Premises, or any portion
thereof, without first obtaining the written consent of Landlord, which consent
shall not be unreasonably withheld, conditioned or delayed provided that Tenant
is not then in Default under this Lease nor is any event then occurring which
with the giving of notice or the passage of time, or both, would constitute
a Default hereunder.
23.2. REQUIREMENTS OF REQUEST FOR CONSENT.
When Tenant requests Landlord's consent to such assignment or subletting,
it shall notify Landlord in writing of the name and address of the proposed
assignee or subtenant and the nature and character of the business of the
proposed assignee or subtenant and shall provide current and prior financial
statements for the proposed assignee or subtenant prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP"). Tenant
shall also provide Landlord with a copy of the proposed sublease or assignment
agreement, including all material terms and conditions thereof, and such
additional information concerning the proposed assignee or subtenant as Landlord
may request. Landlord shall have the option, to be exercised within fifteen (15)
days of receipt of the foregoing in the case of a proposed assignment or
subletting affecting not more than twenty five thousand (25,000) square feet of
the Premises, and within thirty (30) days of receipt of the foregoing in the
case of a proposed assignment or subletting affecting more than twenty five
thousand (25,000) square feet ("LANDLORD'S REVIEW PERIOD"), to (1) consent to
the proposed assignment or sublease, (2) refuse its consent to the proposed
assignment or sublease, providing that such consent shall not be unreasonably
withheld, conditioned or delayed so long as Tenant is not then in Default under
this Lease or the Expansion Lease, if any, nor is any event then occurring which
with the giving of notice or the passage of time, or both, would constitute a
Default hereunder or under the Expansion Lease, or (3) sublease or take an
assignment, as the case may be, from Tenant of the interest in this Lease and/or
the Premises that Tenant proposes to assign or sublease, on the same terms and
conditions as stated in the proposed sublet or assignment agreement.
Notwithstanding the foregoing, in the event Tenant wishes to assign or sublet
all of the Premises for all of the remainder of the Term (except in either event
in connection with a Permitted Transfer), then in addition to the options
specified in the aforesaid clauses (1), (2) and (3), Landlord shall have the
additional right, to be exercised within the aforesaid thirty (30) day period,
to terminate this Lease in its entirety. In the event Landlord elects to
terminate this Lease or sublease or take an assignment from Tenant of the
interest in this Lease and/or the Premises that Tenant proposes to assign or
sublease as provided in the foregoing clauses of this Paragraph 23.2, then
Landlord shall have the additional right to negotiate directly with Tenant's
proposed assignee or subtenant and to enter into a direct lease or occupancy
agreement with such party on such terms as shall be acceptable to Landlord in
its sole and absolute discretion, and Tenant hereby waives any claims against
Landlord related thereto, including, without limitation, any claims for any
compensation or profit related to such lease or occupancy agreement.
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23.3 CRITERIA TO BE CONSIDERED IN CONNECTION WITH REQUEST FOR CONSENT
Without otherwise limiting the criteria upon which Landlord may withhold
its consent to a proposed assignment or sublease, Landlord shall be entitled to
consider all reasonable criteria including, but not limited to, the following:
(1) whether or not the proposed subtenant or assignee is engaged in a business
which, and the Premises will be used in a manner which, is in keeping with the
then character and nature of all other tenancies in the Project, (2) whether the
use to be made of the Premises by the proposed subtenant or assignee will
conflict with any so-called "exclusive" use then in favor of any other tenant of
the Building, the Project, or the Adjacent Properties, and whether such use
would be prohibited by any other portion of this Lease, including, but not
limited to, any rules and regulations then in effect, or under applicable Laws,
and whether such use imposes an unreasonable load upon the Premises and the
Building and Project services, (3) the business reputation of the proposed
individuals who will be managing and operating the business operations of the
assignee or subtenant, and the long-term financial and competitive business
prospects of the proposed assignee or subtenant, and (4) the creditworthiness
and financial stability of the proposed assignee or subtenant in light of the
responsibilities involved. In any event, Landlord may withhold its consent to
any assignment or sublease if the actual use proposed to be conducted in the
Premises or portion thereof is not a Permitted Use provided for under Paragraph
9 above or a general office use.
23.4. PERMITTED TRANSFERS
Notwithstanding the foregoing, Tenant may, without Landlord's consent,
but upon notice and delivery of evidence documenting such assignment or
subletting, assign or sublet to an Affiliate (as defined below) of the original
Tenant (such assignment or subletting being referred to as a "PERMITTED
TRANSFER"). In addition, a sale or transfer of the capital stock of Tenant shall
be deemed a Permitted Transfer if (1) such sale or transfer occurs in connection
with any bona fide financing or capitalization for the benefit of Tenant or (2)
occurring through a public trade. For purposes of this Lease, "AFFILIATE" shall
mean, as to any Person, any person, firm or corporation (i) which shall be
controlled by, under the control of, or under common control with such person,
(ii) which results from a merger of, reorganization of, or consolidation with,
or (iii) which acquires substantially all of the stock or assets with respect to
the business that is conducted in the Premises. "PERSON" means any natural
person, corporation, firm, association, government, governmental agency or any
other entity, whether acting in any individual, fiduciary or other capacity. For
purposes hereof, "CONTROL" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person, firm or corporation, whether through the ownership of voting securities,
by contract or otherwise.
23.5. EXCESS RENT
If Landlord approves an assignment or subletting as herein provided,
Tenant shall pay to Landlord, as Additional Rent, fifty percent (50%) of the
Transfer
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Profits (as hereinafter defined), as evidenced by written records satisfactory
to Landlord. As used herein, "Transfer Profits" means the difference, if any,
between (1) the Base Rent plus Additional Rent allocable to that part of the
Premises affected by such assignment or sublease pursuant to the provisions of
this Lease, and (2) the rent and any additional rent payable by the assignee or
sublessee to Tenant, less actual leasing commissions and reasonable attorneys'
fees, if any, incurred by Tenant in connection with such assignment or sublease,
and actual tenant improvement costs paid by Tenant up to an aggregate of five
dollars ($5.00) per square foot of space subject to the assignment or sublease
transaction. The assignment or sublease agreement, as the case may be, after
approval by Landlord, shall not be amended without Landlord's prior written
consent, which consent shall not be unreasonably withheld, conditioned or
delayed, shall contain an express assumption by the assignee or subtenant of
Tenant's obligations under this Lease and shall contain a provision directing
the assignee or subtenant to pay the rent and other sums due thereunder
directly to Landlord upon receiving written notice from Landlord that Tenant is
in default under this Lease with respect to the payment of Rent. In the event
that, notwithstanding the giving of such notice, Tenant collects any rent or
other sums from the assignee or subtenant, then Tenant shall hold such sums in
trust for the benefit of Landlord and shall immediately forward the same to
Landlord. Landlord's collection of such rent and other sums shall not constitute
an acceptance by Landlord of attornment by such assignee or subtenant. A consent
to one assignment, subletting, occupation or use shall not be deemed to be a
consent to any other or subsequent assignment, subletting, occupation or use,
and consent to any assignment or subletting shall in no way relieve Tenant of
any liability under this Lease. Any assignment or subletting without Landlord's
consent shall be void, and shall, at the option of Landlord, constitute a
Default under this Lease.
23.6. NO RELEASE OF TENANT
Notwithstanding any assignment or subletting, including, without
limitation, a Permitted Transfer, Tenant shall at all times remain fully
responsible and liable for the payment of the Rent and for compliance with all
of Tenant's other obligations under this Lease (regardless of whether Landlord's
approval has been obtained for any such assignment or subletting).
23.7 PAYMENT OF LANDLORD'S FEES
Tenant shall pay Landlord's reasonable fees (including, without
limitation, the fees of Landlord's counsel, not to exceed $1,000.00 per
transaction), incurred in connection with Landlord's review and processing of
documents regarding any proposed assignment or sublease.
23.8. NO CONSENT TO FURTHER ASSIGNMENT
Notwithstanding anything in this Lease to the contrary, in the event
Landlord consents to an assignment or subletting by Tenant in accordance with
the terms of this Paragraph 23 (specifically excluding any Permitted Transfer),
Tenant's assignee or
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subtenant shall have no right to further assign this Lease or any interest
therein or thereunder or to further sublease all or any portion of the Premises.
23.9. CONSTRAINTS REASONABLE
Tenant acknowledges and agrees that the restrictions, conditions and
limitations imposed by this Paragraph 23 on Tenant's ability to assign or
transfer this Lease or any interest herein, to sublet the Premises or any part
thereof, to transfer or assign any right or privilege appurtenant to the
Premises, or to allow any other person to occupy or use the Premises or any
portion thereof, are, for the purposes of California Civil Code Section 1951.4,
as amended from time to time, and for all other purposes, reasonable at the time
that the Lease was entered into, and shall be deemed to be reasonable at the
time that Tenant seeks to assign or transfer this Lease or any interest herein,
to sublet the Premises or any part thereof, to transfer or assign any right or
privilege appurtenant to the Premises, or to allow any other person to occupy or
use the Premises or any portion thereof.
24. TENANT'S DEFAULT
The occurrence of any one of the following events shall constitute an
event of default on the part of Tenant ("DEFAULT"):
(a) The vacation of the Premises for a consecutive period of sixty (60)
days or more, without (i) the intention of retaking possession or occupancy, and
(ii) providing for the security of the Building, or the abandonment of the
Premises by Tenant or any other vacation which would cause any insurance policy
to be invalidated or otherwise lapse;
(b) Failure to pay any installment of Rent or any other monies due and
payable hereunder within five (5) days after the date the same are due;
(c) A general assignment by Tenant for the benefit of creditors;
(d) The filing of a voluntary petition in bankruptcy by Tenant, the
filing by Tenant of a voluntary petition for an arrangement, the filing by or
against Tenant of a petition, voluntary or involuntary, for reorganization, or
the filing of an involuntary petition by the creditors of Tenant, said
involuntary petition remaining undischarged for a period of sixty (60) days;
(e) Receivership, attachment, or other judicial seizure of substantially
all of Tenant's assets on the Premises, such attachment or other seizure
remaining undismissed or undischarged for a period of sixty (60) days after the
levy thereof;
(f) Death or disability of Tenant, if Tenant is a natural person., or the
failure by Tenant to maintain its legal existence, if Tenant is a corporation,
partnership, limited liability company, trust or other legal entity;
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(g) Failure of Tenant to execute and deliver to Landlord any estoppel
certificate, subordination agreement, or lease amendment in the time periods and
manner required by Paragraphs 30 or 31 or 42;
(h) An assignment or sublease, or attempted assignment or sublease, of
this Lease or the Premises by Tenant contrary to the provisions of Paragraph
23,
unless such assignment or sublease is expressly conditioned upon Tenant having
received Landlord's consent thereto;
(i) Failure of Tenant to deposit the Letter of Credit with Landlord when
required under Paragraph 7, and/or failure of Tenant to restore the Letter of
Credit to the amount and within the time period provided in Paragraph 7;
(j) Failure in the performance of any of Tenant's covenants, agreements
or obligations hereunder (except those failures specified as events of Default
in any other subparagraphs of this Paragraph 24, which shall be governed by such
other subparagraphs), which failure continues for thirty (30) days after written
notice thereof from Landlord to Tenant, provided that, if Tenant has exercised
reasonable diligence to cure such failure and such failure cannot be cured
within such thirty (30) day period despite reasonable diligence, Tenant shall
not be in default under this subparagraph so long as Tenant thereafter
diligently and continuously prosecutes the cure to completion;
(k) Chronic delinquency by Tenant in the payment of Rent, or any other
periodic payments required to be paid by Tenant under this Lease. "CHRONIC
DELINQUENCY" shall mean failure by Tenant to pay Rent, or any other periodic
payments required to be paid by Tenant under this Lease, when due (i) for any
three (3) months (consecutive or nonconsecutive) during any period of twelve
(12) months or (ii) for any twelve (12) months (consecutive or nonconsecutive)
during the Term. In the event of a Chronic Delinquency, in addition to
Landlord's other remedies for Default provided in this Lease, at Landlord's
option, Landlord shall have the right to require that Rent be paid by Tenant
quarterly, in advance;
(l) Chronic overuse by Tenant or Tenant's Agents of the number of
undesignated parking spaces set forth in the Basic Lease Information. "CHRONIC
OVERUSE" shall mean use by Tenant or Tenant's Agents of a number of parking
spaces greater than the number of parking spaces set forth in the Basic Lease
Information more than three (3) times during any twelve (12) month period;
(m) Any insurance required to be maintained by Tenant pursuant to this
Lease shall be canceled or terminated or shall expire or be reduced or
materially changed, except as permitted in this Lease, and shall not have been
replaced with substitute insurance satisfying the requirements of this Lease
within five (5) business days of Tenant's receipt of notice of such termination,
reduction or change;
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(n) Any failure by Tenant to discharge any lien or encumbrance placed on the
Project or any part thereof in violation of this Lease within ten (10) days
after the date such lien or encumbrance is filed or recorded against the Project
or any part thereof; and
(o) The occurrence of a Default under an Expansion Lease, if any.
Tenant agrees that any notice given by Landlord pursuant to Paragraph
24(j) above shall satisfy the requirements for notice under California Code of
Civil Procedure Section 1161. and Landlord shall not be required to give any
additional notice in order to be entitled to commence an unlawful detainer
proceeding.
25. LANDLORD'S REMEDIES
25.1. TERMINATION
In the event of any Default by Tenant, then in addition to any other
remedies available to Landlord at law or in equity and under this Lease,
Landlord shall have the immediate option to terminate this Lease and all rights
of Tenant hereunder by giving written notice of such intention to terminate. In
the event that Landlord shall elect to so terminate this Lease then Landlord may
recover from Tenant:
(1) the worth at the time of award of any unpaid Rent and any
other sums due and payable which have been earned at the time of such
termination; plus
(2) the worth at the time of award of the amount by which the
unpaid Rent and any other sums due and payable which would have been earned
after termination until the time of award exceeds the amount of such rental loss
Tenant proves could have been reasonably avoided; plus
(3) the worth at the time of award of the amount by which the
unpaid Rent and any other sums due and payable for the balance of the term of
this Lease after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; plus
(4) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom, including, without limitation, (A) any costs or expenses incurred by
Landlord (1) in retaking possession of the Premises; (2) in maintaining,
repairing, preserving, restoring, replacing, cleaning, altering, remodeling or
rehabilitating the Premises or any affected portions of the Building or the
Project, including such actions undertaken in connection with the reletting or
attempted reletting of the Premises to a new tenant or tenants, (3) for leasing
commissions, advertising costs and other expenses of reletting the Premises; or
(4) in carrying the Premises, including taxes, insurance premiums, utilities and
security precautions; (B) any unearned brokerage commissions paid in connection
with this Lease; (C) reimbursement of any previously waived or abated Base Rent
or Additional
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Rent or any free rent or reduced rental rate granted hereunder; and (D) any
concession made or paid by Landlord to the benefit of Tenant in consideration of
this Lease including, but not limited to, any moving allowances, contributions,
payments or loans by Landlord for tenant improvements or build-out allowances
(including without limitation, any unamortized portion of the Tenant Improvement
Allowance (such Tenant Improvement Allowance to be amortized over the Term in
the manner reasonably determined by Landlord), if any, and any outstanding
balance (principal and accrued interest) of the Tenant Improvement Loan, if
any), or assumptions by Landlord of any of Tenant's previous lease obligations;
plus
(5) such reasonable attorneys' fees incurred by Landlord as a
result of a Default, and costs in the event suit is filed by Landlord to enforce
such remedy; and plus
(6) at Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
law.
Notwithstanding the provisions of Paragraph 25.1(4) above, in the event
of a Default by Tenant occurring on or after the commencement of the seventh
(7th) Lease Year. Landlord shall be entitled to recover from Tenant the expenses
described in clauses (B), (C) and (D) of said Paragraph 25.1(4) only to the
extent that Landlord does not (i) recover from Tenant the unpaid Rent described
in Paragraphs 25.1(1) through 25.1(3) or (ii) enter into a lease agreement
covering the Premises with a replacement tenant with a scheduled expiration date
not earlier than the Expiration Date of this Lease, and pursuant to which the
Replacement Tenant agrees to pay Rent for the Premises equal to or greater than
the Rent (including, without limitation, installments of principal and interest
on the Tenant Improvement Loan) otherwise due hereunder during such period.
As used in subparagraphs (1) and (2) above, the "WORTH AT THE TIME OF
AWARD" is computed by allowing interest at an annual rate equal to twelve
percent (12%) per annum or the maximum rate permitted by law, whichever is less.
As used in subparagraph (3) above, the "WORTH AT THE TIME OF AWARD" is computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award, plus one percent (1%). Tenant waives
redemption or relief from forfeiture under California Code of Civil Procedure
Sections 1174 and 1179, or under any other pertinent present or future Law, in
the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any Default of Tenant hereunder.
25.2. CONTINUATION OF LEASE
In the event of any Default by Tenant, then in addition to any other
remedies available to Landlord at law or in equity and under this Lease,
Landlord shall have the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's Default and
abandonment and recover Rent as it becomes due, provided Tenant has the right to
sublet or assign, subject only to reasonable limitations). In addition, Landlord
shall not be liable in any way whatsoever
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for its failure or refusal to relet the Premises; provided, however, that the
foregoing provision shall not be deemed to relieve Landlord of any duty under
applicable law to mitigate Tenant's damages in the event Landlord elects to seek
damages for Tenant's breach or default. For purposes of this Paragraph 25.2, the
following acts by Landlord will not constitute the termination of Tenant's right
to possession of the Premises:
(1) Acts of maintenance or preservation or efforts to relet the
Premises, including, but not limited to, alterations, remodeling, redecorating,
repairs, replacements and/or painting as Landlord shall consider advisable for
the purpose of reletting the Premises or any part thereof; or
(2) The appointment of a receiver upon the initiative of Landlord
to protect Landlord's interest under this Lease or in the Premises.
25.3. RE-ENTRY
In the event of any Default by Tenant, Landlord shall also have the
right, with or without terminating this Lease, in compliance with applicable
law, to re-enter the Premises and remove all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant.
25.4. RELETTING
In the event of the abandonment of the Premises by Tenant or in the event
that Landlord shall elect to re-enter as provided in Paragraph 25.3 or shall
take possession of the Premises pursuant to legal proceeding or pursuant to any
notice provided by law, then if Landlord does not elect to terminate this Lease
as provided in Paragraph 25.1, Landlord may from time to time, without
terminating this Lease, relet the Premises or any part thereof for such term or
terms and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable with the right to make
alterations and repairs to the Premises in Landlord's sole discretion. In the
event that Landlord shall elect to so relet, then rentals received by Landlord
from such reletting shall be applied in the following order: (1) to reasonable
attorneys' fees incurred by Landlord as a result of a Default and costs in the
event suit is filed by Landlord to enforce such remedies; (2) to the payment of
any indebtedness, other than Rent due hereunder from Tenant to Landlord; (3) to
the payment of any costs of such reletting; (4) to the payment of the costs of
any alterations and repairs to the Premises; (5) to the payment of Rent due and
unpaid hereunder; and (6) the residue, if any, shall be held by Landlord and
applied in payment of future Rent and other sums payable by Tenant hereunder as
the same may become due and payable hereunder. Should that portion of such
rentals received from such reletting during any month, which is applied to the
payment of Rent hereunder, be less than the Rent payable during the month by
Tenant hereunder, then Tenant shall pay such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and
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expenses incurred by Landlord in such reletting or in making such alterations
and repairs not covered by the rentals received from such reletting.
25.5. TERMINATION
No re-entry or taking of possession of the Premises by Landlord
pursuant to this Paragraph 25 shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to Tenant or
unless the termination thereof is decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
Default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such Default.
25.6. CUMULATIVE REMEDIES
The remedies herein provided are not exclusive and Landlord shall
have any and all other remedies provided herein or by law or in equity.
25.7. NO SURRENDER
No act or conduct of Landlord, whether consisting of the
acceptance of the keys to the Premises, or otherwise, shall be deemed to be or
constitute an acceptance of the surrender of the Premises by Tenant prior to the
expiration of the Term, and such acceptance by Landlord of surrender by Tenant
shall only flow from and must be evidenced by a written acknowledgment of
acceptance of surrender signed by Landlord. The surrender of this Lease by
Tenant, voluntarily or otherwise, shall not work a merger unless Landlord elects
in writing that such merger take place, but shall operate as an assignment to
Landlord of any and all existing subleases, or Landlord may, at its option,
elect in writing to treat such surrender as a merger terminating Tenant's estate
under this Lease, and thereupon Landlord may terminate any or all such subleases
by notifying the sublessee of its election so to do within five (5) days after
such surrender.
26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS
26.1. LANDLORD'S RIGHT TO PERFORM
Without limiting the rights and remedies of Landlord contained in
Paragraph 25 above, if Tenant shall be in Default in the performance of any of
the terms, provisions, covenants or conditions to be performed or complied with
by Tenant pursuant to this Lease, then Landlord may at Landlord's option,
without any obligation to do so, and without further notice to Tenant perform
any such term, provision, covenant, or condition, or make any such payment and
Landlord by reason of so doing shall not be liable or responsible for any loss
or damage thereby sustained by Tenant or anyone holding under or through Tenant
or any of Tenant's Agents, unless caused by Landlord's gross negligence or
willful misconduct.
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26.2. IN EMERGENCIES
Without limiting the rights of Landlord under Paragraph 25 above,
Landlord shall have the right at Landlord's option, without any obligation to do
so, to perform any of Tenant's covenants or obligations under this Lease without
notice to Tenant in the case of an emergency, as determined by Landlord in its
good faith and absolute judgment, or if Landlord otherwise determines in its
reasonable discretion that such performance is necessary or desirable for the
preservation of the rights and interests or safety of other tenants of the
Building or the Project.
26.3. TENANT'S OBLIGATION TO REIMBURSE LANDLORD
If Landlord performs any of Tenant's obligations hereunder in
accordance with this Paragraph 26, the full amount of the cost and expense
incurred or the payment so made or the amount of the loss so sustained shall
immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to
Landlord upon demand, as Additional Rent, the full amount thereof with interest
thereon from the date of payment by Landlord at the lower of (1) twelve percent
(12%) per annum, or (2) the highest rate permitted by applicable law.
27. ATTORNEYS' FEES
27.1. PREVAILING PARTY ENTITLED TO FEES
If either party hereto fails to perform any of its obligations
under this Lease or if any dispute arises between the parties hereto concerning
the meaning or interpretation of any provision of this Lease, then the
defaulting party or the party not prevailing in such dispute, as the case may
be, shall pay any and all costs and expenses incurred by the other party on
account of such default and/or in enforcing or establishing its rights
hereunder, including, without limitation, court costs and reasonable attorneys'
fees and disbursements. Any such attorneys' fees and other expenses incurred by
either party in enforcing a judgment in its favor under this Lease shall be
recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable from
the other provisions of this Lease and to survive and not be merged into any
such judgment.
27.2. COSTS OF COLLECTION
Without limiting the generality of Paragraph 27.1 above, if
Landlord utilizes the services of an attorney for the purpose of collecting any
Rent due and unpaid by Tenant or in connection with any other breach of this
Lease by Tenant, Tenant agrees to pay Landlord reasonable attorneys' fees as
determined by Landlord for such services, regardless of the fact that no legal
action may be commenced or filed by Landlord.
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28. TAXES
Tenant shall be liable for and shall pay, prior to delinquency, all taxes
levied against Tenant's Property. If any Alteration or Tenant Improvement
installed by Tenant pursuant to Paragraph 12 or any of Tenant's Property is
assessed and taxed with the Project or Building, Tenant shall pay such taxes to
Landlord, in an amount reasonably determined by Landlord if such taxes are not
separately stated in the applicable tax bill, within ten (10) days after
delivery to Tenant of a statement therefor.
29. EFFECT OF CONVEYANCE
The term "LANDLORD" as used in this Lease means, from time to time, the
then current owner of the Building or the Project containing the Premises, so
that, in the event of any sale of the Building or the Project, Landlord shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Landlord arising hereunder from and after the date of such transfer, and it
shall be deemed and construed, without further agreement between the parties and
the purchaser at any such sale, that the purchaser of the Building or the
Project has assumed and agreed to carry out any and all covenants and
obligations of Landlord hereunder.
30. TENANT'S ESTOPPEL CERTIFICATE
From time to time, upon written request of Landlord, Tenant shall
execute, acknowledge and deliver to Landlord or its designee, a written
certificate stating (a) the date this Lease was executed, the Commencement Date
of the Term and the date the Term expires; (b) the date Tenant entered into
occupancy of the Premises; (c) the amount of Rent and the date to which such
Rent has been paid; (d) that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended in any way (or, if assigned,
modified, supplemented or amended, specifying the date and terms of any
agreement so affecting this Lease); (e) that this Lease represents the entire
agreement between the parties with respect to Tenant's right to use and occupy
the Premises (or specifying such other agreements, if any); (f) that all
obligations under this Lease to be performed by Landlord as of the date of
such certificate have been satisfied (or specifying those as to which Tenant
claims that Landlord has yet to perform); (g) that all required contributions by
Landlord to Tenant on account of Tenant's improvements have been received (or
stating exceptions thereto); (h) that on such date there exist no defenses or
offsets that Tenant has against the enforcement of this Lease by Landlord (or
stating exceptions thereto); (i) that no Rent or other sum payable by Tenant
hereunder has been paid more than one (1) month in advance (or stating
exceptions thereto); (j) that a currently valid Letter of Credit has been
deposited with Landlord, stating the original amount thereof and any increases
or decreases thereto; and (k) any other matters evidencing the status of this
Lease that may be required either by a lender making a loan to Landlord to be
secured by a deed of trust covering the Building or the Project or by a
purchaser of the Building or the Project. Any such certificate delivered
pursuant to this Paragraph 30 may be relied upon by a prospective purchaser of
Landlord's interest or a mortgagee of Landlord's interest or assignee of any
mortgage upon Landlord's interest in
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the Premises. If Tenant shall fail to provide such certificate within ten (10)
days of receipt by Tenant of a written request by Landlord as herein provided,
such failure shall at Landlord's election, constitute a Default under this
Lease, and Tenant shall be deemed to have given such certificate as above
provided without modification and shall be deemed to have admitted the accuracy
of any information supplied by Landlord to a prospective purchaser or mortgagee.
31. SUBORDINATION
Landlord shall have the right to cause this Lease to be and remain
subject and subordinate to any and all mortgages, deeds of trust and ground
leases, if any ("ENCUMBRANCES") that are now or may hereafter be executed
covering the Premises, or any renewals, modifications, consolidations,
replacements or extensions thereof, for the full amount of all advances made or
to be made thereunder and without regard to the time or character of such
advances, together with interest thereon and subject to all the terms and
provisions thereof, provided only, and as an express condition precedent to any
such subordination of this Lease to an Encumbrance hereafter executed covering
the Premises, the holder of such Encumbrance ("HOLDER") shall agree to recognize
Tenant's rights under this Lease upon the foreclosure or termination, as
applicable, of such Encumbrance as long as Tenant shall pay the Rent and observe
and perform all the provisions of this Lease to be observed and performed by
Tenant. Within ten (10) days after Landlord's written request, Tenant shall
execute, acknowledge and deliver any and all reasonable documents required by
Landlord or the Holder to effectuate such subordination, provided that,
concurrently with the execution of such subordination documents, the Holder
shall execute a nondisturbance agreement in favor of Tenant consistent with the
terms of this Paragraph 31. If Tenant fails to do so, such failure shall
constitute a Default by Tenant under this Lease. Notwithstanding anything to the
contrary set forth in this Paragraph 31, Tenant hereby attorns and agrees to
attorn to any person or entity purchasing or otherwise acquiring the Premises at
any sale or other proceeding or pursuant to the exercise of any other rights,
powers or remedies under such Encumbrance.
32. ENVIRONMENTAL COVENANTS
32.1. DISCLOSURE CERTIFICATE
Prior to executing this Lease, Tenant has completed, executed and
delivered to Landlord a Hazardous Materials Disclosure Certificate ("INITIAL
DISCLOSURE CERTIFICATE"), a fully completed copy of which is attached hereto as
EXHIBIT G and incorporated herein by this reference. Tenant covenants,
represents and warrants to Landlord that the information on the Initial
Disclosure Certificate is, to the best of Tenant's knowledge, true and correct
and accurately describes the Hazardous Materials which will be treated, used or
stored on or about the Premises by Tenant or Tenant's Agents.
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32.2. TENANT'S OBLIGATION TO UPDATE DISCLOSURE CERTIFICATE
Tenant shall, on a semi-annual basis, complete, execute and
deliver to Landlord an updated Disclosure Certificate (each, an "UPDATED
DISCLOSURE CERTIFICATE") describing Tenant's then current and proposed future
uses of Hazardous Materials on or about the Premises, which Updated Disclosure
Certificates shall be in the same format as that which is set forth in EXHIBIT G
or in such updated format as Landlord may require from time to time. Landlord
shall have the right to approve or disapprove such new or additional Hazardous
Materials in its sole and absolute discretion. Tenant shall make no use of
Hazardous Materials on or about the Premises except as described in the Initial
Disclosure Certificate or as otherwise approved by Landlord in writing in
accordance with this Paragraph 32.2.
32.3. DEFINITION OF HAZARDOUS MATERIALS
As used in this Lease, the term "HAZARDOUS MATERIALS" shall mean
and include any substance that is or contains (1) any "hazardous substance" as
now or hereafter defined in Section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") (42
U.S.C. Section 9601 ET SEQ.) or any regulations promulgated under CERCLA; (2)
any "hazardous waste" as now or hereafter defined in the Resource Conservation
and Recovery Act, as amended ("RCRA") (42 U.S.C. Section 6901 ET SEQ.) or any
regulations promulgated under RCRA; (3) any substance now or hereafter regulated
by the Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C. Section 2601
ET SEQ.) or any regulations promulgated under TSCA; (4) petroleum, petroleum
by-products, gasoline, diesel fuel, or other petroleum hydrocarbons; (5)
asbestos and asbestos-containing material, in any form, whether friable or
non-friable; (6) polychlorinated biphenyls; (7) lead and lead-containing
materials; or (8) any additional substance, material or waste (A) the presence
of which on or about the Premises (i) requires reporting, investigation or
remediation under any Environmental Laws (as hereinafter defined), (ii) causes
or threatens to cause a nuisance on the Premises or any adjacent area or
property or poses or threatens to pose a hazard to the health or safety of
persons on the Premises or any adjacent area or property, or (iii) which, if it
emanated or migrated from the Premises, could constitute a trespass, or (B)
which is now or is hereafter classified or considered to be hazardous or toxic
under any Environmental Laws. Landlord hereby notifies Tenant in accordance with
California Health & Safety Code Section 25359.7 that in 1981-82, the Project was
the subject of a state-supervised cleanup of hazardous waste disposed of on the
site by prior occupants. As part of the cleanup approved by the applicable
agencies, some soils containing heavy metals were left in place, covered by
clean fill. These soils are managed in accordance with the requirements of the
applicable agencies and a Declaration of Covenants, Conditions and Restrictions
imposed by Homart Development Co.
32.4. DEFINITION OF ENVIRONMENTAL LAWS
As used in this Lease, the term "ENVIRONMENTAL LAWS" shall mean
and include (1) CERCLA, RCRA and TSCA; and (2) any other federal, state or local
laws,
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ordinances, statutes, codes, rules, regulations, orders or decrees now or
hereinafter in effect relating to (A) pollution, (B) the protection or
regulation of human health, natural resources or the environment, (C) the
treatment, storage or disposal of Hazardous Materials, or (D) the emission,
discharge, release or threatened release of Hazardous Materials into the
environment.
32.5. TENANT'S USE OF HAZARDOUS MATERIALS
Tenant agrees that during its use and occupancy of the Premises it
will (1) not (A) introduce any Hazardous Materials on or about the Premises
except in a manner and quantity necessary for the ordinary performance of
Tenant's business or (B) release, discharge or dispose of any Hazardous
Materials on, in, at, under, or emanating from, the Premises, the Building or
the Project; (2) comply with all Environmental Laws relating to Tenant's use of
Hazardous Materials in, on or about the Premises and not engage in or permit
Tenant's Agents to engage in any activity in, on or about the Premises in
violation of any Environmental Laws; and (3) immediately notify Landlord of (A)
any inquiry, test, investigation or enforcement proceeding by any governmental
agency or authority against Tenant, Landlord or the Premises, Building or
Project relating to any Hazardous Materials or under any Environmental Laws or
(B) the occurrence of any event or existence of any condition that would cause a
breach of any of the covenants set forth in this Paragraph 32.
32.6. TENANT'S REMEDIATION OBLIGATIONS
If Tenant's use of Hazardous Materials on or about the Premises
results in a release, discharge or disposal of Hazardous Materials on, in, at,
under, or emanating from, the Premises, the Building or the Project, Tenant
agrees to investigate, clean up, remove or remediate such Hazardous Materials in
full compliance with (1) the requirements of (A) all Environmental Laws and (B)
any governmental agency or authority responsible for the enforcement of any
Environmental Laws; and (2) any additional requirements of Landlord that are
reasonably necessary to protect the value of the Premises, the Building or the
Project.
32.7. LANDLORD'S INSPECTIONS
Upon twenty-four (24) hours' notice to Tenant (except in the case
of an emergency, in which event no advance notice shall be required), Landlord
may inspect the Premises and surrounding areas for the purpose of determining
whether there exists on or about the Premises any Hazardous Material or other
condition or activity that is in violation of the requirements of this Lease or
of any Environmental Laws. Such inspections may include, but are not limited to,
entering upon the property adjacent to or surrounding the Premises with drill
rigs or other machinery for the purpose of obtaining laboratory samples.
Landlord shall not be limited in the number of such inspections during the Term
of this Lease. In the event (1) such inspections reveal the presence of any such
Hazardous Material or other condition or activity caused by Tenant or its Agents
in violation of the requirements of this Lease or of any Environmental Laws, or
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(2) Tenant or its Agents contribute or knowingly consent to the
importation of any Hazardous Materials in, on, under, through or about the
Premises, the Building or the Project or, through their actions, exacerbate the
condition of or the conditions caused by any Hazardous Materials in, on, under,
through or about the Premises, the Building or the Project, Tenant shall
reimburse Landlord for the cost of such inspections within ten (10) days of
receipt of a written statement therefor. Tenant will supply to Landlord such
historical and operational information regarding the Premises and surrounding
areas as may be reasonably requested to facilitate any such inspection and will
make available for meetings appropriate personnel having knowledge of such
matters. In the event Tenant vacates the Premises prior to the Expiration Date,
Tenant shall give Landlord at least sixty (60) days' prior notice of its
intention to vacate the Premises so that Landlord will have an opportunity to
perform such an inspection prior to such vacation. The right granted to Landlord
herein to perform inspections shall not create a duty on Landlord's part to
inspect the Premises, or liability on the part of Landlord for Tenant's use,
storage, treatment or disposal of Hazardous Materials, it being understood that
Tenant shall be solely responsible for all liability in connection therewith.
32.8. LANDLORD'S RIGHT TO REMEDIATE
Landlord shall have the right, but not the obligation, prior or
subsequent to a Default, without in any way limiting Landlord's other rights and
remedies under this Lease, to enter upon the Premises, or to take such other
actions as it deems necessary or advisable, to investigate, clean up, remove or
remediate any Hazardous Materials or contamination by Hazardous Materials
present on, in, at, under, or emanating from, the Premises, the Building or the
Project in violation of Tenant's obligations under this Lease or under any
Environmental Laws. Notwithstanding any other provision of this Lease, Landlord
shall also have the right, at its election, in its own name or as Tenant's
agent, to negotiate, defend, approve and appeal, at Tenant's expense, any action
taken or order issued by any governmental agency or authority with regard to any
such Hazardous Materials or contamination by Hazardous Materials. All reasonable
costs and expenses paid or incurred by Landlord in the exercise of the rights
set forth in this Paragraph 32 shall be payable by Tenant upon demand.
32.9. CONDITION OF PREMISES UPON EXPIRATION OR TERMINATION
Tenant shall surrender the Premises to Landlord upon the
expiration or earlier termination of this Lease free of debris, waste or
Hazardous Materials placed on, about or near the Premises by Tenant or Tenant's
Agents, and in a condition which complies with (i) all Environmental Laws, and
(ii) any additional requirements of Landlord that are reasonably necessary to
protect the value of the Premises, the Building or the Project, including,
without limitation, the obtaining of any closure permits or other governmental
permits or approvals related to Tenant's use of Hazardous Materials in or about
the Premises. Tenant's obligations and liabilities pursuant to the provisions
of this Paragraph 32 shall survive the expiration or earlier termination of
this Lease.
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32.10. TENANT'S INDEMNIFICATION OF LANDLORD
Tenant agrees to indemnify and hold harmless Landlord from and
against any and all claims, losses (including, without limitation, loss in value
of the Premises, the Building or the Project and any losses to Landlord due to
lost opportunities to lease any portions of the Premises to succeeding tenants
due to the failure of Tenant to surrender the Premises upon the expiration or
sooner termination of this Lease in accordance with the provisions of Paragraph
32.9 above), liabilities and expenses (including attorney's fees) sustained by
Landlord attributable to (1) any Hazardous Materials placed on or about the
Premises, the Building or the Project by Tenant or Tenant's Agents, or (2)
Tenant's breach of any provision of this Paragraph 32.
32.11. LANDLORD'S INDEMNIFICATION OF TENANT
Landlord agrees to indemnify and hold harmless Tenant from and
against any and all claims, losses, liabilities and expenses (including
attorneys' fees, but specifically excluding lost profits and consequential
damages) actually sustained by Tenant attributable to any Hazardous Materials
placed on or about the Premises, the Building or the Project by Landlord or
Landlord's Agents, except to the extent the condition thereof has been
exacerbated by Tenant or Tenant's Agents.
32.12. LIMITATION OF TENANT'S LIABILITY
Notwithstanding anything in this Lease to the contrary, Tenant
shall not be responsible for the clean up or remediation of, and shall not be
required to indemnify Landlord against any costs or liabilities attributable to,
contamination by Hazardous Materials during the Term caused by third parties or
Hazardous Materials place on or about the Premises (i) prior to the Commencement
Date by third parties not related to Tenant or Tenant's Agents, or (ii) by
Landlord at any time, except in any of the foregoing cases to the extent that
Tenant or Tenant's Agents have contributed to or exacerbated the presence of
such Hazardous Materials.
32.13. SURVIVAL
The provisions of this Paragraph 32 shall survive the expiration
or earlier termination of this Lease.
33. NOTICES
All notices and demands which are required or may be permitted to be
given to either party by the other hereunder shall be in writing and shall be
sent by United States mail, postage prepaid, certified, or by personal delivery
or overnight courier, addressed to the addressee at Tenant's Address or
Landlord's Address as specified in the Basic Lease Information, or to such
other place as either party may from time to time designate in a notice to the
other party given as provided herein. Copies of all notices and demands given to
Landlord shall additionally be sent to Landlord's property manager at the
address specified in the Basic Lease Information or at such other address as
Landlord
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may specify in writing from time to time. Notice shall be deemed given upon
actual receipt (or attempted delivery if delivery is refused), if personally
delivered, or one (1) business day following deposit with a reputable overnight
courier that provides a receipt, or on the third (3rd) day following deposit in
the United States mail in the manner described above.
34. WAIVER
The waiver of any breach of any term, covenant or condition of this Lease
shall not be deemed to be a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition herein
contained. The subsequent acceptance of Rent by Landlord shall not be deemed to
be a waiver of any preceding breach by Tenant, other than the failure of Tenant
to pay the particular rental so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such Rent. No delay or
omission in the exercise of any right or remedy of Landlord in regard to any
Default by Tenant shall impair such a right or remedy or be construed as a
waiver. Any waiver by Landlord of any Default must be in writing and shall not
be a waiver of any other Default concerning the same or any other provisions of
this Lease.
35. HOLDING OVER
Any holding over after the expiration of the Term, without the express
written consent of Landlord, shall constitute a Default and, without limiting
Landlord's remedies provided in this Lease, such holding over shall be construed
to be a tenancy at sufferance, at a rental rate equal to the greater of one
hundred fifty percent (150%) of (i) the fair market rental value for the
Premises as determined by Landlord or (ii) the Base Rent last due in this Lease,
plus Additional Rent, and shall otherwise be on the terms and conditions herein
specified, so far as applicable; provided, however, in no event shall any
renewal or extension option or other similar right or option contained in this
Lease be deemed applicable to any such tenancy at sufferance. If the Premises
are not surrendered at the end of the Term or sooner termination of this Lease,
and in accordance with the provisions of Paragraphs 11 and 32.9, Tenant shall
indemnify, defend and hold Landlord harmless from and against any and all loss
or liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any loss or liability resulting from any claim
against Landlord made by any succeeding tenant or prospective tenant caused by
such delay and losses to Landlord due to lost opportunities to lease any portion
of the Premises to any such succeeding tenant or prospective tenant, together
with, in each case, actual attorneys' fees and costs.
36. SUCCESSORS AND ASSIGNS
36.1. BINDING ON SUCCESSORS, ETC.
The terms, covenants and conditions of this Lease shall, subject
to the provisions as to assignment, apply to and bind the heirs, successors,
executors,
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administrators and assigns of all of the parties hereto. If Tenant shall consist
of more than one entity or person, the obligations of Tenant under this Lease
shall be joint and several.
36.2. LANDLORD'S RIGHT TO SELL
Notwithstanding anything in this Lease to the contrary, Landlord
shall have the right to sell, transfer or otherwise convey, either separately or
jointly, its interest in the Building and/or the Project, and all of Landlord's
related rights and obligations hereunder, to any Person.
37. TIME
Time is of the essence of this Lease and each and every term, condition
and provision herein.
38. BROKERS
Landlord and Tenant each represents and warrants to the other that
neither it nor its officers or agents nor anyone acting on its behalf has dealt
with any real estate broker except the Broker(s) specified in the Basic Lease
Information in the negotiating or making of this Lease, and each party agrees to
indemnify and hold harmless the other from any claim or claims, and costs and
expenses, including attorneys' fees, incurred by the indemnified party in
conjunction with any such claim or claims of any other broker or brokers to a
commission in connection with this Lease as a result of the actions of the
indemnifying party. Landlord shall pay the brokerage commissions due to the
Brokers listed in the Basic Lease Information. Nothing contained herein shall
restrict Landlord from paying any fees owed by Landlord in connection with the
execution of this Lease to any constituent partner of Landlord (or any Affiliate
of any such partner) and to any consultants providing services to Landlord in
connection with the Project.
39. LIMITATION OF LIABILITY
Tenant agrees that, in the event of any default or breach by Landlord
with respect to any of the terms of this Lease to be observed and performed by
Landlord or with respect to the enforcement of an indemnity obligation of
Landlord under this Lease (1) Tenant shall look solely to the then-current
landlord's interest in the Building for the satisfaction of such indemnity
obligation of Landlord or for satisfaction of Tenant's remedies for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord; (2) no other property or assets of Landlord, its partners,
shareholders, officers, directors, employees, investment advisors, or any
successor in interest of any of them (collectively, THE "LANDLORD PARTIES")
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies; (3) no personal liability shall at any time
be asserted or enforceable against the Landlord Parties; and (4) no judgment
will be taken against the Landlord Parties (except for a judgment against
Landlord which is enforceable only to the extent of Landlord's interest
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in the Building). The provisions of this Paragraph shall apply only to the
Landlord and the parties herein described, and shall not be for the benefit of
any insurer nor any other third party.
40. FINANCIAL STATEMENTS
Within ten (10) days after Landlord's request, Tenant shall deliver to
Landlord the then current, or if Tenant is a publicly traded company, the
publicly available financial statements of Tenant (including interim periods
following the end of the last fiscal year for which annual statements are
available), prepared, compiled or reviewed by a certified public accountant,
including a balance sheet and profit and loss statement for the most recent
prior year, all prepared in accordance with GAAP.
41. RULES AND REGULATIONS
Tenant agrees to comply with such reasonable rules and regulations as
Landlord may adopt from time to time for the orderly and proper operation of the
Building and the Project. Such rules may include but shall not be limited to the
following: (a) restriction of employee parking to a limited, designated area or
areas in reasonable proximity to the Building; and (b) regulation of the
removal, storage and disposal of Tenant's refuse and other rubbish at the sole
cost and expense of Tenant. The then current rules and regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant. Landlord shall
not be responsible to Tenant for the failure of any other person to observe and
abide by any of said rules and regulations; provided, however, Landlord shall
enforce such rules and regulation in a non-discriminatory manner. Landlord's
current rules and regulations are attached to this Lease as EXHIBIT F.
42. MORTGAGEE PROTECTION
42.1. MODIFICATIONS FOR LENDER
If, in connection with obtaining financing for the Project or any
portion thereof, Landlord's lender shall request reasonable modifications to
this Lease as a condition to such financing, Tenant shall not unreasonably
withhold, delay or defer its consent to such modifications, provided such
modifications do not materially adversely affect Tenant's rights or increase
Tenant's obligations under this Lease.
42.2. RIGHTS TO CURE
Tenant agrees to give to any trust deed or mortgage holder
("HOLDER"), by registered mail, at the same time as it is given to Landlord, a
copy of any notice of default given to Landlord, provided that prior to such
notice Tenant has been notified, in writing, (by way of notice of assignment of
rents and leases, or otherwise) of the address of such Holder. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the Holder shall have an additional twenty (20)
days after expiration of such period, or after receipt of such notice from
Tenant (if
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such notice to the Holder is required by this Paragraph 42.2), whichever shall
last occur within which to cure such default or if such default cannot be cured
within that time, then such additional time as may be necessary if within such
twenty (20) days, any Holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event there shall be no default under this Lease.
43. ENTIRE AGREEMENT
This Lease, including the Exhibits and any Addenda attached hereto, which
are hereby incorporated herein by this reference, contains the entire agreement
of the parties hereto, and no representations, inducements, promises or
agreements, oral or otherwise, between the parties, not embodied herein or
therein, shall be of any force and effect.
44. INTEREST
Any installment of Rent and any other sum due from Tenant under this
Lease which is not received by Landlord when due shall bear interest from the
date such payment was originally due under this Lease until paid at an annual
rate equal to the maximum rate of interest permitted by law. Payment of such
interest shall not excuse or cure any Default by Tenant. In addition, Tenant
shall pay all costs and reasonable attorneys' fees incurred by Landlord in
collection of such amounts.
45. INTERPRETATION
This Lease shall be construed and interpreted in accordance with the laws
of the State of California. The parties acknowledge and agree that no rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall be employed in the interpretation of this Lease, including
the Exhibits and any Addenda attached hereto. All captions in this Lease are for
reference only and shall not be used in the interpretation of this Lease.
Whenever required by the context of this Lease, the singular shall include the
plural, the masculine shall include the feminine, and vice versa. If any
provision of this Lease shall be determined to be illegal or unenforceable, such
determination shall not affect any other provision of this Lease and all such
other provisions shall remain in full force and effect. Unless otherwise
specifically stated herein to the contrary, Landlord's consent may be given or
withheld in Landlord's sole and absolute discretion.
46. REPRESENTATIONS AND WARRANTIES
46.1. OF TENANT
Tenant hereby makes the following representations and warranties,
each of which is material and being relied upon by Landlord, is true in all
respects as of the date of this Lease, and shall survive the expiration or
termination of the Lease.
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(1) If Tenant is an entity, Tenant is duly organized, validly
existing and in good standing under the laws of the state of its organization
and the persons executing this Lease on behalf of Tenant have the full right and
authority to execute this Lease on behalf of Tenant and to bind Tenant without
the consent or approval of any other person or entity. Tenant has full power,
capacity, authority and legal right to execute and deliver this Lease and to
perform all of its obligations hereunder. This Lease is a legal, valid and
binding obligation of Tenant, enforceable in accordance with its terms.
(2) Tenant has not (i) made a general assignment for the
benefit of creditors, (ii) filed any voluntary petition in bankruptcy or
suffered the filing of an involuntary petition by any creditors, (iii) suffered
the appointment of a receiver to take possession of all or substantially all of
its assets, (iv) suffered the attachment or other judicial seizure of all or
substantially all of its assets, (v) admitted in writing its inability to pay
its debts as they come due, or (vi) made an offer of settlement, extension or
composition to its creditors generally.
46.2. OF LANDLORD
Landlord hereby makes the following representations and
warranties, each of which is material and being relied upon by Tenant, is true
in all respects as of the date of this Lease, and shall survive the expiration
or termination of the Lease.
(1) If Landlord is an entity, Landlord is duly organized,
validly existing and in good standing under the laws of the state of its
organization and the persons executing this Lease on behalf of Landlord have the
full right and authority to execute this Lease on behalf of Landlord and to bind
Landlord without the consent or approval of any other person or entity. Landlord
has full power, capacity, authority and legal right to execute and deliver this
Lease and to perform all of its obligations hereunder. This Lease is a legal,
valid and binding obligation of Landlord, enforceable in accordance with its
terms.
(2) Landlord has not (i) made a general assignment for the
benefit of creditors, (ii) filed any voluntary petition in bankruptcy or
suffered the filing of an involuntary petition by any creditors, (iii) suffered
the appointment of a receiver to take possession of all or substantially all of
its assets, (iv) suffered the attachment or other judicial seizure of all or
substantially all of its assets, (v) admitted in writing its inability to pay
its debts as they come due, or (vi) made an offer of settlement, extension or
composition to its creditors generally.
47. SECURITY
47.1. LANDLORD NOT OBLIGATED TO PROVIDE SECURITY
Tenant acknowledges and agrees that, while Landlord may engage
security personnel to patrol the Building or the Project, Landlord is not
required to
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provide any security services with respect to the Premises, the Building or the
Project and the Landlord shall not be liable to Tenant for, and Tenant waives
any claim against Landlord with respect to, any loss by theft or any other
damage suffered or incurred by Tenant in connection with any unauthorized entry
into the Premises or any other breach of security with respect to the Premises,
the Building or the Project.
47.2. TENANT'S OBLIGATION TO COMPLY WITH SECURITY MEASURES
Tenant hereby agrees to the exercise by Landlord and Landlord's
Agents, within their sole discretion, of such security measures as, but not
limited to, the evacuation of the Premises, the Building or the Project for
cause, suspected cause or for drill purposes, the denial of any access to the
Premises, the Building or the Project and other similarly related actions that
it deems necessary to prevent any threat of property damage or bodily injury.
The exercise of such security measures by Landlord and Landlord's Agents, and
the resulting interruption of service and cessation of Tenant's business, if
any, shall not be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, or any part thereof, or render Landlord or
Landlord's Agents liable to Tenant for any resulting damages, or relieve Tenant
from Tenant's obligations under this Lease.
48. JURY TRIAL WAIVER
Landlord and Tenant each hereby waive any right to trial by jury with
respect to any action or proceeding (i) brought by Landlord, Tenant or any other
party, relating to (A) this Lease and/or any understandings or prior dealings
between the parties hereto, or (B) the Premises, the Building or the Project or
any part thereof, or (ii) to which Landlord is a party. The parties each hereby
agree that this Lease constitutes a written consent to waiver of trial by jury
pursuant to the provisions of California Code of Civil Procedure Section 631.
49. OPTION TO RENEW
Tenant shall have two (2) options (each a "RENEWAL OPTION") to extend the
Term of this Lease with respect to the entire Premises (including, without
limitation, the "EXPANSION BUILDING," if Tenant has exercised the "EXPANSION
OPTION") for successive periods of five (5) years each (each a "RENEWAL TERM").
Each Renewal Option shall be effective only if Tenant is not in Default under
this Lease and no event has occurred which with the giving of notice or the
passage of time, or both, would constitute a Default hereunder, either at the
time of exercise of the Renewal Option or the time of commencement of the
Renewal Term. For purposes of this Paragraph 49, "EXPANSION BUILDING" and
"EXPANSION OPTION" shall have the meanings set forth in the Option to Lease
Agreement, by and between Landlord and Tenant, dated as of even date herewith.
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49.1. COMMENCEMENT DATES
If Tenant exercises the first Renewal Option in accordance
herewith, the first Renewal Term shall commence on the day following the last
day of the initial Term and end on the day preceding the fifth anniversary
thereof. If Tenant exercises the second Renewal Option, the second Renewal Term
shall commence on the day following the last day of the first Renewal Term and
end on the day preceding the fifth anniversary thereof. The second Renewal
Option may not be exercised unless Tenant has previously exercised the first
Renewal Option. Each Renewal Term, if properly exercised, shall be upon the same
terms and conditions as the Lease except for Monthly Base Rent (which shall be
determined as provided in the following provisions of this Paragraph).
49.2. RENEWAL OPTION IS PERSONAL; NON-TRANSFERABLE
The Renewal Option shall be personal to Tenant, any transferee
under a Permitted Transfer, and any assignee to whom Tenant assigns its entire
right, title and interest under, or any sublessee to whom Tenant subleases the
entire Premises for the entire remaining Term of, this Lease, and shall not be
assignable or otherwise transferable in whole or in part, voluntarily or by
operation of law, to any other permitted assignee, subtenant or other third
parties and there shall be no further Renewal Option beyond the expiration of
the second Renewal Term.
49.3. TENANT'S NOTICE OF EXERCISE
In order to exercise a Renewal Option, Tenant shall give written
notice to Landlord of Tenant's exercise of such election ("Tenant's Notice") at
least ten (10) months prior to expiration of the then current Term and if such
notice is not so given, the Renewal Option shall lapse; the Tenant hereby
expressly acknowledges and agrees that time is of the essence for purposes of
notice of exercise of a Renewal Option and that Tenant's failure to do so by
said date will relieve Landlord of any obligation under this Paragraph. If
Tenant gives such notice within the time prescribed, Landlord and Tenant shall
be deemed to have entered into an extension of this Lease for a five (5) year
extended term on the terms and conditions set forth herein.
49.4. MONTHLY BASE RENT DURING RENEWAL TERM
The Monthly Base Rent payable during any Renewal Term shall be an
amount equal to the greater of (i) the Monthly Base Rent payable for the last
month of the then expiring Term (provided that such Monthly Base Rent shall be
increased during each year of the Renewal Term to an amount equal to one hundred
three percent (103%) of the Monthly Base Rent payable during the immediately
preceding term), or (ii) ninety-five percent (95%) of the Fair Market Rent (as
hereinafter defined) for the Premises during such Renewal Term.
49.4.1. FAIR MARKET RENT DEFINITION
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"FAIR MARKET Rent, shall mean the rate being charged
for comparable office/R&D/laboratory space in comparable locations in the South
San Francisco/Brisbane market area, taking into consideration: tenant credit,
tenant improvements or allowances provided or to be provided and leasing
commissions, but specifically excluding any specialized laboratory improvements
or other Tenant Improvements in the Premises paid for exclusively by Tenant,
including without limitation, any Tenant Improvements paid for with the proceeds
of the Tenant Improvement Loan.
49.4.2. DETERMINATION OF FAIR MARKET RENT
Landlord and Tenant shall meet and attempt in good
faith to mutually determine the Fair Market Rent for any Renewal Term. If the
parties have not reached agreement on the Fair Market Rent by the date that is
thirty (30) days after Landlord's receipt of Tenant's Notice, each party shall
appoint an arbitrator and shall give to the other party notice of the identity
of the arbitrator no later than the date that is forty (40) days after
Landlord's receipt of Tenant's Notice. If either party fails to appoint an
arbitrator by the date that is forty (40) days after Landlord's receipt of
Tenant's Notice, the sole arbitrator appointed, if any, shall determine the Fair
Market Rent. If two arbitrators are appointed, they shall immediately meet and
attempt to agree upon such Fair Market Rent. If the arbitrators cannot reach
agreement on the Fair Market Rent by the date that is sixty (60) days after
Landlord's receipt of Tenant's Notice, each arbitrator shall submit a
determination of Fair Market Rent to Landlord and Tenant. If the determinations
of Fair Market Rent made by these two arbitrators vary by ten percent (10%) or
less, the Fair Market Rent shall be the average of the two determinations. If
the determinations vary by more than ten percent (10%), the two arbitrators
shall within ten (10) days after submission of their determinations appoint a
third arbitrator. If the two arbitrators shall be unable to agree on the
selection of a third arbitrator within the 10-day period, then either Tenant or
Landlord may request such appointment by petitioning the presiding judge of the
Superior Court in and for the County of San Mateo. Such third arbitrator shall,
within thirty (30) days after appointment, make a determination of the Fair
Market Rent and submit such determination to Landlord and Tenant. The Fair
Market Rent shall be the determination of Fair Market Rent submitted by the
original two arbitrators that is closer to the Fair Market Rent determination of
the third arbitrator. If the third arbitrator's determination is exactly between
the Fair Market Rent determination of the original two arbitrators, then the
Fair Market Rent shall be the average of the original two determinations. The
determination of Fair Market Rent pursuant to this Paragraph 49 shall be final
and binding on Landlord and Tenant.
49.4.3. ARBITRATOR QUALIFICATIONS
For purposes of this Paragraph, "ARBITRATOR" shall
mean a licensed commercial real estate broker or leasing agent with not less
than five (5) years of full-time commercial brokerage experience in San Mateo
County.
49.4.4. FEES AND COSTS OF ARBITRATORS
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Each party shall bear the fees and costs of its
arbitrator in connection with the determination of Fair Market Rent and one-half
of the fees and costs of the third arbitrator, if any.
49.4.5. ARBITRATION PERIOD BASE RENT
If the determination of Fair Market Rent has not been
made by the expiration of the then expiring Term, Tenant shall (i) continue to
pay Monthly Base Rent at the Monthly Base Rent for the last month of the Term
(the "ARBITRATION PERIOD BASE RENT") as well as any Additional Rent due under
the Lease and (ii) pay to Landlord, or receive as a refund from Landlord, as
applicable, on the first day of the month after the determination of Fair Market
Rent is made, an amount, if any, equal to the difference between the Arbitration
Period Base Rent that was paid to Landlord and the Monthly Base Rent for the
Renewal Term that should have been paid to Landlord as the Monthly Base Rent for
the Renewal Term as determined hereunder.
50. PARKING
50.1. GRANT OF PARKING LICENSE
Provided that Tenant shall comply with and abide by Landlord's
parking rules and regulations from time to time in effect, Tenant shall have a
license to use for the parking of passenger automobiles the number of
non-exclusive and undesignated parking spaces set forth in the Basic Lease
Information in the areas shown on the Site Plan attached to this Lease as
EXHIBIT B-1 (the "DESIGNATED PARKING AREAS"), provided, however, that Landlord
shall not be required to enforce Tenant's right to use such parking spaces (but
Landlord shall use commercially reasonable efforts to resolve any problems
related to parking); and, provided further, that the number of parking spaces
allocated to Tenant hereunder shall be reduced on a proportionate basis in the
event any of the parking spaces in the Designated Parking Areas are taken or
otherwise eliminated as a result of any Condemnation or casualty event affecting
such Designated Parking Areas. Notwithstanding the foregoing provisions of this
Paragraph 50.1, Landlord shall have the right to relocate Tenant's parking from
time to time to other areas within the Project and to provide parking spaces to
Tenant in surface parking lots, parking structures or other areas now or
hereafter designated by Landlord as the "Project's Parking Areas." All
unreserved spaces will be on a first-come, first-served basis in common with
other tenants of and visitors to the Project in parking spaces provided by
Landlord from time to time in the Project's Parking Areas. Tenant's license to
use the parking spaces provided for herein shall be subject to such terms,
conditions, rules and regulations as Landlord or the operator of the Parking
Area may impose from time to time.
50.2. NO ASSIGNMENT OF PARKING LICENSE
The license granted hereunder is for self-service parking only and
does not include additional rights or services except to the extent that
Landlord elects in its sole and absolute discretion to provide any such
services.
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50.3. VISITOR PARKING
Tenant recognizes and agrees that visitors, clients and/or customers
(collectively the "VISITORS") to the Project and the Premises must park
automobiles or other vehicles only in areas designated by Landlord from time to
time as being for the use of such Visitors and Tenant hereby agrees to ask its
Visitors to park only in the areas designated by Landlord from time to time for
the use of Tenant's Visitors.
51. RIGHT OF FIRST OFFER
51.1. OFFER NOTICE
If subsequent to the full execution of this Lease, Landlord desires
to sell the Building, Landlord shall notify Tenant in writing of such intent to
sell (the "OFFER NOTICE"); provided, however, Landlord shall not be required to
provide Tenant with the Offer Notice with respect to the Building if Landlord
has previously terminated this Lease or recaptured the Premises. This Right of
First Offer shall be personal to Tenant and any transferee under a Permitted
Transfer and shall not be assignable or otherwise transferable in whole or in
part, voluntarily or by operation of law, to any other permitted assignee,
subtenant or other third parties. Tenant's right to receive the Offer Notice
shall further be effective only if Tenant is not in Default under this Lease and
no event has occurred which with the giving of notice or the passage of time, or
both, would constitute a Default hereunder. Subject to Paragraph 51.4 below,
Tenant's right to receive an Offer Notice in accordance with this Paragraph
51.1 shall be a one-time right.
51.2. ELECTION NOTICE
In the event Tenant desires to purchase the Building, Tenant shall
notify Landlord in writing of its election to purchase the Building (the
"ELECTION NOTICE") within ten (10) days following Tenant's receipt of the Offer
Notice. If Tenant delivers an Election Notice to Landlord, Tenant shall acquire
the Building on an "as-is" basis and without any representations or warranties
from Landlord.
51.3. PURCHASE AND SALE AGREEMENT
In the event Tenant timely delivers the Election Notice to Landlord,
the parties shall thereafter execute a purchase and sale agreement prepared by
Seller's counsel (the "PURCHASE AND SALE AGREEMENT") with the purchase price of
the Building equal to the quotient of the Net Operating Income (as defined
below) of the Building divided by nine one hundredths (.09) and with a closing
to be held on or before the date that is forty-five (45) days after delivery of
the Offer Notice.
51.4. FAILURE TO EXERCISE OR SIGN AGREEMENT
If Tenant fails to deliver an Election Notice within the 10-day time
period, or if for any reason whatsoever Tenant has not executed the Purchase and
Sale Agreement within ten (10) days after its receipt thereof from Landlord,
Tenant's right to purchase the
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Building hereunder shall automatically terminate and be of no further force and
effect with respect to Landlord or any other Person (as hereinafter defined) and
Landlord shall thereafter have the right to sell the Building at any time to any
Person on terms acceptable to Landlord in its sole and absolute discretion.
Notwithstanding the foregoing, if Landlord fails to enter into a letter of
intent or purchase and sale agreement for the sale of the Building to any such
Person within two hundred seventy (270) days after the date Tenant's right to
purchase the Building lapses pursuant to this Paragraph 51.4, then Tenant's
rights under this Paragraph 51 shall be reinstated and Landlord shall once again
furnish Tenant with an Offer Notice prior to selling the Building to a Person
other than a Landlord Affiliate. Tenant hereby expressly acknowledges and agrees
that time is of the essence for purposes of the Election Notice and the ten (10)
day period to execute the Purchase and Sale Agreement and that Tenant's failure
to deliver such Election Notice or the executed Purchase and Sale Agreement as
specified herein will relieve Landlord of any obligation under this Paragraph.
51.5. NET OPERATING INCOME
As used herein, "Net Operating Income" shall mean the Monthly Base
Rent due under the Lease with respect to the Building being purchased for the
twelve (12) full calendar months following the Offer Notice or, if the Offer
Notice is given prior to the Commencement Date, the Monthly Base Rent for the
Premises for the first (1st) Lease Year. As used in this Paragraph 51.5, Monthly
Base Rent shall mean the scheduled Monthly Base Rent set forth in the Basic
Lease Information PLUS the monthly installment of principal and interest
required to be paid on the Tenant Improvement Loan pursuant to Section D of
EXHIBIT C.
51.6 LANDLORD'S SALE TO AFFILIATE; SURVIVAL OF OPTION
Notwithstanding anything in this Paragraph to the contrary, this
Paragraph shall be inapplicable to, and neither Landlord nor any person or
entity providing financing to Landlord in connection with the Building
("LENDER") shall have any obligation to provide an Offer Notice to Tenant in
connection with (i) any sale, conveyance or other transfer or proposed sale,
conveyance or other transfer of the Building to any Person who controls, is
controlled by or is under common control with, Landlord or Lender or any Person
in which Hines Interest Limited Partnership or Morgan Stanley Real Estate
Investment Fund maintains an interest (collectively, a "LANDLORD AFFILIATE"), or
(ii) any foreclosure sale or deed-in-lieu of foreclosure or the exercise of any
similar remedy (collectively, a "FORECLOSURE") by any Lender. As used herein
"PERSON" shall mean any natural person, corporation, firm, association or other
entity, whether acting in an individual, fiduciary or other capacity. Tenant's
rights under this Paragraph 51.6 shall survive Landlord's transfer pursuant to
clause (i) of this Paragraph 51.6 but shall not survive any Foreclosure.
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52. MEMORANDUM OF LEASE
Promptly after full execution of this Lease, Landlord and Tenant
shall execute and cause to be recorded a Memorandum of Lease in the form
attached hereto as EXHIBIT I.
Landlord and Tenant have executed and delivered this Lease as of the
Lease Date specified in the Basic Lease Information.
LANDLORD: HMS GATEWAY OFFICE, L.P.,
a Delaware limited partnership
By: Hines Gateway Office, L.P.,
Administrative Partner
By: Hines Interests Limited Partnership,
General Partner
By: Hines Holdings, Inc.,
General Partner
By: /s/ Jim Buie
-------------------------------
Name: Jim Buie
-----------------------------
Its: Executive Vice President
------------------------------
TENANT: ADVANCED MEDICINE, INC.,
a Delaware corporation
By: /s/ Marty Glick
--------------------------------
Print Name: Marty Glick
-----------------------
Its: Senior Vice President & CEO
------------------------------
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EXHIBIT A
TENTATIVE PARCEL MAP
[MAP]
<PAGE>
EXHIBIT B
BASE BUILDING CONSTRUCTION AGREEMENT
This exhibit, entitled "Base Building Construction Agreement", is and
shall constitute EXHIBIT B to the Lease Agreement, dated as of February 17,
1999, by and between Landlord and Tenant (the "LEASE"). The terms and conditions
of this EXHIBIT B are hereby incorporated into and are made a part of the Lease.
Subject to the terms and conditions set forth herein and in the Lease,
Landlord shall cause construction of the Building in accordance with the
procedures set forth below:
A. DEFINITIONS
1. "BASE BUILDING IMPROVEMENTS" shall mean a three (3) story
building, containing approximately 110,000 square feet,
all exterior surfaces, utilities, landscaping and paved
parking, all in substantial compliance with those items
listed on the 901 Gateway Preliminary Specifications as
"Base Building" and located substantially in accordance
with the Site Plan; provided, however, that the term "BASE
BUILDING IMPROVEMENTS" shall not include any Tenant
Requested Base Building Improvements.
2. "BASE BUILDING PLANS AND SPECIFICATIONS" is defined in
Section B.1 below.
3. "BUILDING WORK COST" is defined in Section B.3 below.
4. "CONTRACTOR" shall mean a licensed general contractor
selected by Landlord and approved by Tenant, which approval
shall not be unreasonably withheld, conditioned or delayed.
5. "CONSTRUCTION WARRANTIES" is defined in Section D.2 below.
6. "LANDLORD'S ARCHITECT" shall mean Dowler Gruman Architects
(in association with Form 4 Architects) or another
architect selected by Landlord in Landlord's reasonable
discretion.
7. "LANDLORD'S CONTRACT" shall mean the construction contract
entered into by and between Landlord and the Contractor for
the construction of the Base Building Improvements and any
Tenant Requested Base Building Improvements.
8. "901 GATEWAY PRELIMINARY SPECIFICATIONS" shall mean those
preliminary specifications for construction of the Base
Building
B-1
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Improvements categorized as "Base Building" and more
particularly described on the attached EXHIBIT B-1.
9. "SITE PLAN" shall mean the site plan set forth on the
attached EXHIBIT B-2 establishing the approximate location
of the Building.
10. "TENANT'S COSTS" is defined in Section B.6 below.
11. "TENANT REQUESTED BASE BUILDING IMPROVEMENTS" shall mean
those improvements requested by Tenant in accordance with
this EXHIBIT B that are to be incorporated into the Base
Building Plans and Specifications.
Capitalized terms not otherwise defined in this EXHIBIT B shall have the
meanings ascribed to them in the Lease.
B. SCHEDULE
1. PLANS AND SPECIFICATIONS. At Landlord's sole cost and
expense, Landlord's Architect shall prepare (A) on or
before March 15, 1999, plans and specifications for the
civil and structural trades within the Base Building
Improvements (such plans and specifications being herein
referred to as "CONSTRUCTION PACKAGE #1") substantially in
accordance with the 901 Gateway Preliminary Specifications,
and (B) on or before May 1, 1999, plans and specifications
for all other trades within the Base Building Improvements
("CONSTRUCTION PACKAGE #2 and, together with Construction
Package #1, collectively, the "BASE BUILDING PLANS AND
SPECIFICATIONS"). Tenant shall have the right to approve
the Base Building Plans and Specifications only to the
extent of any material deviations from the 901 Gateway
Preliminary Specifications; provided, however, that such
approval shall not be unreasonably withheld, conditioned or
delayed and, provided further, that if Tenant fails to
respond within ten (10) days following Landlord's request
for approval, Tenant shall be conclusively deemed to have
given its approval to the matter submitted by Landlord.
Notwithstanding the foregoing, the Base Building Plans and
Specifications are, from time to time, subject to change in
Landlord's discretion, upon written consent from Tenant,
which consent shall not be unreasonably withheld,
conditioned or delayed and provided further that if Tenant
fails to respond within five (5) business days following
Landlord's request for consent, Tenant shall be
conclusively deemed to have given its consent to any such
change. Landlord may without the written
B-2
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consent of the Tenant change the Base Building Plans and
Specifications as may be required by any governmental agency
or as necessary to comply with any governmental requirements
or to address structural or unanticipated field conditions
or which, in the reasonable discretion of Landlord, will not
have a material effect on Tenant's use of the Premises or a
material effect on the aesthetic appearance or impression
relating to the Base Building Improvements.
2. TENANT REQUESTED BASE BUILDING IMPROVEMENTS. On or before
May 1, 1999, Tenant shall deliver to Landlord's Architect
detailed specifications for any Tenant Requested Base
Building Improvements. Landlord shall have ten (10) days
from its receipt of such specifications to approve or
disapprove the Tenant Requested Base Building Improvements.
Landlord's approval may be given or withheld in Landlord's
reasonable discretion, to ensure, among other things, that
the Tenant Requested Base Building Improvements are
compatible with all other construction and all Systems
within the Building. If Landlord disapproves the Tenant
Requested Base Building Improvements, then within five (5)
business days thereafter, Landlord shall meet with the
Tenant's Architect (as defined in EXHIBIT C) and Tenant to
discuss, or shall submit to Tenant's Architect and Tenant
in writing, the reasons for Landlord's disapproval. Within
five (5) business days following such meeting or
submission, Tenant shall cause Tenant's Architect to revise
the same and to submit new specifications for the Tenant
Requested Base Building Improvements to Landlord. The
procedure set forth in this paragraph will be repeated as
set forth above until Landlord has approved the Tenant
Requested Base Building Improvements.
3. ESTIMATE OF BUILDING WORK COSTS. Following the approval by
Landlord of the Tenant Requested Base Building
Improvements, Landlord shall furnish Tenant with an
estimate of the cost of the Tenant Requested Base Building
Improvements (the "BUILDING WORK COST").
4. TENANT'S REVIEW OF BUILDING WORK COST. The Building Work
Cost shall be subject to Tenant's approval, which approval
shall not be unreasonably withheld, conditioned or delayed
and provided further that if Tenant fails to respond within
five (5) business days following Landlord's request for
consent, Tenant shall be conclusively deemed to have given
its approval to the Building
B-3
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Work Cost. If Tenant timely disapproves the Building Work
Cost, then within five (5) business days thereafter, Tenant
shall meet with Landlord, Contractor, Landlord's Architect
and Tenant's Architect to discuss value engineering changes
to the Tenant Requested Base Building Improvements. Within
five (5) business days following such meeting, Tenant shall
cause Tenant's Architect to revise the Tenant Requested
Base Building Improvements and to submit revised
specifications for approval by Landlord in accordance with
the procedure set forth above and for a new Building Work
Cost to be prepared by Landlord. The procedure set forth in
this paragraph will be repeated until Tenant has approved
the Building Work Cost.
5. REVISION of PLANS & SPECIFICATIONS. Following Landlord's
approval of the Tenant Requested Base Building Improvements
and Tenant's approval of the Building Work Cost, Landlord
shall cause Landlord's Architect to revise the Base
Building Plans and Specifications to incorporate the Tenant
Requested Base Building Improvements.
6. TENANT'S RESPONSIBILITY FOR COST OF TENANT REQUESTED BASE
BUILDING IMPROVEMENTS. ALL costs associated with designing
and incorporating the Tenant Requested Base Building
Improvements into the Base Building Plans and
Specifications and all costs of constructing (including,
without limitation, the cost of obtaining all necessary
City approvals and permits) the Tenant Requested Base
Building Improvements (the "TENANT'S COSTS") shall be the
responsibility of Tenant and shall not be credited against
Tenant's Allowance, as defined in EXHIBIT C. Tenant shall
make progress payments to Landlord from time to time as the
Tenant Requested Base Building Improvements are
constructed. Tenant shall pay the portion of such progress
payments attributable to Tenant's Costs to Landlord within
ten (10) days of delivery of statements from Landlord to
Tenant therefor. Upon receipt of such payments, Landlord
shall make all progress payments directly to Contractor or
subcontractors, as appropriate. Landlord shall be entitled
to suspend or terminate construction of the Base Building
Improvements and to declare Tenant in default in accordance
with the terms of the Lease, if payment by Tenant to
Landlord of Tenant's Costs has not been received as
required hereunder.
B-4
<PAGE>
C. CONSTRUCTION
The Base Building Improvements shall be constructed, at Landlord's sole
cost and expense, by Contractor in accordance with the Base Building Plans and
Specifications, as the same may be amended or modified from time to time by
Landlord.
D. GENERAL
1. RIGHT OF TERMINATION. Landlord and Tenant acknowledge that
construction of the Base Building Improvements and all
matters relating thereto are subject to Landlord obtaining
all necessary governmental approvals to commence
construction of the Base Building Improvements. Landlord
shall use commercially reasonable efforts to obtain such
approvals; however, if Landlord is unable to obtain the
building permits necessary to commence construction by July
1, 1999, either party shall have the right to terminate the
Lease by delivering written notice of termination to the
other party on or before July 15, 1999. If written notice
of termination is given in a timely manner, the Lease shall
immediately terminate, except for any obligations which by
their terms survive the termination or earlier expiration
of the Lease. If no such notice of termination is given,
the Lease shall remain in full force and effect.
Notwithstanding anything herein to the contrary, Landlord
shall not be liable to Tenant for any loss or damage
resulting from any delay in constructing or developing the
Base Building Improvements, nor shall such failure affect
the obligations of Tenant under the Lease, except as
otherwise expressly set forth in the Lease.
2. LANDLORD'S COVENANT. Subject to the terms and conditions of
the Lease, Landlord covenants that the Base Building
Improvements shall be free from material latent defects in
design, materials and workmanship. Any claims by Tenant
under this Paragraph 2 shall be made in writing not later
than one (1) year after the Commencement Date. In the event
Tenant fails to deliver a written claim to Landlord on or
before the applicable date set forth above, then Landlord
shall be conclusively deemed to have satisfied its
obligations under this paragraph. The covenants contained
in this paragraph are subject to Paragraph 39 of the Lease
and are made specifically and exclusively for the benefit
of the original Tenant and any assignee or sublessee under
a Permitted Transfer pursuant to Paragraph 23.4 of the
Lease.
B-5
<PAGE>
3. CONSTRUCTION WARRANTIES. Landlord shall obtain from
Contractor, and shall request Contractor to obtain
from all subcontractors and material suppliers,
warranties (collectively, "CONSTRUCTION WARRANTIES")
for all components of the Base Building Improvements
for which warranties are customarily provided in the
construction industry and Landlord shall enforce the
Construction Warranties as reasonably requested by
Tenant.
4. POSTPONEMENT OF COMMENCEMENT DATE.
(a) Notwithstanding anything to the contrary
contained in Paragraph 8.3(a) of the Lease, in the
event that Landlord fails to perform the Initial
Milestone on or before August 1, 1999 (the
"Foundation Date") and/or the Secondary Milestone on
or before October 15, 1999 (the "Third Floor Slab
Date") for reasons other than Tenant Delays and
Force Majeure Events, and if as a result thereof
Tenant's Contractor is prevented from substantially
completing the Tenant Improvements on or before
April 1, 2000, then and only then the Commencement
Date shall be delayed beyond April 1, 2000 by one
(1) day for each day of delay caused by Landlord's
failure to complete the applicable Milestone(s) on
or before the aforesaid dates (but in no event
longer than the actual number of days Tenant's
Contractor is prevented from substantially
completing the Tenant Improvements).
(b) Notwithstanding the terms of Section D.4(a) above,
(1) if Landlord is delayed in completing the Initial
Milestone on or before the Foundation Date and/or
the Secondary Milestone on or before the Third Floor
Slab Date due to Tenant Delays, the Foundation Date
or the Third Floor Slab Date, as appropriate, shall
be extended for a period equal to the length of the
delay caused by such Tenant Delays, but the
Commencement Date shall not be extended beyond April
1, 2000, (2) if Landlord is delayed in completing
the Initial Milestone on or before the Foundation
Date and/or the Secondary Milestone on or before the
Third Floor Slab Date due to Force Majeure Events,
the Foundation Date or the Third Floor Slab Date, as
appropriate, AND the Commencement Date shall each be
extended by one (1) day for each day of delay
caused by such Force Majeure Events (but in no event
shall the Commencement Date be delayed longer than
the actual number of days Tenant's Contractor is
prevented from substantially completing the Tenant
Improvements).
B-6
<PAGE>
INITIALS:
TENANT: /s/ [ILLEGIBLE]
--------------------
LANDLORD: /s/ [ILLEGIBLE]
------------------
B-7
<PAGE>
EXHIBIT B-1
901 Gateway Preliminary Specifications
A "cold shell" standard shell for each building shall be constructed per
all governmental codes by Landlord for Tenant, including but not limited to the
following:
STRUCTURE/ENVELOPE
- - Concrete foundation to be reinforced grade beams with spread footings or
other system as specified by geotechnical and engineering consultants.
- - Ground floor to be concrete slab, minimum thickness 5", level to FF-20,
FL-15, on grade or as required by geotechnical and engineering
consultants with a minimum of 4" drain rock, 2" sand cushion and a 10 mil
vapor barrier, but in no event a mat slab.
- - Second and third floors to have vented metal decking with reinforced
concrete topping slab which meets fire inspection code and flat to FF-20.
- - Building structural framing to consist of reinforced steel "braced frame"
with beams and columns constructed using rolled shapes. Cross bracing at
exterior.
- - Non-bearing exterior curtain wall consisting of EIFS, with exterior
containing a minimum average of 40% glass with ribbon windows of high
performance glass (minimum shading coefficient of .67).
- - Floor system designed with live load capacity of 120 psf.
- - Roof live load to be 50 psf in all bays.
- - Floor to floor heights to be 17'-0".
- - Roof drains and drain lines with connection to site storm drain system.
- - Paved surface parking adjacent to the Premises as required to provide
tenant with the parking designated in the Lease.
- - Roof screens up to 11'-0" in height above the roof as required by City of
South San Francisco.
- - Roofing membrane to be a four-ply asphalt built-up over rigid insulation
over metal deck roof construction.
- - Fire proofing of building structure, if required, to building code.
<PAGE>
- - Fire safing between floors to maintain code required separations.
- - Perimeter and roof base building insulation per Title 24 requirements.
UTILITIES
- - 4,000 amp 277/480 volt, 3-phase electric service and transformer with
underground electrical to switchgear and meter.
- - "House power" panels and transformer for site lights and irrigation.
- - One gas service to exterior meter.
- - Four (4), 4" telephone and data conduits. Stubbed to building.
- - Site storm drain system.
- - Domestic water service with meters, backflow preventers and check
assembly located per California Water Service requirements.
- - Sanitary sewer to and including main line under ground floor slab.
- - Complete light hazard automatic fire sprinkler system to meet NFPA
standards (excluding drops to suspended ceilings).
MISCELLANEOUS
- - Exterior doors prepared with hardware and rough-in to provide for
electronic security. Such security to be provided and installed by
Tenant.
- - All utility connection(s) and development fees for base building systems.
- - Landscaping, hardscapes and automatic irrigation systems, including
control systems.
- - One (1) monument sign at each main entrance along Gateway Boulevard
identifying The Gateway North Campus and the building address.
- - Site lighting a minimum of one (1) foot candle per square foot, including
control system.
- - Two (2) sets of interior exit stairs per building and two corresponding
entrances; one set of exit stairs shall be extended to the roof for roof
access.
<PAGE>
EXHIBIT B-2
SITE PLAN
[DIAGRAM OF FLOOR PLAN]
<PAGE>
EXHIBIT C
PREMISES CONSTRUCTION AGREEMENT
This exhibit, entitled "Premises Construction Agreement", is and shall
constitute EXHIBIT C to the Lease Agreement, dated as of February 17, 1999, by
and between Landlord and Tenant (the "LEASE"). The terms and conditions of this
EXHIBIT C are hereby incorporated into and are made a part of the Lease.
Subject to the terms and conditions set forth herein and in the Lease,
Landlord shall allow the construction or installation of the improvements in the
interior of the Premises in accordance with the procedures set forth below:
A. DEFINITIONS
1. "APPROVED PLANS" is defined in Section B.5 below.
2. "CONTRACTOR" shall mean the general contractor retained by
Landlord pursuant to EXHIBIT B to the Lease.
3. "ESTIMATED WORK COST" is defined in Section B.3 below.
4. "EXCESS TENANT IMPROVEMENTS COSTS" is defined in Section B.6
below.
5. "FINAL COST QUOTATION" is defined in Section B.6 below and shall
include all costs associated with the Tenant Improvements,
including, without limitation, costs of all tenant improvement
work; architectural and engineering fees; governmental agency fees
for permits, licenses and inspections; construction fees,
including, without limitation, general contractors' overhead and
supervision fees; and such other costs as may be incurred by
Landlord in connection with such construction.
6. "PRELIMINARY PLANS" is defined in Section B.1 below.
7. "TENANT IMPROVEMENT ALLOWANCE" shall mean an amount equal to Four
Million Nine Hundred Fifty Thousand Dollars ($4,950,000.00) (based
on $45.00 multiplied by the Premises square footage), which amount
shall, except as otherwise provided in this EXHIBIT C, be paid by
Landlord toward the cost of completion of the Tenant Improvements
and related design, engineering, governmental, overhead,
supervision and administration fees and costs (collectively, the
"TENANT IMPROVEMENT COST"). The Tenant Improvement Allowance shall
be subject to adjustment upon the
C-1
<PAGE>
final determination of the Premises square footage by Landlord's
Architect. Notwithstanding the foregoing, (i) not less than One
Million Six Hundred Fifty Thousand Dollars ($1,650,000) (VIZ.
$15.00 per square foot) (the "WARM SHELL ALLOWANCE") shall be
expended on the improvements generally described on EXHIBIT C-1
hereto, and (ii) no portion of the Tenant Improvement Allowance
shall be paid by Landlord toward the cost of the Tenant Requested
Base Building Improvements or Tenant Improvements that constitute
furniture, equipment or trade fixtures or result in changes to the
Base Building Improvements. If the Tenant Improvement Cost exceeds
the Tenant Improvement Allowance, the difference shall be paid by
Tenant in accordance with this EXHIBIT C. If the total cost of
constructing and installing the improvements described on EXHIBIT
C-1 is less than the Warm Shell Allowance, then the Tenant
Improvement Allowance shall be reduced by the difference and the
difference shall not be disbursed to Tenant.
8. "TENANT'S ARCHITECT" shall mean Dowler Gruman Architects or a
replacement licensed architect selected by Tenant and approved by
Landlord.
9. "TENANT'S CONTRACT" shall mean the construction contract entered
into by and between Tenant and the Contractor for the construction
of the Tenant Improvements.
10. "TENANT IMPROVEMENTS" shall mean all improvements made to the
Premises pursuant to the Approved Plans, specifically excluding,
however, any Tenant Requested Base Building Improvements (as
defined in EXHIBIT B to the Lease). Without limiting the
generality of the foregoing, the Tenant Improvements shall include
and Tenant shall be responsible for the construction and
installation of the improvements described on EXHIBIT C-1.
11. "WARM SHELL ALLOWANCE" is defined within the definition of Tenant
Improvement Allowance in Paragraph A.7 above.
Capitalized terms not otherwise defined in this EXHIBIT C shall
have the meanings ascribed to them in the Lease.
B. SCHEDULE
1. Tenant shall cause Tenant's Architect to furnish to Landlord on or
before March 15, 1999, preliminary space plans and specifications
C-2
<PAGE>
(the "PRELIMINARY PLANS"). Tenant shall be responsible for all
costs associated with the Preliminary Plans (collectively, the
"PRELIMINARY DESIGN COSTS"), including any revisions required by
Section B.2 hereunder.
2. Landlord shall have ten (10) days from its receipt of the
Preliminary Plans to approve or disapprove the same. Landlord's
approval of the Preliminary Plans shall not be unreasonably
withheld, conditioned or delayed. If Landlord disapproves the
Preliminary Plans, then within five (5) business days thereafter,
Landlord shall meet with Tenant's Architect and Tenant to discuss,
or shall submit to Tenant's Architect and Tenant in writing, the
reasons for Landlord's disapproval. Within five (5) business days
following such meeting or submission, Tenant shall cause the
Tenant's Architect to revise the same and to submit new
Preliminary Plans to Landlord. The same procedure set forth in
this paragraph will be repeated as set forth above until Landlord
has approved the Preliminary Plans.
3. Promptly after approval of the Preliminary Plans, Tenant shall
cause Contractor to furnish Landlord with an estimate of the cost
of the Tenant Improvements as shown on the Preliminary Plans (the
"ESTIMATED WORK COST"). The Estimated Work Cost shall separately
itemize all costs to complete the improvements described on
EXHIBIT C-1 hereto.
4. Following Contractor's calculation of the Estimated Work Cost,
Tenant shall cause Tenant's Architect to prepare detailed
construction drawings and specifications (the "WORKING DRAWINGS")
for the Tenant Improvements based strictly upon the Preliminary
Plans, except as otherwise agreed in writing by Landlord and
Tenant. Tenant shall be responsible for all costs associated with
the Working Drawings. The Working Drawings shall be completed no
later than May 1, 1999.
5. Landlord shall have ten (10) days from its receipt of the Working
Drawings to approve or disapprove the same. Landlord's approval of
the Working Drawings shall not be unreasonably withheld,
conditioned or delayed. If Landlord disapproves the Working
Drawings, then within five (5) business days thereafter, Landlord
shall meet with Tenant's Architect and Tenant to discuss, or shall
submit to the Tenant's Architect and Tenant in writing, the
reasons for Landlord's disapproval. Within five (5) business days
C-3
<PAGE>
following such meeting or submission, Tenant shall cause Tenant's
Architect to revise the same and to submit new Working Drawings to
Landlord, and the same procedure will be repeated as set forth
above until Landlord has approved the Working Drawings (the
"APPROVED PLANS"). Upon approval of the Working Drawings, Landlord
shall deliver to Tenant a list of Tenant Improvements to be
removed by Tenant, at Tenant's cost and expense in accordance with
Paragraph 11.2 of the Lease, upon expiration of the Term or
earlier termination of the Lease. Notwithstanding the foregoing,
during the preparation of the Working Drawings, Landlord shall,
upon Tenant's request, advise Tenant of items that will be
required to be removed pursuant to the previous sentence.
6. Within ten (10) business days after Landlord's approval of the
Approved Plans, Tenant shall cause Contractor to furnish to
Landlord a cost estimate for the Tenant Improvements based upon
the Approved Plans (the "FINAL COST QUOTATION"). The Final Cost
Quotation shall separately itemize all costs to complete the
improvements described on EXHIBIT C-1 hereto. If the Final Cost
Quotation is greater than the Tenant Improvement Allowance, Tenant
shall be responsible for the difference between the Tenant
Improvement Allowance and the Final Cost Quotation (the "EXCESS
TENANT IMPROVEMENTS COST").
7. Landlord and Tenant shall make progress payments on a pro rata
basis (in the proportion that the Tenant Improvement Allowance
paid by Landlord and the Excess Tenant Improvements Cost paid by
Tenant bear to the Final Cost Quotation) from time to time as the
Tenant Improvements are constructed in the Premises. Tenant shall
pay its pro rata share of any progress payments directly to
Contractor or subcontractors, as appropriate, and Landlord shall
pay its pro rata share of any progress payments directly to
Tenant, as appropriate, subject to a reasonable retention as
determined by Landlord. Landlord shall be entitled to suspend or
terminate construction of the Tenant Improvements and to declare
Tenant in default in accordance with the terms of the Lease, if
payment by Tenant of both Landlord and Tenant's pro rata shares of
any progress payment have not been received by Contractor when
due, as required hereunder. Moreover, Landlord shall not be
required to pay its pro rata share of any progress payment until
such time as Landlord receives from Tenant an unconditional lien
waiver duly executed by Contractor as to the applicable progress
payment and a conditional lien waiver for the progress payment
next due. All lien
C-4
<PAGE>
waivers shall comply with California law regarding materialmen and
mechanic's liens.
C. TENANT IMPROVEMENT CONSTRUCTION
1. All Tenant Improvements to be constructed or installed in the
Premises shall be performed by Contractor in accordance with the
Approved Plans, subject to any changes agreed to by Landlord and
Tenant in writing. Landlord shall have no obligation to Tenant for
defects in design, workmanship or materials in connection with the
Tenant Improvements. Any changes to the Approved Plans shall
require the written approval of Landlord and Tenant, which
approval shall not be unreasonably withheld, conditioned or
delayed. All such changes must be evidenced by a written change
order executed by Landlord and Tenant or their respective
representatives describing the change required in the Approved
Plans, and the cost of such changes shall be paid in accordance
with the terms of this EXHIBIT C.
2. Tenant shall cause Contractor to construct the Tenant Improvements
in a manner designed to avoid interference with the construction
of the Base Building Improvements. Landlord and Tenant shall each
use good faith efforts to reasonably resolve any issues or
conflicts that may arise during the course of constructing the
Tenant Improvements and the Base Building Improvements. Entry by
Contractor in accordance with this EXHIBIT C shall not constitute
Tenant's occupancy of the Premises under Paragraph of the Lease;
however, Tenant shall comply with all terms and conditions of the
Lease (excluding only, prior to the Commencement Date, the
obligation to pay Rent) during Contractor's occupancy of and work
within the Premises. Tenant shall be responsible for maintaining
harmonious labor relations with all contractors and service
providers servicing the Premises.
3. In addition to and without limitation on the requirements set
forth in the Lease, Tenant shall ensure that Contractor and all
subcontractor(s) procure and maintain in full force and effect
during the course of construction a "broad form" commercial
general liability and property damage policy of insurance naming,
Landlord, Tenant and Landlord's lenders as additional insureds.
The minimum limit of coverage of the aforesaid policy shall be in
the amount of not less than Three Million Dollars ($3,000,000) for
injury or death of one person in any one accident or occurrence
and
C-5
<PAGE>
in the amount of not less than Three Million Dollars
($3,000,000) for injury or death of more than one person in
any one accident or occurrence, and shall contain a
severability of interest clause or a cross liability
endorsement. Such insurance shall further insure Landlord
and Tenant against liability for property damage of at
least One Million Dollars ($1,000,000).
D. TENANT IMPROVEMENT LOAN
In addition to the Tenant Improvement Allowance, Landlord agrees to lend
Tenant up to Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000) (VIZ.
$25.00 per square foot) to be applied toward completion of the Tenant
Improvements (the "TENANT IMPROVEMENT LOAN") after the Tenant Improvement
Allowance has been disbursed. The Tenant Improvement Loan shall be subject to
adjustment upon the final determination of the Premises square footage by
Landlord's Architect. The Tenant Improvement Loan shall be disbursed by Landlord
upon the submission of draw requests in a form approved by Landlord and in
accordance with customary construction lending disbursement procedures
(including, without limitation, the establishment of a retention.) The Tenant
Improvement Loan shall be repayable by Tenant to Landlord in substantially equal
self-amortizing monthly installments over the initial Term of the Lease,
together with interest on the balance outstanding from time to time from the
date of disbursement at the rate of twelve percent (12%) per annum; provided,
however, that Tenant shall have the right to prepay the then outstanding balance
(principal and accrued but unpaid interest) of the Tenant Improvement Loan in
whole (but not in part) on the first (1st), second (2nd) or third (3rd)
anniversary of the Commencement Date, provided only that Tenant shall give
Landlord not less than thirty (30) days' notice of its election to so prepay. By
way of example, if the original principal balance of the Tenant Improvement Loan
is Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000), and assuming
for purposes of this example that such loan is disbursed as shown on EXHIBIT C-2
hereto and that Tenant does not elect to prepay the Tenant Improvement Loan as
provided in the immediately preceding sentence, then the Tenant Improvement Loan
shall be repayable in installments in the amount shown on said EXHIBIT C-2. Such
installments shall be payable on the first day of each month concurrently with
the payment of Monthly Base Rent, and shall be deemed a part of the "Rent"
hereunder for all purposes of this Lease. Notwithstanding anything herein to the
contrary, in the event the Lease shall terminate for any reason prior to the
scheduled expiration thereof, the Tenant Improvement Loan and all accrued and
unpaid interest thereon shall immediately become due and payable in full.
E. GENERAL
1. All drawings, space plans, plans and specifications for any
improvements or installations in the Premises are expressly
subject to Landlord's prior written approval, which approval shall
not be
C-6
<PAGE>
unreasonably withheld, conditioned or delayed. Any approval by
Landlord of any drawings, plans or specifications prepared on
behalf of Tenant including, without limitation, any Preliminary
Plans, Working Drawings or Approved Plans, or any revisions
thereto, shall not in any way bind Landlord, create any
responsibility or liability on the part of the Landlord for the
completeness of the same, their design sufficiency or compliance
with applicable statutes, ordinances or regulations or constitute
a representation or warranty by Landlord as to the adequacy or
sufficiency of such drawings, plans or specifications, or the
improvements to which they relate, but such approval shall merely
evidence the consent of Landlord to such drawings, plans or
specifications.
2. The Tenant Improvement Allowance (including, without limitation,
the Warm Shell Allowance) and the Tenant Improvement Loan, if
borrowed by Tenant, shall be used by Tenant to construct Tenant
Improvements in the entire Premises and may not be used to improve
only a portion or portions of the Premises.
3. Any failure by Tenant to pay any amounts due hereunder shall have
the same effect under the Lease as a failure to pay Rent and any
failure by Tenant to perform any of its other obligations
hereunder shall be subject to Paragraph 24 of the Lease.
4. Tenant shall provide Landlord with as-built plans and
specifications of the Tenant Improvements within forty-five (45)
days after the Commencement Date.
INITIALS:
TENANT: [ILLEGIBLE]
---------------
LANDLORD: [ILLEGIBLE]
-------------
C-7
<PAGE>
EXHIBIT C-1
DESCRIPTION OF "WARM SHELL" IMPROVEMENTS
- - Elevator(s) per code
- - Stairs in excess of two (2) exit stairs provided as part of the 901
Gateway Preliminary Specifications
- - Restrooms per code
- - HAVC for standard office use (laboratory upgrades will not be funded out
of the Warm Shell Allowance)
- - Standard office lobby
- - Electrical for standard office use (laboratory upgrades will not be
funded out of the Warm Shell Allowance)
- - Trash Enclosure
- - Rooftop mechanical platform
- - Roof Screens
<PAGE>
EXHIBIT C-2
EXAMPLE OF TENANT IMPROVEMENT LOAN AMORTIZATION
(Assumes April 1, 2000 Lease Commencement)
TI Loan Amount $ 2,750,000.00
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DATE AMOUNT OF TI LOAN CALCULATION OF END OF MONTH
DRAW REQUEST MONTHLY INTEREST LOAN BALANCE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dec-99 625,000.00 3,125.00 $ 628,125.00
Jan-00 675,000.00 9,656.25 $ 1,312,781.25
Feb-00 700,000.00 16,627.81 $ 2,029,409.06
Mar-00 750,000.00 24,044.09 2,803,453.15
- --------------------------------------------------------------------------------
</TABLE>
Loan Balance as of Lease Commencement Date (assuming Lease Commences
April 1, 2000)
$ 2,803,453
Monthly Installment $36,821
Interest Rate 12%
Monthly Rate 1%
Lease Term* 144 months
*Lease term to be adjusted depending on lease commencement date.
<PAGE>
Exhibit D
COMMENCEMENT AND EXPIRATION DATE MEMORANDUM
LANDLORD: HMS GATEWAY OFFICE L.P.
TENANT: ADVANCED MEDICINE, INC.
LEASE DATE: February 17, 1999
BUILDING: Located at 901 Gateway Boulevard, South San
Francisco, California
Tenant hereby accepts the Premises as being in the condition required
under the Lease, with all Base Building Improvements completed (except for minor
punchlist items which Landlord agrees to complete).
The Commencement Date of the Lease with respect to the above-referenced
Building is hereby established as _________________, 199_.
TENANT: ADVANCED MEDICINE, INC.,
a Delaware corporation
By:
-------------------------------------------
Print Name:
-----------------------------------
Its:
------------------------------------------
Approved and Agreed:
LANDLORD: HMS GATEWAY OFFICE, L.P.,
a Delaware limited partnership
By: Hines Gateway Office, L.P.,
Administrative Partner
By: Hines Interests Limited Partnership,
General Partner
By: Hines Holdings, Inc.,
General Partner
By:
-----------------------------
Name:
---------------------------
Its:
----------------------------
D-1
<PAGE>
INITIALS:
TENANT: [ILLEGIBLE]
------------------
LANDLORD: [ILLEGIBLE]
----------------
D-2
<PAGE>
Exhibit E
ADDITIONAL OPERATIONAL GUIDELINES
As a component of the Tenant Improvements and any Alterations made by
Tenant to the Premises, Tenant shall install fume hoods, as well as a rooftop
venting and exhaust system designed to increase the velocity of exhaust such
that any odors shall be discharged high into the atmosphere in order to minimize
the risk of odors detectable at ground level. In addition, Tenant shall install
and utilize such additional venting, exhaust and quenching systems, including,
without limitation, base quenching, distillation units, acid quenching, and
mechanical exhaust/filtration systems, as appropriate to reduce the risk of
emanation of such odors.
E-1
<PAGE>
Exhibit F
RULES AND REGULATIONS
This exhibit, entitled "Rules and Regulations," is and shall constitute
EXHIBIT F to the Lease Agreement, dated as of the Lease Date, by and between
Landlord and Tenant for the Premises. The terms and conditions of this EXHIBIT F
are hereby incorporated into and are made a part of the Lease. Capitalized
terms used, but not otherwise defined, in this EXHIBIT F have the meanings
ascribed to such terms in the Lease.
1. Tenant shall not use any method of heating or air conditioning other
than that approved by Landlord in writing without the prior written consent of
Landlord, which consent shall not to be unreasonably withheld, conditioned or
delayed.
2. All window coverings installed by Tenant and visible from the outside
of the Building require the prior written approval of Landlord.
3. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance or any flammable or combustible materials on or around
the Project or the Adjacent Properties, except to the extent that Tenant is
permitted to use the same in the Premises under the terms of Paragraph 32 of the
Lease.
4. Tenant shall not alter any lock or install any new locks or bolts on
any door at the Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed.
5. Tenant shall not make any duplicate keys without the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed.
6. Tenant shall park motor vehicles in parking areas designated by
Landlord, including areas for loading and unloading. During those periods of
loading and unloading, Tenant shall not unreasonably interfere with traffic flow
around the Building or the Project and loading and unloading areas of other
tenants.
7. Tenant shall not disturb, solicit or canvas any tenant or other
occupant of the Building or Project and shall cooperate to prevent same.
8. No person shall go on the roof without Landlord's permission except as
required to repair and maintain the same as required under the Lease.
9. Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building, to such a degree as to be objectionable to Landlord or other tenants,
shall be placed and maintained by Tenant, at Tenant's expense, on vibration
isolators or in noise-dampening housing or other devices sufficient to eliminate
noise or vibration.
F-1
<PAGE>
10. All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into the Premises and shall not be
left in parking or receiving areas overnight. During the period of construction
of the Tenant Improvements and any Alterations, all construction materials shall
be stored in a manner and a location mutually acceptable to Landlord and Tenant.
11. Tenant is responsible for the storage and removal of all trash and
refuse. All such trash and refuse shall be contained in suitable receptacles
stored behind screened enclosures at locations approved by Landlord.
12. Tenant shall not store or permit the storage or placement of goods or
merchandise in or around the Common Areas surrounding the Premises. No displays
or sales or merchandise shall be allowed in the Parking Areas or other Common
Areas.
13. Tenant shall not permit any animals, including but not limited to,
any household pets, to be brought or kept in or about the Premises, the
Building, the Project or any of the Common Areas which would violate applicable
Laws or constitute a nuisance to the Premises, the Building or the Project.
Tenant shall prior to the Commencement Date and thereafter from time to time
upon the request of Landlord provide to Landlord a written plan for the handling
and disposal of all animals used by Tenant in the conduct of its business, which
plan shall be subject to the written approval of Landlord.
INITIALS:
TENANT: [Illegible]
-------------------
LANDLORD: [Illegible]
-----------------
F-2
<PAGE>
EXHIBIT G
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the
information provided by you in this Hazardous Materials Disclosure Certificate
is necessary for the Landlord to evaluate your proposed uses of the premises
(the "PREMISES") and to determine whether to enter into a lease agreement with
you as tenant. If a lease agreement is signed by you and the Landlord (the
"LEASE AGREEMENT"), on an annual basis in accordance with the provisions of
Paragraph 32 of the Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. Any questions
regarding this certificate should be directed to, and when completed, the
certificate should be delivered to:
Landlord: HMS Gateway Office L.P.
c/o Hines
651 Gateway Boulevard, Suite 1140
South San Francisco, California 94080
Phone: (650) 794-1111
Name of (Prospective) Tenant: Advanced Medicine, Inc.
Mailing Address:_________________________________________________________
_________________________________________________________________________
Contact Person, Title and Telephone Number(s):_________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):_____________________________________________________
_________________________________________________________________________
Address of (Prospective) Premises:_____________________________________
Length of (Prospective) initial Term:____________________________________
_________________________________________________________________________
G-1
<PAGE>
1. GENERAL INFORMATION:
Describe the proposed operations to take place in, on, or about
the Premises, including, without limitation, principal products
processed, manufactured or assembled, and services and activities to
be provided or otherwise conducted. Existing tenants should describe
any proposed changes to on-going operations.
______________________________________________________________________
______________________________________________________________________
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials (as hereinafter defined) be used,
generated, treated, stored or disposed of in, on or about the
Premises? Existing tenants should describe any Hazardous
Materials which continue to be used, generated, treated, stored
or disposed of in, on or about the Premises.
Wastes Yes / / No / /
Chemical Products Yes / / No / /
Other Yes / / No / /
If Yes is marked, please explain:______________________________
_______________________________________________________________
_______________________________________________________________
2.2 If Yes is marked in Exhibit 2.1, attach a list of any Hazardous
Materials to be used, generated, treated, stored or disposed of
in, on or about the Premises, including the applicable hazard
class and an estimate of the quantities of such Hazardous
Materials to be present on or about the Premises at any given
time; estimated annual throughput; the proposed location(s) and
method of storage (excluding nominal amounts of ordinary
household cleaners and janitorial supplies which are not
regulated by any Environmental Laws as hereinafter defined);
and the proposed location(s) and method(s) of treatment or
disposal for each Hazardous Material, including, the estimated
frequency, and the proposed contractors or subcontractors.
Existing tenants should attach a list setting forth the
information requested above and such list should include actual
data from on-going operations and the identification of any
variations in such information from the prior year's
certificate.
G-2
<PAGE>
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage or treatment of gasoline,
diesel, petroleum, or other Hazardous Materials in tanks or sumps
proposed in, on or about the Premises? Existing tenants should
describe any such actual or proposed activities.
Yes / / No / /
If yes, please explain:___________________________________________
__________________________________________________________________
__________________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing tenants should describe any additional
identification numbers issued since the previous certificate.
Yes / / No / /
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator? Existing tenants should describe any
new reports filed.
Yes / / No / /
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
_____ storm drain? _____ sewer?
_____ surface water? _____ no wastewater or other wastes
discharged.
Existing tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
__________________________________________________________________
__________________________________________________________________
G-3
<PAGE>
5.2 Will any such wastewater or waste be treated before discharge?
Yes / / No / /
If yes, describe the type of treatment proposed to be conducted.
Existing tenants should describe the actual treatment conducted.
__________________________________________________________________
__________________________________________________________________
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will
discharge into the air; and will such air emissions be monitored?
Existing tenants should indicate whether or not there are any such
air filtration systems or stacks in use in, on or about the
Premises which discharge into the air and whether such air
emissions are being monitored.
Yes / / No / /
If yes, please describe:__________________________________________
__________________________________________________________________
__________________________________________________________________
6.2 Do you propose to operate any of the following types of equipment,
or any other equipment requiring an air emissions permit? Existing
tenants should specify any such equipment being operated in, on or
about the Premises.
_____ Spray booth(s) _____ Incinerator(s)
_____ Dip tank(s) _____ Other (Please describe)
_____ Drying oven(s) _____ No Equipment Requiring Air
Permits
If yes, please describe:__________________________________________
__________________________________________________________________
__________________________________________________________________
6.3 Please describe (and submit copies of with this Hazardous
Materials Disclosure Certificate) any reports you have filed in
the past [thirty-six] months with any governmental or
quasi-governmental agencies or authorities related to air
discharges or clean air requirements and any such reports which
have been issued during such period by any such agencies or
authorities with respect to you or your business operations.
G-4
<PAGE>
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("MANAGEMENT PLAN") or
Hazardous Materials Business Plan and Inventory ("BUSINESS PLAN")
pursuant to Fire Department or other governmental or regulatory
agencies' requirements? Existing tenants should indicate whether
or not a Management Plan is required and has been prepared.
Yes / / No / /
If yes, attach a copy of the Management Plan or Business Plan.
Existing tenants should attach a copy of any required updates to
the Management Plan or Business Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the
Premises listed or regulated under Proposition 65? Existing
tenants should indicate whether or not there are any new Hazardous
Materials being so used which are listed or regulated under
Proposition 65.
Yes / / No / /
If yes, please explain:___________________________________________
__________________________________________________________________
__________________________________________________________________
G-5
<PAGE>
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees or has your company
received requests for information, notice or demand letters, or
any other inquiries regarding its operations? Existing tenants
should indicate whether or not any such actions, orders or decrees
have been, or are in the process of being, undertaken or if any
such requests have been received.
Yes / / No / /
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions,
orders or decrees and also describe any requests, notices or
demands, and attach a copy of all such documents. Existing tenants
should describe and attach a copy of any new actions, orders,
decrees, requests, notices or demands not already delivered to
Landlord pursuant to the provisions of Paragraph 32 of the Lease
Agreement.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and
safety concerns?
Yes / / No / /
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and other documents
related thereto as requested by Landlord. Existing tenants should
describe and attach a copy of any new complaint(s), cross-
complaint(s), pleadings and other related documents not already
delivered to Landlord pursuant to the provisions of Paragraph 32
of the Lease Agreement.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
G-6
<PAGE>
8.3 Have there been any problems or complaints from adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing
tenants should indicate whether or not there have been any such
problems or complaints from adjacent tenants, owners or other
neighbors at, about or near the Premises and the current status of
any such problems or complaints.
Yes / / No / /
If yes, please describe. Existing tenants should describe any such
problems or complaints not already disclosed to Landlord under the
provisions of the signed Lease Agreement and the current status of
any such problems or complaints.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all permits and licenses issued to your company
with respect to its proposed operations in, on or about the
Premises, including, without limitation, any Hazardous Materials
permits, wastewater discharge permits, air emissions permits, and
use permits or approvals. Existing tenants should attach copies of
any new permits and licenses as well as any renewals of permits or
licenses previously issued.
As used herein, "HAZARDOUS MATERIALS" shall mean and include any
substance that is or contains (a) any "HAZARDOUS SUBSTANCE" as now or
hereafter defined in Section 101(14) of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA")
(42 U.S.C. Section 9601 ET SEQ.) or any regulations promulgated under CERCLA;
(b) any "HAZARDOUS WASTE" as now or hereafter defined in the Resource
Conservation and Recovery Act, as amended ("RCRA") (42 U.S.C. Section 6901 ET
SEQ.) or any regulations promulgated under RCRA; (c) any substance now or
hereafter regulated by the Toxic Substances Control Act, as amended ("TSCA")
(15 U.S.C. Section 2601 ET SEQ.) or any regulations promulgated under TSCA;
(d) petroleum, petroleum by-products, gasoline, diesel fuel, or other
petroleum hydrocarbons; (e) asbestos and asbestos-containing material, in any
form, whether friable or non-friable; (f) polychlorinated biphenyls; (g) lead
and lead-containing materials; or (h) any additional substance, material or
waste (A) the presence of which on or about the Premises (i) requires
reporting, investigation or remediation under any Environmental Laws (as
hereinafter defined), (ii) causes or threatens to cause a nuisance on the
Premises or any adjacent property or poses or threatens to pose a hazard to
the health or safety of persons on the Premises or any adjacent property, or
(iii) which, if it emanated or migrated from the Premises, could constitute a
trespass, or (B) which is now or is hereafter classified or
G-7
<PAGE>
considered to be hazardous or toxic under any Environmental Laws; and
"ENVIRONMENTAL LAWS" shall mean and include (a) CERCLA, RCRA and TSCA; and (b)
any other federal, state or local laws, ordinances, statutes, codes, rules,
regulations, orders or decrees now or hereinafter in effect relating to (i)
pollution, (ii) the protection or regulation of human health, natural resources
or the environment, (iii) the treatment, storage or disposal of Hazardous
Materials, or (iv) the emission, discharge, release or threatened release of
Hazardous Materials into the environment.
The undersigned hereby acknowledges and agrees that this Hazardous
Materials Disclosure Certificate is being delivered to Landlord in connection
with the evaluation of a Lease Agreement and, if such Lease Agreement is
executed, will be attached thereto as an exhibit. The undersigned further
acknowledges and agrees that if such Lease Agreement is executed, this Hazardous
Materials Disclosure Certificate will be updated from time to time in accordance
with Paragraph 32 of the Lease Agreement. The undersigned further acknowledges
and agrees that the Landlord and its partners, lenders and representatives may,
and will, rely upon the statements, representations, warranties, and
certifications made herein and the truthfulness thereof in entering into the
Lease Agreement and the continuance thereof throughout the term, and any
renewals thereof, of the Lease Agreement. I [print name], _____________________
acting with full authority to bind the (proposed) Tenant and on behalf of the
(proposed) Tenant, certify, represent and warrant that the information
contained in this certificate is true and correct.
(PROSPECTIVE) TENANT:
ADVANCED MEDICINE, INC.,
a Delaware corporation
By:
----------------------------
Title:
----------------------------
Date:
----------------------------
G-8
<PAGE>
EXHIBIT H
TENANT'S PROPERTY
Laboratory related furniture and equipment including:
benches and tables
casework
biosafety, laminar flow, and fume hoods
cages/fencing
DI water system
vacuum pumps
compressed air
nitrogen manifold
Office related furniture and equipment including:
open office partitions
telephone and network equipment
reception desk
lobby furniture
lobby display cases
appliances
interior signage
H-1
<PAGE>
EXHIBIT I
RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO:
- ---------------------------------------------------
- ---------------------------------------------------
- ---------------------------------------------------
Attention:
-----------------------------------------
- --------------------------------------------------------------------------------
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is executed as of February 17, 1999, by and between HMS
GATEWAY OFFICE, L.P., a Delaware limited partnership ("Landlord"), and ADVANCED
MEDICINE, INC., a Delaware corporation ("Tenant"). Landlord has previously
leased to Tenant a portion of that certain real property described on EXHIBIT A
attached hereto and incorporated herein by reference, consisting of the building
commonly known as 901 Gateway Boulevard located in South San Francisco,
California, commencing on ______________, _____ and terminating on
_____________, _____ on the terms and conditions set forth in that certain Lease
between Landlord and Tenant dated as of February ___, 1999 (the "Off Record
Lease"). Landlord has also granted to Tenant (i) options to renew the term of
the Lease for two (2) additional periods of five (5) years each, and (ii) a
right to expand the premises being leased by Tenant, all terms and conditions of
the Off Record Lease.
I-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Memorandum of
Lease so that third parties might have notice of the lease by Landlord and
Tenant herein.
<TABLE>
<S><C>
LANDLORD: HMS GATEWAY OFFICE, L.P.,
a Delaware limited partnership
By: Hines Gateway Office, L.P.,
Administrative Partner
By: Hines Interests Limited Partnership,
General Partner
By: Hines Holdings, Inc.,
General Partner
By:
------------------------------
Name:
----------------------------
Its:
-----------------------------
TENANT: ADVANCED MEDICINE, INC.,
a Delaware corporation
By:
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
</TABLE>
I-2
<PAGE>
EXHIBIT J
TENANT'S IMPROVEMENT LOAN AMORTIZATION MEMORANDUM
LANDLORD: HMS GATEWAY OFFICE L.P.
TENANT: Advanced Medicine, Inc.
LEASE DATE: February 17, 1999
PREMISES: Located at 901 Gateway Boulevard, South San
Francisco, California
Tenant hereby acknowledges that Landlord has provided a Tenant
Improvement Loan to Tenant in the amount of ________________________________
Dollars ($ __________________________ ) pursuant to Section D of EXHIBIT C to
the Lease. Subject to the terms of the Lease and said EXHIBIT B, the Tenant
Improvement Loan shall be repayable by Tenant, together with interest on the
principal balance outstanding from time to time at the rate of twelve percent
(12%) per annum, in monthly installments of ____________________ Dollars ($
___________________ ) each. Said installments shall be payable on the first day
of each month during the initial Term of the Lease concurrently with the payment
of Monthly Base Rent.
<TABLE>
<S><C>
TENANT: ADVANCED MEDICINE, INC.,
a Delaware corporation
By:
---------------------------------
Print Name:
-------------------------
Its:
--------------------------------
</TABLE>
J-1
<PAGE>
Approved and Agreed:
LANDLORD:
HMS GATEWAY OFFICE, L.P.,
a Delaware limited partnership
By: Hines Gateway Office, L.P.,
Administrative Partner
By: Hines Interests Limited Partnership,
General Partner
By: Hines Holdings, Inc.,
General Partner
By:
-----------------------------------------
Name:
---------------------------------------
Its:
----------------------------------------
J-2
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 4,
2000, except as to Notes 1, 8 and 10, for which the date is February 26, 2000,
in the Registration Statement (Form S-1) and related Prospectus of Advanced
Medicine, Inc. for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 17, 2000
<PAGE>
Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption "Experts"
and to the use of our report dated February 9, 2000, in the Registration
Statement (Form S-1) and related Prospectus of Advanced Medicine, Inc., for the
registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 17, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 111,428
<SECURITIES> 3,000
<RECEIVABLES> 1,448
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 671
<PP&E> 28,974
<DEPRECIATION> (6,986)
<TOTAL-ASSETS> 147,175
<CURRENT-LIABILITIES> 10,700
<BONDS> 0
0
185,209
<COMMON> 2,348
<OTHER-SE> (55,285)
<TOTAL-LIABILITY-AND-EQUITY> 147,175
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 47,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (378)
<INCOME-PRETAX> (41,131)
<INCOME-TAX> 0
<INCOME-CONTINUING> (41,131)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,131)
<EPS-BASIC> (11.99)
<EPS-DILUTED> (11.99)
</TABLE>
