<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ROSETTA INPHARMATICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 8731 91-1770023
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
12040 115(TH) AVENUE N.E.
KIRKLAND, WA 98034
(425) 820-8900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
STEPHEN H. FRIEND, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
12040 115(TH) AVENUE N.E.
KIRKLAND, WA 98034
(425) 820-8900
(Name, Address Including Zip Code, and Telephone Number Including Area Code, of
Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK J. HANDFELT WILLIAM T. WHELAN
JOHN W. ROBERTSON JOHN J. CHENEY, III
MEGAN L. MUIR MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND
VENTURE LAW GROUP POPEO, P.C.
A PROFESSIONAL CORPORATION ONE FINANCIAL CENTER
4750 CARILLON POINT BOSTON, MA 02111
KIRKLAND, WA 98033 (617) 542-6000
(425) 739-8700
</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, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
/ / __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
/ / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $0.001 $115,000,000 $30,360
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT 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>
PRELIMINARY PROSPECTUS Subject to completion, dated April 5, 2000
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 BECOMES EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
- --------------------------------------------------------------------------------
Shares
[LOGO]
Common Stock
- ------------------------------------------------------------
This is our initial public offering of shares of common stock. No public market
currently exists for our common stock. We expect the initial public offering
price to be between $ and $ per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "RSTA."
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK UNDER "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
- --------------------------------------------------------------------------------
PUBLIC OFFERING PRICE $ $
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS AND COMMISSIONS $ $
- --------------------------------------------------------------------------------
PROCEEDS, BEFORE EXPENSES, TO ROSETTA $ $
- --------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to shares of common stock from
us at the public offering price, less the underwriting discounts and
commissions, within 30 days from the date of this prospectus. This option may be
exercised to cover over-allotments, if any. If the option is exercised in full,
the total underwriting discounts and commissions will be $ , and the total
proceeds, before expenses, to Rosetta Inpharmatics, Inc. will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about ,
2000.
Warburg Dillon Read LLC
Lehman Brothers
Prudential Vector Healthcare
a unit of Prudential
Securities
<PAGE>
[INSIDE FRONT COVER]
[COLOR ARTWORK-stylized graphic depicting a DNA microarray]
THE FIELD
INFORMATIONAL GENOMICS involves the integration of bioinformatics with
genomics tools to accelerate and improve the drug discovery process.
TECHNOLOGY LEADER
ROSETTA INPHARMATICS is an informational genomics company that provides an
economical, reliable and flexible technology designed to solve critical drug
discovery challenges for pharmaceutical and biotechnology companies and to
improve agricultural products.
OUR SOLUTION
AN INTEGRATED PLATFORM CONSISTING OF THREE KEY ELEMENTS:
- The Rosetta Resolver-TM- Expression Data Analysis System -- an enterprise
software and hardware system for analysis and storage of large quantities
of gene expression data.
- FlexJet-TM- DNA Microarrays -- customized gene expression arrays that can
be rapidly designed and fabricated for simultaneous monitoring of
thousands of genes.
- Coherent Expression Profile Data Sets -- libraries of high quality gene
expression data.
Rosetta, Rosetta Inpharmatics, Resolver and FlexJet are trademarks of
Rosetta Inpharmatics, Inc. All other brand names or trademarks appearing in this
prospectus are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS."
OVERVIEW OF OUR BUSINESS
We are a leader in the emerging field of informational genomics.
Informational genomics involves acquiring and analyzing information gathered
from throughout the cell to identify a majority of the medically important drug
targets and gene functions. We combine the power of informatics and genomics to
create a proprietary platform that accelerates and enhances the drug discovery
process for pharmaceutical and biotechnology companies and improves agricultural
products.
Our informational genomics platform can accelerate the transformation of
drug discovery and healthcare research by converting the rapidly growing amount
of gene expression profiling data into organized, statistically driven,
information-based solutions. We provide a proprietary genomic expression
profiling platform, consisting of hardware and software products, that is
designed to provide seamless solutions for efficient, cost-effective and
powerful discovery programs. Our technology builds a critical mass of consistent
gene expression data, collected from DNA microarrays, and provides
comprehensive, simultaneous descriptions of a compound's effect on all relevant
targets within a cell.
Our technology platform consists of:
- our Resolver Expression Data Analysis System;
- our FlexJet DNA microarrays; and
- our coherent expression profile data sets.
We generate revenue by providing our technologies as separate components or
as an integrated informational genomics system. We have entered into a
seven-year strategic collaboration with Agilent Technologies, Inc. to co-market
our Resolver system and for Agilent to manufacture and sell FlexJet DNA
microarrays. Additionally, we offer professional consulting services to
complement and enhance our products.
The growing availability of DNA sequence information and of genome-wide
expression and proteomic measurements has created high expectations for
improvements in drug discovery, healthcare and agriculture. However, these
desired improvements are hampered by the limitations of currently available
measurement technologies, and by a shortage of powerful integrated analysis
tools that are capable of managing both large amounts and disparate types of
data. Limitations of current approaches include:
- DNA sequences and protein levels do not give direct clues to cellular
function;
- current gene expression technologies are expensive and of limited
accuracy; and
- current gene expression analysis tools and approaches are inadequate.
OUR SOLUTION
We provide proprietary technologies that overcome many of the limitations of
other current genomic data and analysis approaches. Our technology platform
enables superior acquisition and analysis of genetic information by providing an
integrated system of informatics tools, DNA expression arrays and expression
profile data sets that quickly and accurately determine protein function
simultaneously across the entire cell. By improving the quality of lead
compounds and providing early indications of the potential side effects of
drugs, we believe our solution is critical to solving
2
<PAGE>
fundamental inefficiencies in the drug discovery process. Our solution includes
the following components:
- integrated, enterprise level software;
- highly sensitive and cost effective genome wide sensors;
- consistent data sets that create more valuable information; and
- integrated platform for drug discovery.
OUR PRODUCTS AND SERVICES
Our products and services enable superior gene expression reporting and
analysis. They can be used as individual components or as an integrated
platform. Our platform of products and services includes:
- RESOLVER EXPRESSION DATA ANALYSIS SYSTEM. Our Resolver system is an
integrated enterprise-wide solution for storing, retrieving and analyzing
large quantities of gene expression data generated from DNA microarrays.
It allows users to securely assemble and store information concerning gene
expression in a single database and rapidly conduct sophisticated matching
of expression profile patterns on very large data sets.
- FLEXJET DNA MICROARRAYS. Our FlexJet DNA microarrays consist of different
DNA sequences built up at tens of thousands of different positions on
glass slides using a modified inkjet printer head. Our inkjet technology
is flexible, reproducible, economical, and can produce new designs
significantly faster than other array technologies. We synthesize
oligonucleotides directly on glass slides by employing solid-phase DNA
synthetic chemistry.
- COHERENT DATA SETS AND REFERENCE LIBRARIES. Through our collaborations, we
build coherent sets of data generated from DNA microarrays that represent
the responses of cells to different genetic and disease states and to drug
treatments. These data sets provide detailed biological references against
which other expression measurements, whether generated by us, by our
collaborators or by our customers, can be compared. We have developed
experiment protocols, process controls and analysis techniques that allow
the cross-comparison of data between experiments.
- INTEGRATED PROFESSIONAL SERVICES. We combine our informational genomics
tools together with our consulting services to provide enhanced value to
selected customers. These services include customization of our Resolver
system, customized FlexJet DNA microarrays and the creation of highly
accurate consistent data sets.
OUR STRATEGY
Our goal is to be the leader in informational genomics by providing the
standard platform for gene expression data analysis. By providing this standard
platform, we hope to increase demand for each of our component technologies. The
specific elements of our strategy are to:
- become the standard informational genomics approach;
- develop multiple product revenue sources;
- establish collaborations to validate the power of our gene expression
tools;
- expand our informational genomics platform; and
- sell high-value information products.
3
<PAGE>
THIS OFFERING
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK
INTO 14,597,342 SHARES OF COMMON STOCK UPON THE CLOSING OF THIS OFFERING;
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; AND
- THE FILING OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
FOLLOWING THE CLOSING OF THIS OFFERING.
<TABLE>
<S> <C>
Common stock offered by us................... shares
Common stock to be outstanding after this
offering................................... shares(1)
Proposed Nasdaq National Market symbol....... RSTA
Use of proceeds.............................. We intend to use the net proceeds of this
offering for continued research and
development, including expanding our
informational genomics platform to include
other data types and analysis tools. We also
intend to increase our marketing and sales
efforts to support our products and services,
including our Resolver system. In addition,
the proceeds will be used for working capital
and other general corporate purposes and
capital expenditures.
</TABLE>
- ------------------------
(1) The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding at December 31, 1999
and includes 4,442,378 shares of our Series E preferred stock issued in
March 2000 and 686,928 shares of our common stock issued to Oxford Gene
Technology IP Limited in March 2000, but excludes the following:
- 2,614,157 shares of common stock issuable upon exercise of outstanding
options as of March 16, 2000 at a weighted average exercise price of $2.52
per share;
- 7,439,949 shares of common stock available for issuance as of March 16,
2000 under our stock option and stock purchase plans; and
- 1,362,712 shares of common stock issuable upon exercise of outstanding
warrants as of March 16, 2000, at a weighted average exercise price of
$2.04.
We were incorporated in Delaware in December 1996 as Rosetta Biosystems,
Inc. In September 1997, we changed our name to Rosetta Inpharmatics, Inc. Our
principal executive offices are located at 12040 115(th) Avenue N.E., Kirkland,
WA 98034. Our telephone number is (425) 820-8900 and our fax number is
(425) 821-5354. Our Web site is located at www.rii.com. We do not intend for
information found on our Web site to be incorporated into or be a part of this
prospectus.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
We have prepared this information using our audited financial statements for
the period from inception (December 19, 1996) to December 31, 1999 and the years
ended December 31, 1997, 1998 and 1999. The following summary historical data
should be read in conjunction with our consolidated financial statements and the
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus. See Note 1 of
notes to consolidated financial statements for an explanation of the
determination of the weighted average shares used to compute pro forma net loss
per share amounts.
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
YEARS ENDED DECEMBER 31, (DECEMBER 19, 1996)
-------------------------------- TO
1997 1998 1999 DECEMBER 31, 1999
---- ---- ---- -------------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------
Revenues......................................... $ -- $ -- $ 983 $ 983
Total operating expenses......................... 2,293 7,693 21,066 31,052
Loss from operations............................. (2,293) (7,693) (20,083) (30,069)
Net loss......................................... (1,885) (7,112) (19,820) (28,817)
Basic and diluted net loss per share............. $ (5.29) $ (5.29) $ (4.92) $ (15.09)
Pro forma basic and diluted net loss per share... $ (1.69)
Weighted average shares used in computing pro
forma basic and diluted net loss per share..... 11,740,419
</TABLE>
The unaudited pro forma consolidated balance sheet data reflects:
- the receipt of net proceeds of approximately $41.3 million from the sale
of 4,442,378 shares of our Series E preferred stock in a private placement
completed in March 2000;
- the payment of certain cash consideration and the issuance of
686,928 shares of our common stock to Oxford Gene Technology in payment of
a license fee in March 2000; and
- the automatic conversion of all preferred shares into shares of our common
stock on a one-for-one basis upon the closing of this offering.
The unaudited consolidated pro forma as adjusted balance sheet reflects the
sale of shares of our common stock in this offering at an assumed
price to the public of $
per share, after deducting the underwriting discounts and commissions and
estimated offering expenses, resulting in net proceeds of approximately
$ million.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
<S> <C> <C> <C>
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
- --------------------------------
Cash, cash equivalents and short-term investments. $ 19,263 $ 59,563 $
<S> <C> <C> <C>
Working capital............................................ 15,451 55,751
Total assets............................................... 34,607 50,089
Long-term obligations, less current portion................ 1,389 1,389
Additional paid-in capital................................. 56,644 107,728
Total stockholders' equity................................. 25,656 75,745
</TABLE>
5
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, RESULTS
OF OPERATIONS AND FINANCIAL CONDITION COULD SUFFER. IN THAT CASE, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT SUCCEED OR BECOME
PROFITABLE.
We commenced operations in December 1996 and are at an early stage of
development. We have a limited operating history on which you can base an
investment decision. We have just begun to incorporate our technologies into
commercialized products, and we cannot assure you that our commercialization of
them will be successful. We have not yet begun commercial sales of our Resolver
system, and Agilent, our strategic partner, has not yet begun commercial
distribution of FlexJet DNA microarrays. Our Resolver system is currently being
used by us internally and by a limited number of customers on an early-access
basis. Whether our Resolver system will be successful in analyzing gene
expression data quickly and efficiently is uncertain. As a result, our business
is subject to all of the risks inherent in the development of a new business
enterprise, such as the need:
- to obtain substantial capital to support the expenses of developing our
technology and commercializing our products and services;
- to develop a market for our products and services;
- to successfully transition from a company with a research focus to a
company capable of supporting commercial activities; and
- to attract and retain qualified management, sales, technical and
scientific staff.
IF WE CONTINUE TO INCUR LOSSES IN THE FUTURE, AS WE CURRENTLY ANTICIPATE, THE
VALUE OF OUR STOCK COULD DECREASE.
Our expenses have significantly exceeded revenue in each of the years since
our inception. It is uncertain when, if ever, we will become profitable. We have
incurred operating losses since our inception and we had no revenue in 1997 and
1998 and only limited revenue in 1999. As of December 31, 1999, we had an
accumulated deficit of $28.8 million. We expect to continue to experience
significant operating losses in the future as we continue our research and
development efforts, further develop our products and services and expand our
marketing and sales force in an effort to commercialize our products. The
expansion of our operations will require substantial expenditures on our part
for at least the next several years to support growth of the organization. In
addition, we anticipate continued spending in research and development to remain
a leader in our industry. Our ability to achieve profitability will depend, in
part, on successfully commercializing our Resolver system. To date, we have not
yet generated significant revenue from our expression profile systems or
technologies, and it is uncertain when, if ever, we will be generating
significant revenues from such systems or technologies. If we are unable to
generate significant revenue from our products and services, our business and
financial condition would be materially and adversely affected. Our operations
also may be affected by problems frequently encountered with the use of new
technologies and by the competitive environment in which we operate.
6
<PAGE>
OUR SUCCESS IS DEPENDENT ON OUR EXISTING COLLABORATION WITH AGILENT FOR THE
MANUFACTURING, MARKETING AND DISTRIBUTION OF OUR RESOLVER SYSTEM AND FLEXJET DNA
MICROARRAYS. IF AGILENT FAILS TO PERFORM UNDER OUR AGREEMENT, DOES NOT
SUCCESSFULLY COMMERCIALIZE OUR COLLABORATIVE PRODUCTS OR TERMINATES OUR
AGREEMENT, WE MAY LOSE THE DEVELOPMENT FUNDING WE CURRENTLY RECEIVE FROM AGILENT
AND OUR REVENUE WOULD BE SIGNIFICANTLY REDUCED.
In our agreement with Agilent, we agreed to partner with Agilent to make and
sell certain products in the gene expression field including our Resolver
system, microarrays, array design services and other products. As part of our
agreement, Agilent has the co-exclusive right to sell our Resolver system and to
use our inkjet synthesizer and related chip design technology in exchange for
royalty payments. Any failure by Agilent to perform its obligations under this
agreement or to achieve significant revenues from collaboration products and
services would have a material adverse affect on our revenues.
We also rely on Agilent for significant financial and technical
contributions in connection with the development of products covered by the
agreement. Our ability to develop, manufacture and market these products
successfully depends significantly on Agilent's performance under this
agreement. If Agilent experiences manufacturing or distribution difficulties,
does not actively market the Resolver system or does not otherwise perform under
this agreement, our revenue derived from FlexJet DNA microarrays or our Resolver
system would be reduced. From time to time, patents may issue covering DNA
sequences that are used on DNA microarrays manufactured by Agilent. If this
occurs, we expect that Agilent would seek to obtain the rights to use these
sequences or would seek to use an alternative sequence. If it is unable to
obtain rights or acquire alternative sequences, Agilent's array sales may
suffer, and this would negatively affect our revenue from royalties related to
array sales by Agilent and our business would be harmed.
Our collaboration agreement with Agilent may be terminated early by Agilent
under certain circumstances, including the breach of a material term by us. If
Agilent were to terminate its agreement with us or otherwise fail to conduct its
obligations under our collaboration or to complete them in a timely manner, we
could lose significant revenue and have limited means to commercialize our
products. If Agilent terminates this agreement, we may need to obtain
development funding from other sources and we may be required to find one or
more other collaborators for the development and commercialization of our
products. The early termination of our collaboration with Agilent could harm our
business and financial condition.
IF WE DO NOT RETAIN OUR CUSTOMERS OR OBTAIN NEW CUSTOMERS, OUR BUSINESS AND
FINANCIAL CONDITION WILL BE MATERIALLY AND ADVERSELY AFFECTED.
Our strategy depends on selling our informational genomics products and
services to pharmaceutical, biotechnology and agriculture companies. To date, we
only have a limited number of customers who are using our products on an
early-access or evaluative basis. We cannot assure you that these evaluative
programs will be successful or that customers using our products and services
will purchase our products and services on a broader scale, commercial basis. If
we are unsuccessful in selling our products and services, our business and
results of operations would be materially harmed.
A SMALL NUMBER OF CUSTOMERS AND AGILENT HAVE ACCOUNTED FOR, AND ARE LIKELY TO
CONTINUE TO ACCOUNT FOR, A SUBSTANTIAL PORTION OF OUR REVENUES. OUR REVENUES
WOULD DECLINE IF WE LOST ANY ONE OF THESE CUSTOMERS OR AGILENT.
Historically we have had very few customers and one commercial partner,
Agilent, from which we have derived the majority of our revenue. If we were to
lose any one of these customers or Agilent, our revenue would decrease
substantially. Agilent and one customer accounted for 55% of total revenues in
fiscal year 1999. We had no customers and no revenue in fiscal year 1998 and
1997. Through our
7
<PAGE>
agreement with Agilent, we jointly introduced our Resolver system in February
2000 and have not yet derived significant revenue from the sale of this product
on a commercial basis. We expect that we will continue to rely on a narrow base
of customers and Agilent for the majority of our revenue for the foreseeable
future. Our potential sources of revenue for the next several years are likely
to be from the sale of products and services sold by Agilent and research
payments under existing and possible future collaborative arrangements. Although
we are seeking to expand our customer base, we cannot assure you that these
efforts will be successful. Our operating results would be adversely affected if
Agilent or a significant customer were to discontinue or significantly reduce
the use of products or services.
IF OUR TECHNOLOGIES AND INITIAL COMMERCIAL PRODUCTS DO NOT ACHIEVE MARKET
ACCEPTANCE OR BECOME COMMERCIALLY VIABLE OR SUCCESSFUL, OUR BUSINESS WOULD BE
ADVERSELY AFFECTED.
Our application of innovative array and informational genomics platforms to
drug discovery is a new and unproven approach. Market acceptance of our products
and services will depend upon many factors, many of which are not within our
control, such as:
- continued growth in the bioinformatics industry;
- the availability and price of competing products, services and
technologies; and
- the success of our marketing and sales efforts.
In addition, our array and informatics technologies and gene expression
analysis approaches will require significant additional funding prior to
commencement of full-scale commercial operations. If we are unable to obtain
additional funding, commercialization of our products may be delayed, which
would adversely affect our business and financial condition.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY AGAINST EXISTING TECHNOLOGIES, OUR
BUSINESS AND RESULTS OF OPERATIONS WOULD BE MATERIALLY AND ADVERSELY AFFECTED.
Our business depends upon successfully competing in the development and
commercialization of products and services that improve the efficiency of the
drug discovery process. Development of new and efficient pharmaceutical methods
is highly uncertain and our drug discovery technology may not result in any
commercially successful product or results. We may fail to compete successfully
if:
- our products or services are found to be ineffective or unreliable;
- our products are difficult to manufacture or uneconomical to market;
- unforeseen complications in the development or delivery of our products
and services increase the costs of development of our products and
services;
- the proprietary rights of third parties preclude us or our collaborative
partners from marketing our products; or
- potential customers fail to use our technology and instead rely on
existing internal processes or technologies.
Our failure to develop or successfully commercialize our products and compete
against existing technologies would adversely affect our business, financial
condition and results of operations.
8
<PAGE>
WE INTEND TO RELY ON EXISTING AND POTENTIAL RESEARCH COLLABORATIONS AND
LICENSING AGREEMENTS TO IMPLEMENT OUR BUSINESS STRATEGY AND FURTHER
COMMERCIALIZE OUR PRODUCTS. OUR BUSINESS COULD BE SERIOUSLY HARMED IF WE ARE
UNABLE TO MAINTAIN OR TO ENTER INTO NEW COLLABORATIONS OR LICENSING
ARRANGEMENTS.
We intend to enter into collaborative arrangements with pharmaceutical,
biotechnology and agricultural companies to apply our technology, to fund
development and to commercialize our potential future products. We may not be
able to negotiate collaborative agreements on acceptable terms, if at all, and
such collaborative agreements may not be successful and may not provide us with
expected benefits. Our collaborators may pursue or develop alternative
technologies either on their own or in collaboration with others, including our
competitors, as a means for improving the efficiency of drug discovery. To the
extent we choose not to or are unable to enter into such collaborative
agreements, we will require substantially greater capital to undertake the
research, development, marketing, sales and distribution of systems and
technologies at our own expense, which would have a material adverse effect on
our results of operations and financial condition.
Additionally, our present or future collaborative partners may not perform
their obligations under our agreements with them or may not devote sufficient
resources to the development, clinical testing or marketing of our potential
products developed under collaborations. If one of our collaboration partners
were to develop technologies or components competitive with our system in
parallel with us, or if we are precluded from entering into competitive
arrangements under the terms of our collaboration agreements, our potential
products could be rendered non-competitive or obsolete, which would adversely
affect our business. In addition, any premature termination of a collaboration
agreement could have a material adverse effect on our financial condition and
results of operations.
Generally, the terms of our collaboration agreements provide for a division
of responsibility between us and our collaborators. To the extent that disputes
arise concerning our respective obligations and rights, including ownership of
intellectual property, our collaborative research, development or
commercialization of certain products or technologies could be delayed. Such
disputes could require or result in litigation or arbitration, which would be
time-consuming and expensive, and could have a material adverse effect on our
business and results of operations.
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. Some of the factors that could cause our
operating results to fluctuate include:
- the timing and amount of revenue resulting from collaborations, product
sales and royalties is not wholly predictable nor consistent from quarter
to quarter;
- changes in our percentage share of revenue generated from our
collaboration with Agilent;
- the success rate of our discovery efforts leading to milestone payments or
royalties;
- the timing and willingness of collaborators to commercialize products
discovered through the use of our products or services which would result
in milestone payments or royalties;
- the expiration of research contracts with collaborators, which may not be
renewed or replaced; and
- general and industry-specific economic conditions, which may affect our
collaborators' research and development expenditures.
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Large portions of our expenses are relatively fixed, including expenses for
facilities, equipment and personnel. Accordingly, if revenues decline or do not
grow as anticipated due to expiration of research contracts, failure to obtain
new contracts or other factors, we may not be able to correspondingly reduce our
operating expenses. In addition, we plan to significantly increase operating
expenses in 2000 in order to accelerate our sales and marketing and product
development efforts. Failure to achieve anticipated levels of revenues could
therefore significantly harm our operating results for a particular fiscal
period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price could decline and you could lose a significant
portion or all of your investment.
WE ARE DEPENDENT ON THE TECHNOLOGY OF THIRD PARTIES, AND THE FAILURE TO MAINTAIN
OR OBTAIN RIGHTS TO THIRD PARTY TECHNOLOGY COULD HARM OUR DEVELOPMENTAL AND
COMMERCIAL EFFORTS.
Our success is dependent on our ability to enter into licensing arrangements
with commercial or academic entities for technology that is advantageous or
necessary to the development and commercialization of our technologies. We may
not be able to negotiate additional license agreements in the future on
acceptable terms, if at all.
In our existing and potential future collaborations, disputes may arise as
to the inventorship and corresponding rights in inventions and know-how
resulting from research by us and our licensors or scientific collaborators.
Additionally, our present and future in-licensing agreements may contain
provisions requiring us to meet certain performance obligations, or milestones,
within specified time periods. If we fail to meet any significant milestones,
our licensors may be permitted to terminate such agreements.
Any of our current license agreements may be terminated under certain
circumstances by the other party, and we may not be able to maintain the
exclusivity of our exclusive licenses. In the event we are unable to obtain or
maintain licenses to technology necessary and advantageous to our business, we
may be required to expend significant time and resources to develop or
in-license alternative technology. We may not be successful in this regard. If
we cannot acquire or develop necessary technology, we may be prevented from
commercializing certain of our products or may need to limit our operations. Any
such event would have a material adverse effect on us.
In November 1998, we entered into a non-exclusive license agreement with
Affymetrix, Inc. Under this agreement, Affymetrix licensed to us rights under
its patents to mechanically fabricate arrays and to internally use those arrays
for analyzing expressed messenger RNA in cells for commercial research use. If
this agreement is terminated and we were to lose the right to make arrays for
our own use, or if we find that the arrays we make are insufficient for our
purposes, we would seek to acquire arrays from Affymetrix or another source.
Affymetrix may assert that other sources of DNA microarrays violate its patent
rights which could reduce or eliminate the willingness of any other supplier to
provide these arrays and which might subject us to potential liability for
patent infringement if we were to acquire arrays from an infringing supplier.
We, therefore, may not be able to acquire DNA microarrays on reasonable terms,
or at all. This would have a material adverse affect upon our commercialization
efforts and upon our business condition and results of operations.
In March 2000, we entered into a non-exclusive license agreement with Oxford
Gene Technology IP Limited. Under this agreement, Oxford Gene Technology has
licensed to us certain rights, under its patents, pertaining to making and using
DNA microarrays for internal purposes. If this agreement is terminated and we
were to lose the right to make arrays for our own use, or if we find that the
arrays we make are insufficient for our purposes, we would need to acquire
arrays from third parties. Oxford
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Gene Technology may assert that other third-party providers of DNA microarrays
violate its patent rights, which might reduce or eliminate the willingness of
any other supplier to provide these arrays and which could subject us to
potential liability for patent infringement if we were to acquire arrays from an
infringing supplier. If we are unable to acquire DNA microarrays or unable to
acquire them on reasonable terms, and we may be unable to operate a material
part of our business. This would have a material adverse affect upon our
commercialization efforts and upon our financial condition and results of
operations.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS ADEQUATELY, OR OPERATE
WITHOUT INFRINGING OR MISAPPROPRIATING THE INTELLECTUAL RIGHTS OF OTHERS, OUR
COMPETITIVE POSITION WILL SUFFER. IN ADDITION, LITIGATION OVER SUCH MATTERS IS
OFTEN TIME-CONSUMING AND EXPENSIVE AND WOULD DIVERT MANAGEMENT AND CAPITAL
RESOURCES, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION.
Our success will depend, in large part, on our ability to obtain patent
protection for our products and technologies, both in the United States and in
other countries, to preserve our trade secrets and to operate without infringing
the proprietary rights of third parties. Because of the substantial length of
time and expense associated with developing new proprietary products and
technologies, we place considerable importance on patent and trade secret
protection. However, the patent position of biotechnology and bioinformatics
firms generally is highly uncertain and involves complex legal and factual
questions. Our patent applications may not protect our technologies or products
for any one or more of the following reasons:
- some or all of our pending patent applications may not result in issued
patents;
- we may develop additional proprietary technologies that are not
patentable;
- any patents issued to us may not cover commercially viable products;
- any patents issued to us may not provide us with reasonable scope so as to
block others from using our or similar technology; and
- any patents issued to us may be challenged, circumvented or invalidated by
third parties.
We intend to file applications for patents as appropriate for methods and
products relating to gene expression analysis technologies and relating to
individual disease genes and targets we discover. As of March 1, 2000, we own
one issued U.S. patent and 35 pending U.S. patent applications and corresponding
international and foreign patent applications. In addition, we had exclusive
rights to two issued U.S. patents and eight U.S. patent applications and
corresponding international and foreign patent applications. Our pending patent
applications may not ever issue as patents, and thus we may be unable to keep
our competitors from commercializing our discoveries.
Should third parties file patent applications, or be issued patents,
claiming technology also claimed by us in pending applications, we may be
required to participate in interference proceedings in the United States Patent
and Trademark Office to determine priority of invention. We, or our licensors,
may also need to participate in interference proceedings involving our issued
patents and pending applications of another entity. An unfavorable outcome in an
interference proceeding could require us to cease using the technology or
license rights from prevailing third parties. There is no guarantee that any
prevailing party would offer us a license or that we could acquire any license
made available to us on commercially acceptable terms.
We may not be able to obtain new patents for our products or methods. Even
if we are able to obtain new patents, these patents may not provide us with
substantial or meaningful protection or be commercially beneficial to us. The
issuance of a patent is not conclusive as to its validity or its enforceability.
Further, a patent does not provide the patent holder with an absolute right to
practice such patented technology. Any patents issued to us or to our licensors
may be challenged and
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subsequently invalidated or circumvented. It is quite possible that third
parties may have patents of their own which could, if asserted, prevent us from
practicing our patented technologies. This inability to practice our own
patented technologies could adversely affect our business and revenue.
In order to protect or enforce our patent rights, we may initiate patent
litigation against third parties. These lawsuits could be expensive, take
significant time, and could divert management's attention from other business
concerns. These lawsuits would put our patents at risk of being invalidated or
interpreted narrowly. We may also provoke these third parties to assert claims
against us. We may also participate in patent litigation to invalidate the
patents of another or defend ourself against claims of infringement. Patent law
relating to the scope of claims in the biotechnology and bioinformatics fields
in which we operate is still evolving and, consequently, patent positions in our
industry are generally uncertain. We cannot assure you that we will prevail in
any of these suits or that the damages or other remedies awarded, if any, will
be commercially valuable. During the course of these suits, there may be public
announcements of the results of hearings, motions and other interim proceedings
or developments in the litigation. If securities analysts or investors perceive
any of these announcements to be negative, it could cause the market price of
our stock to decline.
We may be sued for infringing the intellectual property rights of others.
Intellectual property litigation is costly and, even if we prevail, the costs of
such litigation could adversely affect our business and results of operations.
In addition, litigation is time consuming and could divert management attention
and resources away from our business. If we do not prevail in any proceeding or
litigation, in addition to any damages we might have to pay, we could be
required to stop the infringing activity or we may need to obtain a license to
the intellectual property in question. We cannot assure you that we will be able
to obtain the necessary license to the intellectual property in order to avoid
infringement, or negotiate such a license on reasonable terms, if at all. Even
if we were able to obtain a license to such technology, some licenses may be
non-exclusive, thereby giving our competitors access to the same technologies
licensed to us. If we fail to obtain a required license, exceed the scope of one
of our licenses, or are unable to design around any third party patent, we may
be subject to litigation due to alleged infringement. Ultimately we may be
unable to sell some of our products or may have to cease certain business
operations, which, as a result, could have a material adverse effect on our
business and results of operations.
IF WE ARE UNABLE TO RELY UPON TRADE SECRET PROTECTION FOR OUR CONFIDENTIAL AND
PROPRIETARY INFORMATION, OUR COMPETITIVE POSITION WILL SUFFER.
We have taken security measures to protect our proprietary technologies,
processes, information systems and data, and continue to explore ways to enhance
such security. Such measures may not provide adequate protection for our trade
secrets or other proprietary information. While we require employees, academic
collaborators and consultants to enter into confidentiality agreements where
appropriate, any of the following could still occur, which could adversely
affect our business:
- our proprietary information could be disclosed;
- our trade secrets could be disclosed; or
- others may independently develop substantially equivalent proprietary
information and techniques, otherwise gain access to our trade secrets or
disclose such technology.
In addition, while we require our employees to disclose their prior inventions
to us, we cannot be certain that all such inventions have been disclosed or that
employees will avoid disputes concerning prior inventions. On January 6, 2000 we
received, through our legal counsel, a request for information from the FBI. The
information requested pertains to one of our recently hired employees and is
related to his involvement in certain software development activities prior to
his employment with us. We are cooperating fully with the FBI. While we do not
believe that we, as a company, or any actions
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by us are the subject of the investigation, we are unable at this time to
predict the outcome of this investigation. The FBI investigation may result in
adverse publicity that could adversely affect our business and revenues.
INTENSE COMPETITION IN THE MARKET COULD PREVENT US FROM INCREASING REVENUE AND
ACHIEVING PROFITABILITY OR RESULT IN THE OBSOLESCENCE OF OUR TECHNOLOGY.
The genomics industry is highly competitive. We compete with companies in
the United States and abroad that are engaged in the development and production
of products that analyze genetic information. Our competitors in the United
States and abroad are numerous and include, among others:
- major pharmaceutical and diagnostic companies;
- specialized biotechnology firms;
- internal genomic and gene expression efforts at our target customers;
- universities and other research institutions and government agencies;
- software developers; and
- other genomics companies.
Many of these organizations that compete with us have greater capital
resources, more experienced research, development, sales, marketing,
distribution and service staffs and superior facilities and manufacturing
capabilities. We are aware that there are a number of companies pursuing
alternative methods for using software and computers to assist in making the
drug discovery process more efficient and less expensive which would compete
with our products or render our products obsolete. A number of companies have
announced their intention to develop and market software to assist life science
research companies and academic researchers in the collection, management and
analysis of their own genomic data, as well as the analysis of genomic data that
is publicly available.
In addition, many of our competitors have a more established customer base
and have built up previous relationships with our target audience. We are also
likely to encounter increased competition as we enter new markets. In addition,
many of our competitors have a more established customer base and have thus
previous relationships with our target audience.
The relative speed with which we can develop products or technologies is
expected to have an impact on our competitive position. Many companies have
already commenced the commercialization of novel, genomic-based products and
services for use in drug discovery and development. Competitors offer a broad
range of arrays and other gene expression products, bioinformatics software and
analysis tools and functional genomics services and data sets that compete with
ours. We believe that customers in our markets display significant loyalty to
specific technologies or products that they have used successfully in their
research and development. Therefore, we may experience difficulties in
generating sales from customers that initially purchased products or services
from competitors. We expect competition to intensify in the fields in which we
are involved as technical advances in such fields are made and become more
widely known. To the extent that other companies succeed in developing similar
products that are introduced earlier, are more effective or are produced and
marketed more effectively, the commercial success of our products or
technologies to be developed may be materially and adversely affected.
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OUR DEPENDENCE ON THIRD-PARTY PRODUCTS AND SERVICES AND SOLE OR LIMITED SOURCES
OF SUPPLY TO DEVELOP AND MANUFACTURE SOME COMPONENTS OF OUR PRODUCTS COULD
IMPAIR OUR ABILITY TO DEVELOP, MANUFACTURE AND DELIVER OUR PRODUCTS ON A TIMELY
BASIS.
We rely to a substantial extent on outside vendors to supply many of the
hardware components of our Resolver system. We also rely on outside vendors to
supply us with chemical reagents and other items necessary to manufacture
microarrays and conduct expression profiling experiments. Some of these items
and components are obtained from a single supplier or a limited group of
suppliers. Our reliance on outside vendors generally, and a sole or a limited
group of suppliers in particular, involves several risks, including:
- the inability to obtain an adequate supply of required materials due to
manufacturing capacity constraints, a discontinuance of a product by a
third-party manufacturer or other supply constraints;
- reduced control over quality and pricing of components; and
- delays and long lead times in receiving materials from vendors.
For example, we obtain computer hardware used in our Resolver system from
Sun Microsystems. If this hardware became unavailable we would need to find an
alternate supplier of such computer hardware and rewrite substantial portions of
our Resolver system software. This could adversely affect our ability to provide
our Resolver system to potential customers, which would materially and adversely
affect our revenues.
OUR RESOLVER SYSTEM INCORPORATES THIRD PARTY SOFTWARE, THE LOSS OF WHICH WOULD
HARM OUR BUSINESS.
Our Resolver system incorporates software programs developed by third
parties. If these third parties cease to provide or support their software
programs, we would need to acquire or develop replacement software. If we are
unable to acquire or develop replacement software, either alone or with others,
the quality of our products could deteriorate and our financial condition and
results of operations could be materially and adversely affected.
THE SALES CYCLES FOR OUR PRODUCTS ARE LENGTHY AND WE MAY SPEND CONSIDERABLE
RESOURCES ON UNSUCCESSFUL SALES EFFORTS OR MAY NOT BE ABLE TO COMPLETE DEALS.
Our ability to obtain new customers for our technologies depends in
significant part upon the perception that our products and services can help
accelerate their drug discovery efforts. Our sales cycle and Agilent's sales
cycle are likely to be lengthy because of the need to educate our potential
customers and sell the benefits of our technologies to a variety of
constituencies within such companies. In addition, each agreement involves the
negotiation of unique terms. We and Agilent may be required to expend
substantial funds and management effort with no assurance that an agreement will
result.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH, WHICH WOULD ADVERSELY
AFFECT OUR BUSINESS.
We have grown rapidly in recent years and expect to continue to grow
rapidly, which could materially and adversely affect our business and results of
operations. Our strategy for developing and commercializing our products and
services includes the formation of multiple customer partnerships and licensing
arrangements. We expect to experience significant growth in the number of our
employees and customers and the scope of our operations. This growth may
continue to place a significant strain on our management and operations. Our
ability to manage this growth will depend upon our ability to broaden our
management team and our ability to attract, hire and retain skilled employees.
Our success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational and other systems, to manage
multiple, concurrent customer
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relationships and to hire, train and manage our employees. Our future success is
heavily dependent upon growth and acceptance of our products. If we cannot scale
our business appropriately or otherwise adapt to anticipated growth in this
area, a key part of our strategy may not be successful which could materially
and adversely affect our business and results of operations.
WE ARE HIGHLY DEPENDENT ON PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC
STAFF, THE LOSS OF WHOM WOULD IMPAIR OUR ABILITY TO COMPETE.
We are highly dependent on the principal members of our management and
scientific staff. The loss of the services of any of these persons could delay
or reduce our product development and commercialization efforts. In addition, we
will require additional personnel in the areas of scientific research,
diagnostic testing, manufacturing and marketing.
OUR EXECUTIVE OFFICERS HAVE LIMITED EXPERIENCE AS EXECUTIVE OFFICERS OF PUBLICLY
TRADED COMPANIES.
Most of our executive officers have no prior experience as executive
officers of publicly traded companies. Our new employees include a number of key
managerial, technical and operations personnel who have not yet been fully
integrated into our operations, and we expect to add additional key personnel in
the near future. If we are unable to manage growth effectively and the addition
of these new employees, our business will be harmed.
WE MAY NOT BE ABLE TO RETAIN AND HIRE THE KEY SCIENTIFIC AND TECHNICAL STAFF AND
QUALIFIED MANAGEMENT NECESSARY TO OPERATE OUR BUSINESS, WHICH COULD THREATEN OUR
FUTURE GROWTH.
Because of the specialized scientific nature of our business, we are also
highly dependent upon our ability to attract and retain additional qualified
scientific and technical personnel. We continue to recruit qualified scientific
and technical personnel, including individuals holding doctoral degrees in the
basic sciences. Our business is located in the Seattle, Washington, metropolitan
area, where demand for personnel with these skills is extremely high and is
likely to remain high. As a result, competition for and retention of personnel,
particularly for employees with technical expertise, is intense, and the
turnover rate for these people is high. If we are not able to attract, hire,
train and retain a sufficient number of qualified personnel, our business,
financial condition and results of operations could be serious harmed. If we
expand in areas and activities requiring additional expertise, such as clinical
trials, regulatory approvals and manufacturing and marketing, we will require
additional management and scientific personnel. If we fail to attract and retain
such personnel, it could materially adversely affect prospects for our success.
WE FACE TECHNOLOGICAL CHALLENGES AND UNCERTAINTY IN A RAPIDLY CHANGING INDUSTRY
AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH NEWLY EMERGING TECHNOLOGIES.
We are engaged in the genomic science and biotechnology fields, which are
characterized by extensive research efforts and rapid technological change. New
developments in improving the efficiency of drug discovery, utilizing genomic
approaches and other biotechnology processes are expected to continue at a rapid
pace in industry, government and academia. Our future success will depend in
large part on our ability to maintain a competitive position with respect to
these technologies. Research and discoveries by others may be more effective
than our research and discoveries and may render some or all of our programs,
products or technologies noncompetitive or obsolete. Unforeseen problems may
develop with the technologies or applications used by us, and commercially
feasible products or technologies may not ultimately be developed by us. We may
not be able to make the enhancements to our technology necessary to compete
successfully with newly emerging technologies, which would materially adversely
affect our results of operations and financial condition.
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WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND MANUFACTURING CAPACITY. IN
ADDITION, WE HAVE LIMITED EXPERIENCE IN MANUFACTURING PRODUCTS FOR COMMERCIAL
SALE. OUR LIMITED EXPERIENCE IN THESE AREAS MAY DELAY OUR COMMERCIALIZATION
EFFORTS, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION.
We have only a small internal sales force to market and sell our products
and have only limited experience in sales and marketing. We intend to market our
products and services to pharmaceutical, biotechnology and agricultural
companies. In order to successfully market our products and services to these
parties, we are dependent on Agilent to commercialize our products. We may not
be able to establish a direct sales force or to establish collaborative or
distribution arrangements to market our products and technologies. If Agilent
fails to market our products successfully or if we fail to establish a
significant sales force of our own, our business and results of operations would
be materially and adversely affected.
We have not yet internally produced our Resolver system or FlexJet DNA
microarrays in commercial quantities. We have limited experience in
manufacturing our Resolver system for commercial sale. We may not be able to
maintain acceptable quality standards while producing commercial quantities. Our
customers also require that we comply with current good manufacturing practices
that we may not be able to meet. To achieve the production levels necessary for
successful commercialization of our products, we will need to scale-up our
manufacturing facilities, establish more automated manufacturing capabilities
and maintain adequate levels of inventory. We may not be able to manufacture
sufficient quantities to meet market demand. If we cannot achieve the required
level and quality of production, we may need to outsource production or rely on
licensing and other arrangements with third parties who possess sufficient
manufacturing facilities and capabilities. This could reduce our gross margins
and expose us to the risks inherent in relying on others. We may not be able to
successfully outsource our production or enter into licensing or other
arrangements with these third parties, which could adversely affect our
business.
WE MAY NOT BE ABLE TO SUCCESSFULLY ADAPT OUR PRODUCTS FOR COMMERCIAL
APPLICATIONS, WHICH WOULD REDUCE OUR REVENUE.
We have completed the initial development of our Resolver system technology
and FlexJet DNA microarray technology for applications in gene expression
profile analysis. We may not be able to successfully adapt our products to the
commercial requirements of drug discovery or healthcare research. A number of
potential applications of our technology in these fields will require
significant enhancements in our core technology, including adaptation of our
software. If we are unable, for technological or other reasons, to complete the
development, introduction or scale-up of the manufacturing of any product, or if
any product does not achieve a significant level of market acceptance, our
business, financial condition and results of operations could be seriously
harmed. Market acceptance will depend on many factors, including demonstrating
to customers that our technology is superior to other technologies and products
which are available now or which may become available in the future. We believe
that our revenue growth and profitability will substantially depend on our
ability to overcome significant technological challenges and successfully
introduce our products into the marketplace.
IF WE ARE SLOW TO DEVELOP AND MARKET LOWER COST VERSIONS OF OUR INFORMATICS
SOFTWARE TECHNOLOGY, WE MAY BE UNABLE TO BROADEN OUR CUSTOMER BASE IN THE
PRESENCE OF LOWER PRICED PRODUCTS OF COMPETITORS AND OUR COMPETITIVE POSITION
WILL SUFFER.
The marketplace for informatics software, specifically the gene expression
analysis market served by our Resolver system, is evolving rapidly and is highly
competitive. There are no established pricing models, and competing products and
services are being offered at a variety of price points. Our
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Resolver system is a high-end product and may not serve the needs of all
customers in this marketplace. This marketplace may evolve into one that demands
a product that is priced lower than our Resolver system. If this occurs, and we
do not have a product available to compete at this lower price point in a timely
manner, we could suffer a material adverse effect on our business, financial
condition and results of operations.
WE ARE EXPOSED TO PRODUCT LIABILITY AND RELATED RISKS WHICH COULD ADVERSELY
AFFECT OUR BUSINESS.
We may be exposed to claims of liability from the use of products that
either we or our customers provide. For example, we may be subject to product
liability if our products contain inaccurate information or if any of our
customers develops or commercializes a product discovered through the use of our
technology which results in injury or death to clinical trial participants or
patients. Although we currently maintain errors and omissions insurance for our
Resolver system, our insurance coverage may not be adequate to protect us
against future claims. Furthermore, our customers may not indemnify us against
these types of claims or they may not be adequately insured or, in the case of
smaller companies, have a net worth sufficient to satisfy any product liability
claims. A product liability claim, product recall or a medical malpractice claim
could cause our business, financial condition and results of operations to
suffer. In addition, we may be liable to customers if we are unable to maintain
the security and integrity of data generated and analyzed on their behalf.
IMPROPER HANDLING, STORAGE OR DISPOSAL OF HAZARDOUS CHEMICALS AND BIOLOGICAL
MATERIALS COULD BE TIME CONSUMING AND COSTLY.
We use controlled hazardous and biological materials in our business. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. If an accident with these substances occurs, we could be
liable for any damages that result, which could seriously harm our business.
Additionally, an accident could damage our research and manufacturing facilities
and operations, resulting in delays and increased costs.
WE FACE RISKS ASSOCIATED WITH ACQUISITIONS.
As part of our business strategy, we may from time to time acquire assets
and businesses principally relating to, or complementary to, our operations.
These acquisitions may include acquisitions for the purpose of acquiring
specific technology. If we acquire additional businesses, we may experience more
difficulty integrating and managing the acquired businesses' operations. These
and any other acquisitions by us involve risks commonly encountered in
acquisitions of companies. These risks include, among other things, the
following:
- we may be exposed to unknown liabilities of acquired companies;
- we may incur acquisition costs and expenses higher than we anticipate;
- we may experience difficulty and expense of assimilating the operations
and personnel of the acquired businesses; and
- we may experience difficulties in establishing and maintaining uniform
standards, controls, procedures and policies.
We may not overcome these risks or any other problems encountered in connection
with acquisitions. If we are unsuccessful in doing so, our business, financial
condition and results of operations could be materially and adversely affected.
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DELAWARE AND WASHINGTON LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT
COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER, EVEN IF THE TRANSACTION WOULD
BENEFIT OUR STOCKHOLDERS.
Certain provisions of our certificate of incorporation and bylaws and the
provisions of Delaware and Washington law could have the effect of delaying,
deferring or preventing our acquisition, even if an acquisition would be
beneficial to our stockholders. See "Description of Capital Stock."
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS, AS NEEDED, WE WOULD HAVE TO REDUCE
OR CEASE OPERATIONS, ATTEMPT TO SELL SOME OR ALL OF OUR OPERATIONS OR MERGE WITH
ANOTHER ENTITY.
Based on our current plans, we believe that the net proceeds of this
offering together with existing cash and marketable securities, borrowings under
equipment financing arrangements and anticipated cash flow from operations will
be sufficient to support our operations at least until the end of 2001. We may
choose to raise additional capital due to market conditions or strategic
considerations even if we have sufficient funds for our operating plan. We
expect that we will require significant additional funding in the future. In
particular, we will likely need additional funds to generate additional data and
to increase our marketing efforts.
However, the actual amount of funds that we will need until December 31,
2001 and beyond will be determined by many factors, some of which are beyond our
control, and we may need funds sooner than currently anticipated. These factors
include:
- the level of our success and Agilent's success in selling our Resolver
system and associated technologies;
- our progress with research and development;
- our ability to introduce and sell new products;
- the level of our sales and marketing expenses;
- the level of our expenses associated with unforeseen litigation;
- the costs and timing of obtaining new patent rights; and
- regulatory changes and competition and technological developments in the
market.
We may seek funding through additional public or private equity offerings,
debt financings or agreements with customers. If we raise additional capital by
issuing equity or convertible debt securities, the issuances may dilute share
ownership and future investors may be granted rights superior to those of
current shareholders. Additional financing may not be available when needed, or,
if available, may not be available on favorable terms. If additional funds are
required and we are unable to obtain them on terms favorable to us, we may be
required to cease or reduce further commercialization of our products to sell
some or all of our technology or assets or to merge with another entity.
RISKS RELATED TO THE GENOMICS INDUSTRY
THERE MAY BE ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC
INFORMATION WHICH COULD FRUSTRATE OUR ABILITY TO DEVELOP AND SELL OUR EXISTING
PRODUCTS AND NEW PRODUCTS.
The genetic screening of humans has raised ethical issues regarding the
confidentiality and appropriate uses of the resulting information. Government
authorities may regulate or prohibit the use of genetic testing to determine
genetic predispositions to certain conditions. Additionally, the public may
disfavor and reject the use of genetic testing. It is possible that the
government authorities and the public may fail to distinguish between the
genetic screening of humans and genomic and proteomic research. If this occurs,
our products and the processes for which our products are used, may be subject
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to government regulations intended to affect genetic screening. Further, if the
public fails to distinguish between the two fields, it may pressure our
customers to discontinue the research and development initiatives for which our
products are used. If this occurs, the potential market for our products could
be reduced, which could seriously harm our business, financial condition and
results of operations.
CONSOLIDATION WITHIN THE PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES MAY HARM
OUR EFFORTS TO MARKET AND COMMERCIALIZE OUR PRODUCTS.
Consolidation within the pharmaceutical and biotechnology industries has
heightened the competition for services of the type provided by us. If this
consolidation trend continues, it may result in fewer customers for our
services, price erosion and greater competition among us and our competitors.
Our potential partners may consolidate, which could decrease the value of our
technologies and shrink the research market we target for our products.
Consolidation in the pharmaceutical and biotechnology industries may have a
material adverse effect on our financial condition and results of operations.
THE PRODUCTS DEVELOPED USING THE INFORMATION FROM OUR DATA MAY BE SUBJECT TO
GOVERNMENT REGULATION.
Any new drug developed by the efforts of our customers as a result of their
use of our technologies must undergo an extensive regulatory review process in
the United States and other countries before it can be marketed. This regulatory
process can take many years and requires substantial expense. Changes in U.S.
Food and Drug Administration (FDA) policies and the policies of similar foreign
regulatory bodies can increase the delay for each new drug, product license and
biological license application. We expect similar delays in the regulatory
review process for any diagnostic or agricultural product, where similar review
or other approval is required. Even if marketing clearance is obtained, a
marketed product and its manufacturer are subject to continuing review.
Discovery of previously unknown problems with a product may result in withdrawal
of the product from the market.
No product resulting from the use of our data has been released for
commercialization in the United States or elsewhere. In addition, no
investigational new drug application has been submitted for any such product
candidate. We expect to rely on our customers to file such applications and
generally direct the regulatory review process. We cannot be certain if or when
our customers will submit any applications for regulatory review, or whether our
customers will be able to obtain marketing clearance for any products on a
timely basis, if at all. If our customers fail to obtain required governmental
clearances, it will prevent them from marketing drugs or diagnostic products
until such clearance can be obtained, if at all. The occurrence of any of these
events may cause our business and results of operations to suffer.
In addition, our access to and use of human or other tissue samples in the
expansion of our array and informatics and genomic platforms technologies may
become subject to government regulation, both in the United States and abroad.
United States and foreign government agencies may also impose restrictions on
the use of data derived from human or other tissue samples. If our access to or
use of human tissue samples, or our customers' use of data derived from such
samples, is restricted, our business will suffer.
RISKS RELATED TO THE OFFERING
THERE MAY NOT BE AN ACTIVE, LIQUID TRADING MARKET FOR OUR COMMON STOCK.
We cannot assure you that an active trading market for our common stock will
develop following this offering. You may not be able to sell your shares quickly
or at the market price if trading in our
19
<PAGE>
stock is not active. The initial public offering price will be determined by
negotiations between us and the representatives of the underwriters based upon a
number of factors. The initial public offering price may not be indicative of
prices that will prevail in the trading market. See "Underwriting" for more
information regarding our arrangement with the underwriters and the factors
considered in setting the initial public offering price.
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE AND YOUR INVESTMENT COULD SUFFER A
DECLINE IN VALUE, WHICH IN TURN COULD AFFECT OUR ABILITY TO RAISE ADDITIONAL
CAPITAL TO FUND THE COMMERCIALIZATION OF OUR PRODUCTS.
The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations by us or our competitors;
- new products or services introduced or announced by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the biotechnology, pharmaceutical and genomics
industries;
- changes in the market valuations of other similar companies;
- announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments;
- additions or departures of key personnel; and
- sales of our common stock.
As a result, you could lose all or part of your investment.
In addition, the stock market in general, and the Nasdaq National Market and
the market for technology companies, in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. Further, there has been
particular volitality in the market prices of securities of biotechnology and
life sciences companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating
performance.
In the past, stockholders have often instituted securities class action
litigation after periods of volatility in the market price of a company's
securities. If a stockholder files a securities class action suit against us, we
would incur substantial legal fees and our management's attention and resources
would be diverted from operating our business in order to respond to the
litigation, which could seriously harm our business and results of operations.
YOU WILL SUFFER SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE OF THE
COMMON STOCK YOU PURCHASE.
The initial public offering price of our common stock will be substantially
higher than the pro forma net tangible book value per share of our common stock.
Based on an assumed initial public offering price of $ per share, if you
purchase shares of common stock in this offering, you will suffer immediate and
substantial dilution of $ per share in the net tangible book value of the
common stock. To the extent outstanding options and warrants are exercised, you
will suffer further dilution.
20
<PAGE>
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering, or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be shares of common stock
outstanding immediately after this offering, or shares if the
representatives of the underwriters exercise their over-allotment option in
full. Of the shares sold in the offering, shares will be freely
transferable without restriction or further registration under the Securities
Act, except for any shares purchased by our "affiliates," as defined in
Rule 144 of the Securities Act and shares will be subject to a
lock-up agreement providing that the stockholder will not offer, sell or
otherwise dispose of any of the shares of common stock owned by them for a
period of 180 days after the date of this prospectus. The remaining
shares of common stock outstanding will be "restricted securities"
as defined in Rule 144. These shares may be sold on the 181st day after the date
of this prospectus without registration under the Securities Act to the extent
permitted by Rule 144 or other exemptions under the Securities Act. See "Shares
Eligible for Future Sale."
SUBSTANTIAL CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING
EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW
INVESTORS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately % of our outstanding common stock
or % if the underwriters' over-allotment option is exercised in full. As a
result, these persons, acting together, will have the ability to determine the
outcome of all matters submitted to our stockholders for approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets. In addition, such persons, acting together,
will have the ability to control the management and affairs of our company.
Accordingly, this concentration of ownership may harm the market price of our
common stock by:
- delaying, deferring or preventing a change in control of our company;
- impeding a merger, consolidation, takeover or other business combination
involving our company; or
- discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of our company.
Please see "Principal Stockholders" for additional information on
concentration of ownership of our common stock.
MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
YOU MAY NOT AGREE AND IN WAYS THAT MAY NOT YIELD A RETURN.
Management will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem such uses desirable, and our use of the
proceeds may not yield a significant return or any return at all. Management
intends to use a majority of the proceeds from this offering for research and
development, working capital and other general corporate purposes and to finance
potential acquisitions or investments. Because of the number and variability of
factors that determine our use of the net proceeds from this offering, we cannot
assure you that these uses will not vary substantially from our currently
planned uses. We may not be able to invest these funds effectively, which would
adversely affect our financial condition.
21
<PAGE>
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements are found
in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as in this prospectus generally. When used
in this prospectus, the words "anticipate," "believe," "expect," "estimate" and
similar expressions are generally intended to identify forward-looking
statements. Our actual results could differ materially from those anticipated in
the forward-looking statements as a result of certain factors, including the
risks described in "Risk Factors" and elsewhere in this prospectus.
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The net proceeds to us from the sale of the shares of common stock being
offered by us hereby at an assumed public offering price of $ per share are
estimated to be $ ($ if the underwriters' over-allotment
option is exercised in full). The principal purpose of the offering is to obtain
additional working capital. We intend to use the net proceeds of this offering
for continued research and development, including expanding our informational
genomics platform to include other data types and analysis tools. We also intend
to increase our marketing and sales efforts to support our products and
services, including our Resolver system. In addition, the proceeds will be used
for working capital and other general corporate purposes and capital
expenditures. We may also use a portion of the proceeds for the acquisition of,
or investment in companies, technologies, or assets that complement our
business. However, we have no present understandings, commitments or agreements
to enter into any potential acquisitions and investments. As a result, our
management will have the broad discretion to allocate the net proceeds from this
offering. Pending these uses, we will invest the net proceeds in short-term
investment grade, interest-bearing instruments.
DIVIDEND POLICY
- --------------------------------------------------------------------------------
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and do not anticipate paying any cash dividends
in the foreseeable future. In the future the terms of credit agreements or
contractual provisions may impose restrictions or limitations on the payment of
dividends.
22
<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
The following table sets forth our capitalization as of December 31, 1999 on
an actual, pro forma and pro forma as adjusted basis:
- The "actual" column reflects our capitalization as of December 31, 1999
without any adjustments to reflect subsequent events or anticipated
events,
- The unaudited "pro forma" column reflects our capitalization as of
December 31, 1999 with adjustments to give effect to the conversion of all
shares of outstanding preferred stock, including the Series E preferred
stock issued in March 2000, into 14,597,342 shares of common stock upon
the closing of this offering and the issuance of 686,928 shares of common
stock Oxford Gene Technology in March 2000,
- The unaudited "pro forma as adjusted" column reflects our pro forma
capitalization as of December 31, 1999 with adjustments to give effect to
(1) the receipt of the estimated proceeds from the sale of our common
stock offered hereby after deducting the estimated offering expenses and
underwriting discounts and commissions and (2) the change in the
authorized number of shares upon the completion of this offering.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt, less current portion........................ $ 1,389 $ 1,389 $ 1,389
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; authorized: 18,000,000
shares actual; outstanding: 10,154,964 shares actual; no
shares issued and outstanding pro forma and pro forma as
adjusted................................................ 10
Common Stock $0.001 par value; authorized: 36,000,000
shares actual, pro forma and pro forma as adjusted;
outstanding: 5,182,382 shares actual; shares
issued and outstanding pro forma; shares issued
and outstanding, pro forma as adjusted.................. 5 20
Additional paid-in capital................................ 56,644 107,728
Notes receivable from stockholders........................ (58) (58) (58)
Deferred stock compensation............................... (2,128) (2,128) (2,128)
Deficit accumulated in the development stage.............. (28,817) (28,817) (28,817)
-------- -------- --------
Total stockholders' equity.................................. 25,656 76,745
-------- -------- --------
Total capitalization........................................ $ 27,045 $ 78,134 $
======== ======== ========
</TABLE>
The information in the table excludes as of December 31, 1999:
- 2,089,184 shares subject to outstanding options at a weighted average
exercise price of $0.41 per share;
- 2,796,260 additional shares available for grants under our stock option
plans; and
- 1,336,004 shares subject to outstanding warrants at a weighted average
exercise price of $1.90 per share.
23
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ or $ per share, assuming the
issuance of 4,442,378 shares of our Series E preferred stock in March 2000, the
payment of certain cash consideration and the issuance of 686,928 shares of
common stock in March 2000 to Oxford Gene Technology, and after giving effect to
the automatic conversion of all outstanding shares of preferred stock into an
aggregate of shares of common stock.
After giving effect to the sale of the common stock in this offering at an
assumed initial public offering price of $ per share, assuming that the
underwriters' over-allotment option is not exercised, and after deducting the
estimated underwriting discounts and commissions and offering expenses, the
adjusted pro forma net tangible book value at December 31, 1999 would have been
$ , or $ per share.
Pro forma net tangible book value per share before this offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at December 31, 1999. This offering will result in an increase in
pro forma net tangible book value per share of $ to existing
stockholders and dilution in pro forma net tangible book value per share of
$ to new investors who purchase shares in this offering. Dilution
is determined by subtracting pro forma net tangible book value per share after
this offering from the assumed initial public offering price of $ per
share. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value per share at December
31, 1999................................................ $
Increase attributable to new investors.................... $
Pro forma net tangible book value after this offering....... $
------
Dilution in net tangible book value to new investors........ $
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1999
as adjusted for the March 2000 issuances of 4,442,378 shares of our Series E
preferred stock and 686,928 shares of our common stock described above, the
difference between the total consideration paid and the average price per share
paid by the existing stockholders and the new investors with respect to the
number of shares of common stock purchased from us based on an assumed public
offering price of $ per share:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ % $ % $
New investors....................................
----- ------ ------ ------ -------
Totals........................................... 100.0% $ 100.0%
===== ====== ====== ======
</TABLE>
The tables and calculations above assume no exercise of the underwriters'
overallotment option and excludes the following shares:
- 2,089,184 shares of common stock underlying options outstanding at
December 31, 1999 at weighted average exercise price of $0.41 per share,
of which 925,538 were fully vested at December 31, 1999;
- 2,796,260 shares of common stock available for future grants under our
stock option plans; and
- 1,336,004 shares subject to outstanding warrants at a weighted average
price of $1.90 per share.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data presented below for the period from inception (December 19,
1996) to December 31, 1999 and for the years ended December 31, 1997, 1998, and
1999, and the balance sheet data at December 31, 1998 and 1999 are derived from
our financial statements which have been audited by PricewaterhouseCoopers LLP,
independent accountants, included elsewhere in this prospectus. The selected
consolidated balance sheet data at December 31, 1997 is derived from our
financial statements that have also been audited by PricewaterhouseCoopers LLP
and that are not included in this prospectus. The selected data in this section
is not intended to replace our financial statements. Historical results are not
necessarily indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
YEAR ENDED DECEMBER 31, (DECEMBER 19, 1996) TO
------------------------------ DECEMBER 31,
1997 1998 1999 1999
-------- -------- -------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
- ------------------------------------------------
Revenue......................................... $ -- $ -- $ 983 $ 983
------- ------- -------- --------
Operating expenses:
Research and development...................... 1,189 4,417 10,189 15,796
General and administrative.................... 1,039 2,695 7,661 11,395
Stock-based compensation...................... 65 581 3,215 3,861
------- ------- -------- --------
Total operating expenses.................... 2,293 7,693 21,065 31,052
------- ------- -------- --------
Loss from operations............................ (2,293) (7,693) (20,082) (30,069)
Other income and (expenses)
Interest income............................... 440 707 639 1,786
Interest expense.............................. (45) (208) (293) (546)
Other, net.................................... 14 81 (82) 13
------- ------- -------- --------
Net loss........................................ $(1,884) $(7,113) $(19,818) $(28,816)
======= ======= ======== ========
Basic and diluted net loss per share............ $ (5.29) $ (5.29) $ (4.92) $ (15.09)
Weighted average shares used to compute basic
and diluted net loss per share................ 356 1,344 4,030 1,910
Pro forma basic and diluted net loss per
share......................................... $ (1.69)
Weighted average shares used in computing pro
forma basic and diluted net loss per share.... 11,740
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
- ------------------------------------------------------------
Cash and cash equivalents................................... $ 7,827 $ 3,271 $ 8,312
Working capital............................................. 14,902 7,115 15,451
Total assets................................................ 16,933 11,393 34,607
Long term obligations, less current portion................. 1,036 1,344 1,389
Stockholders' equity........................................ 15,279 8,761 25,656
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR "SELECTED CONSOLIDATED FINANCIAL DATA," AND OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. PLEASE SEE THE NOTE REGARDING "FORWARD LOOKING
STATEMENTS."
OVERVIEW
We are a leader in the emerging field of informational genomics. Our
technology platform consists of our Resolver system, our FlexJet DNA microarrays
and our coherent data sets of information generated from microarrays. We
generate revenue by providing our technologies both as separate components or as
integrated informational genomics systems to pharmaceutical, biotechnology and
agricultural customers. From our inception in December 1996 through
December 1999, our operating activities were primarily devoted to research and
development of technologies for our informational genomics platform, including
the development of our Resolver system, acquiring assets, recruiting personnel,
business development and raising capital.
In October 1999, we entered into a strategic collaboration with Agilent. We
agreed to exclusively partner with Agilent to make and sell products in the gene
expression field including microarrays, array design services, expression data
analysis systems and other products. In connection with this collaboration,
Agilent purchased 2,285,714 shares of our Series D preferred stock, and we have
the right to sell Agilent an additional $10.0 million of common stock at any
time prior to or upon the closing of this offering. Under the agreement, we
co-market our Resolver system with Agilent on an exclusive basis and share
revenues for Resolver system sales and array design services. In addition,
Agilent has the exclusive right to market and sell arrays manufactured using our
inkjet and related array design technology in exchange for royalty payments to
us.
Since our inception, we have incurred significant losses and as of
December 31, 1999, we had an accumulated deficit of $28.8 million. Our losses
have resulted principally from costs incurred in research and development, and
from general and administrative costs associated with our operations. Operating
expenses increased to $21.1 million in 1999 from $7.7 million in 1998 and
$2.3 million in 1997. We expect to incur additional operating losses over at
least the next several years as we continue to expand our research and product
development efforts and infrastructure.
To date, our revenue has been derived principally from revenue earned under
our collaboration agreements with Agilent and others. To a lesser extent, we
have derived revenue from government grants. We have generated a substantial
portion of our revenue to date from a limited number of sources. Our potential
sources of revenue for the next several years are likely to be from the sale of
products and services sold by Agilent and research payments under existing and
possible future collaborative arrangements.
In view of our limited operating history and the rapidly evolving nature of
our business, we believe that period-to-period comparisons of our operating
results, particularly for each of the years ended 1999, 1998 and 1997, are not
meaningful and should not be relied upon as an indication of future performance.
SUBSEQUENT EVENTS
In March 2000, we sold $41.6 million of Series E preferred stock in a
private equity placement to a number of financial and strategic investors
pursuant to the terms of a stock purchase agreement. We issued a total of
4,442,378 shares of Series E preferred stock at price of $9.36 per share. The
Series E preferred stock will convert to common stock at a one-to-one ratio upon
the closing of this offering.
26
<PAGE>
The Series E preferred stock contains substantially the same rights and
preferences as our previously issued series of preferred stock.
In March 2000, we entered into a license agreement with Oxford Gene
Technology whereby they granted us a nonexclusive, worldwide sublicense to
certain patents related to the fabrication and use of nucleic acid arrays. In
connection with this license agreement, we issued Oxford Gene Technology 686,928
shares of our common stock and paid a cash license fee.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Revenues increased to $983,000 in 1999 from none in 1998. The
increase was due primarily to collaboration revenue recognized in connection
with a collaboration agreement entered into with Agilent in October 1999 and
grant revenues recognized in connection with Small Business Innovation Research
Program grants from the National Institutes of Health and a grant from the
Department of Energy. We do not expect to recognize any grant revenues in 2000.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $10.2 million in 1999 from $4.4 million in 1998. The increase was
primarily due to increased payroll and personnel expenses, including recruitment
and relocation expenses, increased usage of laboratory materials and supplies,
facility costs and depreciation of facilities and laboratory equipment. Research
and development expenses also included $1.4 million of license fees incurred in
1999 as compared to $225,000 of license fees incurred in 1998. The number of
research and development personnel was 70 at December 31, 1999 and 45 at
December 31, 1998. Research and development expenses to date have consisted of
costs to develop and analyze DNA microarrays, develop and use proprietary
technologies to analyze these arrays, build our data set of consistent
expression profiles and design a large set of analysis tools. We expect research
and development expenses to increase significantly in the future to support the
expansion of our research and development activities.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $7.7 million in 1999 from $2.7 million in 1998. The increase was
primarily due to increased expenses related to payroll and personnel, including
recruitment and relocation expenses, facility costs, legal fees, business
development activities and depreciation. In addition, general and administrative
expenses in 1999 included $2.8 million of amortization expense relating to
intangible assets as a result of our acquisition of Acacia Biosciences in
February 1999. See Note 3 of the notes to our consolidated financial statements.
We expect general and administrative expenses to continue to increase in the
future to support the expansion of our business activities and to accommodate
new demands associated with operating as a public company.
STOCK-BASED COMPENSATION. Stock-based compensation expense in 1999 and 1998
resulted from stock options granted to employees at exercise prices subsequently
deemed to be less than the fair market value of the common stock on the date of
grant to employees, options granted to outside consultants for services, and for
the sale of restricted stock to founders deemed to be non-employees. We recorded
total deferred stock-based compensation of $4.8 million in 1999 and
$1.0 million in 1998. Deferred stock-based compensation is being amortized to
expense over the vesting periods of the underlying options, generally four
years, resulting in the amortization of stock-based compensation totaling
$3.2 million in 1999 and $581,000 in 1998. We recorded additional deferred
stock-based compensation of $17.0 million for stock option grants made since
December 31, 1999.
INTEREST INCOME. Interest income decreased to $640,000 in 1999 from
$707,000 in 1998. The decrease was due to lower average balances of cash and
cash equivalents and short term investments in 1999 as compared to 1998.
Compensation expense related to equity instruments issued to nonemployees is
recognized as the equity instruments vest. As a result, stock-based compensation
27
<PAGE>
expense related to equity instruments issued to nonemployees will fluctuate as
the fair value of our common stock fluctuates.
INTEREST EXPENSE. Interest expense increased to $293,000 in 1999 from
$208,000 in 1998. The increase in 1999 from 1998 resulted from increased
interest expense associated with higher levels of debt from borrowings under
equipment financing agreements.
OTHER INCOME (EXPENSE). Other income (expense) decreased to an expense of
$82,000 in 1999 from income of $81,000 in 1998. The decrease was due primarily
to the write-off of certain leasehold improvements and office and laboratory
equipment.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE. We had no revenue in both 1998 and 1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $4.4 million in 1998 from $1.2 million in 1997. The increase was
primarily due to increased payroll and personnel expenses, including recruitment
and relocation expenses. The number of research and development personnel was 45
at December 31, 1998 and 21 at December 31, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.7 million in 1998 from $1.0 million in 1997. The increase was
primarily due to increased expenses related to payroll and personnel, including
recruitment and relocation expenses, facility costs, legal fees, business
development activities and depreciation.
STOCK-BASED COMPENSATION. We recorded total deferred stock-based
compensation of $1.0 million in 1998 and $157,000 in 1997. Deferred stock-based
compensation is being amortized to expense over the vesting periods of the
applicable agreements, resulting in the amortization of stock-based compensation
totaling $581,000 in 1998 and $65,000 in 1997.
INTEREST INCOME. Interest income increased to $707,000 in 1998 from
$440,000 in 1997. The increase was due to higher average balances of cash and
cash equivalents and short term investments in 1998 compared to 1997, as a
result of the investment of the proceeds from the sale of Series A preferred
stock in June through October of 1997.
INTEREST EXPENSE. Interest expense increased to $208,000 in 1998 from
$45,000 in 1997. The increase was primarily the result of increased debt from
borrowings under equipment financing agreements.
OTHER INCOME (EXPENSE). Other income (expense) increased to $81,000 in 1998
from $14,000 in 1997. The increase was due primarily to rental income received
for the subletting of approximately 3,800 square feet of our facilities.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1999, we have funded our operations with
$37.9 million of private equity financings and $3.3 million from equipment
financing arrangements. At December 31, 1999, cash and cash equivalents, and
short term investments totaled $19.3 million compared to $8.3 million at
December 31, 1998. Our cash reserves are held in a variety of interest-bearing
instruments including high-grade corporate bonds, commercial paper, and money
market accounts.
Cash used in operations in 1999 was $7.4 million compared with $5.8 million
in 1998. Our net loss of $19.8 million in 1999 was partially offset by non-cash
charges of $7.0 million related to deferred stock compensation amortization,
depreciation expense, and amortization of intangible assets, and working capital
changes of $4.7 million.
28
<PAGE>
Investing activities, other than the changes in our short term investments,
used $2.5 million due primarily to leasehold improvements and capital
expenditures. We expect capital expenditures to increase in the future as we
build additional computer hardware and software infrastructure for our
informational genomics systems and complete our facility expansion.
Cash provided by financing activities was $20.9 million in 1999 compared to
$589,000 in 1998. Financing activities included the receipt of $20.9 million for
the sale of preferred stock to investors in 1999.
In 1997, we entered into a financing arrangement for the purchase of
property and equipment, which, as amended in 1998 and 1999, provides for an
aggregate facility of $3.3 million. As of December 31, 1999, we had drawn down
$3.1 million and had $200,000 remaining available under this arrangement. These
obligations are collateralized by the equipment financed, bear interest at a
weighted-average fixed rate of approximately 12.3%, and are due in monthly
installments through December 2003. In addition, through December 31, 1999, we
had drawn down $223,000 on a bank line of credit to finance capital
expenditures. The amount available under the line of credit was $362,000 at
December 31, 1999. See Note 7 of the notes to our financial statements. At
December 31, 1999, we had $2.4 million in capitalized lease obligations and
notes payable, of which $1.0 million is due in 2000. The bank line of credit had
an interest rate of 10.5% and was paid off in its entirety in March 2000.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing and supporting
our products, and other factors. We expect to devote substantial capital
resources to expand our research and development efforts, to expand marketing
and sales efforts to support our products and services, and for other general
corporate activities. We believe that our current cash balances, together with
the proceeds from the sale of the Series E preferred stock and the net proceeds
of this offering and revenue to be derived from our collaboration with Agilent
and our license revenue from the Resolver system will be sufficient to fund our
operations at least through December 31, 2001. After this period, we may need to
sell additional equity or debt securities or obtain additional credit
arrangements. Additional financing may not be available on terms acceptable to
us or at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Financial
Instruments and for Hedging Activities, SFAS 133, which provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 is effective for fiscal years beginning after
June 15, 2000 and is not anticipated to have an impact on our results of
operations or financial condition when adopted as we hold no derivative
financial instruments and do not currently engage in hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. Management believes that the impact of SAB 101 would have
no material effect on our financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited to interest income sensitivity, which
is affected by changes in the general level of U.S. interest rates, particularly
because the majority of our investments are in short-term debt securities issued
by U.S. corporations. The primary objective of our investment activities is to
preserve principal while at the same time maximizing the income we receive
without significantly increasing risk. To minimize risk, we maintain our
portfolio of cash, cash equivalents and short term investments in a variety of
high-grade securities and with a variety of issuers, including corporate notes,
commercial paper and money market funds. Due to the nature of our short-term
investments, we believe that we are not subject to any material market risk
exposure. We do not have any foreign currency or other derivative financial
instruments.
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BUSINESS
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OVERVIEW OF OUR BUSINESS
We are a leader in the emerging field of informational genomics.
Informational genomics involves acquiring and analyzing information gathered
from throughout the cell to identify a majority of the medically important drug
targets and gene functions. We combine the power of informatics and genomics to
create a proprietary platform that accelerates and enhances the drug discovery
process for pharmaceutical and biotechnology companies and improves agricultural
products.
Our informational genomics platform can accelerate drug discovery and
healthcare research by converting the rapidly growing amount of expression
profiling data into information critical for these processes. We provide a
proprietary genomic expression profiling platform of hardware and software
products that is designed to provide seamless solutions for efficient,
cost-effective and powerful discovery programs. Our technology builds a critical
mass of consistent gene expression data and provides a comprehensive description
of a given drug compound's effect on all relevant targets within a cell
simultaneously.
Our technology platform consists of our Resolver Expression Data Analysis
System, our FlexJet DNA microarrays and our coherent data sets of information
generated from microarrays. We generate revenue by providing our technologies as
separate components or as integrated informational genomics systems to
pharmaceutical, biotechnology and agricultural customers. In October 1999, we
entered into a seven-year strategic partnership with Agilent Technologies, Inc.
to co-market our Resolver system and for Agilent to manufacture and sell FlexJet
DNA microarrays.
BACKGROUND
All living cells contain molecules of deoxyribonucleic acid, or DNA. DNA
molecules determine the inherited characteristics of all organisms. Each double
helix DNA molecule contains two complementary strands comprised of four
different types of nucleotide bases, commonly known as G, C, A and T. The order
of these bases, called the DNA sequence, is used by the cell to make proteins,
replicate itself and perform its specific role in the organism. Each G on one
DNA strand pairs with a C on the complementary strand, and similarly each A
pairs with a T. This pairing is the basis for many of the measurement
technologies discussed below. The entire DNA content of an organism is called
its genome.
Genes, which are segments of DNA, contain a set of instructions for the cell
to produce a specific protein. Each cell contains a full set of genes, but each
cell type expresses only those genes necessary for its specific function. When
genes are expressed, copies of the DNA sequence, called messenger RNA, are used
to direct the manufacture of a protein. Cells use proteins to carry out their
functions. For example, the insulin receptor protein on pancreatic cells is
essential for the proper metabolism of sugar. For an individual to be healthy,
the correct proteins must be produced at the right time in the appropriate
amounts in the correct cells. DNA variations, along with effects of environment
and infectious disease, can change the amount and function of a protein. Drugs
are effective to the extent that they modify specific protein functions.
Efforts to discover the order of the nucleotide bases in large segments of
the human genome, known as sequencing, began in the mid-1980s when high
throughput sequencing became available. The goal was to develop new medical
treatments and diagnostics based on genetic information. In the early 1990s,
governments and foundations sponsored an intensification of these efforts, which
came to be known as the Human Genome Project. According to the Human Genome
Project, the overall public sector expenditure on the Human Genome Project is
expected to total approximately $2 billion by 2001. In parallel with the public
sector effort, a large private sector effort emerged in the mid 1990s. It is
expected that the entire human genome will be fully sequenced by the end of
2000. However, the
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vast amount of sequence information produced cannot be directly used for the
development of medical applications without a more sophisticated understanding
of gene function.
As sequencing of the human genome nears completion, researchers are
increasingly focusing their efforts on interpreting this broad base of sequence
information. This will result in a better understanding of the roles genes and
proteins play in biochemical pathways and the mechanisms of disease. These
advances in genomics have generated high expectations that the drug discovery
process may be transformed through rapid and efficient discovery of new drug
targets in model organisms and human cells. Drug targets are proteins within
each cell that are potentially responsive to drug therapies. When these targets
are identified, researchers test many compounds against them, and, based on the
reaction of the target to the compound, attempt to determine if a potential drug
candidate is likely to be successful.
Genomics has given rise to a variety of methodologies that are now being
used to discover new targets and therapeutic approaches. For example, the
discovery of new targets is often facilitated by comparing the DNA sequence of
the potential target with that of known targets. This approach may also be used
to identify which molecular target in humans is likely to be analogous to a
target previously identified in an animal model. Targets can also be identified
by determining which genes are responsible for a given disease.
Genomics has helped identify genetic variations which are a major component
of nearly all diseases, including cancer, diabetes and cardiovascular disease.
Disease risks can be identified by monitoring variations in responsible genes.
This can be done by analyzing the change in a single nucleotide base, called a
single nucleotide polymorphism, or SNP. Although SNPs may potentially help
select which drug will be best for a given individual, SNP analysis requires
large scale human studies to establish these useful associations. This makes it
an expensive and difficult process. Additionally, SNP analysis may be
inaccurate, non-automated, inflexible or slow and is therefore primarily
effective as a research tool.
Much of the current focus of genomic companies has been on generating large
amounts of DNA sequence data. Without knowledge of a gene's function, however,
DNA sequence data are insufficient to materially impact the drug development
process. Associations between sequence and detailed cellular function are
complex and still mostly unknown.
Detailed measurements of the actual biological functioning of the cell at a
molecular level are important to identify the best targets and illuminate
mechanisms of disease. Recently, two approaches have been developed that attempt
to address this need by monitoring changes in the levels of certain cellular
components. The first approach, expression profiling, monitors the level of
messenger RNA for each gene within a cell. The most promising expression
profiling technologies allow the monitoring of tens of thousands of genes. This
is made possible by arranging either unique DNA fragments, called cDNAs, or
shorter single-stranded DNA pieces, called oligonucleotides, in a dense grid on
a glass surface. This grid is known as a DNA microarray. Each cDNA or
oligonucleotide in a microarray binds to the messenger RNA of a specific gene,
thereby providing a report on that gene's expression level. The second approach,
proteomics, monitors the level of protein expressed by each gene within a cell.
Proteomics measurements most often are obtained by separating the mix of
proteins in the cell by dragging them through a resistive substance, often a
gel, with the result that proteins of different sizes and properties end up in
different spots on the gel. To the extent that these spots can be separated and
identified, current methods allow the monitoring of protein levels within a
cell.
Two approaches currently being used for determining the function of proteins
include the use of model organisms and the use of a standard biochemical assay.
Model organisms are those for which all or most of the genetic sequence of the
organism's genome is known. Some model organisms include yeast, flatworms and
fruit flies. The use of model organisms for determining protein function in
humans is based on the concept that genetic sequence and biochemical pathways
and mechanisms are conserved
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or maintained through genes of similar or identical sequence across different
organisms. The other approach, biochemical assays, involves the use of an assay
that uses enzymes to determine the function of a protein.
LIMITATIONS AND DEFICIENCIES OF CURRENT APPROACHES
The availability of DNA sequence information and of genome-wide expression
and proteomic measurements has created high expectations for improvements in
drug discovery, healthcare and agriculture. However, these improvements are
hampered by current limitations of the measurement technologies, and by a
shortage of powerful integrated analysis tools that are capable of managing both
large amounts and disparate types of data.
NEITHER DNA SEQUENCES NOR PROTEIN LEVELS GIVE DIRECT CLUES TO CELLULAR
FUNCTION.
Current DNA sequencing technologies, which provide information about the
sequence of a gene, and proteomics technologies, which provide information about
protein levels, give little direct insight into protein function. Consequently,
this information is of minimal value in drug discovery and analyzing disease
response. The high cost of existing DNA microarrays and the accuracy limitations
of arrays and the measurement process generally discourage the widespread use of
them to determine protein function.
The use of model organisms to determine protein function in a target species
such as humans has some of the same limitations as relying solely on gene
sequence information. While some protein function is conserved or maintained
across species, frequently functions are only loosely conserved or maintained
across species. In addition, determining protein function by using model
organisms or a standard biochemical assay is limited because these approaches
can only analyze a single protein at a time.
CURRENT GENE EXPRESSION TECHNOLOGIES ARE EXPENSIVE AND OF LIMITED ACCURACY.
A single DNA microarray used in gene expression typically costs from $1,000
to $10,000, depending on the type of array purchased. In addition, due to
limited accuracy in the measurement process, subtle changes in gene expression
are usually not detected. Although expression profiling can be used to monitor
protein functions in the cell, large numbers of high-accuracy DNA microarray
experiments are needed to accomplish this.
CURRENT GENE EXPRESSION ANALYSIS TOOLS AND APPROACHES ARE INADEQUATE.
The increasing use of genomics and proteomics tools in the drug discovery
process has generated tremendous quantities of data from disparate array
platforms and experimental conditions. Current tools are inadequate for
effectively analyzing these large volumes of disparate data. Cross-comparisons
between experiments could be informative. However, these comparisons are
hampered by a lack of consistency in the data and by a lack of informatics
tools. Even when the data are of sufficient quality to support
cross-comparisons, current approaches for analyzing gene expression data do not
have the ability to report multiple protein functions. Thus, potentially
valuable information on drug toxicity, therapeutic targets and disease
mechanisms, as well as on individual human differences, is wasted.
OUR SOLUTION
Our proprietary technologies overcome many of the limitations of other
current technologies by providing an integrated system of informatics tools, DNA
expression arrays and expression profile data sets that rapidly and accurately
determine protein function simultaneously across the entire cell. Our platform
technologies enable pharmaceutical, biotechnology and agricultural companies to
convert large volumes of data from disparate sources into information that can
accelerate and enhance their
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discovery process. We believe our solution is critical to solving fundamental
inefficiencies in drug discovery, improving the quality of lead compounds and
providing an early indication of potential side effects. Our solution includes
the following:
INTEGRATED, ENTERPRISE-LEVEL SOFTWARE.
Our Resolver Expression Data Analysis System is the first enterprise-level
software product enabling organizations to securely assemble, store in a single
database and analyze gene expression data from multiple experiments generated
from the most commonly used expression profiling technologies. Customers use our
Resolver system as a stand-alone informatics tool to streamline their
independent drug discovery efforts. Our Resolver system can also be used by our
collaborators to take advantage of the high quality and consistent data that we
generate.
HIGHLY SENSITIVE AND COST-EFFECTIVE GENOME WIDE SENSORS.
We have developed a flexible DNA microarray platform, our FlexJet DNA
microarray, based on inkjet printing technology. Our FlexJet DNA microarrays
allow us to simultaneously monitor small changes in the expression levels of
thousands of genes. These measurements reveal changes in protein functions more
reliably than direct measurements of protein levels. We believe our FlexJet DNA
microarrays are more cost-effective than traditional oligonucleotide arrays and
can be customized for individual customer needs more quickly than competing
technologies.
CONSISTENT DATA SETS CREATE MORE VALUABLE INFORMATION.
Using our experience with tens of thousands of array experiments and several
different expression technology platforms, we have developed standardized
protocols and processes to ensure that expression profiling data reflect
departures from a known biological reference. Our approach enables meaningful
comparisons to be made among many disparate expression experiments. This allows
our collaborators to discover medically important cellular pathways, identify
useful disease subclassifications and predict unexpected drug toxicities and
interactions. Because the number of possible intercomparisons grows much faster
than the number of experiments, the value of information generated by our
platform grows more rapidly than the amount of data analyzed. This is a
fundamental strength of informational genomics.
INTEGRATED PLATFORM FOR DRUG DISCOVERY.
Components of our informational genomics system can be used individually or
as an integrated platform. The integration of our Resolver system, FlexJet DNA
microarrays and consistent data sets is designed to provide seamless solutions
for efficient, cost-effective and powerful drug discovery.
OUR PRODUCTS AND SERVICES
Our primary products are the Resolver Expression Data Analysis System,
FlexJet DNA microarrays and coherent data sets of information generated from
microarrays. We also offer professional consulting services to complement and
enhance our products. As an integrated platform or as individual components, our
products and services offer essential tools to accelerate and improve the drug
discovery process.
RESOLVER EXPRESSION DATA ANALYSIS SYSTEM.
Our Resolver system is an integrated, enterprise-wide solution for storing,
retrieving and analyzing large quantities of gene expression data generated
using cDNA microarrays, oligonucleotide arrays and other technologies. Its
architecture supports the concurrent analysis and comparison of tens of
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thousands of expression profiling experiments and is designed to accommodate the
increasing diversity of data types and analysis algorithms.
Our Resolver system enables users to securely assemble, store in a single
database and analyze gene expression data from multiple expression technology
platforms. The product's flexible interfaces allow users to add, edit and
maintain cell type, RNA and experiment annotations, and to collaborate and share
information with other users. Our Resolver system provides tools to find and
analyze expression profiling information quickly and efficiently through custom
database queries. Users of our Resolver system can instantly link to expression
profile databases and other databases on corporate intranets or the Internet.
The Resolver system's proprietary architecture and seamless integration of
software and hardware allow users to rapidly conduct sophisticated matching of
expression profile patterns, known as pattern matching on very large data sets.
The Resolver system's architecture and analysis features were initially
developed to meet the needs of our internal research and development
environment, which represented a realistic high-throughput enterprise context.
Our scientists have performed and analyzed tens of thousands of array
experiments, and interact with our molecular biologists, laboratory technicians
and applied mathematicians on product development efforts. Our experience
together with our interactive approach has resulted in design decisions and
algorithm choices that enable quick delivery of the most relevant analysis
results.
The advantages of our Resolver system include:
- data compatibility across array platforms;
- rapid access to large data sets for clustering and pattern matching
applications;
- fast visualization tools to view and draw assumptions about large data
sets;
- similarity searches based on our proprietary understanding of the most
biologically meaningful criteria; and
- administrator controlled storage and retrieval of enterprise-wide data.
We offer professional bioinformatics services to integrate the Resolver
system with our customers' unique enterprise resources, to produce state-of-art
expression profile data, and to develop special analysis software for their
research needs. Our Resolver system is jointly marketed by Agilent and us and
will be sold by Agilent pursuant to our partnership agreement.
FLEXJET DNA MICROARRAYS
FlexJet DNA microarrays consist of different DNA sequences built up at tens
of thousands of different positions on glass slides using a modified inkjet
printer head to deliver the individual DNA building blocks G, C, A or T to the
appropriate locations. This inkjet technology is fast, flexible, reproducible
and economical and it can produce new array designs in a matter of hours, which
is significantly faster than other array technologies. We synthesize
oligonucleotides directly on glass slides by employing solid-phase DNA synthetic
chemistry.
Prior to our FlexJet DNA microarray methodology, there were two standard
methods currently used for creating microarrays on slides: the deposition of
pre-synthesized cDNAs and the photolithographic synthesis of oligonucleotides.
Unlike the manufacture of cDNA arrays, our FlexJet DNA microarrays can be
directly manufactured using sequence information stored in computer files, thus
eliminating the expense and difficulties associated with manufacturing
pre-synthesized cDNAs. In contrast to photolithographic arrays, our FlexJet DNA
microarrays do not require the manufacture of an extensive series of chromium
masks for each array designed, thereby eliminating the time and expense
associated with chromium mask manufacturing.
Prior to synthesizing our FlexJet DNA microarrays, we perform extensive
calculations to determine the possible interactions between DNA sequences in the
genome to choose the oligonucleotide probes
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that will report the desired genes and no others. This process, coupled with the
high accuracy with which the oligonucleotide sequences are synthesized, allows
sensitive and specific gene expression reporting using only a single reporter
feature per gene, rather than the many reporters used in other technologies.
This, in turn, allows more than 25,000 genes to be monitored using a single
microscope slide.
The flexibility of the inkjet approach is an attractive feature for
applications in which a large number of different array designs are needed, or
where the array design needs to change quickly in response to new information.
The benefits of this flexibility include:
- the ability to update array designs in response to ongoing human
sequencing efforts;
- looking for alternative forms of genes in different tissues under
different conditions;
- arrays for newly sequenced organisms; and
- arrays for focused subsets of genes.
We use our proprietary oligonucleotide sequence design methods to generate
FlexJet DNA microarrays for use in our collaborative relationships and for use
in our own internal operations. In addition, we have exclusively licensed to
Agilent the rights to manufacture, sell and distribute FlexJet DNA microarrays
to third parties. Agilent has agreed to pay us royalties on the FlexJet DNA
microarrays that they sell. We also provide our microarray design services to
customers of Agilent-manufactured arrays. We will receive additional royalties
on arrays that are designed by us and sold by Agilent to third parties.
COHERENT DATA SETS AND REFERENCE LIBRARIES.
We build coherent sets of data generated from DNA microarrays that represent
the responses of cells to different genetic and disease states and to drug
treatments. These data sets provide detailed references against which other
expression measurements, either generated by us or by our collaborators or
customers, can be compared. Using our extensive experience, we have developed
experiment protocols, process controls and analysis techniques that allow the
sharing of data between experiments. This coherence requirement is a key aspect
of our reference library approach. Data that have not been derived using this
rigorous approach are much less valuable.
The following useful information may be derived from our coherent data sets:
- characteristics of drug candidates, including toxicity;
- compounds with novel mechanisms of action;
- functions of newly sequenced genes;
- gene reporters that can monitor pathways to enable construction of high
throughput screens; and
- interpretation of genetic traits in terms of individual biochemical
disturbances.
INTEGRATED PROFESSIONAL SERVICES.
We combine our informational genomics tools together with our consulting
services to provide enhanced value to selected customers. These services include
customization of our Resolver system, customized FlexJet DNA microarrays and
creation of highly accurate and consistent data sets. The integration of our
unique tools and expertise presents significant capabilities to customers
desiring the power of informational genomics technologies.
STRATEGY
Our goal is to be the leader in informational genomics by providing the
standard platform for gene expression data integration. By providing this
standard platform, we hope to increase demand for each of our component
technologies. The specific elements of our strategy are to:
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BECOME THE STANDARD INFORMATIONAL GENOMICS APPROACH.
We intend to establish our Resolver system as the preferred software and
database platform for gene expression data storage and analysis. Our Resolver
system can accept most major types of expression data and has superior
capabilities for analyzing and managing large data sets. In addition, our
FlexJet DNA microarrays, sold and distributed by Agilent, enable the creation of
consistent data sets, which will drive the demand for our array technology and
informatics platform in this rapidly growing array market.
DEVELOP MULTIPLE PRODUCT REVENUE SOURCES.
We seek to establish a widely installed base of our Resolver systems in
order to generate annual license fees, maintenance and support payments, and
opportunities for professional services. Our Resolver system is jointly marketed
by Agilent and us. We intend to make our FlexJet DNA microarrays available
directly to our customers for research collaborations. Outside of research
collaborations, customers needing arrays can purchase them from Agilent, and we
will receive royalty payments on these sales.
ESTABLISH COLLABORATIONS TO VALIDATE THE POWER OF OUR GENE EXPRESSION TOOLS.
We intend to continue to enter into gene expression collaborations with
pharmaceutical, biotechnology and agricultural companies. We anticipate that
these collaborations will validate the power of our gene expression tools. In
addition, we anticipate these collaborations will result in sales of our
Resolver system and royalties from FlexJet DNA microarrays. These collaborations
may also provide us with a mix of technology license fees, research funding,
milestone payments and royalties or profit-sharing income from commercialization
of products resulting from the collaborations.
EXPAND OUR INFORMATIONAL GENOMICS PLATFORM.
We intend to expand our informational genomics platform to include other
data types and analysis tools. For example, linking gene expression profiling
data with genotyping methods such as SNP analysis, and with clinical data, can
greatly enhance our ability to identify genes imparting risks for specific
diseases. We expect our current development work in this area to result in
analysis methods that will significantly reduce the number of patients required
to identify disease-causing genes, thereby providing us and our collaborators
with significant advantages in this area.
SELL HIGH-VALUE INFORMATION PRODUCTS.
We plan to gradually transition from being a provider of gene expression
tools to creating information products derived through the use of our gene
expression tools and coherent data sets. We expect that the earliest information
products will be new pairings of therapeutic targets and compounds specific for
those targets. These pairings are more valuable than the identification of new
targets alone because this provides a lead compound at the same time the target
is analyzed.
SALES AND MARKETING
Our Resolver system will be jointly marketed by Agilent and us and will be
sold by Agilent pursuant to our partnership agreement. Agilent is responsible
for selling and marketing the FlexJet DNA microarray and we will receive royalty
revenues from these sales. Agilent's direct sales force has a strong worldwide
presence among our targeted customer base. Additionally, we anticipate our
collaborations will stimulate demand for our informational genomic tools. Our
collaborations are established by our business development group and our
internal sales and marketing group. We expect to expand our sales and marketing
efforts to increase our market presence worldwide. In 1999, Agilent accounted
for 66% of our revenues.
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STRATEGIC COLLABORATION
AGILENT TECHNOLOGIES, INC.
In October 1999, we entered into a strategic collaboration with Agilent. We
agreed to exclusively partner with Agilent to make and sell products in the gene
expression field including our Resolver system, FlexJet DNA microarrays, array
design services and certain other products. Under the agreement, we agreed to
conduct certain research and development activities related to our technologies
for which Agilent is obligated to provide funding. In connection with the
collaboration, Agilent purchased 2,285,714 shares of our Series D preferred
stock. We have the right to sell Agilent an additional $10.0 million of common
stock at any time on or before the closing of this offering.
Our relationship with Agilent provides us with the scale and expertise of a
leading technology company to commercialize our inkjet array technology and to
bring our Resolver system to market more rapidly. Agilent has integrated our
inkjet technology for manufacturing DNA microarrays with their previously
developed ink jet technology. Agilent has agreed that it will further develop,
manufacture and distribute FlexJet DNA microarrays as well as provide and
further develop our Resolver Expression Data Analysis System.
Under the agreement, Agilent has the exclusive right to market and sell
FlexJet DNA microarrays manufactured using our inkjet synthesizer and related
array design technology, in exchange for certain royalty payments. Agilent also
has the right, co-exclusive with us, under the agreement to market and sell the
Resolver system. Agilent will share revenues with us for Resolver system sales
and array design services.
Our agreement with Agilent further contemplates that we will provide certain
services related to the customized design of arrays. Revenue received in
connection with these services and royalties received in connection with the
sales of arrays will be shared by Agilent and us. As part of this relationship,
Agilent has agreed to sell arrays to us at a discount and we anticipate that
Agilent will be the primary supplier of arrays that for our internal use. We
will not receive royalties on arrays that we purchase from Agilent.
In this relationship, we primarily focus on developing our Resolver system
and our array design services, including the capability to select
oligonucleotides that are used on FlexJet DNA microarrays. Agilent focuses
primarily on manufacturing and distribution of FlexJet DNA microarrays,
development of other instruments and overall system integration. Both of us are
involved in developing the business plan for the products under this agreement.
The agreement provides that a party's consent must be obtained before the other
party may introduce a product that could compete with products that are covered
by the collaboration.
The Agilent agreement has a seven-year term and expires in October 2006
unless extended by mutual agreement of the parties. At the end of this period,
we will retain the right to purchase arrays from Agilent at a discounted price
and Agilent will retain the right to sell arrays manufactured using our
technology. If the agreement was terminated by Agilent as a result of a breach
by us, Agilent would retain the right to sell, and we will receive a royalty on,
FlexJet DNA microarrays sold by Agilent that are manufactured using our
technology. In addition, Agilent will retain the right to be a value added
reseller of the Resolver system.
Either of us may terminate the agreement prior to the end of the seven-year
term upon certain material breaches of the agreement or upon bankruptcy of the
other party. In the event of an early termination of this agreement, we will
still receive royalties from FlexJet DNA microarrays sold by Agilent. However,
the royalty rate is adjusted depending upon which party terminates the
agreement. Upon an early termination of this agreement, we retain rights to our
Resolver system.
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CUSTOMER COLLABORATIONS
DUPONT PHARMACEUTICALS COMPANY
In September 1999, we entered into an early access program agreement with
DuPont Pharmaceuticals Company. Under the terms of this agreement, DuPont agreed
to purchase a pre-release version of our Resolver system at a reduced price.
DuPont also agreed to provide us feedback with respect to both feature
development and user satisfaction to assist in the development of our product.
We have granted DuPont a limited, non-exclusive license to use this version of
our Resolver software. The license reverts to us upon termination of this
agreement. DuPont has agreed to provide us feedback regarding our Resolver
software.
MONSANTO COMPANY
We entered into a pilot project collaboration agreement with the Monsanto
Company in February 2000. Under this agreement, Monsanto is evaluating the use
of our FlexJet DNA microarray technology and array design capabilities for gene
expression profiling across several species. Monsanto is also evaluating our
Resolver system for analyzing gene expression data. Upon the successful
completion of the pilot project, we have agreed with Monsanto to discuss a
follow-on agreement, but the parties are not required to enter into such a
follow-on agreement. In certain circumstances, we have agreed to non-exclusively
license to Monsanto some discoveries made by Monsanto that utilize our data.
COMPETITION
Competition is intense among companies providing drug discovery and
development tools and methods to our target markets. For certain of our products
we face competition from biotechnology and bioinformatics companies, in-house
bioinformatics efforts of pharmaceutical and agricultural companies, academic
institutions and government agencies, both in the United States and abroad. We
expect that the intensity of such competition will continue to increase.
Competition for our market can be broken down into the following categories.
- BIOINFORMATICS SOLUTIONS. Bioinformatics competitors fall into three
groups: custom integrators, providers of desktop analysis tools, and
providers of database software. Some competitors provide both desktop
analysis tools and database software which provide many of the basic
functions of our Resolver system. Custom integrators are direct
competitors for some aspects of our informatics consulting services.
- ARRAY PROVIDERS. FlexJet DNA microarrays sold by Agilent will have
competition from other commercial manufacturers of oligonucleotide arrays
and of cDNA arrays. There also are providers of systems that enable the
customer to make their own cDNA arrays.
- EXPRESSION PROFILE PROGRAMS. Many potential pharmaceutical and
biotechnology customers have in-house expression profiling efforts either
in place or planned. These internal efforts may compete with our
informational genomics products and services. External genomics
competitors with greater financial resources than we have are building
gene expression databases.
Future competition will come from expanded offerings of existing competitors
and other companies developing new technologies for drug discovery based on gene
sequences, target gene identification, bioinformatics and related technologies.
Many of our competitors have greater capital and research and development
resources. In addition, many have a more established customer base and have
pre-existing relationships with our potential customers. Our future success will
depend, in large part, on our ability to maintain a competitive position in the
genomics and bioinformatics fields.
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<PAGE>
INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY
We rely on a combination of patent, trademark, copyright and trade secret
laws to protect our proprietary technologies and products. We aggressively seek
U.S. and international patent protection to further our business strategy and
for major components of our technology platform, including elements of our array
design, data analysis software and bioinformatics technologies, as well as genes
of interest and potential drug targets. We rely upon trade secret protection for
certain of our confidential and proprietary information, and we enter into
licenses to access external technologies we view as necessary to pursue our
corporate goals.
As of March 1, 2000, we own one issued U.S. patent and 35 pending U.S.
patent applications and corresponding international and foreign patent
applications. In addition, we had exclusive rights to three issued U.S. patents
and seven U.S. patent applications and corresponding international and foreign
patent applications.
In general, we apply for patent protection for methods and products relating
to gene expression analysis technologies and relating to individual disease
genes and targets we discover. These patent applications may include claims
relating to novel uses for known genes or gene fragments identified through our
discovery programs.
With respect to proprietary know-how that is not patentable, we have chosen
to rely on trade secret protection and confidentiality agreements to protect our
interests. In addition, we have developed a proprietary data set that provides
transcript array expression data and that is updated on an ongoing basis. We
expect that some of the data contained within this data set will be the subject
of patent applications, whereas other data will be maintained as proprietary
trade secret information. We have taken security measures to protect our
proprietary know-how, technologies and confidential data and continue to explore
further methods of protection.
We also rely on trade secrets and proprietary know-how, especially in
circumstances where patent protection is not believed to be appropriate or
obtainable. We require all employees, consultants and collaborators to enter
into confidentiality agreements, and all employees and most consultants enter
into invention agreements with us. These agreements generally provide that all
confidential information developed or made known to the individual during the
course of such relationship will be kept confidential and not disclosed to third
parties, except in specified circumstances. These agreements also generally
provide that all inventions conceived by the individual in the course of
rendering services to us shall be our exclusive property. There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for any breach, or that our trade secrets will not otherwise
become known or be independently discovered by our competitors. Any of these
events could have a material adverse effect on our business, financial condition
and results of operations.
In the case of a strategic partnership or other collaborative arrangement
which requires the sharing of data, our policy is to disclose to our partner
only such data as are relevant to the partnership or arrangement, under
controlled circumstances and only during the contractual term of the strategic
partnership or collaborative arrangement, subject to a duty of confidentiality
on the part of our partner or collaborator. Disputes may arise as to the
inventorship and corresponding rights in know-how and inventions resulting from
research by us and our corporate partners, licensors, scientific collaborators
and consultants. There can be no assurance that we will be able to maintain our
proprietary position, or that third parties will not circumvent any proprietary
protection we have. Our failure to maintain exclusive or other rights to such
technologies could have a material adverse effect on our business, financial
condition and results of operations.
We are a party to various license agreements which give us rights to use
certain technologies in our research, development and commercialization
activities. One of these license agreements is with Affymetrix, a company that
possesses a substantial intellectual property position in the area of
39
<PAGE>
polynucleotide array fabrication and use. This agreement permits us to make and
use arrays for our internal use. We have also sublicensed certain rights under
certain patents related to the fabrication and use of nucleic acid arrays from
Oxford Gene Technology.
To continue developing and commercializing our current and future products,
we may license intellectual property from commercial or academic entities to
obtain the rights to technology that is required for our discovery, research,
development and commercialization activities.
The biotechnology industry, including companies using DNA microarrays, has
experienced significant litigation over alleged infringement of various patents
and intellectual property rights. Agilent has agreed to indemnify us against any
claims, damages, or other liabilities that may arise from an alleged
infringement of any third party's intellectual property rights covering our use
of DNA microarrays.
In anticipation of the commercial distribution of our products and services,
we have filed a number of trademark applications.
TECHNOLOGY LICENSES
Where consistent with our strategy, we seek to obtain technologies that
complement and expand our existing technology base. We have licensed and will
continue to license product and marketing rights from selected research and
academic institutions, as well as other organizations. Under these license
agreements, we generally seek to obtain unrestricted sublicense rights. We are
generally obligated under these agreements to pursue product development, make
development milestone payments and pay royalties on any product sales. In
addition to license agreements, we seek relationships with other entities which
may benefit us and support our business goals.
AFFYMETRIX, INC.
In November 1998, we entered into a three-year internal use license
agreement with Affymetrix, which is renewable on an annual basis. Under the
license agreement, Affymetrix granted us a nonexclusive, nontransferable,
nonsublicensable, worldwide license to certain patents related to the
fabrication and use of nucleic acid arrays. We paid an up-front license fee upon
execution of the license agreement and pay an annual usage royalty.
FRED HUTCHINSON CANCER RESEARCH CENTER
In December 1997, we entered into a license agreement with the Fred
Hutchinson Cancer Research Center. Under the agreement, the Hutchinson Center
granted us an exclusive, worldwide, sublicensable license (subject to the rights
of certain U.S. governmental agencies and a grant-back to the Hutchinson Center
for non-commercial research purposes) to certain drug screening technology. Upon
execution of the license agreement we issued 352,000 shares of our common stock
to the Hutchinson Center. In addition, we are obligated under the agreement to
pay the Hutchinson Center a fixed annual payment upon issuance of the first U.S.
patent containing claims covering the licensed technology.
OXFORD GENE TECHNOLOGY IP LIMITED
In March 2000, we entered into a License Agreement with Oxford Gene
Technology IP Limited. Under the agreement, Oxford Gene Technology granted us a
nonexclusive worldwide sublicense to certain patents related to the fabrication
and use of nucleic acid arrays. We issued 686,928 shares of our common stock to
Oxford Gene Technology. We are also obligated to pay royalties to Oxford Gene
Technology on sales of products and services covered by the patents licensed to
us under the agreement. The term of the agreement continues until the last of
the licensed patents expire.
40
<PAGE>
UNIVERSITY OF CALIFORNIA, BERKELEY
As part of our merger with Acacia Biosciences in February 1999, we assumed
an agreement with the University of California. Under this agreement, we have an
exclusive license to two issued U.S. patents, 5,569,588 and 5,777,888 (the '888
patent) and patent applications related to these patents. The '888 patent covers
a fundamental analysis approach useful for gene expression analysis. Under the
agreement, we are obligated to pay the University of California an annual
minimum royalty and a percentage of revenues that we obtain from sublicensing
this technology.
UNIVERSITY OF WASHINGTON
In September 1997, we entered into a license agreement with the University
of Washington. The University of Washington granted us an exclusive, worldwide,
sublicensable license (subject to the rights of certain U.S. governmental
agencies and a grant-back to the University of Washington for non-commercial
research purposes) to certain technology pertaining to inkjet synthesis of
oligonucleotides. Upon execution of the license agreement we issued 90,000
shares of our common stock to the University of Washington. We are also
obligated to make future periodic payments on the anniversary date of the
agreement. In addition, we are obligated to make royalty payments on any product
sales, subject to an annual minimum royalty. In addition to the common stock
issued upon execution of the agreement, we issued 30,000 shares of our common
stock because of the issuance of the first U.S. patent containing claims
covering the licensed technology and the first commercial sale of a product
incorporating the licensed technology.
GOVERNMENT REGULATION
Our products are not currently subject to regulation by governmental
agencies other than the laws and regulations generally applicable to businesses
in the jurisdictions in which we operate. However, the products of many of the
pharmaceutical and biotechnology companies to which we market our products are
regulated by the FDA, and the interest of the FDA or other governmental agencies
in our products may increase as the number of pharmaceutical and other products
developed using our technology increases.
EMPLOYEES
As of March 16, 2000, Rosetta employed 104 personnel, 34 of whom hold
Ph.D.s, 3 of whom hold M.D.s. Of these employees, 81 are employed in Research,
Development and Informatics, and 23 are employed in administration. Each of our
employees has signed a confidentiality agreement. We have never experienced
employment-related work stoppages and consider our employee relations to be
good.
FACILITIES
We maintain our principal headquarters in Kirkland, Washington, where we
lease approximately 50,000 square feet of laboratory and general administration
space. The lease for this facility expires in July 2002, with an option to renew
the lease for an additional three year period. We believe that our existing
facilities are adequate to meet our immediate needs and that suitable additional
space will be available in the future on commercially reasonable terms as
needed.
LEGAL PROCEEDINGS
We may become involved in legal proceedings from time to time in the
ordinary course of business. As of the date of this prospectus, we are not
involved in any pending material legal proceedings. However, on January 6, 2000
we received, through our legal counsel, a request for information from the FBI.
The information requested pertains to one of our recently hired employees and
relates to the employee's involvement in certain software development activities
prior to his
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<PAGE>
employment with us. Although the FBI has not disclosed to us the specific
substance of the matters being investigated, we do not believe that we, as a
company, or any actions by us are the subject of the investigation. We are
cooperating fully with the FBI. We are unable at this time to predict the
outcome of this investigation.
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MANAGEMENT
- --------------------------------------------------------------------------------
The following table provides information regarding our executive officers
and directors as of March 16, 2000:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- --------------------------------------------
<S> <C> <C>
Stephen H. Friend, M.D., Ph.D. .............. 46 President, Chief Executive Officer and
Director
John J. King II.............................. 47 Senior Vice President, Chief Operating
Officer and Director
Mark Boguski, M.D., Ph.D..................... 46 Senior Vice President of Research
Roland Stoughton, Ph.D. ..................... 45 Vice President of Bioinformatics
David Borges................................. 36 Director of Finance
William I. Buffington........................ 51 Director
William W. Ericson........................... 42 Director
Steven Gillis, Ph.D.(1)...................... 46 Director
Ruth Kunath(1)(2)............................ 48 Director
Harvey S. Sadow, Ph.D(2)..................... 77 Director
Peter Svenillson............................. 38 Director
Charles P. Waite(1)(2)....................... 44 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
STEPHEN H. FRIEND, M.D., PH.D. Dr. Friend co-founded our company in 1996 and
has served as our President since June 1997, Chief Scientific Officer and
director since April 1997, and Chief Executive Officer since February 2000. From
April 1997 to June 1997, Dr. Friend served as our Acting President. From
December 1996 to April 1997, Dr. Friend served as our Vice President of
Functional Genomics. Dr. Friend joined the Fred Hutchinson Cancer Research
Center, a research organization, as a visiting scientist in 1994 and has been a
Full Member and Head of the Program of Molecular Pharmacology from 1995 to the
present. In 1995, he co-founded the Seattle Project, an Advanced Institute for
Drug Discovery, at the Hutchinson Center and was a co-director from 1995 through
March 2000. Dr. Friend held faculty positions at Harvard Medical School from
1987 to 1995 and at Massachusetts General Hospital from 1990 to 1995.
Dr. Friend graduated from Indiana University with a B.A. in Philosophy and
received his Ph.D. in Biochemistry and his M.D. from Indiana University.
JOHN J. KING, II. Mr. King has served as our Senior Vice President, Chief
Operating Officer and director since April 1997. From 1992 to 1996, Mr. King
served as Executive Vice President of KidStar Interactive Media, Inc., a media
company. He co-founded Biotope, Inc., a biotechnology company, and served as its
President and Chief Operating Officer from 1986 to 1988 and its Chairman from
1988 to 1992. Mr. King co-founded IMRE Corporation, a biotechnology company, and
served as its President and Chief Operating Officer from 1981 to 1986. Mr. King
graduated from the University of Pennsylvania with a B.A. in Anthropology.
MARK BOGUSKI, M.D., PH.D. Dr. Boguski has been our Senior Vice President of
Research since March 2000. From 1995 to March 1999, he was a Senior Investigator
at the U.S. National Center for Biotechnology Information, a division of the
National Library of Medicine at the National Institutes of Health in Bethesda,
Maryland and was a Senior Staff Fellow at the National Center from 1989 to 1995.
In addition, Dr. Boguski has been an Assistant Professor in the Department of
Molecular Biology and Genetics at Johns Hopkins University School of Medicine
from 1995 to present. Dr. Boguski received a B.A. from Johns Hopkins University
and a Ph.D. and M.D. from the Washington University School of Medicine.
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ROLAND STOUGHTON, PH.D. Dr. Stoughton has served as our Vice President of
Bioinformatics since November 1998 and from July 1997 through November 1998,
Dr. Stoughton served as our Informatics Team Leader. From September 1982 through
July 1997, he was the Division Manager and Senior Research Scientist at Science
Applications International Corporation, a research and engineering company.
Mr. Stoughton has a B.A. in Physics from Amherst College, an M.S. in
Astrophysics, and his Ph.D. in Physics and Astronomy from the University of
California, Santa Cruz.
DAVID BORGES, CPA. Mr. Borges has served as our Director of Finance and
Controller since May 1998. From June 1986 through May 1998 he worked for the
international public accounting firm of Coopers Lybrand LLP. Mr. Borges holds a
B.A. in accounting from Santa Clara University.
WILLIAM I. BUFFINGTON. Mr. Buffington has served as one of our Directors
since October 1999. From August 1998 to the present, Mr. Buffington has been
General Manager, Bioscience Products Business at Agilent Technologies, Inc, a
technology company formerly part of Hewlett-Packard Company. Prior to that, he
held various positions at Hewlett-Packard Company, a technology company,
including Group R&D Manager, Bioscience Products Business from January 1996 to
August 1998, General Manager and Director at Hewlett Packard and Yokogawa
Electrical JV from April 1992 to May 1995, and R&D Manager, Avondale Division,
from 1984 to April 1992. Mr. Buffington holds a B.S. in Electrical Engineering
and a M.S. in Physics from Pennsylvania State University.
WILLIAM W. ERICSON. Mr. Ericson has served as one of our directors since
March 2000. Since August 1995, Mr. Ericson has been an attorney at Venture Law
Group, a law firm specializing in the representation of technology companies.
Mr. Ericson is the managing director and founder of Venture Law Group's Pacific
Northwest office located in Kirkland, Washington. Prior to joining Venture Law
Group, Mr. Ericson was an associate at the law firm of Brobeck, Phleger and
Harrison, LLP from October 1992 through August 1995. Mr. Ericson holds a
Bachelor of Science in Foreign Service from Georgetown University and a J.D.
from Northwestern University School of Law. Mr. Ericson is on the board of
Onvia.com, Inc. and several privately-held companies.
STEVEN GILLIS, PH.D. Dr. Gillis has served as one of our Directors since
June 1997. He has served as Chairman of the Board of Corixa Corporation, a
biotechnology company, since March 1999 and either President or Chief Executive
Officer and director of Corixa since 1994. Dr. Gillis was a founder of Immunex
Corporation, a biotechnology company. From 1981 to 1994, Dr. Gillis served as
Executive Vice President and Director of Research and Development of Immunex,
and from 1993 to 1994, served as Acting Chief Executive Officer and Chairman of
the Board of Immunex. From 1990 to 1994, Dr. Gillis also served as President and
Chief Executive Officer of Immunex Research and Development Corporation, a
wholly-owned subsidiary of Immunex, and Chief Scientific Officer of Immunex. In
addition, Dr. Gillis is a director of Micrologix Biotech, Inc., a biotechnology
company, Genesis Research and Development Corporation Limited, a biotechnology
company, and Koronis Pharmaceuticals, a biotechnology company. Dr. Gillis
graduated from Williams College with a B.A. in Biology and English and received
his Ph.D. in Biological Sciences from Dartmouth College.
RUTH KUNATH. Ms. Kunath has served as one of our directors since June 1997.
Since 1992, Ms. Kunath has managed the public and private biotechnology and
emerging healthcare technology portfolios for Vulcan Ventures, Inc., a venture
capital firm founded by Paul G. Allen in 1992. From 1975 to 1992, Ms. Kunath was
the Biotechnology Analyst and then the Senior Portfolio Manager for the
healthcare sector at Bank of America Capital Management (formerly Seattle
Capital Management Equity), a financial services company. Ms. Kunath is
currently a director of VaxGen, Inc., a biotechnology company, and Dendreon
Corporation, a biotechnology company. Ms. Kunath is a Certified Financial
Analyst and holds a B.A. from DePauw University in Indiana.
HARVEY S. SADOW, PH.D. Dr. Sadow has served as one of our directors since
February 1999. Prior to that, Dr. Sadow served as Chairman of the Board of
Directors of Acacia Biosciences, Inc., a
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biotechnology company, until our acquisition of Acacia in February 1999. He was
President and Chief Executive Officer and a director of Boehringer
Ingelheim Ltd., a pharmaceuticals company, from 1971 until 1981 and as President
and Chief Executive Officer of its successor company, Boehringer Ingelheim
Pharmaceuticals, Inc. and its parent, Boehringer Ingelheim Corporation, until
1988, retiring as Chairman of the Board of both companies in 1990. He is
currently a director of Anika Therapeutics, Inc., a biomedical company,
Cholestech Corp., a medical diagnostics company, and Trega Biosciences, Inc., a
biotechnology company. Dr. Sadow received a B.S. from the Virginia Military
Institute in 1947, a M.S. from the University of Kansas in 1949 and a Ph.D. in
bioanalytical chemistry from the University of Connecticut in 1953.
PETER SVENILLSON. Mr. Svenillson has served as one of our directors since
June 1997. From 1995 to the present, he has been a Managing Director and Partner
of Hamilton Capital Ltd., an investment company, and of Broadview Ltd., an
investment company. From 1993 to 1995, Mr. Svenillson was Managing Director and
Partner of Stone Porch Ltd., an investment company in London, England. From 1987
to 1993, Mr. Svenillson was Associate Managing Director of Nomura International
PLC, a financial services company, in London, England, in charge of European
investment banking. He is a director of PTC Therapeutics, a biotechnology
company, and Somalogic, Inc., a biotechnology company. Mr. Svenillson received
his B.A. and his M.B.A. from the Stockholm School of Economics. He has also
attended M.B.A. programs at INSEAD and at the London Business School.
CHARLES P. WAITE. Mr. Waite has served as one of our directors since
June 1997. From 1987 to the present, Mr. Waite has been a General Partner with
Olympic Venture Partners, a venture capital firm. From 1983 to 1987, he was a
General Partner at Hambrecht & Quist Venture Partners. Mr. Waite currently
serves on a number of boards including: Cardima, Inc., a medical device company,
Loudeye Technologies, Inc., an Internet media company, Seattle Genetics, a
biotechnology company, SignalSoft Corporation, a wireless services company,
WatchGuard Technologies, Inc, an Internet security company, and Verity, Inc., a
software company. Mr. Waite received his A.B. from Kenyon College and received
his M.B.A. from Harvard University.
BOARD COMPOSITION
We currently have nine directors and have one vacancy. Upon the closing of
this offering, our Board of Directors will be divided into three classes. The
Class I directors are Peter Svenillson, Harvey S. Sadow, and Stephen Gillis, and
they will serve an initial term until the 2001 annual meeting of stockholders or
special meeting held in lieu thereof, the Class II directors are John J. King,
William W. Ericson, and Ruth Kunath, and they will serve an initial term until
the 2002 annual meeting of stockholders or special meeting held in lieu thereof,
and the Class III directors are Stephen H. Friend, Bill Buffington, and Charles
P. Waite, and they will serve an initial term until the 2003 annual meeting of
stockholders or special meeting held in lieu thereof.
At each annual meeting of stockholders after the initial classification (or
special meeting in lieu of a meeting), the successors to directors whose terms
will then expire will be elected to serve from the time of election and
qualification until the second annual meeting following election (or special
meeting held in lieu thereof). Any additional directorships resulting from an
increase in the number of directors will be distributed among the classes so
that, as nearly as possible, each class will consist of approximately one-third
of the directors. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management of the
company, although directors of the company may be removed for cause by the
affirmative vote of the holders of a majority of the common stock.
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COMMITTEES OF THE BOARD
AUDIT COMMITTEE. In March 2000, our Board established its audit committee.
The Board's Audit Committee currently consists of Ms. Kunath, Mr. Waite and
Dr. Sadow. The Audit Committee
- makes recommendations to the board of directors regarding the selection of
independent auditors;
- reviews the results and scope of the audit and other services provided by
our independent auditors; and
- reviews and evaluates our audit and control functions.
COMPENSATION COMMITTEE. In July 1997, our Board established a Compensation
Committee. The Compensation Committee consists of Dr. Gillis, Ms. Kunath and
Mr. Waite. The Compensation Committee's functions are
- to review and approve the compensation and benefits for our executive
officers;
- to administer our stock purchase and stock option plans; and
- make recommendations to our Board regarding such matters.
COMPENSATION OF DIRECTORS
COMPENSATION COMMITTEE. We do not currently compensate our directors, with
the exception of Dr. Sadow who receives $1,500 per meeting. However, directors
are reimbursed for out-of-pocket expenses incurred in connection with attendance
at meetings of the board of directors or its committees. Directors are eligible
to receive stock options in consideration of their services pursuant to our 1997
stock plan, our 2000 directors' stock option plan and our 2000 stock option plan
and, to the extent that a director is an employee, to participate in our 2000
employee stock purchase plan. See "Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our board of directors established its compensation committee in July 1997.
Prior to establishing the compensation committee, the board of directors as a
whole performed the functions delegated to the compensation committee. None of
the members of the compensation committee is currently, or has even been at any
time since our formation, once of our officers or employees. No member of the
compensation committee serves as a member of the board of directors or
compensation committee of any entity that has one or more officers serving as a
member of our board of directors or compensation committee.
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SCIENTIFIC ADVISORY BOARD
Our Scientific Advisory Board is composed of leading academic scientists and
clinicians with expertise in fields related to our technology and business
focus. The Scientific Advisory Board meets at least twice annually with our
scientific staff and management to discuss our research and development programs
and long-term scientific strategy.
<TABLE>
<CAPTION>
SCIENTIFIC ADVISORY BOARD MEMBER AFFILIATED INSTITUTION
- -------------------------------- ----------------------
<S> <C>
Leland H. Hartwell, Ph.D..................... President, Fred Hutchinson Cancer Research Center
Ruedi Aebersold, Ph.D........................ Professor of Biotechnology, University of Washington
William G. Kaelin, Jr., M.D.................. Associate Professor, Dana Farber Cancer Institute
Andrew W. Murray, Ph.D....................... Professor of Physiology, University of California at
San Francisco
Maynard Olson, Ph.D.......................... Professor of Medicine and Genetics, University of
Washington
Jasper D. Rine, Ph.D......................... Professor of Biology and Genetics, University of
California, Berkeley
Bruce W. Stillman, Ph.D...................... Director, Cold Spring Harbor Laboratory
Hans Wigzell, Ph.D........................... President, Karolinska Institute, Stockholm, Sweden
</TABLE>
EXECUTIVE COMPENSATION
The following table provides summary information concerning the compensation
received for services rendered to us during the fiscal year ended December 31,
1999 by the Chief Executive Officer and our only other executive officers whose
aggregate compensation during our last fiscal year exceeded $100,000. We
sometimes refer to these officers as the Named Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) UNDERLYING OPTIONS COMPENSATION(2)
- --------------------------- ------ -------- ------------------ ---------------
<S> <C> <C> <C> <C>
Stephen H. Friend, M.D., Ph.D. .......... $172,500 $16,500 -- $3,291
President, Chief Executive Officer and
Chief Scientific Officer
John J. King, II ......................... $136,500 $13,100 -- $7,424
Senior Vice President and
Chief Operating Officer
Roland Stoughton, Ph.D. .................. $138,342 $13,000 -- $ 713
Vice President of Bioinformatics
</TABLE>
- ------------------------
(1) Bonus represents the amount paid to the employee in 1999.
(2) Includes amounts paid for life insurance premiums for each of the named
officers, health insurance premiums for Mr. King, and automobile expenses
for Dr. Friend.
OPTION GRANTS
None of our Named Officers received option grants or stock appreciation
rights in fiscal year 1999.
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OPTION EXERCISES AND HOLDINGS
The following table sets forth the number of shares of common stock acquired
upon the shares exercise of stock options by the Named Officers during our last
fiscal year, and the number and value of securities underlying unexercised
options held by the Named Officers as of December 31, 1999. Options to purchase
shares of our common stock under our 1997 stock plan are exercisable in full six
months after the date of grant but are subject to a right of repurchase pursuant
to the vesting schedule of each specific grant. The repurchase option generally
lapses over a four year period with 12.5% vesting on the six month anniversary
date and 1/48(th) of the total number of shares vesting monthly thereafter.
AGGREGATED OPTION EXERCISES IN 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen H. Friend, M.D.,
Ph.D..................... -- -- -- -- -- --
John J. King, II........... -- -- -- -- -- --
Roland Stoughton, Ph.D..... -- -- 151,500 -- $18,937.50 --
</TABLE>
- ------------------------
(1) Based on the fair market value as of December 31, 1999, as determined by our
Board of Directors, minus the exercise price, multiplied by the number of
shares underlying the option.
STOCK PLANS
2000 STOCK PLAN
PURPOSES OF PLAN; SHARE RESERVE. Our 2000 stock plan was adopted by our
Board of Directors in March 2000 and will be submitted for the approval of our
stockholders before the close of this offering. A maximum of 5,286,913 shares of
our common stock may be sold under the 2000 stock plan. The plan provides for an
automatic annual increase on the first day of each of our fiscal years beginning
in 2001 and ending in 2009 equal to the lesser of:
- 1,200,000 shares,
- 4% of our outstanding common stock on the last day of the preceding fiscal
year or
- a lesser number of shares that the board determines.
As of March 16, 2000 no shares had been granted under the 2000 stock option
plan. Options granted under the 2000 stock plan may be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, or
nonstatutory stock options. The 2000 stock plan will terminate in March 2010
unless the board terminates it earlier.
ADMINISTRATION. The 2000 stock plan is administered by our Board or a
committee appointed by our Board. The administrator has the authority to
determine:
- the fair market value of the common stock;
- which individuals will be granted options under the 2000 stock plan;
- the number of shares of common stock to be covered by each award of
options granted under the 2000 stock plan;
- to approve the form of agreement(s) under the 2000 stock plan;
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<PAGE>
- to determine the terms and conditions of any award granted under the 2000
stock plan, so long as they are not inconsistent with the plan;
- to implement an option exchange program;
- to adjust the vesting of an option;
- to construe and interpret the terms of the plan and awards granted
pursuant to the plan; and
- without amending the plan, to modify grants of options or stock purchase
rights to participants who are foreign nationals or are employed outside
of the United States in order to recognize differences in local law, tax
policies, or customs.
ELIGIBILITY. The 2000 stock plan provides for the grant to our employees
(including officers and employee directors) of incentive stock options and for
the grant of nonstatutory stock options and stock purchase rights to our
employees, officers, directors (including non-employee directors) and
consultants. To the extent an optionee would have the right in any calendar year
to exercise for the first time one or more incentive stock options for shares
having an aggregate fair market value in excess of $100,000, any such excess
options shall be treated as nonstatutory options.
TERM. The term of each option shall be no more than ten years from the date
of grant or a shorter term as may be provided in the option agreement. In the
case of an incentive stock option granted to an optionee who, at the time the
option is granted, owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of our stock or any parent or
subsidiary, the term of the option shall be five years from the date of grant or
shorter term as may be provided in the written option agreement.
VESTING AND EXERCISABILITY. Options granted under the 2000 stock plan
generally vest at a rate of 1/4(th) of the total number of shares subject to the
options twelve months after the date of grant and 1/48(th) of the total number
of shares subject to the options each month thereafter. The administrator may
permit the immediate exercise of unvested options. However, we reserve the right
to repurchase any unvested shares at the time of the optionee's termination of
employment at the exercise price paid for such shares.
EXERCISE PRICE. The exercise price of each incentive stock option granted
under the 2000 stock plan must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of each nonstatutory stock
option granted under the 2000 stock plan shall be as determined by the
administrator. However, we expect that the exercise price of any non-statutory
stock option granted to a named officer will equal at least 100% of the fair
market value of the common stock on the date of grant in order to qualify the
option as performance-based compensation under applicable tax law.
PAYMENT. The method of payment of the exercise price shall be determined by
the administrator and may consist of cash, or any other consideration allowed by
the plan.
TRANSFERABILITY. Options are generally nontransferable. The administrator
may grant nonstatutory stock options with limited transferability rights. Each
option may generally be exercised during the lifetime of the optionee only by
the optionee or permitted transferee.
TERMINATION OF OPTIONEE. Upon the termination of an optionee's employment
or other relationship with us, such optionee will have a limited time within
which to exercise any outstanding options, which time period will vary depending
on the reason for termination. To the extent that an optionee was not entitled
to exercise the option at the date of such termination, or if the optionee does
not exercise such option to the extent so entitled within the time specified in
the 2000 stock plan, the option shall
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terminate. No termination shall be deemed to occur if the optionee is a
consultant who becomes an employee or the optionee is an employee who becomes a
consultant.
STOCK PURCHASE RIGHTS. In addition to stock options, the administrator may
issue stock purchase rights under the 2000 stock plan to employees, non-employee
directors and consultants. The administrator determines the number of shares,
price, terms, conditions and restrictions related to the grant of stock purchase
rights. The purchase price of a stock purchase right granted under the 2000
stock plan will be determined by the administrator. The period during which the
stock purchase right is held open is determined by the administrator. Unless the
administrator determines otherwise, the recipient of a stock purchase right must
execute a restricted stock purchase agreement granting Rosetta an option to
repurchase unvested shares at the purchaser's original cost upon termination of
the purchaser's relationship with us.
CHANGE OF CONTROL. If we merge with or consolidate into another corporation
or sell all or substantially all of our assets, we would expect that the
successor corporation will assume the options or substitute equivalent options.
In such case, immediately before the consummation of the transaction, each
outstanding award will accelerate as to 50% of the then unvested shares. In
addition, if the successor corporation terminates the employment or consulting
relationship of any participant within twelve months of the consummation of the
transaction, his or her award will vest as to all of the remaining unvested
shares. However, if the successor corporation refuses to assume or substitute
outstanding awards, each award will accelerate and become fully vested
immediately prior to the consummation of the transaction.
AMENDMENTS. Our board has the authority to amend or terminate the 2000
stock option plan provided such action does not adversely affect the rights and
obligations of any optionee under any grant with respect to options or unvested
stock issuances then outstanding under the 2000 stock option plan without his or
her consent. In addition, to the extent necessary and desirable to comply with
applicable laws, we shall obtain stockholder approval of any 2000 plan amendment
in such a manner and to such a degree as required.
CERTAIN CORPORATE EVENTS. Outstanding awards, the number of shares
remaining available for issuance under the 2000 plan, the maximum number of
shares subject to awards that may be granted to an employee during a year and
the fixed number in the plan's evergreen formula will adjust in the event of a
stock split, stock dividend or other similar change in our captial stock.
1997 STOCK PLAN
PURPOSES OF PLAN; SHARE RESERVE. Our 1997 stock plan was adopted by our
board in June 1997 and approved by our stockholders in June 1997. A maximum of
5,286,913 shares of our common stock may be sold under the 1997 stock plan. As
of March 16, 2000, a total of 2,614,157 shares has been reserved for issuance
under the 1997 stock plan, options to purchase a total of 1,469,720 shares of
our common stock had been exercised and 1,833,836 shares remained available for
grant under the 1997 stock plan. Options granted under the 1997 stock plan may
be "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, or nonstatutory stock options. Stock purchase rights may
also be granted under the 1997 stock plan. To date, no stock purchase rights
have been granted.
The terms of the 1997 stock plan are substantially similar to those of the
2000 stock plan except that prior to the date on which the Company's common
stock becomes a listed security, the exercise price of any nonstatutory stock
option granted to an optionee who is a 10% stockholder must equal at least 110%
of the fair market value of our common stock on the date of grant and all other
non-statutory stock options must have exercise prices equal to at least 85% of
the fair market value on the date of grant.
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The 1997 stock plan does not impose an annual limit on the number of shares
subject to awards that may be granted under the plan.
2000 DIRECTORS' STOCK OPTION PLAN
The 2000 Directors' Stock Option Plan was adopted by the board in
March 2000. We will be submitting it for approval by the stockholders prior to
the closing of this offering. A total of 600,000 shares of common stock has been
reserved for issuance under the directors' plan, none of which have been issued.
The directors' plan will be effective as of the effective date of this offering.
Under the directors' plan, each individual who serves as a non-employee
director as of the effective date of this offering will receive an automatic
grant of an option to purchase 25,000 shares of common stock upon the effective
date of this offering. Each individual who first becomes a non-employee director
after the effective date of the directors' plan will receive an automatic
initial grant of an option to purchase 25,000 shares of common stock upon
appointment or election to the Board. The automatic grants to purchase 25,000
shares will vest and become exercisable in installments of 1/48(th) of the total
number of shares subject to the option each month following the date of grant.
The directors' plan also provides for automatic annual grants of options to
purchase 5,000 shares of common stock on the date of each annual meeting of our
stockholders to each non-employee director who has served on the Board for at
least six months prior to the meeting and who continues to serve on the Board
following the meeting. The automatic grants to purchase 5,000 shares will vest
and become exercisable in installments of 1/12(th) of the total number of shares
subject to the option each month following the date of grant. The exercise price
of all stock options granted under the directors' plan shall be equal to the
fair market value of a share of our common stock on the date of grant of the
option. The exercise price of options granted to directors on the date of this
offering will be equal to the price to the public of shares sold in this
offering. Options granted under the directors' plan have a term of ten years.
However, unvested options will terminate when the optionee ceases to serve as a
director and vested options will terminate if they are not exercised within
twelve months after the director's death or disability or within 90 days after
the director ceases to serve as a director for any other reason. In addition,
options issued under the plan terminate in their entirety if a director commits
certain acts of misconduct against us.
In the event of a sale of all or substantially all of our assets or our
merger or consolidation of with or into another corporation in which the
ownership of more than 50% of the total combined voting power of our outstanding
securities changes hands, all outstanding options will accelerate and become
fully vested effective upon the consummation of the transaction.
The directors' plan is designed to work automatically without
administration. However, to the extent administration is necessary, it will be
performed by our board of directors, with any director who has a personal
interest at stake abstaining. Although our board of directors may amend or
terminate the directors' plan, it may not take any action that may adversely
affect any outstanding option without the optionee's consent. Outstanding
awards, the number of shares remaining available for grant under the plan, and
the number of shares subject to the automatic director grants described above
will each adjust in the event of a stock split, stock dividend or other similar
change in our capital stock. The directors' plan will have a term of ten years
unless terminated earlier.
2000 EMPLOYEE STOCK PURCHASE PLAN
The 2000 Employee Stock Purchase Plan was adopted by the board in
March 2000 and will be submitted for approval of the stockholders prior to the
closing of this offering. A total of 350,000 shares of common stock has been
reserved for issuance under the Purchase Plan, none of which have been issued as
of the date of this offering. The number of shares reserved for issuance under
the
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Purchase Plan will be increased on the first day of each of our fiscal years
from 2001 to 2010 by the lesser of:
- 350,000 shares;
- 1.4% of our outstanding common stock on the last day of the preceding
fiscal year; or
- the number of shares determined by the board of directors.
The Purchase Plan becomes effective on the effective date of this offering.
Unless terminated earlier by the Board of Directors, the Purchase Plan shall
terminate in March 2020.
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, will be implemented by a series of overlapping offering
periods of 24 months' duration, with new offering periods, other than the first
offering period, commencing on February 1 and August 1 of each year. Each
offering period will consist of four consecutive purchase periods of six months'
duration, and at the end of each six month period an automatic purchase will be
made for participants. The initial offering period is expected to commence on
the date of this offering and end on July 31, 2002; the initial purchase period
is expected to begin on the date of this offering and end on January 31, 2001.
The Purchase Plan will be administered by our board of directors or by a
committee appointed by the board. Our employees (including officers and employee
directors), or those of any majority-owned subsidiary designated by the board,
are eligible to participate in the Purchase Plan if they are employed for at
least 20 hours per week and more than five months per year. Under the Purchase
Plan, eligible employees may purchase common stock through payroll deductions,
which in any event may not exceed 20% of an employee's compensation, at a price
equal to the lower of 85% of the fair market value of the common stock at the
beginning of each offering period or on each purchase date. If the fair market
value of the common stock on a purchase date is less than the fair market value
at the beginning of the offering period, each participant in the Purchase Plan
shall automatically be withdrawn from the offering period as of the end of the
purchase date and re-enrolled in the new twenty-four month offering period
beginning on the first business day following the purchase date. Employees may
end their participation in the Purchase Plan at any time during an offering
period and participation ends automatically on termination of employment.
Under the Purchase Plan no employee shall be granted an option if
immediately after the grant the employee would own stock and/or hold outstanding
options to purchase stock equaling 5% or more of the total voting power or value
of all classes of stock of Rosetta or any Rosetta subsidiary. No employee shall
be granted an option under the Purchase Plan if the option would permit the
employee to purchase stock under all employee stock purchase plans and our
subsidiaries' in an amount that exceeds $25,000 of fair market value for each
calendar year in which the option is outstanding at any time. In addition, no
employee may purchase more than 1,800 shares of common stock under the Purchase
Plan in any one purchase period.
The Purchase Plan provides that in the event of our merger or consolidation
with or into another corporation or a sale of all or substantially all of our
assets, each right to purchase stock under the Purchase Plan will be assumed or
an equivalent right will be substituted by the successor corporation. However,
if the successor corporation refuses to assume or substitute the options, the
board will shorten any ongoing offering period will automatically be shortened
so that employees' rights to purchase stock under the Purchase Plan are
exercised prior to consummation of the transaction. The board has the power to
amend or terminate the Purchase Plan and to change or terminate offering periods
as long as any action does not adversely affect any outstanding rights to
purchase stock under the Purchase Plan, However the Board may amend or terminate
the Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.
Outstanding awards, shares remaining available for issuance under the plan, the
fixed number in the plan's evergreen formula, and the maximum number of shares
that may be
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purchased during a six-month purchase period will each adjust in the event of a
stock split, stock dividend or other similar change in our capital stock. We
have not issued any shares under the Purchase Plan to date.
401(K) PLAN
Effective November 1997, we adopted the Rosetta Inpharmatics, Inc. 401(k)
plan covering our full-time employees. The 401(k) plan is intended to qualify
under Section 401(k) of the Internal Revenue Code of 1986 so that contributions
to the 401(k) plan by employees or by us, and the investment earnings thereon,
are not taxable to employees until withdrawn from the 401(k) plan, and so that
contributions by us, if any, will be deductible by us when made. Under the
401(k) plan, employees can contribute up to 25% of their compensation, subject
to the statutorily prescribed annual limit ($10,500) in 2000 and to have that
amount contributed to the 401(k) plan. The 401(k) plan permits, but does not
require, additional matching contributions to the 401(k) plan by us on behalf of
all participants in the 401(k) plan. To date, we have not made any matching
contributions to the 401(k) plan.
EMPLOYMENT OFFER LETTERS
In connection with the hiring of Stephen H. Friend as our president, we
entered into a letter agreement with Dr. Friend. Dr. Friend's employment is for
no specified length of time, and we have the right to terminate Dr. Friend's
employment with or without cause. In the event we terminate Dr. Friend's
employment for any reason other than cause, we have agreed to pay salary and
benefits to Dr. Friend for a period of six months.
In connection with the hiring of Roland B. Stoughton, we entered into a
letter agreement with Dr. Stoughton. Dr. Stoughton's options vest in accordance
with our standard vesting schedule. Dr. Stoughton's employment is for no
specified length of time, and either party has the right to terminate
Dr. Stoughton's employment at any time with or without cause.
In connection with the hiring of John J. King II, we entered into a letter
agreement with Mr. King. Mr. King's options vest in accordance with our standard
vesting schedule. Mr. King's employment is for no specified length of time, and
either party has the right to terminate Mr. King's employment at any time with
or without cause.
In connection with the hiring of Mark Boguski as our Senior Vice President
of Research, we entered into a letter agreement with Dr. Boguski. His options
vest in accordance with our standard vesting schedule. Dr. Boguski's employment
is for no specified length of time, and either party has the right to terminate
his employment at any time with or without cause. Dr. Boguski received a signing
bonus in the amount of $135,000. In the event that Dr. Boguski is terminated for
reasons other than good cause, we have agreed to continue Dr. Boguski's salary
and benefits for a period of one year past his termination and to continue to
vest his options over one year. These severance payments will be offset by any
other salary Dr. Boguski may receive during that time from other employment.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS AND INDEMNIFICATION MATTERS
Our Amended and Restated Certificate of Incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Delaware law
provides that a director of a corporation will not be personally liable for
monetary damages for breach of such individual's fiduciary duties as a director,
except for liability (i) for any breach of such director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law;
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Delaware law; or (iv) for any transaction from which
a director derives an improper personal benefit. Delaware law does not eliminate
a director's duty of care and this provision
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has no effect on the availability of equitable remedies such as an injunction or
recession based upon a director's breach of the duty of care.
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify its employees and other agents to the fullest extent permitted by
law. We believe that indemnification under our bylaws covers at least negligence
and gross negligence on the part of an indemnified party and permits us to
advance expenses incurred by an indemnified party in connection with the defense
of any action or proceeding arising out of such party's status or service as a
director, officer, employee or other agent of ours upon an undertaking by such
party to repay such advances if it is ultimately determined that such party is
not entitled to indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us, among other things, to
indemnify such director or officer against certain expenses (including
attorney's fees), judgments, fines and settlement amounts paid by such
individual in connection with any action, suit or proceeding arising out of such
individual's status or service as our director or officer (subject to certain
exceptions, including liabilities arising from willful misconduct or conduct
that is knowingly fraudulent or deliberately dishonest or a violation of
Section 16(b) of the Exchange Act) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by us. We
believe that our Amended and Restated Certificate of Incorporation, bylaws
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers. We also maintain directors' and
officers' liability insurance.
We are not aware of any pending litigation or proceeding involving any
director, officer, employee or agent of ours where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers, or persons controlling us, we
have been informed 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.
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CERTAIN TRANSACTIONS
- --------------------------------------------------------------------------------
Since January 1, 1999 there has not been any transaction or series of
similar transactions to which we were or are a party in which the amount
involved exceeded or exceeds $60,000 and in which any director or executive
officer of ours, any holder of more than 5% of any class of our voting
securities or any member of the immediate family of any of the foregoing persons
had or will have a direct or indirect material interest, other than the
transactions described below.
Certain stock option grants to our directors and executive officers are
described in this prospectus under the caption "Management--Executive
Compensation."
PRIVATE PLACEMENT TRANSACTIONS
Since our inception, we have issued, in private placement transactions,
shares of preferred stock, common stock, warrants for the purchase of shares of
preferred stock, and warrants for the purchase of common stock as follows:
- a total of 4,462,500 shares of Series A preferred stock at $4.00 per share
in June, August, September and October 1997 to 13 investors;
- warrants to purchase a total of 254,823 shares of Series A preferred stock
with a weighted average exercise price of $4.01 per share in June,
September, October and December 1997, and July 1998 to three investors;
- in connection with the acquisition of Acacia Biosciences, Inc. in February
1999, a total of 1,387,298 shares of Series B preferred stock at $4.00 per
share, a total of 2,300,071 shares of common stock, warrants to purchase
33,339 shares of common stock with a weighted average exercise price of
$4.28 per share and warrants to purchase 134,596 shares of Series B
preferred stock with a weighted average exercise price of $6.20 per share
to 232 investors.
- a total of 2,019,452 shares of Series C preferred stock at $4.50 per share
in April 1999 to seven investors;
- in connection with the sale of our Series C preferred stock, in April
1999, we issued warrants to purchase an aggregate of 608,297 shares of our
common stock with an exercise price of $0.45 per share to seven investors;
- a warrant to purchase 54,949 shares of Series C preferred stock at an
exercise price of $4.50 per share in April 1999 to one investor.
- a total of 2,285,714 shares of Series D preferred stock at $5.25 per share
in October 1999 to one investor;
- a total of 4,442,378 shares of Series E preferred stock at $9.36 per share
in March 2000 to 16 investors; and
- a warrant to purchase 26,709 shares of Series E preferred stock at an
exercise price of $9.36 per share in March 2000 to one investor.
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The following table summarizes the shares of preferred stock purchased by
named executive officers, directors and 5% stockholders and persons and entities
associated with them, in private placement transactions. Each share of preferred
stock converts into one share of common stock.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK STOCK STOCK
- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Vulcan Ventures, Inc.(1).................. 1,000,000 -- 740,741 -- 1,602,564
Lombard Odier & Cie....................... 750,000 -- 222,222 -- 209,036
Olympic Venture Partners, L.P.(2)......... 687,500 -- 342,359 -- 262,484
Agilent Technologies, Inc.(3)............. -- -- -- 2,285,714 459,792
</TABLE>
- ------------------------
(1) Ruth Kunath, one of our directors, is an investment advisor of Vulcan
Ventures. See the Principal Stockholders table for more information.
(2) Charles Waite, one of our directors, is a General Partner of Olympic Venture
Partners. See Principal Stockholders table for more information.
(3) Bill Buffington, one of our directors, is a general manager of Agilent.
RELATED PARTY TRANSACTIONS
Simultaneously with the closing of our Series A preferred stock financing,
entities affiliated with Olympic Venture Partners were issued a warrant to
purchase up to 250,000 shares of our common stock at an exercise price of $0.05
per share. Olympic has assigned to Tredegar Investments the right to acquire
78,125 shares of our common stock pursuant to the terms of the Olympic warrant.
Charles Waite, a general partner of Olympic, is one of our directors and Steve
Johnson, a former director of ours, is the president of Tredegar Investments.
The Olympic warrant is held as follows: OVP IV Entrepreneurs Fund, LP, holds a
warrant for 8,594 shares of our common stock and Olympic Venture Partners IV,
LP, holds a warrant for 163,281 shares of common stock. TGI Fund I, LC (formerly
Tredegar) now holds the Tredegar warrant. Each warrant has a four year term.
In connection with the original issuance of the warrants to Olympic and
Tredegar, Dr. Leroy Hood, Dr. Stephen Friend and the Fred Hutchinson Cancer
Research Center agreed to contribute up to an aggregate of 200,000 shares of
common stock to us upon the exercise of the warrants issued to Olympic and
Tredegar, pursuant to a Contribution Agreement dated June 7, 1997, and as
amended and restated November 14, 1997.
Leland Hartwell, Chairperson of our Scientific Advisory Board, is President
and a Director of the Fred Hutchinson Cancer Research Center. Dr. Hartwell is
one of our co-founders. Because of Dr. Hartwell's position at the Hutchinson
Center, he transferred his right as a co-founder of ours to purchase our common
stock to the Hutchinson Center. In May 1997, the Hutchinson Center purchased
283,200 shares of our common stock at a price of $0.034 per share. In
December 1997, we entered into a license agreement with the Hutchinson Center
whereby the Hutchinson Center granted us an exclusive, worldwide, sublicensable
license (subject to the rights of certain U.S. governmental agencies and a
grant-back to the Hutchinson Center for non-commercial research purposes) to
certain drug screening technology. We paid an up-front license fee upon
execution of the license agreement which consisted of the issuance of 352,000
shares of our common stock to the Hutchinson Center. In addition to the common
stock issued upon execution of the agreement, we are obligated to pay the
Hutchinson Center a fixed annual payment upon issuance of the first U.S. patent
containing claims covering the licensed technology. In May 1999 we waived a
right of repurchase we had as to 88,000 of the shares held by Hutchinson Center.
Dr. Leroy Hood, a former director of ours, is the William Gates III
Professor of Biomedical Sciences and chairperson of the Department of Molecular
Biotechnology at the University of
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Washington. In September 1997, we entered into a license agreement with the
University of Washington. The University of Washington granted us an exclusive,
worldwide, sub-licensable license (subject to the rights of certain U.S.
governmental agencies and a grant-back to the University of Washington for
non-commercial research purposes) to certain technology pertaining to ink jet
synthesis of oligonucleotides. We paid an up-front license fee upon execution of
the license agreement which consisted of issuance of 90,000 shares of our common
stock to the University of Washington. We are also obligated to make future
periodic payments on the anniversary date of the agreement. In addition, we are
obligated to make royalty payments on any product sales, subject to an annual
minimum royalty. In addition to our common stock issued upon execution of the
agreement, we issued an aggregate of 30,000 shares of our common stock in
connection with certain patent issuance and product sale milestones under the
agreement. There are no future commitments to issue stock under this agreement.
In April 1997, we entered into an agreement with Hamilton Capital Ltd., an
entity affiliated with Peter Svenillson, one of our directors, which provided
for certain payments to Hamilton Capital in connection with investments by
certain stockholders. Generally, the agreement provides that should we raise
money from certain listed parties, Hamilton Capital will receive a cash fee
equal to 5% of the gross proceeds of the financing, and warrants to purchase
7.5% of the amount of equity securities issued in the financing. In connection
with this Agreement, Hamilton Capital and Broadview Ltd., an affiliate of
Hamilton Capital and of which Mr. Svenillson is also a partner, have received an
aggregate of $1,127,345, warrants to purchase an aggregate of 228,751 shares of
Series A preferred stock at an exercise price of $4.00, a warrant to purchase
54,949 shares of Series C preferred stock at an exercise price of $4.50, and a
warrant to purchase 26,709 shares of Series E preferred stock at an exercise
price of $9.36.
In January and May 1997, we granted Stephen Friend, our Chief Executive
Officer, the right to purchase 147,493 and 548,707 shares of common stock,
respectively. Dr. Friend issued a promissory note dated May 15, 1997 in the
amount of $16,740 in our favor in order to purchase certain of such shares.
Dr. Friend has paid the full balance of this note and is no longer indebted to
us. As of March 16, 2000, we have the right to repurchase 175,394 shares held by
Dr. Friend should he leave our employ and not become a consultant to us.
In July 1997, we granted John J. King II, our Chief Operating Officer, an
option to purchase 145,500 shares of our common stock. Mr. King issued a
promissory note dated December 31, 1998 in the amount of $58,200 in our favor in
order to exercise his option to purchase such shares. This note is still
outstanding and is due December 31, 2000. As of March 16, 2000, we have the
right to repurchase 14,140 shares held by Mr. King should he leave our employ
and not become a consultant to us.
In April 1999, in connection with the sale of our Series C preferred stock,
we issued the following warrants, each at an exercise price of $0.45 per share.
- a warrant to purchase 223,125 shares of our common stock to Vulcan
Ventures. Ruth Kunath, one of our directors, is an investment advisor of
Vulcan Ventures.
- a warrant to purchase 66,937 shares of common stock to Lombard Odier;
- warrants to purchase 103,125 shares of common stock to entities affiliated
with Olympic Venture Partners. Charles Waite, one of our directors, is a
general partner of Olympic Venture Partners.
In February 1999, we acquired all the outstanding stock of Acacia
Biosciences, Inc., for 1,387,298 shares of our Series B preferred stock,
2,300,071 shares of our common stock, warrants to purchase 134,596 shares of
Series B preferred stock, warrants to purchase an additional 33,339 shares of
common stock and 937,169 options to purchase common stock issued to employees
and consultants of Acacia. Dr. Sadow was the Chairman of the Board of Acacia
Biosciences. After the acquisition, Dr. Sadow joined our board.
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In December 1999, we entered into an agreement with Corixa Corporation
providing for our joint collaboration for identifying potential antigen targets
for vaccine development. Dr. Gillis, one of our directors, is the Chief
Executive Officer and Chairman of the Board of Corixa.
In December 1999, we waived our right to repurchase 126,607 shares of common
stock held by Leroy Hood, one of our founders and a former director.
In October 1999, we entered into a strategic partnership with
Hewlett-Packard Company, under which we agreed to partner with Hewlett-Packard
to make and sell products in the gene expression field. In connection with this
agreement, we sold 2,285,714 shares of our Series D preferred stock to
Hewlett-Packard. Hewlett-Packard assigned its rights and transferred its shares
to Agilent in connection with Hewlett-Packard's spin-out of certain business
units to Agilent. In connection with the original transaction, Mr. Buffington
was named to our board. Mr. Buffington is a general manager at Agilent.
In October 1997, Tularik, Inc. purchased 237,500 shares of our Series A
preferred stock and entered into an agreement with us in which we were to
provide certain research. Stephen McKnight, a former director of ours, is also a
director of Tularik.
For fiscal year 1999, we paid approximately $618,000 to our corporate
counsel, Venture Law Group, for legal services. William Ericson, one of our
directors, is the managing director of Venture Law Group's Pacific Northwest
office in Kirkland, Washington.
INDEMNIFICATION AGREEMENTS. We have entered into indemnification agreements
with certain of our officers and directors containing provisions which may
require us to, among other things, indemnify our officers and directors against
certain liabilities that may arise by reason of their status or service as
officers or directors (other than liabilities arising from willful misconduct of
a culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. For a description
of limitations of liability and certain indemnification arrangements with
respect to our directors and officers, see "Management--Limitation of Liability
and Indemnification Matters."
REGISTRATION RIGHTS AGREEMENTS. Certain holders of common stock and
preferred stock have certain registration rights with respect to their shares of
common stock (including common stock issuable upon conversion of their preferred
stock). See "Description of Capital Stock--Registration Rights of Certain
Holders."
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<PAGE>
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 16, 1999 and as adjusted to reflect
the sale of the common stock offered by us under this prospectus by:
- each of our directors and named officers;
- all directors and executive officers as a group; and
- each person who is known to us to own beneficially more than 5% of our
common stock.
The table includes all shares of common stock issuable within 60 days of
March 16, 1999 upon the exercise of options and other rights beneficially owned
by the indicated stockholders on that date. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares. To our knowledge,
except under applicable community property laws or as otherwise indicated, the
persons named in the table have sole voting and sole investment control with
respect to all shares beneficially owned. The applicable percentage of ownership
for each stockholder is based on 21,534,903 shares of common stock outstanding
as of March 16, 1999, together with applicable options for that stockholder.
Shares of common stock issuable upon exercise of options and other rights
beneficially owned were deemed outstanding for the purpose of computing the
percentage ownership of the person holding these options and other rights, but
are not deemed outstanding for computing the percentage ownership of any other
person.
<TABLE>
<CAPTION>
SHARES ISSUABLE
SHARES UNDER OPTIONS PERCENTAGE OF
TOTAL TO A SUBJECT AND WARRANTS SHARES
NUMBER OF RIGHT OF EXERCISABLE WITHIN OUTSTANDING
SHARES REPURCHASE AS 60 DAYS OF ------------------------
BENEFICIALLY OF MARCH 16, MARCH 16, BEFORE THIS AFTER THIS
OWNED 2000 2000 OFFERING OFFERING
------------ ------------- ------------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Ruth Kunath(1)...................... 3,566,430 -- 223,125 16.4%
Vulcan Ventures, Inc.
110 110(th) Avenue N.E., Suite 550
Bellevue, WA 98004
William I. Buffington(2)............ 2,745,506 -- -- 12.7%
Agilent Technologies, Inc
3500 Deer Creek Rd.
Palo Alto, CA 94304
Charles P. Waite(3)................. 1,567,343 -- 275,000 7.2%
Olympic Venture Partners
2420 Carillon Point
Kirkland, WA 90833
Lombard Odier & Cie(4).............. 1,248,195 -- 66,397 5.8%
11 rue de la Corraterie
1204 Geneve, Switzerland
Stephen H. Friend, M.D., Ph.D.(5)... 696,200 175,394 -- 3.2%
John J. King, II (6)................ 194,000 56,577 -- *
Roland B. Stoughton, Ph.D. ......... 151,500 102,614 -- *
Peter Svenillson(7)................. 310,409 -- 310,409 1.4%
Harvey S. Sadow, Ph.D............... 54,084 -- 20,000 *
Steven Gillis, Ph.D................. 50,000 -- 50,000 *
William W. Ericson.................. 10,534 -- -- *
All directors and officers as a
group (12 persons)................ 9,334,830 347,840 967,721 41.7%
---------- ------- ------- ------- ----
</TABLE>
59
<PAGE>
- ------------------------
* Less than 1% of outstanding shares.
(1) Includes 3,566,430 shares held by Vulcan Ventures, Inc. which includes
warrants to purchase 223,125 shares exercisable within 60 days of March 15,
2000. Ruth Kunath, one of our directors, is an Investment Advisor at Vulcan
and as such may be deemed to share voting and investment power with respect
to such shares. Ms. Kunath disclaims beneficial ownership of such shares
except to the extent of her pecuniary interest in such shares.
(2) Includes 2,745,506 shares owned by Agilent. Mr. Buffington, one of our
directors, is General Manager of Agilent, and as such may be deemed to share
voting and investment power with respect to shares owned by Agilent
Technologies, Inc. Mr. Buffington disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest in such shares.
(3) Includes 971,519 shares held by Olympic Venture Partners IV, L.P., 262,484
shares held by Olympic Venture Partners V, L.P., and 58,340 shares held by
Olympic Venture Partners Entrepreneurs Fund, L.P. Also includes warrants to
purchase 259,187 shares and 15,813 shares held by Olympic Venture Partners
IV, L.P. and Olympic Venture Partners Entrepreneurs Fund, L.P.,
respectively. Charles P. Waite, one of our directors, is a general partner
of Olympic Venture Partners and as such may be deemed to share voting and
investment power with respect to such shares. Mr. Waite disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest in
such shares.
(4) Includes 431,258 shares held by Lombard Odier & Cie, and 750,000 shares held
by Ryco and Co. which includes warrants to purchase 66,937 shares of common
stock exercisable within 60 days of March 15, 2000.
(5) The repurchase right lapses ratably each month through May 2001. Also
includes 92,186 shares of our Common Stock that will be contributed to the
capital of our stock upon the exercise of certain warrants by certain of our
stockholders. See "Certain Transactions."
(6) Such repurchase right lapses ratably each month through April 2001.
(7) Includes warrants to purchase 310,409 shares exercisable within 60 days of
March 15, 2000 held by Hamilton Capital Ltd. and Broadview Ltd, an affiliate
of Hamilton Capital. Peter Svenillson, one of our directors, is a general
partner of Hamilton Capital Venture Partners and as such may be deemed to
share voting and investment power with respect to such shares.
Mr. Svenillson disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest in such shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
Upon the completion of this offering, we will amend our articles of
incorporation to change our authorized capital stock to 75,000,000 shares of
common stock, $0.001 par value per share and 5,000,000 shares of undesignated
preferred stock, $0.001 par value per share. The following description of our
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by, our certificate of incorporation and bylaws, which we have
included as exhibits to the registration statement of which this prospectus
forms a part.
COMMON STOCK
As of March 16, 2000, there were 22,697,617 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
Series A, Series B, Series C, Series D and Series E preferred stock, and the
exercise of all outstanding warrants into common and preferred stock, held of
record by 332 stockholders. Options to purchase 2,614,157 shares of common stock
were also outstanding. There will be shares of common stock
outstanding after the completion of this offering (assuming no exercise of the
underwriter's overallotment option or exercise of outstanding options under our
stock option plans, after giving effect to the sale of the shares offered
hereby.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to the prior distribution
rights of any outstanding preferred stock. The common stock has no preemptive or
conversion rights or other subscription rights. The outstanding shares of common
stock are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 14,597,342 shares of common stock. Thereafter, the Board
of Directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock, $0.001 par
value, in one or more series. The Board of Directors will also have the
authority to designate the rights, preferences, privileges and restrictions of
each such series, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change in control of our company without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
certain circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
offering, no shares of preferred stock will be outstanding. We currently have no
plans to issue any shares of preferred stock.
WARRANTS
At March 16, 2000, there were warrants outstanding to purchase an aggregate
of 858,297 shares of common stock with a weighted average exercise price of
$0.33 per share that will expire upon the consummation of this offering,
warrants to purchase an aggregate of 33,339 shares of common stock with a
weighted average exercise price of $4.28 per share that will survive the
effectiveness of this offering, warrants to purchase an aggregate of 26,072
shares of Series A preferred stock with a
61
<PAGE>
weighted average exercise price of $4.08 per share which expire upon the
effectiveness of this offering, warrants to purchase an aggregate of 228,751
shares of Series A preferred stock that will expire in 2007 with an exercise
price of $4.00, warrants to purchase an aggregate of 134,595 shares of Series B
preferred stock with a weighted average exercise price of $6.20 per share that
will survive the effectiveness of this offering, a warrant to purchase 54,949
shares of Series C preferred stock with an exercise price of $4.50 that will
expire in 2009 and a warrant to purchase 26,709 shares of Series E preferred
stock with an exercise price of $9.36 per share that will expire in 2010. The
warrants to purchase shares of preferred stock that survive the closing of this
offering will convert into warrants to purchase shares of common stock on the
closing of this offering on a one-to-one basis. Generally, each warrant contains
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications,
consolidations and certain dilutive issuances of securities at prices below the
then existing warrant exercise price.
REGISTRATION RIGHTS
The holders of 17,653,311 shares of common stock (assuming the conversion of
all outstanding preferred stock upon completion of this offering) and options
and warrants to purchase 497,687 shares of common or preferred stock or their
transferees are entitled to certain rights with respect to the registration of
such shares under the Securities Act. These rights are provided under the terms
of an agreement between ourselves and the holders of these securities. Subject
to limitations in the agreement, the holders of at least 50% of these securities
then outstanding may require, on two occasions beginning six months after the
date of this prospectus, that we use our best efforts to register these
securities for public resale if Form S-3 is not available. If we register any of
our common stock either for our own account or for the account of other security
holders, the holders of these securities are entitled to include their shares of
common stock in that registration, subject to the ability of the underwriters to
limit the number of shares included in the offering. The holders of at least 20%
of these securities then outstanding may also require us, not more than once in
any twelve-month period or three times total, to register all or a portion of
these securities on Form S-3 when the use of that form becomes available to us,
provided, among other limitations, that the proposed aggregate selling price,
net of any underwriters' discounts or commissions, is at least $1,000,000. We
will be responsible for paying all registration expenses, and the holders
selling their shares will be responsible for paying all selling expenses.
ANTI-TAKEOVER PROVISIONS
Provisions of Delaware and Washington law, our certificate of incorporation
and bylaws could make more difficult the acquisition of us by a third party and
the removal of incumbent officers and directors. These provisions, summarized
below, are expected to discourage certain types of coercive takeover practices
and inadequate takeover bids and to encourage persons seeking to acquire control
of us to first negotiate with us. We believe that the benefits of increased
protection of our ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless:
- the board of directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status;
62
<PAGE>
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized by 66 2/3% vote at an annual or special
meeting or stockholders.
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
The laws of the State of Washington, where our principal executive offices
are located, also impose restrictions on certain transactions between certain
foreign corporations and significant stockholders. Chapter 23B.19 of the
Washington Business Corporation Act, the WBCA prohibits a "target corporation,"
with certain exceptions, from engaging in certain "significant business
transactions" with a person or group of persons who beneficially own 10% or more
of the voting securities of the target corporation (an acquiring person) for a
period of five years after such acquisition unless the transaction or
acquisition of such shares is approved by a majority of the members of the
target corporation's board of directors prior to the time of acquisition.
Such prohibited transactions include, among other things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or
- allowing the acquiring person to receive disproportionate benefit as a
stockholder.
After the five-year period, a significant business transaction may take
place as long as it complies with certain fair price provisions of the statute.
A target corporation includes a foreign corporation if:
- the corporation has a class of voting stock registered pursuant to
Section 12 or 15 of the Exchange Act;;
- the corporation's principal executive office is located in Washington;
- any of (a) more than 10% of the corporation's stockholders of record are
Washington residents, (b) more than 10% of its shares are owned of record
by Washington residents, or (c) 1,000 or more of its stockholders of
record are Washington residents;
- a majority of the corporation's employees are Washington residents or more
than 1,000 Washington residents are employees of the corporation; and
- a majority of the corporation's tangible assets are located in Washington
or the corporation has more than $50.0 million of tangible assets located
in Washington.
A corporation may not "opt out" of this statute and, therefore, we
anticipate this statute will apply to us. Depending upon whether we meet the
definition of a target corporation, Chapter 23B.19 of the WBCA may have the
effect of delaying, deferring or preventing a change in control.
Our certificate of incorporation and bylaws do not provide for the right of
stockholders to act by written consent without a meeting or for cumulative
voting in the election of directors. In addition, our certificate of
incorporation permits the board of directors to issue preferred stock with
voting or other
63
<PAGE>
rights without any stockholder action. The authorization of undesignated
preferred stock makes it possible for the board of directors to issue preferred
stock with voting or other rights or preferences that could impede the success
of any attempt to change control of us. These and other provisions may have the
effect of deterring hostile takeovers or delaying changes in our control or
management.
Our certificate of incorporation provides for the division of our board of
directors into three classes, as nearly as equal in size as possible, with
staggered three year terms. The classification of the board of directors has the
effect of requiring more than one annual stockholder meeting to replace a
majority of the directors. Our bylaws provide that special meetings of
stockholders can be called only by the board of directors, the chairman of the
board, if any, the president and holders of 25% of the votes entitled to be cast
at a meeting. Moreover, the business permitted to be conducted at any special
meeting of stockholders is limited to the business brought before the meeting by
the board of directors, the chairman of the board, if any, the president or any
25% holder. Our bylaws set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the board of directors, of
candidates for election as directors and with regard to business to be brought
before a meeting of stockholders. These and other provisions may have the effect
of deterring hostile takeovers or delaying changes in control or management of
us.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is Harris Trust
Company of California and their telephone number is (312) 360-5454.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could reduce prevailing market prices. Furthermore, since no shares will
be available for sale shortly after this offering because of contractual and
legal restrictions on resale as described below, sales of substantial amounts of
our common stock in the public market after any restrictions on sale lapse could
adversely affect the prevailing market price of the common stock and impair our
ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares
of common stock, assuming no exercise of the over-allotment option and no
exercises of outstanding options after March 16, 2000. Of these shares, all of
the shares sold in the offering will be freely tradable without restriction or
further registration under the Securities Act, unless these shares are purchased
by affiliates. The remaining 21,534,903 shares of common stock held by existing
stockholders are restricted securities. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration described below under Rules 144, 144(k) or 701 promulgated under
the Securities Act.
As a result of contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, the restricted shares will be available for sale
in the public market as follows:
- unless held by affiliates, the shares sold in the public
offering will be freely tradable upon completion of the offering;
- shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus; and
- shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
LOCK-UP AGREEMENTS
All of our directors, officers, employees and other stockholders, who
together hold all of our securities, have entered into lock-up agreements in
connection with this offering. These lock-up agreements provide that these
holders will not offer, sell, contract to sell or grant any option to purchase
or otherwise dispose of our common stock or any securities exercisable for or
convertible into our common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of Warburg Dillon
Read LLC. Notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
may not be sold until these agreements expire or are waived by the
representatives of the underwriters of this offering
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding which
will equal approximately shares immediately after the
offering; and
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
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<PAGE>
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
RULE 701
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144, but without compliance
with certain restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 90 days after effectiveness without complying
with the holding period requirement and that non-affiliates may sell such shares
in reliance on Rule 144 90 days after effectiveness without complying with the
holding period, public information, volume limitation or notice provisions of
Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 17,653,311 shares of our
common stock, or their transferees, will be entitled to rights with respect to
the registration of their shares under the Securities Act. Registration of their
shares under the Securities Act would result in these shares becoming freely
tradable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of such
registration.
STOCK OPTIONS
We intend to file a registration statement under the Securities Act after
the effective date of this offering to register shares to be issued pursuant to
our employee and director benefit plans. As a result, any options or rights
exercised under the 1997 stock plan, the 2000 stock option plan, the 2000
employee stock purchase plan and the 2000 directors' stock option plan will also
be freely tradable in the public market. However, shares held by affiliates will
still be subject to the volume limitation, manner of sale, notice and public
information requirements of Rule 144 unless otherwise resalable under Rule 701.
As of March 16, 2000, we had granted options to purchase 2,614,157 shares of
common stock that had not been exercised, of which options to purchase 1,342,435
shares of common stock were both exercisable and not subject to a right of
repurchase in our favor.
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<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
We have entered into an underwriting agreement with the underwriters named
below. Warburg Dillon Read LLC, Lehman Brothers Inc., and Prudential Securities
Incorporated are acting as representatives of the underwriters.
The underwriting agreement will provide for the purchase of a specific
number of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specific number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter will severally agree to purchase
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Warburg Dillon Read LLC.....................................
Lehman Brothers Inc. .......................................
Prudential Securities Incorporated..........................
------
Total...................................................
======
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The representatives have advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a concession
of $ per share. The underwriters may also allow to dealers, and such
dealers may reallow, a concession not in excess of $ per share to certain
other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to thirty days after the date of this prospectus,
permits the underwriters to purchase a maximum of additional shares of our
common stock to cover over-allotments. If the underwriters exercise all or part
of this option, they will purchase shares covered by the option at the public
offering price that appears on the cover page of this prospectus, less the
underwriting discount. If this option is exercised in full, the underwriters
will purchase shares from us, the total price to the public will be
, and the total proceeds to us will be . The
underwriters have severally agreed that, to the extent the over-allotment option
is exercised, each of the underwriters will purchase a number of additional
shares proportionate to its initial amount reflected in the above table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us:
<TABLE>
<CAPTION>
PAID BY US
---------------------------------
NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OVER-ALLOTMENT
OPTION OPTION
-------------- ----------------
<S> <C> <C>
Per Share........................................ $ $
Total............................................ $ $
</TABLE>
67
<PAGE>
We estimate that the total expenses of this offering, excluding the
underwriter discount, will be approximately $ .
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act.
We and our directors, executive officers, and all of the holders of our
common stock and securities convertible into or exercisable or exchangeable for
common stock issued prior to this offering, have agreed pursuant to certain
"lock-up" agreements with the underwriters that we and they will not offer,
sell, contract to sell, pledge, grant any option to sell, or otherwise dispose
of, directly or indirectly, any shares of common stock or securities convertible
into or exercisable or exchangeable for common stock for a period of 180 days
after the date of this prospectus without the prior written consent of Warburg
Dillon Read LLC. Warburg Dillon Read LLC, in its sole discretion, may release
the shares subject to the lock-up agreements in whole or in part at any time
with or without notice. However, Warburg Dillon Read LLC has no current plan to
do so.
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of our common stock for our
officers, directors, employees, clients, friends and related persons who express
an interest in purchasing these shares. The number of shares of our common stock
available for sale to the general public will be reduced to the extent these
persons purchase these reserved shares. The underwriters will offer any shares
not so purchased by these persons to the general public on the same basis as the
other shares in this initial public offering.
Warburg Dillon Read LLC and Lehman Brothers Inc. intend to distribute and
deliver this Prospectus only by hand or by mail and intend to use only printed
prospectuses. One of the representatives, Prudential Securities Incorporated,
also markets securities online through its PrudentialSecurities.com division.
Clients of Prudential Advisor may view offering terms and a prospectus online.
Prior to this offering, there has been no public market for our common
stock. Consequently, the offering price for our common stock will be determined
by negotiations between us and the underwriters and will not necessarily be
related to our asset value, net worth or other established criteria of value.
The factors to be considered in these negotiations, in addition to prevailing
market conditions, will include the history of and prospects for the industry in
which we compete, an assessment of our management, our prospects, our capital
structure and certain other factors as are deemed relevant.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of shares is
completed. However, the underwriters may engage in the following activities in
accordance with the rules:
- STABILIZING TRANSACTIONS. The representatives may make bids for or
purchases of the shares for the purpose of pegging, fixing or maintaining
the price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
- OVER-ALLOTMENTS AND SYNDICATE COVERING TRANSACTIONS. The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with this offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
- PENALTY BIDS. If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
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<PAGE>
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of these transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If these transactions are commenced, they may be discontinued without notice at
any time.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
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<PAGE>
LEGAL MATTERS
- --------------------------------------------------------------------------------
The validity of the common stock offered hereby will be passed upon by
Venture Law Group, Professional Corporation, Kirkland, Washington. Certain legal
matters will be passed upon for the underwriters by Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., Boston, Massachusetts. Investment partnerships
associated with Venture Law Group and individual attorneys of Venture Law Group
beneficially own an aggregate of 79,807 shares of our common stock.
The statements in this prospectus under the captions "Risk Factors--We are
dependent on the technology of third parties and the failure to obtain rights to
third party technology could harm our developmental and commercial efforts,"
"Risk Factors--If we are unable to protect our proprietary rights adequately, or
operate without infringing or misappropriating the intellectual rights of
others, our competitive position will suffer," and "Business--Intellectual
Property and Proprietary Technology" relating to United States patent matters
are included in reliance on the review of Pennie & Edmonds LLP of New York, New
York, as experts in United States patent law.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of Rosetta Inpharmatics, Inc. as of December 31,
1998 and 1999 and for each of the three years in the period ended December 31,
1999, and for the period from inception (December 19, 1996) to December 31, 1999
included in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Acacia Biosciences, Inc. as of December 31, 1998
and 1997 and for the years then ended, and for the period from inception
(February 7, 1995) to December 31, 1998 included in this prospectus, have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
- --------------------------------------------------------------------------------
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus forms a part) on Form S-1 with respect to
the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with respect to us and
the shares of common stock offered hereby, reference is made to the registration
statement, including any exhibits and schedules thereto. Statements contained in
this prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, where any contract is an exhibit to the
registration statement, each statement with respect to the contract is qualified
in all respects by the provisions of the relevant exhibit, to which reference is
hereby made. You may read and copy any document we file at the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and the Securities and Exchange Commision's
Regional Offices located at the Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, NY 10048. You may call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information about the operation of the public
reference rooms.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for quotation on the Nasdaq National Market, such reports, proxy and information
statements and other information may also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington D.C.
20006.
70
<PAGE>
The Securities and Exchange Commission maintains a Web site at www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission.
71
<PAGE>
ROSETTA INPHARMATICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
<CAPTION>
ROSETTA INPHARMATICS, INC.
FINANCIAL STATEMENTS
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and for the period from
inception (December 19, 1996) to December 31, 1999........ F-4
Consolidated Statements of Stockholders' Equity for the
period from inception (December 19, 1996) to December 31,
1999...................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the period from
inception (December 19, 1996) to December 31, 1999........ F-7
Notes to Consolidated Financial Statements.................. F-8
<CAPTION>
ACACIA BIOSCIENCES, INC.
FINANCIAL STATEMENTS
<S> <C>
Report of Independent Accountants........................... F-29
Balance Sheets as of December 31, 1998 and 1997............. F-30
Statements of Operations for the years ended December 31,
1998 and 1997 and for the period from inception (February
7, 1995) to December 31, 1998............................. F-31
Statements of Stockholders' Equity for the period from
inception (February 7, 1995) to December 31, 1998......... F-32
Statements of Cash Flows for the years ended December 31,
1998 and 1997 and for the period from inception (February
7, 1995) to December 31, 1998............................. F-34
Notes to Financial Statements............................... F-35
<CAPTION>
ROSETTA INPHARMATICS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<S> <C>
Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1999.............................. F-43
Notes to Unaudited Pro Forma Combined Statement of
Operations................................................ F-44
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Rosetta Inpharmatics, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Rosetta
Inpharmatics, Inc. and subsidiary (a development stage company) at December 31,
1998 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 and the period from
inception (December 19, 1996), to December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
February 18, 2000
F-2
<PAGE>
ROSETTA INPHARMATICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- DECEMBER 31,
1998 1999 1999
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $3,270,944 $ 8,311,852
Short-term investments.................................... 4,980,632 10,951,496
Accounts receivable....................................... 1,906 155,729
Interest receivable....................................... 27,424 32,045
Prepaid expenses and other current assets................. 122,240 254,898
----------- ------------
Total current assets.................................... 8,403,146 19,706,020
Property and equipment, net................................. 2,163,497 4,109,159
Business acquisition expenses............................... 787,048
Intangible assets, net...................................... 10,316,917
Deposits and other assets................................... 39,517 475,326
----------- ------------
Total assets............................................ $11,393,208 $ 34,607,422
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 529,360 $ 1,112,680
Accrued expenses.......................................... 132,627 219,148
License fees payable...................................... 666,667
Deferred revenue.......................................... 1,259,761
Current portion of capital lease obligation............... 209,333
Current portion of notes payable.......................... 626,650 787,388
----------- ------------
Total current liabilities............................... 1,288,637 4,254,977
Capital lease obligation, net of current portion............ 145,754
Notes payable, net of current portion....................... 1,343,552 1,242,926
Deferred revenue............................................ 3,307,974
----------- ------------
Total liabilities....................................... 2,632,189 8,951,631
----------- ------------
Contingencies and commitments
Stockholders' equity
Convertible preferred stock, par value $0.001; 18,000,000
shares authorized; 4,462,500, 10,154,964 and no shares
pro forma issued and outstanding (aggregate liquidation
preference of $17,850,000 and $44,486,725).............. 4,463 10,155
Common stock, par value $0.001; 36,000,000 shares
authorized; 2,630,555, 5,182,382 and 15,337,346 shares
pro forma issued and outstanding........................ 2,631 5,183 $ 15,338
Additional paid-in capital................................ 18,347,569 56,643,529 56,643,529
Notes receivable from stockholders........................ (74,940) (58,200) (58,200)
Deferred stock compensation............................... (521,673) (2,128,331) (2,128,331)
Deficit accumulated during the development stage.......... (8,997,031) (28,816,545) (28,816,545)
----------- ------------ -------------
Total stockholders' equity.................................. 8,761,019 25,655,791 $ 25,655,791
=========== ============ =============
Total liabilities and stockholders' equity.................. $11,393,208 $ 34,607,422
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ROSETTA INPHARMATICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 19,
YEARS ENDED DECEMBER 31, 1996) TO
---------------------------------------- DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues
Collaboration agreements............... $ -- $ -- $ 835,892 $ 835,892
Government grants...................... -- -- 146,863 146,863
----------- ----------- ------------ ------------
Total revenues....................... -- -- 982,755 982,755
----------- ----------- ------------ ------------
Operating expenses
Research and development............... 1,189,244 4,417,428 10,189,406 15,796,078
General and administrative............. 1,039,074 2,694,654 7,661,427 11,395,155
Stock-based compensation............... 64,744 580,564 3,215,411 3,860,719
----------- ----------- ------------ ------------
Total operating expenses............. 2,293,062 7,692,646 21,066,244 31,051,952
----------- ----------- ------------ ------------
Loss from operations..................... (2,293,062) (7,692,646) (20,083,489) (30,069,197)
Other income (expense)
Interest income........................ 439,744 706,796 639,474 1,786,014
Interest expense....................... (45,272) (207,737) (293,196) (546,205)
Other, net............................. 13,777 81,369 (82,303) 12,843
----------- ----------- ------------ ------------
Net loss................................. $(1,884,813) $(7,112,218) $(19,819,514) $(28,816,545)
=========== =========== ============ ============
Basic and diluted net loss per share..... $ (5.29) $ (5.29) $ (4.92) $ (15.09)
=========== =========== ============ ============
Shares used in computing basic and
diluted net loss per share............. 356,451 1,344,007 4,030,103 1,910,187
=========== =========== ============ ============
Pro forma basic and diluted net loss
per share (unaudited).................. $ (1.69)
============
Shares used in computing pro forma
basic and diluted net loss per share
(unaudited)............................ 11,740,419
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ROSETTA INPHARMATICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
INCEPTION (DECEMBER 19, 1996) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
-------------------- -------------------- PAID-IN FROM STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
--------- -------- --------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued in January and May
1997 to founders at $0.034 per
share................................ 1,315,037 $1,315 $ 43,265
Common stock issued in May 1997 at
$0.034 per share in exchange for
services............................. 75,000 75 2,467
Common stock issued in May, 1997 for
notes receivable at $0.034 per
share................................ 493,805 494 16,246 $(16,740)
Series A preferred stock issued in June
through October 1997 at $4.00 per
share, net of issuance costs of
$848,509............................. 4,462,500 $4,463 16,997,028
Common stock issued in September and
December 1997 in exchange for
transfer of technology at time of
inception............................ 442,000 442
Common stock issued in October 1997 at
$0.40 per share...................... 125,000 125 49,875
Deferred stock compensation related to
grants of stock options.............. 157,347 $ (157,347)
Amortization of deferred stock
compensation......................... 64,744
Net loss...............................
--------- ------ --------- ------ ----------- -------- -----------
BALANCES, DECEMBER 31, 1997.............. 4,462,500 4,463 2,450,842 2,451 17,266,228 (16,740) (92,603)
Common stock issued in October and
November 1998 in connection with
stock option exercises............... 34,213 34 13,653
Common stock issued in December 1998 in
connection with stock option
exercises for notes receivable....... 145,500 146 58,054 (58,200)
Deferred stock compensation related to
grants of stock options.............. 1,009,634 (1,009,634)
Amortization of deferred stock
compensation......................... 580,564
Net loss...............................
--------- ------ --------- ------ ----------- -------- -----------
BALANCES, DECEMBER 31, 1998.............. 4,462,500 4,463 2,630,555 2,631 18,347,569 (74,940) (521,673)
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
------------- ------------
<S> <C> <C>
Common stock issued in January and May
1997 to founders at $0.034 per
share................................ $ 44,580
Common stock issued in May 1997 at
$0.034 per share in exchange for
services............................. 2,542
Common stock issued in May, 1997 for
notes receivable at $0.034 per
share................................ --
Series A preferred stock issued in June
through October 1997 at $4.00 per
share, net of issuance costs of
$848,509............................. 17,001,491
Common stock issued in September and
December 1997 in exchange for
transfer of technology at time of
inception............................ 442
Common stock issued in October 1997 at
$0.40 per share...................... 50,000
Deferred stock compensation related to
grants of stock options.............. --
Amortization of deferred stock
compensation......................... 64,744
Net loss............................... $ (1,884,813) (1,884,813)
------------- ------------
BALANCES, DECEMBER 31, 1997.............. (1,884,813) 15,278,986
Common stock issued in October and
November 1998 in connection with
stock option exercises............... 13,687
Common stock issued in December 1998 in
connection with stock option
exercises for notes receivable....... --
Deferred stock compensation related to
grants of stock options.............. --
Amortization of deferred stock
compensation......................... 580,564
Net loss............................... (7,112,218) (7,112,218)
------------- ------------
BALANCES, DECEMBER 31, 1998.............. (8,997,031) 8,761,019
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
F-5
<PAGE>
ROSETTA INPHARMATICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
INCEPTION (DECEMBER 19, 1996) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
--------------------- -------------------- PAID-IN FROM STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- -------- --------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series B preferred stock
issued in February 1999 at
$4.00 per share as part of
the purchase of Acacia...... 1,387,298 1,387 5,547,805
Common stock issued in
February 1999 at $2.50 per
share as part of the
purchase of Acacia.......... 2,300,071 2,300 5,747,877
Options and warrants granted
as part of purchase of
Acacia...................... 821,693
Series C preferred stock
issued in April 1999 at
$4.50 per share, net of
issuance costs of
$196,896.................... 2,019,452 2,019 8,888,619
Common stock issued in
September 1999 in exchange
for transfer of
technology.................. 30,000 30 125,033
Series D preferred stock
issued in October 1999 at
$5.25 per share, net of
issuance costs of $36,756... 2,285,714 2,286 11,960,957
Common stock issued in
connection with stock option
exercises................... 221,756 222 88,481
Acceleration of restricted
stock....................... 293,426
Payments received on notes
receivable from
stockholders................ 16,740
Deferred stock compensation
related to grants of stock
options..................... 4,822,069 (4,822,069)
Amortization of deferred stock
compensation................ 3,215,411
Net loss......................
---------- ------- --------- ------ ----------- -------- -----------
BALANCES, DECEMBER 31, 1999... 10,154,964 $10,155 5,182,382 $5,183 $56,643,529 $(58,200) $(2,128,331)
========== ======= ========= ====== =========== ======== ===========
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
------------- ------------
<S> <C> <C>
Series B preferred stock
issued in February 1999 at
$4.00 per share as part of
the purchase of Acacia...... 5,549,192
Common stock issued in
February 1999 at $2.50 per
share as part of the
purchase of Acacia.......... 5,750,177
Options and warrants granted
as part of purchase of
Acacia...................... 821,693
Series C preferred stock
issued in April 1999 at
$4.50 per share, net of
issuance costs of
$196,896.................... 8,890,638
Common stock issued in
September 1999 in exchange
for transfer of
technology.................. 125,063
Series D preferred stock
issued in October 1999 at
$5.25 per share, net of
issuance costs of $36,756... 11,963,243
Common stock issued in
connection with stock option
exercises................... 88,703
Acceleration of restricted
stock....................... 293,426
Payments received on notes
receivable from
stockholders................ 16,740
Deferred stock compensation
related to grants of stock
options.....................
Amortization of deferred stock
compensation................ 3,215,411
Net loss...................... (19,819,514) (19,819,514)
------------- ------------
$ (28,816,545)
BALANCES, DECEMBER 31, 1999...
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ROSETTA INPHARMATICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER
19,
YEARS ENDED DECEMBER 31, 1996) TO
--------------------------------------- DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(1,884,813) $(7,112,218) $(19,819,514) $(28,816,545)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization........................... 118,135 445,068 1,059,885 1,623,088
Stock compensation...................................... 64,744 580,564 3,215,411 3,860,719
Loss on sale and write-off of property and equipment.... 298,232 298,232
Amortization of intangible assets....................... 2,754,377 2,754,377
Investment amortization................................. (160,277) (57,486) (217,763)
Stock issued for licensed technology.................... 418,489 418,489
Changes in operating assets and liabilities, net of
effects
of purchase of Acacia.................................
Accounts receivable................................... (102,557) (102,557)
Interest receivable................................... (170,336) 142,912 (4,621) (32,045)
Prepaid expenses and other assets..................... (38,171) (125,492) (509,315) (672,978)
Accounts payable...................................... 239,175 290,185 394,278 923,638
Accrued expenses...................................... 20,608 112,019 673,793 806,420
Deferred revenue...................................... 4,267,735 4,267,735
----------- ----------- ----------- ------------
Net cash used in operating activities............... (1,650,658) (5,827,239) (7,411,293) (14,889,190)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (1,495,867) (1,230,833) (2,253,111) (4,979,811)
Purchase of trademark and trade name........................ (40,000) (40,000)
Purchases of short-term investments (11,220,283) (15,820,220) (15,738,379) (42,778,882)
Proceeds from sale and maturity of short-term investments... 3,700,000 18,520,148 9,825,000 32,045,148
Proceeds from sale of property and equipment................ 27,500 27,500
Business acquisition expenses, net of cash acquired......... (787,048) (231,468) (1,018,516)
----------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities........................................ (9,016,150) 682,047 (8,410,458) (16,744,561)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable................................. 1,507,410 1,054,148 766,687 3,328,245
Payments on capital lease obligation........................ (156,776) (156,776)
Payments on notes payable................................... (112,725) (478,631) (706,575) (1,297,931)
Proceeds from issuance of preferred stock................... 17,001,933 20,853,881 37,855,814
Proceeds from issuance of common stock...................... 97,122 13,687 88,702 199,511
Payments received on notes receivable from stockholders..... 16,740 16,740
----------- ----------- ----------- ------------
Net cash provided by financing activities........... 18,493,740 589,204 20,862,659 39,945,603
----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents........ 7,826,932 (4,555,988) 5,040,908 8,311,852
Cash and cash equivalents, beginning of period.............. -- 7,826,932 3,270,944 --
----------- ----------- ----------- ------------
Cash and cash equivalents, end of period.................... $ 7,826,932 $ 3,270,944 $ 8,311,852 $ 8,311,852
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.................................... $ 45,272 $ 207,737 $ 293,196 $ 546,205
=========== =========== =========== ============
Common stock issued for notes receivable.................. $ 16,740 $ 58,200 $ -- $ 74,940
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Rosetta Inpharmatics, Inc. ("Rosetta") was incorporated on December 19, 1996
in the state of Delaware. Rosetta is a developer of DNA microarray expression
technologies and information systems for obtaining comprehensive knowledge of
compound and drug target activities within any cell type, including human,
animal, and plant cells. Rosetta's integrated tools and consulting services
consist of the analysis of proprietary DNA microarrays, a powerful, flexible
informatics platform, and advanced molecular biology techniques to support the
needs of pharmaceutical, biotechnology, and agriculture companies. Rosetta
believes that its planned integrated approach to analysis of targets,
toxicities, and compound activities will greatly reduce the time, cost and risk
inherent in the current drug discovery process by eliminating or greatly
reducing its sequential nature.
Since inception, Rosetta has been in the development stage and its
activities have principally consisted of obtaining financing, recruiting
personnel, and conducting research and development. Rosetta is working on
several long-term development projects that involve experimental technology and
may require several years and substantial expenditures to complete. Revenues to
date have not resulted from Rosetta's planned principal operations. Rosetta's
ability to meet its business plan objectives is dependent upon its ability to
raise additional financing, substantiate its technology and, ultimately, to fund
its operations from revenues.
The statements of operations, stockholders' equity, and cash flows reflect
Rosetta's activities from inception (December 19, 1996) to December 31, 1999.
Rosetta had no activity for the period from December 19, 1996 through
December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Rosetta and its wholly owned subsidiary, Acacia Biosciences, Inc. ("Acacia").
All significant intercompany transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Rosetta generally considers all highly liquid investments with insignificant
interest rate risk and with original or remaining maturities of three months or
less at the date of purchase to be cash and cash equivalents.
Cash and cash equivalents are recorded at cost, which approximates market
value, and consisted of the following amounts at December 31:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Bank deposits........................................ $ 229,542 $ 534,262
Money market account................................. 157,694 1,001,725
Commercial paper..................................... 1,984,990 6,775,865
Corporate bonds...................................... 898,718
---------- ----------
$3,270,944 $8,311,852
========== ==========
</TABLE>
F-8
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Rosetta invests its cash in deposits with one financial institution that
may, at times, exceed federally insured limits. Management believes that the
risk of loss is minimal. To date, Rosetta has not experienced any losses related
to temporary cash investments.
SHORT-TERM INVESTMENTS
Investments in securities with maturities of less than one year or where
management's intent is to use the investments to fund current operations are
classified as short-term investments. Management classifies, at the date of
acquisition, its marketable securities into categories in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Currently, Rosetta
classifies its securities as available-for-sale which are reported at fair
market value with the related unrealized gains and losses included as a separate
component in stockholders' equity. Realized gains and losses and declines in
value of securities judged to be other than temporary are included in other
income (expense). The fair value of Rosetta's investments is based on quoted
market prices. The carrying value of those investments approximates their fair
value. Realized and unrealized gains and loss are based on the specific
identification method.
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Interest and dividends on all securities are included in
interest income.
Rosetta's short-term investments are diversified among high-credit quality
securities in accordance with Rosetta's investment policy.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Disposals are removed at cost
less accumulated depreciation or amortization and any gain or loss from
disposition is reflected in the statement of operations in the year of
disposition. Depreciation is provided over the estimated useful lives of the
depreciable assets, generally five years, using the straight-line method.
Equipment under capital leases is recorded at the present value of minimum lease
payments and is amortized using the straight-line method over the shorter of the
estimated useful lives of the related asset or the term of the lease. Leasehold
improvements are amortized using the straight-line method over the shorter of
the life of the lease or the estimated useful lives of the improvements.
Additions and improvements that increase the value or extend the life of an
asset are capitalized. Maintenance and repairs are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), Rosetta reviews long-lived
assets, including intangible assets and property and equipment for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. Under SFAS 121, an impairment
loss would be recognized when estimated undiscounted future cash flows expected
to result from the use of the asset and its eventual disposition is less than
its carrying amount. While Rosetta's current and historical operating
F-9
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and cash flow losses are indicators of impairment, Rosetta believes the future
cash flows to be received from the long-lived assets will exceed the assets'
carrying value, and accordingly Rosetta has not recognized any impairment losses
through December 31, 1999.
REVENUE RECOGNITION
Revenue from grants and development activities under collaboration
agreements are recorded in the period in which the services are performed.
Direct costs associated with these contracts and grants are reported as research
and development expenses. Deferred revenue is recognized when funds are received
in advance of the services to be performed. Revenue from license and maintenance
fees under collaboration agreements is recognized over the term of the
agreements. Product revenue is recognized upon the transfer of title to
customers and is recorded net of discounts, rebates and allowances.
Revenue from the license of software products under software license
agreements and from the delivery of maintenance services on Rosetta's products,
are accounted for under Statement of Position 97-2, "Software Revenue
Recognition." When contracts contain multiple elements, and vendor specific
objective evidence exists for all undelivered elements, Rosetta accounts for the
delivered elements in accordance with the "Residual Method" prescribed by
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions." License revenues are
recognized when persuasive evidence of an arrangement exists, the fee is fixed
and determinable, collectibility is probable, and delivery and customer
acceptance, if required under the terms of the license agreement, of the
software products have occurred. Maintenance services consist of technical
support, including telephone consultation, problem resolution, and software
updates. Customers are typically billed for maintenance services in advance for
the term of the maintenance agreement, and revenue is recognized on a
straight-line basis over the term of the agreement, generally one year. Unearned
maintenance revenue is classified as deferred revenue.
SOFTWARE COSTS
Software developed for use in Rosetta's products is expensed as incurred
until both (i) technological feasibility for the software has been established,
and (ii) all research and development activities for the other components of the
system have been completed. Rosetta believes this will occur after it has
received evaluations from the beta sites and has completed any resulting
modifications to the products. Expenditures to date have been classified as
research and development expense.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenses consist of costs incurred for
Rosetta-sponsored as well as collaborative research and development activities.
These costs include direct and research-related overhead expenses, and are
expensed as incurred. Costs to acquire technologies which are utilized in
research and development and which have no alternative future use are expensed
when incurred. Research and development expenses under government grants
approximate the revenue recognized under such agreements.
F-10
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS ACQUISITION EXPENSES
Direct costs incurred by Rosetta for acquisitions accounted for under the
purchase method of accounting are included as part of the purchase price. As of
December 31, 1998, Rosetta deferred $787,048 of costs related to the acquisition
of Acacia, which closed in February 1999.
INCOME TAXES
Deferred tax assets and liabilities are recorded under the liability method
of accounting. Under the liability method, deferred taxes are determined based
on the differences between the financial statement and tax bases of the assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is recorded for the amount of income tax
payable or refundable for the period, increased or decreased by the change in
deferred tax assets and liabilities during the period.
PATENT COSTS
Costs related to filing and pursuing patent applications are expensed as
incurred, as recoverability of such expenditures is uncertain.
STOCK PURCHASE WARRANTS
The fair value of stock purchase warrants is determined using the
Black-Scholes option pricing model. The fair value of warrants issued in
connection with preferred stock financings has been recorded by offsetting
charges and credits to additional paid-in capital. The fair value of warrants
issued in connection with equipment and line of credit financings are
capitalized and amortized over the period of the financing agreement.
STOCK-BASED COMPENSATION
Rosetta accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the deemed fair value of the Company's stock and the exercise
price of the option. Unearned compensation is being amortized on an accelerated
basis using the method prescribed in Financial Accounting Standards Board
Interpretation No. 28 over the vesting period of the individual options.
The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of SFAS No. 123. Compensation expense related to
equity instruments issued to nonemployees is recognized as the equity
instruments vest. At each reporting date, Rosetta revalues the compensation. As
a result, stock-based compensation expense related to equity instruments issued
to nonemployees will fluctuate as the fair value of Rosetta's common stock
fluctuates.
F-11
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Rosetta has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") effective
January 1, 1998. SFAS No. 130 requires the disclosure of comprehensive income
and its components in a full set of general-purpose financial statements.
Comprehensive income is the change in equity from transactions and other events
and circumstances other than those resulting from investments by owners and
distributions to owners. SFAS No. 130 had no impact on Rosetta and, accordingly,
a separate statement of comprehensive income has not been presented.
SEGMENT REPORTING
Effective in January 1998, Rosetta adopted Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Rosetta has determined that it operates in only one segment. Accordingly, the
adoption of SFAS No. 131 had no impact on Rosetta's financial statements.
NET LOSS PER SHARE
Basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the period,
less the weighted-average number of unvested shares of common stock issued that
are subject to repurchase. Basic and diluted pro forma net loss per share, as
presented in the statements of operations, has been computed as described above
and also gives effect to the conversion of the convertible preferred stock
(using the if-converted method) from the original date of issuance. Rosetta has
excluded all convertible preferred stock, warrants to purchase convertible
preferred stock, outstanding options and warrants to purchase common stock and
common stock subject to repurchase from the calculation of diluted net loss per
share, as such securities are antidilutive for all periods presented.
F-12
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculation of basic and diluted and pro
forma basic and diluted (unaudited) net loss per share:
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 19,
YEARS ENDED DECEMBER 31, 1996) TO
---------------------------------------- DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Net loss................................ $(1,884,813) $(7,112,218) $(19,819,514) $ (28,816,545)
=========== =========== ============ =============
Basic and diluted
Weighted-average shares used in
computing basic and diluted net loss
per share........................... 356,451 1,344,007 4,030,103 1,910,187
=========== =========== ============ =============
Basic and diluted net loss per
share............................... $ (5.29) $ (5.29) $ (4.92) $ (15.09)
=========== =========== ============ =============
Pro forma (unaudited)...................
Net loss.............................. $(19,819,514)
============
Shares used above..................... 4,030,103
Pro forma adjustment to reflect
weighted effect of assumed
conversion of convertible preferred
stock............................... 7,710,316
------------
Weighted-average shares used in
computing pro forma basic and
diluted net loss per common share... 11,740,419
============
Pro forma basic and diluted net loss
per common share.................... $ (1.69)
============
Antidilutive securities not included in
diluted net loss per share calculation
Convertible preferred stock........... 4,462,500 4,462,500 10,154,964
Options to purchase common stock...... 868,000 1,092,500 2,089,184
Warrants to purchase common stock..... 250,000 250,000 891,636
Warrants to purchase Series A
preferred stock..................... 246,490 254,823 254,823
Warrants to purchase Series B
preferred stock..................... 134,596
Warrants to purchase Series C
preferred stock..................... 54,949
Unvested shares of common stock
subject to repurchase............... 1,493,048 1,075,186 350,483
----------- ----------- ------------
7,320,038 7,135,009 13,930,635
=========== =========== ============
</TABLE>
F-13
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on
Rosetta's results of operations or financial condition when adopted as Rosetta
holds no derivative financial instruments and does not currently engage in
hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that the impact of
SAB 101 would have no material effect on the financial position or results of
operations of Rosetta.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Upon the closing of Rosetta's initial public offering, all of the
convertible preferred stock outstanding will automatically be converted into
common stock. The unaudited pro forma stockholders' equity presented on the
balance sheet reflects the effect of the conversion of the preferred stock into
common stock on a one-for-one basis.
3. BUSINESS ACQUISITION
On February 22, 1999, Rosetta acquired Acacia Biosciences, Inc. ("Acacia"),
a company conducting drug discovery utilizing recent advances in genome science
and combinatorial chemistry. Under the Agreement and Plan of Reorganization,
Rosetta issued a total of 1,387,298 shares of Series B preferred stock, warrants
to acquire an additional 134,596 shares of Series B preferred stock, 2,300,071
shares of common stock and warrants to purchase an additional 33,339 shares of
common stock in exchange for all of Acacia's outstanding capital stock. In
addition, all outstanding stock options to purchase Acacia common stock were
replaced with options to purchase 937,169 shares of common stock.
The acquisition was accounted for under the purchase method. The purchase
price of $13,184,439 has been allocated to the assets acquired and liabilities
assumed by Rosetta based on their fair values at the date of acquisition.
F-14
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS ACQUISITION (CONTINUED)
The allocation of the purchase price is summarized as follows:
<TABLE>
<S> <C>
Book value of net assets acquired at cost................... $ 153,145
Fair value adjustments
Fair value of purchased technology........................ 9,443,000
Fair value of licensing agreements........................ 500,000
Fair value of assembled workforce......................... 1,298,571
-----------
Fair value of net assets acquired........................... 11,394,716
-----------
Purchase price
Fair value of shares, warrants and options issued......... 12,121,063
Acquisition costs......................................... 1,063,376
-----------
13,184,439
-----------
Excess of purchase price over net assets acquired, allocated
to goodwill............................................... $ 1,789,723
===========
</TABLE>
The purchased technology, goodwill and licensing agreements are being
amortized over their estimated useful lives of five years and the assembled
workforce is being amortized over its estimated useful life of one to three
years.
The following unaudited pro forma information shows the results of Rosetta
for the years ended December 31, 1998 and 1999, as if the acquisition of Acacia
had occurred on January 1, 1998. The pro forma information includes adjustments
relating to the effect of amortizing goodwill and other intangible assets
acquired, and assumes that Rosetta preferred and common shares issued in
conjunction with the acquisition were outstanding as of January 1, 1998. The pro
forma results of operations are unaudited, have been prepared for comparative
purposes only, and do not purport to indicate the results of operations which
would actually have occurred had the acquisition been in effect on the date
indicated, or which may occur in the future:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue.......................................... $ 1,258,158 $ 1,233,447
Net loss......................................... $(14,318,883) $(20,360,770)
Basic and diluted net loss per share............. $ (3.93) $ (4.67)
</TABLE>
4. SHORT-TERM INVESTMENTS
The following is a summary of short-term investments at December 31:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Available-for-sale securities
Corporate notes................................... $1,980,632 $ 7,451,496
Market auction preferreds......................... 3,000,000 3,500,000
---------- -----------
$4,980,632 $10,951,496
========== ===========
</TABLE>
F-15
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SHORT-TERM INVESTMENTS (CONTINUED)
The amortized cost of available-for-sale securities approximated their fair
values at both December 31, 1998 and 1999. For the years ended 1997, 1998 and
1999 there were no realized gains or losses on sales of securities.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Computer equipment................................... $ 953,093 $1,877,724
Lab equipment........................................ 838,870 1,833,498
Technology development equipment..................... 513,017 592,594
Manufacturing equipment.............................. 39,770
Office equipment..................................... 56,848 81,313
Office furniture and fixtures........................ 110,847 212,482
Leasehold improvements............................... 254,025 833,266
---------- ----------
2,726,700 5,470,647
Less: Accumulated depreciation and amortization...... (563,203) (1,361,488)
---------- ----------
$2,163,497 $4,109,159
========== ==========
</TABLE>
Property and equipment at December 31, 1999 includes assets acquired from
Acacia under a capital lease in the net amount of $364,729. Accumulated
amortization related to these leased assets was $112,567 at December 31, 1999.
6. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1999 (there
were no intangible assets at December 31, 1998):
<TABLE>
<S> <C>
Purchased technology........................................ $ 9,443,000
Goodwill.................................................... 1,789,723
Licensing agreements........................................ 500,000
Assembled workforce......................................... 1,298,571
Trademarks and trade names.................................. 40,000
-----------
13,071,294
Less: Accumulated amortization.............................. (2,754,377)
-----------
$10,316,917
===========
</TABLE>
7. NOTES PAYABLE
In 1997 and as amended in 1998 and 1999, Rosetta entered into an equipment
financing arrangement with a finance company to provide equipment financing up
to an aggregate amount of $3,300,000. Each separate financing agreement under
this arrangement has a term of forty-eight months with interest rates ranging
from 12.2% to 12.8%, and is collateralized by the related equipment. The
F-16
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NOTES PAYABLE (CONTINUED)
financing arrangement includes a provision that in the event that the
unrestricted cash balance of Rosetta falls below certain levels (as defined in
the arrangement), Rosetta may be required to set aside restricted cash as
additional collateral. No cash was restricted under this provision as of
December 31, 1998 or 1999.
At December 31, 1998 and 1999, $1,867,674 and $2,017,102, respectively, was
payable under these equipment financing agreements, and $194,794 was unused and
available for additional financing at December 31, 1999. In connection with the
equipment financing agreements, Rosetta issued two six year warrants to purchase
9,375 and 8,333 shares of Series A Preferred Stock at exercise prices of $4.00
and $4.50 per share in 1997 and 1998, respectively.
At December 31, 1999, Rosetta has a $750,000 line of credit with a bank
which bears interest at prime plus 2% (10.5% at December 31, 1999) and will
expire in June 2000. The amount available under the line of credit is reduced by
any outstanding letters of credit. As of December 31, 1999, Rosetta had one
outstanding letter of credit in the amount of $375,000 related to its office
facility lease. At December 31, 1998 and 1999, $102,528 and $13,212,
respectively, was payable under the line of credit agreement with the bank.
The aggregate amount of required principal payments under the equipment
financing arrangement and the line of credit as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
2000........................................................ $ 787,388
2001........................................................ 754,571
2002........................................................ 366,998
2003........................................................ 121,357
----------
2,030,314
Less: Current portion....................................... (787,388)
----------
$1,242,926
==========
</TABLE>
8. CAPITAL LEASE
In connection with the acquisition of Acacia in February 1999, Rosetta
assumed a capital lease obligation of Acacia. The remainder of the capital lease
obligation is to be repaid over 26 months through April 2001 and is
collateralized by the related equipment. Upon completing the lease term, the
Company has the option to purchase the equipment for 12% of the original
purchase price or extend the lease term for 12 months, after which the Company
will have title to the equipment.
F-17
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL LEASE (CONTINUED)
The following is a schedule of future minimum lease payments under the
capital lease obligation at December 31, 1999:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
2000........................................................ $239,856
2001........................................................ 150,340
--------
390,196
Less: Amounts representing interest......................... (35,109)
--------
Present value of minimum lease payments..................... 355,087
Less: Current portion....................................... (209,333)
--------
Long-term portion........................................... $145,754
========
</TABLE>
9. INCOME TAXES
At December 31, 1999, Rosetta had net operating loss carryforwards of
approximately $21 million, which begin to expire in 2013. Utilization of net
operating loss carryforwards is subject to the "change of ownership" provisions
under Section 382 of the Internal Revenue Code. During 1997, Rosetta experienced
ownership changes as defined by the Internal Revenue Code. Accordingly,
Rosetta's use of losses incurred through the date of any ownership changes will
be limited during the carryforward period, which may result in the expiration of
a portion of the net operating losses before utilization. In connection with
Rosetta's acquisition of Acacia, Rosetta acquired Acacia's net operating losses
of approximately $7.5 million which begin to expire in 2010. Utilization of the
Acacia net operating losses will be subject to the limitations imposed by
Section 382 of the Internal Revenue Code.
The difference between the income tax benefit per the statements of
operations and the amount calculated based on the statutory federal tax rate of
34% and the state apportioned rate, net of the federal tax benefit, is primarily
due to the increase in the deferred tax valuation allowance.
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. Rosetta has placed a
valuation allowance against its deferred tax assets due to the uncertainty
surrounding the ultimate realization of such assets. Management evaluates, on a
quarterly basis, the recoverability of the deferred tax asset and the amount of
the valuation allowance. At such time as it is determined that it is more likely
than not that the deferred tax assets are realizable, the valuation allowance
will be reduced.
F-18
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities are as follows at December 31:
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards................ $ 2,882,128 $ 9,945,763
Amortization of intangibles..................... 927,758
Other........................................... 30,155 30,630
----------- ------------
2,912,283 10,904,151
----------- ------------
Deferred tax liabilities
Depreciation.................................... (77,204) (240,497)
Stock-based compensation........................ (146,080)
----------- ------------
(77,204) (386,577)
----------- ------------
2,835,079 10,517,574
Less: Valuation allowance......................... (2,835,079) (10,517,574)
----------- ------------
Net deferred tax asset............................ $ -- $ --
=========== ============
</TABLE>
10. 401(K) PLAN
Rosetta maintains a 401(k) plan ("the Plan") that covers all employees who
satisfy certain eligibility requirements relating to minimum age, length of
service and hours worked. Under the Plan, eligible employees may make pretax
elective contributions of up to 25% of their compensation, subject to maximum
limits on contributions prescribed by law. Under the profit-sharing portion of
the Plan, Rosetta may make an annual contribution for the benefit of eligible
employees in an amount determined by the Board of Directors. Rosetta has not
made any such contribution through December 31, 1999.
F-19
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY
The authorized capital stock of Rosetta consists of 36,000,000 shares of
common stock, $0.001 par value per share and 18,000,000 shares of preferred
stock, $0.001 par value per share.
COMMON STOCK
Common stock issued to founders of Rosetta generally vest over four years,
with 12.50% of the shares vesting six months from the date of grant, and on a
monthly, pro rata basis thereafter. From inception through December 31, 1999,
the founders of Rosetta have purchased 2,031,335 shares of common stock, of
which 265,300 shares are unvested and remain subject to repurchase at the
original issuance price ($0.034 per share) in the event of termination of
employment or services to Rosetta. Rosetta has repurchased 147,494 shares in
accordance with these rights. Options for 85,183 shares of common stock have
been exercised as of December 31, 1999 which are subject to repurchase by
Rosetta at the weighted-average exercise price of $0.40 per share. Pursuant to
FAS 123, Rosetta recognizes stock compensation expense for founder shares that
have been issued to nonemployees and that are subject to performance criteria.
For the years ended December 31, 1997, 1998 and 1999 and for the period from
inception (December 19, 1996) to December 31, 1999, Rosetta recognized stock
compensation for restricted founder shares held by nonemployees in the amounts
of $56,255, $394,940, $1,240,910 and $1,692,105, respectively.
In connection with certain license agreements entered into by Rosetta in
1997, Rosetta issued 442,000 and 30,000 shares of common stock in 1997 and 1999,
respectively. In connection with the issuance of Series A convertible preferred
stock (see below) and for consideration of services to be performed by certain
Series A convertible preferred stockholders, Rosetta issued warrants to purchase
250,000 shares of common stock for $0.05 per share, subject to adjustment (as
defined in the warrant agreement). Under the terms of the warrant agreement,
Rosetta has the right to repurchase the warrants based on a five-year vesting
schedule. These warrants shall expire upon the earlier of (i) October 1, 2002,
(ii) the closing of an initial public offering of Rosetta's common stock, or
(iii) ninety days following disengagement. Pursuant to an agreement reached by
Rosetta with certain of its stockholders, when the warrants to purchase the
common stock are exercised, certain of Rosetta's stockholders have agreed to
sell back 200,000 shares of common stock to Rosetta at the original issuance
price.
CONVERTIBLE PREFERRED STOCK
At December 31, 1999, convertible preferred stock consists of the following:
<TABLE>
<CAPTION>
ADDITIONAL COMMON STOCK
SHARES ISSUED AND PAID-IN RESERVED FOR LIQUIDATION
SERIES DESIGNATED OUTSTANDING PAR VALUE CAPITAL (NET) CONVERSION PREFERENCE
- ------ ---------- ----------- --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
A 6,225,000 4,462,500 $ 4,463 $16,997,028 4,462,500 $17,850,000
B 1,600,000 1,387,298 1,387 5,547,805 1,387,298 5,549,192
C 2,750,000 2,019,452 2,019 8,888,619 2,019,452 9,087,534
D 2,285,714 2,285,714 2,286 11,960,957 2,285,714 11,999,999
---------- ---------- ------- ----------- ---------- -----------
12,860,714 10,154,964 $10,155 $43,394,409 10,154,964 $44,486,725
========== ========== ======= =========== ========== ===========
</TABLE>
Subject to the rights of future series of preferred stock, holders of
Series A, B, C and D convertible preferred stock, in preference to the holders
of any other stock of Rosetta, shall be entitled
F-20
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
to receive dividends at a rate of $0.32, $0.32, $0.36, and $0.42, respectively,
per share per annum, when and as declared by Rosetta's Board of Directors, but
only out of funds that are legally available therefor. Such dividends shall not
be cumulative and no right shall accrue to holders of such shares of preferred
stock by reason of the fact that dividends on such shares are not declared in
any prior year, nor shall any undeclared or unpaid dividend bear or accrue
interest.
All holders of Series A, B, C and D convertible preferred stock are entitled
to voting rights equal to the number of shares of common stock into which each
share of preferred stock could be converted, and have voting rights and powers
equal to the voting rights and powers of the shares of common stock. In
addition, the holders of Series A, B, C and D preferred stock have certain
registration rights.
In the event of any liquidation, dissolution, or winding up of Rosetta,
either voluntary or involuntary, including a merger, acquisition or sale of
assets where the beneficial owners of Rosetta's common and preferred stock own
less than 50% of the resulting voting power of the surviving entity, the holders
of Series A, B, C, and D convertible preferred stock are entitled to receive,
prior to and in preference to any distribution of any of the assets of Rosetta
to the holders of common stock by reason of their ownership, an amount equal to
the sum of $4.00, $4.00, $4.50, and $5.25, respectively, for each outstanding
share of Series A, B, C, and D preferred stock (as adjusted for any stock
dividends, combinations, or splits), plus any declared, but unpaid dividends, if
any, on such shares (collectively, the "Series A, B, C, and D Liquidation
Preference"). After payment in full of the Series A, B, C, and D Liquidation
Preference and any other distribution that may be required with respect to any
future Series of preferred stock, if assets remain in Rosetta, the holders of
the common stock shall receive all of the remaining assets of Rosetta.
The Series A, B, C and D convertible preferred stock are convertible at the
option of the holder or automatically upon sale of common stock in a qualified
public offering as defined in the Articles of Incorporation. In addition, each
share of Series A, B, C and D preferred stock shall be automatically converted
in the event the majority of the Series A, B, C, and D preferred stock so elect.
Each share of Series A, B, C and D preferred stock is convertible into that
number of shares as is determined by dividing the original per share purchase
price by a conversion price. The initial conversion price for the Series A, B,
C, and D preferred stock is $4.00, $4.00, $4.50, and $5.25 per share,
respectively. The conversion price is subject to adjustment upon the occurrence
of certain events, including a stock split, stock dividend, subdivision, or
similar distribution with respect to the common stock.
WARRANTS
In connection with the 1997 Series A preferred stock financing, Rosetta
issued warrants to purchase 228,751 shares of Series A convertible preferred
stock for $4.00 per share. Of these warrants, 17,813 expire on December 16, 2007
and 210,938 expire on October 30, 2007.
In connection with the 1999 Series C preferred stock financing, Rosetta
issued warrants to purchase 54,949 shares of Series C convertible preferred
stock for $4.50 per share. These warrants expire on April 1, 2009. Also in
connection with the Series C financing, Rosetta issued warrants to purchase
608,297 shares of common stock for $0.45 per share. These common stock warrants
expire upon the earliest of (i) March 31, 2004 or (ii) the closing of an initial
public offering.
F-21
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE
----------------------------------------- PRICE EXPIRATION
COMMON SERIES A SERIES B SERIES C PER SHARE DATE
-------- -------- -------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Series A preferred stock financing
warrants................................ 250,000 $0.05 10/01/02
Series A preferred stock financing
warrants................................ 210,938 $4.00 10/30/07
Series A preferred stock financing
warrants................................ 17,813 $4.00 12/16/07
Line of credit warrants................... 8,364 $4.00 10/01/01
Equipment financing warrants.............. 9,375 $4.00 09/01/03
Equipment financing warrants.............. 8,333 $4.50 07/01/04
Warrants issued to former Acacia
shareholders............................ 33,339 $3.92-$4.56 01/31/01
Warrants issued to former Acacia
shareholders............................ 127,513 $6.21 01/06/02
Warrants issued to former Acacia
shareholders............................ 7,083 $5.93 08/28/03
Series C preferred stock financing
warrants................................ 608,297 $0.45 03/31/04
Series C preferred stock financing
warrants................................ 54,949 $4.50 04/01/09
------- ------- ------- ------
891,636 254,823 134,596 54,949
======= ======= ======= ======
</TABLE>
12. STOCK OPTIONS
In 1997, Rosetta approved the 1997 Stock Plan (the "Plan") for employees,
directors, consultants and independent contractors under which 3,107,825 shares
of common stock were reserved. In November 1999, the number of shares reserved
under the plan was increased to 5,286,913. Pursuant to the Plan, the Board of
Directors has the ability to grant nonqualified and incentive stock options and
to establish the vesting period, exercise price and expiration period of all
options. Options generally vest over a four-year period and expire ten years
from the date of grant. Certain options have been granted that are immediately
exercisable, subject to Rosetta's right of repurchase, which expires over a four
year vesting period.
F-22
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS (CONTINUED)
Option activity for the period from inception (December 19, 1996) to
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
WEIGHTED-
AVERAGE
SHARES EXERCISE
AVAILABLE SHARES PRICE
---------- --------- ---------
<S> <C> <C> <C>
Shares reserved.............................. 3,107,825 --
Options granted in 1997...................... (868,000) 868,000 $0.40
---------- ---------
Balances, December 31, 1997.................. 2,239,825 868,000 $0.40
Options granted.............................. (449,500) 449,500 $0.40
Options exercised............................ (179,713) $0.40
Options cancelled............................ 45,287 (45,287) $0.40
---------- ---------
Balances, December 31, 1998.................. 1,835,612 1,092,500 $0.40
Additional shares reserved................... 2,179,088
Options granted.............................. (1,499,098) 1,499,098 $0.42
Options exercised............................ (221,756) $0.40
Options cancelled............................ 280,658 (280,658) $0.40
---------- ---------
Balances, December 31, 1999.................. 2,796,260 2,089,184 $0.41
========== =========
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1999 as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ---------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICE OF SHARES PRICE
- --------------------- ----------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$0.40 - $0.53 2,089,184 8.28 $0.41 1,792,334 $0.40
</TABLE>
At December 31, 1997 no shares were exercisable and at December 31, 1998,
options for 847,000 shares were exercisable with a weighted-average exercise
price of $0.40 per share.
Had compensation expense for employee-related options been determined at the
date of grant consistent with the fair value method prescribed in SFAS 123,
Rosetta's net loss and net loss per share would have changed to the following
pro forma amounts:
<TABLE>
<CAPTION>
INCEPTION
YEARS ENDED DECEMBER 31, (DECEMBER 19, 1996)
---------------------------------------- TO DECEMBER 31,
1997 1998 1999 1999
----------- ----------- ------------ -------------------
<S> <C> <C> <C> <C>
As reported
Net loss........................... $(1,884,813) $(7,112,218) $(19,819,514) $(28,816,545)
Net loss per share, basic and
diluted.......................... $ (5.29) $ (5.29) $ (4.92) $ (15.09)
Pro forma
Net loss........................... $(1,909,015) $(7,153,231) $(19,883,125) $(28,945,371)
Net loss per share, basic and
diluted.......................... $ (5.36) $ (5.32) $ (4.93) $ (15.15)
</TABLE>
F-23
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTIONS (CONTINUED)
For the SFAS No. 123 pro forma disclosure, the fair value of each option
grant is estimated on the date of grant using the minimum value method allowable
for nonpublic companies with the following weighted-average assumptions:
<TABLE>
<CAPTION>
INCEPTION
YEARS ENDED DECEMBER 31, (DECEMBER 16, 1996)
------------------------------ TO DECEMBER 31,
1997 1998 1999 1999
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Risk free interest rates......... 6.1% 5.0% 5.2% 5.4%
Expected lives................... 5 years 5 years 5 years 5 years
Expected dividends............... None None None None
Volatility....................... 0% 0% 0% 0%
</TABLE>
For the year ended December 31, 1997, all options granted had exercise
prices that equaled the estimated market value of Rosetta's common stock at the
date of grant, and had a weighted-average fair value of $0.12 per share. For the
years ended December 31, 1998 and 1999, all options granted had exercise prices
below the estimated market value of Rosetta's common stock at the date of grant,
and had weighted-average fair values of $1.20 and $2.74, respectively.
DEFERRED STOCK COMPENSATION
During 1998 and 1999, Rosetta granted stock options to certain employees
under the 1997 Stock Plan with exercise prices below the deemed fair value of
Rosetta's common stock at the date of grant. In accordance with the requirements
of APB 25, Rosetta has recorded deferred stock compensation for the difference
between the exercise price of the stock options and the deemed fair value of
Rosetta's common stock at the date of grant. This deferred stock compensation is
amortized to expense over the period during which the options or common stock
subject to repurchase vest, generally four years, using an accelerated method as
described in Financial Accounting Standards Board Interpretation No. 28. Rosetta
recorded deferred stock compensation related to these options in the amounts of
$365,669 and $2,596,896 for the years ended December 31, 1998 and 1999,
respectively. Amortization of this deferred stock compensation amounted to
$104,955 and $1,321,245 for the years ended December 31, 1998 and 1999,
respectively.
During 1997, 1998 and 1999, Rosetta granted stock options and issued
restricted stock to certain consultants and other third parties. Rosetta has
recorded deferred stock compensation using the fair value method calculated
using the Black-Scholes option pricing model and is amortizing the deferred
stock compensation over the vesting or performance period using the accelerated
method discussed above. Rosetta recorded deferred stock compensation related to
these options and restricted stock in the amounts of $37,394, $185,623 and
$1,108,862 for the years ended December 31, 1997, 1998 and 1999, respectively.
Amortization of this deferred stock compensation amounted to $8,489, $80,669,
$653,256 and $742,414 for the years ended December 31, 1997, 1998 and 1999 and
for the period from inception (December 19, 1996) to December 31, 1999,
respectively.
13. LICENSE AGREEMENTS
In September 1997, Rosetta entered into a license agreement with the
University of Washington. The University of Washington granted Rosetta an
exclusive, worldwide, sublicensable license (subject to the rights of certain
U.S. governmental agencies and a grant-back to the University of Washington for
F-24
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. LICENSE AGREEMENTS (CONTINUED)
non-commercial research purposes) to certain technology pertaining to ink jet
synthesis of oligonucleotides. Rosetta paid an up-front license fee upon
execution of the license agreement that consisted of the issuance of 90,000
shares of common stock to the University of Washington. Rosetta is also
obligated to make future periodic payments on the anniversary date of the
agreement. In addition, Rosetta is obligated to make royalty payments on any
product sales. Rosetta was also obligated to issue 30,000 additional shares of
common stock upon the occurrence of certain events. In 1999, Rosetta issued the
additional 30,000 shares of common stock.
In December 1997, Rosetta entered into a license agreement with the Fred
Hutchinson Cancer Research Center (the "FHCRC"). Under the agreement, the FHCRC
granted Rosetta an exclusive, worldwide, sublicensable license (subject to the
rights of certain U.S. governmental agencies and a grant-back to the FHCRC for
non-commercial research purposes) to certain drug screening technology. Rosetta
paid an up-front license fee upon execution of the license agreement that
consisted of the issuance of 352,000 shares of common stock to the FHCRC. Of
these shares issued, 88,000 shares were subject to repurchase by Rosetta if
certain milestones were not met by December 2002. In May 1999, Rosetta waived
the repurchase option and in conjunction with the waiver, recognized $293,426 of
stock-based compensation expense for the estimated fair market value of the
stock on the date of the waiver. Rosetta is also obligated to pay the FHCRC a
fixed annual payment of $50,000 upon issuance of the first U.S. patent
containing claims covering the licensed technology.
In November 1998, Rosetta entered into a three-year internal-use license
agreement with Affymetrix, Inc. ("Affymetrix"), which is renewable on an annual
basis. Under the license agreement, Affymetrix granted Rosetta a nonexclusive,
nontransferable, nonsublicensable, worldwide license to certain patents related
to the fabrication and use of nucleic acid arrays. Rosetta has entered into
license agreements with two academic institutions which grant Rosetta exclusive
license agreements to certain technologies, patents, and patent applications
that Rosetta believes will be useful in the development of therapeutic products.
Under the exclusive license agreements, Rosetta will be required to make royalty
payments based on net sales, if any, of products or services upon the
commencement of sales and is obligated for all future patent costs on the
agreements.
In October 1999 Rosetta entered into an agreement with Agilent Technologies.
This seven year agreement provides the following:
- Agilent and Rosetta to make and sell products in the gene expansion field.
- Agilent has the exclusive right to market and sell FlexJet DNA microarrays
manufactured using Rosetta's inkjet synthesizer and related design
technology, in exchange for certain royalty payments.
- Agilent purchased 2,285,714 shares of Rosetta's Series D preferred stock.
- Rosetta has the right to sell Agilent an additional $10,000,000 of common
stock at any time prior to or upon closing of Rosetta's initial public
offering.
- Rosetta received payments of $4,468,323 for research and development and
for certain licensing rights
- The agreement expires in 2006.
F-25
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. LICENSE AGREEMENTS (CONTINUED)
Revenues from the research and development and licensing rights payments
have been deferred and are being recognized ratably over the seven year term of
the agreement.
14. RELATED PARTY TRANSACTIONS
In 1997, a stockholder of Rosetta guaranteed the bank line of credit. In
connection with the guarantee, the stockholder received warrants to purchase
8,364 shares of Series A preferred stock for $4.00 per share. In connection with
the renewal of the bank line of credit in 1999, the line of credit is no longer
guaranteed by the stockholder.
In connection with the issuance of Series A preferred stock in 1997 and in
accordance with a commission agreement, Rosetta paid $712,500 and issued
warrants to purchase 228,751 shares of Series A preferred stock at $4.00 per
share, to a member of its Board of Directors for providing sources of equity
financing.
In connection with a collaboration agreement Rosetta entered into with one
of its preferred stock holders in 1999, Rosetta received payments of $4,468,323
for research and development and for certain licensing rights, of which $345,892
was recorded as revenue and $4,122,431 was recorded as deferred revenue at
December 31, 1999. In addition, Rosetta has a receivable in the amount of
$150,000 from this stockholder at December 31, 1999.
In connection with the issuance of Series C preferred stock in April 1999
and in accordance with a commission agreement, Rosetta paid $165,000 and issued
warrants to purchase 54,949 shares of Series C preferred stock at $4.50 per
share to a member of its Board of Directors for providing sources of equity
financing.
15. OPERATING LEASES
Rosetta leases its facilities under noncancelable operating leases expiring
through July 2002. Rosetta pays taxes, insurance, normal maintenance and certain
other operating expenses. As a condition for one of the leases, Rosetta was
required to issue a stand-by letter of credit in the amount of $375,000. To
date, no portion of the letter of credit has been utilized. At December 31,
1999, future rental payments due under the leases for the remainder of the lease
terms are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
2000........................................................ $ 686,543
2001........................................................ 637,916
2002........................................................ 299,074
----------
$1,623,533
==========
</TABLE>
Rent expense incurred under operating leases for the years ended
December 31, 1997, 1998 and 1999 was approximately $189,000, $410,000 and $677,
000, respectively, and for the period from inception (December 19, 1996) to
December 31, 1999 was approximately $1,276,000.
In March 2000, Rosetta entered into an additional three year facility lease,
which will increase the minimum operating lease payments by approximately
$270,000 per year over the term of the lease.
F-26
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (UNAUDITED)
Effective March 16, 2000, Rosetta issued 4,442,378 shares of its Series E
preferred stock at a price of $9.36 for total proceeds to Rosetta of
$41,580,667. Of the shares issued, 1,602,564 shares purchased by one investor
are subject to regulatory approval. If regulatory approval for the issuance of
these shares is not obtained, Rosetta would be required to repay $15,000,000 to
this investor. The rights and preferences of Series E preferred stock are
substantially the same as the rights and preferences of Series A through D
preferred stock. In connection with the issuance of the Series E preferred stock
and in accordance with a commission agreement, Rosetta paid $250,000 and issued
warrants to purchase 26,709 shares of Series E preferred stock at $9.36 per
share to a member of its Board of Directors for providing sources of equity
financing. The Series E preferred stock is convertible into common stock at a
conversion price of $9.36 per share. Rosetta will record the beneficial
conversion feature of these preferred shares which represents the difference
between the conversion price and the estimated fair market value of the common
stock upon issuance. The accretion resulting from this beneficial conversion
feature may have a material effect on net loss applicable to common stockholders
in calendar 2000. The accretion will not affect Rosetta's net loss, financial
position or cash flows.
On March 16, 2000, Rosetta entered into a licensing agreement with Oxford
Gene Technology IP Limited ("OGT"). Under the terms of this agreement OGT
granted Rosetta a non-exclusive, worldwide sub-license to manufacture, have
manufactured and use nucleic acid arrays. Rosetta paid OGT an up-front license
fee upon execution of this license agreement, which consisted of $1,000,000 in
cash and 686,928 shares of common stock. Rosetta recorded a prepaid license fee
based on the cash paid and the estimated fair market value of the common stock
on the date of the agreement, which will be amortized on a straight-line basis
over the term of the agreement. Rosetta agreed during the term of the agreement
to license to OGT all patents or other intellectual property which it owns or
controls related to instrumentation and methods for making nucleic acid arrays.
Rosetta additionally consented to allow Agilent to sublicense certain of
Rosetta's Inkjet patents to OGT. Both Rosetta and OGT are required to pay each
other quarterly royalty payments based upon the supply of royalty bearing
services.
Effective March 13, 2000, Rosetta's Articles of Incorporation were amended
to increase the total number of authorized shares to 40,000,000 shares of common
stock and 18,000,000 shares of preferred stock.
Effective March 15, 2000, Rosetta's Board of directors adopted the 2000
Stock Option Plan. The 2000 Stock Option Plan provides for the grant of
incentive stock options to employees (including officers and employee directors)
and for the grant of nonstatutory stock options to employees, officers,
directors (including nonemployee directors) and consultants. A total of
5,286,913 shares of Rosetta's common stock have been reserved for issuance under
the 2000 Stock Option Plan. Options have a maximum term of 10 years and vest
according to schedules as determined by the Board of Directors. The exercise
price of options issued as incentive stock options must be at least equal to the
fair market value of Rosetta's common stock on the issuance date. The exercise
price of each nonstatutory stock option granted under this plan must equal at
least 85% of the fair market value of Rosetta common stock on the date of grant.
Effective March 15, 2000, Rosetta adopted the 2000 Director's Stock Option
Plan ("Director's Plan"). Under the terms of the Director's Plan, each
nonemployee director who first becomes a nonemployee director after the
effective date of this plan will be entitled to receive an option to purchase
25,000 shares of common stock subject to monthly vesting over 48 months. The
Director's
F-27
<PAGE>
ROSETTA INPHARMATICS, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Plan also provides for annual grants of options to purchase 5,000 shares of
common stock to each nonemployee director who has served on Rosetta's Board of
Directors for at least six months. These annual grants become exerciseable in
full on the fourth anniversary date of the grant. Options issued under the
Director's Plan will have a maximum term of 10 years. A total of 600,000 shares
of Rosetta's common stock has been reserved for issuance under the Director's
Plan.
Effective March 15, 2000, Rosetta adopted the 2000 Employee Stock Purchase
Plan ("the Purchase Plan"). The Purchase Plan allows all eligible employees to
participate by purchasing the Company's common stock using a uniform percentage
of compensation at a discount allowed under guidelines issued by the Internal
Revenue Service. The Purchase Plan is intended to qualify under Section 423 of
the Internal Revenue Code. A total of 350,000 shares of Rosetta's common stock
has been reserved for issuance under the Purchase Plan. Each year, the number of
shares reserved under the Purchase Plan will be increased by the lesser of
(1) 350,000 shares; (2) 14% of the Company's outstanding common stock on the
last day of the immediately preceding fiscal year; (3) or an amount as
determined by the Board of Directors.
Subsequent to December 31, 1999, Rosetta granted options to purchase
1,626,190 shares of common stock with a weighted-average exercise price of $3.80
per share and recorded deferred compensation of approximately $17.0 million.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 19, 1999
To the Board of Directors and Stockholders
Acacia Biosciences, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Acacia Biosciences, Inc. (a
development stage company) at December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended and for the period from
inception (February 7, 1995) to December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
F-29
<PAGE>
ACACIA BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 705,524 $ 2,957,122
Accounts receivable....................................... 152,189 134,008
Prepaid expenses and other current assets................. 21,232 5,376
----------- -----------
Total current assets.................................... 878,945 3,096,506
Property and equipment, net................................. 1,123,755 956,219
Deposits and other assets................................... 8,670 8,670
----------- -----------
$ 2,011,370 $ 4,061,395
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 321,211 $ 197,304
Accrued sponsored research................................ 6,000 6,750
Other accrued liabilities................................. 52,954 14,402
Deferred revenue.......................................... 162,500 75,000
Current portion of capital lease obligations.............. 186,348 165,887
Notes payable............................................. 1,500,000 --
----------- -----------
Total current liabilities............................... 2,229,013 459,343
Capital lease obligations, non-current...................... 355,087 541,436
----------- -----------
Total liabilities....................................... 2,584,100 1,000,779
----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; 25,000,000 shares
authorized:
Series A convertible preferred stock; 8,000,000 shares
authorized; 6,423,722 shares issued and
outstanding at December 31, 1998 and 1997
aggregate liquidation preference of $6,423,722
at December 31, 1998 and 1997........................... 6,424 6,424
Common stock, $0.001 par value, 50,000,000 shares
authorized;
12,759,616 and 12,747,276 shares issued and outstanding
at
December 31, 1998 and 1997, respectively................ 12,760 12,747
Additional paid-in capital................................ 7,202,897 7,200,442
Deferred stock compensation............................... (7,533) (24,733)
Deficit accumulated during the development stage.......... (7,787,278) (4,134,264)
----------- -----------
Total stockholders' equity (deficit)........................ (572,730) 3,060,616
----------- -----------
$ 2,011,370 $ 4,061,395
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
ACACIA BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 7,
YEARS ENDED DECEMBER 31, 1995) TO
------------------------- DECEMBER 31,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Contract revenues.................................... $662,500 $50,000 $712,500
Grant revenues....................................... 595,658 15,000 610,658
----------- ----------- -----------
Total revenues..................................... 1,258,158 65,000 1,323,158
----------- ----------- -----------
Operating expenses:
Research and development............................. 4,018,214 2,457,779 7,097,181
General and administrative........................... 1,132,639 871,903 2,521,217
----------- ----------- -----------
Total operating expenses........................... 5,150,853 3,329,682 9,618,398
----------- ----------- -----------
Loss from operations................................... (3,892,695) (3,264,682) (8,295,240)
Interest income........................................ 72,142 226,640 354,579
Interest expense....................................... (82,461) (14,156) (96,617)
Other income........................................... 250,000 -- 250,000
----------- ----------- -----------
Net loss........................................... $(3,653,014) $(3,052,198) $(7,787,278)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
ACACIA BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (FEBRUARY 7, 1995) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE DEFICIT
PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DEFERRED DURING THE
-------------------- --------------------- PAID-IN STOCK DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STAGE
--------- -------- ---------- -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
$0.00025 per share for cash in
March 1995..................... -- $ -- 4,000,000 $ 4,000 $ (3,000) $ -- $ --
Issuance of common stock at
$0.00025 per share for license
agreement in September 1995.... -- -- 100,000 100 (75) -- --
Issuance of common stock at
$0.00025 for cash in October
and November 1995.............. -- -- 5,000,000 5,000 (3,750) -- --
Issuance of common stock at
$0.0070 per share for cash in
December 1995.................. -- -- 1,426,400 1,426 8,574 -- --
Issuance of common stock at
$0.625 per share in December
1995, net of expenses of
$50,000........................ -- -- 800,000 800 449,200 -- --
Net loss......................... -- -- -- -- -- -- (55,253)
--------- ------ ---------- ------- ---------- -------- -----------
Balances at December 31, 1995.... -- -- 11,326,400 11,326 450,949 -- (55,253)
Issuance of common stock at
$0.725 per share for cash in
February 1996, net of expenses
of $83,070..................... -- -- 1,145,792 1,146 746,483 -- --
Issuance of common stock at
$0.725 per share for consulting
services in May 1996........... -- -- 19,600 20 14,190 -- --
Issuance of common stock at
$0.725 per share for cash in
May 1996, net of expenses of
$8,701......................... -- -- 154,484 154 103,146 -- --
Issuance of common stock at
$0.725 per share for license
agreeent in June 1996.......... -- -- 100,000 100 72,400 -- --
Issuance of Series A convertible
preferred stock at $1.00 per
share for cash in October
through December 1996, net of
expenses of $646,164........... 5,401,500 5,402 -- -- 4,749,934 -- --
Issuance of Series A convertible
preferred stock at $1.00 per
share for consulting services
in November 1996............... 22,222 22 -- -- 22,200 -- --
Deferred compensation related to
the grant of stock options to
non-employees.................. -- -- -- -- 51,600 (51,600) --
Amortization of deferred stock
compensation................... -- -- -- -- -- 9,667 --
Net loss......................... -- -- -- -- -- -- (1,026,813)
--------- ------ ---------- ------- ---------- -------- -----------
Balances at December 31, 1996
(carried forward).............. 5,423,722 5,424 12,746,276 12,746 6,210,902 (41,933) (1,082,066)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Issuance of common stock at
$0.00025 per share for cash in
March 1995..................... $ 1,000
Issuance of common stock at
$0.00025 per share for license
agreement in September 1995.... 25
Issuance of common stock at
$0.00025 for cash in October
and November 1995.............. 1,250
Issuance of common stock at
$0.0070 per share for cash in
December 1995.................. 10,000
Issuance of common stock at
$0.625 per share in December
1995, net of expenses of
$50,000........................ 450,000
Net loss......................... (55,253)
-----------
Balances at December 31, 1995.... 407,022
Issuance of common stock at
$0.725 per share for cash in
February 1996, net of expenses
of $83,070..................... 747,629
Issuance of common stock at
$0.725 per share for consulting
services in May 1996........... 14,210
Issuance of common stock at
$0.725 per share for cash in
May 1996, net of expenses of
$8,701......................... 103,300
Issuance of common stock at
$0.725 per share for license
agreeent in June 1996.......... 72,500
Issuance of Series A convertible
preferred stock at $1.00 per
share for cash in October
through December 1996, net of
expenses of $646,164........... 4,755,336
Issuance of Series A convertible
preferred stock at $1.00 per
share for consulting services
in November 1996............... 22,222
Deferred compensation related to
the grant of stock options to
non-employees.................. --
Amortization of deferred stock
compensation................... 9,667
Net loss......................... (1,026,813)
-----------
Balances at December 31, 1996
(carried forward).............. 5,105,073
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
F-32
<PAGE>
ACACIA BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (FEBRUARY 7, 1995) TO DECEMBER 31 ,1998
<TABLE>
<CAPTION>
SERIES A DEFICIT
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED DURING THE TOTAL
-------------------- --------------------- PAID-IN STOCK DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STAGE EQUITY
--------- -------- ---------- -------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1996.. 5,423,722 $5,424 12,746,276 $12,746 $6,210,902 $(41,933) $(1,082,066) $ 5,105,073
(brought forward)
Issuance of Series
A convertible
preferred stock
at $1.00 per
share for cash in
February 1997,
net of expenses
of $9,659........ 1,000,000 1,000 -- -- 989,341 -- -- 990,341
Exercise of stock
options.......... -- -- 1,000 1 199 -- -- 200
Amortization of
deferred stock
compensation..... -- -- -- -- -- 17,200 -- 17,200
Net loss........... -- -- -- -- -- -- (3,052,198) (3,052,198)
--------- ------ ---------- ------- ---------- -------- ----------- -----------
Balances at
December 31, 1997.. 6,423,722 6,424 12,747,276 12,747 7,200,442 (24,733) (4,134,264) 3,060,616
Exercise of stock
options.......... -- -- 12,340 13 2,455 -- -- 2,468
Amortization of
deferred stock
compensation..... -- -- -- -- -- 17,200 -- 17,200
Net loss........... -- -- -- -- -- -- (3,653,014) (3,653,014)
--------- ------ ---------- ------- ---------- -------- ----------- -----------
Balances at
December 31, 1998.. 6,423,722 $6,424 12,759,616 $12,760 $7,202,897 $ (7,533) $(7,787,278) $ (572,730)
========= ====== ========== ======= ========== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
ACACIA BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
INCEPTION
(FEBRUARY 7,
YEARS ENDED DECEMBER 31, 1995) TO
------------------------- DECEMBER 31,
1998 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATION ACTIVITIES
Net loss.................................................. $(3,653,014) $(3,052,198) $(7,787,278)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 378,249 199,160 603,311
Issuance of common stock for license agreements......... -- -- 72,525
Issuance of common stock for consulting services........ -- -- 14,210
Issuance of convertible preferred stock for consulting
services.............................................. -- -- 22,222
Changes in operating assets and liabilities:
Receivables........................................... (18,181) 38,516 (152,189)
Prepaid expenses and other current assets............. (15,856) 66,813 (21,232)
Accounts payable...................................... 123,907 164,890 321,211
Accrued sponsored research............................ (750) 6,750 6,000
Other accrued liabilities............................. 38,552 (69,416) 52,954
Deferred revenue...................................... 87,500 75,000 162,500
----------- ----------- -----------
Net cash used in operating activities............... (3,059,593) (2,570,485) (6,705,766)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........................ (528,585) (290,164) (941,470)
Proceeds from sale of equipment........................... -- -- 11,602
Deposits and other assets................................. -- (8,670) (8,670)
----------- ----------- -----------
Net cash used in investing activities............... (528,585) (298,834) (938,538)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable................................. 1,500,000 -- 1,500,000
Principal payments on capital lease obligations............. (165,888) (45,808) (211,696)
Proceeds from issuance of common stock...................... 2,468 200 1,315,847
Proceeds from issuance of convertible preferred stock....... -- 990,341 5,745,677
----------- ----------- -----------
Net cash provided by financing activities........... 1,336,580 944,733 8,349,828
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents........ (2,251,598) (1,924,586) 705,524
Cash and cash equivalents at beginning of period............ 2,957,122 4,881,708 --
----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 705,524 $ 2,957,122 $ 705,524
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid............................................. $ 73,968 $ 14,156 $ 88,124
=========== =========== ===========
NON-CASH INVESTING ACTIVITIES:
Capital lease obligation from purchase of furniture and
equipment............................................... $ -- $ 753,131 $ 753,131
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
Acacia Biosciences, Inc. ("the Company") is a development stage enterprise.
The Company was originally incorporated on February 7, 1995 as Aurora
Biosciences, Inc. under the laws of the State of Utah, and was reincorporated
under the laws of the State of Delaware on July 16, 1996. The Company is a drug
discovery company utilizing recent advances in genome science and combinatorial
chemistry to develop a genetic assay for screening molecules against entire
disease pathways, at the same time providing an early indication of toxicity and
side effects. The Company's near-term strategy is to use its technology to
discover and develop therapeutic compounds through strategic alliances with
major pharmaceutical companies. The Company's longer range objective is to
develop therapeutic compounds that are highly selective for the treatment of
common forms of cancer and heart disease, or that have potential anti-fungal
therapeutic value.
The Company's activities since inception have principally consisted of
obtaining financing, recruiting personnel and conducting research and
development. The Company is working on several long-term development projects
that involve experimental technology and may require several years and
substantial expenditures to complete. The Company's ability to meet its business
plan objectives is dependent upon its ability to raise additional financing,
substantiate its technology and, ultimately, to fund its operations from
revenues.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents generally consist of highly liquid investments with
original or remaining maturities of 90 days or less at the date of purchase.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, which range from three to five years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets. Capital lease equipment is depreciated
over the life of the equipment as the ownership of the equipment transfers to
the Company at the end of the lease.
REVENUE RECOGNITION
Contract revenues related to collaborative research and development
agreements and government grants are recognized based on the performance of
services. Deferred revenue is recognized when funds are received in advance of
services to be performed.
F-35
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to operations as incurred and
consist of costs for Company-sponsored and collaborative research and
development activities. These costs include direct and research-related overhead
expenses. Research and development expenses under the government grants
approximate the revenue recognized under such agreements.
STOCK-BASED COMPENSATION
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, ("SFAS 123"), the
Company has elected to continue to apply Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 23"), and related
interpretations and to adopt the pro forma disclosure alternative as described
in SFAS 123 in accounting for its employee stock option plan. Option grants to
all others are accounted for using the fair value method prescribed by
SFAS 123.
2. COLLABORATIVE AGREEMENTS:
The Company has entered into several collaborative agreements to provide the
use of the Company's Genome Reporter Matrix-TM- to assess a limited number of
developmental compounds, and limited rights to the Company's databases. For the
years ended December 31, 1998 and 1997, and for the period from inception
(February 7, 1995) to December 31, 1998, revenues of $662,500, $50,000 and
$712,500 had been recognized under these agreements, respectively. A $75,000
receivable from a partner was recorded as deferred revenue at December 31, 1997.
3. LICENSE AND RESEARCH AGREEMENTS:
The Company has entered into several license agreements. Two of these
agreements, with academic institutions, grant the Company exclusive licenses to
certain technologies, patents and patent applications that the Company believes
will be useful in the development of therapeutic products. Under the exclusive
licenses, the Company will be required to make royalty payments based on net
sales, if any, of products or services upon commencement of sales and is
obligated for all future patent costs on two of the agreements. In consideration
for the exclusive and other licenses, the Company has paid $299,000 and issued
200,000 shares of common stock. In January 1999, the Company made an additional
payment of $20,000 under the above agreements and is required to make future
payments of up to $40,000.
The Company has also entered into three research agreements with academic
institutions. Under the terms of the agreements, the Company has paid
approximately $585,000 and accrued an additional $6,000 for expenses to be
reimbursed to the academic institutions. There are no future payments required
under these agreements.
During 1996, the Company entered into two Option and Bailment agreements
that grant the Company the option to negotiate exclusive licenses with an
academic institution that has patent rights to the technologies under the
agreements. In consideration for the option rights, the Company has paid
$75,000, and has options to renew the agreements. The Company is also obligated
to pay present and future patent costs under the agreements, if renewed.
F-36
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31,
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Laboratory equipment................................. $1,226,933 $ 770,520
Computer equipment................................... 232,747 182,975
Furniture and fixtures............................... 100,187 97,437
Leasehold improvements............................... 120,409 100,757
---------- ----------
1,680,276 1,151,689
Less accumulated depreciation and amortization....... (556,521) (195,470)
---------- ----------
Property and equipment, net.......................... $1,123,755 $ 956,219
========== ==========
</TABLE>
The Company has approximately $753,000 of assets under capital leases that
are included in laboratory equipment. Accumulated amortization for these assets
was approximately $282,000 and $112,000 at December 31, 1998 and 1997,
respectively.
5. NOTES PAYABLE:
At December 31, 1998 the Company had a $1 million note payable to Penny Lane
Advisors, Inc. with interest at 10%. Subsequent to December 31, 1998, the note
was paid in full by the issuance of the Company's Series B Preferred Stock.
In connection with a proposed merger (see Note 11) and pursuant to an
exclusivity agreement executed in November 1998, the Company received $500,000
from Rosetta Inpharmatics, Inc. for which the Company issued a $250,000 note
payable and recorded $250,000 in other income. In December 1998 an additional
$250,000 was received for which the Company issued a note payable. Under the
terms of the exclusivity agreement and related notes, the notes bear interest at
7.5% and become immediately due if the merger is not consummated.
6. CAPITAL LEASE OBLIGATIONS:
In April 1997, the Company entered into a capital lease line agreement for
up to $1,500,000 expiring July 31, 1998. As of December 31, 1998, the Company
had utilized approximately $753,000 for equipment purchases under this
agreement. The capital lease obligation is to be repaid over 42 months at an
interest rate of 6.71% and is collateralized by the related equipment. Upon
completing the lease term, the Company has the option to purchase the equipment
for 12% of the original purchase price or extend the lease term for 12 months,
after which the Company will have title to the equipment. The Company issued the
lessor a warrant to purchase shares of Series A convertible preferred stock. The
warrant shares will be for 4% of the equipment cost at the price of $1.00 per
share. At December 31, 1998 and 1997, 30,000 shares are issuable under the
warrant. The warrant expires April 2003. The assigned value of the warrant was
immaterial for financial statement purposes.
F-37
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL LEASE OBLIGATIONS: (CONTINUED)
Following is a schedule of future minimum lease payments under the capital
lease line agreement at December 31, 1998:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1999........................................................ $ 239,856
2000........................................................ 239,856
2001........................................................ 150,340
---------
630,052
Less amounts representing interest.......................... (88,617)
---------
Present value of net minimum lease payments................. 541,435
Less current portion........................................ (186,348)
---------
Long-term portion........................................... $ 355,087
=========
</TABLE>
7. FACILITY LEASE:
The Company leases its facility under non-cancelable operating leases. These
leases expire in February 2000 and include renewal options at the end of the
leases for three additional one-year terms. Minimum annual rental commitments
under the operating leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1999........................................................ $113,156
2000........................................................ 14,226
--------
$127,382
========
</TABLE>
Rent expense for operating leases was $105,978, $77,368 and $187,670 for the
years ended December 31, 1998 and 1997 and for the period from inception
(February 7, 1995) to December 31, 1998, respectively.
8. RELATED PARTY TRANSACTIONS:
In January 1996, the Company appointed a member of Trautman Kramer & Company
("TKC") to its board of directors. The Company also engaged TKC as investment
consultants. Under the terms of this agreement, the Company is obligated to pay
a monthly fee to TKC of $3,000 after the February 1997 final closing of the
Series A convertible preferred stock over a 24-month period (see Note 9). In
May 1996, certain employees of TKC, including the aforementioned board member
and other related parties, purchased 120,000 shares of common stock at $0.725
per share. For the years ended December 31, 1998 and 1997 and for the period
from inception (February 7, 1995) to December 31, 1998, the Company paid fees
and commissions in connection with equity transactions of approximately $36,000,
$25,000 and $846,000 to TKC, respectively. In conjunction with TKC's efforts in
completing common stock and Series A convertible preferred stock financings
prior to 1998, the Company granted warrants to purchase 720,150 shares of
Series A convertible preferred stock at an exercise price of $1.10 per share,
and warrants to purchase 110,000 and 80,000 shares of common stock at exercise
prices of $0.7975 and $0.6875 per share, respectively. Such warrants expire in
January 2002, January 2001 and December 2000, respectively.
F-38
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK
The Company has authorized 25,000,000 shares of preferred stock of which
8,000,000 shares have been designated as Series A convertible preferred stock.
The Series A stockholders are entitled to vote together with the common
stockholders as a single class on all matters, except as otherwise required by
law. Each Series A preferred stockholder will be entitled to one vote for each
share of common stock into which his Series A preferred stock is convertible.
The Series A preferred stock may be converted into common stock at any time at
the option of the holder, on a one-for-one basis, subject to adjustment for
stock splits, stock dividends and recapitalizations. Additionally, the Series A
preferred stock shall be automatically converted in common stock on a
one-for-one basis upon the closing of an initial public offering. In the event
of any liquidation, dissolution or winding up of the Company, funds available
for distribution to stockholders shall be paid to the holders of Series A
preferred stock in an amount per share equal to $1.00 (subject to adjustment)
plus all declared and unpaid dividends prior to any distribution to holders of
common stock. Non-cumulative annual dividends shall be paid on the Series A
convertible preferred stock when and as declared by the board of directors.
COMMON STOCK REPURCHASE RIGHTS
Pursuant to the agreements with certain stockholders, the Company has the
right to repurchase 71,111 common stock at $0.00025 per share should the
stockholders cease their association with the Company or not perform certain
tasks prior to a specified date. Such repurchase rights lapse monthly over the
respective three-to five-year terms.
STOCK OPTION PLAN
In fiscal years 1995 and 1996, the Company granted 635,000 non-qualified
stock options to directors, employees and other key individuals providing
services to the Company. In June 1996, the board of directors approved an equity
incentive plan (the "1996 Plan"). The 1996 Plan allows the Company to grant
incentive stock options, non-statutory stock options, stock bonuses, rights to
purchase restricted stock and stock appreciation rights to employees,
consultants and affiliates of the Company. The exercise price of all stock
options granted must be at least equal to the estimated fair value of the stock
as determined by the board of directors at the date of grant, with the exception
of non-statutory stock options granted under the 1996 Plan wherein the exercise
price shall not be less than 85% of the fair value of the stock at the date of
grant. Options expire no later than ten years from the date of grant. The number
of shares, terms and exercise period are determined by the board of directors on
an option-by-option basis. Options generally vest 24% one year after the date of
grant and on a pro rata basis over the remaining 38-month vesting period. A
total of 4,400,000 shares of the
F-39
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
Company's authorized but unissued common stock have been reserved for issuance
under the 1996 plan. A summary of the activity of grants follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
--------------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES PRICE PER SHARE EXERCISE PRICE
--------- --------- --------------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................ 3,000,000 635,000 $0.0025-$0.20 $0.1371
Options granted........................... (966,154) 966,154 $0.20 $ 0.20
Options exercised......................... -- (1,000) $0.20 $ 0.20
Options canceled.......................... 15,000 (15,000) $0.20 $ 0.20
--------- ---------
Balance at December 31, 1997................ 2,048,846 1,585,154 $0.0025-$0.20 $0.1748
Additional authorization.................. 1,400,000
Options granted........................... (721,500) 721,500 $0.20 $ 0.20
Options exercised......................... -- (12,340) $0.20 $ 0.20
Options canceled.......................... 124,800 (124,800) $0.20 $ 0.20
--------- ---------
Balance at December 31, 1998................ 2,852,146 2,169,514 $0.0025-$0.20 $0.1816
========= =========
</TABLE>
The weighted average fair value of stock options granted in 1998 and 1997
were $0.05 and $0.06, respectively. Options were exercisable to purchase 816,704
shares (at a weighted-average exercise price of $0.15 per share) and 295,336
shares (at a weighted-average exercise price of $0.11 per share) at
December 31, 1998 and 1997, respectively.
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE --------------------------
NUMBER WEIGHTED- REMAINING NUMBER
OUTSTANDING AT AVERAGE CONTRACTUAL EXERCISABLE AT
DECEMBER 31, EXERCISE LIFE (IN DECEMBER 31, WEIGHTED-
EXERCISE PRICE RANGE 1998 PRICE YEARS) 1998 AVERAGE
- -------------------- -------------- --------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$0.00025 200,000 $ 0.00025 6.7 200,000 $0.00025
$0.20 1,969,514 $ 0.20 8.5 616,704 $ 0.20
--------- -------
$0.00025-$0.20 2,169,514 $ 0.18 8.3 816,704 $ 0.15
========= =======
</TABLE>
During 1996, the Company granted 240,000 options to non-employees. These
options have been recorded as deferred compensation at their estimated fair
value, which was estimated to be $51,600 using the Black-Scholes option
valuation model. Deferred compensation is amortized as general and
administrative expense over a three-year vesting period.
PRO FORMA INFORMATION
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company accounted for its employee stock options under
the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using the minimum value method
F-40
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
allowable for non-public companies with the following assumptions: risk-free
interest rate of between 4.49% and 5.84% for grants in fiscal 1998 and between
5.64% and 6.68% for grants in fiscal 1997; a weighted-average expected life of
the option from grant date of three years; volatility of 0% and a dividend yield
of zero.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For pro forma purposes, the estimated fair value of the Company's
stock-based awards to its employees is amortized over the option's vesting
period. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net loss as reported.............................. $(3,653,014) $(3,052,198)
Pro forma net loss................................ (3,679,260) (3,078,807)
</TABLE>
10. INCOME TAXES
As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $6,700,000. The net operating
loss carryforwards will expire at various dates from 2010 through 2019, if not
utilized.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the "change in ownership" provisions of
Section 382 of the Internal Revenue Code. The annual limitation may result in
the expiration of net operating losses and credits before utilization.
As of December 31, 1998 and 1997, the Company had deferred tax assets of
approximately $3,195,000 and $1,700,000, respectively. Deferred tax assets
relate primarily to net operating loss carryforwards and research and
development costs capitalized for tax purposes. The net deferred tax asset has
been fully offset by a valuation allowance. The net valuation allowance
increased by $1,495,000 during the year ended December 31, 1998.
11. SUBSEQUENT EVENT:
In February 1999, the board of directors of the Company approved an
agreement to combine with Rosetta Inpharmatics, Inc. ("Rosetta"), in a strategic
business combination (the "Merger"). Also in February 1999, the stockholders of
both the Company and Rosetta approved the Merger. The effective date of the
Merger is February 23, 1999. Pursuant to the Merger (and subject to certain
escrow provisions), Rosetta will issue to the Company's stockholders (i) 0.1754
of a share of Rosetta Common Stock for each share of the Company's Common Stock,
(ii) 0.1771 of a share of Rosetta Series B Preferred Stock for each share of the
Company's Series A Preferred Stock and (iii) 0.1771 of a share of Rosetta
Series B Preferred Stock for each share of the Company's Series B Preferred
Stock.
F-41
<PAGE>
ACACIA BIOSCIENCES, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENT: (CONTINUED)
Additionally, Rosetta issued 134,596 warrants for the purchase of Rosetta
Series B Preferred Stock to replace all of the Company's outstanding Series A
and B Preferred Stock warrants, except for 30,000 warrants issued in conjunction
with capital leases which expired upon the Merger and were not exercised.
Further, Rosetta issued 33,339 warrants for the purchase of Rosetta Common Stock
to replace the Company's outstanding common stock warrants.
Also pursuant to the Merger (and subject to certain escrow provisions), the
Company's optionholders will receive (1) fully-vested options to purchase an
aggregate of 383,969 shares of Rosetta Common Stock in exchange for cancellation
of all the vested options to purchase shares of the Company's Common Stock held
by such Company optionholders and (2) options (subject to vesting) to purchase
an aggregate of 553,200 shares of Rosetta Common Stock in exchange for
cancellation of all the unvested options to purchase shares of the Company's
Common Stock held by such Company optionholders.
F-42
<PAGE>
ROSETTA INPHARMATICS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
In February 1999, Rosetta acquired Acacia Biosciences, Inc. (Acacia) in a
transaction accounted for under the purchase method of accounting. Total
consideration for Acacia was $13,184,439, which consisted of the issuance of
1,387,298 shares of Series B preferred stock, warrants to acquire an additional
134,596 shares of Series B preferred stock, 2,300,071 shares of common stock,
warrants to purchase an additional 33,339 shares of common stock and
miscellaneous cash expenses. In addition, all outstanding stock options to
purchase Acacia common stock were replaced with options to purchase 937,169
shares of Rosetta's common stock.
The following unaudited pro forma combined statement of operations for the
year ended December 31, 1999 gives effect to the acquisition as if it had
occurred on January 1, 1999.
The unaudited pro forma combined statement of operations should be read in
conjunction with the historical financial statements and notes thereto of
Rosetta and Acacia, included elsewhere in this prospectus. The unaudited pro
forma combined statement of operations is presented for illustrative purposes
only and is not necessarily indicative of results of operations that would have
actually occurred had the acquisition of Acacia been effected on the date
assumed.
ROSETTA INPHARMATICS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
ROSETTA ACACIA COMBINED ADJUSTMENTS PRO FORMA
------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues................................. $ 535,892 $ 697,555 $ 1,233,447 $ -- $ 1,233,447
------------ ------------ ------------ ------------ ------------
Operating expenses...........................
Research and development................... 8,128,385 3,037,303 11,165,688 11,165,688
General and administrative................. 8,613,759 964,791 9,578,550 550,608 (1) 10,129,158
Stock-based compensation................... 1,973,719 1,973,719 1,973,719
------------ ------------ ------------ ------------ ------------
Total operating expenses................. 18,715,863 4,002,094 22,717,957 550,608 23,268,565
------------ ------------ ------------ ------------ ------------
Loss from operations......................... (18,179,971) (3,304,539) (21,484,510) (550,608) (22,035,118)
Other income (expense)
Interest income............................ 632,156 4,909 637,065 637,065
Interest expense........................... (243,791) (68,302) (312,093) (312,093)
Other, net................................. 19,663 398,034 417,697 (500,000)(2) (82,303)
------------ ------------ ------------ ------------ ------------
Net loss..................................... $(17,771,943) $ (2,969,898) $(20,741,841) $ (1,050,608) $(21,792,449)
============ ============ ============ ============ ============
Basic and diluted net loss per share......... $ (8.61) $ (5.41)
============ ============
Weighted average shares used in computing net
loss per share............................. 2,064,015 4,030,103 (3)
============ ============
</TABLE>
F-43
<PAGE>
ROSETTA INPHARMATICS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(1) Reflects the amortization of trained and assembled workforce, licensing
agreements, patents and goodwill acquired in the business combination, which
is being amortized over 1-3 years for trained and assembled workforce and
5 years for licensing agreements, patents and goodwill.
(2) Reflects the issuance of a note payable from Rosetta to Acacia for $500,000
which Acacia recognized as other revenue at the time Rosetta purchased
Acacia.
(3) Basic and diluted net loss per share is computed using the weighted-average
number of shares of common stock outstanding after the issuance of Rosetta
common stock in connection with the Acacia acquisition.
F-44
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY
SHARES OF ROSETTA INPHARMATICS, INC. COMMON STOCK ONLY IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE ROSETTA INPHARMATICS, INC.
COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Prospectus Summary................... 2
Risk Factors......................... 6
Forward-Looking Statements........... 22
Use of Proceeds...................... 22
Dividend Policy...................... 22
Capitalization....................... 23
Dilution............................. 24
Selected Consolidated Financial
Data............................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 30
Management........................... 43
Certain Transactions................. 55
Principal Stockholders............... 59
Description of Capital Stock......... 61
Shares Eligible for Future Sale...... 65
Underwriting......................... 67
Legal Matters........................ 70
Experts.............................. 70
Where can you find more
Information........................ 70
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
PRELIMINARY PROSPECTUS
Shares
[LOGO]
Common Stock
Warburg Dillon Read LLC
Lehman Brothers
Prudential Vector Healthcare
a unit of Prudential Securities
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... 1,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 250,000
Blue Sky qualification fees and expenses.................... 5,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous fees and expenses............................. 91,640
--------
Total................................................... $850,000
========
</TABLE>
- ------------------------
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Article of our Certificate of Incorporation (Exhibit 3.2 hereto)
and Article of our bylaws (Exhibit 3.3 hereto) provide for indemnification
of our directors, officers, employees and other agents to the maximum extent
permitted by Delaware Law. In addition, Rosetta has entered into Indemnification
Agreements (Exhibit 10.1 hereto) with its officers and directors. The
Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification
among us and the Underwriters with respect to certain matters, including matters
arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since inception in December 1996, Rosetta has issued and sold (without
payment of any selling commission to any person except as indicated below) the
following registered securities:
1. In May and June 1997, Rosetta issued 1,883,842 shares of common
stock to eleven founders;
2. In June, August, September and October 1997, Rosetta sold a total of
4,462,500 shares of Series A preferred stock to a total of 13 investors,
including entities affiliated with two of our directors, for an aggregate
purchase price of $17,850,000. In connection with this financing, we paid an
entity affiliated with one of our directors $712,500 in cash and issued
warrants to purchase a total of 228,751 shares of Series A preferred stock
(included in the warrant total below in (a)(3));
II-1
<PAGE>
3. In June, September, October, and December 1997 and July 1998,
Rosetta issued warrants to purchase a total of 254,823 shares of Series A
preferred stock with a weighted average exercise price of $4.01 per share to
three investors;
4. In June 1997 and September of 1999, Rosetta issued a total of
120,000 shares of common stock to a corporate partner in connection with a
license agreement.
5. In December 1997, Rosetta issued a total of 352,000 shares of common
stock to a strategic partner in connection with a license agreement.
6. In connection with the acquisition of Acacia Biosciences, Inc., in
February 1999 Rosetta issued a total of 1,387,298 shares of Series B
preferred stock, 2,300,071 shares of common stock, warrants to purchase
33,339 shares of common stock with a weighted average exercise price of
$4.28 per share and warrants to purchase 134,595 shares of Series B
preferred stock with a weighted average exercise price of $6.20 per share to
a total of 232 investors;
7. In April 1999, Rosetta sold and issued a total of 2,019,452 shares
of Series C preferred stock to a total of seven investors, including
entities affiliated with two of our directors with an aggregate purchase
price of $9,087,534. In connection with the Series C financing, we paid an
entity affiliated with one of our directors $164,845 in cash and issued a
warrant to purchase a total of 54,949 shares of Series C preferred with an
exercise price of $4.50 per share;
8. In April 1999, Rosetta issued warrants to purchase a total of
608,297 shares of our common stock with an exercise price of $4.50 per share
to seven investors, including entities affiliated with two of our directors;
9. In October 1999, Rosetta sold and issued a total of 2,285,714 shares
of Series D preferred stock for an aggregate purchase price of $11,999,998
to one investor, an entity affiliated with one of our directors;
10. In March 2000, Rosetta sold and issued a total of 4,442,378 shares
of Series E preferred stock for an aggregate purchase price of $41,580,658
to a total of 16 investors, including entities affiliated with three of our
directors. In connection with the Series E financing, we paid an entity
affiliated with one of our directors a commission of $250,000 in cash and
issued warrants to purchase a total of 26,709 shares of Series E preferred;
11. In March 2000, Rosetta issued a total of 686,928 shares of common
stock to a strategic partner in connection with a license agreement; and
12. As of March 16, 1999, 1,469,720 shares of common stock had been
issued to employees, directors and consultants of Rosetta upon exercise of
options and 2,614,157 shares of common stock were issuable upon exercise of
outstanding options under Rosetta's 1997 stock option plan.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(1)-(8) were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
transactions by an issuer not involving any public offering. The issuances
described in Items 15(a)(9) were deemed to be exempt from registration under the
Securities Act in reliance upon Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by
Rule 701. In addition, such issuances were deemed to be exempt from registration
under Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends where affixed to the securities
issued in such
II-2
<PAGE>
transactions. All recipients had adequate access, through their relationships
with us, to information about Rosetta.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.2 Agreement and Plan of Reorganization by and among Registrant
and Acacia Biosciences, Inc. dated January 29, 1999.
3.1 Sixth Amended and Restated Certificate of Incorporation of
Registrant.
3.2** Amended and Restated Certificate of Incorporation of
Registrant (proposed, post-offering).
3.3** Amended and Restated Bylaws of Registrant.
3.4** Amended and Restated Bylaws of Registrant (proposed,
post-offering).
4.1* Specimen Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, dated
March 15, 2000 between Registrant and holders of
Registrant's Series A, Series B, Series C, Series D, and
Series E preferred stock.
5.1* Opinion of Venture Law Group regarding the legality of the
common stock being registered.
5.2* Opinion of Pennie Edmonds regarding intellectual property.
10.1** Form of Indemnification Agreement between Registrant and
each of its Officers and Directors.
10.2 1997 Stock Plan.
10.3 2000 Stock Incentive Plan.
10.4 2000 Employee Stock Purchase Plan.
10.5 2000 Directors' Stock Option Plan.
10.6 Amended and Restated Contribution Agreement dated November
1997 by and among Stephen Friend, Leroy Hood and the Fred
Hutchinson Cancer Research Center and Registrant.
10.7** Series C Preferred Stock Purchase Agreement between
Registrant and certain stockholders, dated April 1, 1999.
10.8** Series D Preferred Stock Purchase Agreement between
Registrant and Hewlett-Packard Company, dated October 1,
1999.
10.9** Series E Preferred Stock Purchase Agreement between
Registrant and certain stockholders, dated March 15, 2000.
10.10** Common Stock Purchase Agreement between Registrant and
Stephen Friend, dated January 31, 1997.
10.11 Common Stock Purchase Agreement between Registrant and
Stephen Friend dated May 15, 1997.
10.12** Common Stock Purchase Agreement between Registrant and John
King, dated May 15, 1997.
10.13+ Amended and Restated Exclusive License by and between
Registrant and The Regents of The University of California
for Gene Reporter Matrix with an original effective date of
September 1, 1995 and amended and restated as of December 1,
1998.
10.14** Lease Agreement dated December 17, 1996, between Registrant
and Rosenberg et al. d/b/a C & R Investments for property
located at 4136 Lakeside Drive, Richmond, CA 94806 and
amendments thereto.
10.15** Lease Agreement dated January 21, 1997 between Registrant
and Overaa Properties for property located at 4138 Lakeside
Drive, Richmond, CA 94806 and all amendments thereto.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.16** Lease Agreement dated February 19, 1997 between Registrant
and Riggs Bank N.A., as trustee for Multi-Employer Property
Trust for space at Building G at Suite 210, 12040 115(th)
Avenue NE, Kirkland, WA 98034, and amendments thereto.
10.17 Amended and Restated Loan Security Agreement dated November
10, 1998 between Registrant and Silicon Valley Bank.
10.18 Promissory Note dated February 13, 1997 by Registrant,
payable to Silicon Valley Bank.
10.19+ Patent License Agreement dated September 1, 1997 between
Registrant and the University of Washington.
10.20 Equipment Financing Agreement dated September 10, 1997,
between Registrant and Lease Management Services, Inc.
10.21* Equipment Financing Agreement dated April 1997 between
Registrant and Lease Management Services.
10.22* Equipment Financing Agreement dated May 1998 between
Registrant and Lease Management Services.
10.23+ License Agreement between Registrant and Fred Hutchinson
Cancer Research Center dated December 23, 1997.
10.24* Sublease Agreement dated August 1998 between Registrant and
Siemens Real Estate, Inc.
10.25+ Internal Use License Agreement between Registrant and
Affymetrix, Inc. dated November 30, 1998.
10.26+ License Agreement between Registrant and Xenometrix, Inc.
dated November 12, 1998.
10.27* Indirect Proprietary Value Added Reseller Agreement between
Registrant and Sun Microsystems dated January 11, 1999.
10.28 Consulting Agreement between Registrant and Dr. Jasper Rine,
Ph.D.
10.29+ Resolver Early Access Program Agreement between Registrant
and Dupont Pharmaceuticals Company dated September 30, 1999.
10.30+ Agilent Agreement Gene Expression Collaboration Agreement
between Registrant and Hewlett-Packard Company dated
October 1, 1999.
10.31+ License Agreement between Registrant and Oxford Gene
Technology IP Limited dated March 16, 2000.
10.32 Common Stock Issuance Agreement between Registrant and
Oxford Gene Technology IP Limited dated March 16, 2000.
10.33+ Collaboration Agreement between Registrant and Corixa
Corporation dated December 20, 1999.
10.34 Offer letter between Registrant and Stephen Friend dated
June 21, 1997.
10.35 Offer letter between Registrant and Roland Stoughton dated
June 6, 1997.
10.36 Offer letter between Registrant and John King dated
April 15, 1997.
10.37* Offer letter between Registrant and Mark Boguski dated
March 13, 1999.
10.38+ Pilot Project Collaboration Agreement between Registrant and
Monsanto Company dated February 3, 2000.
10.39 Promissory Note between Mark Boguski and Registrant dated
March 14, 2000.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2* Consent of Venture Law Group, a Professional Corporation.
(See Exhibit 5.1)
24.1 Power of Attorney. Reference is made to the signature page.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
+ Confidential treatment requested as to certain portions of this Exhibit.
** Previously filed by Registrant.
II-4
<PAGE>
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Kirkland, State of Washington on April 5, 2000.
<TABLE>
<S> <C>
ROSETTA INPHARMATICS, INC.
By: *
--------------------------------------------
Stephen H. Friend, M.D., Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
*
- --------------------------------- President, Chief Executive Officer and April 5, 2000
Stephen H. Friend, M.D., Ph.D. Director
/s/ JOHN J. KING, II
- --------------------------------- Senior Vice President, Chief Operating April 5, 2000
John J. King, II Officer and Director
*
- --------------------------------- Director of Finance April 5, 2000
David Borges
*
- --------------------------------- Director April 5, 2000
Steven Gillis, Ph.D.
*
- --------------------------------- Director April 5, 2000
Bill Buffington
*
- --------------------------------- Director April 5, 2000
Ruth Kunath
*
- --------------------------------- Director April 5, 2000
Peter Svenillson
*
- --------------------------------- Director April 5, 2000
Charles P. Waite
*
- --------------------------------- Director April 5, 2000
Harvey S. Sadow, Ph.D.
*
- --------------------------------- Director April 5, 2000
William W. Ericson
</TABLE>
<TABLE>
<S> <C>
*By: /s/ JOHN J. KING, II
---------------------------
John J. King, II
Attorney-In-Fact
</TABLE>
II-6
<PAGE>
Exhibit 2.2
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "AGREEMENT") is made and
entered into as of January 29, 1999 (the "EFFECTIVE DATE"), by and among Rosetta
Inpharmatics, Inc., a Delaware corporation ("ROSETTA"), Rosetta Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Rosetta
("MERGER SUB"), and Acacia Biosciences, Inc., a Delaware corporation ("ACACIA").
RECITALS
A. The respective boards of directors of Rosetta, Merger Sub and Acacia,
and Rosetta, as sole stockholder of Merger Sub, have approved the merger of
Merger Sub with and into Acacia (the "MERGER"), pursuant to which (1) each
issued and outstanding share of common stock, One-Tenth of One Cent ($0.001) par
value per share, of Acacia (the "ACACIA COMMON STOCK") will be converted into
the right to receive common stock, One-Tenth of One Cent ($0.001) par value per
share, of Rosetta (the "ROSETTA COMMON STOCK"), (2) each issued and outstanding
share of preferred stock, One-Tenth of One Cent ($0.001) par value per share, of
Acacia (the "ACACIA PREFERRED STOCK" and together with Acacia Common Stock, the
"ACACIA CAPITAL STOCK") will be converted into the right to receive Series B
Preferred Stock, One-Tenth of One Cent ($0.001) par value per share, of Rosetta
(the "ROSETTA SERIES B PREFERRED STOCK"), (3) each outstanding option to
purchase shares of Acacia Capital Stock, to the extent vested as of the
Effective Date (the "VESTED ACACIA OPTIONS"), will be canceled and Rosetta will
grant each holder of such Vested Acacia Options options to purchase shares of
Rosetta Common Stock, (4) each outstanding option to purchase shares of Acacia
Capital Stock, to the extent unvested as of the Effective Date (the "UNVESTED
ACACIA OPTIONS," and together with the Vested Acacia Options, the "ACACIA
OPTIONS"), will be canceled and Rosetta will grant each holder of such Unvested
Acacia Options options to purchase shares of Rosetta Common Stock, (5) Rosetta
will assume each outstanding warrant to acquire shares of Acacia Capital Stock
outstanding immediately prior to the Effective Time (as defined in Section 1.2
below) (collectively, the "ACACIA WARRANTS" and together with the Acacia Capital
Stock and the Acacia Options, the "ACACIA SECURITIES") which will thereafter be
deemed to be a warrant to purchase shares of Rosetta Common Stock or Rosetta
Series B Preferred Stock, as applicable (collectively, the "ROSETTA WARRANTS")
and (6) Acacia will survive the Merger and become a wholly-owned subsidiary of
Rosetta, in each case according to the terms and conditions, but subject to the
limitations, set forth in this Agreement.
B. Each of Rosetta and Acacia has agreed, subject to the provisions of
this Agreement, to recommend that its stockholders adopt and approve this
Agreement and approve the Merger.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Rosetta's willingness to enter into this Agreement, certain
affiliates of Acacia have entered into Voting Agreements substantially in the
form attached hereto as EXHIBIT A (the "ACACIA VOTING AGREEMENTS").
<PAGE>
D. The parties to this Agreement intend, by executing this Agreement, to
adopt a plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended, (the "CODE"), and to cause the Merger to
qualify as a reorganization under the provisions of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
E. The parties to this Agreement desire to set forth herein certain
representations, warranties and covenants made by each to the other as an
inducement to the consummation of the Merger.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and covenants set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. THE MERGER.
1.1 THE MERGER. At the Effective Time and upon the terms and
conditions, but subject to the limitations, set forth in this Agreement, the
Certificate of Merger attached hereto as EXHIBIT B (the "CERTIFICATE OF MERGER")
and the applicable provisions of the Delaware General Corporation Law ("DELAWARE
LAW"), Merger Sub shall be merged with and into Acacia, the separate corporate
existence of Merger Sub shall cease and Acacia shall continue as the surviving
corporation of the Merger. Acacia as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated in this Agreement (the "CLOSING") shall take place as soon as
practicable, (and in no event later than five (5) business days after the
satisfaction or waiver of each of the conditions set forth in Section 5 below or
at such other time as the parties agree (the "CLOSING DATE"). In connection with
the Closing, the parties shall cause the Merger to be consummated by filing the
Certificate of Merger, together with the required officers' certificates, with
the Secretary of State of the State of Delaware, in accordance with the relevant
provisions of Delaware Law (the time of such filing being the "EFFECTIVE TIME").
The Closing shall take place at the offices of Venture Law Group, 4750 Carillon
Point, Kirkland, Washington, or at such other location as the parties agree in
writing.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. At the Effective Time, all the property,
rights, privileges, powers and franchises of Acacia and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of Acacia and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
- 2 -
<PAGE>
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the certificate of incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such certificate of incorporation.
(b) At the Effective Time, the bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation until thereafter amended as provided by Delaware Law, the
certificate of incorporation of the Surviving Corporation and such bylaws.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, and the officers of Merger Sub immediately prior to the
Effective Time, shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Merger Sub, Acacia or any of their respective
stockholders, the following shall occur at the Effective Time:
(a) CONVERSION OF ACACIA CAPITAL STOCK; EXCHANGE RATIOS.
Subject to Section 1.7(b) and Section 8.2 hereof, each share of Acacia Common
Stock that is issued and outstanding immediately prior to the Effective Time
will, by virtue of the Merger and as of the Effective Time, automatically and
without further action on the part of any holder thereof, be converted into such
fraction of a fully paid and nonassessable share of Rosetta Common Stock as is
equal to the Common Exchange Ratio (as defined below). Subject to Section 1.7(b)
and 8.2 hereof, each share of Acacia Preferred Stock that is issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and as of the Effective Time, automatically and without further action on
the part of any holder thereof, be converted into such fraction of a fully paid
and nonassessable share of Rosetta Series B Preferred Stock as is equal to the
Preferred Exchange Ratio (as defined below). For purposes of this Agreement, the
"COMMON EXCHANGE RATIO" for the conversion of the Acacia Common Stock to Rosetta
Common Stock will be a fraction, the numerator of which is two million two
hundred ninety-two thousand seven hundred eighty-five (2,292,785) (less any
shares issuable upon exercise of any Acacia Common Stock warrants outstanding as
of the Effective Time) and the denominator of which is thirteen million
sixty-nine thousand six hundred sixteen (13,069,616) (less any shares issuable
upon exercise of any Acacia Common Stock warrants outstanding as of the
Effective Time). For purposes of this Agreement, the "PREFERRED EXCHANGE RATIO"
for the conversion of the Acacia Preferred Stock to Rosetta Series B Preferred
Stock will be a fraction, the numerator of which is one million five hundred
twenty-seven thousand two hundred fifty-three (1,527,253) (less any shares
issuable upon the exercise of any Acacia Preferred Stock warrants outstanding as
of the Effective Time) and the denominator of which is eight million six hundred
twenty-five thousand nine hundred
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two (8,625,902) (less any shares issuable upon exercise of any Acacia Preferred
Stock warrants outstanding as of the Effective Time).
(b) CANCELLATION OF ACACIA CAPITAL STOCK OWNED BY ROSETTA OR
ACACIA. At the Effective Time, all shares of Acacia Capital Stock that are owned
by Acacia as treasury stock, and each share of Acacia Capital Stock owned by
Rosetta or any direct or indirect wholly-owned subsidiary of Rosetta or of
Acacia immediately prior to the Effective Time, shall be canceled and
extinguished without any conversion thereof.
(c) ACACIA STOCK OPTIONS AND WARRANTS.
(i) (A) All exercisable Acacia Options issued and
outstanding under the Acacia 1996 Equity Incentive Plan (the "ACACIA OPTION
PLAN") and options to purchase shares of Acacia Common Stock granted outside of
the Acacia Option Plan (whether or not performance-based) to the extent vested
("VESTED ACACIA OPTIONS") shall be canceled, and in exchange (subject to Section
8.2 hereof) Rosetta will grant to each holder of such Vested Acacia Options that
number of fully vested options under the Rosetta 1997 Stock Plan (the "ROSETTA
STOCK OPTION PLAN") equal to the product of (x) a fraction, the numerator of
which is the aggregate number of Vested Acacia Options held by such holder and
the denominator of which is the aggregate number of Vested Acacia Options held
by all such holders and (y) three hundred eight-three thousand nine hundred
sixty-nine (383,969), in replacement thereof (the "VESTED REPLACEMENT OPTIONS");
PROVIDED, HOWEVER, that the aggregate number of shares of Rosetta Common Stock
issuable upon exercise of such Vested Replacement Options shall not exceed three
hundred eighty-three thousand nine hundred sixty-nine (383,969) (the "VESTED
OPTION LIMIT"), and if such aggregate number is in excess of the Vested Option
Limit, then the number of Vested Replacement Options to be so issued under the
Rosetta Stock Option Plan shall be reduced pro rata (according to the number of
Vested Acacia Options held by such holders) among holders of Vested Acacia
Options. SCHEDULE 1.6(C)(I)(A) attached hereto sets forth a true and complete
list as of the date of this Agreement of all holders of Vested Acacia Options,
including the number of shares of Acacia Common Stock subject to each Vested
Acacia Option, and the number of Vested Replacement Options to be granted by
Rosetta to each such holder in exchange for the cancellation of such Vested
Acacia Options held by such holder pursuant to this Section 1.6(c)(i)(A). All
Vested Replacement Options shall have an exercise price of Forty Cents ($0.40)
per share and shall otherwise be subject to the terms and conditions of the
Rosetta Stock Option Plan and grants thereunder. The parties hereby acknowledge
and agree that for purposes of calculating the extent of vesting of Vested
Acacia Options, any employee of Acacia subject to cliff vesting shall be
credited with vesting on a monthly basis for the period such employee was
actually employed by Acacia.
(B) All Acacia Options issued and
outstanding under the Acacia Option Plan and options to purchase shares of
Acacia Common Stock granted outside of the Acacia Option Plan (whether or not
performance-based) to the extent unvested (the "UNVESTED ACACIA OPTIONS," and
together with the Vested Acacia Options, the "ACACIA OPTIONS") shall be
canceled, and Rosetta will grant certain holders of Unvested Acacia Options that
number of options under the Rosetta Stock Option Plan set forth on Schedule
1.6(c)(i)(B) hereto in
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replacement thereof (the "UNVESTED REPLACEMENT OPTIONS"). SCHEDULE 1.6(C)(I)(B)
hereto sets forth a true and complete list as of the date of this Agreement of
all holders of Unvested Acacia Options, including the number of shares of Acacia
Capital Stock subject to each such Unvested Acacia Option and the number of
Options. Except as otherwise contemplated in this Agreement, all Unvested
Replacement Options shall have an exercise price of Forty Cents ($0.40) per
share, a four (4)year vesting period commencing on the Closing Date and shall
otherwise be subject to the terms and conditions of the Rosetta Stock Option
Plan and grants thereunder. The parties hereby acknowledge and agree that for
purposes of calculating the extent of vesting of Unvested Acacia Options, any
employee of Acacia subject to cliff vesting shall be credited with vesting on a
monthly basis for the period such employee was actually employed by Acacia.
(C) Except as set forth in the Acacia
Schedules (as defined in Section 2 below), Acacia has not taken any action that
would result in the accelerated vesting, exercisability or payment of any Acacia
Options as a consequence of the execution of, or consummation of the
transactions contemplated in, this Agreement. Consistent with the terms of the
Acacia Option Plan and the documents governing the outstanding options under
such Acacia Option Plan, the Merger will not terminate any of the outstanding
Acacia Options or accelerate the vesting, exercisability or payment of such
Acacia Options or the Vested Replacement Options or Unvested Replacement
Options. Rather, all Acacia Options will be canceled immediately prior to the
Effective Time, and Rosetta will grant, as of the Effective Time, to the holders
of such canceled Acacia Options the Vested Replacement Options and Unvested
Replacement Options, as applicable, as set forth above.
(D) It is the intention of the parties that
the Vested Replacement Options and the Unvested Replacement Options granted by
Rosetta immediately following the Effective Time in exchange for the
cancellation of the Vested Acacia Options and Unvested Acacia Options,
respectively, qualify as (i) incentive stock options as defined in Section 422
of the Code to the extent such Vested Acacia Options and Unvested Acacia
Options, as the case may be, qualified as incentive stock options prior to the
Effective Time or (ii) nonstatutory stock options to the extent such Vested
Acacia Options and Unvested Acacia Options, as the case may be, were
nonstatutory stock options prior to the Effective Time. As soon as practicable
after the Effective Time, Rosetta will issue to each person who, immediately
prior to the Effective Time was a holder of an Acacia Option under the Acacia
Option Plan, a written document evidencing the granting by Rosetta of a Vested
Replacement Option or an Unvested Replacement Option, as applicable.
(ii) ACACIA WARRANTS. Each Acacia Warrant that is
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without further action on the part of any holder, be assumed by
Rosetta at the Effective Time and be converted into a Rosetta Warrant. The terms
and conditions of such Rosetta Warrants will remain the same as those set forth
in the respective warrant agreements of the Acacia Warrants, except that: (A)
each such Rosetta Warrant shall be exercisable for the number of shares of
Rosetta Common Stock or Rosetta Series B Preferred Stock, as applicable, subject
to such Acacia Warrant immediately prior to the Effective Time multiplied by the
appropriate Common Exchange Ratio or Preferred Exchange Ratio, as applicable
(with the resulting number of shares
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of Rosetta Common Stock rounded up to the nearest whole number), and (B) the per
share exercise price shall be an amount equal to the per share exercise price of
the Acacia Warrant immediately prior to the Effective Time divided by the Common
Exchange Ratio or Preferred Exchange Ratio, as applicable (with the resulting
amount rounded up to the nearest whole cent). No fractional shares of Rosetta
Common Stock or Rosetta Series B Preferred Stock shall be issued in connection
with the Rosetta Warrants, but in lieu thereof, holders of Rosetta Warrants that
would otherwise be entitled to receive a fraction of a share of Rosetta Common
Stock or Rosetta Series B Preferred Stock, as applicable, will receive from
Rosetta, promptly after the Effective Time, an amount of cash equal to Forty
Cents ($0.40) for Rosetta Common Stock and Four Dollars ($4.00) for Rosetta
Series B Preferred Stock multiplied by the fraction of a share of Rosetta Common
Stock or Rosetta Series B Preferred Stock, as applicable, to which such holder
would otherwise be entitled.
(d) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each
share of Common Stock of Merger Sub ("MERGER SUB COMMON STOCK") issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock of the Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(e) DISSENTERS' RIGHTS. Any Dissenting Shares (as defined
under Delaware Law) shall not be converted into Rosetta Common Stock or Rosetta
Series B Preferred Stock, as applicable, but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law. Acacia agrees that, except
with the prior written consent of Rosetta, or as required under Delaware Law, it
will not voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares who, pursuant
to the provisions of Delaware Law, becomes entitled to payment of the fair value
for shares of Acacia Capital Stock shall receive payment therefor (but only
after such value shall have been agreed upon or finally determined pursuant to
such provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Rosetta shall issue and deliver, upon
surrender by such holder of certificate or certificates representing shares of
Acacia Capital Stock, the number of shares of Rosetta Common Stock or Rosetta
Series B Preferred Stock, as applicable, to which such holder would otherwise be
entitled under this Section 1.6 and the Certificate of Merger less the number of
shares allocable to such holder that have been deposited in the Escrow Fund (as
defined in Section 1.7(b) below) in respect of such shares of Rosetta Common
Stock or Rosetta Series B Preferred Stock, as applicable, pursuant to Section 8
below.
(f) FRACTIONAL SHARES. No fraction of a share of Rosetta
Common Stock or Rosetta Series B Preferred Stock, as applicable, will be issued,
but in lieu thereof each holder of shares of Acacia Capital Stock who would
otherwise be entitled to a fraction of a share of Rosetta Common Stock or
Rosetta Series B Preferred Stock (after aggregating all fractional shares of
Rosetta Common Stock or Rosetta Series B Preferred Stock to be received by such
holder) shall receive from Rosetta an amount of cash (rounded to the nearest
whole cent) equal to
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the product of such fraction and Forty Cents ($0.40) for Rosetta Common Stock
and Four Dollars ($4.00) for Rosetta Series B Preferred Stock.
(g) TRADE ACCOUNTS PAYABLE ADJUSTMENT. Acacia has delivered to
Rosetta a schedule of trade accounts payable as of December 31, 1998, certified
by the President of Acacia to have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied consistently with Acacia's past
practices (the "INITIAL ACCOUNTS PAYABLE SCHEDULE"). On the Closing Date (but
prior to the Effective Time), Acacia will deliver to Rosetta (i) a balance sheet
for Acacia dated as of December 31, 1998 (the "ACACIA BALANCE SHEET") and (ii)
schedule of cash on hand and the trade accounts payable as of the Effective
Time, in each case certified by the President of Acacia to have been prepared in
accordance with GAAP consistently applied with Acacia's past practices including
the preparation of the Initial Accounts Payable Schedule (the "FINAL ACCOUNTS
PAYABLE SCHEDULE"). To the extent, if at all, the aggregate amount of trade
accounts payable, net of cash on hand, set forth on the Final Accounts Payable
Schedule (the "FINAL ACCOUNTS PAYABLE BALANCE") is less than Two Hundred Fifty
Thousand Dollars ($250,000), Rosetta will issue one (1) additional share of
Rosetta Common Stock for each whole increment of Four Dollars ($4.00) that the
Final Accounts Payable Balance is less than Two Hundred Fifty Thousand Dollars
to be distributed pro rata to the holders of Acacia Common Stock and Acacia
Preferred Stock according to the Common Exchange Ratio or the Preferred Exchange
Ratio, as appropriate (the "ACCOUNTS PAYABLE SHARES"). For example, if (i) the
Final Accounts Payable Balance equals One Hundred Fifty Thousand Dollars
($150,000), fifteen thousand and five (15,005) Accounts Payable Shares would be
distributed to holders of Acacia Common Stock and nine thousand nine hundred
ninety-five (9,995) Accounts Payable Shares would be distributed to holders of
Acacia Preferred Stock but if (ii) the final Account Payable Balance is Two
Hundred Fifty Thousand Dollars or more Rosetta will issue no Accounts Payable
Shares. If Rosetta disagrees with the calculation of the Acacia Balance Sheet,
Initial Accounts Payable Schedule, the Final Accounts Payable Balance, the Final
Accounts Payable Schedule or the Initial Accounts Payable Schedule, Rosetta may,
within fifteen (15) days of the delivery of the final Accounts Payable Schedule,
deliver a written notice to Acacia setting forth with reasonable specificity the
nature of its disagreement. If a notice of disagreement shall be delivered by
Rosetta to Acacia, Rosetta and Acacia will, during the fifteen (15) days
following such delivery, use their respective best efforts to reach agreement on
the disputed items or amounts in order to determine, as may be required, the
amount of the Final Accounts Payable Balance. If, during such period, Rosetta
and Acacia are unable to reach such agreement, they shall promptly (and in any
event within ten (10) business days of the expiration of such fifteen (15) day
period) thereafter cause an independent accounting firm of internationally
recognized standing reasonably satisfactory to Rosetta and Acacia (which shall
not have any material relationship with any such entities or any of their
Affiliates (the "ACCOUNTANTS")), to review this Agreement, the Initial Accounts
Payable Schedule and the Final Accounts Payable Schedule and the disputed items
or amounts for the purpose of calculating the Final Accounts Payable Balance.
Acacia shall provide all detailed documentation necessary to support the
computation underlying Acacia's calculation of the Final Accounts Payable
Balance. The Accountants shall deliver to all parties, as promptly as
practicable, a report setting forth such calculation. Such report shall be final
and binding upon all parties. The cost of such review and report shall be borne
(i) by Rosetta, if the difference between the Accountants' calculation of Final
Accounts Payable Balance and Rosetta's calculation of the Final Accounts Payable
Balance delivered to Acacia is greater than the difference between the
Accountants' calculation of Final Accounts Payable
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Balance and Acacia's calculation of the Final Accounts Payable Balance delivered
to Rosetta, (ii) by the former Acacia stockholders (out of the Escrow Fund) if
the first such difference in the immediately preceding clause (i) is less than
the second such difference in the immediately preceding clause (i), and (iii)
otherwise equally by Rosetta, on the one hand and by the former Acacia
stockholders (out of the Escrow Fund), on the other hand. Acacia agrees that it
will, and agree to cause its independent accountants to, cooperate and assist in
the Accountants' review of the Initial Accounts Payable Schedule and the Final
Accounts Payable Schedule, including, without limitation, the making available
to the extent necessary of books, records, work papers and personnel.
(h) ADJUSTMENTS. The Common Exchange Ratio and the Preferred
Exchange Ratio, respectively, shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Rosetta Common Stock or Acacia
Capital Stock), reorganization, recapitalization or other like change with
respect to Rosetta Common Stock or Acacia Capital Stock occurring after the date
of this Agreement and prior to the Effective Time.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Venture Law Group shall act as exchange
agent (the "EXCHANGE AGENT") in the Merger.
(b) ROSETTA TO PROVIDE STOCK AND CASH. Promptly after the
Effective Time, Rosetta shall make available to the Exchange Agent for exchange
in accordance with this Section 1, through such reasonable procedures as Rosetta
may adopt, (i) the shares of Rosetta Common Stock and Rosetta Series B Preferred
Stock issuable pursuant to Section 1.6 less the number of shares of Rosetta
Common Stock and Rosetta Series B Preferred Stock to be deposited into an escrow
fund (the "ESCROW FUND") pursuant to the requirements of Section 8 and (ii) cash
in an amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section 1.6(f).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
the Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding shares of Acacia Capital Stock, whose
shares were converted into the right to receive shares of Rosetta Common Stock
and/or Rosetta Series B Preferred Stock (and cash in lieu of fractional shares)
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon receipt of the Certificates by the Exchange Agent, and shall be
in such form and have such other provisions as Rosetta may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Rosetta Common Stock and/or
Rosetta Series B Preferred Stock (and cash in lieu of fractional shares). Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents
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as may be appointed by Rosetta, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, the
holder of such Certificate shall be entitled to receive in exchange therefor
certificates representing the number of whole shares of Rosetta Common Stock
and/or Rosetta Series B Preferred Stock, less the number of shares of Rosetta
Common Stock and Rosetta Series B Preferred Stock to be deposited in the Escrow
Fund on such holder's behalf pursuant to Section 8 below and payment in lieu of
fractional shares which such holder has the right to receive pursuant to Section
1.6, and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each Certificate will be deemed from and after the Effective Time,
for all corporate purposes, to evidence the ownership of the number of full
shares of Rosetta Common Stock and/or Rosetta Series B Preferred Stock into
which such shares of Acacia Capital Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of Section
8 below, Rosetta shall cause to be distributed to the Escrow Agent (as defined
in Section 8.2 below) (1) a certificate or certificates representing two hundred
twenty-five thousand nine hundred fifteen (225,915) shares of Rosetta Common
Stock, (2) a certificate or certificates representing one hundred thirty-eight
thousand seven hundred thirty-five (138,735) shares of Rosetta Series B
Preferred Stock and (3) thirteen thousand eight hundred seventy-four (13,874)
Vested Replacement Options, which shall be registered in the name of the Escrow
Agent as nominee for the holders of Certificates canceled pursuant to this
Section 1.7. Such shares shall be beneficially owned by such holders to secure
certain of Acacia's obligations and shall be held in escrow as provided in
Section 8 below. To the extent not used for such purposes, such shares shall be
released, all as provided in Section 8 below.
(d) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(e) DISSENTING SHARES. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Rosetta under this Section 1.7 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Rosetta Common Stock
and/or Rosetta Series B Preferred Stock to which such holder is entitled
pursuant to Section 1.6 hereof.
(f) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Rosetta Common Stock or Rosetta
Series B Preferred Stock with a record date after the Effective Time will be
paid to the holder of any unsurrendered Certificate with respect to the shares
of Rosetta Common Stock or Rosetta Series B Preferred Stock represented thereby
until the holder of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Rosetta Common Stock or Rosetta Series B Preferred Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of any
such dividends or other distributions
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with a record date after the Effective Time payable (but for the provisions of
this Section 1.7(f)) with respect to such shares of Rosetta Common Stock or
Rosetta Series B Preferred Stock.
(G) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Rosetta Common Stock or Rosetta Series B Preferred Stock is to be issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it will be a condition of such issuance that the Certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will have paid to Rosetta or any
agent designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Rosetta Common Stock or Rosetta Series B
Preferred Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Rosetta or any
agent designated by it that such tax has been paid or is not payable.
1.8 NO FURTHER OWNERSHIP RIGHTS IN ACACIA CAPITAL STOCK. All shares
of Rosetta Common Stock and Rosetta Series B Preferred Stock issued upon the
surrender for exchange of shares of Acacia Capital Stock in accordance with the
terms hereof (including any cash paid in lieu of fractional shares) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Acacia Capital Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Acacia
Capital Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 1.
1.9 TAX CONSEQUENCES. It is intended by the parties that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
Code.
1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Acacia and Merger Sub, the officers and directors of
Acacia and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
1.11 WITHHOLDING. Each of the Surviving Corporation and Rosetta
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Acacia Capital
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code or any provision of applicable state,
local or foreign tax laws. To the extent that amounts are so withheld by the
Surviving Corporation or Rosetta, as the case may be, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to such
holder in respect of which such deduction and withholding was made by the
Surviving Corporation or Rosetta, as the case may be.
1.12 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such
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lost, stolen or destroyed Certificates, upon the making of an affidavit of that
fact by the holder thereof, such shares of Rosetta Common Stock or Rosetta
Series B Preferred Stock (and cash in lieu of fractional shares) as may be
required pursuant to Section 1.6; PROVIDED, HOWEVER, that Rosetta may, in its
discretion and as a condition precedent to such issuance, require the owner of
such lost, stolen or destroyed Certificates to deliver a bond in such sum as
Rosetta may reasonably direct as indemnity against any claim that may be made
against Rosetta, the Surviving Corporation or the Exchange Agent with respect to
the Certificates alleged to have been lost, stolen or destroyed.
2. REPRESENTATIONS AND WARRANTIES OF ACACIA.
Subject to the limitations set forth in Section 8 in this Agreement,
Acacia hereby represents and warrants to Rosetta and Merger Sub, subject to the
exceptions specifically disclosed in writing and referencing a specific
representation and warranty made by Acacia to Rosetta and Merger Sub pursuant to
this Section 2 in the disclosure letter dated as of the date of this Agreement
and certified on behalf of Acacia by a duly authorized officer of Acacia (the
"ACACIA SCHEDULES"), as follows:
2.1 ORGANIZATION; NO SUBSIDIARIES. Acacia is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Acacia has the requisite corporate power and
authority and all necessary government approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to have such power, authority and governmental approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Acacia.
Acacia is duly qualified or licensed as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its business makes
such qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on Acacia. Acacia has no
subsidiaries and does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business association or entity
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Acacia has delivered to
Rosetta a true and correct copy of the certificate of incorporation and bylaws
or other charter documents, as applicable, of Acacia, each as amended to date.
Acacia is not in violation of any of the provisions of its certificate of
incorporation or bylaws or other charter documents, as applicable.
2.3 CAPITAL STRUCTURE. The authorized capital stock of Acacia
consists of (a) fifty million (50,000,000) shares of Common Stock, of which
there were issued and outstanding as of the close of business on January 29,
1999, twelve million eight hundred seventy-nine thousand six hundred sixteen
(12,879,616) shares of Common Stock, and (b) twenty-five million (25,000,000)
shares of Preferred Stock designated into two series, Series A Preferred Stock
and Series B Preferred Stock, of which there were issued and outstanding as of
January 29, 1999, six
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million four hundred twenty-three thousand seven hundred twenty-two (6,423,722)
shares of Series A Preferred Stock and one million four hundred twelve thousand
and thirty (1,412,030) shares of Series B Preferred Stock. In addition, as of
the close of business on January 29, 1999, there were issued and outstanding
warrants to purchase up to an aggregate of one hundred ninety thousand (190,000)
shares of Acacia Common Stock (the "ACACIA COMMON STOCK WARRANTS"), warrants to
purchase up to an aggregate of seven hundred fifty thousand one hundred fifty
(750,150) shares of Acacia Series A Preferred Stock (the "ACACIA SERIES A
WARRANTS") and forty thousand (40,000) shares of Acacia Series B Preferred Stock
(the "ACACIA SERIES B WARRANTS," and together with the Acacia Common Stock
Warrants and the Acacia Series A Warrants, the "ACACIA WARRANTS"). There are no
other outstanding shares of capital stock or voting securities and no
outstanding commitments to issue any shares of capital stock or voting
securities of Acacia, other than pursuant to the exercise of options outstanding
as of such date under the Acacia Option Plan and options to purchase shares of
Acacia Common Stock granted outside of the Acacia Option Plan as set forth on
Schedule 1.6(c)(i)(A) and Schedule 1.6(c)(i)(B). All outstanding shares of
Acacia Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and, to Acacia's knowledge, are free of any liens or
encumbrances, and are not subject to preemptive rights or rights of first
refusal created by statute, the certificate of incorporation or bylaws of Acacia
or any agreement to which Acacia is a party or by which it is bound. All
outstanding shares of Acacia Common Stock and Acacia Preferred Stock and the
Acacia Warrants were issued in compliance with all applicable federal and state
securities laws. As of the close of business on January 29, 1999, Acacia has
reserved (i) sufficient shares of Acacia Common Stock for issuance upon
conversion of Acacia's Series B Preferred Stock (including shares issuable upon
exercise of the Acacia Series B Warrants), (ii) sufficient shares of Acacia
Common Stock for issuance upon conversion of Acacia's Series A Preferred Stock
(including shares issuable upon exercise of the Acacia Series A Warrants), (iii)
sufficient shares of Acacia Common Stock for issuance upon the exercise of the
Acacia Common Stock Warrants, (iv) sufficient shares of Acacia's Series B
Preferred Stock for issuance upon the exercise of the Acacia Series B Warrants,
(v) sufficient shares of Acacia's Series A Preferred Stock for issuance upon the
exercise of the Acacia Series A Warrants and (vi) four million four hundred
thousand (4,400,000) shares of Common Stock for issuance to employees and
consultants pursuant to the Acacia Option Plan and six hundred thirty-five
thousand (635,000) shares of Acacia Common Stock for issuance to employees and
consultants pursuant to stock option grants outside the Acacia Option Plan, of
which one hundred thirty-three thousand three hundred forty (133,340) shares
have been issued pursuant to option exercises or direct stock purchases, two
million forty-eight thousand six hundred fifty-four (2,048,654) shares are
subject to outstanding, unexercised options, and no shares are subject to
outstanding stock purchase rights. Since January 29, 1999, Acacia has not (i)
issued or granted any additional options under the Acacia Option Plan. Section
2.3 of the Acacia Schedules sets forth a schedule of the outstanding Acacia
Common Stock Warrants, the Acacia Series A Warrants, the Acacia Series B
Warrants, the Acacia Options and all other rights to acquire shares of Acacia
Common Stock pursuant to the Acacia Option Plan and the applicable exercise
prices. Except (i) for the rights created pursuant to, or contemplated in, this
Agreement, (ii) for Acacia's right to repurchase any unvested shares under the
Acacia Option Plan and (iii) as set forth in this Section 2.3, there are no
options, warrants, calls, rights, commitments, or agreements of any character to
which Acacia is a party or by which Acacia is bound relating to the issued or
unissued capital stock of Acacia or obligating Acacia to
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issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of capital stock of Acacia or
obligating Acacia to grant, extend, accelerate the vesting of, change the price
of, or otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. Except as contemplated in this Agreement, there are no
contracts, commitments or agreements currently in force (other than agreements
entered into pursuant to the Acacia Option Plan) relating to voting, purchase or
sale of Acacia's capital stock (i) between or among Acacia and any of its
stockholders and (ii) to Acacia's knowledge, between or among any of Acacia's
stockholders. True and complete copies of all agreements and instruments
relating to or issued under the Acacia Option Plan have been made available to
Rosetta and except as otherwise contemplated in this Agreement, such agreements
and instruments have not been amended, modified or supplemented, and there are
no agreements to amend, modify or supplement such agreements or instruments in
any case from the form made available to Rosetta.
2.4 AUTHORITY. Acacia has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
by all necessary corporate action on the part of Acacia, subject only to the
approval of the Merger by Acacia's stockholders as contemplated in this
Agreement. Acacia's board of directors has unanimously approved the Merger and
this Agreement. This Agreement has been duly executed and delivered by Acacia
and assuming due authorization, execution and delivery by Rosetta and Merger
Sub, constitutes the valid and binding obligation of Acacia enforceable against
Acacia in accordance with its terms subject to (a) laws of general application
relating to bankruptcy, insolvency and the relief of debtors and (b) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
2.5 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Acacia
does not, and the consummation of the transactions contemplated herein will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the certificate of incorporation or bylaws of Acacia or any of
its subsidiaries, as amended, or (ii) any Acacia Material Contract (as defined
below), or material permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Acacia or any
of its properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority ("GOVERNMENTAL ENTITY") is required
by or with respect to Acacia in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated herein,
except for (i) the filing of the Certificate of Merger, together with the
required officers' certificates, as provided in Section 1.2, (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), the Securities Act of 1933, as amended (the "SECURITIES
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ACT"), applicable state securities laws and the securities laws of any foreign
country and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Acacia and would not prevent, or materially alter or delay any of the
transactions contemplated in this Agreement.
2.6 ACACIA FINANCIAL STATEMENTS. Section 2.6 of the Acacia Schedules
includes a true and complete copy of Acacia's audited financial statements
(balance sheet, statement of operations, statement of stockholders' equity and
statement of cash flows) as of December 31, 1996 and 1997 and for each of the
fiscal years ended December 31, 1997, 1996 and 1995, respectively (the "ACACIA
AUDITED FINANCIAL STATEMENTS"), and its unaudited financial statements (balance
sheet, statement of operations, statement of stockholders' equity and statement
of cash flows on a consolidated basis as at, and for the twelve-month period
ended December 31, 1998 (collectively, the "ACACIA UNAUDITED FINANCIAL
STATEMENTS," and together with the Acacia Audited Financial Statements, the
"ACACIA FINANCIAL STATEMENTS"). The Acacia Financial Statements have been
prepared in accordance with GAAP (except that the Acacia Unaudited Financial
Statements do not have notes thereto) applied on a consistent basis throughout
the periods indicated and with each other. The Acacia Financial Statements
fairly present the financial condition and operating results of Acacia as of the
dates, and for the periods, indicated therein, subject to normal year-end audit
adjustments. Acacia has maintained a standard system of accounting established
and administered in accordance with GAAP. Acacia has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(a) those set forth or adequately provided for in the balance sheet as of
December 31, 1998 (the "ACACIA BALANCE SHEET"), (b) those incurred in the
ordinary course of business and not required to be set forth in the Acacia
Balance Sheet under GAAP, (c) those incurred in the ordinary course of business
since the date of the Acacia Balance Sheet and consistent with past practice and
(d) those incurred in connection with the execution of this Agreement.
2.7 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 2.7
of the Acacia Schedules, between December 31, 1998 (the "ACACIA BALANCE SHEET
DATE") and the date hereof, there has not been, occurred or arisen, any:
(a) transaction by Acacia except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the certificate of incorporation
or bylaws of Acacia;
(c) capital expenditure or commitment by Acacia, in any
individual amount exceeding Twenty-Five Thousand Dollars ($25,000), or in the
aggregate, exceeding Fifty Thousand Dollars ($50,000);
(d) destruction of, damage to, or loss of any assets
(including, without limitation, intangible assets), business or customer of
Acacia (whether or not covered by insurance) which would constitute a Material
Adverse Effect;
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(e) claim of wrongful discharge by any employee of Acacia or
other unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, any change in policies
in making or reversing accruals) by Acacia or any revaluation by Acacia of any
of its assets;
(g) revaluation by Acacia of any of its respective assets;
(h) declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of Acacia, or any direct or
indirect redemption, purchase or other acquisition by Acacia of any of its
capital stock, except repurchases of Acacia Common Stock from terminated Acacia
employees at the original per share purchase price of such shares;
(i) increase in the salary or other compensation payable or to
become payable by Acacia to any officers, directors, employees or advisors of
Acacia, except in the ordinary course of business consistent with past practice,
or the declaration, payment, or commitment or obligation of any kind for the
payment by Acacia of a bonus or other additional salary or compensation to any
such person except as otherwise contemplated in this Agreement, or the
establishment of any bonus, insurance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation, the
granting of stock options, stock appreciation rights, performance awards), stock
purchase or other employee benefit plan;
(j) loan by Acacia to any person or entity, or guaranty by
Acacia of any loan, except for (x) travel or similar advances made to employees
in connection with their employment duties in the ordinary course of business,
consistent with past practices, (y) trade payables not in excess of Ten Thousand
Dollars ($10,000) in the aggregate and in the ordinary course of business,
consistent with past practices and (z) pursuant to option exercises in
accordance with the Acacia Stock Option Plan;
(k) waiver or release of any right or claim of Acacia,
including any write-off or other compromise of any account receivable of Acacia,
in excess of Twenty-Five Thousand Dollars ($25,000) in the aggregate;
(l) receipt by Acacia of any notice or threat of commencement
of any lawsuit or proceeding against or, to the Acacia's knowledge, commencement
of any lawsuit, proceeding or investigation of Acacia or its respective affairs;
(m) notice of any claim of ownership by a third party of
Acacia's Intellectual Property (as defined in Section 2.12 below) or of
infringement by Acacia of any third party's Intellectual Property rights;
(n) issuance or sale by Acacia of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities (other than option exercises in accordance with the
Acacia Stock Option Plan);
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(o) event or condition of any character that has or would
reasonably be expected to have a Material Adverse Effect on Acacia; or
(p) agreement by Acacia, or any officer or employee of Acacia
acting on behalf of Acacia to do any of the things described in the preceding
clauses (a) through (o) (other than negotiations with Rosetta and its
representatives regarding the transactions contemplated in this Agreement).
2.8 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acacia, threatened
against Acacia or any of its respective properties or any of its officers or
directors (in their capacities as such) that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect. There is no
judgment, decree or order against Acacia or, to the best knowledge of Acacia,
any of its respective directors or officers (in their capacities as such), that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated in this Agreement, or that would reasonably be expected to have a
Material Adverse Effect on Acacia. All litigation to which Acacia is a party
(or, to the knowledge of Acacia, threatened to become a party) is disclosed with
reasonable specificity in the Acacia Schedules.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Acacia which has or would
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of Acacia, any acquisition of property
by Acacia or the overall conduct of business by Acacia as currently conducted.
Acacia has not entered into any agreement under which Acacia is restricted from
selling, licensing or distributing any of its products or potential products to
any class of customers or otherwise conducting its business as currently
conducted in any geographic area, during any period of time or in any segment of
the market.
2.10 PERMITS; COMPANY PRODUCTS; REGULATION. Acacia is in possession
of all franchises, grants, authorizations, licenses, permits, easements,
variances, exceptions, consents, certificates, approvals and orders necessary
for Acacia, to own, lease and operate its properties or to carry on its business
as it is now being conducted (the "ACACIA AUTHORIZATIONS") and no suspension or
cancellation of any Acacia Authorization is pending or, to the best of Acacia's
knowledge, threatened, except where the failure to have, or the suspension or
cancellation of, any Acacia Authorization would not reasonably be expected to
have a Material Adverse Effect on Acacia.
2.11 TITLE TO PROPERTY.
(a) Acacia has good and valid title to all of its respective
properties, interests in properties and assets, real and personal, reflected in
the Acacia Balance Sheet or acquired after the Acacia Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Acacia Balance Sheet Date in the ordinary course of business), or with
respect to leased properties and assets, valid leasehold interests in, free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except
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(i) the lien of current taxes not yet due and payable, (ii) such imperfections
of title, liens and easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected thereby, or
otherwise materially impair business operations involving such properties, and
(iii) liens securing debt which is reflected on the Acacia Balance Sheet. The
plants, property and equipment of Acacia that are used in the operations of its
business are in good operating condition and repair, ordinary wear and tear
excepted. All properties used in the operations of Acacia are reflected in the
Acacia Balance Sheet to the extent GAAP require the same to be reflected.
Section 2.11(a) of the Acacia Schedules sets forth a true, correct and complete
list of all real property owned or leased by Acacia, the name of the lessor, the
date of the lease and each amendment thereto and the aggregate annual rental and
other fees payable under such lease. Such leases are in good standing, are valid
and effective in accordance with their respective terms, and there is not under
any such leases any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default).
(b) Section 2.11(b) of the Acacia Schedules also sets forth a
true, correct and complete list of all equipment (the "EQUIPMENT") owned or
leased by Acacia, and such Equipment is, taken as a whole, (i) adequate for the
conduct of Acacia's business, consistent with its past practice, and (ii) in
good operating condition (except for ordinary wear and tear).
2.12 INTELLECTUAL PROPERTY.
(a) To its knowledge, Acacia owns, possesses a license under
or otherwise possesses legally enforceable rights under all intellectual
property rights, including without limitation any patents, trademarks, trade
names, service marks, copyrights, inventions, technology, and any applications
for any of the foregoing, know-how, trade secrets, confidential business
information, inventory, regulatory information, medical reports, clinical data
and analyses, reagents, cell lines, biological materials, chemical formulas,
ideas, algorithms, processes, computer software programs or applications (in
both source code and object code form), and other tangible or intangible
proprietary information or material (collectively, "Intellectual Property") that
is necessary for the conduct of Acacia's business as currently conducted or as
currently proposed to be conducted by Acacia as set forth in the Information
Statement (as defined below).
(b) For purposes of this Agreement, all Intellectual Property
in which Acacia has rights, whether in the form of ownership, a license, an
option or otherwise, shall be referred to herein as "Acacia Intellectual
Property." Section 2.12 of the Acacia Schedules lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, and registered copyrights, included in the Acacia Intellectual
Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, if applicable, (ii) any licenses,
sublicenses and other agreements as to which Acacia is a party and pursuant to
which any third party has been granted any material rights with respect to any
of the Acacia Intellectual Property (other than standard, off-the-shelf-
software) and (iii) all licenses, sublicenses and other agreements with a third
party pursuant to which Acacia obtains rights to any Acacia Intellectual
Property listed in Section 2.12 of the Acacia Schedules or obtains rights
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to any Intellectual Property that is material to the conduct of Acacia's
business as currently conducted or as currently proposed to be conducted by
Acacia as set forth in the Information Statement (other than standard,
off-the-shelf software). Acacia has legal title, free and clear of all security
interests, in the Intellectual Property designated as "solely owned" in Section
2.12 of the Acacia Schedules. Acacia has the exclusive license with the right to
sublicense to third parties, free and clear of all security interests, in the
Intellectual Property designated as "exclusively licensed" in Section 2.12 of
the Acacia Schedules. Other than license fees for software that is generally
commercially available, as of the date of this Agreement, Acacia is not
obligated to pay any royalties or other compensation to any third party in
respect of its ownership, manufacture, use, sale, or importation of any of the
Acacia Intellectual Property, except pursuant to the agreements disclosed
pursuant to this paragraph. To Acacia's knowledge there is no present or former
material breach by Acacia of any license, sublicense or other agreement
described in Section 2.12 of the Acacia Schedules. The execution and delivery of
this Agreement by Acacia and the consummation of the transactions contemplated
herein, will not cause Acacia to be in breach of or default under any such
license, sublicense or agreement, nor entitle any other party to any such
license, sublicense or agreement to terminate or modify such license, sublicense
or agreement.
(c) To Acacia's knowledge, there is no unauthorized use,
infringement or misappropriation of any Acacia Intellectual Property that is
material to Acacia's business as currently conducted or as currently
contemplated to be conducted by Acacia as set forth in the Information
Statement.
(d) To Acacia's knowledge, all patents, registered trademarks,
service marks and copyrights owned by Acacia or exclusively licensed to Acacia
are existing and, to Acacia's knowledge, there is no written assertion or claim
challenging the validity or patentability of any Acacia Intellectual Property
owned by or exclusively licensed to Acacia (other than rejections of pending
patent applications in proceedings before the relevant patent office in the
United States or elsewhere). Acacia has not been sued in any suit, action or
proceeding, nor has Acacia received notice from a third party, which involves a
claim of infringement by Acacia of any patents, trademarks, service marks,
copyrights or misappropriation of any trade secret or other proprietary right of
any third party. To Acacia's knowledge, neither the conduct of the business of
Acacia as currently conducted or as currently proposed to be conducted as set
forth in the Information Statement, nor the manufacture, sale, importation, or
use of any of the proprietary products or processes of Acacia as now or
currently contemplated as set forth in the Information Statement to be
manufactured, sold, imported or used, infringes any presently existing
trademark, trade name, patent, service mark or copyright of any third party. To
Acacia's knowledge, no third party is challenging the ownership or license by
Acacia of any of the Acacia Intellectual Property listed in Section 2.12 of the
Acacia Schedules as owned or licensed, respectively, by Acacia, and, to Acacia's
knowledge, no third party is challenging the validity or enforceability of any
Acacia Intellectual Property listed in Section 2.12 of the Acacia Schedules or
that is material to Acacia's business as currently conducted or proposed to be
conducted by Acacia as set forth in the Information Statement. To Acacia's
knowledge, no third party is challenging the validity or enforceability of any
license agreement pursuant to which Acacia obtains a license under any of the
Acacia Intellectual Property. Acacia
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has not brought any action, suit or proceeding for infringement of any Acacia
Intellectual Property, or breach of any license or other agreement involving
Acacia Intellectual Property against any third party. To Acacia's knowledge,
there are no pending interferences, reexaminatons, or oppositions involving any
patents or patent applications owned by or exclusively licensed to Acacia. There
is no material breach of any license agreement to which Acacia is a party of
which Acacia is aware.
(e) Acacia has taken commercially reasonable measures and
precautions to protect and maintain the confidentiality and secrecy of all
Acacia Intellectual Property. To Acacia's knowledge, there have been no acts or
omissions (other than those made based on reasonable, good faith business
decisions) by the officers, directors, arid employees of, or patent counsel to,
Acacia, the result of which would be to materially compromise the rights of
Acacia to apply for or enforce appropriate legal protection of the Acacia
Intellectual Property.
(f) Acacia has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Acacia Intellectual Property that is indicated as owned by Acacia in Section
2.12 of the Acacia Schedules.
(g) Acacia has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Acacia Intellectual Property not
otherwise protected by patents, patent applications or copyright ("Confidential
Information"). Acacia has a policy requiring each employee, consultant and
independent contractor to execute proprietary information and confidentiality
agreements substantially in Acacia's standard forms and all current and former
employees, consultant and independent contractors of Acacia have executed such
an agreement.
2.13 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. No underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous a
pollutant or contaminant, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies, (a "HAZARDOUS MATERIAL") are present on any real property
or leaseholders of Acacia, as a result of the actions of Acacia or any of its
Subsidiaries or any affiliate of Acacia, or, to Acacia's knowledge, as a result
of any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof
that Acacia has at any time owned, operated, occupied or leased, except where
the presence of any of the foregoing substances (i) is authorized by permit or
license in the ordinary course of Acacia's business, or (ii) would not result in
a Material Adverse Effect on Acacia.
(b) HAZARDOUS MATERIALS ACTIVITIES. Acacia has not disposed
of, transported, stored, sold, used, manufactured, released, exposed its
employees or others to or manufactured any product containing a Hazardous
Material (collectively "HAZARDOUS MATERIALS
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ACTIVITIES") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity, except where any such violation, individually or in the aggregate,
would not reasonably be expected to result in a material adverse effect on
Acacia.
(c) PERMITS. Acacia currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ACACIA ENVIRONMENTAL
PERMITS") necessary for the conduct of Acacia's Hazardous Material Activities
and other businesses of Acacia as such activities and businesses are currently
being conducted, except where the failure to hold such Acacia Environmental
Permits would not reasonably be expected to result in a material adverse effect
on Acacia.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding,
revocation proceeding, amendment procedure, writ or injunction is pending, and
to Acacia's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against Acacia in a writing delivered to Acacia concerning any Acacia
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
Acacia. Acacia is not aware of any fact or circumstance which could involve
Acacia in any environmental litigation or impose upon Acacia any material
environmental liability, except where the existence of such fact or circumstance
would not reasonably be expected to result in a material adverse effect on
Acacia.
2.14 TAXES.
(a) For purposes of this Section 2.14 and other provisions of
this Agreement relating to Taxes (as defined below), the following definitions
shall apply:
(i) The term "TAXES" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal, state and foreign income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers' compensation,
Pension Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which are required to be paid, withheld or collected, (B) any
liability for the payment of amounts referred to in (A) as a result of being a
member of any affiliated, consolidated, combined or unitary group, or (C) any
liability for amounts referred to in (A) or (B) as a result of any obligations
to indemnify another person.
(ii) The term "RETURNS" shall mean all reports,
estimates, declarations of estimated tax, information statements and returns
required to be filed in
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connection with any Taxes, including information returns with respect to backup
withholding and other payments to third parties.
(b) All Returns required to be filed by or on behalf of Acacia
have been duly filed on a timely basis and such Returns are true, complete and
correct. All Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Acacia under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in full on
a timely basis, and no other Taxes are payable by Acacia with respect to items
or periods covered by such Returns (whether or not shown on or reportable on
such Returns). Acacia has withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting and backup
withholding in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of the
assets of Acacia with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that Acacia is contesting in good faith through
appropriate proceedings. Acacia has not been at any time a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns for a period for which the statute of limitations for
any Tax potentially applicable as a result of such membership has not expired.
(c) The amount of Acacia's liabilities for unpaid Taxes for
all periods through the date of the Acacia Financial Statements does not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
reflected on the Acacia Financial Statements, and the Acacia Financial
Statements properly accrue in accordance with GAAP, all liabilities for Taxes of
Acacia payable after the date of the Acacia Financial Statements attributable to
transactions and events occurring prior to such date. No liability for Taxes of
Acacia has been incurred (or prior to Closing will be incurred) since such date
other than in the ordinary course of business.
(d) Rosetta has been furnished by Acacia true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Acacia
relating to Taxes, and (ii) all federal, state and foreign income or franchise
tax returns and state sales and use tax Returns for or including Acacia for all
periods since December 31, 1993 or Acacia's inception, if shorter.
(e) No audit of the Returns of or including Acacia by a
government or taxing authority is in process, has been threatened in writing or,
to Acacia's knowledge, is pending (in writing or verbally). No deficiencies
exist or have been asserted (in writing or verbally) or are expected to be
asserted with respect to Taxes of Acacia, and Acacia has not received notice (in
writing or verbally) nor does it expect to receive notice that it has not filed
a Return or paid Taxes required to be filed or paid. Acacia is not a party to
any action or proceeding for assessment or collection of Taxes, nor has such
event been asserted or threatened (in writing or verbally) against Acacia or any
of its assets. No waiver or extension of any statute of limitations is in effect
with respect to Taxes or Returns of Acacia.
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(f) Acacia is not (nor have they ever been) parties to any tax
sharing agreement.
(g) Acacia is not, nor has it been, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Acacia is not a "consenting corporation" under Section 341(f) of the Code.
Acacia has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to Acacia pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. Acacia has not
agreed to, nor is it required to make, other than by reason of the Merger, any
adjustment under Code Section 481(a) by reason of, a change in accounting
method, and Acacia will not otherwise have any income reportable for a period
ending after the Closing Date attributable to a transaction or other event
(e.g., an installment sale) occurring prior to the Closing Date with respect to
which Acacia received the economic benefit prior to the Closing Date. Acacia is
not, nor has it been, a "reporting corporation" subject to the information
reporting and record maintenance requirements of Section 6038A and the
regulations thereunder.
2.15 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated herein will (a) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of Acacia, (b)
materially increase any benefits otherwise payable by Acacia, or (c) result in
the acceleration of the time of payment or vesting of any such benefits.
2.16 EMPLOYEE BENEFIT PLANS; EMPLOYEE MATTERS.
(a) Acacia does not maintain, and is not obligated to
contribute to, any defined benefit pension plan or any employee benefit plan
that is subject to either Title IV of the Employment Retirement Income Security
Act of 1974 ("ERISA") or the minimum funding standards of ERISA or the Internal
Revenue Code. Each bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, and other employee benefit or fringe
benefit plans, whether formal or informal, maintained by Acacia conforms in all
material respects, to all applicable requirements, if any, of ERISA. The Acacia
Schedules list and describe with reasonably specificity all profit-sharing,
bonus, incentive, deferred compensation, vacation, severance pay, retirement,
stock option, group insurance or other plans (whether written or not) providing
employee benefits.
(b) Acacia is in compliance in all material respects with all
currently applicable federal, state, local and foreign laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice. There are no pending
claims against Acacia under any workers compensation plan or policy or for long
term disability. Acacia has no material obligations under COBRA with respect to
any former employees or qualifying beneficiaries thereunder. There are no
controversies
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pending or, to the knowledge of Acacia, threatened, between Acacia and any of
its employees, which controversies have or could reasonably be expected to have
a Material Adverse Effect on Acacia. Acacia is not a party to any collective
bargaining agreement or other labor unions contract nor does Acacia know of any
activities or proceedings of any labor union or other group to organize any such
employees.
2.17 ACACIA MATERIAL CONTRACTS.
(a) Subsections (i) through (vi) of Section 2.17(a) of the
Acacia Schedules contain a list of all contracts and agreements to which Acacia
is a party and that are material to the business, results of operations, or
condition (financial or otherwise), of Acacia taken as a whole (such contracts,
agreements and arrangements as are required to be set forth in Section 2.17(a)
of the Acacia Schedules being referred to herein collectively as the "ACACIA
MATERIAL CONTRACTS") which shall be categorized in the Acacia Schedules as
follows:
(i) each contract and agreement (other than routine
purchase orders and pricing quotes in the ordinary course of business covering a
period of less than one (1) year) for the purchase of equipment, inventory,
spare parts, other materials or personal property with any supplier or for the
furnishing of services to Acacia under the terms of which Acacia: (A) paid or
otherwise gave consideration of more than Twenty-Five Thousand Dollars ($25,000)
in the aggregate during the calendar year ended December 31, 1998, (B) is likely
to pay or otherwise give consideration of more than Twenty-Five Thousand Dollars
($25,000) in the aggregate during the calendar year ended December 31, 1999, (C)
is likely to pay or otherwise give consideration of more than Twenty-Five
Thousand Dollars ($25,000) in the aggregate over the remaining term of such
contract or (D) cannot be canceled by Acacia without penalty or further payment
of less than Twenty-Five Thousand Dollars ($25,000);
(ii) all material agreements relating to Acacia's
Intellectual Property or Acacia's employees;
(iii) all material management contracts with independent
contractors or consultants (or similar arrangements) to which Acacia is a party;
(iv) all contracts and agreements (excluding payroll,
trade accounts payable or routine checking account overdraft agreements
involving petty cash amounts) under which Acacia has created, incurred, assumed
or guaranteed (or may create, incur, assume or guarantee) indebtedness or under
which Acacia has imposed (or may impose) a security interest or lien on any of
their respective assets, whether tangible or intangible, to secure indebtedness;
(v) all contracts and agreements that limit the ability
of Acacia or, after the Effective Time, Rosetta or any of its affiliates, to
compete in any line of business as currently conducted or with any person or in
any geographic area or during any period of time, or to solicit any customer or
client; and
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(vi) all other contracts or agreements which are
material to Acacia or the conduct of its respective business as currently
conducted or that would be required to be disclosed by Acacia pursuant to Item
601 of Regulation S-K if Acacia were filing a registration statement on Form S-1
pursuant to the Securities Act.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect on Acacia, each Acacia Material Contract is a
legal, valid and binding agreement subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies, and none of the Acacia Material Contracts is in default by its terms
or has been canceled by the other party. Acacia is not in receipt of any claim
of default under any Acacia Material Contract. To Acacia's knowledge (including
a review of Acacia Material Contracts), no termination, event of default or
material modification of, under or with respect to, any Material Contract will
occur as a result of the Merger or otherwise. Acacia has furnished Rosetta with
true and complete copies of all Acacia Material Contracts together with all
amendments, waivers or other changes thereto.
(c) Acacia is not a party to any employment agreement (oral or
written) with any Acacia employee that is not terminable at will by Acacia.
2.18 INTERESTED PARTY TRANSACTIONS. Acacia is not indebted to any
director, officer, employee or agent of Acacia (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to Acacia.
2.19 COMPLIANCE WITH LAWS. Acacia has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not reasonably be expected to
have a Material Adverse Effect on Acacia.
2.20 BROKERS' AND FINDERS' FEES. Acacia has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated herein.
2.21 INFORMATION STATEMENT. The information supplied by Acacia for
inclusion in the joint private placement memorandum and information statement
sent to the respective stockholders of Acacia and Rosetta to approve the Merger
and this Agreement, as amended or supplemented (the "INFORMATION STATEMENT"),
shall not, on the date the Information Statement is first mailed to Acacia's and
Rosetta's respective stockholders, at the time of the meeting of Acacia's
stockholders to consider the Merger (the "ACACIA STOCKHOLDERS' MEETING") and at
the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Acacia
Stockholders' Meeting
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or approval of Rosetta's stockholders which has become false or misleading. If
at any time prior to the Effective Time any event or information should be
discovered by Acacia which should be set forth in an amendment or supplement to
the Information Statement, Acacia shall promptly so inform Rosetta and Merger
Sub.
2.22 REPRESENTATIONS COMPLETE. To Acacia's knowledge, none of the
representations or warranties made by Acacia herein or in the Acacia Schedules,
or in any certificate furnished by Acacia pursuant to this Agreement, when all
such documents are read together in their entirety, contains or will contain at
the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading, which would reasonably be expected to have a
Material Adverse Effect on Acacia.
3. REPRESENTATIONS AND WARRANTIES OF ROSETTA AND MERGER SUB.
Subject to the limitations set forth in Section 8 of this Agreement,
Rosetta and Merger Sub hereby represent and warrant to Acacia, subject to the
exceptions specifically disclosed in writing and referencing a specific
representation and warranty made by Rosetta and Merger Sub to Acacia pursuant to
this Section 3 in the disclosure letter dated as of the date hereof and
certified on behalf of Rosetta and Merger Sub by a duly authorized officer of
Rosetta and Merger Sub, respectively (the "ROSETTA SCHEDULES"), as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Rosetta and Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Rosetta and Merger Sub has the
corporate power and authority and all necessary governmental approvals to own
its properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Rosetta. Rosetta has delivered a true and correct copy of the
certificate of incorporation and bylaws or other charter documents, as
applicable, of Rosetta and Merger Sub, each as amended to date, to Acacia.
Neither Rosetta nor any of its subsidiaries is in violation of any material
provisions of its certificate of incorporation or bylaws or equivalent
organizational documents.
3.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of Rosetta consists of (i)
twelve million (12,000,000) shares of Common Stock, One-Tenth of One Cent
($0.001) par value per share, of which two million six hundred thirty thousand
five hundred fifty-five (2,630,555) shares were issued and outstanding as of the
close of business on January 29, 1999, (ii) six million two hundred twenty-five
thousand (6,225,000) shares of Series A Preferred Stock, One-Tenth of One Cent
($0.001) par value per share, of which four million four hundred sixty-two
thousand five hundred (4,462,500) shares were issued and outstanding as of the
close of business on January 29, 1999, and (iii) no shares of Series B Preferred
Stock, One-Tenth of One Cent ($0.001) par value per share, none of which were
issued and outstanding as of the close of business on January 29, 1999. As of
the close of
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business on January 29, 1999, Rosetta has reserved three million one hundred
seven thousand eight hundred twenty-five (3,107,825) shares of Common Stock for
issuance to employees, directors and independent contractors pursuant to the
Rosetta Stock Option Plan (as defined below), of which one hundred seventy-nine
thousand seven hundred thirteen (179,713) shares have been issued pursuant to
option exercises, and one million one hundred fifty-seven thousand five hundred
(1,157,500) shares are subject to outstanding, unexercised options. There are no
other outstanding shares of capital stock or voting securities of Rosetta other
than shares of Rosetta Common Stock issued after January 29, 1999 upon the
exercise of options issued under the Rosetta Stock Option Plan. Other than as
contemplated in this Agreement, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Rosetta or Merger
Sub is a party or by which either of them is bound obligating Rosetta or Merger
Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Rosetta or obligating Rosetta or Merger Sub to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. The shares of
Rosetta Common Stock and Rosetta Series B Preferred Stock to be issued pursuant
to the Merger will be duly authorized, validly issued, fully paid, and
non-assessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof.
(b) The authorized capital stock of Merger Sub consists of one
thousand (1,000) shares of Common Stock, One-Tenth of One Cent ($0.001) per
share, all of which are issued and outstanding and are held by Rosetta. All
outstanding shares of Rosetta and Merger Sub have been duly authorized, validly
issued, fully paid and are nonassessable and, to Rosetta's knowledge, are free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof. There are no options, warrants, calls, rights,
commitments or agreements of any character to which Rosetta or Merger Sub is a
party or by which either of them is bound obligating Rosetta or Merger Sub to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Merger Sub or
obligating Rosetta or Merger Sub to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
3.3 AUTHORITY. Rosetta and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated herein. The execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate action on the part of Rosetta and Merger
Sub (other than, with respect to the Merger, the filing and recordation of
appropriate merger documents as required by Delaware Law). This Agreement has
been duly executed and delivered by Rosetta and Merger Sub and constitutes the
valid and binding obligations of Rosetta and Merger Sub subject to (a) laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors and (b) rules of law governing specific performance, injunctive relief
and other equitable remedies.
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3.4 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated herein will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (i) any provision of
the certificate of incorporation or bylaws of Rosetta or Merger Sub, as amended,
or (ii) any Rosetta Material Contract or material permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Rosetta or Merger Sub or their properties or assets.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Rosetta or Merger Sub in connection with the execution and
delivery of this Agreement by Rosetta and Merger Sub or the consummation by
Rosetta and Merger Sub of the transactions contemplated herein, except for (i)
the filing of appropriate merger documents as required by Delaware Law, (ii) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Rosetta and would not prevent,
materially alter or delay any the transactions contemplated in this Agreement.
3.5 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Rosetta or any of its
subsidiaries, threatened against Rosetta or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Rosetta. There is no
judgment, decree or order against Rosetta or any of its subsidiaries or, to the
knowledge of Rosetta or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
or materially alter or delay any of the transactions contemplated in this
Agreement, or that would reasonably be expected to have a Material Adverse
Effect on Rosetta.
3.6 GOVERNMENTAL AUTHORIZATION. Each of Rosetta and its subsidiaries
has obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity that is
required for the operation of Rosetta's or any of its subsidiaries' business
("ROSETTA AUTHORIZATIONS"), and all of such Rosetta Authorizations are in full
force and effect, except where the failure to obtain or have any of such Rosetta
Authorizations could not reasonably be expected to have a Material Adverse
Effect on Rosetta.
3.7 COMPLIANCE WITH LAWS. Each of Rosetta and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its
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business, or the ownership or operation of its business, except for such
violations or failures to comply as could not reasonably be expected to have a
Material Adverse Effect on Rosetta.
3.8 ROSETTA FINANCIAL STATEMENTS. Section 3.8 of the Rosetta
Schedules includes a true and complete copy of Rosetta's audited financial
statements (balance sheet, statement of operations, statement of stockholders'
equity and statement of cash flows) as of December 31, 1997 or for the fiscal
year ended December 31, 1997 (the "ROSETTA AUDITED FINANCIAL STATEMENTS"), and
its unaudited financial statements (balance sheet, statement of operations,
statement of stockholders' equity and statement of cash flows) as of, and for
the twelve-month period ended December 31, 1998 (collectively, the "ROSETTA
UNAUDITED FINANCIAL STATEMENTS," and together with the Rosetta Audited Financial
Statements, the "ROSETTA FINANCIAL STATEMENTS"). The Rosetta Financial
Statements have been prepared in accordance with GAAP (except that the Rosetta
Unaudited Financial Statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each other. The
Rosetta Financial Statements fairly present the financial condition and
operating results of Rosetta as of the dates, and for the periods, indicated
therein, subject to normal year-end audit adjustments. Rosetta has maintained a
standard system of accounting established and administered in accordance with
GAAP. Rosetta has no material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (a) those set forth or adequately
provided for in the balance sheet as of December 31, 1998 (the "ROSETTA BALANCE
SHEET"), (b) those incurred in the ordinary course of business and not required
to be set forth in the Rosetta Balance Sheet under GAAP, (c) those incurred in
the ordinary course of business since the date of the Rosetta Balance Sheet and
consistent with past practice and (d) those incurred in connection with the
execution of this Agreement.
3.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 3.9
of the Rosetta Schedules, between December 31, 1998 (the "ROSETTA BALANCE SHEET
DATE") and the date hereof, there has not been, occurred or arisen, any:
(a) transaction by Rosetta except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the certificate of incorporation
or bylaws of Rosetta;
(c) capital expenditure or commitment by Rosetta, in any
individual amount exceeding Twenty-Five Thousand Dollars ($25,000) or in the
aggregate, exceeding Fifty Thousand Dollars ($50,000);
(d) destruction of, damage to, or loss of any assets
(including, without limitation, intangible assets), business or customer of
Rosetta (whether or not covered by insurance) which would constitute a Material
Adverse Effect;
(e) claim of wrongful discharge by any employee of Rosetta or
other unlawful labor practice or action;
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(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, any change in policies
in making or reversing accruals) by Rosetta or any revaluation by Rosetta of its
assets;
(g) revaluation by Rosetta of any of its assets;
(h) declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of Rosetta, or any direct or
indirect redemption, purchase or other acquisition by Rosetta of any of its
capital stock, except repurchases of Rosetta Common Stock from terminated
Rosetta employees at the original per share purchase price of such shares;
(i) increase in the salary or other compensation payable or to
become payable by Rosetta to any officers, directors, employees or advisors of
Rosetta, except in the ordinary course of business consistent with past
practice, or the declaration, payment, or commitment or obligation of any kind
for the payment by Rosetta of a bonus or other additional salary or compensation
to any such person except as otherwise contemplated in this Agreement, or the
establishment of any bonus, insurance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation, the
granting of stock options, stock appreciation rights, performance awards), stock
purchase or other employee benefit plan;
(j) loan by Rosetta to any person or entity, or guaranty by
Rosetta of any loan, except for (x) travel or similar advances made to employees
in connection with their employment duties in the ordinary course of business,
consistent with past practices, (y) trade payables not in excess of Ten Thousand
Dollars ($10,000) in the aggregate and in the ordinary course of business,
consistent with past practices and (z) pursuant to option exercises in
accordance with the Rosetta Stock Option Plan;
(k) waiver or release of any right or claim of Rosetta,
including any write-off or other compromise of any account receivable of
Rosetta, in excess of Twenty-Five Thousand Dollars ($25,000) in the aggregate;
(l) the receipt by Rosetta of any notice or threat of
commencement of any lawsuit or proceeding against or, to Rosetta's knowledge,
commencement of any lawsuit, proceeding or investigation of Rosetta or their
respective affairs;
(m) notice of any claim of ownership by a third party of
Rosetta's Intellectual Property (as defined in Section 3.11 below) or of
infringement by Rosetta of any third party's Intellectual Property rights;
(n) issuance or sale by Rosetta of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities (other than option exercises in accordance
with the Rosetta Stock Option Plan);
(o) event or condition of any character that has or would
reasonably be expected to have a Material Adverse Effect on Rosetta; or
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(p) agreement by Rosetta or any officer or employee of Rosetta
on behalf of such entity to do any of the things described in the preceding
clauses (a) through (o) (other than negotiations with Acacia and its
representatives regarding the transactions contemplated in this Agreement).
3.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Rosetta which has or would
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of Rosetta, any acquisition of property
by Rosetta or the overall conduct of business by Rosetta as currently conducted.
Rosetta has not entered into any agreement under which Rosetta is restricted
from selling, licensing or distributing any of its products or potential
products to any class of customers or otherwise conducting its business as
presently conducted, in any geographic area, during any period of time or in any
segment of the market.
3.11 INTELLECTUAL PROPERTY .
(a) To its knowledge, Rosetta owns, possesses a license under
or otherwise possesses legally enforceable rights under all intellectual
property rights, including without limitation any patents, trademarks, trade
names, service marks, copyrights, inventions, technology, and any applications
for any of the foregoing, know-how, trade secrets, confidential business
information, inventory, regulatory information, medical reports, clinical data
and analyses, reagents, cell lines, biological materials, chemical formulas,
ideas, algorithms, processes, computer software programs or applications (in
both source code and object code form), and other tangible or intangible
proprietary information or material (collectively, "Intellectual Property") that
is necessary for the conduct of Rosetta's business as currently conducted or as
currently proposed to be conducted by Rosetta as set forth in the Information
Statement.
(b) For purposes of this Agreement, all Intellectual Property
in which Rosetta has rights, whether in the form of ownership, a license, an
option or otherwise, shall be referred to herein as "Rosetta Intellectual
Property." Section 3.11 of the Rosetta Schedules lists (i) all patents and
patent applications and all registered and unregistered trademarks, trade names
and service marks, and registered copyrights, included in the Rosetta
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, if applicable,
(ii) any licenses, sublicenses and other agreements as to which Rosetta is a
party and pursuant to which any third party has been granted any material rights
with respect to any of the Rosetta Intellectual Property (other than standard,
off-the-shelf software) and (iii) all licenses, sublicenses and other agreements
with a third party pursuant to which Rosetta obtains rights to any Rosetta
Intellectual Property listed in Section 3.11 of the Rosetta Schedules or obtains
rights to any Intellectual Property that is material to the conduct of Rosetta's
business as currently conducted or as currently proposed to be conducted by
Rosetta as set forth in the Information Statement (other than standard
off-the-shelf-software). Rosetta has legal title, free and clear of all security
interests, in the Intellectual Property designated as "solely owned" in section
3.11 of the Rosetta Schedules. Rosetta has the exclusive license with the right
to sublicense to third
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parties, free and clear of all security interests, in the Intellectual Property
designated as "exclusively licensed" in Section 3.11 of the Rosetta Schedules.
Other than license fees for software that is generally commercially available,
as of the date of this Agreement, Rosetta is not obligated to pay any royalties
or other compensation to ANY third party in respect of its ownership,
manufacture, use, sale, or importation of any of the Rosetta Intellectual
Property, except pursuant to the agreements disclosed pursuant to this
paragraph. To Rosetta's knowledge there is no present or former material breach
by Rosetta of any license, sublicense or other agreement described in Section
3.11 of the Rosetta Schedules. The execution and delivery of this Agreement by
Rosetta and the consummation of the transactions contemplated herein, will not
cause Rosetta to be in breach of or default under any such license, sublicense
or agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement.
(c) To Rosetta's knowledge, there is no unauthorized use,
INFRINGEMENT or misappropriation of any Rosetta Intellectual Property that is
material to Rosetta's business as currently conducted or as currently
contemplated to be conducted by Rosetta as set forth in the Information
Statement.
(d) To Rosetta's knowledge, all patents, registered
trademarks, service marks and copyrights owned by Rosetta or exclusively
licensed to Rosetta are existing and, to Rosetta's knowledge, there is no
written assertion or claim challenging the validity or patentability of any
Rosetta Intellectual Property owned by or exclusively licensed to Rosetta (other
than rejections of pending patent applications in proceedings before the
relevant patent office in the United States or elsewhere). Rosetta has not been
sued in any suit, action or proceeding, nor has Rosetta received notice from a
third party, which involves a claim of infringement by Rosetta of any patents,
trademarks, service marks, copyrights or misappropriation of any trade secret or
other proprietary right of any third party. To Rosetta's knowledge, neither the
conduct of the business of Rosetta as currently conducted or as currently
proposed to be conducted as set forth in the Information Statement, nor the
manufacture, sale, importation, or use of any of the proprietary products or
processes of Rosetta as now or currently contemplated as set forth in the
Information Statement to be manufactured, sold, imported or used, infringes any
presently existing trademark, trade name, patent, service mark or copyright of
any third party. To Rosetta's knowledge, no third party is challenging the
ownership or license by Rosetta of any of the Rosetta Intellectual Property
listed in Section 3.11 of the Rosetta Schedules as owned or licensed,
respectively, by Rosetta, and, to Rosetta's knowledge, no third party is
challenging the validity or enforceability of any Rosetta Intellectual Property
listed in Section 3.11 of the Rosetta Schedules or that is material to Rosetta's
business as currently conducted or proposed to be conducted by Rosetta as set
forth in the Information Statement. To Rosetta's knowledge, no third party is
challenging the validity or enforceability of any license agreement pursuant to
which Rosetta obtains a license under any of the Rosetta Intellectual Property.
Rosetta has not brought any action, suit or proceeding for infringement of any
Rosetta Intellectual Property, or breach of any license or other agreement
involving Rosetta Intellectual Property against any third party. To Rosetta's
knowledge, there are no pending interferences, reexaminatons, or oppositions
involving any patents or patent applications owned by or
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exclusively licensed to Rosetta. There is no material breach of any license
agreement to which Rosetta is a party of which Rosetta is aware.
(e) Rosetta has taken commercially reasonable measures and
precautions to protect and maintain the confidentiality and secrecy of all
Rosetta Intellectual Property. To Rosetta's knowledge, there have been no acts
or omissions (other than those made based on reasonable, good faith business
decisions) by the officers, directors, arid employees of, or patent counsel to,
Rosetta, the result of which would be to materially compromise the rights of
Rosetta to apply for or enforce appropriate legal protection of the Rosetta
Intellectual Property.
(f) Rosetta has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Rosetta Intellectual Property that is indicated as owned by Rosetta in Section
3.11 of the Rosetta Schedules.
(g) Rosetta has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Rosetta Intellectual Property
not otherwise protected by patents, patent applications or copyright
("Confidential Information"). Rosetta has a policy requiring each employee,
consultant and independent contractor to execute proprietary information and
confidentiality agreements substantially in Rosetta's standard forms and all
current and former employees, consultant and independent contractors of Rosetta
have executed such an agreement.
3.12 ROSETTA MATERIAL CONTRACTS.
(a) Section 3.12 of the Rosetta Schedules contain a list of
all contracts and agreements to which Rosetta is a party and that are material
to the business, results of operations, or condition (financial or otherwise),
of Rosetta taken as a whole (such contracts, agreements and arrangements as are
required to be set forth in Section 3.12 of the Rosetta Schedules being referred
to herein collectively as the "ROSETTA MATERIAL CONTRACTS") which shall be
categorized in the Rosetta Schedules as follows:
(i) each contract and agreement (other than routine
purchase orders and pricing quotes in the ordinary course of business covering a
period of less than 1 year) for the purchase of equipment, inventory, spare
parts, other materials or personal property with any supplier or for the
furnishing of services to Rosetta under the terms of which Rosetta: (A) paid or
otherwise gave consideration of more than Twenty-Five Thousand Dollars ($25,000)
in the aggregate during the calendar year ended December 31, 1998, (B) is likely
to pay or otherwise give consideration of more than Twenty-Five Thousand Dollars
($25,000) in the aggregate during the calendar year ended December 31, 1999, (C)
is likely to pay or otherwise give consideration of more than Twenty-Five
Thousand Dollars ($25,000) in the aggregate over the remaining term of such
contract or (D) cannot be canceled by Rosetta without penalty or further payment
of less than Twenty-Five Thousand Dollars ($25,000);
(ii) all material agreements relating to Rosetta's
Intellectual Property or Rosetta's employees;
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(iii) all material management contracts with independent
contractors or consultants (or similar arrangements) to which Rosetta is a
party;
(iv) all contracts and agreements (excluding payroll,
trade accounts payable or routine checking account overdraft agreements
involving petty cash amounts) under which Rosetta has created, incurred, assumed
or guaranteed (or may create, incur, assume or guarantee) indebtedness or under
which Rosetta has imposed (or may impose) a security interest or lien on any of
their respective assets, whether tangible or intangible, to secure indebtedness;
(v) all contracts and agreements that limit the ability
of Rosetta or, after the Effective Time, the surviving corporation or any of its
affiliates, to compete in any line of business as currently conducted or with
any person or in any geographic area or during any period of time, or to solicit
any customer or client; and
(vi) all other contracts or agreements which are
material to Rosetta or the conduct of Rosetta business as currently conducted or
that would be required to be disclosed by Rosetta pursuant to Item 601 of
Regulations S-K if Rosetta were filing a registration statement on Form S-1
pursuant to the Securities Act.
(b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect on Rosetta, each Rosetta Material Contract is a
legal, valid and binding agreement subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies, and none of the Rosetta Material Contracts is in default by its terms
or has been canceled by the other party. Rosetta is not in receipt of any claim
of default under any Rosetta Material Contract. To Rosetta's knowledge
(including a review of Rosetta Material Contracts), no termination, event of
default or material modification of, under or with respect to, any Rosetta
Material Contract will occur as a result of the Merger or otherwise. Rosetta has
furnished Acacia with true and complete copies of all Rosetta Material Contracts
together with all amendments, waivers or other changes thereto.
(c) Rosetta is not party to any employment agreement (oral or
written) with any Rosetta employee that is not terminable at will by Rosetta.
3.13 BROKER'S AND FINDERS' FEES. Rosetta has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated herein.
3.14 INFORMATION STATEMENT. The information supplied by Rosetta and
Merger Sub for inclusion in the Information Statement shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by Rosetta and Merger Sub for inclusion in the Information
Statement shall not, on the date the Information Statement is first mailed to
Acacia's
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and Rosetta's respective stockholders, at the time of the Acacia Stockholders'
Meeting, at the time of approval of Rosetta's stockholders and at the Effective
Time, contain any statement which, at such time, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitations of proxies for the Acacia Stockholders' Meeting or approval of
Rosetta's stockholders which has become false or misleading. If at any time
prior to the Effective Time any event or information is discovered by Rosetta or
Merger Sub which should be set forth in an amendment or a supplement to the
Information Statement, Rosetta or Merger Sub shall promptly so inform Acacia.
3.15 REPRESENTATIONS COMPLETE. To Rosetta's knowledge, none of the
representations or warranties made by Rosetta or Merger Sub to Acacia herein or
in the Rosetta Schedules, or in any certificate furnished by Rosetta pursuant to
this Agreement, when all such documents are read together in their entirety,
contains or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading, which would
reasonably be expected to have a Material Adverse Effect on Rosetta.
4. CONDUCT PRIOR TO THE EFFECTIVE TIME.
4.1 CONDUCT OF BUSINESS OF ACACIA AND ROSETTA. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement pursuant to Section 7 hereof or the Effective Time
(the "EXCLUSIVITY PERIOD"), each of Acacia and Rosetta agrees to conduct its
respective businesses in the ordinary course of business consistent with past
practices and to notify the other party hereto of, and not to take, any action
outside the ordinary course (including without limitation any collaboration,
partnering transaction, joint venture, licensing or similar transaction) without
the prior written consent of the other party hereto. In addition, Acacia will
not hire any material employees or consultants during the Exclusivity Period
without the prior written consent of Rosetta.
4.2 NO SOLICITATION.
(a) During the Exclusivity Period, Acacia will not, nor will
it authorize or permit any of its officers, directors, affiliates or employees
or any investment banker, attorney or other advisor or representative retained
by any of them to, directly or indirectly, (i) solicit, initiate, encourage or
induce the making, submission or announcement of any Acquisition Proposal (as
hereinafter defined), (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect to,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage in discussions with any person with respect
to any Acquisition Proposal, except as to the existence of the provisions set
forth in this Section 4.2, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any
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letter of intent or similar document or any contract agreement or commitment
contemplating or otherwise relating to any Acquisition Transaction (as
hereinafter defined). Acacia will immediately cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding two
sentences by any officer, director or employee of Acacia or any investment
banker, attorney or other advisor or representative of Acacia shall be deemed to
be a material breach of this Agreement by Acacia.
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any
offer or proposal (other than an offer or proposal by Rosetta) relating to any
Acquisition Transaction. For the purposes of this Agreement, "ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions other
than the transactions contemplated in this Agreement involving: (A) any merger
of, or any sale of the capital stock of (or securities convertible or
exercisable into the capital stock of), (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of all or any material
part of the assets of Acacia (C) any sale and issuance of equity or debt
securities (or securities convertible or exercisable into equity or debt
securities) of Acacia or (D) any liquidation or dissolution of Acacia.
(b) In addition to the obligations of Acacia set forth in
paragraph (a) of this Section 4.2, Acacia as promptly as practicable shall
advise Rosetta orally and in writing of (i) any request for information which
Acacia reasonably believes would lead to an Acquisition Proposal, (ii) any
Acquisition Proposal or (iii) any inquiry with respect to or which Acacia
reasonably should believe would lead to any Acquisition Proposal, the material
terms and conditions of such request, Acquisition Proposal or inquiry and the
identity of the person or group making any such request, Acquisition Proposal or
inquiry. Acacia will keep Rosetta informed in all material respects of the
status and details (including material amendments or proposed amendments) of any
such request, Acquisition Proposal or inquiry.
4.3 UPDATES TO ACACIA'S REPRESENTATIONS AND WARRANTIES. During the
Exclusivity Period, Acacia will notify Rosetta as promptly as practicable of any
representations or warranties made by Acacia pursuant to this Agreement that
have become inaccurate since the date of this Agreement in writing with
reasonable specificity as to the nature of the inaccuracy. No information
conveyed to Rosetta by Acacia pursuant to this Section 4.3 will alter in any way
Acacia's obligations to Rosetta pursuant to Section 8 of this Agreement.
5. ADDITIONAL AGREEMENTS.
5.1 REASONABLE COMMERCIAL EFFORTS AND FURTHER ASSURANCES. Each of
the parties to this Agreement shall use its respective reasonable commercial
efforts to effectuate the transactions contemplated herein and to fulfill and
cause to be fulfilled the conditions to closing under this Agreement. Each party
hereto, at the reasonable request of another party hereto, shall execute and
deliver such other instruments and do and perform such other acts and things as
may be necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated herein.
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5.2 CONSENTS; COOPERATION.
(a) Each of Rosetta and Acacia shall use its reasonable
commercial efforts promptly (i) to obtain from any Governmental Entity any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Rosetta or Acacia in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated herein set forth on Schedule 5.2(a) (collectively,
"MATERIAL CONSENTS") and (ii) to make all necessary filings, and thereafter make
any other required submissions, with respect to this Agreement and the Merger
required under the Securities Act and the Exchange Act and any other applicable
federal, state or foreign securities laws.
(b) During the Exclusivity Period, each party shall promptly
notify the other party in writing of any pending or, to the knowledge of such
party, threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking material damages in connection
with this Agreement or the transactions contemplated herein or (ii) seeking to
restrain or prohibit the consummation of the Merger or the transactions
contemplated herein or otherwise limit the right of Rosetta or its subsidiaries
to own or operate all or any portion of the businesses or assets of Acacia.
(c) Each of Rosetta and Acacia shall give or cause to be given
any required notices to third parties, and use its reasonable best efforts to
obtain all consents, waivers and approvals from third parties (i) necessary,
proper or advisable to consummate the transactions contemplated herein, (ii)
disclosed or required to be disclosed in the Acacia Schedules or the Rosetta
Schedules, or (iii) required to prevent a Material Adverse Effect on Acacia or
Rosetta from occurring prior or after the Effective Time. In the event that
Rosetta or Acacia shall fail to obtain any third party consent, waiver or
approval described in this Section 5.2(c), it shall use its reasonable best
efforts, and shall take any such actions reasonably requested by the other
party, to minimize any adverse effect upon Rosetta and Acacia and their
respective businesses resulting (or which could reasonably be expected to result
after the Effective Time) from the failure to obtain such consent, waiver or
approval.
(d) Each of Rosetta and Acacia will, and will cause their
respective subsidiaries to, take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on them with respect
to the consummation of the transactions contemplated in this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated in this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated in this Agreement.
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5.3 ACCESS TO INFORMATION.
(a) Acacia shall afford Rosetta and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the Exclusivity Period to (i) all of Acacia's properties, books, contracts,
commitments and records, and (ii) all other information concerning the business,
properties and personnel of Acacia as Rosetta may reasonably request. Acacia
agrees to provide to Rosetta and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
Rosetta shall afford Acacia and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (1) all of Rosetta's and its subsidiaries'
properties, books, contracts, commitments and records, and (2) all other
information concerning the business, properties and personnel of Rosetta as
Acacia may reasonably request. Rosetta agrees to provide to Acacia and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Rosetta and Acacia shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein, any indemnification obligation
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 CONFIDENTIALITY. The parties acknowledge that Rosetta and Acacia
have previously executed a non-disclosure agreement, dated as of October 16,
1998 (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms.
5.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Rosetta and Acacia shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law.
5.6 ANCILLARY AGREEMENTS. Each of Acacia and Rosetta shall use all
reasonable efforts to execute and deliver, or to cause to be executed and
delivered by the appropriate parties the Ancillary Agreements (as defined in
Section 6.3 below).
5.7 BLUE SKY LAWS. Rosetta shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Rosetta Common Stock and Rosetta Series B
Preferred Stock in connection with the Merger. Acacia shall use its best efforts
to assist Rosetta as may be necessary to comply with
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the securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Rosetta Common Stock and Rosetta Series B
Preferred Stock in connection with the Merger.
5.8 STOCKHOLDER APPROVAL.
(a) INFORMATION STATEMENT. As soon as practicable after the
execution of this Agreement, each of Acacia and Rosetta will use its respective
commercially reasonable efforts to prepare the Information Statement for the
respective stockholders of Acacia and Rosetta to approve this Agreement, the
Certificate of Merger and the transactions contemplated herein and therein. The
Information Statement shall constitute a disclosure document for the offer and
issuance of the shares of Rosetta Common Stock and Rosetta Series B Preferred
Stock to be received by the holders of Acacia Capital Stock in the Merger.
Rosetta and Acacia shall each use its best efforts to cause the Information
Statement to comply with applicable federal and state securities laws
requirements.
(b) Each of Rosetta and Acacia agrees to provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Information Statement, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Information Statement. The information supplied by each of Rosetta and Acacia
for inclusion in the Information Statement shall not, at (i) the time the
Information Statement is first mailed to the holders of capital stock of Acacia,
(ii) the time of the Acacia Stockholders' Meeting, and (iii) the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. Acacia will promptly advise Rosetta, and Rosetta will
promptly advise Acacia, in writing if at any time prior to the Effective Time
either Acacia or Rosetta shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Information Statement in
order to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law.
(c) The Information Statement shall contain the unanimous
recommendation of Acacia's board of directors that Acacia's stockholders approve
the Merger and this Agreement and the conclusion of Acacia's board of directors
that the terms and conditions of the Merger are fair and reasonable to the
stockholders of Acacia. The Information Statement shall also contain the
unanimous recommendation of Rosetta's board of directors that Rosetta's
stockholders approve the Merger and this Agreement and the conclusion that the
terms and conditions of the Merger are fair and reasonable to the stockholders
of Rosetta. Anything to the contrary contained herein notwithstanding, neither
Rosetta nor Acacia shall include in the Information Statement any information
with respect to the other or its affiliates or associates, the form and content
of which information shall not have been approved by the other prior to such
inclusion.
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5.9 SPECIAL MEETING OF ACACIA STOCKHOLDERS. As promptly as
practicable after the date hereof, Acacia shall take all actions necessary in
accordance with Delaware Law and its certificate of incorporation and bylaws to
convene the Acacia Stockholders' Meeting for the purposes of voting upon the
adoption of this Agreement, the Certificate of Merger and the transactions
contemplated herein and therein. Acacia shall consult with Rosetta regarding the
date of the such meeting and shall not postpone or adjourn (other than for the
absence of a quorum) such meeting without the consent of Rosetta. Acacia shall
use its best efforts to solicit from the stockholders of Acacia proxies in favor
of the Merger and shall take all other action necessary or advisable to secure
the vote or consent of stockholders required under Delaware Law and its
certificate of incorporation and bylaws to effect the Merger. As promptly as
practicable after the date hereof, Rosetta shall take all actions necessary in
accordance with Delaware Law and its certificate of incorporation and bylaws to
obtain approval of the Merger and this Agreement by its stockholders.
5.10 BOARD OF DIRECTORS. As soon as practical after the Closing,
Rosetta will cause its board of directors to consist of ten (10) members, Steve
Friend, Steve Gillis, Peter Svenillson, John King, Chad Waite, Steve McKnight,
Ruth Kunath, Lee Hood, Jasper Rine and Harvey Sadow.
5.11 OPERATIONS. Within ten (10) days of the Effective Date, a
Scientific Review Team (the "SRT"), consisting of Stewart Scherer, John Phillips
and Elisabeth Schneiders from Acacia and Alan Blanchard, Roland Stoughton and
Chris Roberts from Rosetta will be established to review the anticipated
scientific approaches and synergies of Rosetta once the Merger has been
completed. The SRT will provide a report to a Scientific Transition Team ("STT")
consisting of Jasper Rine, Steve Friend and Lee Hartwell within thirty (30) days
of the Closing. Mr. Friend will provide a report and the recommendations of the
STT on scientific direction and personnel of Rosetta taking into account the
effects of the Merger to Rosetta's board of directors within sixty (60) days of
the Closing, for which all members of the STT will be invited and will have the
opportunity to provide input. To the extent that the recommendation of the STT
on any particular topic is not unanimous, dissenting views will have the
opportunity to be presented to Rosetta's board of directors. Employees of
Rosetta after the Merger will report to the team leaders and/or vice presidents
of Rosetta or Acacia, as the case may be, that such employees report to prior to
the Closing, pending any reorganization of Rosetta after the Merger, as
determined by the board of directors and management of Rosetta. Immediately
following the Merger and until such time as Rosetta's board of directors has
decided otherwise, all team leaders, project directors and vice presidents of
Rosetta will initially report to Rosetta's Chief Executive Officer. Rosetta's
post-Merger organizational structure will be determined by Rosetta's board of
directors, taking into account the presentation of the STT.
5.12 ESCROW AGREEMENT. Rosetta and Acacia shall use their respective
commercially reasonable efforts to execute and deliver, and cause the Escrow
Agent and the Stockholders' Representative (as defined in Section 8 below) to
execute and deliver, the Escrow Agreement (as defined below).
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5.13 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION; AMENDED AND
RESTATED BYLAWS. Rosetta shall use its commercially reasonably efforts to duly
adopt and approve, and cause its stockholders to duly adopt and approve, the
Restated Certificate (as defined below) and the Restated Bylaws (as defined
below) and once so adopted and approved, to file the Restated Certificate with
the Secretary of State of the State of Delaware.
5.14 BEST EFFORTS TO OBTAIN SIGNATURES TO CERTAIN AGREEMENTS. Acacia
will use its best efforts to obtain and deliver to Rosetta on or before the
Closing Date (a) signed Restated Rights Agreements (as defined below) from all
holders of Acacia Preferred Stock and all holders of Acacia Common Stock, (b)
signed Stockholders' Agreements (as defined below) from all holders of Acacia
Common Stock and (c) signed Termination Agreements (as defined below) from all
holders of Acacia Capital Stock and all holders of Acacia Warrants.
6. CONDITIONS TO THE MERGER.
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated herein shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) ACACIA STOCKHOLDER APPROVAL. This Agreement shall have
been duly approved and adopted, and the Merger shall have been duly approved, by
the requisite vote under Delaware Law of the stockholders of Acacia.
(b) ROSETTA STOCKHOLDER APPROVAL. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under Delaware Law of the stockholders of Rosetta.
(c) NO INJUNCTIONS OR RESTRAINTS; NO ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by any Governmental Entity seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation (including applicable securities laws) or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation of the
Merger illegal. In the event an injunction or other order shall have been
issued, each party agrees to use its reasonable commercial efforts to have such
injunction or other order lifted.
(d) GOVERNMENTAL APPROVAL. Rosetta, Acacia and Merger Sub
shall have timely obtained from each Governmental Entity all approvals, waivers
and consents, if any, necessary for consummation of or in connection with the
Merger and the several transactions contemplated herein under the Securities
Act, the Exchange Act and any state securities laws except for such approvals,
waivers and consents the failure to obtain which would not be reasonably
expected to have a Material Adverse Effect on Acacia or Rosetta.
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(e) TAX OPINIONS. Rosetta and Acacia shall have received
written opinions of Rosetta's legal counsel and Acacia's legal counsel,
respectively, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, and such opinions shall not
have been withdrawn. In rendering such opinions, counsel shall be entitled to
rely upon, among other things, reasonable assumptions as well as representations
of Rosetta, Merger Sub and Acacia and certain stockholders of Acacia.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACACIA. The
obligations of Acacia to consummate and effect this Agreement and the
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, by Acacia:
(a) AGREEMENTS AND COVENANTS. As of the Closing Date, Rosetta
and Merger Sub shall not have breached any agreement or covenant required to be
performed by Rosetta or Merger Sub pursuant to this Agreement, which breach
would be reasonably likely to result in a Material Adverse Effect to Rosetta,
and the respective Presidents of Rosetta and Merger Sub shall deliver to Acacia
a certificate to such effect.
(b) CERTIFICATE OF SECRETARY OF ROSETTA AND MERGER SUB. Acacia
shall have been provided with certificates executed by the Secretary or
Assistant Secretary of Rosetta and Merger Sub, respectively, certifying:
(i) resolutions duly adopted by the respective boards of
directors and the stockholders of Rosetta and Merger Sub authorizing the
execution of this Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated herein;
(ii) the certificate of incorporation and bylaws of
Rosetta and Merger Sub, respectively, as in effect immediately prior to the
Effective Time, including all amendments thereto; and
(iii) the incumbency of the respective officers of
Rosetta and Merger Sub executing this Agreement and all agreements and documents
contemplated herein.
(c) LEGAL OPINION. Acacia shall have received a legal opinion
from Venture Law Group, Rosetta's legal counsel, substantially in the form of
EXHIBIT C hereto.
(d) GOOD STANDING. Acacia shall have received a certificate or
certificates of the Secretary of State of the State of Delaware and any
applicable franchise tax authority of such state, certifying as of a date no
more than three (3) business days prior to the Effective Time that Merger Sub
has filed all required reports, paid all required fees and taxes and is, as of
such date, in good standing and authorized to transact business as a domestic
corporation.
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(e) EMPLOYMENT CONSULTING AGREEMENTS. Rosetta shall have
executed and delivered to each of John Phillips and Julie Neumann (the
"EXECUTIVE MANAGEMENT TEAM") employment agreements substantially in the form
attached hereto as Exhibits D-1 and D-2, respectively (collectively, the
"EXECUTIVE EMPLOYMENT AGREEMENTS") and Rosetta shall have executed and delivered
to Bruce A. Cohen a consulting agreement substantially in the form attached
hereto as EXHIBIT D-3 (the "COHEN CONSULTING AGREEMENT").
(f) AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. Rosetta
shall have filed with the Secretary of State of the State of Delaware its
amended and restated certificate of incorporation substantially in the form
attached hereto as EXHIBIT E (the "RESTATED CERTIFICATE").
(g) AMENDED AND RESTATED BYLAWS. Rosetta and Rosetta's
stockholders shall have duly adopted its amended and restated bylaws
substantially in the form attached hereto as EXHIBIT F ( the "RESTATED BYLAWS").
(h) ESCROW AGREEMENT. Rosetta, Escrow Agent and the
Stockholders' Representative (as defined in Section 8 below) shall have executed
and delivered an Escrow Agreement substantially in the form attached here to as
EXHIBIT G (the "ESCROW AGREEMENT").
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ROSETTA AND MERGER
SUB. The obligations of Rosetta and Merger Sub to consummate and effect this
Agreement and the transactions contemplated herein shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, by Rosetta:
(a) AGREEMENTS AND COVENANTS. As of the Closing Date, Acacia
shall not have breached any agreement or covenant required to be performed by
Acacia pursuant to this Agreement, which breach would be reasonably likely to
result in a Material Adverse Effect to Acacia, and the President of Acacia shall
deliver to Rosetta a certificate to such effect.
(b) CONVERSION OF PENNY LANE NOTE. That certain $1,000,000
Acacia Biosciences, Inc., Convertible Promissory Note, dated as of August 28,
1998, made by Acacia in favor of Penny Lane Partners L.P., (the "PENNY LANE
NOTE") shall have been converted into shares of Series B Preferred Stock in
accordance with the terms of the Series B Preferred Stock Purchase Agreement by
and between Acacia and Penny Lane Partners, L.P in substantially the form
attached hereto on EXHIBIT N.
(c) CERTIFICATE OF SECRETARY OF ACACIA. Rosetta and Merger Sub
shall have been provided with a certificate executed by the Secretary of Acacia
certifying:
(i) resolutions duly adopted by the board of directors
and the stockholders of Acacia authorizing the execution of this Agreement and
the execution, performance and delivery of all agreements, documents and
transactions contemplated herein;
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(ii) the certificate of incorporation and bylaws of
Acacia, as in effect immediately prior to the Effective Time, including all
amendments thereto; and
(iii) the incumbency of the officers of Acacia executing
this Agreement and all agreements and documents contemplated herein.
(d) LEGAL OPINION. Rosetta shall have received a legal opinion
from Cooley Godward LLP, Acacia's legal counsel, in substantially the form of
EXHIBIT H.
(e) MATERIAL CONSENTS. Rosetta shall have been furnished with
evidence satisfactory to it that Acacia has obtained the Material Consents.
(f) RESIGNATION OF DIRECTORS AND OFFICERS. Rosetta shall have
received letters of resignation from each of the directors and officers of
Acacia in office immediately prior to the Closing Date, which resignations in
each case shall be effective as of the Effective Time (collectively, the
"RESIGNATION LETTERS").
(g) AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The
holders of Acacia Preferred Stock and Acacia Common Stock identified on Schedule
6.3(g) hereto shall have executed and delivered to Rosetta the Amended and
Restated Investors' Rights Agreement substantially in the form attached hereto
as EXHIBIT I (the "RESTATED RIGHTS AGREEMENT").
(h) STOCKHOLDERS' AGREEMENT. The holders of Acacia's Common
Stock identified on Schedule 6.3(h) hereto shall have executed and delivered to
Rosetta the Stockholders' Agreement substantially in the form attached hereto as
EXHIBIT J (the "STOCKHOLDERS' AGREEMENT").
(i) TERMINATION AGREEMENT. The holders of Acacia Capital Stock
identified on Schedule 6.3(i) hereto and all holders of Acacia Warrants shall
have executed and delivered to Rosetta the Termination Agreement, substantially
in the form attached hereto as EXHIBIT K (the "TERMINATION AGREEMENT"), to
terminate the rights as contemplated in the Termination Agreement.
(j) OPTION CANCELLATION AGREEMENTS. Each holder of Acacia
Options shall have executed and delivered to Rosetta with respect to such Acacia
Options an Option Cancellation Agreement substantially in the form attached
hereto as EXHIBIT L (the "OPTION CANCELLATION AGREEMENTS").
(k) WARRANTS. Each holder of Acacia Warrants shall have (i)
exercised in full such Acacia Warrant or (ii) executed and delivered to Rosetta
with respect to such Acacia Warrants a Warrant Assumption Agreement
substantially in the form attached hereto as EXHIBIT M (the "WARRANT ASSUMPTION
AGREEMENTS").
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(l) QUESTIONNAIRES. Acacia shall have received completed
questionnaires (the "QUESTIONNAIRES") from holders of Acacia Capital Stock
sufficient to establish the availability of the Rule 506 safe harbor exemption
under Regulation D of the Securities Act with respect to the transactions
contemplated in this Agreement.
(m) KEY EMPLOYEES. Each of Stewart Scherer, John Phillips,
Julie Neumann, shall not have terminated his or her employment with Acacia and
Jasper Rine shall not have terminated his position as a member of Acacia's
Scientific Advisory Board.
(n) EMPLOYMENT CONSULTING AGREEMENTS. Each member of the
Executive Management Team shall have executed and delivered to Rosetta the
Executive Employment Agreements and Bruce A. Cohen shall have executed and
delivered to Rosetta the Cohen Consulting Agreement:
(o) ESCROW AGREEMENT. Acacia, Escrow Agent and the
Stockholders' Representative shall have executed and delivered the Escrow
Agreement.
(p) QUALIFICATION UNDER REGULATION D. Each unaccredited Acacia
stockholder (other than an Acacia stockholder who has indicated such stockholder
will exercise dissenter's rights) shall have acknowledged and agreed in writing
that such stockholder has been represented by a Purchaser Representative in
considering the purchase of Rosetta Common Stock and Rosetta Series B Preferred
Stock pursuant to this Agreement. Either (i) counsel to Rosetta shall be
satisfied in its reasonable discretion that the requirements of the Rule 506
safe harbor exemption under Regulation D of the Securities Act have been
satisfied with respect to the purchase of Rosetta Common Stock and Rosetta
Series B Preferred Stock to be made pursuant to this Agreement or (ii) counsel
to Acacia and counsel to Rosetta shall have agreed that the purchase of Rosetta
Common Stock and Rosetta Series B Preferred Stock pursuant to this Agreement is
otherwise exempt from the registration requirements of the Securities Act.
(q) MAXIMUM PERCENTAGE OF ACACIA STOCKHOLDERS EXERCISING
DISSENTERS' RIGHTS. Holders of less than ten percent (10%) of Acacia Capital
Stock issued and outstanding as of the Closing Date shall have exercised their
dissenters' rights with respect to the Merger.
Collectively, the Executive Employment Agreements, the Cohen
Consulting Agreement, the Resignation Letters, the Restated Rights Agreement,
the Stockholders' Agreement, the Termination Agreement, the Option Cancellation
Agreements, the Warrant Assumption Agreements and the Questionnaires are
referred to herein as the "ANCILLARY AGREEMENTS".
7. TERMINATION, AMENDMENT AND WAIVER.
7.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after the obtaining of requisite
approvals of Acacia's stockholders or Rosetta's stockholders:
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(a) by mutual written consent duly authorized by the
respective boards of directors of Rosetta and Acacia;
(b) by either Rosetta or Acacia if the Merger shall not have
been consummated by February 26, 1999; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose action or failure to act has been a principal cause of or resulted
in the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
(c) by either Rosetta or Acacia if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger, which order, decree, ruling or other action is final and
nonappealable;
(d) by either Rosetta or Acacia if the required approval of
the stockholders of Acacia contemplated in this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at the Acacia
stockholders' meeting duly convened therefor or at any adjournment thereof
(provided that the right to terminate this Agreement under this Section 7.1(d)
shall not be available to Acacia where the failure to obtain Acacia stockholder
approval shall have been caused by the action or failure to act of Acacia and
such action or failure to act constitutes a breach by Acacia of this Agreement);
(e) by either Rosetta or Acacia if Rosetta fails to obtain the
required approval of the stockholders of Rosetta as contemplated in this
Agreement (provided that the right to terminate this Agreement under this
Section 7.1(e) shall not be available to Rosetta where the failure to obtain
Rosetta stockholder approval shall have been caused by the action or failure to
act of Rosetta and such action or failure to act constitutes a breach by Rosetta
of this Agreement);
(f) by Rosetta or Acacia (at any time prior to the adoption
and approval of this Agreement and the Merger by the required vote of the
stockholders of Acacia) if a Triggering Event (as defined below) shall have
occurred;
(g) by Rosetta (at any time prior to the adoption and approval
of this Agreement and the Merger by the required vote of the stockholders of
Acacia) if a Termination Event (as defined below) shall have occurred;
For the purposes of this Agreement, a "TERMINATION EVENT" shall be
deemed to occur if Acacia shall not have used commercially reasonable efforts to
hold the Acacia Stockholders' Meeting as promptly as practicable and in any
event within twenty-five (25) days after the date of this Agreement (unless an
act by Rosetta, or Rosetta's failure to act, has prevented Acacia from holding
the Acacia Stockholder's Meeting within such twenty-five (25) day period).
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For the purposes of this Agreement, a "TRIGGERING EVENT" shall be
deemed to have occurred if on or after the date of this Agreement: (i) Acacia's
board of directors or any committee thereof shall for any reason have withdrawn
or shall have amended or modified in a manner adverse to Rosetta its unanimous
recommendation in favor of the adoption and approval of this Agreement or the
approval of the Merger, (ii) Acacia shall have failed to include in the
Information Statement the unanimous recommendation of Acacia's board of
directors in favor of the adoption and approval of the Agreement and the
approval of the Merger, (iii) Acacia's board of directors or any committee
thereof shall have approved or recommended any Acquisition Proposal, or (iv)
Acacia shall have entered into any letter of intent or similar document or any
agreement, contract or commitment accepting any Acquisition Proposal or
otherwise breached its obligations under Section 4.2 of this Agreement.
7.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination of
this Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (a) as set forth
in this Section 7.2, Section 7.3 and Section 9 (Miscellaneous), each of which
shall survive the termination of this Agreement and (b) nothing herein shall
relieve any party from liability for any willful breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
7.3 FEES AND EXPENSES; FURTHER EFFECTS OF TERMINATION.
(a) GENERAL. Except as set forth in this Section 7.3, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated herein shall be paid by the party incurring such fees and expenses
whether or not the Merger is consummated.
(b) PATENT LICENSE. In the event that this Agreement is
terminated by Rosetta or Acacia, as applicable, pursuant to Section 7.1(a)-(g)
above, Rosetta shall be entitled to receive the sub-license to U.S. Patent No.
5,777,888, immediate payment of the Promissory Notes (as such term is defined in
that certain letter agreement, dated as of November 25, 1998 and as amended as
of January 15, 1999, by and between Rosetta and Acacia (the "LETTER
AGREEMENT")), and Acacia's covenant not to sue, all as set forth in Section 3(b)
of the Letter Agreement and according to the procedures set forth in the third
sentence of paragraph 4 of the Letter Agreement (the "REMEDIES"); PROVIDED,
HOWEVER, that in the event that this Agreement is terminated pursuant to Section
7.1(a), (b), (c) or (e), the Promissory Notes will be canceled and will not be
immediately due and payable upon execution of the definitive patent sublicense
agreements as contemplated in the Letter Agreement and the Remedies. Acacia
hereby acknowledges and agrees that the agreements contained in this Section
7.3(b) are an integral part of the transactions contemplated in this Agreement,
and that, without these agreements, Rosetta would not enter into this Agreement.
Accordingly if Acacia fails promptly to negotiate, document, execute and deliver
the definitive patent sublicense agreements as contemplated in the Letter
Agreement and the Remedies and, in order to obtain such definitive patent
sublicense
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agreements, Rosetta commences a suit which results in a judgment against Acacia,
Acacia shall pay to Rosetta its reasonable costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such suit, together
with interest on the amounts set forth in this Section 7.3(b) at the prime rate
of The Chase Manhattan Bank in effect on the date such payment was required to
be made.
(c) Performance by Acacia of is obligations described in
Section 7.3(b) above shall not be in lieu of damages incurred in the event of
willful breach of this Agreement.
7.4 AMENDMENT. Subject to applicable law, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Rosetta and Acacia.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
8. ESCROW AND INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the consummation of the Merger and continue until the
first anniversary of the Closing Date (the "ESCROW TERMINATION DATE"); PROVIDED,
HOWEVER, that if any claims for indemnification have been asserted with respect
to any such representations and warranties prior to the Escrow Termination Date,
the representations and warranties on which any such claims are based shall
continue in effect until final resolution of such claims.
8.2 ESCROW FUND. As soon as practicable after the Effective Time,
(a) two hundred twenty-five thousand nine hundred fifteen (225,915) shares of
Rosetta Common Stock, (b) one hundred thirty-eight thousand seven hundred
thirty-five (138,735) shares of Rosetta Series B Preferred Stock and (c)
thirty-eight thousand three hundred ninety-seven (38,397) of the Vested
Replacement Options shall, without any act of any stockholder of Acacia, be
registered in the name of, and be deposited with, Harris Trust (or other
institution selected by Rosetta) as escrow agent (the "ESCROW AGENT"), such
deposit to constitute the escrow fund (the "ESCROW FUND") and to be governed by
the terms set forth herein and in the Escrow Agreement. In the event that an
Indemnified Person (as defined below) incurs any Damages (as defined in below),
the Escrow Fund shall be available to compensate the Indemnified Persons (as
defined in Section 8.3(a) below) pursuant to the indemnification obligations of
the stockholders of the Acacia pursuant to Section 8.3 and in accordance with
the Escrow Agreement.
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8.3 INDEMNIFICATION.
(a) INDEMNIFIED DAMAGES. Subject to the limitations set forth
in this Section 8, from and after the Effective Time, Acacia, Acacia's
stockholders and Acacia's optionholders shall protect, defend, indemnify and
hold harmless Rosetta and the Surviving Corporation and their respective
affiliates, officers, directors, employees, representatives and agents (Rosetta,
Surviving Corporation and each of the foregoing persons or entities is
hereinafter referred to individually as an "INDEMNIFIED PERSON" and collectively
as "INDEMNIFIED PERSONS") from and against any and all losses, costs, damages,
liabilities, fees (including without limitation attorneys' fees) and expenses
(collectively, the "DAMAGES"), that any of the Indemnified Persons incurs or
reasonably anticipates incurring by reason of or in connection with (i) any
claim, demand, action or cause of action alleging misrepresentation, breach of,
inaccuracy or default in connection with, any of the representations,
warranties, covenants or agreements of Acacia contained in this Agreement,
including any exhibits or schedules attached hereto, and the Certificate of
Merger, which becomes known to Rosetta during the Escrow Period, (ii) any
amounts payable to any member of the Executive Management Team as severance
payments pursuant to the Executive Employment Agreements with Rosetta if such
person has become employed by, or engaged as a consultant to, another entity
prior to receipt of any such severance payment or (iii) the amount, if any, by
which the Final Accounts Payable Balance exceeds Five Hundred Thousand Dollars
($500,000). Damages in each case shall be net of the amount of any insurance
proceeds and indemnity and contribution actually recovered by Rosetta or the
Surviving Corporation.
(b) EXCLUSIVE CONTRACTUAL REMEDY AND LIMITATIONS. Rosetta,
Acacia, Acacia's stockholders and Acacia's optionholders each acknowledge that
Damages, if any, would relate to unresolved contingencies existing at the
Effective Time, which if resolved at the Effective Time would have led to a
reduction in the total consideration Rosetta would have agreed to pay in
connection with the Merger. Resort to the Escrow Fund shall be the exclusive
contractual remedy of Rosetta and Surviving Corporation for any Damages if the
Merger is consummated. The maximum liability of any Acacia stockholder or Acacia
optionholder for any breach of a representation, warranty or covenant of the
Acacia shall be limited to the securities in the Escrow Fund (the "ESCROW
SECURITIES") in which such holder has an interest that are held pursuant to the
Escrow Agreement; PROVIDED, HOWEVER, that nothing herein shall limit the
liability (i) of Acacia or any Acacia stockholder in connection with any breach
by such stockholder of the Acacia Voting Agreements and (ii) of Acacia or any
officer, director, stockholder or optionholder of Acacia for such entity's or
person's willful breach, fraud or intentional misrepresentation.
8.4 DAMAGES THRESHOLD. Notwithstanding the foregoing, Rosetta may
not receive any amount of the Escrow Securities from the Escrow Fund unless and
until a certificate signed by an officer of Rosetta (an "OFFICER'S CERTIFICATE")
identifying Damages in the aggregate amount in excess of One Hundred Thousand
Dollars ($100,000) (the "THRESHOLD") has been delivered to the Escrow Agent and
such amount is determined pursuant to this Section 8 to be payable, in which
case Rosetta shall receive Escrow Securities equal in value to the full amount
of such Damages without deduction; PROVIDED, HOWEVER, that any Damages that any
Indemnified Person incurs or reasonably anticipates incurring by reason of or in
connection with clause (iii)
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of Section 8.3(a) shall not be subject to the Threshold and the Indemnified
Person shall be entitled to receive dollar-for-dollar indemnification for any
and such Damages. In determining the amount of any Damages attributable to a
breach, insolvency or default, any materiality standard contained in a
representation, warranty or covenant of Acacia shall be disregarded (it being
understood and agreed by Acacia and Rosetta that any such materiality standard
shall remain for purposes of determining the existence of any breach, insolvency
or default).
8.5 ESCROW PERIOD. Subject to the following requirements, the Escrow
Fund shall remain in existence until the Escrow Termination Date (the "ESCROW
PERIOD"). Upon the expiration of the Escrow Period and subject to Section 8.6,
the Escrow Fund shall terminate with respect to all Escrow Securities; PROVIDED,
HOWEVER, that the number of Escrow Securities, which, in the reasonable judgment
of Rosetta, subject to the objection of the Stockholders' Representative (as
defined in Section 8.8 below) and the subsequent arbitration of the claim in the
manner provided in the Escrow Agreement, are necessary to satisfy any
unsatisfied claims specified in any officer's certificate delivered to the
Escrow Agent prior to the expiration of such Escrow Period with respect to facts
and circumstances existing on or prior to the Escrow Termination Date shall
remain in the Escrow Fund (and the Escrow Fund shall remain in existence) until
such claims have been resolved (the "RETAINED ESCROW SECURITIES"). As soon as
all such claims have been resolved, the Escrow Agent shall deliver to the
stockholders and optionholders of Acacia all Escrow Securities and other
property remaining in the Escrow Fund and not required to satisfy such claims.
Deliveries of Escrow Securities to the stockholders of Acacia pursuant to this
Section 8.5 and the Escrow Agreement shall be made in proportion to their
respective original contributions to the Escrow Fund.
8.6 DISTRIBUTIONS; VOTING.
(a) Any shares of Rosetta Common Stock or other equity
securities issued or distributed by Rosetta (including shares issued upon a
stock split) (collectively, "NEW SHARES") in respect of the Escrow Securities
that have not been released from the Escrow Fund shall be added to the Escrow
Fund and become a part thereof. When and if cash dividends on Escrow Securities
in the Escrow Fund shall be declared and paid, they shall be retained in escrow
pending final distribution of the Escrow Fund and will not be immediately
distributed to the beneficial owners of the Escrow Securities. Such dividends
will become part of the Escrow Fund and will be available to satisfy Damages.
The beneficial owners of the Escrow Securities shall pay any taxes on such
dividends.
(b) Each stockholder of Acacia shall have voting rights with
respect to that number of Escrow shares contributed to the Escrow Fund on behalf
of such stockholder (and on any voting securities added to the Escrow Fund in
respect of such Escrow shares) so long as such Escrow shares or other voting
securities are held in the Escrow Fund. As the record holder of such shares, the
Escrow Agent shall vote such shares in accordance with the instructions of the
stockholders of Acacia having the beneficial interest therein and shall promptly
deliver copies of all proxy solicitation materials to such stockholders. Rosetta
shall show the Rosetta Common Stock contributed to the Escrow Fund as issued and
outstanding on its balance sheet.
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8.7 METHOD OF ASSERTING CLAIMS. All claims for indemnification by
the Surviving Corporation or any other Indemnified Person pursuant to this
Section 8 shall be made in accordance with the provisions of the Escrow
Agreement.
8.8 REPRESENTATIVE OF THE STOCKHOLDERS; POWER OF ATTORNEY. If the
Merger is approved by the requisite stockholders, effective upon such vote, and
without further act of any stockholder, Dennis Farrar shall be appointed as
agent and attorney-in-fact (the "STOCKHOLDERS' REPRESENTATIVE") for each
stockholder and optionholder of Acacia (except such stockholders, if any, as
shall have perfected their appraisal rights under Delaware Law), for and on
behalf of stockholders of Acacia, to give and receive notices and communications
on behalf of Acacia stockholders, to enter into and perform the Escrow
Agreement, to authorize delivery to Rosetta of Escrow Securities or other
property from the Escrow Fund in satisfaction of claims by Rosetta or any other
Indemnified Person, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of Stockholders'
Representative for the accomplishment of the foregoing. The Stockholders'
Representative shall act by vote or written action or consent of a majority of
the members of the Committee.
8.9 ADJUSTMENT TO ESCROW. In the event that Rosetta pays out any
amounts to holders of Dissenting Shares with respect to such shares, the Escrow
Securities shall be automatically reduced by the number of Escrow Securities
allocable to such Dissenting Shares. Upon certification by the Rosetta to the
Escrow Agent of such event, the Escrow Securities and any New Shares with
respect thereto allocable to such Dissenting Shares shall be promptly returned
to Rosetta.
8.10 INDEMNITY BY ROSETTA. Subsequent to the Effective Time, Rosetta
agrees to indemnify and hold harmless the holders of the Acacia Capital Stock
outstanding immediately prior to the Effective Time (the "ACACIA INDEMNITEES")
from and against any Damages based upon, arising out of or otherwise in respect
of any material breach of any representation, warranty or covenant of Rosetta
contained herein or in any certificate delivered pursuant hereto, which breach
becomes known to Acacia and is asserted in writing to Rosetta on or before the
Escrow Termination Date, at which date this indemnification provision shall
terminate, provided however that no such compensation shall be payable to the
Acacia Indemnities unless and until the amount of all Damages to Acacia
Indemnities exceeds One Hundred Thousand Dollars ($100,000) in the aggregate,
whereupon compensation shall be payable for all such Damages without any
deduction.
9. GENERAL PROVISIONS.
9.1 EXPENSES. All fees and expenses incurred in connection with this
Agreement and the transactions contemplated herein shall be paid by the party
incurring such fees and expenses whether or not the Merger is consummated.
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9.2 SURVIVAL OF WARRANTIES. The representations, warranties and
agreements set forth in this Agreement or in any instrument delivered pursuant
to this Agreement shall survive the Effective Time of the Merger and (except to
the extent that survival is necessary to effectuate the intent of such
provisions) shall terminate on the first anniversary of the Effective Time of
the Merger.
9.3 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice,
(a) if to Rosetta or Merger Sub, to:
Rosetta Inpharmatics, Inc.
12040 115th Ave. NE
Kirkland, WA 98034
Attention: President
Facsimile No.: (425) 820-5757
Telephone No.: (425) 820-8900
with a copy to:
Venture Law Group
4750 Carillon Point
Kirkland, WA 98033
Attention: William Ericson
Facsimile No.: (425) 739-8750
Telephone No.: (425) 739-8700
(b) if to Acacia, to:
Acacia Biosciences, Inc.
4136 Lakeside Drive
Richmond, CA 94806
Attention: President
Facsimile No.: (510) 669-2334
Telephone No.: (510) 669-2330
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with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Matthew Hemington
Facsimile No.: (650) 857-0663
Telephone No.: (650) 843-5000
9.4 INTERPRETATION.
(a) When a reference is made in this Agreement to Exhibits or
Schedules, such reference shall be to an Exhibit or Schedule to this Agreement
unless otherwise indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when
used herein shall be deemed in each case to be followed by the words "WITHOUT
LIMITATION." The phrase "MADE AVAILABLE" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "THE DATE OF THIS
AGREEMENT," "THE DATE HEREOF," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to January 29, 1999. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
(b) In this Agreement, any reference to a "MATERIAL ADVERSE
EFFECT" with respect to any entity or group of entities means any event, change
or effect that, when taken individually or together with all other adverse
changes and effects, is or is reasonably likely to be materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business,
operations, results of operations or prospects of such entity and its
subsidiaries, taken as a whole, or to prevent or materially delay consummation
of the Merger or otherwise to prevent such entity and its subsidiaries from
performing their obligations under this Agreement.
(c) In this Agreement, any reference to a party's "KNOWLEDGE"
means such party's actual knowledge after due and diligent inquiry of executive
officers and directors and (i) with respect to Acacia, Matthew Ashby, Bruce
Cohen, Julie Neumann, Stuart Scherer, John Phillips and Elizabeth Schnieders,
and (ii) with respect to Rosetta, Steve Friend, John King, Dave Borges and Ed
Yoshida.
9.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
9.6 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Acacia Schedules and the Rosetta Schedules (a)
constitute the entire agreement among the parties with
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respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, except for the Confidentiality Agreement, which shall
continue in full force and effect, and shall survive any termination of this
Agreement or the Closing, in accordance with its terms, (b) are not intended to
confer upon any other person any rights or remedies hereunder and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided.
9.7 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (a) such provision shall be
excluded from this Agreement, (b) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (c) the balance of the
Agreement shall be enforceable in accordance with its terms.
9.8 REMEDIES CUMULATIVE. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.9 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law. Each of the
parties to this Agreement consents to the exclusive jurisdiction and venue of
the courts of the state and federal courts of King County, Washington.
9.10 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.11 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected in
accordance with this Section 9.11 shall be binding upon the parties and their
respective successors and assigns.
9.12 INJUNCTIVE RELIEF. Rosetta and Acacia hereby acknowledge and
agree that money damages would be an insufficient remedy for any breach of this
Agreement by either party hereto and that the parties will be entitled to
equitable relief, including injunction and specific performance, as a remedy for
any such breach. Such remedies will not be deemed to be the exclusive remedies
for a breach by either party of this Agreement but will be in addition to all
other remedies available at law or equity to the non-breaching party.
[Signature page follows.]
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Acacia, Rosetta and Merger Sub have executed this Agreement as of the date
first written above.
ACACIA:
ACACIA BIOSCIENCES, INC.,
a Delaware corporation
By: /s/ Bruce A. Cohen
----------------------------------------
Name: Bruce A. Cohen
--------------------------------------
(Print)
Title: President and CEO
-------------------------------------
Address: 4136 Lakeside Drive
Richmond, CA 94806
ROSETTA:
ROSETTA INPHARMATICS, INC.,
a Delaware corporation
By: /s/ Stephen H. Friend, M.D., Ph.D.
----------------------------------------
Name: Stephen H. Friend, M.D., Ph.D.
--------------------------------------
(Print)
Title: President, CSO
-------------------------------------
Address: 12040 115th Ave. NE
Kirkland, WA 98034
MERGER SUB:
ROSETTA ACQUISITION CORPORATION, a Delaware
corporation By:
By: /s/ John J. King, II
----------------------------------------
Name: John J. King, II
--------------------------------------
(Print)
Title: President, CEO
-------------------------------------
Address: c/o Rosetta Inpharmatics, Inc.
12040 115th Ave. NE
Kirkland, WA 98034
<PAGE>
Schedule 6.3(g)
Parties to the Amended and Restated Investors' Rights Agreement
ACACIA PREFERRED STOCK
Holders of at least a majority of the Acacia Series A Preferred Stock and
a majority of the Acacia Series B Preferred Stock outstanding immediately prior
to the Effective Time which holders shall include in each case, to the extent
such party holds any such shares, Penny Lane Partners L.P. ("Penny Lane") and
all transferees of Penny Lane after January 29, 1999 and each director of Acacia
on January 29, 1999.
ACACIA COMMON STOCK
Holders of at least a majority of the Acacia Common Stock held by the
Acacia Common Holders (as defined in the Restated Rights Agreement) outstanding
immediately prior to the Effective Time which holders shall include, to the
extent such party holds any such shares, Penny Lane and all transferees of Penny
Lane after January 29, 1999 and each director of Acacia on January 29, 1999.
<PAGE>
Schedule 6.3(h)
Parties to the Stockholders' Agreement
Holders of at least a majority of the Acacia Common Stock outstanding
immediately prior to the Effective Time (excluding any shares of Acacia Common
Stock held, prior to the Effective Time, by holders who will be as of the
Effective Time a party to the Restated Rights Agreement).
<PAGE>
Schedule 6.3(i)
Parties to the Termination Agreement
Holders of at least a majority of the Acacia Common Stock, a majority of
the Acacia Series A Preferred Stock and a majority of the Acacia Series B
Preferred Stock outstanding immediately prior to the Effective Time which
holders shall include in each case, to the extent such party holds any such
shares, (i) Penny Lane Partners L.P. and all transferees of Penny Lane after
January 29, 1999 and (ii) each director of Acacia as of January 29, 1999.
<PAGE>
EXHIBIT 3.1
SIXTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROSETTA INPHARMATICS, INC.
The undersigned, Stephen H. Friend and William W. Ericson, hereby
certify that:
1. They are the duly elected and acting President and Secretary, respectively,
of Rosetta Inpharmatics, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally filed
with the Secretary of State of Delaware on December 19, 1996 under the name
VLG NW, Inc.
3. The Certificate of Incorporation of this corporation shall be amended and
restated to read in full as follows:
ARTICLE I
"The name of the corporation is Rosetta Inpharmatics, Inc. (the
"CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 9 East Loockerman Street, Dover, Delaware 19901, County of Kent. The
name of its registered agent at such address is National Corporate Research,
Ltd.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "COMMON STOCK" and "PREFERRED
STOCK." The total number of shares which the corporation is authorized to issue
is Fifty Eight Million (58,000,000) shares, each with a par value of $0.001 per
share. Forty Million (40,000,000) shares shall be Common Stock and Eighteen
Million (18,000,000) shares shall be Preferred Stock.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by this Restated Certificate of Incorporation may be
issued from time to time in one or more series. The first series of Preferred
Stock shall be designated "SERIES A PREFERRED STOCK" and shall consist of Six
Million Two Hundred Twenty Five Thousand (6,225,000) shares. The
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<PAGE>
second series of Preferred Stock shall be designated "SERIES B PREFERRED STOCK"
and shall consist of One Million Six Hundred Thousand (1,600,000) shares. The
third series of Preferred Stock shall be designated "SERIES C PREFERRED STOCK"
and shall consist of Two Million Seven Hundred Fifty Thousand (2,750,000)
shares. The fourth series of Preferred Stock shall be designated "SERIES D
PREFERRED STOCK" and shall consist of Two Million Two Hundred Eight-Five
Thousand Seven Hundred Fourteen (2,285,714) shares. The fifth series of
Preferred Stock shall be designated "SERIES E PREFERRED STOCK" and shall consist
of Four Million Four Hundred Sixty-Nine Thousand Eighty-Seven (4,469,087)
shares. The rights, preferences, privileges, and restrictions granted to and
imposed on the Series A, Series B, Series C, Series D and Series E Preferred
Stock are as set forth below in this Article IV(B). The Corporation's board of
directors (the "BOARD OF DIRECTORS") is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights which have been or may be
granted to the Preferred Stock or series thereof in Certificates of Designations
or the Corporation's Certificate of Incorporation ("PROTECTIVE PROVISIONS"), but
notwithstanding any other rights of the Preferred Stock or any series thereof,
the rights, privileges, preferences and restrictions of any such additional
series may be subordinate to, PARI PASSU with (including, without limitation,
inclusion in provisions with respect to liquidation and acquisition preferences,
redemption and/or approval of matters by vote or written consent), or senior to,
any of those of any present or future class or series of Preferred or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board of
Directors is also authorized to increase or decrease the number of shares of any
series, prior or subsequent to the issue of that series, but not below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series A, Series B, Series C, Series D and Series E Preferred Stock
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, at the rate of $0.32 per share per annum on each outstanding share
of Series A and Series B Preferred Stock, $0.36 per share per annum on each
outstanding share of Series C Preferred Stock, $0.42 per share per annum on each
outstanding share of Series D Preferred Stock and $0.78 per share per annum on
each outstanding share of Series E Preferred Stock, payable quarterly when, as
and if declared by the Board of Directors. Such dividends shall not be
cumulative.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the holders of the Series A, Series B, Series C,
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Series D and Series E Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to (i) $4.00 per share for each share of Series A Preferred Stock
then held by them, (ii) $4.00 per share for each share of Series B Preferred
Stock then held by them, (iii) $4.50 per share for each share of Series C
Preferred Stock then held by them, (iv) $5.25 per share for each share of Series
D Preferred Stock then held by them, and (v) $9.36 per share for each share of
Series E Preferred Stock then held by them, plus declared but unpaid dividends.
If, upon the occurrence of such event, the assets and funds thus distributed
among the holders of the Series A, Series B, Series C, Series D and Series E
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of series
of Preferred Stock that may from time to time come into existence, the entire
assets and funds of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A, Series B, Series C,
Series D and Series E Preferred Stock in proportion to the preferential amount
each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required
by Section 2(a) above and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, if assets remain in the Corporation, the holders of the Common Stock
of the Corporation shall receive all of the remaining assets of the Corporation.
(c) For purposes of this Section 2, a liquidation,
dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (i) the acquisition of the corporation by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of the
corporation); or (ii) a sale of all or substantially all of the assets of the
corporation, UNLESS the corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
corporation's acquisition or sale or otherwise) hold at least 50% of the voting
power of the surviving or acquiring entity in approximately the same relative
percentages after such acquisition or sale as before such acquisition or sale.
(d) In any of the events specified in (c) above, if
the consideration received by the corporation is other than cash, its value will
be deemed its fair market value. Any securities shall be valued as follows:
(i) Securities not subject to investment
letter or other similar restrictions on free marketability:
(A) If traded on a securities
exchange or the Nasdaq National Market System, the value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty-day period ending three (3) days prior to the closing;
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(B) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty-day period ending three
(3) days prior to the closing; and
(C) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the corporation and the holders of at least a majority of the voting power of
all then outstanding shares of Preferred Stock.
(ii) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in (i) (A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by the corporation
and the holders of at least a majority of the voting power of all then
outstanding shares of Preferred Stock.
(iii) In the event the requirements of this
Section 2(d) are not complied with, the Corporation shall forthwith either:
(A) cause such closing to be
postponed until such time as the requirements of this Section 2 have been
complied with; or
(B) cancel such transaction, in
which event the rights, preferences and privileges of the holders of the Series
A, Series B, Series C, Series D and Series E Preferred Stock shall revert to and
be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 2(d)(iv) hereof.
(iv) The corporation shall give each holder
of record of Series A, Series B, Series C, Series D or Series E Preferred Stock
written notice of such impending transaction not later than twenty (20) days
prior to the stockholders' meeting called to approve such transaction, or twenty
(20) days prior to the closing of such transaction, whichever is earlier, and
shall also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 2,
and the corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the corporation has given the first notice provided for
herein or sooner than ten (10) days after the corporation has given notice of
any material changes provided for herein; PROVIDED, HOWEVER, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
3. REDEMPTION. The Preferred Stock is not redeemable.
4. CONVERSION. The holders of the Series A, Series B, Series
C, Series D and Series E Preferred Stock shall have conversion rights as follows
(the "CONVERSION RIGHTS"):
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(a) RIGHT TO CONVERT. Subject to Section 4(c), each
share of Series A, Series B, Series C, Series D and Series E Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) $4.00 in the case of Series A
Preferred Stock, (ii) $4.00 in the case of Series B Preferred Stock, (iii) $4.50
in the case of Series C Preferred Stock, (iv) $5.25 in the case of Series D
Preferred Stock and (v) $9.36 in the case of Series E Preferred Stock, by the
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. The initial
Conversion Prices per share shall be $4.00 for shares of Series A Preferred
Stock, $4.00 for shares of Series B Preferred Stock, $4.50 for shares of Series
C Preferred Stock, $5.25 for shares of Series D Preferred Stock and $9.36 for
shares of Series E Preferred Stock. Such initial Conversion Prices shall be
subject to adjustment as set forth in Section 4(d) below.
(b) AUTOMATIC CONVERSION. Each share of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such share immediately upon the earlier of (i) except as provided
below in Section 4(c), the corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), the public
offering price of which is not less than $11.00 per share (adjusted to reflect
subsequent stock dividends, stock splits or recapitalization) and which results
in gross cash proceeds before underwriting discounts and commissions of
$10,000,000 or (ii) the date specified by written consent or agreement of the
holders of a majority of the then outstanding shares of Series A, Series B,
Series C, Series D and Series E Preferred Stock, voting together as a single
class.
(c) MECHANICS OF CONVERSION. Before any holder of
Series A, Series B, Series C, Series D or Series E Preferred Stock shall
be entitled to convert the same into shares of Common Stock, he, she or it shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for such series of Preferred Stock,
and shall give written notice to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of such series of Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act, the conversion may, at the option of
any holder tendering such Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s)
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entitled to receive Common Stock upon conversion of such Preferred Stock shall
not be deemed to have converted such Preferred Stock until immediately prior
to the closing of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK
FOR CERTAIN DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of
the Series A, Series B, Series C, Series D and Series E Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) (A) If the corporation shall issue,
after the date upon which any shares of Series A, Series B, Series C,
Series D or Series E Preferred Stock were first issued (the "PURCHASE DATE" with
respect to such series), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price in effect immediately prior to each such issuance
for such series of Preferred Stock shall automatically (except as otherwise
provided in this clause 4(d)(i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, (x) the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issuance (the "OUTSTANDING COMMON") plus the number of shares of Common
Stock that the aggregate consideration received by the corporation for such
issuance would purchase at such Conversion Price; and (y) the denominator of
which shall be the number of shares of Outstanding Common plus the number of
shares of such Additional Stock. For purposes of the foregoing calculation, the
term "Outstanding Common" shall include shares of Common Stock deemed issued
pursuant to Section 4(d)(i)(E).
(B) No adjustment of the Conversion
Price for the Series A, Series B, Series C, Series D or Series E Preferred
Stock shall be made in an amount less than one cent per share, PROVIDED that any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and shall be either taken into account in any subsequent
adjustment made prior to three years from the date of the event giving rise to
the adjustment being carried forward, or shall be made at the end of three years
from the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in Sections 4(d)(i)(E)(3) and
4(d)(i)(E)(4), no adjustment of such Conversion Price pursuant to this Section
4(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of
Additional Stock for cash, the consideration shall be deemed to be the amount
of cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Corporation for any underwriting
or otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of
the Additional Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the fair value thereof
as determined by the Board of Directors irrespective of any accounting
treatment.
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(E) In the case of the issuance
(whether before, on or after the applicable Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i) and
Section 4(d)(ii):
(1) The aggregate maximum
number of shares of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in Sections 4(d)(i)(C) and 4(d)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights plus the minimum
exercise price provided in such options or rights (without taking into account
potential antidilution adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum
number of shares of Common Stock deliverable upon conversion of or in
exchange (assuming the satisfaction of any conditions to convertibility or
exchangeability, including, without limitation, the passage of time, but without
taking into account potential antidilution adjustments) for any such convertible
or exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Sections 4(d)(i)(C) and 4(d)(i)(D)).
(3) In the event of any
change in the number of shares of Common Stock deliverable or in the
consideration payable to the Corporation upon exercise of such options or rights
or upon conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of each of the Series A,
Series B, Series C, Series D and Series E Preferred Stock, to the extent in any
way affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration
of any such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of each of the Series A, Series
B, Series C, Series D and Series E Preferred Stock, to the extent in any way
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affected by or computed using such options, rights or securities or options or
rights related to such securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of
Common Stock deemed issued and the consideration deemed paid therefor
pursuant to Sections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in either
Section 4(d)(i)(E)(3) or (4).
(ii) "ADDITIONAL STOCK" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to
Section 4(d)(i)(E)) by the Corporation after the Purchase Date) other than
(A) Common Stock issued pursuant to
a transaction described in Section 4(d)(iii) hereof,
(B) Shares of Common Stock issuable
or issued to employees, consultants or directors of the Corporation
directly or pursuant to a stock option plan or restricted stock plan approved
by the Board of Directors of the Corporation,
(C) Capital stock, or options or
warrants to purchase capital stock, issued to financial institutions or
lessors in connection with commercial credit arrangements, equipment financings
or similar transactions, the terms of which are approved by the Board of
Directors of the Corporation
(D) Shares of Common Stock or
Preferred Stock issuable upon exercise of warrants outstanding as of the date
of this Sixth Amended and Restated Certificate of Incorporation,
(E) Capital stock or warrants or
options to purchase capital stock issued in connection with bona fide
acquisitions, mergers or similar transactions, the terms of which are approved
by the Board of Directors of the corporation,
(F) Shares of Common Stock issued or
issuable upon conversion of the Series A, Series B, Series C, Series D
or Series E Preferred Stock,
(G) Shares of Common Stock issued or
issuable in a public offering prior to or in connection with which all
outstanding shares of Series A, Series B, Series C, Series D and Series E
Preferred Stock will be converted to Common Stock,
(H) Capital stock or warrants or
options to purchase capital stock issued to academic or research
institutions in connection with the license of
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technology or research and development services the terms of which are approved
by the Board of Directors of the Corporation, and
(I) Capital stock or warrants or
options to purchase capital stock issued to a strategic partner in
connection with license agreements, joint marketing agreements, technology
development agreements or similar strategic relationships the terms of which are
approved by the Board of Directors of the Corporation.
(iii) In the event the corporation should at
any time or from time to time after the Purchase Date fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "COMMON STOCK EQUIVALENTS") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of each of the Series A, Series B, Series C, Series D and
Series E Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 4(d)(i)(E).
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for each of the Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event the Corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in Section 4(d)(iii), then,
in each such case for the purpose of this Section 4(e), the holders of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the corporation into which their shares
of Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2)
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provision shall be made so that the holders of the Series A, Series B, Series C,
Series D and Series E Preferred Stock shall thereafter be entitled to receive
upon conversion of such Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of such Preferred Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion such
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(g) NO IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO
ADJUSTMENTS.
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A, Series B, Series C,
Series D or Series E Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series A, Series B, Series C, Series D or
Series E Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A, Series B, Series C,
Series D or Series E Preferred Stock pursuant to this Section 4, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of such Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A, Series B, Series C, Series D or Series E
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such Preferred Stock at the time in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of such series of
Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any
taking by the Corporation of a record of the holders of any class of securities
for the purpose of determining
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the holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series A, Series B, Series C, Series D or Series E Preferred Stock, at
least 20 days prior to the date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A, Series B, Series C,
Series D and Series E Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of such series of Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of such series of
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Sixth Amended and Restated Certificate of Incorporation.
(k) NOTICES. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series A, Series B,
Series C, Series D or Series E Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
5. VOTING RIGHTS. The holder of each share of Series A, Series
B, Series C, Series D or Series E Preferred Stock shall have the right to one
vote for each share of Common Stock into which such Preferred Stock could then
be converted, and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Series A, Series B, Series C, Series D or Series E Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
6. PROTECTIVE PROVISIONS. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, so long as any
shares of Series A, Series B, Series C, Series D or Series E Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at
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least a majority of the then outstanding shares of Series A, Series B, Series C,
Series D and Series E Preferred Stock, voting together as a single class:
(a) sell, convey, or otherwise dispose of or encumber
all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the corporation is
disposed of, PROVIDED that this Section 6(a) shall not apply to a merger
effected exclusively for the purpose of changing the domicile of the
corporation;
(b) alter or change the rights, preferences or
privileges of the shares of Series A, Series B, Series C, Series D or Series E
Preferred Stock so as to affect adversely the shares of such series;
(c) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A,
Series B, Series C, Series D or Series E Preferred Stock;
(d) authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible into
or exercisable for any equity security having a preference over, or being on a
parity with, the Series A, Series B, Series C, Series D or Series E Preferred
Stock with respect to voting, dividends or upon liquidation;
(e) redeem, purchase or otherwise acquire (or pay
into or set funds aside for a sinking fund for such purpose) any share or
shares of Preferred Stock or Common Stock; PROVIDED, HOWEVER, that this
restriction shall not apply to the repurchase of shares of Common Stock from
employees, officers, directors, consultants or other persons performing services
for the Company or any subsidiary pursuant to agreements under which the Company
has the option to repurchase such shares at cost or at cost upon the occurrence
of certain events, such as the termination of employment;
(f) increase or decrease the authorized number of
shares of Common Stock; or
(g) declare or pay any dividend or distribution with
respect to shares of Common Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and shall not be issuable by the corporation. The
Certificate of Incorporation of the Corporation shall be appropriately amended
to effect the corresponding reduction in the corporation's authorized capital
stock.
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(C) COMMON STOCK
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article IV.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
The Board of Directors is expressly authorized to make, alter or repeal
Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the
adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII in respect of any matter occurring, or any
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action or proceeding accruing or arising or that, but for this Article VII,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE IX
The Corporation is to have perpetual existence.
ARTICLE X
The number of directors which will constitute the whole Board of
Directors shall be designated in the Bylaws of the Corporation.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation."
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The foregoing Sixth Amended and Restated Certificate of Incorporation
has been duly adopted by this corporation's Board of Directors and stockholders
in accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Kirkland, Washington, on March 13, 2000.
/s/ Stephen H. Friend
-----------------------------
Stephen H. Friend, President
/s/ William W. Ericson
-----------------------------
William W. Ericson, Secretary
<PAGE>
Exhibit 4.2
ROSETTA INPHARMATICS, INC.
SIXTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Sixth Amended and Restated Investors' Rights Agreement (this
"AGREEMENT") is made as of March 15, 2000, by and among Rosetta Inpharmatics,
Inc., a Delaware corporation (the "COMPANY"), and the holders of the outstanding
shares of the Company's Series A Preferred Stock (the "SERIES A PREFERRED")
listed on EXHIBIT A hereto (the "SERIES A HOLDERS"), the holders of the
outstanding shares of the Company's Series B Preferred Stock (the "SERIES B
PREFERRED") listed on EXHIBIT B hereto (the "SERIES B HOLDERS"), the holders of
shares of Series C Preferred Stock (the "SERIES C PREFERRED") listed on EXHIBIT
C hereto (the "SERIES C HOLDERS"), the holder of shares of Series D Preferred
Stock (the "SERIES D PREFERRED") listed on EXHIBIT D hereto (the "SERIES D
HOLDER"), the holders of shares of Series E Preferred Stock (the "SERIES E
PREFERRED") listed on EXHIBIT E hereto (the "SERIES E HOLDERS"), the holders of
certain outstanding shares of the Company's Common Stock (the "COMMON STOCK")
listed on EXHIBIT F-1 hereto (the "FOUNDER COMMON HOLDERS"), the holders of
certain outstanding shares of Common Stock listed on EXHIBIT F-2 hereto (the
"FRED HUTCHINSON COMMON HOLDER") and the holders of certain outstanding shares
of the Common Stock listed on EXHIBIT F-3 hereto (the "ACACIA COMMON HOLDERS"
and, collectively with the Founder Common Holders and Fred Hutchinson Common
Holder, the "COMMON HOLDERS"), the holders of certain outstanding warrants to
purchase Series A and Series C Preferred listed on EXHIBIT G hereto (the
"PREFERRED WARRANT HOLDERS"), and the holders of certain outstanding warrants to
purchase Common Stock listed on EXHIBIT I hereto (the "COMMON WARRANT HOLDERS").
The Series A Holders, the Series B Holders, the Series C Holders, the Series D
Holders, the Series E Holders, the Founder Common Holders, the Fred Hutchinson
Common Holder, the Acacia Common Holders, the Preferred Warrant Holders and the
Common Warrant Holders shall sometimes be collectively referred to hereinafter
as the "INVESTORS" and each individually as an "INVESTOR."
RECITALS
A. The Company and the Series A Holders entered into an Investors'
Rights Agreement dated as of June 6, 1997 (the "RIGHTS AGREEMENT") in connection
with the initial issuance and sale by the Company of Series A Preferred pursuant
to the Series A Preferred Stock Purchase Agreement dated as of June 6, 1997 by
and among the Company and certain of the Series A Holders.
B. The Company and the Series A Holders entered into the Amended and
Restated Investors Rights Agreement on October 30, 1997 (the "FIRST RESTATED
RIGHTS AGREEMENT") amending and restating the Rights Agreement in its entirety
to provide certain of the rights set forth therein to the subsequent purchasers
of Series A Preferred in connection with the final closing of the sale of Series
A Preferred Stock on October 30, 1997.
C. The Company, the Series A Holders, the Common Holders and the
Preferred Warrant Holders entered into a second Amended and Restated Investors'
Rights Agreement on December 19, 1997 (the "SECOND RESTATED RIGHTS AGREEMENT")
amending and restating the First
<PAGE>
Restated Rights Agreement in its entirety in order to provide certain of the
rights set forth therein to the Preferred Warrant Holders and the Common
Holders.
D. In connection with the closing of the Agreement and Plan of
Reorganization (the "REORGANIZATION AGREEMENT") dated as of January 29, 1999 by
and among the Company, Rosetta Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of the Company ("MERGER SUB"), and Acacia
Biosciences, Inc., a Delaware corporation ("ACACIA"), the Company, and a
majority of the Series A Holders, the Common Holders, the Preferred Warrant
Holders and the Common Warrant Holders agreed to amend and restate the Second
Restated Rights Agreement and enter into a Third Amended and Restated Investors'
Rights Agreement (the "THIRD RESTATED RIGHTS AGREEMENT").
E. The Company, the Series A Holders, the Series B Holders, the Series
C Holders, the Common Holders, the Acacia Common Holders, the Preferred Warrant
Holders and the Common Warrant Holders entered into a Fourth Amended and
Restated Investors' Rights Agreement (the "FOURTH RESTATED RIGHTS AGREEMENT") in
April, 1999.
F. The Company, the Series A Holders, the Series B Holders, the Series
C Holders, the Series D Holders, the Common Holders, the Preferred Warrant
Holders and the Common Warrant Holders entered into a Fifth Amended and Restated
Investors' Rights Agreement (the "FIFTH RESTATED RIGHTS AGREEMENT") in October,
1999.
G. The Company and the Series E Holders are entering into a Series E
Stock Purchase Agreement of even date herewith (the "PURCHASE AGREEMENT")
pursuant to which the Company desires to sell to the Series E Holders and the
Series E Holders desire to purchase from the Company shares of the Company's
Series E Preferred Stock. A condition to the Series E Holders' obligations under
the Purchase Agreement is that the Company and the Series E Holders enter into
this Agreement in order to provide the Series E Holders with (i) certain rights
to register shares of the Company's Common Stock issuable upon conversion of the
Series E Preferred Stock held by the Series E Holders, (ii) certain rights to
receive or inspect information pertaining to the Company, and (iii) a right of
first offer with respect to certain issuances by the Company of its securities.
H. The Company and the holders of at least a majority of Registrable
Securities (as defined in the Fifth Restated Rights Agreement) desire to amend
and restate the Fifth Restated Rights Agreement in its entirety in accordance
with the provisions set forth in Section 4.7 of the Fifth Restated Rights
Agreement and to accept the rights created pursuant hereto in lieu of the rights
granted to such holders under the Fifth Restated Rights Agreement in order to
induce the Company and the Series E Holders to enter into the Purchase Agreement
and to provide certain rights to the Series E Holders, all as set forth in this
Agreement.
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AGREEMENT
The parties hereby agree as follows:
1. REGISTRATION RIGHTS. The Company and the Investors covenant
and agree as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The terms "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities Act
of 1933, as amended (the "ACT"), and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means
(i) the shares of Common Stock issuable or issued upon conversion of the Series
A Preferred held by the Series A Holders set forth on EXHIBIT A, (ii) the shares
of Common Stock issuable or issued upon conversion of the Series B Preferred
held by the Series B Holders set forth on EXHIBIT B, (iii) the shares of Common
Stock issuable or issued upon conversion of the Series C Preferred held by the
Series C Holders set forth on EXHIBIT C, (iv) the shares of Common Stock
issuable or issued upon conversion of the Series D Preferred held by the Series
D Holders set forth on EXHIBIT D, (v) the shares of Common Stock issuable or
issued upon conversion of the Series E Preferred held by the Series E Holders
set forth on EXHIBIT E, (vi) the 352,000 shares of Common Stock issued to the
Fred Hutchinson Cancer Research Center as set forth on EXHIBIT F-2, (vii) the
1,973,842 shares of Common Stock held by the Founder Holders set forth on
EXHIBIT F-1, (viii) the 1,860,176 shares of Common Stock held by the Acacia
Common Holders set forth on EXHIBIT F-3, (ix) the shares of Common Stock
issuable or issued upon the conversion of the Preferred Stock issued upon
exercise of those certain warrants issued to the Preferred Warrant Holders set
forth on EXHIBIT G, and (x) the shares of Common Stock issuable or issued upon
the exercise of those certain warrants set forth on EXHIBIT H (the shares of
Common Stock referenced in (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) (ix)
and (x) of this Section 1.1(b) are collectively referred to hereinafter as the
"STOCK") and (xi) any other shares of Common Stock issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, the Stock; PROVIDED, HOWEVER, (A) the shares referred to
in clauses (ii) and (viii) above shall not be Registrable Securities for the
purposes of Sections 1.2 and 1.6 hereof and (B) the shares referred to in clause
(vi) above shall not be Registrable Securities for the purposes of Sections 1.2,
1.6 and 1.12 hereof. Notwithstanding the foregoing, Common Stock or other
securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
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(c) The number of shares of "REGISTRABLE
SECURITIES THEN OUTSTANDING" shall be determined by the number of shares of
Common Stock outstanding which are, and the number of shares of Common Stock
issuable pursuant to then exercisable or convertible securities which are,
Registrable Securities;
(d) The term "HOLDER" means any person owning
or having the right to acquire any Registrable Securities or any assignee
thereof in accordance with Section 1.13 hereof;
(e) The term "FORM S-3" means such form under
the Act as in effect on the date hereof or any successor form under the Act; and
(f) The term "SEC" means the Securities and
Exchange Commission.
1.2 REQUEST FOR REGISTRATION
(a) If the Company shall receive at any time
after the earlier of (i) June 1, 2002, or (ii) six (6) months after the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or an SEC Rule 145 transaction) (the "IPO"), a written request from the
Holders of a majority of the Registrable Securities then outstanding that the
Company file a registration statement under the Act covering the registration of
at least fifty percent (50%) of the Registrable Securities then outstanding (or
a lesser percent if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $7,500,000), then the
Company shall, within ten (10) days of the receipt thereof, give written notice
of such request to all Holders and shall, subject to the limitations of
subsection 1.2(b), use its best efforts to effect as soon as practicable, and in
any event within 60 days of the receipt of such request, the registration under
the Act of all Registrable Securities which the Holders request to be registered
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 4.5.
(b) If the Holders initiating the
registration request hereunder ("INITIATING HOLDERS") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a). The underwriter will be selected by a
majority in interest of the Initiating Holders and shall be reasonably
acceptable to the Company. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e)) enter into an underwriting agreement in customary form with the
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underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; PROVIDED, HOWEVER,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the
Company shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer such filing for a period of not more than 120 days after
receipt of the request of the Initiating Holders; PROVIDED, HOWEVER, that the
Company may not utilize this right more than once in any twelve-month period.
(d) Notwithstanding the foregoing, after the
Company has effected one registration pursuant to this Section 1.2 and such
registration has been declared or ordered effective, the second such
registration shall require a written request from Holders of only twenty-five
percent (25%) of the Registrable Securities then outstanding that the Company
file a registration statement under the Act covering the registration of at
least twenty-five percent (25%) of the Registrable Securities then outstanding.
(e) In addition, the Company shall not be
obligated to effect, or to take any action to effect, any registration pursuant
to this Section 1.2:
(i) After the Company has effected
two (2) registrations pursuant to this Section 1.2 and such registrations have
been declared or ordered effective;
(ii) During the period starting
with the date sixty (60) days prior to the Company's good faith estimate of
the date of filing of, and ending on a date one hundred eighty (180) days
after the effective date of, a registration subject to Section 1.3 hereof;
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective; or
(iii) If the Initiating Holders
propose to dispose of shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made pursuant to Section 1.12
below.
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1.3 COMPANY REGISTRATION. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for stockholders other than the
Holders) any of its stock under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Act, a registration in which the only stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered, or any registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 4.5,
the Company shall, subject to the provisions of Section 1.8, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever
required under this Section 1 to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to one
hundred twenty (120) days. The Company shall not be required to file, cause to
become effective or maintain the effectiveness of any registration statement
that contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Act.
(b) Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement for up to one hundred twenty
(120) days.
(c) Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use its best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with
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the managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(f) Notify each Holder of Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, such obligation to continue for one hundred twenty (120) days.
(g) Cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar
for all Registrable Securities registered pursuant hereunder and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.
(i) Use its best efforts to furnish, at the
request of any Holder requesting registration of Registrable Securities pursuant
to this Section 1, on the date that such Registrable Securities are delivered to
the underwriters for sale in connection with a registration pursuant to this
Section 1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities.
1.5 FURNISH INFORMATION. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.12(b)(2), whichever is applicable.
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1.6 EXPENSES OF DEMAND REGISTRATION. All
expenses other than underwriting discounts and commissions incurred in
connection with registrations, filings or qualifications pursuant to Section
1.2, including (without limitation) all registration, filing and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel for the
selling Holders shall be borne by the Company; PROVIDED, HOWEVER, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The
Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registrations pursuant to Section 1.3 for each Holder (which right may be
assigned as provided in Section 1.13), including (without limitation) all
registration, filing, and qualification fees, printers' and accounting fees
relating or apportionable thereto and the reasonable fees and disbursements of
one counsel for the selling Holders selected by them with the approval of the
Company, which approval shall not be unreasonably withheld, but excluding
underwriting discounts and commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS. In connection
with any offering involving an underwriting of shares of the Company's capital
stock, the Company shall not be required under Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling stockholders according to
the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders). For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder which is a holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and stockholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "SELLING
STOCKHOLDER," and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
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1.9 DELAY OF REGISTRATION. No Holder shall
have any right to obtain or seek an injunction restraining or otherwise delaying
any such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any
Registrable Securities are included in a registration statement under this
Section 1:
(a) To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, any underwriter (as
defined in the Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Act, the Exchange Act or any
state securities law; and the Company will pay to each such Holder, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this
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subsection 1.10(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this subsection 1.10(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10(b) exceed the net proceeds from the offering received
by such Holder, except in the case of willful fraud by such Holder.
(c) Promptly after receipt by an indemnified
party under this Section 1.10 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
1.10, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.10.
(d) If the indemnification provided for in
this Section 1.10 is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations; provided, that, in no event shall any contribution by
a Holder under this subsection 1.10(d) exceed the net proceeds from the offering
received by such Holder, except in the case of willful fraud by such Holder. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
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(e) Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and
Holders under this Section 1.10 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF
1934. With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information
available, as those terms are understood and defined in SEC Rule 144, at all
times after ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to the general
public so long as the Company remains subject to the periodic reporting
requirements under Sections 13 or 15(d) of the Exchange Act;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the
Holder owns any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
SEC Rule 144 (at any time after ninety (90) days after the effective date of the
first registration statement filed by the Company), the Act and the Exchange Act
(at any time after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
1.12 FORM S-3 REGISTRATION. Beginning 180 days
after the consummation of the IPO, in case the Company shall receive from any
Holder or Holders of not less than twenty percent (20%) of the Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or
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compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the
proposed registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within 15 days after receipt of such written notice from
the Company; PROVIDED, HOWEVER, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 1.12: (1) if Form S-3 is not available for such offering by the Holders;
(2) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$1,000,000; (3) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than 120 days
after receipt of the request of the Holder or Holders under this Section 1.12;
PROVIDED, HOWEVER, that the Company shall not utilize this right more than once
in any twelve month period; (4) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected one (1) registration
on Form S-3 for the Holders pursuant to this Section 1.12; (5) if the Company
has already effected a total of three (3) registration on Form S-3 for the
Holders pursuant to this Section 1.12; or (6) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company
shall file a registration statement covering the Registrable Securities and
other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to Section 1.12, including
(without limitation) all registration, filing, qualification, printers' and
accounting fees and the reasonable fees and disbursements of counsel for the
selling Holder or Holders and counsel for the Company, but excluding any
underwriters' discounts or commissions associated with Registrable Securities,
shall be borne pro rata by the Holder or Holders participating in the Form S-3
Registration. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The
rights to cause the Company to register Registrable Securities pursuant to this
Section 1 may be assigned (but only with all related obligations) by a Holder to
a transferee or assignee of at least 100,000 shares of
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such securities, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act. For the purposes of determining the number of shares
of Registrable Securities held by a transferee or assignee, (i) the holdings of
transferees and assignees of a partnership who are partners or retired partners
of such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Registrable Securities by gift,
will or intestate succession), (ii) the holdings of transferees and assignees of
a corporation that control, are controlled by or under common control with such
corporation, and (iii) the holdings of transferees and assignees of a limited
liability company who are entities managed by the same manager or management
company, or managed or owned by an entity controlling, controlled by, or under
common control with, such manager or management company, shall be aggregated
together and with the partnership, corporation or limited liability company as
the case may be; provided that all assignees and transferees who would not
qualify individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION
RIGHTS. From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 1.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is included
or (b) to make a demand registration which could result in such registration
statement being declared effective prior to the earlier of either of the dates
set forth in subsection 1.2(a) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Holder
hereby agrees that, during the period of duration (up to, but not exceeding, 180
days) specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the date of the final prospectus
distributed in connection with a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; PROVIDED, HOWEVER, that:
(a) such agreement shall be applicable only
during the two-year period following the date of the final prospectus
distributed pursuant to the first such
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registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company
and all five-percent securityholders (on a fully diluted basis) enter into
similar agreements.
In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Registrable
Securities of each Holder (and the shares or securities of every other person
subject to the foregoing restriction) until the end of such period, and each
Holder agrees that, if so requested, such Holder will execute an agreement in
the form provided by the underwriter containing terms which are essentially
consistent with the provisions of this Section 1.15.
Notwithstanding the foregoing, the obligations
described in this Section 1.15 shall not apply to a registration relating solely
to employee benefit plans on Form S-1 or Form S-8 or similar forms which may be
promulgated in the future, or a registration relating solely to an SEC Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.16 TERMINATION OF REGISTRATION RIGHTS. No
Holder shall be entitled to exercise any right provided for in this Section 1
after the earlier of (i) three (3) years following the consummation of the IPO,
or (ii) such time as Rule 144 or another similar exemption under the Act is
available for the sale of all of such Holder's shares during a three (3)-month
period without registration.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The
Company shall deliver to each Investor holding, and to transferees of, at least
250,000 shares of Registrable Securities, other than a Holder reasonably deemed
by the Company to be a competitor of the Company:
(a) as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company and
statement of stockholder's equity as of the end of such year, and a statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"), and audited and certified by an independent public accounting firm of
nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event
within thirty (30) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, a
statement of cash flows for such fiscal quarter and an unaudited balance sheet
as of the end of such fiscal quarter;
(c) as soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a budget for the next
fiscal year, prepared on a monthly basis,
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including balance sheets and sources and applications of funds statements for
such months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company;
(d) with respect to the financial statements
called for in subsection (b) of this Section 2.1, an instrument executed by the
Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so;
and
(e) such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor or any assignee of the Investor may from time to time reasonably
request, PROVIDED, HOWEVER, that the Company shall not be obligated under this
subsection (e) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information.
2.2 INSPECTION. The Company shall permit each
Investor who holds not less than 250,000 shares of Registrable Securities,
except for a Holder reasonably deemed by the Company to be a competitor of the
Company, at such Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; PROVIDED, HOWEVER, that
the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION
COVENANTS. The covenants set forth in Sections 2.1 and 2.2 shall terminate as to
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public is consummated or when the Company first becomes subject to
the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act,
whichever event shall first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms
and conditions specified in this Section 2.4, the Company hereby grants to each
Major Investor (as hereinafter defined) a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For purposes
of this Section 2.4, a "MAJOR INVESTOR" shall mean any person who holds at least
250,000 shares of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and/or Series E Preferred (or the Common Stock
issued upon conversion thereof); PROVIDED, HOWEVER, a holder of Series D
Preferred shall have such right only in the event the Company is not exercising
its Put Right (as defined in the Series D Purchase Agreement between the Company
and the Purchasers named therein) in connection with such
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sale. For purposes of this Section 2.4, Major Investor includes such shares held
by (i) any general partners and affiliates of a Major Investor and (ii) if the
Major Investor is a limited liability company, any entities managed by the same
manager or management company, or managed or owned by an entity controlling,
controlled by, or under common control with, such manager or management company.
A Major Investor who chooses to exercise the right of first offer may designate
as purchasers under such right itself or its partners or affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares
of, or securities convertible into or exercisable for any shares of, any class
of its capital stock ("SHARES"), the Company shall first make an offering of
such Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by
certified mail ("NOTICE") to the Major Investors stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms, if any, upon which it proposes to offer such
Shares.
(b) Within 15 calendar days after delivery of
the Notice, the Major Investor may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Major Investor bears to the total number of shares
of Common Stock then outstanding (assuming conversion of all outstanding
Preferred Stock).
(c) The Company may, during the 60-day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of the Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this
paragraph 2.4 shall not be applicable:
(i) to the issuance or sale of
Common Stock (or options therefor) to employees, consultants, directors or
vendors (if, with respect to vendors, in transactions with primarily
non-financing purposes), pursuant to plans or agreements approved by the Board
of Directors for the primary purpose of soliciting or retaining their services,
(ii) to or after consummation of a
bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act pursuant to a registration statement,
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(iii) to the issuance of securities
pursuant to the conversion or exercise of convertible or exercisable
securities,
(iv) to the issuance of securities
in connection with a bona fide business acquisition of or by the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock or
otherwise,
(v) to the issuance of securities to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings, or similar transactions,
(vi) to the issuance or sale of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock,
(vii) to the issuance of securities
that, with unanimous approval of the Board of Directors of the Company,
are not offered to any existing stockholder of the Company,
(viii) to the issuance of securities
in connection with any stock split, stock dividend or recapitalization by
the Company,
(ix) to the issuance of Common Stock
upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock, or pursuant to
options, warrants or other securities outstanding as of the date hereof, or
pursuant to conversion of any convertible securities issuable upon exercise of
options, warrants or other securities outstanding as of the date hereof,
(x) the issuance of securities
pursuant to transactions involving technology licensing, research or development
activities or the distribution, manufacture or marketing of the Company's
products, or
(xi) the issuance of securities
pursuant to a collaborative partnering arrangement with another corporation
or entity.
3. TERMINATION OF PRIOR AGREEMENTS.
3.1 TERMINATION OF FIFTH RESTATED RIGHTS
AGREEMENT. Effective upon the consent of holders of a majority of the
Registrable Securities (as defined in the Fifth Restated Rights agreement) and
conditioned upon the purchase and sale of the Series E Preferred Stock pursuant
to the Purchase Agreement, the Fifth Restated Rights Agreement is hereby
terminated and of no further force and effect.
3.2 TERMINATION OF PRIOR RIGHTS. Each Series
B Holder and Acacia Common Holder hereby agrees that such Holder shall have no
rights hereunder or under the Fourth Restated Rights Agreement unless such
Holder has executed the Termination Agreement by and among the Company, Acacia
Biosciences, Inc. and the other parties thereto attached as EXHIBIT K to the
Agreement and Plan and Reorganization dated as of January 29, 1999; PROVIDED,
HOWEVER, notwithstanding the foregoing such Holder shall be subject to Section
1.15 hereof.
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4. MISCELLANEOUS.
4.1 SUCCESSORS AND ASSIGNS. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of any of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or warrants to purchase Common Stock or Preferred Stock (or any
Common Stock issued upon conversion or exercise thereof) or Common Stock subject
to this Agreement). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
4.2 GOVERNING LAW. This Agreement and all acts
and transactions pursuant hereto shall be governed, construed and interpreted in
accordance with the laws of the State of Washington, without giving effect to
principles of conflicts of laws.
4.3 COUNTERPARTS. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
4.4 TITLES AND SUBTITLES. The titles and
subtitles used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
4.5 NOTICES. Unless otherwise provided, any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon delivery, when delivered personally or by overnight
courier or sent by telegram or fax and addressed to the party to be notified at
such party's address as set forth below or on EXHIBITS A, B, C, D, E, F, G, OR H
hereto or as subsequently modified by written notice.
4.6 EXPENSES. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
4.7 AMENDMENTS AND WAIVERS. Any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
4.8 SEVERABILITY. If one or more provisions of
this Agreement are held to be unenforceable under applicable law, the parties
agree to renegotiate such provision in good
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faith. In the event that the parties cannot reach a mutually agreeable and
enforceable replacement for such provision, then (x) such provision shall be
excluded from this Agreement, (y) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (z) the balance of the
Agreement shall be enforceable in accordance with its terms.
4.9 AGGREGATION OF STOCK. All shares of the
Preferred Stock held or acquired by affiliated entities or persons (and with
respect to limited liability companies, any entities managed by the same manager
or management company, or managed or owned by an entity controlling, controlled
by, or under common control with, such manager or management company) shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
[Signature pages follow.]
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The parties have executed this Sixth Amended and Restated Investors'
Rights Agreement as of the date first above written.
COMPANY: INVESTORS:
ROSETTA INPHARMATICS, INC. ------------------------------------
(Investor)
By: /s/ John J. King By:
---------------------------------------- ---------------------------------
John J. King, II, Senior Vice President &
Chief Operating Officer Name:
Address: 405 Corporate Center --------------------------------
12040 115th Avenue NE (print)
Suite 210 Title:
Kirkland, Washington 98034 ------------------------------
Address:
-----------------------------
-----------------------------
-----------------------------
[SIGNATURE PAGE TO ROSETTA INPHARMATICS, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
ROSETTA INPHARMATICS, INC.
1997 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1997 Stock Plan are
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as
amended, and the regulations promulgated thereunder. Stock purchase rights
may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to
the administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options are
granted under the Plan, as such laws, rules, regulations and requirements
shall be in place from time to time.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CAUSE" for termination of a Participant's Continuous
Service Status will exist if the Participant is terminated for any of the
following reasons: (i) Participant's willful failure substantially to perform
his or her duties and responsibilities to the Company or deliberate violation
of a Company policy; (ii) Participant's commission of any act of fraud,
embezzlement, dishonesty or any other willful misconduct that has caused or
is reasonably expected to result in material injury to the Company; (iii)
unauthorized use or disclosure by Participant of any proprietary information
or trade secrets of the Company or any other party to whom the Participant
owes an obligation of nondisclosure as a result of his or her relationship
with the Company; or (iv) Participant's willful breach of any of his or her
obligations under any written agreement or covenant with the Company. The
determination as to whether a Participant is being terminated for Cause shall
be made in good faith by the Company and shall be final and binding on the
Participant. The foregoing definition does not in any way limit the Company's
ability to terminate a Participant's employment or consulting relationship at
any time as provided in Section 5(d) below, and the term "Company" will be
interpreted to include any Subsidiary, Parent or successor thereto, if
appropriate.
<PAGE>
(e) "CHANGE OF CONTROL" means a sale of all or substantially
all of the Company's assets, or any merger or consolidation of the Company
with or into another corporation other than a merger or consolidation in
which the holders of more than 50% of the shares of capital stock of the
Company outstanding immediately prior to such transaction continue to hold
(either by the voting securities remaining outstanding or by their being
converted into voting securities of the surviving entity) more than 50% of
the total voting power represented by the voting securities of the Company,
or such surviving entity, outstanding immediately after such transaction.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
(h) "COMMON STOCK" means the Common Stock of the Company.
(i) "COMPANY" means Rosetta Inpharmatics, Inc., a Delaware
corporation.
(j) "CONSULTANT" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(k) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the
Company or between the Company, its Subsidiaries or their respective
successors. For purposes of this Plan, a change in status from an Employee to
a Consultant or from a Consultant to an Employee will not constitute an
interruption of Continuous Status as an Employee or Consultant.
(l) "CORPORATE TRANSACTION" means a sale of all or
substantially all of the Company's assets, or a merger, consolidation or
other capital reorganization of the Company with or into another corporation
and includes a Change of Control.
(m) "EMPLOYEE" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company, with the status of employment determined based upon such minimum
number of hours or periods worked as shall be determined by the Administrator
in its discretion, subject to any requirements of the Code. The payment by
the Company of a director's fee to a Director shall not be sufficient to
constitute "employment" of such Director by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
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(o) "FAIR MARKET VALUE" means, as of any date, the fair market
value of the Common Stock, as determined by the Administrator in good faith
on such basis as it deems appropriate and applied consistently with respect
to Participants. Whenever possible, the determination of Fair Market Value
shall be based upon the closing price for the Shares as reported in the WALL
STREET JOURNAL for the applicable date.
(p) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable written option agreement.
(q) "INVOLUNTARY TERMINATION" means termination of a
Participant's Continuous Service Status under the following circumstances:
(i) termination without Cause by the Company or a Subsidiary, Parent or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 30 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in
title alone nor reassignment following a Change of Control to a position that
is substantially similar to the position held prior to the Change of Control
shall constitute a material reduction in job responsibilities; (B) relocation
by the Company or a Subsidiary, Parent or successor thereto, as appropriate,
of the Participant's work site to a facility or location more than 30 miles
from the Participant's principal work site for the Company at the time of the
Change of Control; or (C) a reduction in Participant's then-current base
salary by at least 25%, provided that an across-the-board reduction in the
salary level of all other employees or consultants in positions similar to
the Participant's by the same percentage amount as part of a general salary
level reduction shall not constitute such a salary reduction.
(r) "LISTED SECURITY" means any security of the Company that is
listed or approved for listing on a national securities exchange or
designated or approved for designation as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc..
(s) "NAMED EXECUTIVE" means any individual who, on the last day
of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four most highly compensated
officers of the Company (other than the chief executive officer). Such
officer status shall be determined pursuant to the executive compensation
disclosure rules under the Exchange Act.
(t) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(u) "OPTION" means a stock option granted pursuant to the Plan.
(v) "OPTIONED STOCK" means the Common Stock subject to an
Option or a Stock Purchase Right.
(w) "OPTIONEE" means an Employee or Consultant who receives an
Option or a Stock Purchase Right.
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<PAGE>
(x) "PARENT" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any
successor provision.
(y) "PARTICIPANT" means any holder of one or more Options or
Stock Purchase Rights, or the Shares issuable or issued upon exercise of such
Options or Stock Purchase Rights, under the Plan.
(z) "PLAN" means this 1997 Stock Plan.
(aa) "REPORTING PERSON" means an officer, director, or greater
than ten percent stockholder of the Company within the meaning of Rule 16a-2
under the Exchange Act, who is required to file reports pursuant to Rule
16a-3 under the Exchange Act.
(bb) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(cc) "RULE 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as the same may be amended from time to time, or any successor
provision.
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(ee) "STOCK EXCHANGE" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted
at any given time.
(ff) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 10 below.
(gg) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
(hh) "TEN PERCENT HOLDER" means a person who owns stock
representing more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
12 of the Plan, the maximum aggregate number of Shares that may be optioned
and sold under the Plan is 3,107,825 shares of Common Stock. The Shares may
be authorized, but unissued, or reacquired Common Stock. If an Option should
expire or become unexercisable for any reason without having been exercised
in full, the unpurchased Shares that were subject thereto shall, unless the
Plan shall have been terminated, become available for future grant under the
Plan. In addition, any Shares of Common Stock which are retained by the
Company upon exercise of an Option or Stock Purchase Right in order to
satisfy any withholding taxes due with respect to such exercise shall be
treated as not issued and shall continue to be available under the Plan.
Shares repurchased by the Company pursuant to any repurchase right which the
Company may have shall not be available for future grant under the Plan.
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<PAGE>
4. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board
may authorize one or more officers to make awards under the Plan.
(b) COMMITTEE COMPOSITION. If a Committee has been appointed
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of any Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all
to the extent permitted by the Applicable Laws and, in the case of a
Committee administering the Plan in accordance with the requirements of Rule
16b-3 or Section 162(m) of the Code, to the extent permitted or required by
such provisions.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(o) of the Plan, provided that such
determination shall be applied consistently with respect to Participants
under the Plan;
(ii) to select the Employees and Consultants to whom
Options may from time to time be granted;
(iii) to determine whether and to what extent Options are
granted;
(iv) to determine the number of Shares of Common Stock
to be covered by each award granted;
(v) to approve the form(s) of agreement(s) used under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder,
which terms and conditions include but are not limited to the exercise or
purchase price, the time or times when awards may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option, Optioned Stock or restricted stock issued upon exercise of an Option,
based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vii) to determine whether and under what circumstances
an Option may be settled in cash under Section 10(c) instead of Common Stock;
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<PAGE>
(viii) to implement an Option Exchange Program on such
terms and conditions as the Administrator in its discretion deems
appropriate, provided that no amendment or adjustment to an Option that would
materially and adversely affect the rights of any Optionee shall be made
without the prior written consent of the Optionee;
(ix) to adjust the vesting of an Option held by an
Employee or Consultant as a result of a change in the terms or conditions
under which such person is providing services to the Company;
(x) to construe and interpret the terms of the Plan and
awards granted under the Plan, which constructions, interpretations and
decisions shall be final and binding on all Participants; and
(xi) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options to Participants who
are foreign nationals or employed outside of the United States in order to
recognize differences in local law, tax policies or customs.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees. An Employee or Consultant who has
been granted an Option or Stock Purchase Right may, if he or she is otherwise
eligible, be granted additional Options or Stock Purchase Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the
written option agreement as either an Incentive Stock Option or a
Nonstatutory Stock Option. However, notwithstanding such designations, to the
extent that the aggregate Fair Market Value of Shares with respect to which
Options designated as Incentive Stock Options are exercisable for the first
time by any Optionee during any calendar year (under all plans of the Company
or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 5(b),
Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of the Shares subject to an
Incentive Stock Option shall be determined as of the date of the grant of
such Option.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with such Optionee's right or the
Company's right to terminate his or her employment or consulting relationship
at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated
under Section 15 of the Plan.
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<PAGE>
7. TERM OF OPTION. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that the term shall be no
more than ten (10) years from the date of grant thereof or such shorter term
as may be provided in the Option Agreement and provided further that, in the
case of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, is a Ten Percent Holder, the term of the Option shall be
five (5) years from the date of grant thereof or such shorter term as may be
provided in the written option agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board and set forth in the applicable agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, is a Ten Percent Holder, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted prior to the date, if any, on which
the Common Stock becomes a Listed Security to a person who is at the time of
grant is a Ten Percent Holder, the per Share exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of grant if required
by the Applicable Laws and, if not so required, shall be such price as is
determined by the Administrator;
(B) granted prior to the date, if any, on which
the Common Stock becomes a Listed Security to any other eligible person, the
per Share exercise price shall be no less than 85% of the Fair Market Value
per Share on the date of grant if required by the Applicable Laws and, if not
so required, shall be such price as is determined by the Administrator.
(C) granted on or after the date, if any, on which
the Common Stock becomes a Listed Security to any eligible person, the per
share Exercise Price shall be such price as determined by the Administrator
provided that if such eligible person is, at the time of the grant of such
Option, a Named Executive of the Company, the per share Exercise Price shall
be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist
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entirely of (1) cash, (2) check, (3) promissory note (subject to the
provisions of Section 153 of the Delaware General Corporation Law), (4) other
Shares that (x) in the case of Shares acquired upon exercise of an Option,
have been owned by the Optionee for more than six months on the date of
surrender or such other period as may be required to avoid a charge to the
Company's earnings, and (y) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares as to which such Option
shall be exercised, (5) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker,
if applicable, shall require to effect an exercise of the Option and delivery
to the Company of the sale or loan proceeds required to pay the exercise
price and any applicable income or employment taxes, or (6) any combination
of the foregoing methods of payment. In making its determination as to the
type of consideration to accept, the Administrator shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, consistent with the term of
the Plan and reflected in the Option Agreement, including vesting
requirements and/or performance criteria with respect to the Company and/or
the Optionee; provided however that, if required by the Applicable Laws, any
Option granted prior to the date, if any, upon which the Common Stock becomes
a Listed Security shall become exercisable at the rate of at least 20% per
year over five years from the date the Option is granted if required by the
Applicable Laws. In the event that any of the Shares issued upon exercise of
an Option (which exercise occurs prior to the date, if any, upon which the
Common Stock becomes a Listed Security) should be subject to a right of
repurchase in the Company's favor, such repurchase right shall, if required
by the Applicable Laws, lapse at the rate of at least 20% per year over five
years from the date the Option is granted. Notwithstanding the above, in the
case of an Option granted to an officer, Director or Consultant of the
Company or any Parent or Subsidiary of the Company, the Option may become
fully exercisable, or a repurchase right, if any, in favor of the Company
shall lapse, at any time or during any period established by the
Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and the
Company has received full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the Board, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company) of the
stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to
the Optioned Stock, not withstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment
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<PAGE>
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 12
of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares
as to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.
Subject to Section 9(c), in the event of termination of an Optionee's
Continuous Status as an Employee or Consultant with the Company, such
Optionee may, but only within three (3) months (or such other period of time
not less than thirty (30) days as is determined by the Administrator, with
such determination in the case of an Incentive Stock Option being made at the
time of grant of the Option) after the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth
in the Option Agreement), exercise his or her Option to the extent that the
Optionee was entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent
so entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the
Optionee is an Employee who becomes a Consultant.
(c) DISABILITY OF OPTIONEE.
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant
as a result of his or her total and permanent disability (within the meaning
of Section 22(e)(3) of the Code), Optionee may, but only within twelve (12)
months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise
it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(ii) In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of a disability
which does not fall within the meaning of total and permanent disability (as
set forth in Section 22(e)(3) of the Code), Optionee may, but only within six
(6) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise
it at the date of such termination. However, to the extent that such Optionee
fails to exercise an Option which is an Incentive Stock Option ("ISO")
(within the meaning of Section 422 of the Code) within three (3) months of
the date of such termination, the Option will not qualify for ISO treatment
under the Code. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such
Option to the extent so entitled within six months (6) from the date of
termination, the Option shall terminate.
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(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee during the period of Continuous Status as an Employee or Consultant
since the date of grant of the Option, or within thirty (30) days following
termination of Optionee's Continuous Status as an Employee or Consultant, the
Option may be exercised, at any time within six (6) months following the date
of death (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued
at the date of death or, if earlier, the date of termination of Optionee's
Continuous Status as an Employee or Consultant. To the extent that Optionee
was not entitled to exercise the Option at the date of death or termination,
as the case may be, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall
terminate.
(e) RULE 16b-3. Options granted to Reporting Persons shall
comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption for Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
(g) EXTENSION OF EXERCISE PERIOD. The Administrator shall have
full power and authority to extend the period of time for which an option is
to remain exercisable following termination of an Optionee's Continuous
Status as an Employee or Consultant from the periods set forth in Sections
9(b), 9(c) and 9(d) above or in the Option Agreement to such greater time as
the Board shall deem appropriate, PROVIDED, that in no event shall such
option be exercisable later than the date of expiration of the term of such
Option as set forth in the Option Agreement.
10. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. When the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall
be entitled to purchase, the price to be paid, and the time within which such
person must accept such offer, which shall in no event exceed thirty (30)
days from the date upon which the Administrator made the determination to
grant the Stock Purchase Right. In the case of a Stock Purchase Right granted
prior to the date, if any, on which the Common Stock becomes a Listed
Security and if required by the Applicable Laws at that time, the purchase
price of Shares subject to such Stock Purchase Rights shall not be less than
85% of the Fair Market Value of the Shares as of the date of the offer, or,
in the case of a Ten Percent Holder, the price shall not be less than 100% of
the Fair Market Value of the Shares as of the date of the offer. If the
Applicable Laws do not impose the requirements set forth in the preceding
sentence and with respect to any Stock Purchase Rights granted after the
date, if any, on which the Common Stock becomes a Listed Security, the
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purchase price of Shares subject to Stock Purchase Rights shall be as
determined by the Administrator. The offer to purchase Shares subject to
Stock Purchase Rights shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator. Shares
purchased pursuant to the grant of a Stock Purchase Right shall be referred
to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's employment with the Company for any reason (including
death or disability). The purchase price for Shares repurchased pursuant to
the Restricted Stock purchase agreement shall be the original purchase price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option shall lapse at such rate
as the Administrator may determine, provided that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a purchaser who is not an officer, Director or
Consultant of the Company or of any Parent or Subsidiary of the Company, it
shall lapse at a minimum rate of 20% per year if required by the Applicable
Laws.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock purchase
agreements need not be the same with respect to each purchaser.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 12 of the Plan.
11. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At
the discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax
liability in connection with an Option or Stock Purchase Right, which tax
liability is subject to tax withholding under applicable tax laws, and the
Optionee is obligated to pay the Company an amount required to be withheld
under applicable tax laws, the Optionee may satisfy the withholding tax
obligation by one or some combination of the following methods: (a) by cash
payment, or (b) out of Optionee's current compensation, (c) if permitted by
the Administrator, in its discretion, by surrendering to the Company Shares
that (i) in the case of Shares previously acquired from the Company, have
been owned by the Optionee for more than six months on the date of surrender,
and (ii) have a fair market value on the date of surrender equal to or less
than Optionee's marginal tax rate times the ordinary income recognized, or
(d) by electing to have the Company withhold from the Shares to be issued
upon exercise of the Option, or the Shares to be issued in connection with
the Stock Purchase Right, if any, that number of Shares having a fair market
value equal to the amount required to be withheld. For this purpose, the fair
market value of the Shares to be withheld shall
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be determined on the date that the amount of tax to be withheld is to be
determined (the "TAX DATE"). If the Administrator allows the withholding or
surrender of Shares to satisfy a Participant's tax withholding obligations
under this Section 11, the Administrator shall not allow Shares to be
withheld or surrendered in an amount that exceeds the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes.
Any surrender by a Reporting Person of previously owned Shares
to satisfy tax withholding obligations arising upon exercise of this Option
must comply with the applicable provisions of Rule 16b-3.
All elections by an Optionee to have Shares withheld to satisfy
tax with-holding obligations shall be made in writing in a form acceptable to
the Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax
Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the
election is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN
OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option or Stock Purchase Right, and the number of
shares of Common Stock that have been authorized for issuance under the Plan
but as to which no Options or Stock Purchase Rights have yet been granted or
that have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, as well as the price per share of Common
Stock covered by each such outstanding Option or Stock Purchase Right, shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination, recapitalization or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided
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herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option or Stock Purchase
Right will terminate immediately prior to the consummation of such proposed
action.
(c) CORPORATE TRANSACTION; CHANGE OF CONTROL. In the event of
a Corporate Transaction, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation (the "SUCCESSOR CORPORATION"), unless the Successor Corporation
does not agree to assume the award or to substitute an equivalent option or
right, in which case such Option or Stock Purchase Right shall terminate upon
the consummation of the transaction.
Notwithstanding the above, in the event of a Change of Control
and irrespective of whether outstanding awards are being assumed, substituted
or terminated in connection with the transaction, the vesting and
exercisability of each outstanding Option and Stock Purchase Right shall
accelerate such that the Options and Stock Purchase Rights shall become
vested and exercisable to the extent of 50% of the Shares then unvested, and
any repurchase right of the Company with respect to shares issued upon
exercise of an Option or Stock Purchase Right shall lapse as to 50% of the
Shares subject to such repurchase right prior to consummation of the Change
of Control, in each case effective as of immediately prior to consummation of
the transaction; provided, however, that in the event that the Successor
Corporation does not agree to assume the award or to substitute an equivalent
option or right, the vesting and exercisability of each outstanding Option
and Stock Purchase Right shall accelerate such that the Options and Stock
Purchase Rights shall become vested and exercisable to the extent of all of
the Shares then unvested, and any repurchase right of the Company with
respect to shares issued upon exercise of an Option or Stock Purchase Right
shall lapse as to all of the Shares subject to such repurchase right prior to
consummation of the Change of Control, in each case effective as of
immediately prior to consummation of the transaction. To the extent that an
Option or Stock Purchase Right is not exercised prior to consummation of a
Corporate Transaction in which the Option or Stock Purchase Right is not
being assumed or substituted, such Option or Stock Purchase Right shall
terminate upon such consummation.
In addition, in the event a Participant holding an Option or
Stock Purchase Right assumed or substituted by the Successor Corporation in a
Change of Control, or holding Restricted Stock issued upon exercise of an
Option or Stock Purchase Right with respect to which the Successor
Corporation has succeeded to a repurchase right as a result of the Change of
Control, is Involuntarily Terminated by the Successor Corporation without
Cause in connection with, or within twelve (12) months following consummation
of, the transaction, then any assumed or substituted Option or Stock Purchase
Right held by the terminated Participant at the time of termination shall
accelerate and become exercisable as to all of Shares, and any
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repurchase right applicable to any Shares shall lapse as to all of Shares.
The acceleration of vesting and lapse of repurchase rights provided for in
the previous sentence shall occur immediately prior to the effective date of
the Participant's termination.
For purposes of this Section 14(c), an Option or a Stock
Purchase Right shall be considered assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon a Corporate
Transaction or a Change of Control, as the case may be, each holder of an
Option or Stock Purchase Right would be entitled to receive upon exercise of
the award the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to
receive upon the occurrence of the transaction if the holder had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the award at such time (after giving effect to any
adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 14); provided that if such
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the
Successor Corporation, provide for the consideration to be received upon
exercise of the award to be solely common stock of the Successor Corporation
equal to the Fair Market Value of the per Share consideration received by
holders of Common Stock in the transaction.
(d) LIMITATION ON PAYMENTS. In the event that the vesting
acceleration or lapse of a repurchase right provided for in Section 14(c)
above (x) constitutes "parachute payments" within the meaning of Section 280G
of the Code, and (y) but for this Section 14(d) would be subject to the
excise tax imposed by Section 4999 of the Code (or any corresponding
provisions of state income tax law), then such vesting acceleration or lapse
of a repurchase right shall be either
(A) delivered in full, or
(B) delivered as to such lesser extent which would result
in no portion of such severance benefits being subject to excise tax under
Code Section 4999,
whichever amount, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Code Section 4999,
results in the receipt by the Participant on an after-tax basis of the
greater amount of acceleration or lapse of repurchase rights benefits,
notwithstanding that all or some portion of such benefits may be taxable
under Code Section 4999. Any determination required under this Section 14(d)
shall be made in writing by the Company's independent accountants, whose
determination shall be conclusive and binding for all purposes on the Company
and any affected Participant. In the event that (A) above applies, then the
Participant shall be responsible for any excise taxes imposed with respect to
such benefits. In the event that (B) above applies, then each benefit
provided hereunder shall be proportionately reduced to the extent necessary
to avoid imposition of such excise taxes.
(e) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without
receipt of consideration by the Company, the Administrator
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may, in its discretion, appropriately adjust the price per Share of Common
Stock covered by each outstanding Option to reflect the effect of such
distribution.
13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
(a) GENERAL. Except as set forth in this Section 13, Options
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution. The designation of a beneficiary by an Optionee will
not constitute a transfer. An Option or Stock Purchase Right may be
exercised, during the lifetime of the holder of an Option or Stock Purchase
Right, only by such holder or a transferee permitted by this Section 13.
(b) LIMITED TRANSFERABILITY RIGHTS. Notwithstanding anything
else in this Section 13, prior to the date, if any, on which the Common Stock
becomes a Listed Security, the Administrator may in its discretion grant
Nonstatutory Stock Options that may be transferred by instrument to an inter
vivos or testamentary trust in which the Options are to be passed to
beneficiaries upon the death of the trustor (settlor) or by gift to
"Immediate Family" (as defined below), on such terms and conditions as the
Administrator deems appropriate. Following the date, if any, on which the
Common Stock becomes a Listed Security, the Administrator may in its
discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements specifying the manner in which such Nonstatutory Stock Options are
transferable. "IMMEDIATE FAMILY" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and shall include adoptive relationships.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option
or Stock Purchase Right, or such other date as is determined by the Board;
provided however that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of
commencement of the Optionee's employment relationship with the Company.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any Stock Exchange), the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
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<PAGE>
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or
termination of the Plan shall adversely affect Options already granted,
unless mutually agreed otherwise between the Optionee and the Board, which
agreement must be in writing and signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required by law.
17. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve the Company
of any liability in respect of the failure to issue or sell such Shares as to
which such requisite authority shall not have been obtained.
18. AGREEMENTS. Options and Stock Purchase Rights shall be
evidenced by written agreements in such form as the Administrator shall
approve from time to time.
19. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted. Such stockholder approval shall
be obtained in the degree and manner required under applicable state and
federal law and the rules of any Stock Exchange upon which the Common Stock
is listed. All Options and Stock Purchase Rights issued under the Plan shall
become void in the event such approval is not obtained.
20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. The
Company shall provide financial statements at least annually to each Optionee
and to each individual who acquired Shares Pursuant to the Plan, during the
period such Optionee or purchaser has one or more Options or Stock Purchase
Rights outstanding, and in the case of an individual who acquired Shares
pursuant to the Plan, during the period such individual owns such Shares. The
Company shall not be required to provide such information if the issuance of
Options or Stock Purchase Rights under the Plan is limited to key employees
whose duties in connection with the Company assure their access to equivalent
information. In addition, at the time of issuance of any securities under the
Plan, the Company shall provide to the Optionee or the Purchaser a copy of
the Plan and any agreement(s) pursuant to which securities under the Plan are
issued.
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ROSETTA INPHARMATICS, INC.
2000 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 2000 Stock Plan are
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ADMINISTRATOR" means the Board or its Committee appointed
pursuant to Section 4 of the Plan.
(b) "AFFILIATE" means an entity other than a Subsidiary (as
defined below) which, together with the Company, is under common control of a
third person or entity.
(c) "APPLICABLE LAWS" means the legal requirements relating to
the administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options are
granted under the Plan, as such laws, rules, regulations and requirements
shall be in place from time to time.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CAUSE" for termination of a Participant's Continuous
Service Status will exist if the Participant is terminated for any of the
following reasons: (i) Participant's willful failure substantially to perform
his or her duties and responsibilities to the Company or deliberate violation
of a Company policy; (ii) Participant's commission of any act of fraud,
embezzlement, dishonesty or any other willful misconduct that has caused or
is reasonably expected to result in material injury to the Company; (iii)
unauthorized use or disclosure by Participant of any proprietary information
or trade secrets of the Company or any other party to whom the Participant
owes an obligation of nondisclosure as a result of his or her relationship
with the Company; or (iv) Participant's willful breach of any of his or her
obligations under any written agreement or covenant with the Company. The
determination as to whether a Participant is being terminated for Cause shall
be made in good faith by the Company and shall be final and binding on the
Participant. The foregoing definition does not in any way limit the Company's
ability to terminate a Participant's employment or consulting relationship at
any time as provided in Section 5(d) below, and the term "Company" will be
interpreted to include any Subsidiary, Parent, Affiliate or successor
thereto, if appropriate.
(f) "CHANGE OF CONTROL" means a sale of all or substantially
all of the Company's assets, or any merger or consolidation of the Company
with or into another
<PAGE>
corporation other than a merger or consolidation in which the holders of more
than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving
entity, outstanding immediately after such transaction.
(g) "CODE" means the Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" means one or more committees or subcommittees
of the Board appointed by the Board to administer the Plan in accordance with
Section 4 below.
(i) "COMMON STOCK" means the Common Stock of the Company.
(j) "COMPANY" means Rosetta Inpharmatics, Inc., a Delaware
corporation.
(k) "CONSULTANT" means any person, including an advisor, who is
engaged by the Company or any Parent, Subsidiary or Affiliate to render
services and is compensated for such services, and any director of the
Company whether compensated for such services or not.
(l) "CONTINUOUS SERVICE STATUS" means the absence of any
interruption or termination of service as an Employee or Consultant.
Continuous Service Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the
Company or between the Company, its Parents, Subsidiaries, Affiliates or
their respective successors. A change in status from an Employee to a
Consultant or from a Consultant to an Employee will not constitute an
interruption of Continuous Service Status.
(m) "CORPORATE TRANSACTION" means a sale of all or
substantially all of the Company's assets, or a merger, consolidation or
other capital reorganization of the Company with or into another corporation
and includes a Change of Control.
(n) "DIRECTOR" means a member of the Board.
(o) "EMPLOYEE" means any person employed by the Company or any
Parent, Subsidiary or Affiliate, with the status of employment determined
based upon such factors as are deemed appropriate by the Administrator in its
discretion, subject to any requirements of the Code or the Applicable Laws.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(p) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(q) "FAIR MARKET VALUE" means, as of any date, the fair market
value of the Common Stock, as determined by the Administrator in good faith
on such basis as it deems
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appropriate and applied consistently with respect to Participants. Whenever
possible, the determination of Fair Market Value shall be based upon the
closing price for the Shares as reported in the WALL STREET JOURNAL for the
applicable date.
(r) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Option Agreement.
(s) "INVOLUNTARY TERMINATION" means termination of a
Participant's Continuous Service Status under the following circumstances:
(i) termination without Cause by the Company or a Subsidiary, Parent,
Affiliate or successor thereto, as appropriate; or (ii) voluntary termination
by the Participant within 30 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in
title alone nor reassignment following a Change of Control to a position that
is substantially similar to the position held prior to the Change of Control
shall constitute a material reduction in job responsibilities; (B) relocation
by the Company or a Subsidiary, Parent, Affiliate or successor thereto, as
appropriate, of the Participant's work site to a facility or location more
than 75 miles from the Participant's principal work site for the Company at
the time of the Change of Control; or (C) a reduction in Participant's
then-current base salary by at least 25%, provided that an across-the-board
reduction in the salary level of all other employees or consultants in
positions similar to the Participant's by the same percentage amount as part
of a general salary level reduction shall not constitute such a salary
reduction.
(t) "LISTED SECURITY" means any security of the Company that is
listed or approved for listing on a national securities exchange or
designated or approved for designation as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc.
(u) "NAMED EXECUTIVE" means any individual who, on the last day
of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four most highly compensated
officers of the Company (other than the chief executive officer). Such
officer status shall be determined pursuant to the executive compensation
disclosure rules under the Exchange Act.
(v) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(w) "OPTION" means a stock option granted pursuant to the Plan.
(x) "OPTION AGREEMENT" means a written document, the form(s) of
which shall be approved from time to time by the Administrator, reflecting
the terms of an Option granted under the Plan and includes any documents
attached to or incorporated into such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
(y) "OPTION EXCHANGE PROGRAM" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a
lower exercise
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price or are amended to decrease the exercise price as a result of a decline
in the Fair Market Value of the Common Stock.
(z) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(aa) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(bb) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any
successor provision.
(cc) "PARTICIPANT" means any holder of one or more Options, or
the Shares issuable or issued upon exercise of such Options, under the Plan.
(dd) "PLAN" means this 2000 Stock Plan.
(ee) "REPORTING PERSON" means an officer, Director, or greater
than ten percent stockholder of the Company within the meaning of Rule 16a-2
under the Exchange Act, who is required to file reports pursuant to Rule
16a-3 under the Exchange Act.
(ff) "RULE 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as amended from time to time, or any successor provision.
(gg) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(hh) "STOCK EXCHANGE" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted
at any given time.
(ii) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
(jj) "TEN PERCENT HOLDER" means a person who owns stock
representing more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
14 of the Plan, the maximum aggregate number of Shares that may be sold under
the Plan is 5,286,913 Shares of Common Stock, plus an annual increase on the
first day of each of the Company's fiscal years beginning in 2001 and ending
in 2009 equal to the lesser of (a) 1,200,000 Shares, (b) four (4%) percent of
the Shares outstanding on the last day of the immediately preceding fiscal
year, or (c) such lesser number of Shares as the Board shall determine. The
Shares may be authorized, but unissued, or reacquired Common Stock. If an
award should expire or become unexercisable for any reason without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the
Plan shall have been terminated, become available for future grant under the
Plan. In addition, any Shares of Common Stock which are retained by the
Company upon exercise of an award in order to satisfy any withholding taxes
due with respect to such exercise or purchase shall be treated as not issued
and shall continue to be available under the Plan. Shares issued under the
Plan and later
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repurchased by the Company pursuant to any repurchase right which the Company
may have shall not be available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board
may authorize one or more officers to make awards under the Plan.
(b) COMMITTEE COMPOSITION. If a Committee has been appointed
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of any Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all
to the extent permitted by the Applicable Laws and, in the case of a
Committee administering the Plan in accordance with the requirements of Rule
16b-3 or Section 162(m) of the Code, to the extent permitted or required by
such provisions.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(q) of the Plan, provided that such
determination shall be applied consistently with respect to Participants
under the Plan;
(ii) to select the Employees and Consultants to whom
Options may from time to time be granted;
(iii) to determine whether and to what extent Options are
granted;
(iv) to determine the number of Shares of Common Stock
to be covered by each award granted;
(v) to approve the form(s) of agreement(s) used under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder,
which terms and conditions include but are not limited to the exercise or
purchase price, the time or times when awards may be exercised (which may be
based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any
Option, Optioned Stock or restricted stock issued upon exercise of an Option,
based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
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(vii) to determine whether and under what circumstances
an Option may be settled in cash under Section 10(c) instead of Common Stock;
(viii) to implement an Option Exchange Program on such
terms and conditions as the Administrator in its discretion deems
appropriate, provided that no amendment or adjustment to an Option that would
materially and adversely affect the rights of any Optionee shall be made
without the prior written consent of the Optionee;
(ix) to adjust the vesting of an Option held by an
Employee or Consultant as a result of a change in the terms or conditions
under which such person is providing services to the Company;
(x) to construe and interpret the terms of the Plan and
awards granted under the Plan, which constructions, interpretations and
decisions shall be final and binding on all Participants; and
(xi) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options to Participants who
are foreign nationals or employed outside of the United States in order to
recognize differences in local law, tax policies or customs.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees, provided that Employees of Affiliates shall not be
eligible to receive Incentive Stock Options.
(b) TYPE OF OPTION. Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option.
(c) ISO $100,000 LIMITATION. Notwithstanding any designation
under Section 5(b), to the extent that the aggregate Fair Market Value of
Shares with respect to which Options designated as Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(c), Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market
Value of the Shares subject to an Incentive Stock Option shall be determined
as of the date of the grant of such Option.
(d) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
Participant any right with respect to continuation of an employment or
consulting relationship with the Company, nor shall it interfere in any way
with such Participant's right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without Cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption
by the Board of Directors. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 16 of the Plan.
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7. TERM OF OPTION. The term of each Option shall be the term
stated in the Option Agreement; provided that the term shall be no more than
ten years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of the Option shall be five years from the date
of grant thereof or such shorter term as may be provided in the Option
Agreement.
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as
provided in Section 14 below, the maximum number of Shares that may be
subject to Options granted to any one Employee under this Plan for any fiscal
year of the Company shall be 2,000,000, provided that this Section 8 shall
apply only after such time, if any, as the Common Stock becomes a Listed
Security.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as
is determined by the Administrator and set forth in the Option Agreement, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of
grant is a Ten Percent Holder, the per Share exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
share Exercise Price shall be such price as determined by the Administrator,
provided that if such eligible person is a Named Executive of the Company at
the time of the Option grant, the per share Exercise Price shall be no less
than 100% of the Fair Market Value on the grant date if the Option is
intended to qualify as performance-based compensation under Section 162(m) of
the Code.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant
to a merger or other corporate transaction.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method
of payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash; (2) check; (3) delivery of Optionee's
promissory note with such recourse, interest, security and redemption
provisions as the Administrator determines to be appropriate (subject to the
provisions of Section 153 of the Delaware General Corporation Law); (4)
cancellation of indebtedness; (5) other Shares that have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares
as to which the Option is exercised, provided that in the case of Shares
acquired, directly or
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indirectly, from the Company, such Shares must have been owned by the
Optionee for more than six months on the date of surrender (or such other
period as may be required to avoid the Company's incurring an adverse
accounting charge); (6) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and a securities
broker approved by the Company shall require to effect exercise of the Option
and prompt delivery to the Company of the sale or loan proceeds required to
pay the exercise price and any applicable withholding taxes; or (7) any
combination of the foregoing methods of payment. In making its determination
as to the type of consideration to accept, the Administrator shall consider
if acceptance of such consideration may be reasonably expected to benefit the
Company and the Administrator may, in its sole discretion, refuse to accept a
particular form of consideration at the time of any Option exercise.
10. EXERCISE OF OPTION.
(a) GENERAL.
(i) EXERCISABILITY. Any Option granted hereunder shall
be exercisable at such times and under such conditions as determined by the
Administrator, consistent with the term of the Plan and reflected in the
Option Agreement, including vesting requirements and/or performance criteria
with respect to the Company and/or the Optionee.
(ii) MINIMUM EXERCISE REQUIREMENTS. An Option may not
be exercised for a fraction of a Share. The Administrator may require that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent an Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
(iii) PROCEDURES FOR AND RESULTS OF EXERCISE. An Option
shall be deemed exercised when written notice of such exercise has been given
to the Company in accordance with the terms of the Option by the person
entitled to exercise the Option and the Company has received full payment for
the Shares with respect to which the Option is exercised. Full payment may,
as authorized by the Administrator, consist of any consideration and method
of payment allowable under Section 9(b) of the Plan, provided that the
Administrator may, in its sole discretion, refuse to accept any form of
consideration at the time of exercise. Exercise of an Option in any manner
shall result in a decrease in the number of Shares that thereafter may be
available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
(iv) RIGHTS AS STOCKHOLDER. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided
in Section 14 of the Plan.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP.
Except as otherwise set forth in this Section 10(b), the Administrator shall
establish and set forth in the applicable Option Agreement the terms and
conditions upon which an Option shall remain
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exercisable, if at all, following termination of an Optionee's Continuous
Service Status, which provisions may be waived or modified by the
Administrator at any time. To the extent that the Optionee is not entitled to
exercise an Option at the date of his or her termination of Continuous
Service Status, or if the Optionee (or other person entitled to exercise the
Option) does not exercise the Option to the extent so entitled within the
time specified in the Option Agreement or below (as applicable), the Option
shall terminate and the Optioned Stock underlying the unexercised portion of
the Option shall revert to the Plan. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Option Agreement
(and subject to Section 7).
The following provisions shall apply to the extent an Option
Agreement does not specify the terms and conditions upon which an Option
shall terminate upon termination of an Optionee's Continuous Service Status:
(i) TERMINATION OTHER THAN UPON DISABILITY OR DEATH OR
FOR CAUSE. In the event of termination of an Optionee's Continuous Service
Status, such Optionee may exercise an Option for 30 days following such
termination to the extent the Optionee was entitled to exercise it at the
date of such termination. No termination shall be deemed to occur and this
Section 10(b)(i) shall not apply if (i) the Optionee is a Consultant who
becomes an Employee, or (ii) the Optionee is an Employee who becomes a
Consultant.
(ii) DISABILITY OF OPTIONEE. In the event of
termination of an Optionee's Continuous Service Status as a result of his or
her disability (including a disability within the meaning of Section 22(e)(3)
of the Code), such Optionee may exercise an Option at any time within six
months following such termination to the extent the Optionee was entitled to
exercise it at the date of such termination.
(iii) DEATH OF OPTIONEE. In the event of the death of an
Optionee during the period of Continuous Service Status since the date of
grant of the Option, or within thirty days following termination of
Optionee's Continuous Service Status, the Option may be exercised by
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance at any time within six months following the
date of death, but only to the extent of the right to exercise that had
accrued at the date of death or, if earlier, the date the Optionee's
Continuous Service Status terminated.
(c) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares an Option previously granted under
the Plan based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. When the Administrator determines that
it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer. The purchase price of Shares subject to Stock Purchase
Rights shall be as
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determined by the Administrator. The offer to purchase Shares subject to
Stock Purchase Rights shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's employment with the Company for any reason (including
death or disability). The purchase price for Shares repurchased pursuant to
the Restricted Stock Purchase Agreement shall be the original purchase price
paid by the purchaser and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option shall lapse at such rate
as the Administrator may determine.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock Purchase
Agreements need not be the same with respect to each purchaser.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 14 of the Plan.
12. TAXES.
(a) As a condition of the exercise of an Option granted under
the Plan, the Participant (or in the case of the Participant's death, the
person exercising the Option) shall make such arrangements as the
Administrator may require for the satisfaction of any applicable federal,
state, local or foreign withholding tax obligations that may arise in
connection with the exercise of the Option and the issuance of Shares. The
Company shall not be required to issue any Shares under the Plan until such
obligations are satisfied. If the Administrator allows the withholding or
surrender of Shares to satisfy a Participant's tax withholding obligations
under this Section 12 (whether pursuant to Section 12(c), (d) or (e), or
otherwise), the Administrator shall not allow Shares to be withheld or
surrendered in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to
satisfy such tax obligations from the next payroll payment otherwise payable
after the date of an exercise of the Option.
(c) This Section 12(c) shall apply only after the date, if any,
upon which the Common Stock becomes a Listed Security. In the case of
Participant other than an Employee (or in the case of an Employee where the
next payroll payment is not sufficient to satisfy such tax obligations, with
respect to any remaining tax obligations), in the absence of any other
arrangement and to the extent permitted under the Applicable Laws, the
Participant shall be
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deemed to have elected to have the Company withhold from the Shares to be
issued upon exercise of the Option that number of Shares having a Fair Market
Value determined as of the applicable Tax Date (as defined below) equal to
the amount required to be withheld. For purposes of this Section 12, the Fair
Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "TAX DATE").
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise
of an Option by surrendering to the Company Shares that have a Fair Market
Value determined as of the applicable Tax Date equal to the amount required
to be withheld. In the case of shares previously acquired from the Company
that are surrendered under this Section 12(d), such Shares must have been
owned by the Participant for more than six (6) months on the date of
surrender (or such other period of time as is required for the Company to
avoid adverse accounting charges).
(e) Any election or deemed election by a Participant to have
Shares withheld to satisfy tax withholding obligations under Section 12(c) or
(d) above shall be irrevocable as to the particular Shares as to which the
election is made and shall be subject to the consent or disapproval of the
Administrator. Any election by a Participant under Section 12(d) above must
be made on or prior to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by
a Participant and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Participant
shall receive the full number of Shares with respect to which the Option is
exercised but such Participant shall be unconditionally obligated to tender
back to the Company the proper number of Shares on the Tax Date.
13. NON-TRANSFERABILITY OF OPTIONS. Except as set forth in this
Section 13, Options and Stock Purchase Rights may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than
by will or by the laws of descent or distribution; provided that the
Administrator may in its discretion grant transferable Nonstatutory Stock
Options pursuant to Option Agreements specifying the manner in which such
Nonstatutory Stock Options are transferable. The designation of a beneficiary
by an Optionee will not constitute a transfer. An Option or Stock Purchase
Right may be exercised, during the lifetime of the holder of Option or Stock
Purchase Right, only by such holder or a transferee permitted by this Section
13.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN
OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the stockholders of the Company, the number of Shares of Common Stock
covered by each outstanding Option, the numbers of Shares set forth in
Sections 3(a) and 8 above, and the number of Shares of Common Stock that have
been authorized for issuance under the Plan but as to which no Options have
yet been granted or that have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per Share of Common Stock
covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares of Common Stock
resulting from a stock split, reverse stock split, stock
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dividend, combination, recapitalization or reclassification of the Common
Stock, or any other increase or decrease in the number of issued Shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of Shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such action, unless otherwise
determined by the Administrator.
(c) CORPORATE TRANSACTION; CHANGE OF CONTROL. In the event of
a Corporate Transaction, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation (the "SUCCESSOR CORPORATION"), unless the Successor Corporation
does not agree to assume the award or to substitute an equivalent option or
right, in which case such Option or Stock Purchase Right shall terminate upon
the consummation of the transaction.
Notwithstanding the above, in the event of a Change of Control
and irrespective of whether outstanding awards are being assumed, substituted
or terminated in connection with the transaction, the vesting and
exercisability of each outstanding Option and Stock Purchase Right shall
accelerate such that the Options and Stock Purchase Rights shall become
vested and exercisable to the extent of 50% of the Shares then unvested, and
any repurchase right of the Company with respect to shares issued upon
exercise of an Option or Stock Purchase Right shall lapse as to 50% of the
Shares subject to such repurchase right prior to consummation of the Change
of Control, in each case effective as of immediately prior to consummation of
the transaction; provided, however, that in the event that the Successor
Corporation does not agree to assume the award or to substitute an equivalent
option or right, the vesting and exercisability of each outstanding Option
and Stock Purchase Right shall accelerate such that the Options and Stock
Purchase Rights shall become vested and exercisable to the extent of all of
the Shares then unvested, and any repurchase right of the Company with
respect to shares issued upon exercise of an Option or Stock Purchase Right
shall lapse as to all of the Shares subject to such repurchase right prior to
consummation of the Change of Control, in each case effective as of
immediately prior to consummation of the transaction. To the extent that an
Option or Stock Purchase Right is not exercised prior to consummation of a
Corporate Transaction in which the Option or Stock Purchase Right is not
being assumed or substituted, such Option or Stock Purchase Right shall
terminate upon such consummation.
In addition, in the event a Participant holding an Option or
Stock Purchase Right assumed or substituted by the Successor Corporation in a
Change of Control, or holding Restricted Stock issued upon exercise of an
Option or Stock Purchase Right with respect to which the Successor
Corporation has succeeded to a repurchase right as a result of the Change of
Control, is Involuntarily Terminated by the Successor Corporation without
Cause in connection
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with, or within twelve (12) months following consummation of, the
transaction, then any assumed or substituted Option or Stock Purchase Right
held by the terminated Participant at the time of termination shall
accelerate and become exercisable as to all of Shares, and any repurchase
right applicable to any Shares shall lapse as to all of Shares. The
acceleration of vesting and lapse of repurchase rights provided for in the
previous sentence shall occur immediately prior to the effective date of the
Participant's termination.
For purposes of this Section 14(c), an Option shall be
considered assumed, without limitation, if, at the time of issuance of the
stock or other consideration upon a Corporate Transaction or a Change of
Control, as the case may be, each holder of an Option would be entitled to
receive upon exercise of the award the same number and kind of shares of
stock or the same amount of property, cash or securities as such holder would
have been entitled to receive upon the occurrence of the transaction if the
holder had been, immediately prior to such transaction, the holder of the
number of Shares of Common Stock covered by the award at such time (after
giving effect to any adjustments in the number of Shares covered by the
Option as provided for in this Section 14); provided that if such
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the
Successor Corporation, provide for the consideration to be received upon
exercise of the award to be solely common stock of the Successor Corporation
equal to the Fair Market Value of the per Share consideration received by
holders of Common Stock in the transaction.
(d) LIMITATION ON PAYMENTS. In the event that the vesting
acceleration or lapse of a repurchase right provided for in Section 14(c)
above (x) constitutes "parachute payments" within the meaning of Section 280G
of the Code, and (y) but for this Section 14(d) would be subject to the
excise tax imposed by Section 4999 of the Code (or any corresponding
provisions of state income tax law), then such vesting acceleration or lapse
of a repurchase right shall be either
(A) delivered in full, or
(B) delivered as to such lesser extent which would result
in no portion of such severance benefits being subject to excise tax under
Code Section 4999,
whichever amount, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Code Section 4999,
results in the receipt by the Participant on an after-tax basis of the
greater amount of acceleration or lapse of repurchase rights benefits,
notwithstanding that all or some portion of such benefits may be taxable
under Code Section 4999. Any determination required under this Section 14(d)
shall be made in writing by the Company's independent accountants, whose
determination shall be conclusive and binding for all purposes on the Company
and any affected Participant. In the event that (A) above applies, then the
Participant shall be responsible for any excise taxes imposed with respect to
such benefits. In the event that (B) above applies, then each benefit
provided hereunder shall be proportionately reduced to the extent necessary
to avoid imposition of such excise taxes.
(e) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without
receipt of consideration by the Company, the Administrator
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may, in its discretion, appropriately adjust the price per Share of Common
Stock covered by each outstanding Option to reflect the effect of such
distribution.
15. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by
the Administrator, provided that in the case of any Incentive Stock Option,
the grant date shall be the later of the date on which the Administrator
makes the determination granting such Incentive Stock Option or the date of
commencement of the Optionee's employment relationship with the Company.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation (other than an adjustment pursuant to Section
14 above) shall be made that would materially and adversely affect the rights
of any Optionee under any outstanding grant, without his or her consent. In
addition, to the extent necessary and desirable to comply with the Applicable
Laws, the Company shall obtain stockholder approval of any Plan amendment in
such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or
termination of the Plan shall materially and adversely affect Options already
granted, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
or holder and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant
to the Plan, the Company shall not be obligated, and shall have no liability
for failure, to issue or deliver any Shares under the Plan unless such
issuance or delivery would comply with the Applicable Laws, with such
compliance determined by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option, the Company may require the
person exercising the award to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
18. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
19. AGREEMENTS. Options shall be evidenced by Option Agreements in
such form(s) as the Administrator shall from time to time approve.
20. STOCKHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the stockholders of
the Company within twelve (12) months
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before or after the date the Plan is adopted. Such stockholder approval shall
be obtained in the manner and to the degree required under the Applicable
Laws.
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ROSETTA INPHARMATICS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Rosetta Inpharmatics, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company. It is the intention of the Company to have the
Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Code. The provisions of the Plan shall, accordingly, be construed so as to
extend and limit participation in a manner consistent with the requirements
of that section of the Code.
2. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means Rosetta Inpharmatics, Inc., a Delaware
corporation.
(e) "COMPENSATION" means regular straight time gross earnings,
and shall not include commissions, payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of (i) sick
leave; (ii) military leave; (iii) any other leave of absence approved by the
Administrator, provided that such leave is for a period of not more than 90
days, unless reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to Company policy
adopted from time to time; or (iv) in the case of transfers between locations
of the Company or between the Company and its Designated Subsidiaries.
(g) "CONTRIBUTIONS" means all amounts credited to the account
of a participant pursuant to the Plan.
(h) "CORPORATE TRANSACTION" means a sale of all or
substantially all of the Company's assets, or a merger, consolidation or
other capital reorganization of the Company with or into another corporation.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan; provided however that the Board shall
only have the discretion to designate Subsidiaries if
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the issuance of options to such Subsidiary's Employees pursuant to the Plan
would not cause the Company to incur adverse accounting charges.
(j) "EMPLOYEE" means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than
five (5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(l) "OFFERING DATE" means the first business day of each
Offering Period of the Plan.
(m) "OFFERING PERIOD" means a period of twenty-four (24) months
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "PLAN" means this Employee Stock Purchase Plan.
(p) "PURCHASE DATE" means the last day of each Purchase Period
of the Plan.
(q) "PURCHASE PERIOD" means a period of six (6) months within
an Offering Period, except for the first Purchase Period as set forth in
Section 4(b).
(r) "PURCHASE PRICE" means with respect to a Purchase Period an
amount equal to 85% of the Fair Market Value (as defined in Section 7(b)
below) of a Share of Common Stock on the Offering Date or on the Purchase
Date, whichever is lower; provided, however, that in the event (i) of any
increase in the number of Shares available for issuance under the Plan as a
result of a stockholder-approved amendment to the Plan, and (ii) all or a
portion of such additional Shares are to be issued with respect to one or
more Offering Periods that are underway at the time of such increase
("ADDITIONAL SHARES"), and (iii) the Fair Market Value of a Share of Common
Stock on the date of such increase (the "APPROVAL DATE FAIR MARKET VALUE") is
higher than the Fair Market Value on the Offering Date for any such Offering
Period, then in such instance the Purchase Price with respect to Additional
Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market
Value of a Share of Common Stock on the Purchase Date, whichever is lower.
(s) "SHARE" means a share of Common Stock, as adjusted in
accordance with Section 19 of the Plan.
(t) "SUBSIDIARY" means a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
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3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering
Period under the Plan, subject to the requirements of Section 5(a) and the
limitations imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) if, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company and/or hold outstanding options to purchase
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or of any subsidiary of the
Company, or (ii) if such option would permit his or her rights to purchase
stock under all employee stock purchase plans (described in Section 423 of
the Code) of the Company and its Subsidiaries to accrue at a rate which
exceeds Twenty-Five Thousand Dollars ($25,000) of the Fair Market Value (as
defined in Section 7(b) below) of such stock (determined at the time such
option is granted) for each calendar year in which such option is outstanding
at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
(a) OFFERING PERIODS. The Plan shall be implemented by a
series of Offering Periods of approximately twenty-four (24) months duration,
with new Offering Periods commencing on or about February 1 and August 1 of
each year (or at such other time or times as may be determined by the Board
of Directors). The first Offering Period shall commence on the beginning of
the effective date of the Registration Statement on Form S-1 for the initial
public offering of the Company's Common Stock (the "IPO DATE") and continue
until July 31, 2002. The Plan shall continue until terminated in accordance
with Section 20 hereof. The Board of Directors of the Company shall have the
power to change the duration and/or the frequency of Offering Periods with
respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the
first Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall consist of
four (4) consecutive Purchase Periods of approximately six (6) months'
duration. The last day of each Purchase Period shall be the "PURCHASE DATE"
for such Purchase Period. A Purchase Period commencing on February 1 shall
end on the next July 31. A Purchase Period commencing on August 1 shall end
on the next January 31. The first Purchase Period shall commence on the IPO
Date and shall end on January 31, 2001. The Board of Directors of the Company
shall have the power to change the duration and/or frequency of Purchase
Periods with respect to future purchases without stockholder approval if such
change is announced at least five (5) days prior to the scheduled beginning
of the first Purchase Period to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement on the form provided by the Company
and filing it with the Company
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prior to the applicable Offering Date. The subscription agreement shall set
forth the percentage of the participant's Compensation (subject to Section
6(a) below) to be paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll paid
following the Offering Date and shall end on the last payroll paid on or
prior to the last Purchase Period of the Offering Period to which the
subscription agreement is applicable, unless sooner terminated by the
participant as provided in Section 10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) A participant shall elect to have payroll deductions made
on each payday during the Offering Period in an amount not less than one
percent (1%) and not more than twenty percent (20%) (or such greater
percentage as the Board may establish from time to time before an Offering
Date) of such participant's Compensation on each payday during the Offering
Period; provided that to the extent a participant is participating in more
than one Offering Period, the maximum aggregate percentage of Compensation
that he or she may contribute under the Plan shall be twenty percent (20%)
(or such greater percentage as the Board may establish from time to time
before an Offering Date). All payroll deductions made by a participant shall
be credited to his or her account under the Plan. A participant may not make
any additional payments into such account.
(b) A participant may discontinue his or her participation in
the Plan as provided in Section 10, or, on one occasion only during a
Purchase Period may increase and on one occasion only during a Purchase
Period may decrease the rate of his or her Contributions with respect to the
Offering Period by completing and filing with the Company a new subscription
agreement authorizing a change in the payroll deduction rate. The change in
rate shall be effective as of the beginning of the next calendar month
following the date of filing of the new subscription agreement, if the
agreement is filed at least ten (10) business days prior to such date and, if
not, as of the beginning of the next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b), a participant's
payroll deductions may be decreased by the Company to 0% at any time during a
Purchase Period. Payroll deductions shall re-commence at the rate provided in
such participant's subscription agreement at the beginning of the first
Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10. In addition,
a participant's payroll deductions may be decreased by the Company to 0% at
any time during a Purchase Period in order to avoid unnecessary payroll
contributions as a result of application of the maximum share limit set forth
in Section 7(a), or as a result of the limitations set forth in Section 3(b),
in which case payroll deductions shall re-commence at the rate provided in
such participant's subscription agreement at the beginning of the next
Purchase Period, unless terminated by the participant as provided in Section
10.
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7. GRANT OF OPTION.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common
Stock determined by dividing such Employee's Contributions accumulated prior
to such Purchase Date and retained in the participant's account as of the
Purchase Date by the applicable Purchase Price; provided however that the
maximum number of Shares an Employee may purchase during each Purchase Period
shall be 1,800 Shares (subject to any adjustment pursuant to Section 19
below), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a
given date (the "FAIR MARKET VALUE") shall be determined by the Board in its
discretion; provided that to the extent the Common Stock is trading on the
Nasdaq National Market (i) the Fair Market Value as of an Offering Date shall
be the closing sales price of the Common Stock as reported by the Nasdaq
National Market for the last trading day immediately preceding the Offering
Date, and (ii) the Fair Market Value of the Common Stock as of a Purchase
Date shall be the closing sales price of the Common Stock as reported by the
Nasdaq National Market for the Purchase Date, in each case as reported in THE
WALL STREET JOURNAL. For purposes of the Offering Date under the first
Offering Period under the Plan, the Fair Market Value of a share of the
Common Stock of the Company shall be the Price to Public as set forth in the
final prospectus filed with the Securities and Exchange Commission pursuant
to Rule 424 under the Securities Act of 1933, as amended.
8. EXERCISE OF OPTION. Unless a participant withdraws from the
Plan as provided in Section 10, his or her option for the purchase of Shares
will be exercised automatically on each Purchase Date of an Offering Period,
and the maximum number of full Shares subject to the option will be purchased
at the applicable Purchase Price with the accumulated Contributions in his or
her account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date
of each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, the Shares purchased upon exercise of his or her
option. No fractional Shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full Share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 below. Any other amounts left over in a
participant's account after a Purchase Date shall be returned to the
participant.
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior
to each Purchase Date by giving
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written notice to the Company. All of the participant's Contributions
credited to his or her account will be paid to him or her promptly after
receipt of his or her notice of withdrawal and his or her option for the
current period will be automatically terminated, and no further Contributions
for the purchase of Shares will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as
an Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her
account will be returned to him or her or, in the case of his or her death,
to the person or persons entitled thereto under Section 15, and his or her
option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the Offering Period in which the employee is a participant, he or she
will be deemed to have elected to withdraw from the Plan and the
Contributions credited to his or her account will be returned to him or her
and his or her option terminated.
(d) A participant's withdrawal from an offering will not have
any effect upon his or her eligibility to participate in a succeeding
offering or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL. To the extent permitted by any
applicable laws, regulations or stock exchange rules, if the Fair Market
Value of the Shares on an Offering Date for an Offering Period (the "NEW
OFFERING PERIOD") commencing within an Offering Period (the "ONGOING OFFERING
PERIOD") then in progress is lower than was the Fair Market Value of the
Shares on the Offering Date for the Ongoing Offering Period, then every
participant in the Ongoing Offering Period shall automatically be deemed to
have (i) withdrawn from the Ongoing Offering Period at the close of the
Purchase Period immediately preceding the New Offering Period, and (ii)
enrolled in such New Offering Period. In addition, participants shall
automatically be withdrawn as of July 31, 2000 from the Offering Period
beginning on the IPO Date and re-enrolled in the Offering Period beginning on
August 1, 2000 if the Fair Market Value of the Shares on the IPO Date is
greater than the Fair Market Value of the Shares for the August 1, 2000
Offering Date, unless a participant notifies the Administrator prior to July
31, 2000 that he or she does not wish to be withdrawn and re-enrolled under
these circumstances.
12. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment as provided in Section 19, the
maximum number of Shares which shall be made available for sale under the
Plan shall be 350,000 Shares, plus an annual increase on the first day of
each of the Company's fiscal years beginning in 2001 and ending in 2010 equal
to the lesser of (i) 350,000 Shares, (ii) one and four-tenths percent (1.4%)
of the Shares outstanding on the last day of the immediately preceding fiscal
year, or (iii) such lesser number of Shares as is determined by the Board. If
the Board determines that, on a given
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Purchase Date, the number of shares with respect to which options are to be
exercised may exceed (i) the number of shares of Common Stock that were
available for sale under the Plan on the Offering Date of the applicable
Offering Period, or (ii) the number of shares available for sale under the
Plan on such Purchase Date, the Board may in its sole discretion provide (x)
that the Company shall make a pro rata allocation of the Shares of Common
Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and
continue all Offering Periods then in effect, or (y) that the Company shall
make a pro rata allocation of the shares available for purchase on such
Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock
on such Purchase Date, and terminate any or all Offering Periods then in
effect pursuant to Section 20 below. The Company may make pro rata allocation
of the Shares available on the Offering Date of any applicable Offering
Period pursuant to the preceding sentence, notwithstanding any authorization
of additional Shares for issuance under the Plan by the Company's
stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in
Shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will
be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. ADMINISTRATION. The Board, or a committee named by the Board,
shall supervise and administer the Plan and shall have full power to adopt,
amend and rescind any rules deemed desirable and appropriate for the
administration of the Plan and not inconsistent with the Plan, to construe
and interpret the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any Shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of a Purchase Period but prior to delivery to him or
her of such Shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to the Purchase Date of an Offering Period. If a participant is married
and the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such Shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been
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<PAGE>
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such Shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. TRANSFERABILITY. Neither Contributions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive Shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. USE OF FUNDS. All Contributions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such Contributions.
18. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
Contributions, the per Share Purchase Price, the number of Shares purchased
and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each option
under the Plan which has not yet been exercised and the number of Shares
which have been authorized for issuance under the Plan but have not yet been
placed under option (collectively, the "RESERVES"), as well as the maximum
number of shares of Common Stock which may be purchased by a participant in a
Purchase Period, the number of shares of Common Stock set forth in Section
13(a) above, and the price per Share of Common Stock covered by each option
under the Plan which has not yet been exercised, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock (including any such
change in the number of Shares of Common Stock effected in connection with a
change in domicile of the Company), or any other increase or decrease in the
number of Shares effected without receipt of consideration by the Company;
provided however that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to an option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate
Transaction, each option outstanding under the Plan shall be assumed
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or an equivalent option shall be substituted by the successor corporation or
a parent or Subsidiary of such successor corporation. In the event that the
successor corporation refuses to assume or substitute for outstanding
options, each Purchase Period and Offering Period then in progress shall be
shortened and a new Purchase Date shall be set (the "NEW PURCHASE DATE"), as
of which date any Purchase Period and Offering Period then in progress will
terminate. The New Purchase Date shall be on or before the date of
consummation of the transaction and the Board shall notify each participant
in writing, at least ten (10) days prior to the New Purchase Date, that the
Purchase Date for his or her option has been changed to the New Purchase Date
and that his or her option will be exercised automatically on the New
Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this Section 19,
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration
upon a Corporate Transaction, each holder of an option under the Plan would
be entitled to receive upon exercise of the option the same number and kind
of shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to the transaction, the
holder of the number of Shares of Common Stock covered by the option at such
time (after giving effect to any adjustments in the number of Shares covered
by the option as provided for in this Section 19); provided however that if
the consideration received in the transaction is not solely common stock of
the successor corporation or its parent (as defined in Section 424(e) of the
Code), the Board may, with the consent of the successor corporation, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in Fair Market
Value to the per Share consideration received by holders of Common Stock in
the transaction.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per Share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of
Shares of its outstanding Common Stock, and in the event of the Company's
being consolidated with or merged into any other corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 19, no such termination of the
Plan may affect options previously granted, provided that the Plan or an
Offering Period may be terminated by the Board on a Purchase Date or by the
Board's setting a new Purchase Date with respect to an Offering Period and
Purchase Period then in progress if the Board determines that termination of
the Plan and/or the Offering Period is in the best interests of the Company
and the stockholders or if continuation of the Plan and/or the Offering
Period would cause the Company to incur adverse accounting charges as a
result of a change after the effective date of the Plan in the generally
accepted accounting rules applicable to the Plan. Except as provided in
Section 19 and in this Section 20, no amendment to the Plan shall make any
change in any option previously granted which adversely affects the rights of
any participant. In addition, to the extent necessary to
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comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the
Code (or any successor rule or provision or any applicable law or
regulation), the Company shall obtain stockholder approval in such a manner
and to such a degree as so required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been adversely affected, the
Board (or its committee) shall be entitled to change the Offering Periods and
Purchase Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable
to amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent
with the Plan.
21. NOTICES. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, applicable state securities laws and the
requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective
upon the IPO Date. It shall continue in effect for a term of twenty (20)
years unless sooner terminated under Section 20.
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ROSETTA INPHARMATICS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election
---------
Change of Election
---------
1. I, ________________________, hereby elect to participate in the
Rosetta Inpharmatics, Inc. 2000 Employee Stock Purchase Plan (the "PLAN") for
the Offering Period ______________, ____ to _______________, ____, and
subscribe to purchase shares of the Company's Common Stock in accordance with
this Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this
purchase. I understand that this amount (together with any other amounts I am
contributing under the Plan) must not be less than 1% and not more than 20%
of my Compensation during the Offering Period. (Please note that no
fractional percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during
the Offering Period at the rate stated in Item 2 of this Subscription
Agreement. I understand that all payroll deductions made by me shall be
credited to my account under the Plan and that I may not make any additional
payments into such account. I understand that all payments made by me shall
be accumulated for the purchase of shares of Common Stock at the applicable
purchase price determined in accordance with the Plan. I further understand
that, except as otherwise set forth in the Plan, shares will be purchased for
me automatically on the Purchase Date of each Offering Period unless I
otherwise withdraw from the Plan by giving written notice to the Company for
such purpose.
4. I understand that I may discontinue at any time prior to the
Purchase Date my participation in the Plan as provided in Section 10 of the
Plan. I also understand that I can increase or decrease the rate of my
Contributions on one occasion only with respect to any increase and one
occasion only with respect to any decrease during any Purchase Period by
completing and filing a new Subscription Agreement with such increase or
decrease taking effect as of the beginning of the calendar month following
the date of filing of the new Subscription Agreement, if filed at least ten
(10) business days prior to the beginning of such month. Further, I may
change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period. In addition, I acknowledge that,
unless I discontinue my participation in the Plan as provided in Section 10
of the Plan, my election will continue to be effective for each successive
Offering Period.
<PAGE>
5. I have received a copy of the Company's most recent description
of the Plan and a copy of the complete "Rosetta Inpharmatics, Inc. 2000
Employee Stock Purchase Plan." I understand that my participation in the Plan
is in all respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):
------------------------------------
------------------------------------
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
------------------------------------
(First) (Middle) (Last)
- -------------------- -------------------------------------
(Relationship) (Address)
-------------------------------------
8. I understand that if I dispose of any shares received by me
pursuant to the Plan within 2 years after the Offering Date (the first day of
the Offering Period during which I purchased such shares) or within 1 year
after the Purchase Date, I will be treated for federal income tax purposes as
having received ordinary compensation income at the time of such disposition
in an amount equal to the excess of the fair market value of the shares on
the Purchase Date over the price which I paid for the shares, regardless of
whether I disposed of the shares at a price less than their fair market value
at the Purchase Date. The remainder of the gain or loss, if any, recognized
on such disposition will be treated as capital gain or loss.
I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER
THE DATE OF ANY SUCH DISPOSITION, AND I WILL MAKE ADEQUATE PROVISION FOR
FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON
THE DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to the
sale or early disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the
2-year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received compensation income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the purchase
price which I paid for the shares under the option, or (2) 15% of the fair
market value of the
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<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I UNDERSTAND THAT THIS TAX SUMMARY IS ONLY A SUMMARY AND IS SUBJECT
TO CHANGE. I further understand that I should consult a tax advisor
concerning the tax implications of the purchase and sale of stock under the
Plan.
10. In connection with the initial public offering of the Company's
securities and upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, I agree not to sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any securities of the Company, however or whenever I acquired
them, without the prior written consent of the Company or such underwriters,
as the case may be, for such period of time (not to exceed 180 days) from the
effective date of such registration as may be requested by the Company or
such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
11. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility
to participate in the Plan.
SIGNATURE:
-----------------------------------------
SOCIAL SECURITY #:
---------------------------------
DATE:
----------------------------------------------
SPOUSE'S SIGNATURE (necessary if beneficiary is
not spouse):
- -----------------------------------------------------
(Signature)
- -----------------------------------------------------
(Print name)
-3-
<PAGE>
ROSETTA INPHARMATICS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my
participation in the Rosetta Inpharmatics, Inc. 2000 Employee Stock Purchase
Plan (the "PLAN") for the Offering Period that began on _________ ___, _____.
This withdrawal covers all Contributions credited to my account and is
effective on the date designated below.
I understand that all Contributions credited to my account will be
paid to me within ten (10) business days of receipt by the Company of this
Notice of Withdrawal and that my option for the current period will
automatically terminate, and that no further Contributions for the purchase
of shares can be made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall
be eligible to participate in succeeding offering periods only by delivering
to the Company a new Subscription Agreement.
Dated:
--------------------- ----------------------------------------
Signature of Employee
----------------------------------------
Social Security Number
<PAGE>
ROSETTA INPHARMATICS, INC.
2000 DIRECTORS' STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock
Option Plan are to attract and retain the best available personnel for
service as Directors of the Company, to provide additional incentive to the
Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CHANGE OF CONTROL" means a sale of all or substantially
all of the Company's assets, or any merger or consolidation of the Company
with or into another corporation other than a merger or consolidation in
which the holders of more than 50% of the shares of capital stock of the
Company outstanding immediately prior to such transaction continue to hold
(either by the voting securities remaining outstanding or by their being
converted into voting securities of the surviving entity) more than 50% of
the total voting power represented by the voting securities of the Company,
or such surviving entity, outstanding immediately after such transaction.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "COMPANY" means Rosetta Inpharmatics, Inc., a Delaware
corporation.
(f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.
(g) "CORPORATE TRANSACTION" means a dissolution or liquidation
of the Company, a sale of all or substantially all of the Company's assets,
or a merger, consolidation or other capital reorganization of the Company
with or into another corporation.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including any officer or
Director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and
of itself to constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
<PAGE>
(k) "OPTION" means a stock option granted pursuant to the Plan.
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(l) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(m) "OPTIONEE" means an Outside Director who receives an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(o) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 2000 Directors' Stock Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
11 of the Plan, the maximum aggregate number of Shares which may be sold
under the Plan is 600,000 Shares of Common Stock (the "POOL"). The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan has been terminated, become available
for future grant under the Plan. If Shares that were acquired upon exercise
of an Option are subsequently repurchased by the Company, such Shares shall
not in any event be returned to the Plan and shall not become available for
future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in
accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
-2-
<PAGE>
(ii) Each individual who serves an Outside Director on
the effective date of this Plan shall be automatically granted an Option to
purchase 25,000 Shares (the "IPO OPTION") on the effective date of this Plan.
(iii) Each individual who becomes an Outside Director
after the effective date of this Plan shall be automatically granted an
Option to purchase 25,000 Shares (the "INITIAL OPTION") on the date on which
such person first becomes an Outside Director, whether through election by
the stockholders of the Company or appointment by the Board of Directors to
fill a vacancy.
(iv) Each Outside Director shall be automatically
granted an Option to purchase 5,000 Shares (the "ANNUAL OPTION") on the date
of each Annual Meeting of the Company's stockholders immediately following
which such Outside Director is serving on the Board, provided that, on such
date, he or she shall have served on the Board for at least six (6) months
prior to the date of such Annual Meeting.
(v) Notwithstanding the provisions of subsections (ii),
(iii) and (iv) hereof, in the event that a grant would cause the number of
Shares subject to outstanding Options plus the number of Shares previously
purchased upon exercise of Options to exceed the Pool, then each such
automatic grant shall be for that number of Shares determined by dividing the
total number of Shares remaining available for grant by the number of Outside
Directors receiving an Option on the automatic grant date. Any further grants
shall then be deferred until such time, if any, as additional Shares become
available for grant under the Plan through action of the stockholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(vi) Notwithstanding the provisions of subsections (ii),
(iii) and (iv) hereof, any grant of an Option made before the Company has
obtained stockholder approval of the Plan in accordance with Section 17
hereof shall be conditioned upon obtaining such stockholder approval of the
Plan in accordance with Section 17 hereof.
(vii) The terms of each Option granted hereunder shall be
as follows:
(1) each Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth
in Section 9 below;
(2) each Option shall have an exercise price per
Share equal to 100% of the fair market value per Share on the date of grant
of each Option, determined in accordance with Section 8 below;
(3) each IPO Option and each Initial Option shall
vest and become exercisable as to 1/48th of the Shares subject to the Option
each month after the date of grant; and
(4) each Annual Option shall vest and become
exercisable as to 1/12th of the Shares subject to the Option each month after
the date of grant.
-3-
<PAGE>
(c) POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its
discretion: (i) to determine, upon review of relevant information and in
accordance with Section 8(b) of the Plan, the fair market value of the Common
Stock; (ii) to determine the exercise price per Share of Options to be
granted, which exercise price shall be determined in accordance with Section
8 of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and
rescind rules and regulations relating to the Plan; (v) to authorize any
person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option previously granted hereunder; and (vi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees
and any other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the Chief
Executive Officer or his or her designee reasonably believes that an Optionee
has committed an act of misconduct, such officer may suspend the Optionee's
right to exercise any option pending a determination by the Board (excluding
the Outside Director accused of such misconduct). If the Board (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an
obligation owed to the Company, breach of fiduciary duty or deliberate
disregard of the Company rules resulting in loss, damage or injury to the
Company, or if an Optionee makes an unauthorized disclosure of any Company
trade secret or confidential information, engages in any conduct constituting
unfair competition, induces any Company customer to breach a contract with
the Company or induces any principal for whom the Company acts as agent to
terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any Option whatsoever. In making such
determination, the Board of Directors (excluding the Outside Director accused
of such misconduct) shall act fairly and shall give the Optionee an
opportunity to appear and present evidence on Optionee's behalf at a hearing
before the Board or a committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4(b) above. An Outside Director who has been granted an
Option may, if he or she is otherwise eligible, be granted an additional
Option or Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the
Director or the Company may have to terminate his or her directorship at any
time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective
on the effectiveness of the registration statement under the Securities Act
of 1933, as amended, relating to the Company's initial public offering of
securities. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 13 of the Plan.
-4-
<PAGE>
7. TERM OF OPTIONS. The term of each Option shall be ten (10)
years from the date of grant thereof unless an Option terminates sooner
pursuant to Section 9 below.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the
fair market value per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be
determined by the Board; provided however that in the event the Common Stock
is traded on the Nasdaq National Market or listed on a stock exchange, the
fair market value per Share shall be the closing sales price on such system
or exchange on the date of grant of the Option (or, in the event that the
Common Stock is not traded on such date, on the immediately preceding trading
date), as reported in THE WALL STREET JOURNAL, or if there is a public market
for the Common Stock but the Common Stock is not traded on the Nasdaq
National Market or listed on a stock exchange, the fair market value per
Share shall be the mean of the bid and asked prices of the Common Stock in
the over-the-counter market on the date of grant, as reported in THE WALL
STREET JOURNAL (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation ("NASDAQ") System). For
purposes of the IPO Options granted on the effective date of this Plan, the
fair market value per Share shall be the Price to Public as set forth in the
final prospectus filed with the Securities Exchange Commission pursuant to
Rule 424 under the Securities Act of 1933, as amended.
(c) FORM OF CONSIDERATION. The consideration to be paid for
the Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which the Option shall be exercised (which, if acquired from the Company,
shall have been held for at least six months), or any combination of such
methods of payment and/or any other consideration or method of payment as
shall be permitted under applicable corporate law.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times as are set forth
in Section 4(b) above; provided however that no Options shall be exercisable
prior to stockholder approval of the Plan in accordance with Section 17 below
has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 8(c) of the Plan. Until the
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<PAGE>
issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. A share certificate for
the number of Shares so acquired shall be issued to the Optionee as soon as
practicable after exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares
as to which the Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an
Outside Director ceases to serve as a Director, he or she may, but only
within ninety (90) days after the date he or she ceases to be a Director of
the Company, exercise his or her Option to the extent that he or she was
entitled to exercise it at the date of such termination. Notwithstanding the
foregoing, in no event may the Option be exercised after its term set forth
in Section 7 has expired. To the extent that such Outside Director was not
entitled to exercise an Option at the date of such termination, or does not
exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b)
above, in the event a Director is unable to continue his or her service as a
Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Code), he or she may, but
only within twelve (12) months from the date of such termination, exercise
his or her Option to the extent he or she was entitled to exercise it at the
date of such termination. Notwithstanding the foregoing, in no event may the
Option be exercised after its term set forth in Section 7 has expired. To the
extent that he or she was not entitled to exercise the Option at the date of
termination, or if he or she does not exercise such Option (to the extent he
or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the
Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee: (A) during the term of the Option who is, at the time of his or her
death, a Director of the Company and who shall have been in Continuous Status
as a Director since the date of grant of the Option, or (B) three (3) months
after the termination of Continuous Status as a Director, the Option may be
exercised, at any time within twelve (12) months following the date of death,
by the Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of death or the date of termination, as
applicable. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent
that an Optionee was not entitled to exercise the Option at the date of death
or termination or if he or she does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the
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<PAGE>
Option shall terminate and the Shares underlying the unexercised portion of
the Option shall revert to the Plan.
10. TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, or disposed of in any manner other than by will or by
the laws of descent or distribution or pursuant to a qualified domestic
relations order; provided, however, that Options shall be transferable under
the terms and conditions established by the Administrator to the following
recipients: a family trust established by the Optionee, a family limited
partnership established by the Optionee, a member of Optionee's immediate
family or to a partnership or other entity of which Optionee is a general
partner or in which Optionee plays a similar managerial role. Any such
transfer shall be subject to the applicable laws. An Option may be exercised,
during the lifetime of the Optionee, only by the Optionee or a transferee
permitted by this Section 10.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE
TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of Shares of Common Stock set forth in
Sections 4(b)(ii) and (iii) above, and the number of Shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per Share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected
in connection with a change in domicile of the Company) or any other increase
or decrease in the number of issued Shares of Common Stock effected without
receipt of consideration by the Company; provided however that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option.
(b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of
a Corporate Transaction, each outstanding Option shall be assumed or an
equivalent option shall be substituted by the successor corporation or a
Parent or Subsidiary of such successor corporation, unless the successor
corporation does not agree to assume the outstanding Options or to substitute
equivalent options, in which case the Options shall terminate upon the
consummation of the transaction; provided however that in the event of any
transaction that qualifies as a Change of Control and notwithstanding whether
or not outstanding Options are assumed, substituted for or terminated in
connection with the transaction, the vesting of each outstanding Option shall
accelerate in full such that each Optionee shall have the right to exercise
-7-
<PAGE>
his or her Option as to all of the Optioned Stock, including Shares as to
which the Option would not otherwise be exercisable, immediately prior to
consummation of the transaction
For purposes of this Section 11(b), an Option shall be
considered assumed, without limitation, if, at the time of issuance of the
stock or other consideration upon such Corporate Transaction or Change of
Control, each Optionee would be entitled to receive upon exercise of an
Option the same number and kind of shares of stock or the same amount of
property, cash or securities as the Optionee would have been entitled to
receive upon the occurrence of such transaction if the Optionee had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option at such time (after giving effect to any
adjustments in the number of Shares covered by the Option as provided for in
this Section 11); provided however that if such consideration received in the
transaction was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option to
be solely common stock of the successor corporation or its Parent equal to
the Fair Market Value of the per Share consideration received by holders of
Common Stock in the transaction.
(c) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without
receipt of consideration by the Company, the Administrator may, in its
discretion, appropriately adjust the price per Share of Common Stock covered
by each outstanding Option to reflect the effect of such distribution.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section
4(b) hereof. Notice of the determination shall be given to each Outside
Director to whom an Option is so granted within a reasonable time after the
date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act (or any other applicable law or
regulation), the Company shall obtain approval of the stockholders of the
Company to Plan amendments to the extent and in the manner required by such
law or regulation.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall
not affect Options already granted to such Optionee and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and the
Company.
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<PAGE>
14. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant
to the Plan, the Company shall not be obligated, and shall have no liability
for failure, to issue or deliver any Shares under the Plan unless such
issuance or delivery would comply with the legal requirements relating to the
administration of stock option plans under applicable U.S. state corporate
laws, U.S. federal and applicable state securities laws, the Code, any stock
exchange or Nasdaq rules or regulations to which the Company may be subject
and the applicable laws of any other country or jurisdiction where Options
are granted under the Plan, as such laws, rules, regulations and requirements
shall be in place from time to time (the "APPLICABLE LAWS"). Such compliance
shall be determined by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required by law.
15. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the stockholders of
the Company. Such stockholder approval shall be obtained in the manner and to
the degree required under the Applicable Laws.
-9-
<PAGE>
ROSETTA INPHARMATICS, INC.
2000 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
< < Optionee > >
You have been granted an option to purchase Common Stock of Rosetta
Inpharmatics, Inc. (the "COMPANY") as follows:
<TABLE>
<S> <C>
Date of Grant < < GrantDate > >
Vesting Commencement Date < < VestingStartDate > >
Exercise Price per Share < < ExercisePrice > >
Total Number of Shares Granted < < SharesGranted > >
Total Exercise Price < < TotalExercisePrice > >
Expiration Date < < ExpirDate > >
Vesting Schedule This Option shall vest and become
exercisable according to the following
schedule: __________________________________.
Termination Period This Option may be exercised for 90 days
after termination of Optionee's Continuous Status as a
Director, or such longer period as may be applicable
upon death or Disability of Optionee as provided in the
Plan, but in no event later than the Expiration Date as
provided above.
</TABLE>
<PAGE>
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and
governed by the terms and conditions of the 2000 Directors' Stock Option Plan
and the Nonstatutory Stock Option Agreement, all of which are attached and
made a part of this document.
OPTIONEE: ROSETTA INPHARMATICS, INC.
By:
- ---------------------------------- ----------------------------------
< < Optionee > >
Title:
-------------------------------
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<PAGE>
ROSETTA INPHARMATICS, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
1. GRANT OF OPTION. The Board of Directors of the Company hereby
grants to the Optionee named in the Notice of Stock Option Grant (the
"OPTIONEE") attached to this Agreement an option (the "OPTION") to purchase a
number of Shares, as set forth in the Notice of Stock Option Grant, at the
exercise price per share set forth in the Notice of Stock Option Grant (the
"EXERCISE PRICE"'), subject to the terms and conditions of the 2000
Directors' Stock Option Plan (the "PLAN"), which is incorporated herein by
reference. Capitalized terms not defined herein shall have the meanings
ascribed to such terms in the Plan. In the event of a conflict between the
terms and conditions of the Plan and the terms and conditions of this
Nonstatutory Stock Option Agreement, the terms and conditions of the Plan
shall prevail.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and the applicable provisions of the Plan and this Nonstatutory
Stock Option Agreement. In the event of Optionee's death, disability or other
termination of Optionee's service as a Director, the exercisability of the
Option is governed by the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery
of an exercise notice, in the form attached as EXHIBIT A (the "EXERCISE
NOTICE"), which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised (the "EXERCISED
SHARES"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall
be signed by the Optionee and shall be delivered in person or by certified
mail to the Secretary of the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the
Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with all relevant
provisions of law and the requirements of any stock exchange or quotation
service upon which the Shares are then listed. Assuming such compliance, for
income tax purposes the Exercised Shares shall be considered transferred to
the Optionee on the date the Option is exercised with respect to such
Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price
shall be by any of the following, or a combination thereof, at the election
of the Optionee:
(a) cash;
(b) check;
<PAGE>
(c) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price;
or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4. TRANSFERABILITY OF OPTION. This Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than (a) by will or by the laws of descent or distribution; (b)
pursuant to a qualified domestic relations order (as defined by the Code or
the rules thereunder); (c) by gift to the Optionee's Family; or (d) by gift
or in exchange for an interest in such entity to (i) a trust in which
Optionee and/or Optionee's Family have more than fifty percent of the
beneficial interest, (ii) a foundation in which Optionee and/or Optionee's
Family control the management of assets, or (iii) any other entity in which
Optionee and/or Optionee's Family own more than fifty percent of the voting
interests. For purposes of this Section 10, Optionee's "FAMILY" shall include
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law; daughter-in-law, brother-in-law or sister-in-law, including
adoptive relationships, and any person sharing the employee's household
(other than a tenant or employee). The designation of a beneficiary by an
Optionee does not constitute a transfer. An Option may be exercised during
the lifetime of an Optionee only by the Optionee or a transferee permitted by
this Section 4 and Section 10 of the Plan. The terms of the Plan and this
Nonstatutory Stock Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the
term set out in the Notice of Stock Option Grant, and may be exercised during
such term only in accordance with the Plan and the terms of this Nonstatutory
Stock Option Agreement.
6. TAX CONSEQUENCES. Set forth below is a brief summary of certain
federal and California tax consequences relating to this Option under the law
in effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD
CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(a) EXERCISING THE OPTION. Since this Option does not qualify
as an incentive stock option under Section 422 of the Code, the Optionee may
incur regular federal and California income tax liability upon exercise. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market
value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price.
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<PAGE>
(b) DISPOSITION OF SHARES. If the Optionee holds the Option
Shares for more than one year, gain realized on disposition of the Shares
will be treated as long-term capital gain for federal and California income
tax purposes. Long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes at a maximum rate of 20% if the Shares are
held more than one year after exercise.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Nonstatutory Stock
Option Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock
Option Agreement in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Nonstatutory Stock Option Agreement
and fully understands all provisions of the Plan and Nonstatutory Stock
Option Agreement. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Nonstatutory Stock Option Agreement.
ROSETTA INPHARMATICS, INC.
By:
- ---------------------------------- ----------------------------------
< < Optionee > >
Title:
-------------------------------
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
In consideration of the Company's granting his or her spouse the right to
purchase Shares as set forth in the Plan and this Nonstatutory Stock Option
Agreement, the undersigned hereby agrees to be irrevocably bound by the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement and
further agrees that any community property interest shall be similarly bound.
The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for
the undersigned with respect to any amendment or exercise of rights under the
Plan or this Nonstatutory Stock Option Agreement.
--------------------------------------
Spouse of Optionee
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: Rosetta Inpharmatics, Inc.
Attn: Stock Option Administrator
Subject: NOTICE OF INTENTION TO EXERCISE STOCK OPTION
This is official notice that the undersigned ("OPTIONEE") intends to
exercise Optionee's option to purchase __________ shares of Rosetta
Inpharmatics, Inc. Common Stock, under and pursuant to the Company's 2000
Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement
dated _______________, as follows:
Grant Number:
---------------------------------------
Date of Purchase:
---------------------------------------
Number of Shares:
---------------------------------------
Purchase Price:
---------------------------------------
Method of Payment of
Purchase Price:
---------------------------------------
Social Security No.:
---------------------------------------
The shares should be issued as follows:
Name:
------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Signed:
------------------------------------
Date:
------------------------------------
<PAGE>
AMENDED AND RESTATED CONTRIBUTION AGREEMENT
This Amended and Restated Contribution Agreement (the "AGREEMENT") is made
and entered into as of November __, 1997, by and among Stephen Friend
("FRIEND"), Leroy Hood ("HOOD") and the Fred Hutchinson Cancer Research Center
(the "FHCRC") (Friend, Hood and the FHCRC are individually referred to as a
"CONTRIBUTOR" and collectively referred to the "CONTRIBUTORS"), and Rosetta
Inpharmatics, Inc., a Delaware corporation (the "Company").
RECITALS
A. The Company and the Contributors desire to amend and restate in its
entirety the Contribution Agreement entered into as of June 6, 1997 (the
"ORIGINAL AGREEMENT") in order to clarify certain provisions of the Original
Agreement.
B. Friend is the record owner of 696,200 shares of Common Stock of the
Company and desires to transfer up to 92,186 shares of such Common Stock (the
"FRIEND STOCK") to the Company pursuant to the terms and conditions of this
Agreement.
C. Hood is the record owner of 531,000 shares of Common Stock of the
Company and desires to transfer up to 70,312 shares of such Common Stock (the
"HOOD STOCK") to the Company pursuant to the terms and conditions of this
Agreement.
D. The FHCRC is the record owner of 283,200 shares of Common Stock of the
Company and desires to transfer up to 37,500 shares of such Common Stock (the
"FHCRC STOCK") (the Friend Stock, Hood Stock and FHCRC Stock are collectively
referred to as the "CONTRIBUTION STOCK") to the Company pursuant to the terms
and conditions of this Agreement.
E. The Company issued a warrant to Olympic Venture Partners dated June 6,
1997 for the purchase of an aggregate of 250,000 shares of Common Stock at a
purchase price of $0.05 per share (the "WARRANT").
F. The Contributors desire to contribute all or a portion of the
Contribution Stock to the Company on the terms and conditions set forth in this
Agreement in the event the Warrant is exercised for more than an aggregate of
50,000 shares of Common Stock.
AGREEMENT
The parties hereby agree as follows:
1. TRANSFER AND SALE. Subject to the terms and conditions of this
Agreement, in the event the Warrant is exercised for more than an aggregate of
50,000 shares of Common Stock, each Contributor agrees to transfer and
contribute to the capital stock of the Company his or its Pro Rata Portion (as
defined below) of the Contribution Stock, and the Company agrees to accept such
shares from each Contributor as a capital contribution.
<PAGE>
2. PRO RATA PORTION. Each Contributor's pro rata portion of the
Contribution Stock equals the amount by which the number of shares of Common
Stock for which the Warrant is exercised exceeds 50,000, multiplied by a
fraction the numerator of which is the respective amount of Common Stock owned
by such Contributor and the denominator of which is 1,510,400 (the "PRO RATA
PORTION"). By way of example, but not of limitation, if the Warrant is exercised
for 150,000 shares, Friend's Pro Rata Portion would be 46,094, Hood's Pro Rata
Portion would be 35,156 and the FHCRC's Pro Rata Portion would be 18,750.
3. RECAPITALIZATIONS. In the event the Company effects a
recapitalization, either through a stock-split, dividend payable in shares of
capital stock of the Company, reclassification, exchange or otherwise, then the
formula used to calculate each Contributor's Pro Rata Portion shall be adjusted
as appropriate to fully reflect such recapitalization and to carry out the
intent and purpose of this Agreement.
4 LEGENDS. Each Contributor authorizes the Company and its agents to
place on each certificate for shares which the Company may acquire pursuant to
this Agreement the following legend stating that such stock is subject to this
Agreement (in addition to any other legends that may be required):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
AMENDED AND RESTATED CONTRIBUTION AGREEMENT DATED AS OF NOVEMBER
__, 1997 (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST
FROM THE CORPORATION) AND BY ACCEPTING ANY INTEREST IN SUCH
SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO
AGREE AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID
CONTRIBUTION AGREEMENT."
5 SPECIFIC ENFORCEMENT. Each Contributor expressly agrees that the
Company will be irreparably damaged if this Agreement is not specifically
enforced. Upon a breach or threatened breach of the terms, covenants and/or
conditions of this Agreement by any Contributor, in addition to all other
remedies available at law or in equity, the Company shall be entitled to a
temporary or permanent injunction, without showing any actual damage, and/or a
decree for specific performance, in accordance with the provisions of this
Agreement.
6 MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. Except as expressly set
forth herein, this Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter herein and merges all prior
discussions between them. No
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<PAGE>
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS; TRANSFER OF STOCK. The rights and
obligations of the Contributors under this Agreement may only be assigned with
the prior written consent of the Company. Each Contributor understands that the
Company is entitled to withhold its consent to transfer of the Stock or
assignment of such Contributor's rights and obligations under this Agreement
unless such Contributor requires as a condition to any such transfer or
assignment that the Contributor's transferee or assignee execute an agreement
similar to this Agreement or otherwise agree to be bound by terms and conditions
similar to those contained in this Agreement.
[Signature Page Follows]
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<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
THE COMPANY:
ROSETTA INPHARMATICS, INC.
By:
------------------------------------------
Title:
---------------------------------------
THE CONTRIBUTORS:
---------------------------------------------
Stephen H. Friend
---------------------------------------------
Leroy E. Hood
THE FRED HUTCHINSON CANCER
RESEARCH CENTER
By:
------------------------------------------
Title:
---------------------------------------
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<PAGE>
CONTRIBUTION AGREEMENT
CONSENT OF SPOUSE
I, ___________________, spouse of _______________, have read and approve
the foregoing Amended and Restated Contribution Agreement (the "AGREEMENT"). In
consideration of the terms and conditions as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact with respect to the exercise of
any rights and obligations under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights or obligations in
the Agreement or any shares subject thereto under the community property laws of
the State of Washington or similar laws relating to marital property in effect
in the state of our residence as of the date of the Agreement.
Dated: November ___, 1997
------------------------------
(Signature)
------------------------------
(Printed name)
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<PAGE>
Exhibit 10.11
ROSETTA BIOSYSTEMS, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "AGREEMENT") is made as of
May 15, 1997 by and between Rosetta Biosystems, Inc., a Delaware corporation
(the "COMPANY"), and Stephen H. Friend ("PURCHASER").
1. SALE OF STOCK. Subject to the terms and conditions of this
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company, 1,860,118
shares of the Company's Common Stock (the "SHARES") at a purchase price of $.01
per Share for a total purchase price of $18,601.18. The term "Shares" refers to
the purchased Shares and all securities received in replacement of or in
connection with the Shares pursuant to stock dividends or splits, all securities
received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "PURCHASE DATE"). On the Purchase Date, the
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by delivery of (a) a check
in the amount of $1,861.18, (b) a promissory note in the form attached as
EXHIBIT A to this Agreement in the principle amount of $16,740.00 and (c) a
Pledge and Security Agreement in the form attached as EXHIBIT B to this
Agreement.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and covenants to Purchaser that the
authorized capital of the Company consists, as of the Purchase Date, of
5,000,000 shares of Preferred Stock, none of which are issued and outstanding,
and 10,000,000 shares of Common Stock, 6,386,227 shares of which will be issued
and outstanding as of the Purchase Date. All of the outstanding shares of Common
Stock have been duly authorized, fully paid and are nonassessable and issued in
compliance with all applicable federal and state securities laws.
4. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from the Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
<PAGE>
(a) REPURCHASE OPTION.
(i) In the event of the voluntary or involuntary
termination of Purchaser's employment or consulting relationship with the
Company for any reason (including death or disability), with or without cause,
the Company shall upon the date of such termination (the "TERMINATION DATE")
have an irrevocable, exclusive option (the "REPURCHASE OPTION") for a period of
60 days from such date to repurchase all or any portion of the Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like);
PROVIDED, HOWEVER, that the Repurchase Option shall continue for a period of up
to one year from the Termination Date to the extent that the Company reasonably
determines that such an extension of time is necessary to prevent the repurchase
of Purchaser's Shares from causing other capital stock of the Company to not
qualify as "small business stock" under Section 1202 of the Internal Revenue
Code of 1986, as amended.
(ii) The Repurchase Option shall be exercised by the
Company by written notice to Purchaser or Purchaser's executor and, at the
Company's option, (A) by delivery to Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (C) by a combination of (A)
and (B) so that the combined payment and cancellation of indebtedness equals
such purchase price. Upon delivery of such notice and payment of the purchase
price in any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased by the Company, without
further action by Purchaser.
(iii) One hundred percent (100%) of the Shares shall
initially be subject to the Repurchase Option. 1/8 of the Shares shall be
released from the Repurchase Option on the date that is six (6) months after the
Vesting Commencement Date (as set forth on the signature page of this
Agreement), and 1/48 of the total number of Shares shall be released from the
Repurchase Option at the end of each month thereafter, until all Shares are
released from the Repurchase Option (provided in each case that Purchaser's
employment or consulting relationship with the Company has not been terminated
prior to the date of any such release). Fractional shares shall be rounded to
the nearest whole share.
(iv) Notwithstanding the above, in the event of
Purchaser's death or disability at such time as more than fifty percent (50%) of
the Shares remain subject to the Repurchase Option, all Shares in excess of such
fifty percent (50%) that remain subject to the Repurchase Option shall be deemed
to be released from the Repurchase Option as of the time of such death or
disability.
(v) Notwithstanding the above, in the event
Purchaser's employment or consulting relationship with the Company is
involuntarily terminated without cause
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<PAGE>
(excluding Purchaser's death or disability), fifty percent (50%) of the of the
Shares held by Purchaser which are still subject to the Company's Repurchase
Option as of the Termination Date shall be deemed to have been released from the
Repurchase Option immediately prior to the Termination Date.
(vi) Notwithstanding the above, if Purchaser
voluntarily terminates his employment or consulting relationship with the
Company prior to the closing of a sale of equity securities by the Company in
which the gross proceeds to the Company when added together with all other
amounts previously received by the Company for the sale of equity securities are
greater than One Million Dollars ($1,000,000) then all of Purchasers' Shares
shall remain subject to the Repurchase Option.
(b) RIGHT OF FIRST REFUSAL. Before any Shares held by
Purchaser or any transferee of Purchaser (either being sometimes referred to
herein as the "HOLDER") may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall have a right
of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 4(b) (the "RIGHT OF FIRST REFUSAL").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the
Shares shall deliver to the Company a written notice (the "NOTICE") stating: (A)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (B)
the name of each proposed purchaser or other transferee ("PROPOSED TRANSFEREE");
(C) the number of Shares to be transferred to each Proposed Transferee; and (D)
the terms and conditions of each proposed sale or transfer. The Holder shall
offer the Shares at the same price (the "OFFERED PRICE") and upon the same terms
(or terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("PURCHASE
PRICE") for the Shares purchased by the Company or its assignee(s) under this
Section 4(b) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith. In the event the transfer occurs by gift or operation of law, the
Offered Price shall be equal to the fair market value as determined by the Board
of Directors of the Company in its reasonable judgment.
(iv) PAYMENT. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
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<PAGE>
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
4(b), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 4 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything
to the contrary contained in this Section 4(b) notwithstanding, the transfer of
any or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
4(b). "IMMEDIATE FAMILY" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 4.
(c) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY
TRANSFER. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
4(b)(vi) above) of all or a portion of the Shares by the record holder thereof,
the Company shall have an option to purchase all of the Shares transferred at
the greater of the purchase price paid by Purchaser pursuant to this Agreement
or the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of thirty (30) days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to
any stock to be transferred pursuant to Section 4(c)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will reflect
the current value of the stock in terms of present earnings and future prospects
of the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
does not agree with the valuation as determined by the Board of Directors of the
Company, the Purchaser shall be
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<PAGE>
entitled to have the valuation determined by an independent appraiser to be
mutually agreed upon by the Company and the Purchaser and whose fees shall be
borne equally by the Company and the Purchaser.
(d) ASSIGNMENT. The right of the Company to purchase any part
of the Shares may be assigned in whole or in part to any stockholder or
stockholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and fair
market value, if the original purchase price is less than the fair market value
of the Shares subject to the assignment.
(e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement, including, insofar as applicable,
the Repurchase Option. Any sale or transfer of the Company's Shares shall be
void unless the provisions of this Agreement are met.
(f) TERMINATION OF RIGHTS. The right of first refusal granted
the Company by Section 4(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 4(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act. Upon
termination of the right of first refusal described in Section 4(b) and the
expiration or exercise of the Repurchase Option, a new certificate or
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 7(a)(ii) below and delivered
to Purchaser.
5. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
enforcement of the provisions of Section 4 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as EXHIBIT C executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable when acting in good faith to any party hereof (or to any other party).
The escrow holder may rely upon any letter, notice or other document executed by
any signature purported to be genuine and may resign at any time. Purchaser
agrees that if the Secretary of the Company, or the Secretary's designee,
resigns as escrow holder for any or no reason, the Board of Directors of the
Company shall have the power to appoint a successor to serve as escrow holder
pursuant to the terms of this Agreement.
-5-
<PAGE>
6. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax consultants
Purchaser deems advisable in connection the purchase or disposition of the
Shares and that Purchaser is not relying on the Company for any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER THE SECURITIES LAWS OF ANY PARTICULAR STATE,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY
BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION
-6-
<PAGE>
OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(iii) Any legend required to be placed thereon by the
Washington Secretary of State or other applicable
state securities laws.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
9. SECTION 83(b) ELECTION. Purchaser understands that Section 83(a) of
the Internal Revenue Code of 1986, as amended (the "CODE"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "RESTRICTION" means the right of the Company to buy back the Shares
pursuant to the Repurchase Option set forth in Section 4(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) ELECTION") of the Code with
the Internal Revenue Service within 30 days from the date of purchase. Even if
the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek
-7-
<PAGE>
independent advice regarding the applicable provisions of the Code, the income
tax laws of any municipality, state or foreign country in which Purchaser may
reside, and the tax consequences of Purchaser's death.
Purchaser agrees that he will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "ACKNOWLEDGMENT"), attached
hereto as EXHIBIT D. Purchaser further agrees that Purchaser will execute and
submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as
EXHIBIT E, if Purchaser has indicated in the Acknowledgment his or her decision
to make such an election.
10. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
11. REGISTRATION RIGHTS. The Company will use best efforts to ensure
that Purchaser shall be entitled to the same or substantially similar piggy-back
registration rights that the Company grants to investors in the Company.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Washington, without giving effect to principles of conflicts of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
-8-
<PAGE>
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
[Signature Page Follows]
-9-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
ROSETTA BIOSYSTEMS, INC.
By: /s/
------------------------------------------
Title:
---------------------------------------
Address:
c/o Venture Law Group
4750 Carillon Point
Kirkland, WA 98033
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY OR BY THE PROVISIONS OF SECTION 4(A)(IV)
AND SECTION 4(A)(V). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN
THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO
CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE COMPANY, NOR
SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR
WITHOUT CAUSE.
PURCHASER:
STEPHEN H. FRIEND
/s/ Stephen H. Friend
---------------------------------------------
(Signature)
Address:
Vesting Commencement
Date: April 15, 1997
I, Diana Gayle Bowman Friend, spouse of Stephen H. Friend, have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or other such interest shall be similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
/s/ Diana Friend
---------------------------------------------
-10-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$16,740.00 Seattle, Washington
May __, 1997
For value received, the undersigned promises to pay Rosetta Biosystems,
Inc., a Delaware corporation (the "COMPANY"), at its principal office the
principal sum of $16,740.00 with interest from the date hereof at a rate of 8%
per annum, compounded semiannually, on the unpaid balance of such principal sum.
Such principal and interest shall be due and payable on November 31, 1997.
If the undersigned's employment or consulting relationship with the
Company is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
-----------------------------
Stephen H. Friend
<PAGE>
EXHIBIT B
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "AGREEMENT") is entered into
this ___ day of May, 1997 by and between Rosetta Biosystems, Inc., a Delaware
corporation (the "COMPANY") and Stephen H. Friend ("PURCHASER").
RECITALS
In connection with Purchaser's purchase of certain shares of the
Company's Common Stock (the "SHARES") pursuant to a Common Stock Purchase
Agreement dated May __, 1997 between Purchaser and the Company, Purchaser is
delivering a promissory note of even date herewith (the "NOTE") in full or
partial payment of the purchase price for the Shares. The company requires that
the Note be secured by a pledge of the Shares on the terms set forth below.
AGREEMENT
In consideration of the Company's acceptance of the Note as full or
partial payment of the exercise price of the Shares, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "PLEDGE HOLDER"), all certificates
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as ATTACHMENT A executed by Purchaser and
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as an when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension
or modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "COLLATERAL").
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding
<PAGE>
period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as
amended (the "SECURITIES ACT").
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness
under the Note, the Company may elect than, or at any time thereafter, to
exercise all rights available to a secured party under the Washington Commercial
Code including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used
to pay all reasonable expenses of the Company in enforcing this Agreement and
the Note, including, without limitation, reasonable attorney's fees and legal
expenses incurred by the Company.
(b) To the extent necessary, proceeds shall be used
to satisfy any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to
Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; PROVIDED, HOWEVER,
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE>
The parties have executed this Pledge and Security Agreement as of the
date first set forth above.
COMPANY:
ROSETTA BIOSYSTEMS, INC.
By:
------------------------------------
Name:
----------------------------------
(print)
Title:
-------------------------------
Address:
c/o Venture Law Group
4750 Carillon Point
Kirkland, WA 98033
PURCHASER:
STEPHEN H. FRIEND
----------------------------------------
(Signature)
Address:
-3-
<PAGE>
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and
Security Agreement between the undersigned ("PURCHASEr") and Rosetta Biosystems,
Inc. (the "COMPANY") dated May __, 1997 (the "AGREEMENT"), Purchaser hereby
sells, assigns and transfers unto the Company _______________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and hereby
irrevocably appoints _______________________ to transfer said stock on the books
of the Company with full power of substitution in the premises. THIS ASSIGNMENT
MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
-----------------------------------
Stephen H. Friend
-----------------------------------
Diana Gayle Bowman Friend
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to perfect the security interest of the Company
pursuant to the Agreement.
<PAGE>
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("PURCHASER") and Rosetta Biosystems, Inc.
(the "COMPANY") dated May __, 1997 (the "AGREEMENT"), Purchaser hereby sells,
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. ___, and does
hereby irrevocably constitute and appoint _____________________________ to
transfer said stock on the books of the Company with full power of substitution
in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT
AND THE EXHIBITS THERETO.
Dated: ______________________
Signature:
------------------------------
Stephen H. Friend
------------------------------
Diana Gayle Bowman Friend
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE>
EXHIBIT D
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(b) ELECTION
The undersigned has entered a stock purchase agreement with Rosetta
Biosystems, Inc., a Delaware corporation (the "COMPANY"), pursuant to which the
undersigned is purchasing 1,860,118 shares of Common Stock of the Company (the
"SHARES"). In connection with the purchase of the Shares, the undersigned hereby
represents as follows:
1._______The undersigned has carefully reviewed the stock purchase
agreement pursuant to which the undersigned is purchasing the Shares.
2._______ The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor, __________________________,
whose business address is _____________________________,
regarding the federal, state and local tax consequences of
purchasing the Shares, and particularly regarding the
advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "CODE") and
pursuant to the corresponding provisions, if any, of
applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3._______The undersigned hereby states that the undersigned has decided
[check as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the
Code, and is submitting to the Company, together with the
undersigned's executed Common Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE>
4._______Neither the Company nor any subsidiary or representative of
the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned's purchase of the Shares or
of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date: _________ -----------------
Stephen H. Friend
Date: _________ -------------------------
Diana Gayle Bowman Friend
-2-
<PAGE>
EXHIBIT E
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of
the Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME OF TAXPAYER: Stephen H. Friend
NAME OF SPOUSE: Diana Gayle Bowman Friend
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER:
IDENTIFICATION NO. OF SPOUSE:
TAXABLE YEAR: 1997
2. The property with respect to which the election is made is described as
follows: 1,860,118 of the Common Stock (the "Shares"), $.001 par value,
of Rosetta Biosystems, Inc., a Delaware corporation (the "Company").
3. The date on which the property was transferred is: May __, 1997
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $18,601.18
6. The amount (if any) paid for such property: $18,601.18
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: _____________________ -----------------------------
Taxpayer
Dated: ______________________ -----------------------------
Spouse of Taxpayer
<PAGE>
RECEIPT
Rosetta Biosystems, Inc. hereby acknowledges receipt of a check in the
amount of $1,861.18 and a promissory note in the amount of $16,740.00 given by
Stephen H. Friend as consideration for Certificate No. ___ for 1,860,118 shares
of Common Stock of Rosetta Biosystems, Inc.
Dated: ________________
Rosetta Biosystems, Inc.
By:________________________________________
Title:_____________________________________
<PAGE>
RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt of a photocopy of
Certificate No. ___ for 1,860,118 shares of Common Stock of Rosetta Biosystems,
Inc. (the "COMPANY").
The undersigned further acknowledges that the Secretary of the Company,
or his or her designee, is acting as escrow holder pursuant to the Common Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
-------------------------------
Stephen H. Friend
<PAGE>
December 22, 1998
UNIVERSITY OF CALIFORNIA, BERKELEY
OFFICE OF TECHNOLOGY LICENSING [SEAL]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMENDED AND RESTATED EXCLUSIVE. LICENSE
BETWEEN
ACACIA BIOSCIENCES, INC.
AND
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
FOR
GENE REPORTER MATRIX
UC Case No.: B95-034
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
<S> <C> <C>
1. BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4. SUBLICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5. LICENSE ISSUE FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6. ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7. DUE DILIGENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
8. PROGRESS AND ROYALTY REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . .9
9. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10. LIFE OF THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11. TERMINATION BY REGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12. TERMINATION BY LICENSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
13. DISPOSITION OF PRODUCTS ON HAND UPON TERMINATION. . . . . . . . . . . . . . . 11
14. PATENT PROSECUTION AND MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . 11
15. MARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
16. USE OF NAMES AND TRADEMARKS . . . . . . . . . . . . . . . . . . . . . . . . . 13
17. LIMITED WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
18. PATENT INFRINGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
19. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
20. EXPORT CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
21. FOREIGN GOVERNMENTAL APPROVAL OR REGISTRATION . . . . . . . . . . . . . . . . 15
22. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
23. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
24. LATE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
25. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
26. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
27. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
28. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
29. APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
30. SCOPE OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
UNIVERSITY OF CALIFORNIA, BERKELEY
OFFICE OF TECHNOLOGY LICENSING [SEAL]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMENDED AND RESTATED
EXCLUSIVE LICENSE
BETWEEN
ACACIA BIOSCIENCES, INC.
AND
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
FOR
GENE REPORTER MATRIX
UC Case No.: B95-034
[***]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Effective as of September 1, 1995 (the "EFFECTIVE DATE") and amended and
restated as of December 1, 1998 (the "RESTATEMENT DATE"), THE REGENTS OF THE
UNIVERSITY OF CALIFORNIA, a California corporation, whose legal address is 1111
Franklin Street, Fifth Floor, Oakland, California 946xx, acting through its
Office of Technology Licensing, at the University of California, Berkeley, 2150
Shattuck Avenue, Suite 510, Berkeley, CA 94720-1620 ("REGENTS") and ACACIA
BIOSCIENCES, INC., a Delaware corporation having a principal place of business
at 4136 Lakeside Drive, Richmond, California 94806 ("LICENSEE"), agree as
follows:
1. BACKGROUND
1.1 REGENTS has an assignment of the Genome Reporter Matrix for Drug
Discovery and Development invented by Jasper D. Rine, Ph.D., a molecular
geneticist employed by the University of California, Berkeley, and Matthew N.
Ashby, Ph.D., a postdoctoral fellow in Dr. Rifle's laboratory ("INVENTION"), as
described in REGENTS' Case No. B95-034 and REGENTS' PATENT RIGHTS as defined
below, which are directed to the INVENTION.
1.2 LICENSEE entered into a Letter Agreement and extension thereof
with REGENTS effective January 13, 1995, terminating on October 13, 1995, for
the purpose of evaluating the INVENTION and granting LICENSEE an exclusive right
to negotiate an option or exclusive license of the INVENTION, which Letter
Agreement covers the LICENSEE's commitment to reimburse
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 1 Confidential
<PAGE>
REGENTS' patent costs during the period of good-faith negotiation for an
exclusive license.
1.3 LICENSEE provided REGENTS with an Executive Summary of its drug
discovery process and business strategy in order to evaluate its capabilities as
a LICENSEE to commercialize the INVENTION.
1.4 The INVENTION was developed without Government support.
1.5 Both parties recognize and agree that royalties due hereunder will
be paid to REGENTS on both pending patent applications and issued patents.
1.6 REGENTS wish to have said INVENTION perfected and marketed at the
earliest possible time in order that products resulting therefrom may be
available for public use and benefit.
1.7 LICENSEE wishes to acquire a license under the REGENTS' PATENT
RIGHTS for the purpose of undertaking development and to manufacture, use, and
distribute under license PRODUCTS as defined below.
1.8 REGENTS have disclosed to LICENSEE certain information and
technical data pertaining to the INVENTION and such disclosure gives the
LICENSEE an economic advantage in bringing the INVENTION to market.
1.9 LICENSEE and REGENTS entered into an Exclusive License Agreement
for Gene Reporter Matrix for New Drug Discovery, effective September 1, 1995
with respect to the INVENTION and the REGENTS' PATENT RIGHTS (the "ORIGINAL
AGREEMENT"). -
1.10 LICENSEE and REGENTS desire to amend and restate certain
provisions of the ORIGINAL AGREEMENT as set forth in this Amended and Restated
Exclusive License Agreement for Gene Reporter Matrix in light of, inter alia,
changes in market conditions and changes in the sublicensing strategy of the
LICENSEE.
2. DEFINITIONS
2.1 "AGREEMENT" means this Amended and Restated Exclusive License
Agreement for Gene Reporter Matrix.
2.2 "REGENTS' PATENT RIGHTS" means [***] entitled, [***]
filed by Drs. Rine and Ashby and assigned to REGENTS; and continuing
applications of the patent applications from which such Letters Patent
issued, including divisions, substitutions, extensions and
continuation-in-part applications (only to the extent, however, that claims
in the continuation-in-part applications are entitled to the priority filing
date of the parent patent application), any patents issuing on said
application or continuing applications including reissues; and any
corresponding foreign patents or applications.
2.3 "LICENSED PRODUCTS AND SERVICES" means any product, service,
apparatus, kit or component part thereof or other material (i) produced by, or
used in, the LICENSED METHOD or (ii) the manufacture, use, sale, offer for sale
or importation of which in a particular country:
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 2 Confidential
<PAGE>
(a) Is covered by a valid claim of an issued, unexpired patent
under the REGENTS' PATENT RIGHTS in that country in which such patent has issued
(claim of an issued, unexpired REGENTS' PATENT RIGHTS shall be presumed to be
valid unless and until it has been held to be invalid by a final judgment of a
court of competent jurisdiction from which no appeal can be or is taken) or;
(b) Is covered by a pending claim being prosecuted in a pending
patent application under the REGENTS' PATENT RIGHTS in that country in which
such application is pending.
2.4 "LICENSED METHOD" means any process or method (i) that is covered
by the REGENTS' PATENT RIGHTS in the country in which such process or method is
used or (ii) the use or practice of which would constitute, but for the license
granted to the LICENSEE pursuant to this Agreement, an infringement of any
issued or pending claim within REGENTS' PATENT RIGHTS in that country in which
the LICENSED METHOD is used or practiced.
2.5 "LICENSED FIELD OF USE" means use of the LICENSED PRODUCTS AND
SERVICES for any purpose, including without limitation, the identification,
discovery, development, optimization or characterization of genetic materials or
chemical compounds for diagnostic or therapeutic use, or for agricultural uses
such as pesticides, herbicides, and transgenic plant development.
2.6 "NET LICENSEE REVENUES" means the gross revenues actually received
by LICENSEE from the sale, lease or distribution of LICENSED PRODUCTS AND
SERVICES by LICENSEE in the form in which they are sold, leased, used or
distributed under license, whether or not assembled (and without excluding
therefrom any components or subassemblies thereof, whatever their origin and
whether or not patent impacted), less the following items but only insofar as
they actually pertain to the disposition of such LICENSED PRODUCTS AND SERVICES
by LICENSEE and are included in such gross revenues, and (except Item d) are
separately billed:
(a) Import, export, excise, and sales taxes, plus custom
duties; if custom duties are part of the licensed price, REGENTS will accept
LICENSEE's statement to that effect provided accounting statement is supplied,
identifying each item and duty amount included.
(b) Costs of insurance, packing, and transportation from the
place of manufacture to the customer's premises or point of installation;
(c) Costs of installation at the place of use; and
(d) Credit for returns, allowances, or trades.
2.7 "SUBLICENSING REVENUES" means the gross revenues actually received
by LICENSEE (whether in the form of upfront payments, license fees, license
maintenance fees, milestone payments, royalties, minimum royalties or advance
royalties) from its sublicensees of the REGENTS PATENT RIGHTS under this
Agreement to the extent received in consideration for the sublicensing of such
REGENTS PATENT RIGHTS. [***]
(i) as research and development funding or support payments, to the
extent such payments are
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 3 Confidential
<PAGE>
allocated for a specific research and development project or to the extent
such payments do not exceed LICENSEE's research and development costs for a
project, determined using the then-applicable full-time equivalent funding
rate for LICENSEE's research and development personnel (i.e., the rate
applicable to LICENSEE's personnel allocated to research and development
activities, including salary, benefits, materials, equipment, and allocated
overhead),
(ii) for the purchase of an equity interest in LICENSEE at the fair
market value of such interest (with any premium paid by a sublicensee in excess
of such fair market value being included in SUBLICENSING REVENUES),
(iii) as a loan to LICENSEE, to the extent that such loan is not
forgivable, and
(iv) in the form of any advanced royalty payments or option payments to
LICENSEE that are refundable to such sublicensee. SUBLICENSING REVENUES
specifically excludes any NET LICENSEE REVENUES of LICENSEE.
2.8 "LICENSED TERRITORY" means United States of America, its
territories and possessions, any foreign countries where REGENTS have filed or
obtained corresponding foreign patents or applications, and any other foreign
countries throughout the world for which REGENTS may lawfully grant a license of
REGENTS' PATENT RIGHTS.
3. GRANT
3.1 Subject to the limitations set forth in this Agreement REGENTS
hereby grants and LICENSEE hereby accepts an exclusive license under the
REGENTS' PATENT RIGHTS to make, have made, use, sell, offer for sale, import and
distribute under license LICENSED PRODUCTS AND SERVICES and to practice or use
the LICENSED METHOD in the LICENSED TERRITORY and in the LICENSED FIELD OF USE.
3.2 The license under Article 3.1 shall be exclusive for a term
commencing as of the effective date of this Agreement and ending on the date of
the last to expire patent under the REGENTS' PATENT RIGHTS.
3.3 REGENTS expressly reserves the non-transferrable right to use the
INVENTION and related technology solely for educational and noncommercial
research purposes provided, however, that REGENTS may extend such right to any
other non-profit entity.
3.4 LICENSEE shall have a continuing responsibility to keep the
REGENTS informed of its large/small entity status (as defined by the United
States Patent and Trademark Office) of itself and its sublicensees.
4. SUBLICENSES
4.1 LICENSEE shall have the right to sublicense to third parties the
rights granted in Section 3.1 above, provided that LICENSEE has current
exclusive rights under this Agreement at the time of grant of such sublicense.
REGENTS and LICENSEE agree and understand that LICENSEE may sublicense the
REGENTS' PATENT RIGHTS in the following ways:
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 4 Confidential
<PAGE>
(i) by means of non-exclusive patent licenses to third party potential
infringers pursuant to an agreement under which LICENSEE is not obligated to
perform services or develop products as part of a collaborative project (a
"PATENT SUBLICENSE") and,
(ii) by means of exclusive or non-exclusive arrangements with third party
collaborators for the discovery and development of lead compounds, target genes
or products wherein LICENSEE also provides to such third party technology or
services proprietary to LICENSEE (a "COLLABORATION AGREEMENT").
If LICENSEE receives consideration for the grant of a sublicense pursuant
to a PATENT SUBLICENSE in a form other than cash, LICENSEE will pay royalties
pursuant to Section 6.1(ii) on such consideration on the fair market value of
such non-cash consideration. The parties intend that all SUBLICENSING REVENUES
that LICENSEE receives from third parties pursuant to a PATENT SUBLICENSE or a
COLLABORATION AGREEMENT shall be subject to the royalty provided in Section
6.1(ii), and not included in the calculation of NET LICENSEE REVENUES. For
clarification of LICENSEE's obligations under Section 6.1, if LICENSEE enters
into an agreement with a third party collaborator for the discovery and
development of lead compounds, target genes or products wherein LICENSEE
provides to such third party both:
(A) technology or services that are not covered by the REGENTS' PATENT
RIGHTS and,
(B) LICENSED PRODUCTS AND SERVICES, but such agreement does not
provide for such third party to obtain a sublicense under the REGENTS PATENT
RIGHTS, then such agreement shall not be a COLLABORATION AGREEMENT and shall
be subject to the obligations under Section 6.1(i).
4.2 Every such sublicense shall contain at least the following:
(a) A statement setting forth the date upon which LICENSEE's
exclusive rights, privileges, and license hereunder shall expire.
(b) A statement such that the obligations of Articles 9.1, 10,
and 16 of this Agreement shall be binding upon the sublicensee as if it were in
place of LICENSEE,
(c) The same provision for indemnification of REGENTS as has
been provided for in this Agreement.
4.3 Every PATENT SUBLICENSE shall contain the following:
(i) A statement that such sublicensee(s) shall be
precluded from granting further sublicenses.
4.4 Every COLLABORATION AGREEMENT shall contain the following:
(i) A statement that such sublicensee(s) shall be
precluded from granting further sublicenses, except to its affiliates and except
as agreed upon by LICENSEE, and provided that such sublicensee promptly notifies
LICENSEE of any such sublicense, and that such sublicense is subject
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 5 Confidential
<PAGE>
to the same terms as set forth in this Article 4.
4.5 LICENSEE shall notify REGENTS of each sublicense granted hereunder
and furnish to REGENTS a summary of the non-confidential material terms of each
such sublicense agreement.
4.6 LICENSEE shall deliver all reports due REGENTS and received from
sublicensees.
4.7 Upon termination of this Agreement for any reason, all sublicenses
that are granted by LICENSEE pursuant to this Agreement shall remain in effect
and shall be assigned by LICENSEE to REGENTS except that REGENTS shall not be
bound to perform any duties or obligations set forth in any sublicenses that
extend beyond the duties and obligations of REGENTS set forth in this Agreement.
5. LICENSE ISSUE FEE
5.1 LICENSEE shall pay to REGENTS a non-creditable, non-refundable
license issue fee of [***] shares of common stock in accordance with the
following schedule:
5.1.a [***] shares of common stock due within thirty (30) days
of the effective date of this Agreement;
5.2.b [***] of the effective date of this agreement;
5.1.c [***] of the effective date of this Agreement;
5.1.d [***] of the effective date of this Agreement;
5.1.e [***] upon obtaining cumulative equity financing of
[***];
5.1.f [***] at the time the first patent included within
REGENTS' PATENT RIGHTS is allowed; and
5.1.g [***] upon the first occurrence of NET LICENSEE REVENUES.
The University acknowledges that prior to the Restatement Date,
LICENSEE has paid the portions of the license issue fee provided for in Sections
5.1(a) through 5.1(f). This fee is non-refundable and not an advance against
royalties.
6. ROYALTIES
6.1 LICENSEE shall pay to REGENTS earned royalties at the rate of
(i) [***] of all NET LICENSEE REVENUES and (ii) [***] of all SUBLICENSING
REVENUES.
6.2 Royalties shall be payable on NET LICENSEE REVENUES and
SUBLICENSING REVENUES covered by both pending patent applications and issued
patents.
6.3 Royalties accruing to the REGENTS shall be paid to the REGENTS
quarterly on or before the following dates of each calendar-year:
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 6 Confidential
<PAGE>
February 28 for the calendar quarter ending December 31
May 31 for the calendar quarter ending March 31
August 31 for the calendar quarter ending June 30
November 30 for the calendar quarter ending September 30
6.4 Beginning in the first calendar year after the first occurrence
of NET LICENSEE REVENUES and in each succeeding calendar year thereafter,
LICENSEE shall pay to the REGENTS a minimum annual royalty of [***] for the
life of this Agreement. This minimum annual royalty shall be paid to the
REGENTS by February 28 of each year and shall be credited against the earned
royalty due and owing on NET LICENSEE REVENUES under Section 6.1 for the
calendar year in which the minimum payment was made.
6.5 All royalties due the REGENTS shall be payable in United States
funds collectible at par in San Francisco, California. When LICENSED PRODUCTS
AND SERVICES are sold for monies other than United States dollars, the earned
royalties will first be determined in the foreign currency of the country in
which the LICENSED PRODUCTS AND SERVICES were licensed and then converted into
equivalent United States funds. The exchange rate will be that rate quoted in
the Wall Street Journal on the last business day of the reporting period.
6.6 Earned royalties on licensed distribution of LICENSED PRODUCTS AND
SERVICES occurring in any country outside the United States shall not be reduced
by any taxes, fees, or other charges imposed by the government of such country
on the remittance of royalty income. The LICENSEE shall also be responsible for
all bank transfer charges.
6.7 LICENSEE shall make all payments under this Agreement by check
payable to "The Regents of the University of California" and forward it to
REGENTS at the address shown in Article 23.
6.8 In the event that any patent or any claim thereof included within
the REGENTS' PATENT RIGHTS expires or shall be held invalid in a final decision
by a court of competent jurisdiction and last resort and from which no appeal
has been or can be taken, all obligation to pay royalties for LICENSED PRODUCTS
AND SERVICES based on, covered by, or made using such patent or claims or any
claims patentably indistinct therefrom shall cease as of the date of such
expiration or final decision. LICENSEE shall not, however, be relieved from
paying any royalties for LICENSED PRODUCTS AND SERVICES that accrued before such
expiration or decision or that are based on another valid patent or claim not
expired or involved in such decision.
7. DUE DILIGENCE
7.1 LICENSEE, upon execution of this Agreement, shall use diligent
commercial efforts to proceed with the development, manufacture, and
distribution under license of LICENSED PRODUCTS AND SERVICES and shall use
diligent commercial efforts to market them in quantities sufficient to meet the
market demand. LICENSEE shall be entitled to exercise prudent and reasonable
business judgment in meeting its due diligence obligations hereunder.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 7 Confidential
<PAGE>
7.2 LICENSEE specifically commits to achieving the following
objectives in its due diligence activities hereunder:
(a) Provide a business plan to REGENTS within [***] from the
effective date of this Agreement which demonstrates how LICENSEE plans to
acquire and apply the resources needed to commercialize the INVENTION;
(b) Establish a sponsored research program with the
University of California, Berkeley, within [***] of the effective date of
this Agreement to complete development and test the INVENTION. Should
permission to conduct a sponsored research program be denied by the campus
committee on conflict of interest, then THE REGENTS shall inform LICENSEE in
writing of this decision. LICENSEE must then provide a written plan to THE
REGENTS for the alternative development of the technology by another means
within sixty (60) days of the receipt of the notification from THE REGENTS.
THE REGENTS shall respond promptly to the alternative plan but if not
acceptable, then LICENSEE agrees to implement THE REGENTS' reasonable
requests.
(c) Develop and implement a patent strategy that results in
appropriate filings of additional patent applications covering inventions
relating to the INVENTION within [***] of the effective date of this
Agreement and meet any statutory bar deadlines due to publications by filing
appropriate patent applications;
(d) Establish a facility for the research, development,
sale, and marketing of LICENSED PRODUCTS AND SERVICES and LICENSED METHODS
within [***] of the effective date of this Agreement;
(e) Achieve either private, venture capital or corporate
research or equity financing in the minimum amount of [***] within thirty
(30) months of the effective date of this Agreement; and
(f) Have first occurrence of NET LICENSEE REVENUES within
[***] of the effective date of this Agreement.
The University acknowledges that prior to the Restatement Date,
LICENSEE has achieved the requirements in this Article 7.2 (a) -(e).
7.3 If LICENSEE is unable to meet any of its due diligence
obligations set forth in Article 7.2, then REGENTS shall so notify LICENSEE
of failure to perform. LICENSEE shall have the right and option to extend the
target date of any such due diligence obligation for a period of [***] upon
the payment of [***]of the extension date for each [***] extension option
exercised by LICENSEE. These payments are in addition to the minimum royalty
payments specified in Article 6.4. Should LICENSEE opt not to extend the
obligation or fail to meet it by the extended target date, then REGENTS shall
have the right and option either to terminate this Agreement or to reduce the
LICENSEE's exclusive license to a non-exclusive royalty bearing license. This
right, if exercised by REGENTS, supersedes the rights granted in Article 3.
The right to terminate this Agreement or reduce LICENSEE's exclusive license
granted hereunder to a non-exclusive license shall be REGENTS' sole remedy
for breach of Article 7. However, if LICENSEE is unable to perform any of the
due diligence obligations set forth in Article 7.2 due to hardships beyond
LICENSEE's control while LICENSEE has demonstrated diligent commercial
efforts to perform these obligations, then
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 8 Confidential
<PAGE>
REGENTS may extend the dates as appropriate (after conferring with LICENSEE
in good faith and, in any event, on at least a day to day basis) in writing
to LICENSEE, and REGENTS shall not terminate this Agreement or reduce
LICENSEE's exclusive license to a non-exclusive license.
7.4 At the request of either party, any controversy or claim arising
out of or relating to the diligence provisions of Article 7.2 shall be settled
by arbitration conducted in San Francisco, CA in accordance with the then
current Licensing Agreement Arbitration Rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator(s) shall be
binding on the parties and may be entered by either party in the court or forum,
state or federal, having jurisdiction. In determination of due diligence, the
arbitrator may determine solely the issues of fact or law with respect to
termination of LICENSEE's or REGENTS' respective rights under this Agreement but
shall not have the authority to award monetary damages or grant equitable
relief.
7.5 To exercise either the right to terminate this Agreement or to
reduce the license to a non-exclusive license for lack of diligence required
in Article 7.2, REGENTS must give LICENSEE written notice of the deficiency.
The LICENSEE thereafter has [***] to cure the deficiency or to request
arbitration. If REGENTS has not received a written request for arbitration or
satisfactory tangible evidence that the deficiency has been cured by the end
of the [***] period, then REGENTS may, at its option, either terminate the
Agreement or reduce LICENSEE's exclusive license to a non-exclusive license
by giving written notice to LICENSEE. These notices shall be subject to
Article 23 (Notices).
8. PROGRESS AND ROYALTY REPORTS
8.1 Prior to the Restatement Date, LICENSEE has submitted to REGENTS a
progress report covering LICENSEE's activities related to the development and
testing of all LICENSED PRODUCTS AND SERVICES and the obtaining of the
governmental approvals necessary, if any, for marketing in the United States.
These progress reports have been made for all LICENSED PRODUCTS AND SERVICES
prior to the first commercial sale of such LICENSED PRODUCTS AND SERVICES in the
United States.
8.2 LICENSEE also agrees to report to REGENTS in its immediately
subsequent progress and royalty report, due on Jan. 1, 1999, the date of first
commercial distribution under license of LICENSED PRODUCTS AND SERVICES.
8.3 After the first commercial distribution under license of LICENSED
PRODUCTS AND SERVICES by LICENSEE anywhere in the world, LICENSEE will make
quarterly royalty reports to REGENTS within sixty (60) days after the quarters
ending March 31, June 30, September 30, and December 31, of each year. Each such
royalty report shall include at least the following:
(a) The number of LICENSED PRODUCTS AND SERVICES manufactured
and the number of customers to whom LICENSED PRODUCTS AND SERVICES were provided
or licensed;
(b) Gross revenue for LICENSED PRODUCTS AND SERVICES licensed;
(c) NET LICENSEE REVENUES pursuant to Article 2.6;
(d) Total SUBLICENSING REVENUES;
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 9 Confidential
<PAGE>
(e) Total royalties due REGENTS on such NET LICENSEE REVENUES
and SUBLICENSING REVENUES; and
(f) Names and addresses of any new sublicensees along with a
summary of the non-confidential material terms of each new sublicense agreement
entered into during the reporting quarter.
8.4 If no distribution under license of LICENSED PRODUCTS AND SERVICES
has been made during the report period, a statement to this effect is required.
9. BOOKS AND RECORDS
9.1 LICENSEE shall keep full, true, and accurate books of accounts
containing all particulars that may be necessary for the purpose of showing
the amount of royalties payable to REGENTS. Said books of accounts shall be
kept at LICENSEE's principal place of business or the principal place of
business of the appropriate division of LICENSEE to which this Agreement
relates. Said books and the supporting data shall be open at all reasonable
times during normal business hours upon reasonable notice, for [***]
following the end of the calendar year to which they pertain, to the
inspection and audit by an independent certified public accountant retained
by REGENTS for the purpose of verifying LICENSEE's royalty statement or
compliance in other respects with this Agreement. Such independent certified
accountant shall be bound to hold all information in confidence except as
necessary to communicate LICENSEE's non-compliance with this AGREEMENT to
REGENTS.
9.2 The fees and expenses of REGENTS' representatives performing
such an examination shall be borne by REGENTS. However, if an error in
underpaid royalties to REGENTS of more than [***] of the total royalties due
for any year is discovered, then the fees and expenses of these
representatives shall be borne by LICENSEE.
10. LIFE OF THE AGREEMENT
10.1 Unless otherwise terminated by the operation of law or by acts of
the parties in accordance with the terms of this Agreement, this Agreement shall
be in force from the effective date recited on page one and shall remain in
effect for the life of the last-to-expire patent licensed under this Agreement.
Any termination of this Agreement shall not affect the rights and
obligations set forth in the following articles:
Article 4 Sublicenses
Article 9 Books and Records
Article 10 Life of the Agreement
Article 13 Disposition of PRODUCTS on Hand Upon
Termination
Article 16 Use of Names and Trademarks
Article 19 Indemnification
Article 24 Late Payments
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
Page 10 Confidential
<PAGE>
Article 26 Confidentiality
10.3 Any termination of this Agreement shall not relieve LICENSEE of
its obligation to pay any monies due or owing at the time of such termination
and shall not relieve any obligations, of either party to the other party,
established prior to termination.
11. TERMINATION BY REGENTS
If LICENSEE should violate or fail to perform any term or covenant of
this Agreement, then REGENTS may give written notice of such default ("Notice
of Default") to LICENSEE. If LICENSEE should fail to repair such default
within [***] of the effective date of such notice, REGENTS shall have the
right to terminate this Agreement and the licenses herein by a second written
notice ("Notice of Termination") to LICENSEE. If a Notice of Termination is
sent to LICENSEE, this Agreement shall automatically terminate on the
effective date of such notice, Such termination shall not relieve LICENSEE of
its obligation to pay any royalty or license fees owing at the time of such
termination and shall not impair any accrued rights of REGENTS. These notices
shall be subject to Article 23 (Notices).
12. TERMINATION BY LICENSEE
12.1 LICENSEE shall have the right at any time to terminate this
Agreement in whole or as to any portion of REGENTS' PATENT RIGHTS by giving
notice in writing to REGENTS. Such notice of termination shall be subject to
Article 23 (Notices) and termination of this Agreement shall be effective
[***] from the effective date of such notice.
12.2 Any termination pursuant to the above paragraph shall not
relieve LICENSEE of any obligation or liability accrued hereunder prior to
such termination or rescind anything done by LICENSEE or any payments made to
REGENTS hereunder prior to the time such termination becomes effective, and
such termination shall not affect in any manner any rights of REGENTS arising
under this Agreement prior to such termination.
13. DISPOSITION OF PRODUCTS ON HAND UPON TERMINATION
Upon termination of this Agreement LICENSEE shall have the privilege of
disposing of all previously made or partially made LICENSED PRODUCTS, but no
more, within a period of one hundred and twenty (120) days following the
effective date of termination, provided, however, that the sale of such LICENSED
PRODUCTS shall be subject to the terms of this Agreement including, but not
limited to, the payment of royalties at the rate and at the time provided herein
and the rendering of reports thereon.
14. PATENT PROSECUTION AND MAINTENANCE
14.1 REGENTS shall diligently prosecute and maintain the United States
and foreign patent applications and patents under REGENTS' PATENT RIGHTS using
counsel of its choice, provided that the continued use of such counsel at any
point in the patent prosecution process subsequent to initial filing of a U.S.
patent application covering the INVENTION, including preparation and filing of
divisions, substitutions, extensions, continuation-in-part applications, and
corresponding foreign applications, shall be subject to the approval of
LICENSEE. REGENTS shall promptly provide
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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LICENSEE with copies of all relevant documentation so that LICENSEE may be
currently informed and apprised of the continuing prosecution and LICENSEE
agrees to keep this documentation confidential in accordance with Article 26
herein. LICENSEE may comment upon such documentation, provided, however, that
if LICENSEE has not commented upon such documentation prior to the deadline
for filing a response with the relevant government patent office, REGENTS
shall be free to respond appropriately without consideration of LICENSEE's
comments. LICENSEE and LICENSEE's patent counsel shall have the right to
consult with patent counsel chosen by REGENTS.
14.2 REGENTS shall use all reasonable efforts to prepare or amend any
patent application to include claims reasonably requested by LICENSEE to protect
the products contemplated to be sold, or methods or procedures to be practiced
under this Agreement.
14.3 Subject to Articles 14.4 and 14.6, all past, present, and future
costs for preparing, filing, prosecuting, and maintaining all United States and
foreign patent applications, and patents issuing thereon and contemplated by the
executed Letter Agreement dated January 13, 1995, and this Agreement and not
paid for by a third party shall be borne by LICENSEE, so long as the licenses
granted to LICENSEE herein are exclusive. If, however, REGENTS reduces the
exclusive licenses granted herein to non-exclusive licenses pursuant to Articles
7.3, 7.4, or 7.5 and REGENTS grants additional license(s), the costs of
preparing, filing, prosecuting and maintaining such patent applications and
patents shall be divided equally among the licensed parties from the effective
date of each subsequently granted license agreement.
14.4 REGENTS shall file, prosecute and maintain, at the request of
LICENSEE, patent applications and patents covered by REGENTS' PATENT RIGHTS in
foreign countries, if available, and if LICENSEE so desires. LICENSEE must
notify REGENTS within nine (9) months of the filing of the corresponding United
States application of its decision to obtain foreign patents. The notice
concerning foreign filing shall be in writing and must identify the countries
desired. The absence of such a notice from LICENSEE to REGENTS within such nine
(9) month period shall be considered an election not to secure foreign rights.
REGENTS shall have the right to file patent applications at its own expense in
any country which LICENSEE has not included in the list of desired countries and
such application and resultant patents shall not be subject to this Agreement.
14.5 All patents and patent applications under this Agreement shall be
held in the name of REGENTS, and shall be subject to the terms and provisions
hereof. REGENTS shall take into consideration LICENSEE's reasonable suggestions
in the preparation and prosecution of REGENTS' PATENT RIGHTS covering the
INVENTION in order to obtain the broadest claims and protection.
14.6 LICENSEE's obligation to underwrite and to pay all domestic and
foreign patent filing, prosecution, and maintenance costs shall continue for
so long as this Agreement remains in effect, provided, however, that LICENSEE
may terminate its obligations with respect to any given patent application or
patent in any or all designated countries upon [***] written notice to
REGENTS. REGENTS will use its best efforts to curtail patent costs when such
a notice is received from LICENSEE. REGENTS may continue prosecution and/or
maintenance of such application(s) or patent(s) at its sole discretion and
expense; provided, however, that LICENSEE shall have no further right or
licenses thereunder.
15. MARKING
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Prior to the issuance of patents under REGENTS' PATENT RIGHTS, LICENSEE
agrees to mark LICENSED PRODUCTS AND SERVICES (or their containers or labels)
made, sold, licensed or otherwise disposed of by it in the United States under
the license granted in this Agreement with the words "Patent Pending," and
following the issuance in the United States of one or more patents under
REGENTS' PATENT RIGHTS, with the numbers of the REGENTS' PATENT RIGHTS. All
LICENSED PRODUCTS OR SERVICES shipped to, manufactured, or sold in other
countries shall be marked in such manner as to conform with the patent laws and
practice of such countries.
16. USE OF NAMES AND TRADEMARKS
Nothing contained in this Agreement shall be construed as conferring
any right to use in advertising, publicity or other promotional activities
any name, trademark, trade name, or other designation of either party hereto
(including any contraction, abbreviation, or simulation of any of the
foregoing). Unless required by law or consented to in writing by REGENTS, the
use of the name "The Regents of the University of California" or the name of
any University of California campus is expressly prohibited.
17. LIMITED WARRANTIES
17.1 REGENTS warrants to LICENSEE that it has the lawful right to grant
this license.
17.2 These licenses and the associated INVENTION are provided without
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESSED OR IMPLIED. REGENTS MAKES NO REPRESENTATIONS OR WARRANTIES
THAT THE LICENSED PRODUCTS AND SERVICES OR LICENSED METHOD WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHTS.
17.3 IN NO EVENT WILL REGENTS BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THE LICENSE GRANTED HEREUNDER
OR THE USE OF THE INVENTION OR LICENSED PRODUCTS.
17.4 Nothing in this Agreement is or shall be construed as:
(a) A warranty or representation by REGENTS as to the validity
or scope of any REGENTS' PATENT RIGHTS; or
(b) A warranty or representation that anything made, used,
sold, or otherwise disposed of under any license granted in this Agreement is or
will be free from infringement of patents of third parties; or
(c) An obligation to bring or prosecute actions or suits
against third parties for patent infringement, except as provided in Article 18;
or
(d) Conferring by implication, estoppel, or otherwise any
license or rights under any patents of REGENTS other than REGENTS' PATENT RIGHTS
as defined herein; or
(e) An obligation to furnish any know how, not provided in
REGENTS' PATENT RIGHTS.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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18. PATENT INFRINGEMENT
18.1 In the event that LICENSEE shall learn of the substantial
infringement of any REGENTS' PATENT RIGHTS under this Agreement, LICENSEE
shall promptly inform REGENTS with reasonable evidence of such infringement.
Both parties to this Agreement agree that during the period and in a
jurisdiction where LICENSEE has exclusive rights under this Agreement,
neither will notify a third party of the infringement without first obtaining
consent of the other party, which consent shall not be unreasonably denied.
Both parties shall use their best efforts, in cooperation with each other, to
terminate such infringement without litigation.
18.2 LICENSEE may request that REGENTS take legal action against the
infringement. Such request shall be made in writing and shall include reasonable
evidence of such infringement and damages to LICENSEE. If the infringing
activity has not been abated within ninety (90) days following the effective
date of such request, REGENTS shall have the right to:
(a) Commence suit on its own account; or
(b) Refuse to participate in such suit.
REGENTS shall give notice of its election in writing to LICENSEE by the end of
the 100th day after receiving notice of such request from LICENSEE, and absent
refusal to participate in such suit, shall commence suit promptly thereafter.
LICENSEE shall have the right to join or intervene at its own expense in any
such suit commenced by REGENTS.
LICENSEE may bring suit for patent infringement if, and only if, REGENTS elects
not to commence suit and if the infringement occurred during the period and in a
jurisdiction where LICENSEE had exclusive rights under this Agreement. However,
in the event LICENSEE elects to bring suit in accordance with this paragraph,
REGENTS may thereafter join such suit at its own expense.
18.3 Such legal action as is decided upon shall be at the expense of
the party on whose account suit is brought and all recoveries recovered thereby
shall belong to such party, provided that legal action brought jointly by
REGENTS and LICENSEE (or by one such party with later joinder or intervention by
the other) and fully participated in by both, shall be shared jointly by them in
proportion to the share of expense paid by each party.
18.4 Each party agrees to cooperate with the other in legal proceedings
instituted hereunder but at the expense of the party on account of whom suit is
brought. Such legal proceedings shall be controlled by the party bringing the
action, except that REGENTS may be represented by counsel of its choice, at its
sole expense, in any action brought by LICENSEE and LICENSEE may be represented
by counsel of its choice, at its sole expense, in any action brought by REGENTS.
19. INDEMNIFICATION
LICENSEE agrees, and agrees to require its sublicensees, to indemnify,
hold harmless, and defend REGENTS and its officers, employees, and agents;
sponsor(s) of the research that led to the INVENTION; and the inventors of
the patents and patent applications in REGENTS' PATENT RIGHTS
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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and their employees against any and all liability, claims, suits, losses,
damages, costs, fees, and expenses for death, illness, personal injury,
property damage, and improper business practices arising out of the
manufacture, use, sale, lease or other disposition of the INVENTION, REGENTS'
PATENT RIGHTS, or LICENSED PRODUCTS AND SERVICES by LICENSEE, by its
sublicensees, or each of their customers.
20. EXPORT CONTROLS
LICENSEE understands that REGENTS are subject to United States laws and
regulations (including the Arms Export Control Act, as amended, and the Export
Administration Act of 1979), controlling the export of technical data, computer
software, laboratory prototypes and other commodities, and REGENTS' obligations
under this Agreement are contingent on compliance with such laws and
regulations. The transfer of certain technical data and commodities may require
a license from the cognizant agency of the United States Government and/or
written assurances by LICENSEE that LICENSEE shall not export such technical
data and/or commodities to certain foreign countries without prior approval of
such agency. REGENTS neither represent that a license shall not be required nor
that, if required, it shall be issued.
21. FOREIGN GOVERNMENTAL APPROVAL OR REGISTRATION
If this Agreement or any associated transaction is required by the law of
any nation to be either approved or registered with any governmental agency,
LICENSEE shall assume all legal obligations to do so.
22. ASSIGNMENT
This Agreement is binding upon and shall inure to the benefit of REGENTS,
its successors and assigns, provided, however, this Agreement shall be personal
to LICENSEE and assignable by LICENSEE only with the written consent of REGENTS,
which consent shall not be unreasonably withheld, except that LICENSEE may
freely assign this Agreement to an acquirer of all or substantially all of
LICENSEE's stock, assets or business.
23. NOTICES
All notices under this Agreement shall be deemed to have been fully given
when done in writing and deposited in the United States mail, registered or
certified, and addressed as follows:
To REGENTS: Office of Technology Licensing
2150 Shattuck Avenue, Suite 510
Berkeley, CA 94720-1620
Attn: Director (UC Case No.: B95-034)
To LICENSEE: Acacia Biosciences, Inc. 4136 Lakeside Drive
Richmond, CA 94806
Attn.: President
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Either party may change its address upon written notice to the other
party.
24. LATE PAYMENTS
In the event royalty payments or fees are not received by REGENTS when
due, LICENSEE shall pay to REGENTS interest charges at a rate of [***]. Such
interest shall be calculated from the date payment was due until actually
received by REGENTS.
25. WAIVER
25.1 The failure of either party to assert a right hereunder or to
insist upon compliance with any term or condition of this Agreement shall not
constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
25.2 None of the terms, covenants, and conditions of this Agreement can
be waived except by the written consent of the party waiving compliance.
26. CONFIDENTIALITY
26.1 LICENSEE and REGENTS respectively shall hold the other party's
proprietary business, terms of this Agreement, patent prosecution material, and
technical information and other proprietary information in confidence and
against disclosure to third parties with at least the same degree of care as it
exercises to protect its own data and license agreements of a similar nature.
26.2 Nothing contained herein shall in any way restrict or impair the
right of LICENSEE or REGENTS to use, disclose, or otherwise deal with any
information or data which:
(a) at the time of disclosure to a receiving party is generally
available to the public or thereafter becomes generally available to the public
by publication or otherwise through no act of the receiving party;
(b) the receiving party can show by written record was in its
possession prior to the time of disclosure to it hereunder and was not acquired
directly or indirectly from the disclosing party;
(c) is independently made available to the receiving party
without restrictions as a matter of right by a third party;
(d) is subject to disclosure under the California Public
Records Act or other requirements of law.
26.3 It is understood that REGENTS shall be free to release to the
inventors and senior administrators employed by REGENTS the terms and conditions
of this Agreement upon their request. If such release is made, REGENTS shall
inform such employees of the confidentiality obligations set forth above and
shall request and use its best efforts to ensure that they do not disclose such
terms and conditions to others. it is further understood that should a third
party inquire whether a license to REGENTS' PATENT RIGHTS is available, REGENTS
may disclose the existence of this Agreement and the extent of the grant in
Article 3 to such third party, but shall not disclose the name of LICENSEE,
except where REGENTS are required to release information under either the
California Public Records
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Act or other applicable law, provided REGENTS shall give prior written notice
to LICENSEE of such disclosure.
26.4 LICENSEE and REGENTS agree to destroy or return to the disclosing
party proprietary information received from the other in its possession within
fifteen (15) days following the effective date of termination of this Agreement.
However, each party may retain one copy of proprietary information of the other
solely for archival purposes in non-working files for the sole purpose of
verifying the ownership of the proprietary information, provided such
proprietary information shall be subject to the confidentiality provisions set
forth in Article 26.1. LICENSEE and REGENTS agree to provide each other, within
thirty (30) days following termination of this Agreement, with a written notice
that proprietary information has been returned or destroyed.
26.5 The terms of this Article 26 (Confidentiality) shall expire in
[***] from the official date of termination of this Agreement.
27. FORCE MAJEURE
The parties to this Agreement shall be excused from any performance
required hereunder if such performance is rendered impossible or unfeasible due
to any catastrophes or other major events beyond their reasonable control,
including, without limitation, war, riot, and insurrection; laws, proclamations,
edicts, ordinances, or regulations; strikes, lockouts, or other serious labor
disputes; and floods, fires, explosions, or other natural disasters. When such
events have abated, the parties' respective obligations hereunder shall resume.
28. SEVERABILITY
The provisions of this Agreement are severable, and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
enforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof.
29. APPLICABLE LAW
THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED, AND APPLIED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA. QUESTIONS CONCERNING THE LAW AND
EFFECT OF THE REGENTS' PATENT RIGHTS SHALL BE DETERMINED BY THE LAW OF THE
COUNTRY IN WHICH THE PATENT WAS GRANTED.
30. SCOPE OF AGREEMENT
This Agreement (except for the Letter Agreement dated January 13, 1995
and extension thereof, which shall continue to the extent it is not inconsistent
with this Agreement) incorporates the entire agreement between the parties with
respect to the subject matter hereof, and this Agreement may be altered. or
modified only by written amendment duly executed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate originals by their duly authorized officers or representatives.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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THE REGENTS OF THE ACACIA BIOSCIENCES, INC.
UNIVERSITY OF CALIFORNIA
By: /s/: William A. Hoskins By: /s/: Bruce Cohen
--------------------------------- ----------------------------------
William A. Hoskins Bruce Cohen
Director President and Chief Executive
Office of Technology Licensing Officer
Date: January 4, 1999 Date: December 23, 1998
-------------------------------- --------------------------------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated November
10, 1998, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman
Drive, Santa Clara, California 95054 with a loan production office located at
915 118th Ave. S.E., Ste. 250, Bellevue, Washington 98005 and ROSETTA
INPHARMATICS, INC., formerly known as Rosetta Biosystems, Inc. ("Borrower"),
whose address is 12040 115th Avenue NE, Suite 210, Kirkland, Washington 98034.
RECITALS
A. Bank and Borrower are parties to that certain Promissory Note,
Business Loan Agreement, and Commercial Security Agreement, each dated February
13, 1997, as amended (collectively, the "Original Agreement").
B. Borrower and Bank desire in this Agreement to set forth their
agreement with respect to a working capital and term loan and to amend and
restate in its entirety without novation the Original Agreement in accordance
with the provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the Committed Revolving
Line, minus (ii) the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). Amounts borrowed under this Section
may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
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(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.1.2 LETTERS OF CREDIT.
Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the Committed Revolving Line minus (ii) the outstanding
principal balance of the Advances; however, the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) may not exceed $750,000. Each Letter of Credit will
have an expiry date of no later than 180 days after the Revolving Maturity Date,
but Borrower's reimbursement obligation will be secured by cash on terms
acceptable to Bank at any time after the Revolving Maturity Date if the term of
this Agreement is not extended by Bank.
2.1.3 TERM LOAN.
(a) Bank will continue to make a Term Loan available to Borrower.
Borrower will continue to pay 16 equal installments of principal plus
Interest of $7,434.63 (the "Term Loan Payment"). Each Term Loan Payment is
payable on the 13th of each month during the term of the loan. Borrower's final
Term Loan Payment, due on February 13, 2000, includes all outstanding Term Loan
principal and accrued interest?
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 and 2.1.2 exceed the
Committed Revolving Line, Borrower must immediately pay in cash to Bank the
excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. (i) Advances accrue interest on the outstanding
principal balance at a per annum rate of 1 percentage point above the Prime
Rate; and (ii) the Term Loan accrues interest at a per annum rate of 2
percentage points above the Prime Rate. After an Event of Default, Obligations
accrue interest at 5 percent above the rate effective immediately before the
Event of Default. The interest rate increases or decreases when the Prime Rate
changes. Interest is computed on a 360 day year for the actual number of days
elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable
on the last day of each month. Bank may debit any of Borrower's deposit accounts
including Account Number 3300044634 for principal and interest payments or any
amounts Borrower owes Bank. Bank will notify Borrower when it debits Borrower's
accounts. These debits are not a set-off. Payments received after 12:00 noon
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Feel of
$2,000 for the Committed Revolving Line due on the Closing Date; and
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(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all present!y
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All Inventory is in
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all material respects of good and marketable quality, free from material
defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company' under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's propertied' or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
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Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 120 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of $100,000 or more;
and (iv) budgets, sales projections, operating plans or other financial
information Bank requests.
(b) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C.
(c) Bank has the right to audit Borrower's Collateral at Borrower's
expense, at such times as an Event of Default has occurred and is continuing.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the
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insurer must give Bank at least 20 days notice before canceling its policy. At
Bank's request, Borrower will deliver certified copies of policies and evidence
of all premium payments. Proceeds payable under any policy will, at Bank's
option, be payable to Bank on account of the Obligations. Statutory notice
regarding insurance:
WARNING
Unless you provide us with evidence of the insurance coverage as
required by our contract or loan agreement, we may purchase insurance at your
expense to protect our interest. This insurance may, but need not, also protect
your interest. If the collateral becomes damaged, the coverage we purchase may
not pay any claim you make or any claim made against you. You may later cancel
this coverage by providing evidence that you have obtained property coverage
elsewhere.
You are responsible for the cost of any insurance purchased by us. The
cost of this insurance may be added to your contract or loan balance. If the
cost is added to your contract or loan balance, the interest rate on the
underlying contract or loan will apply to this added amount. The effective date
of coverage may be the date your prior coverage lapsed or the date you failed to
provide proof of coverage.
This coverage we purchased may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for property
damage coverage or any mandatory liability insurance requirements imposed by
applicable law.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts
with Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
Either,
(i) Minimum Cash Balance. Minimum cash (and cash equivalents)
of $2,000,000.
Or
(ii) Remaining Months Liquidity. Borrower will maintain, as of
the last day of each month, at least 6 months Remaining Months Liquidity.
Remaining Months Liquidity is cash on hand (and cash equivalents) plus 50% of
Borrower's net accounts receivable, divided by Cash Burn. If cash (and cash
equivalents) increases from the prior period, "Cash Bum" is cash (prior period)
minus cash (current period) plus increases/less decreases in short and long term
borrowings plus increases/less decreases in stock, paid-in capital and
Subordinated Debt. If cash (and cash equivalents) decreases from prior period,
"Cash Burn" is cash (prior period) less (current period) minus increases/plus
decreases in short and long term borrowings minus increases/plus decreases in
stock, paid-in capital and subordinated debt.
6.8 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
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7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at least
30 days prior written notice, relocate its chief executive office or add any new
offices or business locations.
7.3 MERGERS OR ACQUISITIONS.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except (I) where no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and Tangible Net Worth will not decrease by more than 25%; or (ii)
merge or consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
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7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company' or a company controlled by an
"investment company,' under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borr6wer has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency
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and not paid within 10 days after Borrower receives notice. These are not Events
of Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions will be made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
if a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable with6ut any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or
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remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security (ii) sign Borrower's name on
any invoice or bill of lading for any Account or drafts against account debtors,
(iii) make, settle, and adjust all claims under Borrower's insurance policies;
(iv) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not hable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements
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are cumulative. Bank has all rights and remedies provided under the Code, by
law, or in equity. Bank's exercise of one right or remedy is not an election,
and Bank's waiver of any Event of Default is not a continuing waiver. Bank's
delay is not a waiver, election, or acquiescence. No waiver is effective unless
signed by Bank and then is only effective for the specific instance and purpose
for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW .VENUE AND JURY TRIAL WAIVER
Washington law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in King County, Washington.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
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12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW. UNDER OREGON OR WASHINGTON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 EFFECT OF AMENDMENT AND RESTATEMENT.
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This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CASH BURN" is defined in Section 6.7.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Washington Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
"COMMITTED REVOLVING LINE" is an Advance of up to $750,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as
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an obligation directly or indirectly guaranteed, endorsed, co-made, discounted
or sold with recourse by that Person, or for which that Person is directly or
indirectly liable; (ii) any obligations for undrawn letters of credit for the
account of that Person; and (iii) all obligations from any interest rate,
currency or commodity swap agreement, interest rate cap or collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices; but
"Contingent Obligation' does not include endorsements in the ordinary course of
business. The amount of a Contingent Obligation is the stated or determined
amount of the primary obligation for which the Contingent Obligation is made or,
if not determinable, the maximum reasonably anticipated liability for it
determined by the Person in good faith; but the amount may not exceed the
maximum of the obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance, Letter of Credit, Term Loan, or any
other extension of credit by Bank for Borrower's benefit.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LETTER OF CREDIT" is defined in Section 2.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
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"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens. "Permitted Investments"
are:
"PERMITTED INVESTMENTS: ARE:
a) Investments shown on the Schedule and existing on the Closing
Date; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than I year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) oh Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, jf the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, If the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint
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venture, company association, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, firm, joint stock company,
estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"REMAINING MONTHS LIQUIDITY" is defined in Section 6.7.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is June 30, 1999.
`SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to.
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TERM LOAN" a loan of $117,396.87.
"TERM LOAN MATURITY DATE" is February 13, 2000.
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BORROWER:
Rosetta lnpharmatics, Inc.
By: /s/ John J. King
-----------------------------
Title: Sr. Vice President
--------------------------
BANK:
SILICON VALLEY BANK
By: /s/
-----------------------------
Title: Vice President
--------------------------
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EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing; and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
---------------
FAX#: (408) 496-2426 TIME:
---------------
- -------------------------------------------------------------------------------
FROM: Rosetta Inpharmatics, Inc.
-------------------------------------------------------------------------
CLIENT-NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
PHONE NUMBER:
------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
--------------------- --------------------------------
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
---------------------------------
PRINCIPAL PAYMENT (ONLY) $
---------------------------------
INTEREST PAYMENT (ONLY) $
---------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
---------------------------------
</TABLE>
OTHER INSTRUCTIONS:
------------------------------------------------------------
- -------------------------------------------------------------------------------
All borrower's representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that date.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ----------------------------------- ----------------------
Authorized Requester Phone #
- ----------------------------------- ----------------------
Received By (Bank) Phone #
--------------------------------------
Authorized Signature (Bank)
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: ROSETTA INPHARMATICS, INC.
The undersigned authorized officer of Rosetta Inpharmatics, Inc.
("Borrower") certifies that under the terms and conditions of the Amended and
Restated Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
___________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (Audited) FYE within 120 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Monthly Basis:
Either,
Minimum Cash $2,000,000 $ Yes No
-----------
No
Or
Remaining Months Liquidity 6 Months ___ Months Yes No
</TABLE>
COMMENTS REGARDING EXCEPTIONS: See attached.
---------------------------------------
BANK USE ONLY
Sincerely, Received by:
---------------------------
AUTHORIZED SIGNER
Rosetta Inpharmatics, Inc.
Date:
----------------------------------
- ------------------------------------
SIGNATURE Verified:
------------------------------
AUTHORIZED SIGNER
- ------------------------------------
TITLE Date:
Compliance Status: Yes No
- ------------------------------------
DATE
---------------------------------------
<PAGE>
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: ROSETTA INPHARMATICS, INC.
LOAN OFFICER: PETER PALSSON
DATE: NOVEMBER 10, 1998
<TABLE>
<S> <C>
REVOLVING LOAN FEE $2,000.00
CREDIT REPORT 35.00
DOCUMENTATION FEE 750.00
TOTAL FEE DUE $2,785.00
------------- ---------
---------
</TABLE>
PLEASE INDICATE THE METHOD OF PAYMENT:
{ } A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.
{ } DEBIT DDA #_______________ FOR THE TOTAL AMOUNT.
{ } LOAN PROCEEDS
BORROWER:
BY: /s/
-------------------------------------
(AUTHORIZED SIGNER)
- -----------------------------------------
SILICON VALLEY BANK DATE
ACCOUNT OFFICER'S SIGNATURE
<PAGE>
<TABLE>
<S><C>
This UCC-3 CHANGE STATEMENT is presented for filing pursuant to the WASHINGTON
UNIFORM COMMERCIAL CODE, chapter 62A.9 RCW; Crop Lien filings, chapter 60.11 and
Processor and Preparer Liens chapter 60.13 RCW. PLEASE TYPE FORM
- ------------------------------------------------------------------------- ----------------------------------------------------------
1. DEBTOR(S) (see instruction #2) Debtor 1 2. FOR OFFICE USE ONLY - DO NOT WRITE IN THIS BOX
/ / PERSONAL (last, first, middle name and address) SSN:
-----------
/ / BUSINESS (legal business name and address) FEIN:
-----------
Debtor 2
SSN:
-----------
FEIN:
-----------
ROSETTA INPHARMATICS, INC.
12040 115th Avenue N.E., Suite 210
Kirkland, WA 98034
TRADE NAME, DBA, AKA:
- ------------------------------------------------------------------------- ----------------------------------------------------------
3. SECURED PARTY(IES) (name and address) 4. ASSIGNEE(S) of SECURED PARTY(IES) if applicable
(name and address)
SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
Jos/152
- ------------------------------------------------------------------------------------------------------------------------------------
5. This change statement affects the original filing statement recorded with the Department of Licensing. List one number and
date only. WASHINGTON
Original filing number 970510087 Date 2/20/97
---------------------------------------------------- ---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
6. FEES: A $12.00 filing fee is required for each action checked in box 7,
except termination which requires no fee. Secured party contact person: Phone:
---------------------------- -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
7. Please check one or more of the following actions:
/ / CONTINUATION. The original financing statement between the
Debtor(s) and Secured Party(ies), bearing file number shown in box
5, is still effective.
/ / FULL ASSIGNMENT. All of the Secured Party's rights under the
financing statement bearing file number shown in box 5 have been
assigned to the Assignee(s) whose name(s) and address(es) appear
in box 4.
/ / PARTIAL ASSIGNMENT. The Secured Party's rights under the financing
statement bearing file number shown in box 5, to the property
described in box 8, have been assigned to the Assignee(s) whose
name(s) and address(es) appear in box 4.
/ / AMENDMENT. Financing statement bearing file number shown in box
5 is amended as set forth in box 8.
/ / PARTIAL RELEASE. Secured Party releases the collateral described
in box 8 from the financing statement bearing file number shown
in box 5.
/ / TERMINATION. Secured Party(ies) no longer claims a security
interest under the financing statement bearing file number shown
in box 5.
- ------------------------------------------------------------------------------------------------------------------------------------
8. DESCRIPTION of partial assignment, amendment or partial release: (Attach additional 8.5" 3 11" sheet(s) if needed.)
THE COLLATERAL STATED ON THE ORIGINAL FINANCING STATEMENT IS HEREBY AMENDED
TO INCLUDE THE COLLATERAL LISTED ON EXHIBIT "A" ATTACHED HERETO AND MADE A
PART HEREOF.
- ------------------------------------------------------------------------------------------------------------------------------------
9. DEBTOR NAME(S) AND SIGNATURE(S): 10. SECURED PARTY NAME(S) AND SIGNATURE(S)
ROSETTA INPHARMATICS, INC. SILICON VALLEY BANK
------------------------------------------------- ---------------------------------------------------------
TYPE NAME(S) OF DEBTOR(S) AS IT APPEARS IN BOX 1. TYPE NAME(S) OF SECURED PARTY(IES) AS IT APPEARS IN BOX 3
OR 4.
------------------------------------------------- ---------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) SIGNATURE(S) OF SECURED PARTY(IES)
------------------------------------------------- ---------------------------------------------------------
SIGNATURE(S) OF DEBTOR(S) SIGNATURE(S) OF SECURED PARTY(IES)
- ------------------------------------------------------------------------------------------- ----------------------------------------
11. RETURN ACKNOWLEDGEMENT COPY TO: 12. FILE WITH:
UNIFORM COMMERCIAL CODE
Data File Services, Inc. DEPARTMENT OF LICENSING
P.O. Box 275 P.O. BOX 9660
Van Nuys, CA 91408-2750 OLYMPIA, WA 98507-9660
(206) 753-2523
800-331-3282 MAKE CHECKS PAYABLE TO THE DEPARTMENT
818-909-4717 OF LICENSING
(1) FILING OFFICER -INDEX 13. FOR OFFICE USE ONLY
IMAGES TO
BE FILMED
</TABLE>
<PAGE>
PROMISSORY NOTE
BORROWER: ROSETTA BLOSYSTEMS, INC.
KIRKLAND 405 CORPORATE CENTER
12040 115 AVENUE NE #210
KIRKLAND, WA 98034
LENDER: SILICON VALLEY BANK, A CALIFORNIA CHARTERED BANK
PACIFIC NORTHWEST LOAN PRODUCTION OFFICE
915 118TH AVENUE, S.E., SULT 250
BELLEVUE, WA 98005
================================================================================
INITIAL RATE: 10.250%
PRINCIPAL AMOUNT: $750,000.00 DATE OF NOTE: FEBRUARY 13, 1997
PROMISE TO PAY. Rosetta Biosystems, Inc. ("Borrower") promises to pay to Silicon
Valley Bank, a California chartered bank ("Lender"), or order, in lawful money
of the United States of America, the principal amount of Seven Hundred Fifty
Thousand & 00/100 Dollars ($750,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in accordance with the following payment
schedule:
Through the term of the Note, Borrower will pay regular monthly
payments of all accrued unpaid interest due as of each payment date,
beginning March 13, 1997 and all subsequent interest payments will be
due on the same day of each month thereafter. The Equipment Draw Period
shall begin as of this date and shall end on August 13, 1997 (the
"Equipment Draw Period"). The aggregate advances made during the
Equipment Draw Period, advanced for the purpose of purchasing equipment
reasonably acceptable to Lender, supported by invoices submitted by
Borrower to Lender, will be payable in thirty (30) even monthly
payments of principal plus interest due as of each payment date,
beginning September 13, 1997 and all subsequent payments of principal
and interest will be due on the same day of each month thereafter (the
"Equipment Term Schedule"). The final payment under the Equipment Tern,
Schedule, due on February 13, 2000, will be for all outstanding
principal plus all accrued interest not yet paid. Notwithstanding the
Equipment Term Schedule, all outstanding principal under loan, plus all
accrued interest not yet paid shall be due on August 13, 1996.
Interest on this Note is computed on a 365/360 simple interest basis: that is,
by applying the ratio of the annual interest rate over a year of 360 days
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This
<PAGE>
rate may or may not be the lowest rate available from Lender at any given time.
Lender will tell Borrower the current Index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as well.
The interest rate change will not occur more often than each time the prime rate
is adjusted by Silicon Valley Bank. The Index currently Is 8.250% per annum. The
Interest rate to be applied to the unpaid principal balance of this Note will be
at a rate of 2.000 percentage points over the Index, resulting In an Initial
rate of 10.250% per annum. NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments of accrued unpaid interest.
Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower falls to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender, provided that as to any default under such term, obligation,
covenant or condition that can be cured, has failed to cure within ten (10) days
after Borrower becomes aware of such default. (c) Borrower defaults under any
loan, extension of credit, security agreement, purchase or sales agreement, or
any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's property or Borrowers ability to repay this
Note or perform Borrower's obligations under this Note or any of the Related
Documents. (d) Any representation or statement made or furnished to Lender by
Borrower or on Borrowers behalf is false or misleading in any material respect
either now or at the time made or furnished. (e) Borrower becomes insolvent, a
receiver is appointed for any part of Borrower's property, Borrower makes an
assignment for the benefit of creditors, or any proceeding is commenced either
by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which Lender has a
lien or security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (g) Any guarantor dies or any of the other events
described In this default section occurs with respect to any guarantor of this
Note. (h) A material adverse change occurs in Borrowers financial condition, or
Lender believes the prospect of payment or performance of the Indebtedness is
impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid Interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity. Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 5.000
percentage points over the otherwise effective interest rate. The interest rate
will not exceed the maximum rate permitted by applicable law. Lender may hire or
pay someone else to help collect this Note if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any court costs, in
addition to aft other sums provided bylaw. This Note has been delivered to
Lender and accepted by Lender in the State of Washington. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of King County, the State of Washington. Lender and Borrower hereby waive
the right to any
<PAGE>
Jury trial in any action, proceeding, or counterclaim brought by either Lender
or Borrower against the Other. This Note shall be governed by and construed In
accordance with the laws of the State of Washington.
LINE OF CREDIT. Subject to the paragraph entitled `Payment", this Note evidences
a revolving line of credit advances under this Note, as well as directions for
payment from Borrower's accounts, may be requested orally or in writing by
Borrower or by an authorized person. Lender may, but need not, require that all
oral requests be confirmed in writing. Borrower agrees to be liable for all sums
either (a) advanced in accordance with the instructions of an authorized person
or (b) credited to any of Borrower's accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (a) Borrower
or any guarantor is in default under the terms of this Note or any agreement
that Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender, unless Lender consents to such limitation or
revocation; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit funds received in
accounts maintained by Borrower at Silicon Valley Bank. Borrower hereby requests
and authorizes Lender to debit any accounts Borrower has with Lender, including,
without limitation, Account Number ______________________ for payments of
principal and interest owing on the loan and any other obligations owing from
Borrower to Lender. Lender will notify Borrower of all debits which Lender makes
against Borrower's accounts. Any such debits against Borrowers accounts in no
way shall be deemed a set-off.
BUSINESS LOAN AGREEMENT. This Note is subject to and shall be governed by all
the terms and conditions of the Business Loan Agreement of even date herewith,
between Borrower and Lender, as such agreement may be amended from time to time,
which Business Loan Agreement is incorporated herein by this reference.
PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of Four
Thousand Eight Hundred and 00/100 Dollars ($4,800.00) plus all out-of-pocket
expenses.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER HAS READ AND UNDERSTOOD ALL. THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A
<PAGE>
COMPLETED COPY OF THE NOTE.
ROSETTA BIOSYSTEMS, INC.
By: /s/ Roger Bumgarner
-----------------------------
Name: Roger Bumgarner
---------------------------
Title: VP
--------------------------
<PAGE>
EXCLUSIVE PATENT LICENSE
AGREEMENT
CONFIDENTIAL
This license agreement (this "Agreement") is effective as of this 1st
day of September, 1997 (the "Effective Date"), by and between the University of
Washington, a public institution of higher education having administrative
offices in Seattle, Washington ("UW") and Rosetta Biosystems, Inc., a company
organized and existing under the laws of the State of Delaware and having a
place of business at 12040 115th Avenue NE, Kirkland, WA 98034 ("Licensee").
1. PREAMBLE
1.1 UW has developed and owns or is in possession of certain technology
("INVENTION," defined further below) relating to a novel inkjet technology for
the synthesis of oligonucleotides.
1.2 UW desires that the INVENTION be used as soon as possible in the
public interest, and to this end desires to transfer the INVENTION to a company
capable of commercially exploiting the INVENTION.
1.3 Licensee desires, for the purpose of commercial exploitation, to
acquire a license to certain patent rights in and to the INVENTION and to
receive certain technical information relating to the INVENTION.
1.4 Licensee and UW therefore agree to the terms as set forth
herein.
2. DEFINITIONS
2.1 Terms defined in this Definitions Article, and parenthetically
defined elsewhere in this Agreement, shall throughout this Agreement have the
meaning here or there provided. Defined terms may be used in the singular or in
the plural, as sense shall require. Terms defined in this Definition Article
will be printed in capital letters for ease of reference.
2.2 "INVENTION" shall mean a novel inkjet technotogy for the synthesis
of oligonucleotides on glass or silicon surfaces that provides a proprietary
solution with solvent that allows reagent delivery from the inkjet heads, as
recorded in UW's internal files as [***].
2.3 "LICENSED PATENTS' shall mean United States Patent applications
listed below and any Patents issued from such, together with all corresponding
foreign patents now issued or issued during the term of this Agreement, which
relate to the INVENTION, and all reissues, reexaminations, extensions,
divisionals, continuations, and continuations-in-part thereof:
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-1-
<PAGE>
<TABLE>
<CAPTION>
APPLICATION # COUNTRY FILING DATE TITLE
<S> <C> <C> <C>
[***] U.S. [***] "Solvent for Oligonucleotide Synthesis and Methods
of Use"
in preparation U.S. "Automated Synthesis of Biopolymer Arrays"
</TABLE>
2.4 "TECHNICAL INFORMATION" shall mean any technical facts, data, or
advice, written or oral (in the form of information contained in patents and
patent applications, reports, letters, drawings, specifications, testing
procedures, training and operational manuals, bills of materials, photographs
and the like) relating to the INVENTION and owned or in the possession of UW.
2.5 "LICENSED SUBJECT MATTER" shall mean any subject matter, including
but not limited to products and processes, covered in whole or in part by any
issued, unexpired patent claim or a claim in a pending patent application
contained in the LICENSED PATENTS in the country in which said subject matter is
made, used, or sold.
2.6 "NET SALES REVENUE" means the amount actually received by Rosetta,
or its assignee, distributor, reseller or other entity in the distribution chain
from an end user for products (but not processes) covered in whole or in part by
any issued, unexpired patent claim or a claim in a pending patent application
contained in the LICENSED PATENTS in the country in which said subject matter is
made, used, or sold, less, at a minimum, returns and customary trade discounts
actually taken, outbound freight, value added, sales or use taxes and custom
duties.
With respect to COMBINATION PRODUCTS, NET SALES REVENUE shall equal the
amount actually received by Rosetta, or its assignee, distributor, reseller or
other entity in the distribution chain from an end user for products (but not
processes) covered in whole or in part by any issued, unexpired patent claim or
a claim in a pending patent application contained in the LICENSED PATENTS in the
country in which said subject matter is made, used, or sold, multiplied by a
fraction the numerator of which shall be the gross selling price of the LICENSED
SUBJECT MATTER as sold separately and the denominator of which shall be the
gross selling price of the COMBINATION PRODUCT including the LICENSED SUBJECT
MATTER. If there is no established current gross selling price for the LICENSED
SUBJECT MATTER, then for purposes of calculating NET SALES REVENUE, the standard
costs (calculated in accordance with GAAP) of manufacturing of the LICENSED
SUBJECT MATTER shall be used to determine the percentage of sales attributable
to the LICENSED SUBJECT MATTER.
2.7 "TERRITORY" shall mean worldwide.
2.8 "SUBLICENSE" shall mean the present, future or contingent transfer
of any License, option, first right to negotiate or other right in the LICENSED
PATENTS OR
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-2-
<PAGE>
LICENSED SUBJECT MATTER in whole or in part.
2.9 "AGGREGATE ROYALTY" shall mean the total of all royalty obligations
owed by LICENSEE to third parties on NET SALES REVENUE, expressed as a
percentage of NET SALES REVENUE.
2.10 "COMBINATION PRODUCT' shall mean LICENSED SUBJECT MAT1'ER that is
sold in combination with one or more other products.
3. GRANT
3.1 UW hereby grants to Licensee, and Licensee accepts, an exclusive,
royalty-bearing license, with the right to sublicense, under the LICENSED
PATENTS to import, make, have made, use, sell, offer for sale and have sold
LICENSED SUBJECT MATTER in the TERRITORY.
3.2 The license granted above is subject to a reserved non-exclusive
license in UW to make, have made, and use products, processes, or other subject
matter covered by LICENSED PATENTS for UW's, own research and instructional
purposes in all fields of use independent of funding source.
4. SUBLICENSING
4.1 During the term of exclusivity of the license granted in this
Agreement, Licensee shall have the right to grant sublicenses to LICENSED
PATENTS at royalty rates and with other terms and conditions not less favorable
to UW than those required of Licensee by this Agreement.
4.2 Any and all sublicenses in and to LICENSED PATENTS granted by
Licensee shall be subject to the prior approval of UW, which shall not be
unreasonably withheld.
4.3 Licensee agrees to forward to UW a copy of any and all fully
executed sublicense agreements pertaining to LICENSED PATENTS within thirty (30)
days of the date of execution of said sublicenses.
5. TECHNICAL INFORMATION
5.1 UW, by no later than November 1, 1997, shall provide to Licensee
copies of all patents and patent applications comprising LICENSED PATENTS.
5.2 UW agrees to disclose to Licensee any other TECHNICAL INFORMATION,
not obtained by UW under conditions of confidentiality, in UW's possession as of
the Effective Date or during the term of this Agreement that in UW's judgment is
necessary or useful to the commercial exploitation of LICENSED PATENTS.
5.3 LICENSEE agrees to keep any TECHNICAL INFORMATION received from UW
and identified by UW as confidential under conditions of strict secrecy and to
use the same
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-3-
<PAGE>
degree of care Licensee would for its own confidential TECHNICAL INFORMATION,
but no less than reasonable care, to protect UW's confidential TECHNICAL
INFORMATION from disclosure to unauthorized third parties.
6. DILIGENCE
[***]
7. PATENT PROSECUTION AND COST RECOVERY
7.1 UW shall have sole control over the prosecution of any and all
patent applications, whether pending or not yet filed at the time of execution
of this Agreement, in LICENSED PATENTS, and of the maintenance and other
management of any and all issued patents in LICENSED PATENTS. UW shall keep
Licensee informed of the status of any and all patents and patent applications
comprising LICENSED PATENTS, consult with Licensee regarding the prosecution and
maintenance of the LICENSED PATENTS, and shall provide Licensee with the
opportunity to advise UW on courses of action, filing and prosecution of patent
applications relating to the INVENTIONS and all reissues, reexaminntions,
extensions, divisionals, continuations, and continuations-in-part thereof, and
management of patents in LICENSED PATENTS (including the opportunity to appear
before patent examiners together with UW's patent counsel); provided, however,
that UW will have the right to make final determinations with respect to such
prosecution and maintenance.
7.2 Licensee agrees to reimburse UW for all reasonable fees and costs
relating to the filing and prosecution of patent applications, and maintenance
of LICENSED PATENTS, whether incurred prior to the execution of this Agreement
or during the term of this Agreement Such fees and costs shall not include costs
incurred by the University in the use of its own resources, such as employee
time, and shall not extend to patenting fees and costs incurred by UW after
termination of this Agreement. Licensee agrees to pay invoices for such fees and
costs submitted by UW upon receipt of any such invoice. Alternatively, UW may
choose to have its patent counsel submit invoices directly to Licensee for
payment.
8. LICENSING FEES; ROYALTIES; EQUITY
8.1 Licensee shall pay to UW a non-refundable, non-creditable annual
license maintenance fee of [***] due and payable on each anniversary of the
Effective Date.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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8.2 Licensee shall pay to UW an earned royalty of [***] less the
AGGREGATE ROYALTY, down to a minimum of [***], of NET SALES REVENUE.
8.3 Licensee shall pay to UW a non-refundable annual minimum royalty
of [***] each January 31 following the first commercial sale of LICENSED
SUBJECT MATTER, which minimum royalty shall be fully creditable against the
royalties set forth in Section 8.2 incurred in the twelve (12) months
succeeding such January 31.
8.4 Licensee shall pay to UW [***] of licensing fees, royalty, and
other income (collectively, "Sublicense Revenue") derived from sublicenses
granted by Licensee in and to LICENSED PATENTS, due and payable within thirty
(30) days of the end of each calendar quarter in which such Sublicense
Revenue is received by Licensee; provided that in no event shall payments
made in exchange for equity or for research funding be included in the
definition of Sublicense Revenue.
8.5 No multiple royalties shall be payable to UW because any LICENSED
SUBJECT MATTER, its manufacture, use, or sale are or shall be covered by more
than one patent application or issued patent included as part of LICENSED
PATENTS.
8.6 Upon occurrence of the following events, Licensee will issue
shares of its Common Stock to UW in the following amounts: (a) 90,000 shares
upon execution of this Agreement, (b) 15,000 shares upon issuance of the first
U.S. patent covering the LICENSED SUBJECT MATTER, and (c) 15,000 shares upon the
earlier of (i) first commercial sale by of a product incorporating the LICENSED
SUBJECT MATTER or (ii) one or more sublicenses by Licensee of the LICENSED
SUBJECT MATTER in a transaction or series of transactions where the aggregate
value of the compensation (i.e., up-front license fees, research funding and/or
equity) to Licensee is greater than $1,000,000.
Where this Agreement provides for the issuance of a specified number
of shares of Licensee's Common Stock at a point after the Effective Date, the
number of and type of shares so specified shall be adjusted from time to time to
take into consideration the occurrence of certain events, including stock
dividends, stock splits, and reverse stock splits.
9. PAYMENT AND REPORTS
9.1 Licensee shall pay earned royalties to UW quarterly within thirty
(30) days of March 31, June 30, September 30, and December 31 of each year.
9.2 With each payment, Licensee shall include a report setting forth
such particulars of the business conducted by Licensee and any sublicensees
during the preceding calendar quarter as shall be pertinent to royalty
accounting as specified in this Agreement. The report shall include at least (a)
the number of units of LICENSED SUBJECT MATTER manufactured, used, or sold; (b)
gross amounts billed or invoiced for LICENSED SUBJECT MATTER; (c) names and.
addresses of any and all sublicensees; (d) discounts and allowances; and (e)
calculation of total royalties due UW.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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9.3 Until Licensee or any sublicensee engages in commercial use or
sale of LICENSED SUBJECT MATTER, Licensee shall prepare and submit to UW within
thirty (30) days of June 30 and December 31 of each year a report regarding the
progress of Licensee and any sublicensees in developing LICENSED SUBJECT MA1TER
for commercial exploitation. Said report shall include such particulars as are
necessary to demonstrate compliance with diligence obligations set forth in the
Diligence Article of this Agreement.
9.4 On or before the ninetieth (90th) day following the close of
Licensee's fiscal year, Licensee shall provide UW with Licensee's certified
financial statements for the preceding fiscal year, including, at a minimum, a
Balance Sheet and an Operating Statement
9.5 All payments required under this Agreement shall be made in U.S.
dollars by check or money order payable to the University of Washington, and
delivered to UW as specified in this Agreement.
9.6 Licensee agrees to pay a late fee for any overdue payment due UW
under terms of this Agreement. The late fee shall be computed as [***] of the
outstanding, unpaid balance. The payment of such a late fee shall not
foreclose or limit UW from exercising any other rights it may have as a
consequence of the lateness of any payment.
10. RECORD KEEPING
10.1 Licensee shall keep complete and accurate records and books of
account containing all information necessary for the computation and
verification of the amounts to be paid hereunder. Licensee shall keep these
records and books for a period of three (3) years following the end of the
accounting period to which the information pertains.
10.2 Licensee agrees, at the request of UW with reasonable prior
notice, to permit one or more accountants selected by UW ("Accountant") to have
access to Licensee's records and books of account during ordinary working hours
to audit with respect to any payment period ending prior to such request, the
correctness of any report or payment made under this Agreement, or to obtain
information as to the payments due for any such period in the case of failure of
the Licensee to report or make payment pursuant to the terms of this Agreement.
10.3 The Accountant shall not disclose to UW any information relating
to the business of Licensee except that which is necessary to inform UW of: (a)
the accuracy or inaccuracy of Licensee's reports and payments; (b) compliance or
noncompliance by Licensee with the terms and conditions of this Agreement, and
(c) the extent of any inaccuracy or noncompliance.
10.4 Should the Accountant believe there is an inaccuracy in any of the
Licensee's payments or noncompliance by the Licensee with any of such terms and
conditions, the Accountant shall have the right to make and retain copies
(including photocopies) of any pertinent portions of the records and books of
account.
10.5 In the event that Licensee's royalties calculated for any
semi-annual period are under reported by more than [***], the costs
of any audit and review initiated by UW
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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will be borne by Licensee; but, otherwise, UW shall bear the costs of any audit
initiated by UW.
11. THIS SECTION INTENTIONALLY LEFT BLANK
12. TERM AND TERMINATION OF AGREEMENT
12.1 This Agreement shall be in full force and effect commencing on the
Effective Date and shall remain in effect for twenty (20) years or until the
expiration of the last RENI~INING LICENSED PATENTS, whichever is later, unless
the Agreement is otherwise terminated pursuant to the terms and conditions of
this Agreement.
12.2 If Licensee breaches any material obligation imposed by this
Agreement (other than the obligations set forth in Section 6 which are governed
by the termination provisions set forth in Section 6) then UW may, at its
option, send a written notice that it intends to terminate the license granted
by this Agreement. If Licensee does not cure the breach within thirty (30) days
from the notice date, then UW shall have the right to terminate this Agreement.
12.3 UW shall have the right to terminate this Agreement and the
license granted to Licensee hereinabove, effective immediately upon prior
written notice of termination to Licensee in the event that (a) Licensee seeks
liquidation, reorganization, dissolution or winding-up of itself, is insolvent
or evidence exists as to its insolvency, or Licensee makes any general
assignment for the benefit of its creditors; (b) a petition is filed by or
against Licensee, or any proceeding is initiated by or against Licensee, or any
proceeding is initiated against Licensee as a debtor, under any bankruptcy or
insolvency law, unless the laws then in effect void the effectiveness of this
provision; or (c) a receiver, trustee, or any similar officer is appointed to
take possession, custody, or control of all or any part of Licensee's assets or
property, then UW may, at its option, send a written notice that it intends to
terminate the license granted by this Agreement.
12.4 Licensee shall have a right to terminate this Agreement with or
without cause, upon [***] prior written notice to UW.
12.5 The provisions under which this Agreement may be terminated shall
be in addition to any and all other legal remedies which either party may have
for the enforcement of any and all terms hereof, and do not in any way limit any
other legal remedy such party may have.
12.6 Termination of this Agreement shall terminate all rights and
licenses granted to Licensee relating to LICENSED PATENTS.
12.7 Upon termination of this Agreement, any and all existing
SUBLICENSE agreement shall be immediately assigned to UW and UW agrees to
maintain such SUBLICENSE agreement in full force to the extent that UW is
capable of performing as a licensor in place of Licensee.
12.8 Termination by UW or Licensee under the options set forth in this
Agreement
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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shall not relieve Licensee from any financial obligation to UW accruing prior to
or after termination or from performing according to any and all other
provisions of this Agreement expressly agreed to survive termination.
12.9 In the event that there remain no valid, enforceable, and
infringed LICENSED PATENTS, Licensee and any sublicensees shall have no further
obligation to pay royalties therein or to account to UW therefor.
13. NOTICES
13.1 Any notice or other communication required or permitted to be
given by either party hereto shall be deemed to have been properly given and be
effective upon the date of delivery if delivered in writing to the respective
addresses set forth below, or to such other address as either party shall
designate by written notice given to the other party. If notice or other
communication is given by facsimile transmission, said notice shall be confirmed
by prompt delivery of the hard copy original.
13.2 All correspondence regarding this Agreement should be addressed as
follows.
In the case of Licensee:
Postal Address: Rosetta BioSystems, Inc.
12040 115th Avenue NE
Suite 210
Kirkland, WA 98034
Attn: John King
with a copy to: Venture Law Group
4750 Carillon Point
Kirkland, WA 98033
Attn: William W. Ericson
Facsimile (425) 739-8750
In the case of UW:
Postal Address: University of Washington
Director of Technology Transfer
Office of Technology Transfer, Box 354810
Seattle, WA 98195
USA
Street Address: University of Washington
Director of Technology Transfer
Office of Technology Transfer
1101 N.E. 45th Street, Suite 200
Seattle, WA 98105-6099
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
USA
Facsimile: (206) 685-4767
14. PROPRIETARY RIGHTS. Licensee will not, by performance under this
Agreement, obtain any ownership interest in LICENSED PATENTS or any other
proprietary rights or information of UW, its officers, inventors, employees,
students, or agents.
15. PATENT MARKING. Licensee shall mark, and shall require any sublicensee
to mark, any and all material forms of LICENSED SUBJECT MATTER or packaging
pertaining thereto made and sold by Licensee (and/or by its sublicensees) in the
United States with an appropriate patent marking identifying the pendency of any
U.S. patent application and/or any issued U.S. or foreign patent forming any
part of LICENSED PATENTS. All LICENSED SUBJECT MATTER shipped to or sold in
other countries shall be marked in such a manner as to provide constructive
notice to potential infringers pursuant to the patent laws and practice of the
country of manufacture or sale.
16. PATENT INFRINGEMENT
16.1 Each party shall promptly inform the other party of any alleged
infringement of LICENSED PATENTS by a third party, and provide any available
evidence thereof.
16.2 During the term of exclusivity of the license granted hereunder,
and subject to UW's written approval (such approval not to be untimely or
unreasonably withheld), Licensee shall have the first right to settle any
alleged infringement of LICENSED PATENTS by securing cessation of the
infringement, instituting suit against the infringer, or entering into a
sublicensing agreement in and to relevant patents in LICENSED PATENTS. To enjoy
said first right, Licensee must initiate bona fide action to settle any alleged
infringement within ninety (90) days of receiving UW's approval. After Licensee
has recovered its reasonable attorney's fees and other expenses directly related
to any action, suit, or settlement for infringement of LICENSED PATENTS, UW and
License shall divide any remaining damages, awards, or settlement proceeds in
the following manner:
UW twenty-five percent (25%)
Licensee seventy-five percent (75%)
provided, however, that any payment by an alleged infringer as consideration for
the grant of a sublicense shall be handled according to the royalty provisions
for sublicenses set forth in this Agreement.
16.3 If Licensee chooses to institute suit against an alleged
infringer during the term of exclusivity as provided in this Agreement, Licensee
may do so in UW's name (if required by law, otherwise, in Licensee's name) but
at Licensee's sole expense, and UW shall, but at Licensee's expense for UW's
direct associated expenses, fully and promptly cooperate and assist Licensee in
connection with any such suit.
16.4 If Licensee fails, within ninety (90) days of receiving UW's
approval, to secure
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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cessation of the infringement, institute suit against the infringer, or provide
to UW satisfactory evidence that Licensee is engaged in bona fide negotiation
for the acceptance by infringer of a sublicense in and to relevant patents in
LICENSED PATENTS, UW upon written notice to Licensee may assume full right and
responsibility to secure cessation of the infringement, institute suit against
the infringer, or secure acceptance of a sublicense from Licensee in and to
relevant patents in LICENSED PATENTS, approval for which sublicense Licensee
shall not unreasonably withhold.
16.5 If UW in accordance with the terms and conditions of this
Agreement chooses to institute suit against an alleged infringer, UW may bring
such suit in its own name (or, if required by law, in its and Licensee's name)
and at its own expense, and Licensee shall, but at UW's expense for Licensee's
direct associated expenses, fully and promptly cooperate and assist UW in
connection with any such suit. Any and all damages, awards, or settlement
proceeds arising from such a UW-initiated action shall be UW's.
16.6 Neither Licensee nor UW is obligated under this Agreement to
institute a suit against an alleged infringer of LICENSED PATENTS.
17. PATENT VALIDITY
17.1 If any claim challenging the validity or enforceability of any of
LICENSED PATENTS shall be brought against Licensee, Licensee shall promptly
notify UW. UW, at its option, shall have the right, within thirty (30) days
after notification-by Licensee of such action, to intervene and take over the
sole defense of the claim at UW's expense.
17.2 If Licensee challenges the validity or enforceability of any of
LICENSED PATENTS, Licensee agrees not to suspend any payments due UW until such
time as that patent in LICENSED PATENTS is determined to be invalid or
enforceable by final judgment of a court of competent jurisdiction from which no
appeal can be or is taken.
18. USE OF NAMES. Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity or other promotional
activities any name, trade name, trademark or other designation of a party
hereto including any contraction, abbreviation or simulation of any of the
foregoing, unless the express written permission of the other party has been
obtained. Licensee hereby expressly agrees not to use the name "University of
Washington" without prior written approval from UW.
19. REPRESENTATION AND WARRANTIES
19.1 UW represents and warrants that it has the right to grant the
license in and to LICENSED PATENTS and disclose the TECHNICAL INFORMATION set
forth in this Agreement.
19.2 Nothing in this Agreement shall be construed as:
(a) A representation or warranty by UW as to the
patentability, validity,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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scope, or usefulness of LICENSED PATENTS; or
(b) A representation or warranty by UW that anything made,
used, sold, or otherwise disposed of under any license granted in this Agreement
is or will be free from infringement of patents or other proprietary rights not
included in LICENSED PATENTS.
19.3 UW EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, WHETHER EXPRESS OR
IMPLIED, PERTAINING TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OF THE INVENTION, LICENSED SUBJECT MATTER, TECHNICAL INFORMATION, OR ANYTHING
ELSE LICENSED, DISCLOSED, OR OTHERWISE PROVIDED TO LICENSEE UNDER THIS
AGREEMENT. UW'S TOTAL LIABILITY UNDER THIS AGREEMENT IS LIMITED TO THE COSTS AND
FEES PAID TO UW UNDER THIS AGREEMENT.
20. INDEMNIFICATION. Licensee agrees to indemnify, hold harmless and
defend UW, its officers, inventors, employees, students, and agents, against any
and all claims, suits, losses, damages, costs, fees and expenses resulting from
or arising out of exercise of this Agreement including, but not limited to, any
damages, losses or liabilities whatsoever with respect to death or injury to any
person and damage to any property arising from the possession, use, or operation
of LICENSED SUBJECT MATTER by Licensee or its sublicensees or any customers,
users, or others affected by LICENSED SUBJECT MATTER in any manner whatsoever.
Such indemnification shall not apply to acts or omission by UW, its employees,
agents, successors or assigns. This indemnification clause shall survive the
termination of this Agreement.
21. APPLICABLE LAWS
21.1 Licensee agrees to abide by all applicable federal, state, and
local laws and regulations pertaining to the management and commercial
deployment of LICENSED SUBJECT MATTER under this Agreement.
21.2 LICENSED SUBJECT MATTER may be subject to restrictions concerning
the export of products or technical data from the United States. Accordingly,
Licensee agrees that Licensee shall not export or re-export, directly or
indirectly, any LICENSED SUBJECT MATTER to any country for which the United
States Government or other competent authority at the time of export requires an
export license or other approval, without first obtaining such license or
approval from the appropriate governmental authority.
21.3 If any dispute shall arise under this Agreement, other than a
bona fide dispute concerning the validity and/or scope of LICENSED PATENTS, the
prevailing party shall be entitled to its reasonable attorney's fees and costs
of litigation and appeal.
22. NON-BINDING MEDIATION; LITIGATION.
22.1 Any and all disputes arising between the parties relating to the
making or performance of this Agreement shall be resolved in the following order
of preference: (i) by good faith negotiation between representatives of UW and
Licensee who have authority to fully and
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
finally resolve the dispute; (ii) if necessary, by non-binding mediation at a
location acceptable to both parties using a neutral mediator having experience
with the industry in accordance with the Rules of the Center for Public
Resources (with the costs therefor shared equally); or (iii) as a last resort
only, by litigation, provided that any suit, action, or proceeding arising out
of or relating to this Agreement shall be decided in King County, Washington.
22.2 Nothing herein shall preclude either party from taking whatever
actions in equity are necessary to prevent immediate, irreparable harm to its
interests. Otherwise, the procedures set forth in this Section 22 are exclusive
and shall be fully exhausted prior to the initiation of any litigation.
22.3 Any questions, claims, disputes, remedies or procedural matters
shall be governed exclusively by the laws of the State of Washington, without
regard to the principles of conflicts of law.
23. GENERAL
23.1 If any provision of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not be in any way affected or impaired thereby.
23.2 No omission or delay of either party hereto in requiring due and
punctual fulfillment of the obligations of any other party hereto shall be
deemed to constitute a waiver by such party of its rights to require such due
and punctual fulfillment, or of any other of its remedies hereunder.
23.3 No amendment or modification hereof shall be valid or binding
upon the parties unless it is made in writing, cites this Agreement, and signed
by duly authorized representatives of UW and Licensee.
23.4 The headings of the several sections of this Agreement
are inserted for convenience and reference only, and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement
23.5 This Agreement embodies the entire understanding of the
parties and supersedes all previous communications, representations, or
understandings, either oral or written, between the parties relating to the
subject matter hereof.
24. ASSIGNMENT.
24.1 Assignment by Licensee. Licensee may not assign, or make
any other transfer with the effect of an assignment, of all of its rights,
privileges, obligations, and duties under this Agreement to any third party,
without the prior written consent of UW, which consent shall not be unreasonably
withheld provided, however, Licensee may make an assignment
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
without consent if such assignment is to an Affiliate or is a part of the sale
of the entire business of Licensee or of that part of the business involving
substantially all of the LICENSED SUBJECT MATTER. Licensee shall give UW prior
written notice of an assignment which requires the consent of UW. UW will
respond in writing within fifteen (15) days of receipt of the notice and the
absence of any response within the time period shall constitute approval.
Licensee shall give UW written notice of an assignment which does not require
UW's consent within fifteen (15) days of such assignment.
24.2 Assignment by UW. UW may not assign, or make any other
transfer with the effect of an assignment, of all of its rights, privileges,
obligations, and duties under this Agreement to any third party, without the
prior written consent of Licensee, which consent shall not be unreasonably
withheld. Licensee will respond in writing within fifteen (15) days of receipt
of the notice and the absence of any response within the time period shall
constitute approval.
[SIGNATURE PAGE FOLLOWS]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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IN WITNESS WHEREOF, UW and Licensee have executed this Agreement, in
duplicate originals but collectively evidencing only a single contract, by their
respective duly authorized officers, on the dates hereinafter written.
LICENSEE UNIVERSITY OF WASHINGTON
By: /s/: John J. King, II By: /s/: DC Miller
-------------------------------- ---------------------
Name: John J. King, II Name: DC Miller
----------------------------- -------------------
Title: Sr. Vice President & COO Title: Director
---------------------------- ------------------
Date: 9/4/97 Date: Sept. 4, 1997
----------------------------- -------------------
UNIVERSITY OF WASHINGTON PERSONNEL:
The below-named personnel understand and concur with this Agreement.
By: /s/: Alan Blanchard By:
-------------------------------- ---------------------
Name: Alan Blanchard Name:
----------------------------- -------------------
Title: Senior Fellow Title:
---------------------------- ------------------
Date: 5-Sept.-97 Date:
----------------------------- -------------------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
EXHIBIT 10.19
AMENDMENT NO. 1 TO EXCLUSIVE PATENT LICENSE AGREEMENT
Dated as of January 28, 1998
UNIVERSITY OF WASHINGTON (herein called "UW"), a public institution of
higher education having administrative offices in Seattle, Washington, and
ROSETTA INPHARMATICS, INC., (herein called "LICENSEE"), formerly known as
Rosetta Biosystems, Inc., a company organized and existing under the laws of the
State of Delaware and having a place of business at 12040-115th Avenue
Northeast, Kirkland, Washington 98034, hereby agree, effective January 28, 1998,
to amend and revise the Exclusive Patent License Agreement (the "AGREEMENT") by
and between UW and Licensee dated as of September 1, 1997, as set forth below.
1. On page 2, Paragraph 2.3:
(a) under the column headed "Application #", replace "in
preparation" with "to be assigned (attorney docket no.
P-UW-2328)";
(b) under the column headed "Filing Date", replace the blank space
with [***];
(c) under the column headed "Title", replace "Automated Synthesis
of Biopolymer Arrays" with [***]; and
(d) add a new column entitled "Inventor", and under this new
column, insert the name [***] in the respective
row corresponding to each listed application.
1. On page 8, Section 13, Notices, replace "Rosetta Biosystems, Inc."
with "Rosetta Inpharmatics, Inc."
2. All other terms and conditions of the Agreement remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of January 28, 1998.
ROSETTA INPHARMATICS, INC. UNIVERSITY OF WASHINGTON
By: /s/ John J. King, II By: /s/ Robert C. Miller
------------------------ ------------------------
John J. King, II Robert C. Miller
SENIOR VICE PRESIDENT AND DIRECTOR AND ASSOCIATE VICE PROVOST CHIEF
OPERATING OFFICER FOR RESEARCH
-------------------------- --------------------------------------------
Title Title
FEBRUARY 3, 1998 FEBRUARY 18, 1998
-------------------------- -----------------------------------
Date Date
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Exhibit 10.20
[GRAPHIC OMITTED]
LEASE MANAGEMENT SERVICES, INC.
COPY
EQUIPMENT FINANCING AGREEMENT
Number 10819
THIS EQUIPMENT FINANCING AGREEMENT NUMBER 10819 ("Agreement") is dated as of the
date set forth at the foot hereof and is between LEASE MANAGEMENT SERVICES,
INC., ("Secured Party") and ROSETTA BIOSYSTEMS, INC., ("Debtor").
1. EQUIPMENT; SECURITY INTEREST. The terms and conditions of this Agreement
cover each item of machinery, equipment and other property (individually an
"Item" or "Item of Equipment" and collectively the "Equipment") described in a
schedule now or hereafter executed by the parties hereto and made a part hereof
(individually a "Schedule" and collectively the "Schedules"). Debtor hereby
grants Secured Party a security interest in and to all Debtor's right, title and
interest in and to the Equipment under the Uniform Commercial Code, such grant
with respect to an Item of Equipment to be as of Debtor's execution of a related
Equipment Financing Commitment referencing this Agreement or, if Debtor then has
no interest in such Item, as of such subsequent time as Debtor acquires an
interest in the Item. Such security interest is granted by Debtor to secure
performance by Debtor of Debtor's obligations to Secured Party hereunder and
under any other agreements under which Debtor has or may hereafter have
obligations to Secured Party. Debtor will ensure that such security interest
will be and remain a sole and valid first lien security interest subject only to
the lien of current taxes and assessment not in default but only if such taxes
are entitled to priority as a matter of law.
2. DEBTOR'S OBLIGATIONS. The obligations of Debtor under this Agreement
respecting an Item of Equipment, except the obligation to pay installment
payments with respect thereto which will commence as set forth in Paragraph 3
below, commence upon the grant to Secured Party of a security interest in the
Item. Debtor's obligations hereunder with respect to an Item of Equipment and
Secured Party's security interest therein will continue until payment of all
amounts due, and performance of all terms and conditions required hereunder
provided, however, that if this Agreement is in default said obligations and
security interest will continue during the continuance of said default. Upon
termination of Secured Party's security interest in an Item of Equipment,
Secured Party will execute such release of interest with respect thereto as
Debtor reasonably requests.
3. INSTALLMENT PAYMENTS AND OTHER PAYMENTS. Debtor will repay advances Secured
Party makes on account of the Equipment in installment payments in the amounts
and at the times set forth in the Schedules, whether or not Secured Party has
rendered an invoice therefor, at the office of Secured Party set forth at the
foot hereof, or to such person
<PAGE>
ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 2 OF 11
and/or at such other place as Secured Party may from time to time designate by
notice to Debtor. Any other amounts required to be paid Secured Party by Debtor
hereunder are due upon Debtor's receipt of Secured Party's invoice therefor and
will be payable as directed in the invoice. Payments under this Agreement may be
applied to Debtor's then accrued obligations to Secured Party in such order as
Secured Party may choose.
4. NET AGREEMENT; NO OFFSET, SURVIVAL. This Agreement is a net agreement, and
Debtor will not be entitled to any abatement of installment payments or other
payments due hereunder or any reduction thereof under any circumstance or for
any reason whatsoever. Debtor hereby waives any and all existing and future
claims, as offsets, against any installment payments or other payments due
hereunder and agrees to pay the installment payments and other amounts due
hereunder as and when due regardless of any offset or claim which may be
asserted by Debtor or on its behalf. The obligations and liabilities of Debtor
hereunder will survive the termination of the Agreement.
5. FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. DEBTOR
ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND ACQUIRED
SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT SECURED PARTY IS NOT AND WILL NOT
BE THE VENDOR OF ANY EQUIPMENT AND THAT SECURED PARTY HAS NOT MADE AND WILL NOT
MAKE ANY AGREEMENT, REPRESENTATION OR WARRANTY WITH RESPECT TO THE
MERCHANTABILITY, CONDITION, QUALIFICATION OR FITNESS FOR A PARTICULAR PURPOSE OR
VALUE OF THE EQUIPMENT OR ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT
WHATSOEVER.
6. NO AGENCY. DEBTOR ACKNOWLEDGES THAT NO AGENT OF THE MANUFACTURER OR OTHER
SUPPLIER OF AN ITEM OF EQUIPMENT OR OF ANY FINANCIAL INTERMEDIARY IN CONNECTION
WITH THIS AGREEMENT IS AN AGENT OF SECURED PARTY. SECURED PARTY IS NOT BOUND BY
A REPRESENTATION OF ANY SUCH PARTY AND, AS CONTEMPLATED IN PARAGRAPH 27 BELOW,
THE ENTIRE AGREEMENT OF SECURED PARTY AND DEBTOR CONCERNING THE FINANCING OF THE
EQUIPMENT IS CONTAINED IN THIS AGREEMENT AS IT MAY BE AMENDED ONLY AS PROVIDED
IN THAT PARAGRAPH.
7. ACCEPTANCE. Execution by Debtor and Secured Party of a Schedule covering
the Equipment or any Items thereof will conclusively establish that such
Equipment has been included under and will be subject to all the terms and
conditions of this Agreement. If Debtor has not furnished Secured Party with an
executed Schedule by the Earlier of fourteen (14) days after receipt thereof or
expiration of the commitment period set forth in the applicable Equipment
Financing Agreement, Secured Party may terminate its obligation to advance funds
as to the applicable Equipment.
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 3 OF 11
8. LOCATION; INSPECTION; USE. Debtor will keep, or in the case of motor
vehicles, permanently garage and not remove from the United States, as
appropriate, each Item of Equipment in Debtor's possession and control at the
Equipment Location designated in the applicable Schedule, or at such other
location to which such Item may have been moved with the prior written consent
of Secured Party. Whenever requested by Secured Party, Debtor will advise
Secured Party as to the exact location of an Item of Equipment. Secured Party
will have the right to inspect the Equipment and observe its use during normal
business hours, subject to Debtor's security procedures and to enter into and
upon the premises where the Equipment may be located for such purpose. The
Equipment will at all times be used solely for commercial or business purposes
and operated in .a careful and proper manner and in compliance with all
applicable laws, ordinances, rules and regulations, all conditions and
requirements of the policy or policies of insurance required to be carried by
Debtor under the terms of this Agreement and all manufacturer's instructions and
warranty requirements. Any modifications or additions to the Equipment required
by any such governmental edict or insurance policy will be promptly made by
Debtor.
9. ALTERATIONS; SECURITY INTEREST COVERAGE. Without the prior written consent
of Secured Party, Debtor will not make any alterations, additions or
improvements to any Item of Equipment which detract from its economic value or
functional utility, except as may be required pursuant to Paragraph 8 above.
Secured Party's security interest in the Equipment will include all
modifications and additions thereto and replacements and substitutions therefor,
in whole or in part. Such reference to replacements and substitutions will not
grant Debtor greater rights to replace or substitute than are provided in
Paragraph 11 below or as may be allowed upon the prior written consent of
Secured Party.
10. MAINTENANCE: Debtor will maintain the Equipment in good repair, condition
and working order. Debtor will also cause each Item of Equipment for which a
service contract is generally available to be covered by such a contract which
provides coverage's typical to property of the type involved and is issued by a
competent servicing entity.
11. LOSS AND DAMAGE; CASUALTY VALUE. In the event of the loss of, theft of,
requisition of, damage to or destruction of an Item of Equipment ("Casualty
Occurrence"), Debtor will give Secured Party prompt notice thereof and will
thereafter place such Item in good repair, condition and working order,
provided, however, that if such Item is determined by Secured Party to be lost,
stolen, destroyed or damaged beyond repair, is requisitioned or suffers a
constructive total loss as defined in any applicable insurance policy carried by
Debtor in accordance with Paragraph 14 below, Debtor, at Secured Party's option,
will (a) replace such Item with like Equipment in good repair, condition and
working order whereupon such replacement equipment will be deemed such Item for
all purposes hereof or (b) pay Secured Party the "Casualty Value" of such Item
which will equal the total of (i) all installment payments and other amounts due
from Debtor to Secured Party at the time of such payment and (ii) future
installment payments due with respect to such Item with each such payment
including any final uneven payment discounted at a rate equal to the discount
rate of the Federal Reserve Bank of San Francisco from the date due to the date
of such payment.
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 4 OF 11
Upon such replacement or payment, as appropriate, this Agreement and Secured
Party's security interest will terminate with, and only with, respect to the
Item of Equipment so replaced or as to which such payment is made in accordance
with Paragraph 2 above.
12. TITLING; REGISTRATION. Each item of Equipment subject to title registration
laws will at all times be titled and/or registered by Debtor as Secured Party's
agent. and attorney-in-fact with full power and authority to resister (but
without power to affect title to) the Equipment in such manner and in such
jurisdiction or jurisdictions as Secured Party directs. Debtor will promptly
notify Secured Party of any necessary or advisable retitling and/or
reregistration of an Item of Equipment in a jurisdiction other than the one in
which such Item is then titled and/or registered. Any and all documents of title
will be furnished or caused to be furnished Secured Party by Debtor within sixty
(60) days of the date any titling or registering or restating or reregistering,
as appropriate, is directed by Secured Party.
13. TAXES. Debtor will make all filings as to and pay when due all personal
property and other ad valorem taxes and all other taxes, fees, charges and
assessments based on the ownership or use of the Equipment and will pay as
directed by Secured Party or reimburse Secured Party for all other taxes,
including, but not limited to, gross receipt taxes (exclusive of federal and
state taxes based on Secured Party's net income, unless such net income taxes
are in substitution for or relieve Debtor from any taxes which Debtor would
otherwise be obligated to pay under the terms of this Paragraph 13), fees,
charges and assessments whatsoever, however designated, whether based on the
installment payments or other amounts due hereunder, levied, assessed or imposed
upon the Equipment or otherwise related hereto or to the Equipment, now or
hereafter levied, assessed or imposed under the authority of a federal, state,
or local taxing jurisdiction, regardless of when and by whom payable. Filings
with respect to such other amounts will, at Secured Party's option, be made by
Secured Party or by Debtor as directed by Secured Party.
14. INSURANCE. Debtor will procure and continuously maintain all risk insurance
against loss or damage to the Equipment from any cause whatsoever for not less
than the full replacement value thereof naming Secured Party as Loss Payee. Such
insurance must be ma form and with companies approved by Secured Party, must
provide at least thirty (30) days advance written notice to Secured Party of
cancellation, change or modification in any term, condition, or amount of
protection provided therein, must provide full breach of warranty protection and
must provide that the coverage is "primary coverage" (does not require
contribution from any other applicable coverage). Debtor will provide Secured
Party with an original policy or certificate evidencing such insurance. In the
event of an assignment of this Agreement of which Debtor has notice, Debtor will
cause such insurance to provide the same protection to the assignee as its
interests may appear. The proceeds of such insurance, at the option of the
Secured Party or such assignee, as appropriate, will be applied toward (a)
repair or replacement of the appropriate Item or Items of Equipment, (b) payment
of the Casualty Value thereof and/or (c) payment of, or as provision for,
satisfaction of any other accrued obligations of Debtor hereunder. Debtor hereby
appoints Secured Party as Debtor's attorney-in-fact with full power and
authority to do all things, including, but not limited to, making claims,
receiving payments and endorsing documents, checks or drafts, necessary to
secure payments due under any policy contemplated hereby on
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 5 OF 11
account of a Casualty Occurrence. Debtor and Secured Party contemplate that the
jurisdictions where the Equipment will be located will not impose any liability
upon Secured Party for personal injury and/or property damage resulting out of
the possession, use, operation or condition of the Equipment. In the event
Secured Party determines that such is not or may not be the case with respect to
a given jurisdiction, Debtor will provide Secured Party with public liability
and property damage coverage applicable to the Equipment in such amounts and in
such form as Secured Party requires.
15. SECURED PARTY'S PAYMENT. If Debtor falls to pay any amounts due hereunder
or to perform any of its other obligations under this Agreement, Secured Party
may, at its option, but without any obligation to do so, pay such amounts or
perform such obligations, and Debtor will reimburse Secured Party the amount of
such payment or cost of such performance, plus interest at 1.5% per month.
16. INDEMN1TY. Debtor does hereby assume liability for and does agree to
indemnify, defend, protect, save and keep harmless Secured Party from and
against any and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including court costs and legal
expenses, of whatever kind and nature, imposed on, incurred by or asserted
against Secured Party (whether or not also indemnified against by any other
person) in any way relating to or arising out of this Agreement or the
manufacture, financing, ownership, delivery, possession, use, operation,
condition or disposition of the Equipment by Secured Party or Debtor, including,
without limitation, any claim alleging latent and other defects, whether or not
discoverable by Secured Party or Debtor, and any other claim arising out of
strict liability in tort, whether or not in either instance relating to an event
occurring while Debtor remains obligated under this Agreement, and any claim for
patent, trademark or copyright infringement. Debtor agrees to give Secured Party
and Secured Party agrees to give Debtor notice of any claim or liability hereby
indemnified against promptly following learning thereof.
17. DEFAULT. Any of the following will constitute an event of default
hereunder: (a) Debtor's failure to pay when due any installment payment or other
amount due hereunder, which failure continues for ten (10) days after the due
date thereof; (b) Debtor's default in performing any other obligation, term or
condition of this Agreement or any other agreement between Debtor and Secured
Party or default under any further agreement providing security for the
performance by Debtor of its obligations hereunder provided such default has
continued for more than twenty (20) days, except as provided in (c) and (d)
hereinbelow, or, without limiting the generality of subparagraph (1)
hereinbelow, default under any lease or any mortgage or other instrument
contemplating the provision of financial accommodation applicable to the real
property where an Item of Equipment is located; (c) any writ or order of
attachment or execution or other legal process being levied on or charged
against any Item of Equipment and not being released or satisfied within ten
(10) days; (d) Debtor's failure to comply with its obligations under Paragraph
14 above or any transfer by Debtor in violation of Paragraph 21 below; (e) a
non-appealable judgment for the payment of money in excess of $100,000 being
rendered by a court of record against Debtor which Debtor does not discharge or
make provision for discharge in accordance with the terms thereof within ninety
(90) days from the date of entry thereof, (f)
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 6 OF 11
death or judicial declaration of incompetency of Debtor, if an individual; (g)
the filing by Debtor of a petition under the Bankruptcy Code or any amendment
thereto or under any other insolvency law or law providing for the relief of
debtors, including, without limitation, a petition for reorganization,
arrangement or extension, or the commission by Debtor of an act of bankruptcy;
(h) the filing against Debtor of any such petition not dismissed or permanently
stayed within thirty (30) days of the filing thereof; (i) the voluntary or
involuntary making of an assignment of substantial portion of its assets by
Debtor for the benefit of creditors, appointment of a receiver or trustee for
Debtor or for any of Debtor's assets, institution by or against Debtor or any
other type of insolvency proceeding (under the Bankruptcy Code or otherwise) or
of any formal or informal proceeding for dissolution, liquidation, settlement of
claims against or winding up of the affairs of Debtor, Debtor's cessation of
business activities or the making by Debtor of a transfer of all or a material
portion of Debtor's assets or inventory not in the ordinary course of business;
(j) the occurrence of any event described in parts (e), (f), (g), (h) or (i)
hereinabove with respect to any guarantor or other party liable for payment or
performance of this Agreement; (k) any certificate, statement, representation,
warranty or audit heretofore or hereafter furnished with respect hereto by or on
behalf of Debtor or any guarantor or other party liable for payment or
performance of this Agreement proving to have been false in any material respect
at the time as of which the facts therein set forth were stated or certified or
having omitted any substantial contingent or unliquidated liability or claim
against Debtor or any such guarantor or other party; (1) breach by Debtor of any
lease or other agreement providing financial accommodation under which Debtor or
its property is bound; or (m) a transfer of effective control of Debtor, if an
organization.
18. REMEDIES. Upon the occurrence of an event of default, Secured Party will
have the rights, options, duties and remedies of a Secured Party, and Debtor
will have the rights and duties of a debtor, under the Uniform Commercial Code
(regardless of whether such Code or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted) and, without limiting
the foregoing, Secured Party may exercise any one or more of the following
remedies: (a) declare the Casualty Value or such lesser amount as may be set by
law immediately due and payable with respect to any or all Items of Equipment
without notice or demand to Debtor; (b) sue from time to time for and recover
all installment payments and other payments then accrued and which accrue during
the pendency of such action with respect to any or all Items of Equipment; (c)
take possession of and, if deemed appropriate, render unusable any or all Items
of Equipment, without demand or notice, wherever same may be located, without
any court order or other process of law and without liability for any damages
occasioned by such taking of possession and remove, keep and store the same or
use and operate or lease the same until sold; (d) require Debtor to assemble any
or all Items of Equipment at the Equipment Location therefor, or at such
location to which such Equipment may have been moved with the written consent of
Secured Party or such other location in reasonable proximity to either of the
foregoing as Secured Party designates; (e) upon ten (10) days notice to Debtor
or such other notice as may be required by law, sell or otherwise dispose of any
Item of Equipment, whether or not in Secured Party's possession, in a
commercially reasonable manner at public or private sale at any place deemed
appropriate and apply the new proceeds of such sale, after deducting all
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 7 OF 11
costs of such sale, including, but not limited to, costs of transportation,
repossession, storage, refurbishing, advertising and brokers' fees, to the
obligations of Debtor to Secured Party hereunder or otherwise, with Debtor
remaining liable for any deficiency and with any excess being returned to
Debtor; (f) upon thirty (30) days notice to Debtor, retain any repossessed or
assembled Items of Equipment as Secured Party's own property in full
satisfaction of Debtor's liability for the installment payments due hereunder
with respect thereto, provided that Debtor will have the right to redeem such
Items by payment in full of its obligations to Secured Party hereunder or
otherwise or to require Secured Party to sell or otherwise dispose of such.
Items in the manner set forth in subparagraph (e) hereinabove upon notice to
Secured Party within such thirty (30) day period; or (g) utilize any other
remedy available to Secured Party under the Uniform Commercial Code or similar
provision of law or otherwise at law or in equity.
No right or remedy conferred herein is exclusive of any other right- or remedy
conferred herein or by law; but all such remedies are cumulative of every other
right or remedy conferred hereunder or at law or in equity, by statute or
otherwise, and may be exercised concurrently or separately from time to time.
Any sale contemplated by subparagraph (e) of this Paragraph 18 may be adjourned
from time to time by announcement at the time and place appointed for such sale,
or for any such adjourned sale, without further published notice, Secured Party
may bid and become the purchaser at any such sale. Any sale of an Item of
Equipment, whether under said subparagraph or by virtue of judicial proceedings,
will operate to divest all right, title, interest, claim and demand whatsoever;
either at law or in equity, of Debtor in and to said item and will be a
perpetual bar to any claim against such Item, both at law and in equity, against
Debtor and all persons claiming by, through or under Debtor.
19. DISCONTINUANCE OF REMEDIES. If Secured Party proceeds to enforce any right
under this Agreement and such proceedings are discontinued or abandoned for any
reason or are determined adversely, then and in every such case Debtor and
Secured Party will be restored to their former positions and rights hereunder.
20. SECURED PARTY'S EXPENSES. Debtor will pay Secured Party all costs and
expenses, including attorney's fees and court costs and sales costs not offset
against sales proceeds under Paragraph 18 above, incurred by Secured Party in
exercising any of its rights or remedies hereunder or enforcing any of the
terms, conditions or provisions hereof. This obligation includes the payment or
reimbursement of all such amounts whether an action is ultimately filed and
whether an action is ultimately dismissed.
21. ASSIGNMENT. Without the prior written consent of Secured Party, Debtor will
not sell, lease, pledge or hypothecate, except as provided in this Agreement,
any Item of Equipment or any interest therein or assign, transfer, pledge, or
hypothecate this Agreement or any interest in this Agreement or permit the
Equipment to be subject to any lien, charge or encumbrance of any nature except
the security interest of Secured Party contemplated hereby. Debtor's interest
herein is not assignable and will not be assigned or transferred by operation of
law. Consent to any of the foregoing prohibited acts applies only in the given
instance and is not a consent to any subsequent like act by Debtor or any other
person.
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 8 OF 11
All rights of Secured Party hereunder may be assigned, pledged, mortgaged,
transferred or otherwise disposed of; either in whole or in part, without notice
to Debtor but always, however, subject to the rights of Debtor under this
Agreement. If Debtor is given notice of any such assignment, Debtor will
acknowledge receipt thereof in writing. In the event Secured Party assigns this
Agreement or the installment payments due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Secured Party hereunder or pursuant to any
other agreement between Secured Party and Debtor, should there be one, will
excuse performance by Debtor of any provision hereof, it being understood that
in the event of such default or breach by Secured Party that Debtor will pursue
any rights on account thereof solely against Secured Party. No such assignee,
unless such assignee agrees in writing, will be obligated to perform any duty,
covenant or condition required to be performed by Secured Party in connection
with this Agreement.
Subject always to the foregoing, this Agreement inures to the benefit of, and is
binding upon, the heirs, legatees, personal representative, successors and
assigns of the parties hereto.
22. MARKINGS; PERSONAL PROPERTY. If Secured Party supplies Debtor with labels,
plates, decals or other markings stating that Secured Party has an interest in
the Equipment, Debtor will affix and keep the same prominently displayed on the
Equipment or will otherwise mark the Equipment or its then location or
locations, as appropriate, at Secured Party's request to indicate Secured
Party's security interest in the Equipment. The Equipment is, and at all times
will remain, personal property notwithstanding that the Equipment or any Item
thereof may now be, or hereafter become, in any manner affixed or attached to,
or embedded in, or permanently resting upon real property or any improvement
thereof or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise. If requested by Secured Party,
Debtor will obtain and deliver to Secured Party waivers of interest or liens in
recordable form satisfactory to Secured Party from all persons claiming any
interest in the real property on which an Item of Equipment is or is to be
installed or located.
23. LATE CHARGES. Time is of the essence in this Agreement and if any
Installment Payment is not paid within ten (10) days after the due date thereof;
Secured Party shall have the right to add and collect, and Debtor agrees to pay:
(a) a late charge on and in addition to, such Installment Payment equal to five
percent (5%) of such Installment Payment or a lesser amount if established by
any state or federal statute applicable thereto, and (b) interest on such
Installment Payment from thirty (30) days after the due date until paid at the
highest contract rate enforceable against Debtor under applicable law but never
to exceed eighteen percent (18%) per annum.
24. NON-WAIVER. No covenant or condition of this Agreement can be waived except
by the written consent of Secured Party. Forbearance or indulgence by Secured
Party in regard to any breach hereunder will not constitute a waiver of the
related covenant or condition to be performed by Debtor.
25. ADDITIONAL DOCUMENTS. In connection with and in order to perfect and
evidence the security interest in the Equipment granted Secured Party hereunder
Debtor will
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 9 OF 11
execute and deliver to Secured Party such financing statements and similar
documents as Secured Party requests. Debtor authorizes Secured Party where
permitted by law to make filings of such financing statements without Debtor's
signature. Debtor further will furnish Secured Party (a) on a timely basis,
Debtor's future financial statements, including Debtor's most recent annual
report, balance sheet and income statement, prepared in accordance with
generally accepted accounting principles, which reports, Debtor warrants, shall
fully and fairly represent the true financial condition of Debtor (b) any other
information normally provided by Debtor to the public and (c) such other
financial data or information relative to this Agreement and the Equipment,
including, without limitation, copies of vendor proposals and purchase orders
and agreements, listings of serial numbers or other identification data and
confirmations of such information, as Secured Party may from time to time
reasonably request. Debtor will procure and/or execute, have executed,
acknowledge, have acknowledged, deliver to Secured Party, record and file such
other documents and showings as Secured Party deems necessary or desirable to
protect its interest in and rights under this Agreement and interest in the
Equipment. Debtor will pay as directed by Secured Party or reimburse Secured
Party for all filing. search, title report, legal and other fees incurred by
Secured Party in connection with any documents to be provided by Debtor pursuant
to this Paragraph or Paragraph 22 and any further similar documents Secured
Party may procure.
26. DEBTOR'S WARRANTIES. Debtor certifies and warrants that the financial data
and other information which Debtor has submitted, or will submit, to Secured
Party in connection with this Agreement is, or will be at time of delivery, as
appropriate, a true and complete statement of the matters therein contained.
Debtor further certifies and warrants: (a) this Agreement has been duly
authorized by Debtor and when executed and delivered by the person signing on
behalf of Debtor below will constitute the legal, valid and binding obligation,
contract and agreement of Debtor enforceable against Debtor in accordance with
its respective terms; (b) this Agreement and each and every showing provided by
or on behalf of Debtor in connection herewith may be relied upon by Secured
Party in accordance with the terms thereof notwithstanding the failure of Debtor
or other applicable party to ensure proper attestation thereto, whether by
absence of a seal or acknowledgment or otherwise; (c) Debtor has the right,
power and authority to grant a security interest in the Equipment to Secured
Party for the uses and purposes herein set forth and (d) each Item of Equipment
will, at the time such Item becomes subject hereto, be in good repair, condition
and working order.
27. ENTIRE AGREEMENT. This instrument with exhibits and related documentation
constitutes the entire agreement between Secured Party and Debtor and will not
be amended, altered or changed except by a written agreement signed by the
parties.
28. NOTICES. Notices under this Agreement must be in writing and must be mailed
by United States mail, certified mail with return receipt requested, duly
addressed, with postage prepaid, to the party involved at its respective address
set forth at the foot hereof or at such other address as each party may provide
on notice to the other from time to time. Notices will be effective when
deposited. Each party will promptly notify the other of any change in that
party's address.
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 10 OF 11
29. GENDER, NUMBER: JOINT AND SEVERAL LIABILITY. Whenever the context of this
Agreement requires, the neuter gender includes the feminine or masculine and the
singular number includes the plural; and whenever the words "Secured Party" are
used herein, they include all assignees of Secured Party, it being understood
that specific reference to "assignee" in Paragraph 14 above is for further
emphasis. If there is more than one Debtor named in this Agreement, the
liability of each will be joint and several.
30. TITLES. The titles to the Paragraphs of this Agreement are solely for the
convenience of the parties and are not an aid in the interpretation of the
instrument.
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ROSETTA BIOSYSTEMS, INC.
EQUIPMENT FINANCING AGREEMENT 10819
PAGE 11 OF 11
31. GOVERNING LAW; VENUE. This Agreement will be governed by and construed in
accordance with the laws of the State of California. Venue for any action
related to the Agreement will be in an appropriate court in San Mateo County,
California, to which Debtor consents, or in another court selected by Secured
Party which has jurisdiction over the parties. In the event any provision hereof
is declared invalid, such provision will be deemed severable from the remaining
provisions of this Agreement, which will remain in full force and effect.
32. TIME. Time is of the essence of this Agreement and for each and all of its
provisions.
In WITNESS WHEREOF, the undersigned have executed this Agreement as of September
10, 1997.
DEBTOR:
ROSETTA BIOSYSTEMS, INC.
12040 115th Avenue, NE Suite 210
Kirkland, WA 98034
By: /s/
--------------------------------
Title: SR. VICE PRESIDENT
------------------------------
SECURED PARTY:
LEASE MANAGEMENT SERVICES, INC.
2500 Sand Hill Road, Suite 101
Menlo Park, CA 94025
By: /s/
----------------------------------
Title: EVP/GENERAL MANAGER
-------------------------------
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<PAGE>
CONFIDENTIAL
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement (this "AGREEMENT") is entered into as
of the 23rd day of December, 1997 (the "Effective Date") by and between the Fred
Hutchinson Cancer Research Center, a Washington non-profit corporation (the
"FHCRC"), and Rosetta Inpharmatics, Inc., a Delaware corporation (the
"LICENSEE").
RECITALS
A. FHCRC is the owner by assignment from Stephen H. Friend and Leland
Hartwell (the "Inventors") of the PATENT RIGHTS as defined in this Agreement
together with certain confidential information relating thereto;
B. FHCRC is committed to a policy that ideas or creative works
produced at FHCRC should be used for the greatest possible public benefit and
believes that every reasonable incentive should be provided for the prompt
introduction of such ideas into public use, all in a manner consistent with the
public interest;
C. LICENSEE desires to obtain an exclusive worldwide license in order
to practice the above referenced invention covered by the PATENT RIGHTS in the
United States and in certain foreign countries, and to manufacture, use and sell
in the commercial market the products made in accordance therewith; and
D. FHCRC is willing to grant such a license to LICENSEE subject to the
terms and conditions of this Agreement.
TERMS AND CONDITIONS
The parties agree as follows:
ARTICLE 1- DEFINITIONS
1.1 PATENT RIGHTS means rights of FHCRC in, to and under the issued
United States patents and patent applications listed in APPENDIX A, the
inventions described therein, as well as all continuations and divisions
thereof, all continuations-in-part to the extent one or more of their claims are
directed to the subject matter of the patent applications listed in APPENDIX A
as of the Effective Date hereof, reissues, reexaminations, extensions and
foreign counterparts thereof, which will automatically be deemed incorporated in
and added to this Agreement and shall periodically be added to APPENDIX A.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
1.2 LICENSED PROCESSES means any process described and claimed in
PATENT RIGHTS.
1.3 LICENSED PRODUCT means a product described and claimed in the
PATENT RIGHTS or a product that is manufactured or covered by one or more
LICENSED PROCESSES.
1.4 AFFILIATE means any company, corporation, or business in which
LICENSEE owns or controls at least a fifty percent (50%) ownership interest (or
such lesser percentage which is the maximum allowed to be owned by a foreign
corporation in a particular jurisdiction) or which directly or indirectly owns
or controls more than a fifty percent (50%) ownership interest in LICENSEE.
1.5 TECHNICAL INFORMATION means inventions (whether or not patentable),
processes, materials, formulas and know-how directly related to the subject
matter of the PATENT RIGHTS that are developed by the Inventors and owned or
controlled by FHCRC as of the date of this Agreement or hereafter. All TECHNICAL
INFORMATION shall be communicated to LICENSEE in writing.
1.6 TECHNOLOGY means any and all (a) PATENT RIGHTS and (b) TECHNICAL
INFORMATION supplied by FHCRC to LICENSEE.
1.7 IMPROVEMENT means any invention, discovery or know-how (whether
or not patentable) which (a) is an improvement or modification of the
TECHNOLOGY or otherwise directly relates to the subject matter of the PATENT
RIGHTS; (b) is not licensed as of the Effective Date; (c) is made within [***]
from the Effective Date hereof; (d) is conceived or reduced to practice by
one or more of the Inventors; and (e) is owned by FHCRC or LICENSEE with the
right to license it.
ARTICLE 2- GRANT
2.1 EXCLUSIVE LICENSE. FHCRC hereby grants to LICENSEE and LICENSEE
accepts, subject to the terms and conditions hereof, the exclusive worldwide
license, under the PATENT RIGHTS, to make, have made, use, sell, import, offer
for sale and have sold the LICENSED PRODUCTS, to practice the TECHNOLOGY and to
practice the LICENSED PROCESSES, for all uses in all fields, for the Term
permitted in Section 3.1 of this Agreement (the "License"). The License includes
the right to grant sublicenses, subject to the provisions of Section 2.2(f)
below.
2.2 RESTRICTIONS ON LICENSE. Notwithstanding any other provision of
this Agreement, the License is subject to the following policies, obligations
and/or conditions:
(a) FHCRC's Patents and Inventions Policy adopted September
30, 1983,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Public Laws 96-517 and 98-620 and FHCRC's obligations under agreement
with other sponsors of research. Any right granted in this Agreement greater
than that permitted under Public Laws 96-517 or 9 8-620 shall be subject to
modification as may be required to conform to the provisions of the statutes.
(b) LICENSEE agrees during the period of exclusivity of the
License that any LICENSED PRODUCT produced for sale in the United States will be
manufactured substantially in the United States.
(c) For research purposes only and not for any commercial
purpose, FHCRC has the right to make and to use, but not to sublicense the
TECHNOLOGY without LICENSEE'S written consent (which consent will not be
unreasonably withheld if the sublicense is to an academic or research
institution, is for research purposes only and such institution agrees to be
bound by the restrictions of this Section 2.2(c)). FHCRC agrees that it will not
use the TECHNOLOGY in research subject to licensing or consulting obligations to
a third party (except for the federal government), without the written consent
of LICENSEE.
(d) LICENSEE shall use reasonable effort to introduce the
LICENSED PRODUCTS into the commercial market as soon as practicable, consistent
with sound and reasonable business practices and judgment, and thereafter
endeavor to keep LICENSED PRODUCTS reasonably available to the public.
(e) FHCRC shall have the right to render this Agreement
non-exclusive at any time after [***] of the Effective Date upon sixty (60)
days prior written notice to LICENSEE if, in FHCRC's reasonable judgment,
LICENSEE has not put a LICENSED PRODUCT into commercial use directly or
through a sublicense and is not keeping the LICENSED PRODUCT reasonably
available to the public, or is not demonstrably engaged in research,
development, manufacturing, marketing or licensing, as appropriate, directed
toward these ends. In making this determination FHCRC shall take into account
the normal course of such programs conducted with sound and reasonable
business practices and judgment, then-prevailing market conditions, the
existence of new or more competitive technologies, and shall take into
account the reports provided hereunder by LICENSEE. FHCRC's determination to
render this Agreement non-exclusive will become effective at the end of the
sixty (60) day notice period unless LICENSEE shall have demonstrated
fulfillment of its obligation under this Section 2.2(e).
(f) LICENSEE may grant sublicenses for any rights granted
under the License. All sublicenses granted by LICENSEE hereunder shall include a
requirement that the sublicensee use reasonable efforts to bring the subject
matter of the sublicense into commercial use consistent with Section 2.2(e) and
shall expressly bind the sublicensee to meet LICENSEE's obligations to FHCRC
under this Agreement relating to sublicenses, including, but not limited to,
obligations under Section 2.2(e). Copies of all executed sublicense agreements
pertaining to any rights granted under the License shall promptly be provided to
FHCRC. FHCRC agrees to maintain each such sublicense agreement and all
information relating thereto in confidence.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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2.3 IMPROVEMENTS. FHCRC and LICENSEE agree to promptly disclose to
each other all IMPROVEMENTS to the TECHNOLOGY in a writing, in sufficient
detail for LICENSEE and FHCRC to evaluate each such IMPROVEMENT. FHCRC grants
to LICENSEE the option to an exclusive license in each such IMPROVEMENT owned
by FHCRC for a period of [***] from the date of disclosure to LICENSEE.
LICENSEE shall have the right to exercise the option to an exclusive license
to such IMPROVEMENT at any time during the [***] option period by notifying
FHCRC in writing. Upon exercise of the option in writing, the IMPROVEMENT
will be included in the TECHNOLOGY and licensed in the License without
additional charge to LICENSEE. If the option is not exercised by LICENSEE,
FHCRC shall be free to license such IMPROVEMENT to a third party or parties
without any obligation to LICENSEE. LICENSEE hereby grants to FHCRC a
nonexclusive, irrevocable, royalty-free license for research purposes to its
interests in any IMPROVEMENT; provided that such IMPROVEMENT will be deemed
to be TECHNOLOGY under this Agreement and subject to the restrictions set
forth in Section 2.2(c). Notwithstanding the foregoing, to the extent FHCRC
develops any improvement to the TECHNOLOGY based on Proprietary Information
owned by LICENSEE that would be an IMPROVEMENT but for the fact that it was
conceived or reduced to practice by someone other than one or more of the
Inventors, FHRCR shall first offer such improvement to LICENSEE. For a period
of ninety (90) calendar days following notice to LICENSEE by FHCRC of such
improvement, FHCRC and LICENSEE shall in good faith endeavor to negotiate an
agreement with respect to LICENSEE's rights to such improvement. In the event
FHCRC and LICENSEE fail to enter into such agreement within such ninety (90)
day period, FHCRC shall, for a period of one year thereafter, have the right
to enter into an agreement regarding such improvement with a third party
provided that the terms and conditions offered to such third party shall not
be more favorable than the terms and conditions last specified by FHCRC to
LICENSEE in a written proposal unless first offered to LICENSEE. Thereafter,
FHCRC shall be free to enter into an agreement regarding such improvement
with a third party without further restriction under this Section 2.3.
ARTICLE 3- TERM OF AGREEMENT
The term of this Agreement commences on the Effective Date and,
subject to earlier termination as provided in Article 2.2(e), ends on the later
of(a) the expiration date of the last to expire of the PATENT RIGHTS and (b)
twenty (20) years from the Effective Date (the "Term") unless otherwise provided
in this Agreement.
ARTICLE 4- EQUITY AND PAYMENTS
4.1 EQUITY. As partial consideration for the License, LICENSEE agrees
to issue to FHCRC shares of LICENSEE's Common Stock equal to four percent (4%)
of fully-diluted capital stock of LICENSEE immediately following the closing of
LICENSEE's Series A Preferred Stock financing. The Common Stock issued to FHCRC
shall be subject to the terms and conditions set forth in the Stock Purchase
Agreement attached hereto as APPENDIX B.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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4.2 PAYMENTS. On June 30 of each year, commencing on June 30
following the date on which the first patent covered under the Patent Rights
is issued in the United States (the "United States Patent Issue Date") and
continuing thereafter until the earlier of (a) termination of this Agreement
or (b) the date on which the Company grants a sublicense to the Technology to
a non-Affiliate in a transaction where the aggregate value of the license
fees, research funding and similar compensation to LICENSEE is greater than
[***], LICENSEE shall make an annual payment of [***] (the "ANNUAL PAYMENT").
ARTICLE 5 - REPORTING
5.1 RESEARCH AND DEVELOPMENT PLAN. Within sixty (60) days following
execution of this Agreement, LICENSEE shall provide to FHCRC a written research
and development plan and business plan for introducing LICENSED PRODUCTS into
commercial use.
5.2 ANNUAL REPORTS. LICENSEE shall provide written reports within
sixty (60) days after December 31 of each calendar year which shall include the
following information: reports of progress on research and development,
regulatory approvals, manufacturing, sublicensing, marketing and sales during
the preceding twelve (12) months as well as plans for the coming year. If
LICENSEE's progress differs from that anticipated in the plan provided to FHCRC
under Section 5.1, LICENSEE shall explain the reasons for the difference and
propose modified plans for FHCRC's review and comments, which comments shall be
given serious consideration by LICENSEE. LICENSEE shall also provide any
reasonable additional data FHCRC requires to evaluate LICENSEE's performance.
5.3 FINANCIAL REPORTS. LICENSEE shall provide to FHCRC quarterly
fmancial statements for the immediately preceding quarter within thirty (30)
days after the end of each quarter.
5.4. CONFIDENTIALITY OF REPORTS. All such reports shall be maintained
in confidence by FHCRC, except as required by law, including Public Laws 96-517
and 98-620.
ARTICLE 6- DOMESTIC AND FOREIGN PATENT FILING
AND MAINTENANCE
6.1 RESPONSIBILITY. Throughout the term of this Agreement, LICENSEE,
at its own expense, shall have the right, but shall not be obligated, to
prepare, file, prosecute and defend against third party oppositions any and all
United States and foreign patent applications, and to maintain any and all
United States and foreign patents included within the PATENT RIGHTS; PROVIDED,
HOWEVER, that LICENSEE shall first consult with FHCRC as to the preparation,
filing, prosecution and defense of such applications and maintenance of such
patents and shall promptly furnish to FHCRC copies of all documents relevant to
such preparation, filing, prosecution, defense, or maintenance and shall keep
FHCRC fully advised of the same. FHCRC shall have the right to review and make
recommendations with respect to all such patent applications and patents and
proceedings relating thereto. In the event of a dispute between LICENSEE and
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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FHCRC as to such preparation, filing, prosecution, defense, or maintenance,
FHCRC's decision shall be controlling on such subject. In the event that
LICENSEE elects not to file, prosecute, or defend such applications or maintain
such patents, LICENSEE shall so notify FHCRC in writing not less than sixty (60)
days prior to such action, in which event FHCRC shall have the right to conduct
such filing, prosecution, defense, or maintenance. Notwithstanding any of the
foregoing, FHCRC shall have the right, on any reasonable basis, and upon written
notice to LICENSEE, to take over and assume responsibility for the preparation,
filing, prosecution and defense of any and all United States and foreign patent
applications included within PATENT RIGHTS and maintenance of any and all United
States and foreign patents included within PATENT RIGHTS. In the event that
FHCRC conducts such filing, prosecution, defense, or maintenance as provided
herein, FHCRC shall first consult with LICENSEE as to such preparation, filing,
prosecution, defense, or maintenance and shall keep LICENSEE fully advised of
the same; in such case, LICENSEE shall have the right to review and make
recommendations with respect to all such patent applications and patents and
proceedings relating thereto.
6.2 REIMBURSEMENT. LICENSEE shall reimburse FHCRC for all reasonable
and documented expenses FHCRC has incurred for the preparation, filing,
prosecution and maintenance of PATENT RIGHTS, including any interference
proceedings, and shall reimburse FHCRC for all such expenses incurred in
connection with the PATENT RIGHTS.
6.3 NOTICE. Each party shall provide to the other prompt notice as to
all matters which come to its attention and which may affect the preparation,
filing, prosecution, defense or maintenance of any such patent applications or
patents. FHCRC and LICENSEE shall cooperate fully and in good faith in the
preparation, filing, prosecution, defense and maintenance of PATENT RIGHTS and
of all patents and patent applications licensed to LICENSEE hereunder, including
the execution of all papers and instruments so as to enable FHCRC to apply for,
to prosecute and to maintain patent applications and patents in FHCRC's name in
any country.
6.4 NON-PAYMENT. If LICENSEE elects not to pay the expenses of a
patent application or patent included within PATENT RIGHTS, LICENSEE shall
notify FHCRC not less than sixty (60) days prior to such action and shall
thereby surrender its rights under Section 2.1 of this Agreement with respect to
such patent or patent application.
ARTICLE 7- ENFORCEMENT
7.1 NOTICE OF INFRINGEMENT. Each party agrees to notify the other
promptly of any infringement of the PATENT RIGHTS of which such party becomes
aware.
7.2 ACTION BY LICENSEE. During the Term, subject to FHCRC prior
written consent (not to be unreasonably withheld), LICENSEE has the right to
prosecute any infringements of the PATENT RIGHTS, at its sole expense, and FHCRC
hereby agrees that LICENSEE may include FHCRC as a party plaintiff in any such
suit, without expense of FHCRC. The total cost
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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of any such action commenced or defended solely by LICENSEE shall be borne by
LICENSEE and LICENSEE shall keep any recovery or damages for infringement
derived from the action. Before LICENSEE commences any such infringement action,
LICENSEE shall give careful consideration to the views of FHCRC and to potential
effects on the public interest in making its decision whether or not to commence
such an action. FHCRC agrees to cooperate reasonably in any such action
initiated by LICENSEE including supplying essential documentary evidence and
making essential witnesses then in FHCRC's employment available at LICENSEE's
expense.
7.3 ACTION BY FHCRC. If LICENSEE fails to initiate an infringement
action within ninety (90) days after notification or knowledge of the basis for
such action and LICENSEE is not already a party in an infringement action
including any patent included within PATENT RIGHTS, or if FHCRC reasonably
withholds its consent pursuant to Section 7.2, FHCRC shall have the right, and
in the case of reasonably withholding its consent pursuant to Section 7.2 shall
be obligated, to prosecute at its own expense all infringements of the PATENT
RIGHTS, and LICENSEE hereby agrees that FHCRC may include LICENSEE as a party
plaintiff in any such suit, without expense to LICENSEE. The total cost of any
such action commenced or defended solely by FHCRC shall be borne by FHCRC and
FHCRC shall keep any recovery or damages for past infringement derived from the
action.
ARTICLE 8- INDEMNIFICATION AND INSURANCE
8.1 INDEMNIFICATION. LICENSEE assumes responsibility for and shall
defend, indemnify and hold FHCRC, its directors, officers, managers, agents,
students, doctors and employees (the "Indemnified Parties") harmless from any
and all liability, losses, expenses, damages, assessments and claims arising out
of or resulting from (a) the use, sale or any disposition of LICENSED PRODUCTS
by LICENSEE or its AFFILIATES, (b) the practice of the LICENSED PROCESSES by
LICENSEE or its AFFILIATES, or (c) the use, sale or other disposition of the
LICENSED PRODUCT or LICENSED PROCESSES by others who receive LICENSED PRODUCTS
or LICENSED PROCESSES directly or indirectly from LICENSEE, its AFFILIATES,
agents or representatives. Notwithstanding the foregoing, LICENSEE shall have no
obligation to indemnify and hold harmless the Indemnified Parties (i) if the
claim is found to be based upon the gross negligence or willful misconduct of
any of the Indemnified Parties, or (ii) if the Indemnified Parties fail to give
LICENSEE prompt notice of any claim it receives and such failure materially
prejudices LICENSEE, or (iii) solely to the extent of indemnification for legal
fees and disbursements of counsel of the Indemnified Parties, unless LICENSEE is
given the opportunity to control the defense of such action, or (iv) unless
LICENSEE is given the opportunity to approve any settlement; and provided
further that, except in the event of a material conflict of interest, LICENSEE
will not be liable for attorney's fees of the Indemnified Parties after assuming
control of the defense or settlement.
8.2 INSURANCE. Upon the earlier of any: (a) testing or use in human
subjects or (b) sale of a LICENSED PRODUCT, LICENSEE will have FHCRC named as an
additional insured on LICENSEE's product liability insurance policies, with
limits consistent with sound business practice. Such policies shall not be
terminated without thirty (30) days prior written notice to
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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FHCRC. LICENSEE shall provide FHCRC with written evidence of the insurance
and a copy of the policy upon request.
8.3 LEGAL ACTION. In the event any legal action is commenced against
LICENSEE involving the TECHNOLOGY, whether or not FHCRC is named as a ~5arty to
the legal action, LICENSEE shall keep FHCRC or its attorney nominee fully
advised of the progress of the legal action and shall reimburse FHCRC for its
reasonable legal costs (including attorney's fees) incurred as a result of
FHCRC's monitoring of such action, FHCRC's being named a party to any such legal
action, or when FHCRC's employees or agents are called as witnesses therein or
asked to testify for or consult with LICENSEE in connection therewith. FHCRC
agrees to cooperate with LICENSEE, to the extent reasonably possible, in any
legal action brought pursuant to this Section 8.3.
ARTICLE 9- ARBITRATION
Any dispute, other than a question relating to patent validity or
infringement, between the parties hereunder which cannot be resolved by good
faith negotiation between the parties over a period of at least sixty (60) days
shall be resolved by arbitration before a panel of three arbitrators under the
then current rules and procedures of the American Arbitration Association (the
"AAA"), or other rules and procedures as the parties may agree. Each party shall
bear its own costs incurred in connection with such arbitration and the fees,
expenses and costs of the AAA, the arbitrator(s) and the arbitration proceeding
not incurred solely by one party shall be divided equally between the parties.
The arbitral award shall be binding and conclusive on both parties and may be
enforced in any court of competent jurisdiction.
ARTICLE 10- TERMINATION OF AGREEMENT
10.1 TERMINATION ON PAYMENT DEFAULT. At FHCRC's option, FHCRC may
terminate this Agreement effective thirty (30) days after giving written notice
in the event LICENSEE fails to pay any Annual Payment or other amounts owed
under this Agreement when due, unless the payment default is cured or shown to
be non-existent within such thirty (30) day period, in which case the Agreement
will remain in effect.
10.2 TERMINATION ON OTHER DEFAULTS. This Agreement may be
terminated by either party upon a material breach by the other party other
than a payment default which is governed by Section 10.1, effective [***]
after giving written notice to the breaching party of such termination under
this Section 10.2 and specifying such breach, unless the default is cured or
shown to be non-existent within the [***] period, in which case the Agreement
will remain in effect.
10.3 TERMINATION ON BANKRUPTCY OR INSOLVENCY. Subject to any
provisions of the federal bankruptcy laws limiting rights of termination, this
Agreement will automatically terminate if LICENSEE files for protection under
federal bankruptcy laws, becomes insolvent,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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makes an assignment for the benefit of creditors, appoints or suffers
appointment of a receiver or trustee over its property, files a petition under
any bankruptcy or insolvency act or has any such petition filed against it or
files for dissolution.
10.4 TERMINATION BY LICENSEE. LICENSEE shall have the right to
terminate this Agreement at any time upon [***] prior written notice to FHCRC.
10.5 EFFECT OF TERMINATION ON SUBLICENSES. Any sublicenses granted by
LICENSEE under this Agreement shall provide for termination or assignment to
FHCRC, at the option of FHCRC, of LICENSEE's interest therein upon termination
of this Agreement.
10.6 SALE OF PRODUCTS ON TERMINATION. In the event that FHCRC
terminates this Agreement as permitted herein, LICENSEE shall have the right
for [***] to sell all LICENSED PRODUCTS on hand at the time of receipt of
notice of termination if any and all payments due FHCRC are paid when due in
accordance with this Agreement.
10.7 EFFECT OF TERMINATION. Upon termination of the Agreement for any
reason, and subject to LICENSEE's rights under Section 10.6, each party shall
return to the other party all TECHNOLOGY owned by such other party and
thereafter continue to maintain the confidentiality thereof, and refrain from
use thereof or the disclosure thereof to any third party as required by Article
13, and all other rights in TECHNOLOGY and LICENSED PRODUCTS granted under
Article 2 shall expire and revert to the owner thereof. Upon termination of this
Agreement, each party will turn over to the other party all Proprietary
Information owned by such other party and all documents or data storage media
containing any such Proprietary Information owned by such other party and any
and all copies thereof, and each party will delete all Proprietary Information
owned by such other party from its documents or data storage media. Should
either party terminate this Agreement as permitted herein, the other party shall
not be able to claim from the terminating party, any damages or compensation for
losses or expenses incurred solely as a result of the termination. FHCRC shall
be entitled to retain all equity issued and payments made under this Agreement,
notwithstanding termination of this Agreement for any reason.
10.8 SURVIVAL OF RIGHTS AND DUTIES. Rights and duties hereunder which
by their terms or nature survive the termination or expiration of this Agreement
shall so survive such termination or expiration, including without limitation
duties under Sections 5.3, 7, 8, 9, 10.6, 10.7, 12, 13, 16.1, 16.7, 16.8, 16.9
and 16.10.
ARTICLE 11- REPRESENTATIONS AND COVENANTS
11.1 FHCRC REPRESENTATIONS AND WARRANTIES. FHCRC represents and
warrants that all right, title, and interest in the patent applications or
patents comprising the PATENT RIGHTS listed in APPENDIX A have been or will be
assigned to it and are owned by it (subject to Government Rights under 35 U.S.C.
Section 200 et seq.), that FHCRC has the authority to issue licenses under the
PATENT RIGHTS, that all corporate action of FHCRC required to authorize
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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and perform this Agreement and the transactions contemplated hereby has been
taken; that this Agreement has been duly executed and delivered by FHCRC and is
a legal, valid and binding obligation of FHCRC and that FHCRC is duly organized
and validly existing under the laws of the State of Washington.
11.2 FHCRC DISCLAIMERS. FHCRC disclaims all implied or express
warranties of any nature whatsoever concerning the validity or scope of the
PATENT RIGHTS licensed hereunder. FHCRC does not warrant that such PATENT RIGHTS
may be exploited by LICENSEE, an AFFILIATE, or sublicensee without infringing
other patents. FHCRC EXPRESSLY DISCLAIMS ANY AND ALL EXPRESS WARRANTIES, EXCEPT
THOSE STATED IN THIS ARTICLE 11, AND FURTHER DISCLAIMS ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS OF THE TECHNOLOGY, LICENSED PROCESSES
OR LICENSED PRODUCTS FOR ANY PARTICULAR USE OR PURPOSE.
11.3 LICENSEE REPRESENTATIONS AND WARRANTIES. LICENSEE represents and
warrants to FHCRC that all corporate action of LICENSEE required to authorize
and perform this Agreement and the transactions contemplated hereby has been
taken; that this Agreement has been duly executed and delivered by LICENSEE and
is a legal, valid and binding obligation of LICENSEE; that the execution,
delivery and performance of this Agreement will not, with OR without the giving
of notice or the lapse of time or both violate any judgment, order, writ, or
decree of any court applicable to LICENSEE or result in the breach of or
conflict with or constitute a default under any corporate charter, bylaw,
commitment, contract or other agreement or instrument to which LICENSEE is a
party; that LICENSEE is duly organized and validly existing under the laws of
the State of Delaware and that it has obtained and will at all times during the
Term hold and comply with all licenses, permits and authorizations necessary to
LICENSEE's complete and timely performance of its obligations under this
Agreement which are required under any applicable statutes, laws, ordinances,
rules and regulations of the United States as well as those of all applicable
foreign governmental bodies, agencies and subdivisions, having, asserting or
claiming jurisdiction over LICENSEE or LICENSEE's performance of the terms of
this Agreement. In particular, LICENSEE:
(a) will be responsible for obtaining all necessary United
States Food and Drug Administration approvals and all approvals required by
similar governmental bodies or agencies of all applicable foreign countries; and
(b) understands and acknowledges that the transfer of certain
commodities and technical data is subject to United States laws and regulations
controlling the export of such commodities and technical data, including all
Export Administration Regulations of the United States Department of Commerce.
These laws and regulations, among other things, prohibit or require a license
for the export of certain types of technical data to certain specified
countries. LICENSEE hereby agrees and gives written assurance that it will
comply with all United States laws and regulations controlling the export of
commodities and technical data, that it will be solely responsible for any
violation of such by LICENSEE or its AFFILIATES or sublicensees,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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and that it will defend and hold FHCRC harmless in the event of any legal action
of any nature occasioned by such violation.
ARTICLE 12- NOTICES
All communications, including payments, notices, demands or requests
required OR permitted to be given hereunder, shall be given in writing and shall
be: (a) personally delivered; (b) sent by facsimile or other electronic means of
transmitting written documents; or (c) sent to the parties at their respective
addresses indicated herein by registered or certified U.S. mail, return receipt
requested and postage prepaid, or by private overnight mail courier service. The
respective addresses to be used for all such payments, notices, demands or
requests are as follows:
If to FHCRC: Fred Hutchinson Cancer Research Center
1100 Fairview Avenue North, C2M-027
Seattle, Washington 98109
Attention: Catherine J. Hennings, Director,
Technology Transfer
Facsimile: (206) 667-4732
With copies to: Douglas J. Shaeffer, Esq.
Fred Hutchinson Cancer Research Center
1100 Fairview Avenue North, LM-254
Seattle, Washington 98109
Facsimile: (206) 667-6590
If to LICENSEE: Rosetta Inpharmatics, Inc.
12040 - 115th Avenue N.E., Suite 210
Kirkland, WA 98034
Attention: President
Facsimile: (425) 821-5354
With copies to: Venture Law Group
4750 Carillon Point
Kirkland, WA 98033
Attention: William W. Ericson
File No. 15822.012
Facsimile: (425) 739-8750
If personally delivered, such communication shall be deemed delivered upon
actual receipt. If electronically transmitted pursuant to this Article 12, such
communication shall be deemed delivered when transmitted. If sent by overnight
courier pursuant to this Article 12, such communication shall be deemed
delivered within twenty-four (24) hours of deposit with such courier. If sent by
U.S. mail pursuant to this Article 12, such communications shall be deemed
delivered as of the date of delivery indicated on the receipt issued by the
relevant postal service,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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or, if the addressee fails or refuses to accept delivery, as of the date of such
failure or refusal. Any party to this Agreement may change their address for the
purposes of this Agreement by giving notice in accordance with this Article.
ARTICLE 13- CONFIDENTIALITY AND NON-DISCLOSURE
13.1 PROPRIETARY INFORMATION. Any and all information in any form
relating to the TECHNOLOGY furnished to either party (or its agents or
employees) by the other party (or its laboratories or agents or employees),
including but not limited to information regarding or relating to devices,
biological materials, methods, processes, data, drawings, documentation, patent
applications, know how and product development plans, is confidential,
proprietary, information and any and all such information is hereinafter
referred to as "Proprietary Information."
13.2 EXCEPTIONS TO PROPRIETARY INFORMATION. As used herein,
"Proprietary Information" does not include information:.
(a) that at the time of disclosure to the receiving party is
or later becomes generally available to the public through no fault of the
receiving party;
(b) that is demonstrated to have been in the receiving party's
possession prior to the time of disclosure by the disclosing party;
(c) that is demonstrated by a preponderance of the evidence to
have been independently developed by the receiving party's personnel without
reference to Proprietary Information of the disclosing party; and
(d) received from a third party, unless such information is
obtained subject to a confidential disclosure agreement.
13.3 USE OF PROPRIETARY INFORMATION. Each party agrees: (a) to hold in
strict confidence and trust and maintain as confidential all Proprietary
Information disclosed by the other party; (b) not to disclose any such
Proprietary Information or any information derived therefrom to any person,
except to those employees or legal counsel of the receiving party who are
required to receive the Proprietary Information for the purposes described in
this Agreement and who are bound by the provisions of this Agreement; and (c) to
use the Proprietary Information only for the purposes described in this
Agreement.
13.4 OWNERSHIP OF PROPRIETARY INFORMATION. Each party agrees that all
Proprietary Information disclosed by the other party will at all times be and
remain the sole property of the disclosing party and the disclosing party is the
sole owner of all patents, copyrights and other intellectual property rights and
other proprietary rights related to the Proprietary Information disclosed by it
and conceived or made by the disclosing party's employees.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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13.5 TERM OF CONFIDENTIALITY. The obligations of confidentiality
provided herein shall continue in force and effect for [***] from the date of
termination of this Agreement, whether by lapse of the Term hereof or
otherwise, unless extended or limited by mutual agreement executed in writing
by an officer of each party; PROVIDED, HOWEVER, that if this Agreement is
terminated before the end of the Term due to a default by LICENSEE, the
obligation of confidentiality shall continue for [***] from the end of the
Term assuming no early termination.
ARTICLE 14- PATENT MARKING
Subsequent to the issuance of any patent included in the PATENT RIGHTS
and provided FHCRC advises LICENSEE of the patent number or numbers of any such
issued patents, LICENSEE agrees to mark and to have marked by its sublicensees
every LICENSED PRODUCT manufactured, used or sold in the United States by
LICENSEE, its AFFILIATES or its sublicensees in accordance with the statutes of
the United States relating to the marking of patented articles. All LICENSED
PRODUCTS shipped to or sold in other countries shall be marked in such a manner
as to conform with the patent laws and practice of the countries of manufacture
or sale.
ARTICLE 15- RIGHT TO PUBLISH
Nothing in this Agreement shall be construed as prohibiting either
party from presenting or publishing any of the results of their own research
on the TECHNOLOGY, including without limitation research results which
constitute Proprietary Information; PROVIDED, HOWEVER, that each party agrees
to provide the other party with a copy of any such presentation or
publication at least [***] prior to submission or presentation and further
agrees to delay publication for a period not to exceed [***], which is
sufficient to allow the other party to take steps necessary to protect any
intellectual property, including the filing of any patent applications and/or
deletion of its confidential information.
ARTICLE 16- MISCELLANEOUS
16.1 APPLICABLE LAW. The rights and obligations of the parties under
this Agreement shall be governed by and construed in accordance with the laws of
the State of Washington.
16.2 NO MODIFICATION. This Agreement may not be amended except by
an instrument in writing signed by both parties.
16.3 ASSIGNMENT. The Agreement shall be binding on the parties hereto
and upon their respective heirs, administrators, successors and assigns. This
Agreement may not be assigned by LICENSEE or by operation of law without the
prior written consent of FHCRC, which consent shall not be unreasonably
withheld; provided, that LICENSEE may assign this Agreement without FHCRC's
consent to any entity that acquires all or substantially all of its assets or
business relating to LICENSED PRODUCTS and LICENSED PROCESSES, by merger or
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-13-
<PAGE>
otherwise.
16.4 NON-PROFIT STATUS. LICENSEE acknowledges that FFICRC is a
non-profit organization qualifying for and holding the status of an exempt
organization under Section 50l(c)(3) of the United States Internal Revenue Code
("SECTION 501(c)(3) STATUS"). If the Internal Revenue Service (the "IRS")
determines, or a determination by FHCRC based on advice of legal or tax counsel
is reasonably made, that any part or all of this Agreement will jeopardize
FHCRC's Section 501(c)(3) Status, the parties agree to meet and confer in good
faith to amend this Agreement to the extent necessary to satisfy IRS
requirements for retention of FHCRC's Section 501(c)(3) Status. If FHCRC and
LICENSEE cannot agree within thirty (30) days after commencing negotiations
regarding the amendments to be made to this Agreement in order for FHCRC to
retain its Section 501(c)(3) Status, FHCRC may terminate this Agreement
effective upon giving written notice to LICENSEE of termination under this
Section 16.4.
16.5 CONFLICTS WITH GRANTS. LICENSEE understands and acknowledges that
agreements between FHCRC and agencies of the United States government funding
FHCRC's programs may contain clauses granting patent and/or other rights to the
agencies or the U.S. government. LICENSEE agrees that the rights granted to it
under this Agreement shall be subject to any rights of the agencies and the U.S.
government. If a conflict arises, the provisions of any U.S. government agency
funding agreement and/or regulation shall prevail over any conflicting
provisions of this Agreement and FHCRC will have no liability to LICENSEE as a
result of such conflict.
16.6 BOARD OBSERVER. During the Term, FHCRC shall be entitled to have
one representative of FHCRC attend meetings of the Board of Directors of
LICENSEE, which representation shall be Leland Hartwell or such other
representative as FHCRC and LICENSEE shall mutually agree upon. LICENSEE agrees
to give FHCRC timely notice of Board of Directors meetings of LICENSEE.
Notwithstanding the foregoing, LICENSEE may exclude the FHCRC representative
from certain meetings or portions of certain meetings if LICENSEE reasonably
determines that attendance of the FHCRC representative would jeopardize
attorney-client privilege or proprietary rights of LICENSEE, violate
confidentiality requirements of a third party or otherwise be illegal or
improper.
16.7 USE OF NAME. No party shall use the name of the other party or
reveal the terms of this Agreement in any publicity or advertising without the
prior written approval of the other party, except that (a) any party may use the
text of a written statement approved in advance by the other party without
further approval; (b) any party shall have the right to identify the other party
and to disclose the terms of this Agreement as required by applicable securities
laws or other applicable law or regulation; and (c) any party may disclose that
a licensing relationship exists between the parties and may disclose the name of
the other party in that context.
16.8 NOTICES. All letters, documents, or other materials of a written
or physical nature, required by or relating to this Agreement shall be in
English and sent to the party at the address given in Article 12.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-14-
<PAGE>
16.9 INDEPENDENT PARTIES. The parties to this Agreement are
independent contractors and not agent of the other. This Agreement shall not
constitute a partnership or joint venture, and neither party may be bound by the
other to any contract, arrangement or understanding except as specifically
stated herein.
16.10 SEVERABILITY. Should a court of competent jurisdiction later
consider any provision of this Agreement to be invalid, illegal, or
unenforceable, it shall be considered severed from this Agreement. All other
provisions, rights and obligations shall continue without regard to the
severed provision, provided that the remaining provisioni of this Agreement
are in accord with the intention of the parties.
16.11 PROCEEDINGS. In the event any party to this Agreement commences
any action or proceeding, including an appeal of an action or proceeding,
against the other, or otherwise retains an attorney, by reason of any breach
or claimed breach of any provision of this Agreement, or to seek a judicial
declaration of rights hereunder or judicial or equitable relief, the
prevailing party in such action or proceeding shall be entitled to recover its
reasonable attorneys' fees and costs. Venue of any such legal or equitable
action shall lie in Seattle, Washington. Each of LICENSEE and FHCRC hereby
submits to the jurisdiction of the Federal District Court of Western
Washington located in Seattle, Washington, and hereby agrees to accept service
of process by certified mail, return receipt requested, effective upon
delivery to LICENSEE or FHCRC, as the case may be.
16.12 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
[Signature page follows:
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-15-
<PAGE>
FRED HUTCHINSON CANCER RESEARCH CENTER ROSETTA INPHARMATICS, INC.
By: /s/ By: /s/ John J. King, II
----------------------------------- ---------------------------
Printed Printed
Name: Name: John J. King, II
--------------------------------- -------------------------
Title: Title: Sr. Vice President & Co.
-------------------------------- ------------------------
Date: Date: 1/12/97
--------------------------------- -------------------------
SIGNATURE PAGE TO EXCLUSIVE LICENSE AGREEMENT
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Appendix A
----------
PATENT APPLICATIONS AND PATENTS
<TABLE>
<CAPTION>
Patent File or
Patent NO. Applicant No. Country Issue Date Title/Inventor
- ---------- ------------- ------- ---------- --------------
<S> <C> <C> <C> <C>
[***] [***] [***] [***]
[***] [***] [***] [***]
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
INTERNAL USE LICENSE AGREEMENT
Effective as of Nov. 30, 1998 (the "EFFECTIVE DATE"). Affyrnetrix. Inc., a
Delaware corporation ("Affymetrix") and Rosetta Inpharmatics, Inc., a Delaware
corporation ("Licensee") (each a "Party" and together "the Parties"), agree as
follows:
1. DEFINITIONS.
1.1 "ABE," which stands for Array Based Experiment, means a single experiment
involving hybridization of a labeled sample on a Nucleic Acid Array licensed
hereunder and that is covered at the time and place of the experiment by one or
more valid claims of a patent claim within the Licensed Patents. A "valid claim"
shall include a claim that has not been held to be invalid by a final judgement
from which no appeal can be taken. If labeled samples (including the same
sample) are consecutively hybridized to a single Nucleic Acid Array, then the
number of ABEs is equal to the number of consecutive hybridizations. If two
differently labeled samples arc mixed and simultaneously hybridized to a single
Nucleic Acid Array, then there has been one ABE.
1.2 "Affiliate" means any corporation or other business entity controlled by.
controlling, or wider common control with a Party, but only for so long as such
Affiliate remains an Affiliate of a Party, and only if such Affiliate is bound
in writing by the terms of this Agreement. For this purpose, "control" means
direct or indirect beneficial ownership of more than 50% of; (i) the voting
stock or other controlling equity interest in, or (ii) the revenue, of such
corporation or other business. References to Licensee in this Agreement will
include Licensee's Affiliates.
1.3 "Array Maker" means a device used to fabricate Nucleic Add Arrays by
mechanical fabrication methods. For clarity, the parties understand that
"mechanical fabrication" does not include controlled direction of
electromagnetic energy at a portion of a support (e.g. fabrication through
photolithographic synthesis methods), but does include the use of an inkjet
system to place nucleic acids on a support.
1.4 "Licensed Patent(s)" means the U.S. and Foreign Patents (and reissues,
renewals, and extensions thereof) and Patent applications set forth on Exhibit
A. as well as any U.S. or foreign application (including divisionals,
continuations, and continuations-in-part) claiming priority to any of the
foregoing and patents issuing thereon, as well as reissues, renewals, and
extensions thereof.
1.5 "Nucleic Acid Array" means (i) an array fabricated solely by placing only
fully synthesized nucleic acids (clonal polynucleotides or other presynthesized
polynucleotides, with no further fabrication of nucleic acids) at defined
locations on a solid support or (ii) an array fabricated solely by synthesizing
oligonucleotides using an inkjet head to deposit nucleotides at defined
locations on a solid support without using controlled direction of
electromagnetic energy. In the case of both (i) and (ii), all of such nucleic
acids may not represent more than 8,000 genes/expressed sequence tags; provided,
however, during the periods of this Agreement in which Licensee has purchased an
unlimited number of ABEs there shall be no limit on the number of
genes/expressed sequence tags that Licensee may represent on a single Nucleic
Acid Array.
2. LICENSE. During the term of this Agreement, Affymetrix grants Licensee a
nontransferable, nonsublicensable, nonexclusive, worldwide, royalty-bearing
license under the Licensed Patents, to internally use Array Makers and make
(but not have made, sell, import, distribute or lease) and internally use
Nucleic Acid Arrays made from such Array Makers for analyzing the presence,
absence, or level of expressed messenger RNA in cells for academic and
commercial research use only. For clarity, the Parties understand that
diagnostic applications are not being licensed.
2.1 This Agreement does not grant Licensee a license to:
(a) transfer a Nucleic Acid Array to any third party or
(b) provide services to any third party with respect to a Nucleic Acid Array.
For clarity, the Parties understand that biological research activities
involving Nucleic Add Arrays conducted by Licensee within a collaboration that
meets the requirements of Section 2.1(c)(ii) are permitted; or
(c) distribute, license or otherwise make available to a third party any data
or database that is obtained from the use of a Nucleic Acid Array, except as
follows:
i) Licensee may license data obtained from a Nucleic Acid Array to a
third party licensee specifically related to a particular compound,
drug, target, pathway or transcript state of a cell that has been
discovered or analyzed through use of the Nucleic Acid Array, provided
that such third party licensee (or its direct distributors or
sublicensees) pays substantial consideration for the right to develop
and market such compound, drug or target with the bone fide intent to do
so in accordance with such third party licensee's commercial policies in
effect from time to time; or
ii) Licensee may transfer data to a third party when such data is
obtained within a bona fide collaboration with such third party (a
"Collaborator") in which: (A) the Collaborator provides substantial
scientific input to experimental design, (B) the collaborative
relationship is set forth in an agreement signed by the Licensee and
the Collaborator prior to the use of any Nucleic Acid Arrays to
generate such data, and (C) Licensee retains material intellectual
property rights in substantial discoveries or inventions that arise
from such data, including know-how if there are no patent rights
directly associated with such know-how and such know-how has
significant value as compared to other intellectual property arising
from the collaboration. Bona fide collaborations do not include
arrangements whose primary purpose is to give third party access to
data or databases or provide nucleic acid hybridization services, or
iii) Licensee may transfer data to a third party so long as Licensee
receives no consideration or other quid-pro-quo for such transfer and
such data is not made preferentially available to customers of Licensee
(e.g. such transfer cannot be contingent on the third party and
Licensee exchanging other goods, services or intellectual property), or
(d) identify polymorphisms in genes/expressed sequence tags or perform
genotyping analysis.
2.2 Licensee may make the data described in Section 2. l(c)(i)-(iii) (`Permitted
Data") available to third parties only pursuant to written agreements containing
obligations that: (a) are no less restrictive than those in Section 2.1; and (b)
explicitly benefit Affymetrix by providing Affymetrix the right to enforce the
provisions of such agreement that correspond to Section 2.1 hereof in the event
that Licensee does not or cannot enforce such provisions itself and (c) prohibit
such third parties from sublicensing or otherwise further distributing such
Permitted Data except as set forth in Section 2.1 (c)(i). Licensee agrees not to
exceed the scope of the licenses grimed under this Agreement.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
1
<PAGE>
3 ROYALTIES. In consideration of Licensee's right to use at least one Licensed
Patent, Licensee will pay to Affymetrix: (a) an annual "Usage Royalty," and (b)
a one-time license issue fee of [***].
3.1 EasyAccess-TM- "Gold" and "Silver" customers are entitled to additional
discounts of [***] from the Usage Royalty, respectively. However, Licensee's
EasyAccess discount shall only apply during those years of this Agreement in
which Licensee has maintained such EasyAccess status fur at least seven
months in such year. In the event Affymetrix substantially redefines the Gold
and Silver EasyAccess marketing programs following the Effective Date,
Affymetrix agrees to offer Licensee discounts similar to those set forth in
this Section consistent with any then-prevailing marketing programs that
require financial commitments similar to the Gold and Silver EasyAccess
programs as of the Effective Date.
3.2 The annual Usage Royalty is set forth in the following table and is based on
the number of ABEs that Licensee is permitted to conduct within a single year
and Licensee's annual research and development budget (including its Affiliates)
as reported in audited financial statements.
LICENSEE ANNUAL R&D BUDGET
<TABLE>
<CAPTION>
Between
# of annual ABEs up [***] [***] [***]
- ----------------------------------------------------------
<S> <C> <C> <C>
[***] [***] [***] [***]
[***] [***] [***] [***]
[***] [***] [***] [***]
[***] [***] [***] [***]
</TABLE>
3.3 Unused ABEs cannot be canned over from year-to-year. Nucleic Acid Arrays
that are provided to Licensee by a third party that has been licensed by
Affymetrix to provide such Nucleic Acid Arrays to Licensee shall not be included
in the royalty calculation.
4. PAYMENT. Upon execution of this Agreement. Licensee shall pay the license
issue fee. Licensee agrees to pay an annual Usage Royalty at [***] which
corresponds to [***] ABEs ("Maximum Annual ABEs") for use during each year of
this Agreement.
4.1 If during any year of this Agreement Licensee's ABE usage exceeds its
Maximum Annual ABEs: (a) Licensee shall promptly notify Affymetrix, (b)
Licensee's Maximum Annual ABEs and Usage Royalty shall increase to at least the
next higher volume amount (or higher, if Licensee elects) set forth in the above
table, and (c) the anniversary date of this Agreement shall be deemed to be the
date Affymetrix receives such notice. If Licensee notifies Affymetrix in writing
at least [***] prior to the anniversary date of this Agreement that Licensee
desires to increase or decrease their Maximum Annual ABEs, then Licensee's Usage
Royalty obligation shall be adjusted as set forth in the above table for the
next year.
4.2 During each year of this Agreement. Licensee agrees to pay the annual Usage
Royalty in [***] installments commencing at thc end of the first
calendar quarter that follows the Effective Date. If Licensee's ABE usage
exceeds its Maximum Annual ABE,, all remaining [***] payments due for such
year shall be immediately due and Licensee's first [***] installments for
Licensee's increased Usage Royalty shall be due at the end of the next [***].
4.3 If within one year following the Effective Date Affymetrix has felled to
enter into at least [***] Qualifying Deal [***], then Affymetrix and Licensee
shall meet to discuss readjusting the annual Usage Royalty fee structure, but
in no event shall the annual Usage Royalty fee structure be decreased by more
than [***]. A "Qualifying Deal" shall mean an agreement between Affymetrix
and a licensee with the following criteria (i) the licensee has a R & D
budget of less than [***], and (ii) the license agreement contains an annual
Usage Royalty fee structure and covenants not to sue that are substantially
similar to the ones set forth in this Agreement or which are more favorable
to Affymetrix than the ones set forth in this Agreement. Any readjustment to
the annual Usage Royalty fee structure shall only persist until Affymetrix
has entered into [***] Qualifying Deal [***], and thereafter, the annual Usage
Royalty fee structure set forth in this Agreement shall be [***].
4.4 In the event Licensee selects a Usage Royalty corresponding to an unlimited
number of annual ABE,, Licensee shall pay Affymetrix an additional annual
royalty of [***] per Datapoint for all ABEs in access of [***] ABEs per year
that arc used in connection with providing data to third parties, where
"Datapoint' shall mean a measurement of the presence, absence, or level of
contiguous sequence of expressed messenger RNA in a single biological sample as
measured by a Nucleic Acid Array.
5.1 AUDIT. On each anniversary of this Agreement, an officer of Licensee will
deliver to Affymetrix a statement certifying (i) that Licensee's ABE usage
did not exceed the Maximum Annual ABE in the preceding year, and (ii) the
number of ABEs used in the preceding year in connection with providing data
to third parties but only if such number exceeds [***], Licensee agrees to
maintain reasonable records to document the number of ABEs that Licensee
uses. Affymetrix may have a nationally recognized accounting firm under
obligations of confidentiality reasonably acceptable to Licensee examine
Licensee's relevant records. At any time during regular business hours end
upon [***]notice, but no more than [***] annually. If such examination
reveals a discrepancy between the royalties payable hereunder and the
royalties actually paid, Licensee will pay all such additional royalties,
together with the maximum interest permitted by law from the date when such
additional royalties would have been due, to Affymetrix [***] days of
receipt of notice from Affymetrix of such discrepancy. Any such examination
will be at Affymetrix' expense; provided that, if a deficiency of more than
[***] is discovered, the examination will be at Licensees expense and
Affymetrix shall not be deemed to have used its annual right to audit
Licensee.
5.2 COVENANTS. licensee covenants not to sue Affymetrix. or its Affiliates or
customers of either regarding any patented technology related to (1) the
sale, distribution, design, development or manufacturing of nucleic acid
probe arrays made using controlled direction of electromagnetic energy at a
support ("Affymetrix NAPAs") and any array readers/scanners, software,
assays, or packaging which may be used with Affymetrix NAPAs or (ii) the use
of Affymetrix NAPAs provided by Affymetrix or its Affiliates to their
customers and any array readers/scanners, software, assays, or packaging
which may be used by such customers with Affymetrix NAPAs; provided, however,
that such covenant not to sue does nor extend to: (A) the sale, distribution,
design, development or manufacturing of [***], or (B) the [***], or (C) the
[***], or (D) [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
2
<PAGE>
6. LIMITATIONS. Nothing in this Agreement will be construed as: (a) a warranty
or representation by Affymetrix as to the validity or scope of the Licensed
Patents; (b) a warranty or representation by Affymetrix that anything made,
used, or discovered under the rights granted in this Agreement does not or will
not infringe third party patents; (c) an obligation to bring actions against
third parties for infringement; (d) conferring the right to use any Affymetrix
trademark or designation; (e) conferring by implication, estoppel, or otherwise
any rights under any Affymetrix patents other than the Licensed Patents or any
rights not specifically granted herein; or (f) an obligation to furnish any
know-how not provided in the Licensed Patents. In no event will either Party be
liable for lost or prospective profits or indirect or consequential damages
resulting from this Agreement eve if the other Party has been advised of the
possibility of such damages.
7. INDEMNITY. Licensee will defend, indemnify, and hold Affymetrix harmless from
and against any liability, demands, damages, expenses and losses for death,
personal injury, illness, or property damage arising out of Licensee's use of
any method or apparatus under the Licensed Patents. As used in this Section 7,
"Affymetrix" includes its trustees, officers, agents, and employees. The
technology licensed hereby is experimental, and Licensee will take all
reasonable precautions to prevent death, personal injury, illness, and property
damages from use thereof.
8. TERMS AND TERMINATION. This Agreement will remain in effect for three years
following the Effective Date, and continue thereafter n renewing one year terms
until terminated by either party by providing notice to the other party at least
60 days prior to the anniversary date hereof. If either Party materially fails
to perform any obligations under this Agreement, the other Party may notify the
defaulting party of the default. If the defaulting Party has not materially
cured the default within 30 days after receiving such notice, the other Party
may terminate this Agreement upon 30 days' notice to the defaulting Party. Such
right to terminate will be in addition to, and without prejudice to the exercise
of, any other remedies available in law or equity. Sections 1, 2.2, 5.1, 6, 7,
9.1, 9.2 and 9.3 will survive termination or expiration of this Agreement.
9. GENERAL. Licensee covenants not to benchmark or otherwise compare performance
metrics such as sensitivity and specificity from Licensee's nucleic acid arrays
to any Affymetrix' nucleic acid arrays and disclose such comparison results to
third parties without the prior approval of Affymetrix which shall not be
unreasonable withheld. Licensee agrees not to disparage Affymetrix' personnel,
products or services. Licensee may not assign this Agreement by acquisition of
Licensee's assets or stock, by operation of law, or otherwise, without
Affymetrix's prior consent. In the event Licensee is acquired, Affymetrix will
not unreasonably withhold its consent to such an assignment. Affymetrix' consent
shall be deemed to have been reasonably withheld if Licensee proposes to merge
with an entity that is a party or an Affiliate of a party to litigation with
Affymetrix; provided, however, the foregoing proviso will not be effective in
the event Affymetrix initiates such litigation for the primary purpose of
preventing the assignment of this Agreement. No assignment of this Agreement
will be valid until the assignee has assumed all obligations under this
Agreement and the Usage Royalty has been adjusted to reflect the assignee's R&D
budget. If any provision of this Agreement is held invalid or unenforceable for
any reason, such unenforceability will not affect the enforceability of the
remaining provisions of this Agreement, and all provisions of this Agreement
will be construed so as to preserve the enforceability hereof. The waiver by
either Party of a breach of any provision of this Agreement by the other Party
will not be construed as a waiver of any succeeding breach of the same or any
other provision, nor will any delay on the part of either Party to exercise any
right that it may have hereunder operate as a waiver of any right by such Party.
In the event there is a dispute between the Parties in connection with this
Agreement, neither Party shall file a claim against the other Party in
connection with such dispute until thirty (30) days following notice to the
other Party and the Chief Executive Officer of each Party shall meet and discuss
potential solutions to such dispute during the thirty (30) days following notice
to the other Party and the Chief Executive Officer of each Party shall meet and
discuss potential solutions to such dispute during the thirty (30) day period.
Affymetrix represents and warrants that it owns or is the legal licensee of the
Licensed patents and that it has the right to enter into this Agreement for the
Licensed Patents.
9.1 NOTICE. All requests, consents, notices, and other communications under this
Agreement will be in writing and will be deemed to have been given upon the
confirmed facsimile transmission or prepaid express mailing to the address
below, or at such address as either Party may from time-to-time designate in
writing to the other Party.
To Affymetrix: Affymetrix, Inc.
3380 Central Expressway
Santa Clara, CA 95051
Attention: General Counsel
To Licensee: Rosetta Inpharmatics, Inc.
12040 115th Avenue N.E.
Kirkland, Washington 98034
Attention: Chief Operating Officer
9.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties relating to the subject matter thereof, and all prior negotiations,
representations, agreements, and understandings are merged into, extinguished
by, and completely expressed by it. This Agreement will be construed in
accordance with the laws of California without regard to its conflict of laws
rules.
9.3 CONFIDENTIALITY. The Parties will keep the terms of this Agreement in
confidence, except as may be required by regulatory agencies or courts or as
required by law, and will then use all reasonable precautions to keep the terms
of this Agreement confidential.
Signature: /s/ Stephen A. Fodor
-----------------------------------------------
Stephen P.A. Fodor, Ph.D.
President and Chief Executive Officer
Affymetrix, Inc.
Date: 30 Nov 98
----------------------------------------------------
Rosetta Inpharmatics, Inc.
Signature: /s/ John J. King II
------------------------------------------------
Name (Print): John J. King, II
--------------------------------------------
Title: Senior VP & COO
---------------------------------------------------
Date: 30 November, 1998
----------------------------------------------------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
3
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
COUNTRY PATENT/ TITLE OF INVENTION AFFYMETRIX FEATURE STATUS
APPLICATION FILE NO.
NO.
<S> <C> <C> <C> <C> <C> <C>
[ * * *]
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
<TABLE>
<CAPTION>
COUNTRY PATENT/ TITLE OF INVENTION AFFYMETRIX FEATURE STATUS
APPLICATION FILE NO.
NO.
<S> <C> <C> <C> <C> <C> <C>
[ * * *]
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
<TABLE>
<CAPTION>
COUNTRY PATENT/ TITLE OF INVENTION AFFYMETRIX FEATURE STATUS
APPLICATION FILE NO.
NO.
<S> <C> <C> <C> <C> <C> <C>
[ * * *]
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
<TABLE>
<CAPTION>
COUNTRY PATENT/ TITLE OF INVENTION AFFYMETRIX FEATURE STATUS
APPLICATION FILE NO.
NO.
<S> <C> <C> <C> <C> <C> <C>
[ * * *]
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
CONFIDENTIAL
LICENSE AGREEMENT
BETWEEN
XENOMETRIX, INC.
AND
ROSETTA INPHARMATICS INC.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
LICENSE AGREEMENT
This Agreement (this "AGREEMENT") is made this 12th day of November, 1998 (the
"EFFECTIVE Date"), by and between Xenometrix, Inc. ("XENO"), a Delaware
corporation with principal offices at 2425 North 55th Street, Boulder, CO
80301-5700 and Rosetta Inpharmatics, Inc. ("ROSETTA"), a Delaware corporation
with principal offices at 12040 115th Avenue N.E., Kirkland, WA 98034, to
license certain technology according to the terms and conditions, but subject
to the limitations, set forth in this Agreement.
RECITALS
WHEREAS, XENO is the owner or exclusive licensee of the XENO Patents (as defined
below) and the Harvard Patents (as defined below) relating to certain assays,
technology and intellectual property further described herein, and desires to
non-exclusively license the same to ROSETTA; and
WHEREAS, ROSETTA seeks to obtain certain non-exclusive license rights and
sublicensing rights under the XENO Patents and the Harvard Patents, according to
the terms contained herein;
Now, therefore, in consideration of the foregoing and the covenants and promises
contained herein, the parties agree as follows:
1. DEFINITIONS
1.1. "AFFILIATE" means any corporation or other business entity controlled
by, or in common control of an entity. Control, as used in the context
of a business entity, means the ownership directly or indirectly of
greater than fifty percent (5 0%) of the voting securities of the
person, corporation, or other entity.
1.2. "CONFIDENTIAL INFORMATION" means all information, compounds, data, and
Materials received by either party from the other party pursuant to
this Agreement including, without limitation, technology of each
party, subject to the exceptions set forth in Section 5.1.
1.3. "FIELD" means gene expression profiling and protein expression
profiling, including but not limited to, identifying disturbances of
cell homeostasis and related identified chemicals.
1.4. "HARVARD LICENSE AGREEMENT" means the license agreement between the
President and Fellows of Harvard College ("Harvard") and Venmark
Ltd., now XENO, executed on January 17, 1992, as amended to date,
attached hereto as Exhibit C.
1.5. "HARVARD PATENTS" means all patents and patent, applications listed on
Exhibit A (Mammalian) and Exhibit B (Bacterial) hereto, including but
not limited to any reissues, extensions, substitutions, confirmations,
re-registrations, re-examinations, continuations, divisionals or
continuations-in-part of the foregoing patents and patent
applications, as well as all foreign counterparts or equivalents
thereof.
1.6. "MATERIALS" means any biological or chemical entity for screening or
assays, including reagents, cells, promoters, enhancers, vectors,
plasmids, proteins and fragments thereof, peptides, antigens,
antibodies, antagonists, agonists, inhibitors, and chemicals.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
1.7. "XENO PATENTS" means all the patents and patent applications listed on
Exhibits A and B hereto, any patent applications filed prior or
subsequent to the Effective Date that claim the benefit of an early
filing date to any of the patent applications listed in Exhibit A and
Exhibit B, and any reissues, extensions, substitutions, confirmations,
re-registrations, reexaminations, continuations, divisionals or
continuations-in-part of the foregoing patents and patent
applications, as well as all foreign counterparts or equivalents
thereof.
1.8. "THIRD PARTY" means any entity other than (i) ROSETTA and any of its
Affiliates, and (ii) XENO and any of its Affiliates.
2. LICENSES
2.1. GRANT OF LICENSES UNDER THE XENO PATENTS AND THE HARVARD PATENTS FROM
XENO TO ROSETTA.
2.1.1. NON-EXCLUSIVE LICENSE TO XENO PATENTS. XENO hereby grants to
ROSETTA and its Affiliates a non-exclusive, world-wide license
in the Field under XENO's ownership interest in the XENO
Patents [***].
2.1.2. NON-EXCLUSIVE SUBLICENSE TO HARVARD PATENTS UNDER THE HARVARD
LICENSE AGREEMENT. XENO hereby grants to ROSETTA and its
Affiliates a non-exclusive, world-wide sublicense in the Field
under XENO's right to sublicense the Harvard Patents in the
Harvard License Agreement [***].
3. COMPENSATION
3.1. COMPENSATION FOR THE XENO PATENTS LICENSE AND HARVARD PATENTS
SUBLICENSE.
3.1.1. LICENSES AND RIGHTS. As consideration for the licenses and
rights granted to ROSETTA herein, ROSETTA will pay to XENO:
a) [***] upon signing of the Agreement, of
which [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-3-
<PAGE>
[***]
b) [***]
4. REPRESENTATIONS AND WARRANTIES; COVENANTS
4.1. REPRESENTATIONS AND WARRANTIES OF ROSETTA AND XENO.
Each party hereby represents and warrants:
CORPORATE POWER. Such party is duly organized and validly
existing and in good standing under the laws of the state
and/or country of its incorporation and has all requisite
corporate power and authority to enter into this Agreement and
to carry out the provisions hereof.
DUE AUTHORIZATION. Such party is duly authorized and has all
corporate power necessary to execute and deliver this
Agreement and to perform its obligations hereunder.
BINDING AGREEMENT. This Agreement is a legal and valid
obligation binding upon such party and enforceable in
accordance with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict
with any agreement, instrument or understanding, oral or
written, to which it is a party or by which it may be bound,
nor violate any law or regulation of any court, governmental
body or administrative or other agency having jurisdiction
over it.
4.2. TITLE; NO INFRINGEMENT. XENO has full title and ownership of the XENO
Patents and XENO has all rights to the XENO Patents and the Harvard
Patents necessary to allow it to perform its obligations as
contemplated in thiso Agreement. The licenses and sublicenses granted
by XENO to ROSETTA under this Agreement will in no way constitute an
infringement or other violation of any copyright, trade secret,
trademark, patent or other proprietary right of any third party.
4.3. NEGATION OF WARRANTIES
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, XENO MAKES NO
REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESSED OR IMPLIED. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, THERE ARE NO (a) EXPRESSED OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR TO
XENO'S KNOWLEDGE THAT THE USE OF THE XENO PATENTS AND HARVARD
PATENTS AS CONTEMPLATED IN THIS AGREEMENT WILL NOT INFRINGE
ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR (b) ANY
OTHER EXPRESSED OR IMPLIED WARRANTIES.
4.4. HARVARD LICENSE AGREEMENT. XENO hereby represents and warrants that
(a) [***], the Harvard License Agreement has not at the date hereof
expired or been terminated by either XENO or Harvard and that XENO
has not at the date hereof received nor given notice of breach or
termination for breach of the Harvard License Agreement [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-4-
<PAGE>
neither XENO nor Harvard is in default under the Harvard
License Agreement. XENO covenants to use best efforts to maintain the
Harvard License Agreement from the date of this Agreement through the
term of the Harvard License Agreement, including, but not limited to
(c) complying with its obligations to pay the compensation due for the
Harvard License Agreement and (d) refraining from entering into any
modification or termination of the Harvard License Agreement that
would in anyway affect ROSETTA's rights to the Harvard Patents under
this Agreement. In the event that the Harvard License Agreement is
terminated, the sublicense granted to ROSETTA by XENO pursuant to
Section 2.1.2 with respect to [***] will survive and any further
sublicenses granted by ROSETTA to its sublicensee with respect to
[***] shall survive.
4.5. INFRINGEMENT. ROSETTA hereby agrees to notify XENO immediately of any
claim it receives for alleged patent infringement through use of XENO
Patents Licenses and Rights.
4.6. LICENSE AGREEMENT TO A THIRD PARTY. XENO hereby warrants that during
the term of this Agreement XENO will not license XENO patents and/or
sublicense Harvard License Agreement to a Third Party under financial
and legal conditions substantially more favorable than the terms of
the present Agreement.
5. CONFIDENTIALITY
5.1. CONFIDENTIAL INFORMATION. Except as expressly provided herein, the
parties agree that, for the Term and [***] thereafter, the receiving
party shall keep completely confidential and shall not publish or
otherwise disclose to another party and shall not use for any purpose
other than to perform the purposes contemplated by this Agreement any
Confidential Information furnished to it by the disclosing party
hereto pursuant to this Agreement, except that to the extent that it
can be established by the receiving party by competent proof that
such Confidential Information:
(a) was already known to the receiving party, other than under
an obligation of confidentiality, at the time of disclosure;
(b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the
receiving party;
(c) became generally available to the public or otherwise part
of the public domain after its disclosure and other than
through any act or omission of the receiving party in breach
of this Agreement;
(d) was lawfully disclosed to the receiving party by a person
other than a party hereto; or
(e) was independently developed by the receiving party.
5.2. PERMITTED USE AND DISCLOSURES. Each party hereto may use or disclose
Confidential Information disclosed to it by the other party to the
extent such use or disclosure is reasonably necessary in filing or
prosecuting patent applications, prosecuting or defending litigation,
complying with applicable law, governmental regulation or court order,
submitting information to tax or other governmental authorities,
making a permitted sublicense or otherwise exercising its rights
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-5-
<PAGE>
hereunder, provided that if a party is required to make any such
disclosure of another party's Confidential Information, other than
pursuant to a confidentiality agreement, it will give reasonable
advance notice to the latter party of such disclosure and, save to the
extent inappropriate in the case of patent applications, will use
reasonable efforts to secure confidential treatment of such
information prior to its disclosure (whether through protective orders
or otherwise).
5.3. CONFIDENTIAL TERMS. Except as expressly provided herein, each party
agrees not to disclose any material or financial terms of this
Agreement to another party without the consent of the other party, not
to be unreasonably withheld; PROVIDED, HOWEVER, each party reserves
the right to make reasonable disclosures (including the redaction of
material or financial terms) as required by securities or other
applicable laws, or to actual or prospective investors or corporate
partners (including licensees and acquirers), or to accountants,
attorneys and other professional advisors on a need-to-know basis
under circumstances that ensure the confidentiality thereof, or to the
extent required by law. If such Confidential Information is to become
public information by such disclosure the disclosing party must obtain
the written consent of the non-disclosing party in order to obtain
protection of the Confidential Information if necessary.
5.4. PRESS RELEASE. Notwithstanding the foregoing, the parties shall agree
upon a press release to announce the execution of this Agreement.
Thereafter, XENO and ROSETTA may each disclose to Third Parties the
information contained in such press release without the need for
further approval by the other.
6. TERMINATION
6.1.1. This Agreement shall continue until the last expiration date of all
patents licensed under this Agreement and shall survive the
bankruptcy, insolvency or similar event related to either party.
6.1.2. Either party shall have the right to terminate this Agreement at any
time for a material breach of this Agreement by the other party,
provided that the non-breaching party shall have first given [***]
prior written notice ([***] in the event of non-payment of any
amounts due under this Agreement) to the breaching party describing
such breach and stating the non-breaching party's intention to
terminate this Agreement if such breach remains uncured, and the
breaching party thereafter fails to cure same within [***].
6.1.3. ROSETTA may terminate this Agreement without cause at any time by
providing written notice to XENO of such termination and such
termination will be effective [***] thereafter. Any termination
pursuant to this Section 6.1.3 shall not relieve ROSETTA of any
obligation or liability accrued hereunder prior to such termination,
including ROSETTA's obligation to pay royalties accrued or accruable.
The licenses granted hereunder and all sublicenses granted by
ROSETTA under this agreement shall terminate in the event the
Agreement is terminated by ROSETTA or termination by an arbitrator
for an uncured breach by ROSETTA.
7. MISCELLANEOUS
7.1. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon the
parties' respective successors and permitted assigns. Neither party
may assign this Agreement or any of its rights or
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-6-
<PAGE>
obligations hereunder without the prior written consent of the other
party (not to be unreasonably withheld), and any such attempted
assignment shall be void; PROVIDED, HOWEVER, that ROSETTA and XENO may
assign this Agreement as part of a merger or consolidation in which
the surviving entity assumes all of ROSETTA's and XENO's rights and
obligations hereunder or a sale of substantially all of the assets or
stock of such party to which this Agreement relates. The parties
acknowledge and agree that until the Section 8.4 Amendment is executed
and delivered, in the event that the Harvard License Agreement is
terminated, Harvard shall have the option of having this Agreement
assigned to it or terminating the licenses granted herein.
7.2. EFFECT OF WAIVER. No waiver of any default, condition, provisions or
breach of this Agreement shall be deemed to imply or constitute a
waiver of any other like default, condition, provision or breach of
this Agreement.
7.3. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES
ARISING OUT OF THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF
LIABILITY.
7.4. INDEMNIFICATION. ROSETTA will defend, indemnify and hold XENO, its
officers, directors, employees, Affiliates and agents harmless against
any and all liability, loss, damage, claim or expense (including
attorneys' fees) arising out of (a) a breach of any representation or
warranty or covenant made by ROSETTA in this Agreement or (b) a suit
by a Third Party directly relating to the negligence of ROSETTA in the
performance under this Agreement by ROSETTA; except to the extent such
claim is caused by the negligence or willful misconduct of XENO or a
breach of a representation or warranty of XENO. XENO will defend,
indemnify and hold ROSETTA, its officers, directors, employees,
Affiliates and agents harmless against any and all liability, loss,
damage, claim or expense (including attorneys' fees) arising out of
(x) a breach of any representation or warranty or covenant made by
XENQ in this Agreement or (y) a suit against ROSETTA, its officers,
directors, employees, Affiliates or agents by a Third Party related to
ROSETTA's performance under this Agreement. ROSETTA may, at its
option, conduct the defense in any such suit by a Third Party and XENO
agrees to cooperate fully with such defense.
7.5. LIABILITY INSURANCE. ROSETTA agrees that it shall indemnify, defend,
and hold XENO harmless from any claim, demand or action by any Third
Party arising out of ROSETTA's gross negligence or intentional
misconduct relating to ROSETTA's performance under this Agreement.
ROSETTA agrees to maintain at its expense general liability coverage
at a minimum level of [***] per occurrence, to name XENO as an
additional insured on ROSETTA's general liability policy at all
times during the term of this Agreement and to furnish XENO, upon
reasonable request, certificates evidencing such coverage and
copies of the applicable policies.
7.6. PATENT DEFENSE COSTS. XENO will use reasonable efforts, at its
discretion to defend XENO Patents and Harvard Patents at its own
expense against any infringement by a Third Party, and XENO will
notify ROSETTA promptly in writing of any such infringement by a Third
Party known by XENO; PROVIDED, HOWEVER, that (a) ROSETTA, at its
option, may elect to join any such prosecution of a Third Party
infringer initiated by XENO at ROSETTA's expense and (b) XENO will
conduct such prosecution upon the advice and consent of ROSETTA with
respect to material decisions (including litigation strategy
decisions) relating to such prosecution. If XENO
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-7-
<PAGE>
does not initiate such a prosecution with respect to any individual
instance of Third Party infringement, ROSETTA may, at its own expense,
upon the advice and with the consent of XENO, initiate and control
such prosecution. In the event that ROSETTA is sued by a Third Party
for infringement of a Third Party's patent, XENO hereby agrees, if
ROSETTA so requests, to provide ROSETTA with all reasonable advice or
technical support that ROSETTA may reasonably request at ROSETTA's
expense.
7.7. DILIGENCE. ROSETTA agrees to use reasonable commercial efforts to
fulfill the obligations of the express due diligence provision of the
Harvard License Agreement as it applies to a sublicense under the
Harvard License Agreement.
7.8. FORCE MAJEURE. Neither party shall lose any rights hereunder or be
liable to the other party for damages or losses (except for payment
obligations) on account of failure of performance by the defaulting
party if the failure is occasioned by war, strike, fire, act of God,
earthquake, flood, lockout, embargo, governmental acts or orders or
restrictions, failure of suppliers, or any other reason where failure
to perform is beyond the reasonable control and not caused by the
negligence or intentional conduct or misconduct of the nonperforming
party, and such party has exerted all reasonable efforts to avoid or
remedy such force majeure; PROVIDED HOWEVER, that in no event shall a
party be required to settle any labor dispute or disturbance. -
7.9. AMENDMENT. No modification, supplement to or waiver of this Agreement
or any Addendum hereto or any of their provisions shall be binding
upon a party hereto unless made in writing and duly signed by an
authorized representative of both XENO and ROSETTA. In no event may
the terms of this Agreement be changed, deleted, supplemented or
waived by any notice, purchase order, receipt, acceptance, bill of
lading or other similar form of document. A failure of either party to
exercise any right or remedy hereunder, in whole or in part, or on one
or more occasions, shall not be deemed either a waiver of such right
or remedy to the extent not exercised, or of any other right or
remedy, on such occasion or a waiver of any right or remedy on any
succeeding occasion.
7.10. ENTIRE AGREEMENT. This Agreement, and each Exhibit attached hereto,
and each supplemental written agreement contemplated hereunder, sets
forth the entire understanding and agreement of the parties as to the
subject matter thereof, and there are no other understandings,
representations or promises, written or verbal, not set forth herein
or on which either party has relied. If any provisions of any such
Addendum or supplemental written agreement conflict with any
provisions set forth in this Agreement, the provisions of this
Agreement shall take precedence, unless such Addendum or supplemental
written agreement expressly refers to the specific provision(s) of
this Agreement that it is intended to replace or modify (and which
shall be limited in force and effect to such Addendum or supplemental
written agreement only).
7.11. NOTICES. All Notices under this Agreement shall be given in writing
and shall be addressed to the parties at the following addresses:
FOR XENO:
Stephen J. Sullivan
CEO, President and Director
Xenometrix, Inc.
2425 North 55th Street
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-8-
<PAGE>
Boulder, Colorado 8030 1-5700
FOR ROSETTA:
President
Rosetta Inpharmatics
12040 115th Avenue NE
Kirkland, WA 98034
Notices shall be in writing and shall be deemed delivered when
received, if delivered by a courier, overnight mail service or the
like, or a week following mailing, if sent by first-class certified or
registered mail, postage prepaid.
7.12. ARBITRATION. The parties recognize that disputes as to certain
matters may from time to time arise during the term of this Agreement
which relate to either party's rights and/or obligations hereunder. It
is the objective of the parties to establish procedures to facilitate
the resolution of disputes arising under this Agreement in an
expedient manner by mutual cooperation and without resort to
arbitration. The parties agree that prior to any arbitration
concerning this Agreement, XENO's CEO and ROSETTA's CEO or COO will
meet in person or by video-conferencing in a good faith effort to
resolve any disputes concerning this Agreement. Within [***]
of a formal request by either party to the other, any party may,
by written notice to the other, have such dispute referred to their
respective officers designated or their successors, for attempted
resolution by good faith negotiations, such good faith negotiations to
begin [***] after such notice is received. Except as otherwise
provided specifically herein, any controversy or claim under
this Agreement shall be solely settled by arbitration by one
arbitrator pursuant to the Commercial Arbitration Rules of the
American Arbitration Association (the "Association"); provided that
the parties shall first use their best efforts to resolve such dispute
by negotiation. The arbitration shall be conducted in Boulder,
Colorado. The arbitrator shall be selected by the joint agreement of
the parties, but if they do not so agree within twenty (20) days of
the date of a request for arbitration, the selection shall be made
pursuant to the rules of the Association. The decision reached by the
arbitrator shall be conclusive and binding upon the parties hereto and
may be filed with the clerk of any court of competent jurisdiction,
and a judgment confirming such decision may, if desired by any party
to the arbitration, be entered in such court. Each of the parties
shall pay its own expenses of arbitration and the expenses of the
arbitrator(s) shall be equally shared; PROVIDED, HOWEVER, that if in
the opinion of the arbitrator(s) any claim hereunder or any defense or
objection thereto was unreasonable, the arbitrator(s) may assess, as
part of the award, all or any part of the arbitration expenses
(including reasonable attorneys' fees) against the party raising such
unreasonable claim, defense or objection. Nothing herein set forth
shall prevent the parties from settling any dispute by mutual
agreement at any time.
7.13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, without regard or
giving effect to its principles of conflict of laws.
7.14. SEVERABILITY AND SURVIVAL. This Agreement is intended to be
severable. If any provision(s) of this Agreement are or become
invalid, are ruled illegal by a court of competent jurisdiction or are
deemed unenforceable under the current applicable law from time to
time in effect during the term hereof, it is the intention of the
parties that the remainder of the Agreement shall not be affected
thereby and shall continue to be construed to the maximum extent
permitted by law at
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-9-
<PAGE>
such time. It is further the intention of the parties that in lieu of
each such provision which is invalid, illegal, or unenforceable, there
shall be substituted or added as part of this .Agreement by such court
of competent jurisdiction a provision which shall be as similar as
possible, in economic and business objectives as intended by the
parties to such invalid, illegal or unenforceable provision, but shall
be valid, legal and enforceable. Unless expressly stated otherwise,
any provision intended by its meaning to survive, will survive the
expiration or any other termination of this Agreement.
7.15. INDEPENDENT CONTRACTORS. The parties hereto are acting as independent
contractors and shall not be considered partners, joint venturers or
agents of the other. Neither shall have the right to act on behalf of,
or to bind, the other.
7.16. HEADINGS. Captions and paragraph headings are for convenience only
and shall not form an interpretative part of this Agreement. Unless
otherwise specifically provided, all references to an Article
incorporate all Articles or subsections thereunder. This Agreement
shall not be strictly construed against either party hereto and maybe
executed in two or more counterparts, each of which will be deemed an
original and the same instrument.
(Signature Page Follows]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
By: /s/ Stephen J. Sullivan Date: 11/12/98
------------------------------------- ---------------------
Stephen J. Sullivan
CEO and President
For Xenometrix, Inc.
By: /s/ Stephen H. Friend, M.D., Ph.D. Date: 11/12/98
------------------------------------- ---------------------
Stephen H. Friend, M.D., Ph.D.
President, Chief Scientific Officer
for ROSETTA INPHARMATICS, Inc.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-11-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
PATENT/ FILING DATE COUNTY ISSUE DATE TITLE
APPLICATION #
<S> <C> <C> <C> <C>
[ * * *]
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
PATENT/ FILING DATE COUNTY ISSUE DATE TITLE
APPLICATION #
<S> <C> <C> <C> <C>
[ * * *]
</TABLE>
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
EXHIBIT C
HARVARD LICENSE AGREEMENT
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Exhibit 10.28
EXHIBIT B
AURORA BIOSCIENCES, INC.
390 Wakara Way, Salt Lake City, Utah 84108 o Ph: (801) 584-3431 (801) 584-3640
March 15, 1995
Jasper D. Rifle, Ph.D.
Division of Genetics
Department of Molecular and Cell Biology
Room 401, Barker Hall
University of California
Berkeley, California 94720
C. Dale Poulter, Ph.D.
Department of Chemistry
Room 2270, Eyring Building
University of Utah
Salt Lake City, Utah 84112
CONSULTING, CONFIDENTIALITY & NON-COMPETITION AGREEMENT
Dear Jasper and Dale:
This letter agreement will confirm our understanding with respect to the
consulting services you have agreed to perform for Aurora Biosciences, Inc., a
Utah corporation of which you are the scientific founding shareholders ("Aurora"
or the "Company"), as well as your obligation to maintain the confidentiality of
the Company's technology and not compete with the Company. Founders Fund, L.C.,
a Utah limited liability company that is the business founding shareholder of
the Company ("FFLC") will also agree to such confidentiality and non-competition
requirements by its execution of this letter. The parties hereto agree as
follows:
1. Consulting Services. As requested by the Company, you will perform consulting
services (the "Services") as independent contractors to the Company during your
time available to consult for commercial companies under your respective
employment arrangements with the University of California, Berkeley and the
University of Utah in the field of utilizing genetic assays to screen molecules
against intracellular disease pathways as a means of developing, and to develop,
highly selective inhibitors of enzymes regulating the prenylation of Ras protein
and biosynthesis of cholesterol for the treatment of cancer and cardiovascular
disorders (the "Field of Interest"). The exact nature and extent of your
Services will be consistent with the exclusive licensing or sponsored research
agreements to be entered into between the Company and your respective academic
institutions, as well as the needs of the Company. The compensation for your
services as scientific founders of the Company will be determined from time to
time by its Board of Directors in light of the Company's financial resources.
<PAGE>
Jasper D. Rifle, Ph.D.
C. Dale Poulter, Ph.D.
March 15,1995
Page 2
You also agree to perform Services as a member of the Company's Scientific
Advisory Board ("SAB") and advise the Company in its Field of Interest on the
same basis as other members of the Company's SAB. It is anticipated that the SAB
will meet at least twice annually for one- or two-day meetings with the
Company's scientific staff and management to discuss its research and product
development programs and long-term scientific strategy. In consideration of your
Services as a SAB member, each of you will receive the same compensation that
other members of the SAB will receive, as follows:
(a) STOCK OPTIONS. Non-qualified stock options to
purchase 10,000 shares of the Company's common stock
at a price equal to the current market value ($.00l
per share), which options will vest in equal amounts
over a five-year period, as more specifically set
forth in the form of option certificate attached
hereto.
(b) SAB MEETING FEE. You will receive a fee of $1,000 for
each day of SAB meetings you attend during the first
two years of your relationship with the Company and
$1,500 for each day of meetings during the third and
following years thereof.
(c) RETAINER. In addition to the SAB meeting fee, you
will receive an annual retainer of $10,000 per year
upon the closing of the Company's first major
financing.
(d) EXPENSE REIMBURSEMENT. The Company will also
reimburse your reasonable travel and other
out-of-pocket expenses incurred by you from time to
time at the Company's request.
Intellectual property rights that arise .from your performance of Services for
the Company under this agreement are to be transferred to the Company insofar as
such transfers are consistent with your duties to your institutional employers
and the Company's technology transfer licenses or sponsored research agreements
therewith. In this regard, you agree to disclose and assign to the Company all
of your intellectual property rights to all ideas, discoveries, inventions,
processes and improvements in the Company's Field of Interest developed by you
in the course of performing consulting Services for the Company. When requested
by the Company, you will make available to it copies of all notes, drawings,
data, and other information relating to such inventions, and will cooperate with
the Company in executing said documents (including U.S. and foreign patent
applications) concerning such rights and inventions.
2. CONFIDENTIALITY. During your performance of Services under this agreement,
you will be exposed to certain information concerning the Company's business,
products, proposed new products, designs, clinical testing programs,
manufacturing processes and techniques, customers,
<PAGE>
Jasper D. Rifle, Ph.D.
C. Dale Poulter, Ph.D.
March 15,1995
Page 3
and other information and materials that embody trade secrets or technical or
business information that is confidential and proprietary to the Company and is
not generally known to the public (collectively, "Confidential Information").
For a period of 5 years after acquiring such information, you agree not to
disclose or make use of, or allow others to use, any Confidential Information,
except to Company employees and representatives, without the Company's prior
written consent, unless such information becomes publicly available. If you are
in doubt as to whether certain information is considered confidential by the
Company, the Company upon your request will advise you as to whether such
information is confidential.
Your obligations pursuant to this section 2 shall not apply to any information
which:
(a) is or hereafter becomes public knowledge by any means
other than your breach of the obligations set forth
herein;
(b) the receiving party can demonstrate was in his
possession prior to the time of disclosure by the
Company;
(c) the receiving party can demonstrate was received by
him from a third party who has the right to disclose
the same without any violation of any rights of or
obligations to the Company; or
(d) the receiving party can demonstrate was independently
discovered or becomes public knowledge or part of the
public literature without benefit of the disclosure
of the Confidential Information by the Company.
3. PROHIBITED COMPETITION. We have discussed, and you recognize and acknowledge,
the competitive and sometimes proprietary aspects of the business of the
Company. We acknowledge your unique contributions to the Company's business and
its dependence on the research and technology which you have developed at your
respective academic institutions in the Company's Field of Interest. You
acknowledge that a business will be deemed competitive with the Company if from
time to time it performs any of the services or manufactures or sells any of the
products provided or to be offered by the Company which are based upon or
utilize your research and technology in the Company's Field of Interest or any
portion thereof (such business to be referred to as a "Competitive Business").
Accordingly, you hereby agree in consideration of the Company's agreement to (a)
engage you as a consultant to perform Services and (b) in view of the
confidential position held by you, as an officer and director of the Company and
a member of its SAB, the confidential nature and proprietary value of the
information which the Company may share with you, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, as follows:
<PAGE>
Jasper D. Rifle, Ph.D.
C. Dale Poulter, Ph.D.
March 15,1995
Page 4
During the period you serve as an officer of the Company, a member of its Board
of Directors or its SAB, or perform consulting Services for the Company (the
"Term") and for a period of two years following the expiration or termination of
the Term (the "Restricted Term"), whether such termination is voluntary or
involuntary, you shall not, without the prior written consent of the Company:
(i) For yourself or on behalf of any other person or
entity, directly or indirectly, either as principal,
agent, stockholder, employee, consultant,
representative or in any other capacity, own, manage,
operate or control, or be connected or employed by,
or otherwise associate in any manner with, engage in
or have a financial interest in any Competitive
Business within the United States (the "Restricted
Territory"); provided that nothing contained herein
shall preclude you from (a) employment by or other
affiliation with any academic institution and
utilizing your research and technology in the
Company's Field of Interest in connection therewith,
or (b) purchasing or owning stock in any business if
such stock is publicly traded and your holdings do
not exceed three percent (3%) of the issued and
outstanding capital stock of such business.
(ii) Either individually or on behalf of or through any
third party, solicit, divert or appropriate or
attempt to solicit, divert or appropriate, for the
purpose of competing with the Company, any customers
or patrons of the Company, or any prospective
customers or patrons with respect to which the
Company has developed or made a sales presentation
(or similar offering of services), located within the
Restricted Territory.
(iii) Either individually or on behalf of or through any
third party, directly or indirectly, solicit, entice
or persuade any employees of or consultants to the
Company. to leave the services of the Company for any
reason.
You further recognize and acknowledge that (i) the types of employment which are
prohibited by this paragraph are narrow and reasonable in relation to the skills
which represent your principal salable asset both to the Company and to your
other prospective employers, and (ii) the specific but broad geographical scope
of the provisions of this paragraph is reasonable, legitimate and fair to you in
light of the Company's need to market its services and sell its products in a
large geographic area in order to have a sufficient customer base to make the
Company's business profitable and in light of the limited restrictions on the
type of employment prohibited herein compared to the types of employment for
which you are qualified to earn your livelihood. If any part of this section 3
should be determined by a court of competent jurisdiction to be unreasonable in
duration, geographic area, or scope, then this section is intended to and shall
extend only for such period of time, in such area and with respect to such
activity as is determined to be reasonable.
<PAGE>
Jasper D. Rifle, Ph.D.
C. Dale Poulter, Ph.D.
March 15,1995
Page 5
Your obligations under this agreement shall not be affected by any termination
of your services with the Company, including termination upon the Company's
initiative, nor by any change in your position, title or function with the
Company. You hereby expressly acknowledge that any breach or threatened breach
of any of the terms and/or conditions set forth in section 3 of this agreement
will result in substantial, continuing and irreparable injury to the Company.
Therefore, you hereby agree that, in addition to any other remedy that may be
available to the Company, the Company shall be entitled to injunctive or other
equitable relief by a court of appropriate jurisdiction in the event of any
breach of threatened breach of the terms of section 3 of this agreement.
4. TERMINATION. The Company shall not terminate this agreement except for cause.
For purposes of this agreement, "cause" means a material breach of this
agreement by Jasper D. Rine, Ph.D. ("Rine") or C. Dale Poulter, Ph.D.
("Poulter"). However, the Company shall not terminate this agreement as to Rine
for a breach by Poulter nor shall it terminate this agreement as to Poulter for
a breach by Rine. Similarly, Rine shall in no way be liable or responsible for a
breach of this agreement by Poulter and Poulter shall in no way be liable or
responsible for a breach of this agreement by Rine. Rine's and Poulter's
obligations to the Company under this agreement are severable.
5. CONFLICT WITH OTHER AGREEMENTS. The Company acknowledges that Poulter and
Rine have pre-existing contractual obligations to their respective universities
regarding information pertaining to the Field of Interest and further recognizes
that state and federal law, as well as regulations and policies of Poulter's and
Rine's respective universities, may restrict their availability for providing
the Services and their ability to disclose or transfer developments relating to
the Field of Interest to the Company. All of Rine's and Poulter's obligations
under this Agreement are expressly limited by their obligations to their
respective universities and under state and federal law, whether those
obligations were pre-existing or arise hereafter. Upon request by the Company,
Poulter and Rine shall deliver their respective university's manuals, policies
or procedures relating to faculty consulting services for third parties.
6. MISCELLANEOUS. The Company hereby acknowledges that the Services are offered
by Poulter and Rine as independent contractors and not as agents of the
University of Utah or the University of California, as the case may be, and in
this regard neither the University of Utah nor
<PAGE>
Jasper D. Rifle, Ph.D.
C. Dale Poulter, Ph.D.
March 15,1995
Page 6
the University of California is responsible for any actions or omissions that
may result from the provision of Services by Poulter or Rine.
This agreement shall be governed by and construed and enforced in accordance
with the laws of the State of Utah. This agreement embodies the entire agreement
and understanding between the parties hereto and supersedes all prior oral or
written agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not set
forth in this agreement shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this agreement. The Company may
assign its rights and obligations hereunder to any person or entity who succeeds
to all or substantially all of the Company's business or that aspect of the
Company's business in which you are principally involved. The rights and
obligations of Rine and Poulter under this agreement may not be assigned without
the prior written consent of the Company. This agreement shall not be modified
or amended except by ~n instrument in writing signed by or on behalf of the
parties hereto.
If the foregoing accurately sets forth your understanding of our agreement,
please so indicate by signing both copies of this letter and returning one copy
to the undersigned at the Company.
Very truly yours,
AURORA BIOSCIENCES, INC.
By /s/
-----------------------
Dennis B. Farrar, President
Accept and agree to as of the date hereof:
- ---------------------------------------
Jasper D. Rine
- ---------------------------------------
C. Dale Poulter
<PAGE>
Jasper D. Rifle, Ph.D.
C. Dale Poulter, Ph.D.
March 15,1995
Page 7
Accept and agree to abide by
sections 2 and 3 of the foregoing
as to confidentiality and non-
competition as of the date hereof:
FOUNDER'S FUND, L.C.
By /s/
---------------------------------
- -----------------------------------
Dennis B. Farrar
/s/
- ---------------------------------------
Peter D. Meldrum
<PAGE>
Exhibit 10.29
RESOLVER-TM- SYSTEM EARLY ACCESS PROGRAM AND LICENSE AGREEMENT
This Agreement (hereinafter "Agreement"), effective as of September
30, 1999, (hereinafter "Effective Date") is made by and between DuPont
Pharmaceuticals Company ("DuPont"), a Delaware general partnership, with offices
at Chestnut Run Plaza, 974 Centre Road, Wilmington, Delaware 19805 and Rosetta
Inpharmatics, Inc. ("Rosetta"), a Delaware corporation, with principal offices
at 12040 - 115th Avenue Northeast, Kirkland, Washington 98034.
RECITALS
1. DuPont is a worldwide business that focuses on research,
development, and delivery of pharmaceuticals to treat unmet
medical needs in the fight against AIDS, cardiovascular
disease, central nervous system disorders, cancer and
arthritis-related disorders.
2. Rosetta is developing a new gene expression analysis platform
known as the Resolver-TM- System that can be used to
interrogate and analyze complex pharmacological effects.
3. DuPont desires early access to pre-commercial release
versions of the Resolver-TM- System for internal use.
4. Rosetta desires feedback on the features and capabilities of
the Resolver-TM- System to assist it in the continued
development of this system.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual covenants expressed in
this Agreement, DuPont and Rosetta agree as follows:
ARTICLE 1-- DEFINITIONS
1.1 "AGREEMENT" means this agreement and all the attachments hereto.
1.2 "CONFIDENTIAL INFORMATION" means any Information received by one
party (the Receiving Party) from another party (the Disclosing Party) that is
treated by the Disclosing Party as confidential, provided that such information,
(i) if in written form, is marked "Confidential" or "Proprietary," or (ii) if in
other than written form and although not marked "Confidential" or "Proprietary"
and not otherwise identified by the Disclosing Party as confidential, is of such
a nature that a reasonable person would treat it as confidential or proprietary,
unless such information:
(a) was known to the Receiving Party prior to receipt from the
Disclosing Party, as shown by appropriate evidence;
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
(b) was lawfully available to the trade or to the public prior to
receipt from the Disclosing Party;
(c) becomes lawfully available to the trade or to the public after
receipt from the Disclosing Party through no act on the part of the Receiving
Party;
(d) corresponds in substance to any information received in good faith
by the Receiving Party from any third party without breach of any obligation of
confidentiality; or
(e) is communicated to any third party by the Disclosing Party without
restriction as to confidentiality or on the basis of a restriction that has
lapsed.
1.3 "DELIVERABLE" means a specific tangible thing or task identified
in the Agreement as something that must be delivered by one Party to the other,
usually by a date specified in the Agreement, and which may trigger an
obligation upon the part of, or a response by, the recipient.
1.4 "DISCLOSING PARTY" when used in reference to Confidential
Information means the Party that discloses Confidential Information to the
Receiving Party by furnishing documents or other media containing Confidential
Information, by orally disclosing Confidential Information, or by permitting
visual inspection of something considered confidential.
1.5 "EARLY ACCESS PROGRAM" OR "PROGRAM" means the arrangement between
the Parties pursuant to this Agreement whereby DuPont has access to the
Resolver-TM- System prior to its commercial release for internal use only, and
provides feedback to Rosetta regarding the Resolver-TM- System together with the
Resolver-TM- Software so that Rosetta can continue its development efforts in
respect thereof.
1.6 "FEATURE-COMPLETE RELEASE" means a version of the Resolver-TM-
Software that contains all of the features and capabilities that Rosetta will
provide at the beginning of Stage 3. For a description of these features, see
Appendix A, Stage 3. The Feature-Complete Release delivered to DuPont under this
Agreement will be a beta version, i.e., a version that is still undergoing
testing prior to commercial release.
1.7 "INFORMATION" means business and technical information learned or
received by a Party from or about the other Party prior to and during the term
of this Agreement, and includes, by way of example, the terms of this Agreement,
information relating to products or manufacturing capabilities of any Party,
customer lists, computer programs or other software, user documentation for
software, business methods and plans for future developments, know-how, trade
secrets, inventions, other intellectual property, innovations, improvements,
discoveries, formulae, techniques, processes, approaches, concepts, data,
reports, opinions, blueprints, diagrams, schematics, charts, machines,
specifications, drawings, plans, articles of manufacture, samples, parts lists,
log books, and research reports, as well as requests for quotes, proposals, and
purchase orders.
1.8 "INITIAL FEATURE RELEASE" means a version of the Resolver-TM-
Software that does
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<PAGE>
not contain all of the features and capabilities of the Feature-Complete
Release. For a description of features that Rosetta will provide with the
Initial Feature Release, see Appendix A, Stage 1.
1.9 "INTELLECTUAL PROPERTY RIGHTS" shall mean any patents, patent
applications, trademarks, copyrights, know-how, moral rights, and similar rights
of any type under the laws of any governmental authority, domestic or foreign,
including all applications and registrations relating to any of the foregoing.
1.10 "PARTY" AND "PARTIES" refer to and mean DuPont or Rosetta, as the
context requires.
1.11 "RECEIVING PARTY" when used in reference to Confidential
Information means the Party that receives Confidential Information from the
Disclosing Party in documents or other media containing Confidential
Information, or orally during a presentation or discussion disclosing
Confidential Information, or through visual inspection of something considered
confidential.
1.12 "RESOLVER-TM- SOFTWARE" OR "SOFTWARE" means the gene expression
analysis software and database, including its schema, licensed hereunder that is
being developed by Rosetta as part of the Resolver-TM- System and any derivative
works, or any changes, modifications, corrections, improvements, or extensions
to the Software. The Resolver-TM- Software consists of Reso1ver-TM- Server
Software" and one or more copies of Resolver-TM- Client Software.
1.13 "RESOLVER-TM- CLIENT SOFTWARE" means one or more copies of a
Resolver-TM- Software client application that resides on desktop computers
operated by a user at DuPont.
1.14 "RESOLVER-TM- SERVER SOFTWARE" means that part of the
Resolver-TM- Software that resides on the Server.
1.15 "RESOLVER-TM- SYSTEM" as used herein means a system consisting of
the hardware and software components described in Section 4.1.
1.16 "SECOND FEATURE RELEASE" means a version of the Resolver-TM-
Software that has features in addition to the features available in the Initial
Feature Release, but fewer features than the Feature-Complete Release. For a
description of features that Rosetta will provide with the Second Feature
Release, see Appendix A, Stage 2.
1.17 "SERVER" shall have the meaning ascribed thereto in Section
4.1.1.
1.18 "TERM" shall have the meaning ascribed thereto in Section 7.1.
ARTICLE 2 -- OVERVIEW OF EARLY ACCESS PROGRAM
2.1 OVERVIEW OF THE PROGRAM. Rosetta hereby undertakes to provide
DuPont with early access to the Resolver-TM- System and DuPont hereby agrees to
cooperate with Rosetta on development and improvement of the Resolver-TM-
System. The Program will consist of three (3)
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<PAGE>
phases or stages that correspond to delivery of different versions of
Resolver-TM- Software to DuPont. For Stages 1 and 2 of the Program, Rosetta
will provide DuPont with access to the Initial Feature Release and Second
Feature Release, respectively, of the Resolver-TM- Software that will reside
on a Server owned by DuPont and located at Rosetta's premises. DuPont will
access the Resolver-TM- System over a secure connection such as a virtual
private network or a private virtual circuit. Rosetta will deliver, when
available, a beta version of the Feature-Complete Release for Stage 3, which
will likewise initially reside on the Server located at Rosetta's premises and
then be transferred to DuPont's premises. The parties expect that DuPont's
early use of the Resolver-TM- System, together with DuPont's feedback regarding
the performance thereof, will assist Rosetta in the development program for the
Resolver-TM- System and the Resolver-TM- Software, as well as benefit DuPont by
providing early access to a gene expression data analysis solution at a price
less than the anticipated price that will be charged to customers when the
Feature-Complete Release version of the Resolver-TM- System is available. This
Agreement sets out the duties and obligations of each Party for the Early
Access Program.
2.2 UNFINISHED SOFTWARE. DuPont and Rosetta acknowledge and agree that
the Initial Feature Release, Second Feature Release, and Feature-Complete
Release versions of the Resolver Software will likely contain bugs, defects, and
errors, and that the Software is not expected by either DuPont or Rosetta to
function error-free upon installation. DuPont and Rosetta further acknowledge
and agree that the Resolver-TM- Software is being provided to DuPont on an early
access basis to provide Rosetta with feedback to evaluate and improve its
Resolver-TM- System.
2.3 EXPECTATIONS OF THE PARTIES. Each of the Parties shall use its
commercial best efforts to perform the tasks that are assigned to it as set
forth in this Agreement.
ARTICLE 3 -- LICENSE SCOPE AND MANAGEMENT
OF THE EARLY ACCESS PROGRAM
3.1 LIMITED SOFTWARE LICENSE.
3.1.1 GRANT OF LICENSE. Subject to full and timely payment of all
amounts due Rosetta under Article 6 and subject to the other terms and
conditions of this Agreement, Rosetta hereby grants DuPont a nonexclusive,
nontransferable, revocable license to use the Software (in object code form
only, and without any right to sublicense or make derivative works or any
changes, modifications, corrections, improvements, or extensions of the
Software) for internal use only in the United States pursuant to the virtual
private network established hereunder to connect DuPont to the Resolver-TM-
System located at Rosetta's premises during Stages 1 and 2, and thereafter
during the Term of this Agreement at DuPont's site [***]. The License includes
only rights under presently existing patents and copyrights and only to the
extent necessary to use the Resolver-TM- Software as delivered and only when
using the Resolver-TM- System as provided by Rosetta. Upon expiration or
termination of this Agreement all rights and licenses granted to DuPont
pursuant to this Agreement with respect to the Resolver-TM- Software shall
revert to Rosetta and DuPont shall retain no rights therein.
3.1.2 RESTRICTIONS. DuPont agrees that it and its employees,
consultants, and
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
representatives will not directly or indirectly (i) subject to Section 12.5,
sell, lease, assign, sublicense, or otherwise transfer, (ii) duplicate,
reproduce, or copy, (iii) disclose, divulge, or otherwise make available to any
third party, (iv) use except as authorized by this Agreement, or (v) decompile,
disassemble, reverse engineer, or otherwise analyze for reverse engineering
purposes, the Software or any portion thereof, including all trade secrets and
Confidential Information therein. DuPont is granted no title or ownership rights
to the Software, and all such rights shall remain with Rosetta. DuPont shall use
its best efforts to prevent inadvertent disclosure of the Software or any
portion thereof, including all trade secrets and Confidential Information
therein. DuPont shall not permit any third party, nor any employee, consultant,
representative, or agent thereof, that develops, markets, or licenses computer
programs with functionality similar to the functionality of the Software to have
access to the Software or to any trade secrets or Confidential Information
therein. The Resolver-TM- Client Software may be installed on up to [***]
DuPont desktop computers concurrently.
3.1.3 TERM OF LICENSE. The license to the Software granted by this
Agreement shall expire concurrently with the expiration or termination of this
Agreement as set forth in Article 7.
3.1.4 DELETION OF SOFTWARE; RETURN OF DOCUMENTATION AND MATERIALS. As
soon as practicable following any termination or expiration of this Agreement
(and in no event more than [***] thereafter), DuPont shall (i) permit Rosetta
to permanently delete (a) the Resolver-TM- Software from the Server located at
Rosetta's premises or such other location at which a Server on which the
Software is loaded is then situated and (b) the Resolver-TM- Client Software
installed on desktop computers at DuPont's premises, (ii) return to Rosetta
all written Information provided by, or on behalf of, Rosetta to DuPont
including, but not limited to, Software documentation, and (iii) permanently
delete or permit Rosetta to permanently delete any other copies of the
Software from all computer systems under DuPont's control. Upon request by
Rosetta, DuPont will certify in writing to DuPont's compliance with this
Section 3.1.4.
3.2 DESIGNATION OF PROGRAM CONTACT. Each Party shall designate an
appropriate person, and if necessary a replacement, to serve as its contact for
the Program ("Program Contact"). Rosetta's Program Contact initially will be
Doug Bassett, Ph.D., and DuPont's Program Contact [***].
3.3 RESPONSIBILITIES OF PROGRAM CONTACT. The Program Contacts shall
represent their respective Parties on all business issues pertaining to the
subject matter of this Agreement. The Program Contact shall be the person whom
the other Party contacts initially on all business issues. The Program Contacts
shall be responsible for developing and maintaining communications between the
Parties, determining the status of all activities required or contemplated by
this Agreement, monitoring the other Party's compliance with the provisions of
this Agreement, and generally promoting a healthy relationship between the
Parties. The Program Contacts shall confer as needed to ensure that technical
questions and administrative issues are satisfactorily addressed and resolved.
3.4 TESTING AND FEEDBACK ON RESOLVER-TM- SYSTEM. On a periodic basis
during Stages 1, 2, and 3 of this Agreement as may be agreed from time to time
between the Program
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-5-
<PAGE>
Contacts, b t in no case less than every [***], the Program Contacts or
their designees shall meet or confer to discuss the experience and feedback of
DuPont users regarding the Resolver-TM- System. One week prior to each feedback
session, DuPont's Program Contact will provide Rosetta's Program Contact with a
written summary of the feedback that will be discussed at the meeting.
3.5 ACCESS TO RESOLVER-TM- SYSTEM. DuPont shall allow Rosetta to have
access to the Resolver-TM- System for the purpose of using, testing, modifying,
and correcting the Software, PROVIDED, HOWEVER, that such access shall not
materially disrupt DuPont's use of the Resolver-TM- System.
3.6 RIGHT OF ROSETTA TO DUPONT'S FEEDBACK. DuPont agrees that Rosetta
shall have, subject to Article 8, the unlimited right to use without
compensation to DuPont, in any manner and for any purpose, any and all
information about the Resolver-TM- System gained by DuPont as a result of
DuPont's use and evaluation of the Resolver-TM- System. Such information shall
include, but not be limited to, any derivative works, changes, compilations,
modifications, corrections, improvements, and extensions to the Resolver-TM-
System suggested or identified by DuPont. Rosetta shall have the right to use,
at its sole discretion, all such information including, but not limited to, use
by incorporation of such information into computer programs and documentation
for assignment, license, or other transfer to third parties, without any duty
to account to DuPont, and DuPont hereby agrees that it will not assert any
claims against Rosetta or its assignees or sublicenses with respect to
Rosetta's or its assignees' or sublicenses' practice, use, licensing,
manufacturing, marketing, sale or distribution of the Resolver-TM- System or
Software or any product similar to either thereof that incorporates or utilizes
any of such information.
3.7 NO OBLIGATION TO SUPPORT SOFTWARE. Except as expressly set forth
in Article 5, Rosetta shall have no obligation to correct any bugs, defects, or
errors in the Resolver-TM- System or to otherwise support or maintain the
Software.
3.8 OWNERSHIP OF RESOLVER-TM- SOFTWARE. DuPont agrees that Rosetta
owns all rights, title, and interest including, but not limited to, Intellectual
Property Rights, in the Resolver-TM- Software and any derivative works, changes,
compilations, modifications, corrections, improvements, or extensions to the
Software and Rosetta has the right to file for or otherwise secure and protect
such rights. If DuPont is ever held or deemed to be the owner of any
Intellectual Property Rights or other rights in the Software or any derivative
works, changes, compilations, modifications, corrections, improvements, or
extensions of the Software, then DuPont hereby irrevocably assigns to Rosetta
all such rights, title, and interest and agrees to execute and deliver all
documents and take such other actions as shall be necessary or advisable to
create and secure all such rights, title, and interest in Rosetta at Rosetta's
sole expense.
3.9 ROSETTA GENE EXPRESSION DATA PROVIDED WITH RESOLVER-TM- SYSTEM.
Rosetta provides gene expression data with the Reso1ver-TM- System for use in
tutorial sessions. DuPont acknowledges and agrees that Rosetta's gene expression
data are being provided free of charge and without compensation. DuPont agrees
that Rosetta owns all rights, title, and interest including, but not limited to,
Intellectual Property Rights in the gene expression data. DuPont acknowledges
and agrees that such gene expression data are to be used only for internal
tutorial
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
purposes. DuPont agrees that it and its employees, consultants, and
representatives will not, directly or indirectly, (i) subject to Section 12.5,
lend, sell, lease, assign, or otherwise transfer, (ii) duplicate, reproduce, or
copy , (iii) show, disclose, divulge, discuss, or otherwise make available to
any third party, (iv) export or import to another database or software tool, (v)
use except as authorized by this Agreement, or (vi) analyze for research
purposes, Rosetta's gene expression data or any portion thereof, including all
trade secrets and Confidential Information therein. DuPont is granted no title
or ownership rights to the gene expression data, and all such rights shall
remain with Rosetta. Any inventions, discoveries, or Intellectual Property
Rights arising or related to use of these gene expression data shall belong to
Rosetta. If DuPont is ever held or deemed to be the owner of any Intellectual
Property Rights or other rights in any inventions or discoveries based upon
Rosetta's gene expression data, then DuPont hereby irrevocably assigns to
Rosetta all such rights, title, and interest and agrees to execute and deliver
all documents and take such other actions as shall be necessary to carry out and
effectuate the intent of this Agreement. Rosetta hereby grants DuPont a first
right to negotiate an exclusive license for such Intellectual Property Rights
upon terms and conditions to be negotiated between the Parties.
3.10 DESUPPORT NOTIFICATION. Rosetta will notify DuPont's Program
Contact at least [***] before support for an old version of the Software is
to be terminated.
3.11 [***]
3.12 DUPONT'S EXPERIMENTAL DATA. In its use of the Resolver-TM-
System, DuPont will be loading experimental data into the Resolver-TM- Software
("DuPont Data"). Rosetta acknowledges and agrees that DuPont Data is
Confidential Information as defined in Section 1.2. Rosetta agrees that DuPont
owns all rights, title, and interest including, but not limited to, Intellectual
Property Rights in the DuPont Data. Rosetta agrees that it and its employees,
consultants, and representatives will not, directly or indirectly, (i) lend,
sell, lease, assign, or otherwise transfer, (ii) duplicate, reproduce, or copy,
(iii) show, disclose, divulge, discuss, or otherwise make available to any third
party, (iv) export or import to another database or software tool, or (v)
analyze for research purposes DuPont Data or any portion thereof, including all
trade secrets and Confidential Information therein. Rosetta is granted no title
or ownership rights to the DuPont Data, and all such rights shall remain with
DuPont.
3.13 NOTICES. Formal notices required or permitted hereunder shall be
given in writing. Written notices may be delivered personally, sent by first
class mail to the address indicated below, or transmitted electronically by
facsimile transmission ("faxed") to the fax telephone number indicated herein.
All notices or other communications required or permitted hereunder shall be
deemed to have been given (i) if sent by facsimile with confirmed transmission
(accompanied by same day deposit of the original in the U.S. Mail, first-class
postage prepaid, and properly addressed), on the next business day following
facsimile transmission, (ii) if by personal delivery to the proper address, on
the date of such delivery, (iii) if by overnight courier service to the proper
address, on the second business, day following deposit if delivered within the
same country, or on the third business day following deposit if
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
delivered to another country or (iv) if mailed, postage prepaid first class
certified or registered mail, return receipt requested, on the fourth business
day after mailing if mailed within the same country as that of the addressee and
on the seventh business day after mailing if mailed to addressee in another
country, to the address designated below or to such other address as a Party may
designate to the other in writing:
[***] Rosetta Inpharmatics, Inc.
12040 - 115th Avenue NE
Kirkland, WA 98304
Attn: Chief Operating Officer
Fax: (425) 820-5757
with a copy to: with a copy to:
DuPont Pharmaceutical Company Rosetta Inpharmatics, Inc.
974 Centre Road 12040- 115th Avenue NE
Wilmington, Delaware 19805 Kirkland, WA 98034
Attn: Legal Division Attn: Legal Dept.
ARTICLE 4 -- DESCRIPTION OF RESOLVER-TM- SYSTEM AND CONNECTION
4.1 RESOLVER-TM- SYSTEM. The Resolver-TM- System consists of the
hardware and software components described in this Section 4.1.
4.1.1 SERVER.
4.1.1.1 HARDWARE. The hardware upon which the Resolver-TM- Server
Software will be initially loaded is a Sun EnterpriseTM "35xx" server that will
include two (2) central processing units "(CPU"), four (4) gigabytes of random
access memory, one A5200 drive array that has two hundred (200) gigabytes of
capacity, and an Ll000 tape backup device that has one (1) terabyte of capacity.
Configuration of the Server and any modifications to the Server during Stages 1
and 2 must be conducted or authorized by Rosetta for the Resolver-TM- System to
qualify for the maintenance and support set forth in Article 5. Any
modifications to the Server hardware or Server software during Stages 1, 2, or 3
of this Agreement that are not approved in writing by Rosetta will cancel
Rosetta's obligations for providing maintenance and support as set forth in
Article 5.
4.1.1.2 OWNERSHIP OF HARDWARE. Rosetta agrees to sell and DuPont agrees
to purchase the [***]. Rosetta and DuPont hereby confirm their intent that the
Server shall be deemed property of DuPont even though it may become attached
or affixed to realty on the premises of Rosetta, and title thereto shall
remain in DuPont or its assigns exclusively. DuPont may require plates or
markings to be affixed to the Server indicating DuPont's interest. While the
Server is on Rosetta's property and in its possession, Rosetta shall be
responsible therefor, and shall protect DuPont against any loss of, or damage
to such property through insurance coverage with limits and terms and
conditions satisfactory to DuPont. [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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4.1.1.3 SERVER SOFTWARE. [***]
4.1.2 RESOLVER-TM- SOFTWARE. The Server will be loaded with the
applicable version of Rosetta's Resolver-TM- Server Software and software for
installation of the Resolver -TM- Client Software on compliant DuPont desktop
computers.
4.2 LOCATION OF RESOLVER-TM- SYSTEM. During Stages 1 and 2 as
described in Article 5, the Resolver-TM- System will be on the premises of
Rosetta to assist in the maintenance of the system. During Stage 3, the parties
expect that the Resolver-TM- System will be relocated to a location specified
by DuPont. Rosetta and DuPont may mutually agree to move the Server to DuPont's
premises prior to Stage 3.
4.3 SERVER HARDWARE UPGRADES. Rosetta recognizes that after the
initiation of Stage 1 of the Program, DuPont may want to upgrade the Server by,
for example, installing additional CPUs or additional memory to increase the
performance of the Resolver-TM- System. DuPont shall notify Rosetta of the
desire to perform such upgrades for a determination by Rosetta of whether any
modifications or corrections must be made to the Resolver-TM- Software. DuPont
shall be free to purchase hardware upgrade components from whatever source it
desires. If DuPont desires to perform a Server upgrade during Stages 1 and 2
and desires to have Rosetta perform the upgrade, this will be classified as
"service" as set forth in Section 5.6. Shipping and installation of Server
components will be paid by DuPont.
4.4 CONNECTION TO THE RESOLVER-TM- SYSTEM. For Stages 1 and 2, and
during Stage 3 for so long as the Server shall remain located on Rosetta's
premises, DuPont will be connected to the Resolver-TM- System using a secure
connection such as a virtual private network ("VPN") with the specifications
set forth in Appendix B or equivalent thereof.
4.5 MATERIALS AND EQUIPMENT. Whenever materials, equipment, or third
party commercial software applications are specified or described in this
Agreement by using the name of a proprietary item or the name of a particular
supplier, the naming of the item is intended to establish the type, function and
quality required, and substitute materials or equipment may nonetheless be used;
provided that such materials or equipment are materially equivalent or equal to
that named. If Rosetta wishes to furnish or use a substitute item of material
or equipment, Rosetta must first certify that the proposed substitute will
perform at least as well the functions described in this Agreement and will be
of materially equal substance to that specified and be suited for the same use
as that specified. DuPont may require Rosetta to furnish, at Rosetta's expense,
reasonable amounts of additional data about the proposed substitute as required
to evaluate the substitution. DuPont will be allowed a reasonable time, not to
exceed [***], within which to evaluate each proposed substitute.
ARTICLE 5- DELIVERABLES AND RESPONSIBILITIES
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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5.1 STAGE 1. Stage 1 shall begin with delivery of the Resolver-TM-
System with an Initial Feature Release of Resolver-TM- Software and shall end
upon the beginning of Stage 2. Rosetta anticipates delivery of the Resolver-TM-
System with an Initial Feature Release of the Resolver-TM- Software within
[***] of the Effective Date.
5.1.1 STAGE 1 DELIVERABLES BY ROSETTA. For Stage 1, Rosetta will
provide the following:
5.1.1.1 Delivery of the Resolver-TM- System described in Article 4
with an Initial Feature Release of the Resolver-TM- Software;
5.1.1.2 User documentation for the Resolver-TM- System;
5.1.1.3 [***] of training at Rosetta regarding use of the Initial
Feature Release for the Resolver-TM- Software for up to [***] individuals
from DuPont with transportation and lodging paid for by DuPont;
5.1.1.4 Unlimited telephone and e-mail technical support for the
Resolver-TM- System between the hours of 9:00 a.m. and 5:00 p.m. Pacific Time
during Stage 1;
5.1.1.5 Maintenance of the Resolver-TM- Server while it is located on
Rosetta's premises during Stage 1; and
5.1.1.6 Installation at DuPont's location by Rosetta with the
cooperation of DuPont's staff of the VPN hardware and software necessary to
satisfy the minimum specifications set forth in Appendix B.
5.1.2 STAGE 1 RESPONSIBILITIES OF DUPONT. For Stage 1, DuPont will
provide the following:
5.1.2.1 Desktop computers located at a site to be determined by DuPont
for use with the Resolver-TM- System having the minimum specifications set forth
in Appendix C;
5.1.2.2 Installation of Resolver-TM- Client Software onto the desktop
computers identified in Section 5.1.2.1;
5.1.2.3 An internal computer network with l00BaseT network bandwidth
to each user's desktop CPU; and
5.1.2.4 Feedback to Rosetta on the Resolver-TM- System pursuant to
Article 3.
5.2 STAGE 2. Stage 2 shall begin with installation of the Second
Feature Release onto the Server by Rosetta and shall end upon the beginning of
Stage 3. Rosetta anticipates delivery of the Second Feature Release within three
(3) months after the Effective Date. Rosetta will discontinue support for the
Initial Feature Release delivered in Stage 1 upon the initiation of
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Stage 2.
5.2.1 STAGE 2 DELIVERABLES BY ROSETTA. For Stage 2, Rosetta will
provide the following:
5.2.1.1 The Second Feature Release with the additional analytical
features set forth in Appendix A;
5.2.1.2 Additional user documentation for the Resolver-TM- System;
5.2.1.3 [***] of training at Rosetta regarding use of the Second
Feature Release for the Resolver-TM- Software for up to [***] individuals from
DuPont with transportation and lodging paid for by DuPont;
5.2.1.4 Unlimited telephone and e-mail technical support for the
Resolver-TM- System between the hours of 9:00 a.m. and 5:00 p.m. Pacific Time
during Stage 2; and
5.2.1.5 Maintenance of the Resolver-TM- Server while it is located on
Rosetta's premises during Stage 2.
5.2.2 Stage 2 Responsibilities of DuPont. For Stage 2, DuPont will
provide the following:
5.2.2.1 Installation of an upgrade for the Resolver-TM- Client
Software for the Second Feature Release onto the desktop computers identified
in Section 5.1.2.1; and
5.2.2.2 Feedback to Rosetta on the Resolver-TM- System pursuant to
Article 3.
5.3 STAGE 3. Stage 3 shall begin with installation of the
Feature-Complete Release of Resolver-TM- Software onto the Server. Rosetta
anticipates availability of a beta version of the Feature-Complete Release of
the R Resolver-TM- Software by January 2000. The Server with the Feature-
Complete Release software will then be delivered and installed at a site
specified by DuPont. Stage 3 will end one (1) year after initiation of
Stage 1. Rosetta will discontinue support for the Second Feature Release
delivered in Stage 2 upon the initiation of Stage 3.
5.3.1 STAGE 3 DELIVERABLES BY ROSETTA. For Stage 3, Rosetta will
provide the following:
5.3.1.1 Delivery and installation to a site specified by DuPont of the
Resolver-TM- System described in Article 4 and previously located at Rosetta's
premises with a beta version of the Feature-Complete Release;
5.3.1.2 Additional user documentation for the Resolver-TM- System;
5.3.1.3 [***] day of on-site training at DuPont regarding use of the
features provided by the Feature-Complete Release for up to [***] individuals
from DuPont
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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with the transportation and lodging for the Rosetta trainer paid for by Rosetta;
5.3.1.4 Unlimited telephone and e-mail technical support for the
Resolver-TM- System between the hours of 9:00 a.m. and 5:00 p.m. Pacific Time
for [***] from initiation of Stage 3; and
5.3.1.5 Upgrade protection for [***] from initiation of Stage
3. Upgrade protection shall mean that any new versions, service packs, or
patches of the Resolver-TM- Software will be made available to DuPont without
charge when available. Installation of a new version, service pack, or patch by
Rosetta under this upgrade protection provision shall be performed by DuPont or,
if DuPont wishes Rosetta to perform this service, it will be charged against the
service credit described in Section 5.6.
5.3.2 STAGE 3 RESPONSIBILITIES OF DUPONT. For Stage 3, DuPont will
provide the following:
5.3.2.1 Installation of an upgrade for the Resolver-TM- Client
Software for the Feature-Complete Release onto the desktop computers identified
in Section 5.1.2.1;
5.3.2.2 Feedback to Rosetta on the Resolver-TM- System pursuant to
Article 3;
5.3.2.3 An appropriate physical location for the Server at DuPont; and
5.3.2.4 Network access by Rosetta to the Server located on DuPont's
premises to permit remote access support by Rosetta of the Resolver-TM- System
and Server Software if requested by DuPont.
5.4 TECHNICAL SUPPORT. Technical support as used in this Agreement
means bug fixes, trouble shooting, and minor clarifications on use of the
Resolver-TM- System, and does not include any modifications to the Resolver-TM-
Software. Technical support does not include training or customization of the
Resolver-TM- Software.
5.5 MAINTENANCE. Maintenance as used in Article 5 includes any work
done by Rosetta to keep the Server running properly while the Server is on
Rosetta premises including, if required, (1) Server database backups and
restores, (2) installation of Resolver-TM- Software updates and upgrades on the
Server, (3) labor associated with Server hardware repair, and (4) initial Server
hardware configuration. Maintenance as used in Article 5 does not include
installation of Resolver-TM- Client Software on DuPont's desktop computers,
installation of Server software after delivery of the Server to premises,
DuPont's or customization of the Resolver-TM- System for DuPont's needs.
5.6 SERVICE. Time spent by Rosetta under this Agreement that does not
qualify as technical support or maintenance such as customization of the
Resolver-TM- System for DuPont's needs shall be considered service. At the
beginning of Stage 1, DuPont shall have a credit of [***] of service. This
credit of [***] is available to DuPont during Stages 1, 2, and 3 of this
Agreement and such credit shall expire at the end of Stage 3. Any time spent
by
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Rosetta that exceeds the [***] of credited service shall be invoiced to DuPont
at [***]. In the event that a Rosetta employee or agent must make a service
call to DuPont's premises, reasonable expenses for travel and lodging of such
employee or agent will be paid by DuPont. Travel time, per se, shall not be
counted toward the credit.
ARTICLE 6 -- COMPENSATION
6.1 DuPont shall pay directly to Rosetta [***] ("Agreed Price") plus
any applicable fees or taxes for the rights and licenses provided herein and
for the other goods and services provided hereunder. The Agreed Price shall be
guaranteed and it shall be non-refundable except as provided in Section 9.3.
[***] of the Agreed Price shall be paid within [***] of receipt of an invoice
by DuPont following the Effective Date, [***] of the Agreed Price shall be
paid within [***] days of receipt of an invoice by DuPont for Stage 1
deliverables described in Sections 5.1.1.1, 5.1.1.2, 5.1.1.3, and 5.1.1.6,
and the balance of the Agreed Price shall be paid within [***] days of
receipt of an invoice by DuPont of Stage 3 deliverables described in Sections
5.3.1.1 and 5.3.1.2.
6.2 The amount set forth in Section 6.1 is comprised of the
following:
[***]
6.3 In the event DuPont shall from time to time elect to extend the
term of Rosetta's obligations pursuant to Section 7.1.2, DuPont shall, upon each
such election, pay an amount not to exceed [***] of the then existing list
price of the Resolver-TM- Software license.
ARTICLE 7 - TERM AND TERMINATION OF THE PROGRAM
7.1 TERM.
7.1.1 The term ("Term") of this Agreement shall begin on the Effective
Date and shall terminate upon the earlier of [***] after the initiation of
Stage 3, (2) the date to which this Agreement is extended in accordance with
Section 7.1.2, or (3) the date this Agreement is terminated pursuant to
Section 7.2. Provisions of this Agreement which, by their nature, should
survive termination such as, but not limited to Sections 3.1.2, 3.1.4, 3.6,
3.8, 3.9, or the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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obligations of Articles 8 shall survive termination of this Agreement.
7.1.2. DuPont will have the right and option, exercisable in writing
at any time during the [***] period immediately preceding the then current
date on which this Agreement is to expire, to notify Rosetta that DuPont
elects to extend the term of Rosetta's obligations to provide Software
upgrades, and maintenance and support services related to the Resolver-TM-
System for [***]. In the event of any such election by DuPont, DuPont shall
thereupon promptly pay to Rosetta the amount set forth in Section 6.3 hereof.
The Parties acknowledge and agree that they will negotiate in good faith an
amendment and restatement to this Agreement upon the first exercise by DuPont
of its election to extend Rosetta's obligations hereunder, taking into account
completion of Stages 1, 2, and 3, and incorporating such terms and conditions
that are ordinary and customary for maintenance and support contracts for
software similar in scope and complexity to the Resolver-TM- Software.
7.2 NOTICE OF DEFAULT, CURE PERIOD, AND TERMINATION. If a Party
defaults in the performance of its obligations under this Agreement, the other
Party may send a written notice to the defaulting Party describing such default
or defaults. The defaulting Party shall cure the default or defaults described
in the notice within [***] after the giving of such notice, unless it is not
technically feasible to cure the default within such [***], in which case the
defaulting Party (i) shall prepare and submit to the non-defaulting Party
within such [***] period a mutually agreeable plan to cure the default and
(ii) shall proceed to cure the default under such plan, PROVIDED, HOWEVER, in
the event the default is in respect of DuPont's obligations under Section 6.1
hereof, such default shall be cured within [***]after the giving of such
notice. If the Parties do not agree upon a plan to cure the default, or if the
Party in default fails to cure its default or defaults within the time period
or periods specified in the preceding sentence, the other Party may terminate
the Program by delivering a notice of termination to the defaulting Party.
ARTICLE 8 -- CONFIDENTIALITY
8.1 EXCHANGE AND CREATION OF CONFIDENTIAL INFORMATION. The Parties
anticipate the need to disclose, exchange, and create Confidential Information
during the Program. The Parties also recognize that an employee, consultant or
representative of a Party in visiting the premises of another Party may be given
access to areas of the premises of such other Party where such employee,
consultant or representative may observe or overhear Confidential Information
that has not been marked or stated to be confidential. As used in this Article
8, the Party that discloses Confidential Information to the other Party as
described in Section 1.4 shall be called the Disclosing Party with respect to
such information, and the Party that receives Confidential Information from the
Disclosing Party as described in Section 1.11 shall be called the Receiving
Party with respect to such information. If an employee, consultant, or
representative of one Party creates or develops information jointly or in
conjunction with an employee, consultant, or representative of another Party,
and if either Party notifies the other Party that it has designated such
information as Confidential Information or a reasonable person would treat such
information as confidential or proprietary, the information will be considered
and treated as Confidential Information hereunder; each Party then shall have
the rights of a Disclosing Party and the responsibilities of a Receiving Party.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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8.2 MARKING, DESIGNATION, AND TRANSMITTAL OF CONFIDENTIAL INFORMATION.
Each Party that wishes to protect its Confidential Information shall take
precaution (a) to mark any document containing Confidential Information with an
appropriate legend, such as "Confidential" or "Proprietary" or other similar
marking, before giving it to another Party, (b) to advise the other Party at the
time of an oral or visual disclosure of Confidential Information that such
information is confidential, (c) to prepare a written summary of all such
Confidential Information that is disclosed orally or visually and (d) to send
such summary to the other Party within thirty (30) days of the oral or visual
disclosure confirming that such information previously disclosed orally or
visually is to be considered confidential. When transmitting Confidential
Information via encrypted email, the Disclosing Party shall send a copy of the
encrypted email message to the Program Contact for the Receiving Party and a
copy of the encrypted email message to its own Program Contact. The Program
Contact for each Party shall maintain copies of all encrypted email messages
containing Confidential Information that are sent and that are received by such
Party for a period of [***] from the date of receipt. This provision shall not
be read to limit the definition of Confidential Information set forth in
Section 1.2.
8.3 ACKNOWLEDGEMENT OF TRADE SECRETS. DuPont acknowledges that the
Software contains valuable trade secrets and confidential information owned by
Rosetta including, but not limited to, the development status of the Software,
the functionality of the Software, the appearance, content and flow of the
Software's user interface, the content of the Software's documentation and other
information, and data related and ancillary to the Software. All of such trade
secrets and information are considered Confidential Information as that term is
used in this Agreement.
8.4 PROTECTION OF CONFIDENTIAL INFORMATION. Each Receiving Party shall
use at least the same degree of care in protecting the Disclosing Party's
Confidential Information as it uses to protect its own Confidential Information.
Each Party represents that it maintains a reasonable system to protect its own
Confidential Information and the Confidential Information that it receives from
others. Each Party further represents and warrants to the other Party that its
employees, consultants, and representatives who will perform any work under this
Agreement and who will have access to Confidential Information will be subject
to a valid, binding and enforceable agreement to maintain the confidentiality of
Confidential Information and to fulfill the obligations with respect to
Confidential Information set out in this Article. Each Party shall take
reasonable precaution to prevent employees, consultants, or representatives of
another Party or third parties from (a) receiving any document containing
Confidential Information that has not been marked with an appropriate legend and
(b) observing or overhearing Confidential Information that has not been marked
or stated to be confidential.
8.5 RESTRICTIONS ON DISCLOSURE OF CONFIDENTIAL INFORMATION. The
Receiving Party shall not disclose any Confidential Information that it received
from the Disclosing Party, without prior written permission of the Disclosing
Party, to any person other than to its employees, and consultants, and
representatives who have a need to know such information to carry out their
duties or activities in connection with the Program or as otherwise authorized
by this Agreement; provided, however, that any consultant of the Receiving Party
to whom
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Confidential Information is disclosed, must be obligated by written agreement to
give the same protection to the Confidential Information as is provided herein,
or have a similar obligation to the Receiving Party to maintain confidential
information in confidence. If a Receiving Party is required by judicial or
administrative process to disclose Confidential Information of the Disclosing
Party, such Receiving Party shall notify such Disclosing Party in writing and
allow the Disclosing Party reasonable opportunity to oppose such process or
limit the disclosure of Confidential Information.
8.6 EXCLUSIONS. A Receiving Party may disclose information even though
it may be considered Confidential Information of a Disclosing Party in
connection with a judicial proceeding requiring such disclosure provided that
the Disclosing Party has adequate notice of such proceeding and an opportunity
to object to or limit the disclosure, and provided that the disclosure of
Confidential Information is limited to what is required as mutually determined
by the Receiving Party and the Disclosing Party.
8.7 TREATMENT OF PREVIOUS DISCLOSURES. If the Parties have
communicated Confidential Information pertinent to the Early Access Program to
each other pursuant to Confidential Disclosure Agreements and/or Non-Disclosure
Agreements, prior to the Effective Date, all such Confidential Information
transmitted, received, or exchanged will be governed by this Agreement, which
shall supersede any such other agreements in their application to Confidential
Information relating to the Program.
8.8 SURVIVAL AND EXPIRATION. The obligations of non-disclosure and
restrictions on use contained in this Article 8 shall survive for a period of
[***] from the expiration or termination of the remaining provisions of this
Agreement.
ARTICLE 9 -- REPRESENTATIONS AND WARRANTIES
9.1 WARRANTIES BY EACH PARTY. Each Party represents and warrants to
the other Party that:
9.1.1 such Party has full corporate right, power, and authority to
enter into this Agreement and to perform the acts required of it hereunder;
9.1.2 the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder do not and
will not violate any agreement to which such Party is a party or by which it is
otherwise bound;
9.1.3 when executed and delivered by such Party, this Agreement will
constitute the legal, valid, and binding obligation of such Party, enforceable
against such Party in accordance with its terms; and
9.1.4 such Party acknowledges that the other Party makes no
representations, warranties, or agreements related to the subject matter of this
Agreement that are not expressly provided for in this Agreement.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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9.2 WARRANTY OF Y2K COMPLIANCE. Rosetta warrants that the
Resolver-TM- Software is Year 2000 Compliant. "Year 2000 Compliant" shall mean
that dates before, on, or after January 1, 2000, encountered and/or processed
by the Resolver-TM- Software will be correctly recognized, calculated, sorted,
stored, displayed, and/or otherwise processed within the Resolver-TM- Software.
This warranty shall not be subject to any disclaimer or exclusion of warranties
made in this Agreement pursuant to Section 9.3, except that this warranty shall
not be construed to apply to any of the other components of the Resolver-TM-
System including, but not limited to, the hardware and other software, such as
Server software which is not Resolver-TM- Server Software and third party
software, provided under this Agreement.
9.3 ACKNOWLEDGMENT BY DUPONT; DISCLAIMER OF OTHER WARRANTIES. DuPont
and Rosetta agree that the Software is provided "AS IS" and that Rosetta makes
no warranty as to the Software. DuPont acknowledges and agrees that (i) the
Software is not a product that has been commercially released for sale by
Rosetta, (ii) the Software is not in final form and may contain errors, design
flaws, or other problems, (iii) the Software is not expected to function
error-free upon installation, and it is expected and anticipated that further
testing, modification, and development will be necessary to make the Software
fully functional, (iv) it may not be possible to make the Software fully
functional, (v) use of the Software may result in unexpected results, loss of
data, project delays, or other unpredictable damage or loss to DuPont and (vi)
Rosetta is under no obligation to release and/or offer for sale the commercial
version of the Software, and Rosetta has the right to unilaterally abandon
development of the Software, all at any time and in each case without any
obligation or liability to DuPont, provided, however, that if Rosetta abandons
development of the Software during a [***] period beginning with the initiation
of Stage 1, Rosetta shall refund to DuPont the full amount paid to date by
DuPont excluding the amounts paid and owed under Sections 6.2.2, 6.2.3, 6.2.4,
and 6.2.5. ROSETTA DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, OTHER THAN
THOSE EXPRESSLY SET FORTH IN SECTIONS 9.1 AND 9.2 HEREOF INCLUDING, BUT NOT
LIMITED TO, ANY WARRANTY OF NON-INFRINGEMENT, PATENTABILITY, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE RESOLVER-TM- SYSTEM
AND RESOLVER-TM- SOFTWARE INCLUDING, BUT NOT LIMITED TO, ALL HARDWARE AND ALL
OTHER SOFTWARE SUCH AS SERVER SOFTWARE AND THIRD PARTY SOFTWARE PROVIDED UNDER
THIS AGREEMENT. FURTHERMORE, ROSETTA EXPRESSLY DISCLAIMS THE WARRANTY MADE IN
SECTION 9.2 WITH RESPECT TO THE COMPONENTS OF THE RESOLVER-TM- SYSTEM OTHER
THAN THE RESOLVER-TM- SOFTWARE INCLUDING, BUT NOT LIMITED TO, ALL HARDWARE AND
ALL OTHER SOFTWARE SUCH AS SERVER SOFTWARE WHICH IS NOT RESOLVER-TM- SERVER
SOFTWARE AND THIRD PARTY SOFTWARE PROVIDED UNDER THIS AGREEMENT.
ARTICLE 10 -- DISCLAIMERS AND LIMITATION OF LIABILITIES
10.1 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. Rosetta disclaims
any representation or warranty that the technology, information, know-how, data,
software, user documentation, or processes disclosed or furnished to DuPont or
conceived, developed, or used in the Program does not or will not infringe any
Intellectual Property Rights of any third party
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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who is not a party to this Agreement. Each Party shall, however, notify the
other Party promptly in writing if such Party has a reasonable basis for
believing that any such technology, information, know-how, data, or process, or
that any product that incorporates any such technology or that is made using any
such process would infringe any Intellectual Property Right of a party who is
not a party to this Agreement. This Section 10.1 shall not be interpreted to
place an affirmative duty on any Party to perform a patent search or other
review of intellectual property of a third party to determine if it is
infringing any Intellectual Property Right of another Party or a party who is
not a Party.
10.2 LIMITATION OF LIABILITIES. NO PARTY SHALL UNDER ANY CIRCUMSTANCES
BE LIABLE TO ANOTHER PARTY FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL
DAMAGES, LOSSES, LIABILITIES, COSTS, OR EXPENSES (INCLUDING, BUT NOT LIMITED TO,
LOSS OF PROFITS, GOODWILL, REVENUE, OR BUSINESS) RESULTING FROM OR IN ANY WAY
RELATED TO THIS AGREEMENT, OR TERMINATION OF THIS AGREEMENT, OR ARISING OUT OF
OR ALLEGED TO HAVE ARISEN OUT OF (I) BREACH OF THIS AGREEMENT, (II) THE FAILURE
BY ANY PARTY TO DEVOTE THE RESOURCES OR EFFORT SPECIFIED IN THIS AGREEMENT,
(III) THE FAILURE BY ANY PARTY TO COMPLY WITH THE EXPRESS CONDITIONS SPECIFIED
IN THIS AGREEMENT, OR (IV) ANY EVENT RELATED TO THE MAKING OR PERFORMANCE OF
THIS AGREEMENT. THIS LIMITATION APPLIES REGARDLESS OF WHETHER SUCH DAMAGES ARE
SOUGHT BASED ON BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT
LIABILITY, OR ANY OTHER LEGAL OR EQUITABLE THEORY.
10.3 INFRINGEMENT.
10.3.1 DuPont and Rosetta agree that Rosetta will indemnify DuPont
against and will defend, at its own expense, all proceedings, suits, and claims
against and/or affecting DuPont or any of its officers, directors, or employees
alleging the infringement, breach or violation of any Intellectual Property
Rights of any third party covering, or alleged to cover, the Software, in the
form furnished or as subsequently modified by Rosetta. Rosetta agrees to defend
any such proceeding, suit, or claim, and to pay all costs, fees, and expenses
including, without limitation, all reasonable attorneys' fees and other costs,
incurred by DuPont and its officers, directors, agents or employees in
connection with the defense of any such proceeding, suit, or claim, provided
that:
(i) Rosetta will be given written notice of all claims of any
such infringement or violation and of any suits or claims brought or
threatened against DuPont;
(ii) Rosetta will be given full authority to assume control
of the defense thereof through its own counsel at its sole expense but
will not compromise or settle any suits or claims without the express
prior written consent of DuPont, provided that such consent will not
be unreasonably withheld or delayed;
(iii) DuPont will reasonably cooperate with Rosetta in the
defense of such
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proceeding, suit, or claim at Rosetta's sole expense; and
(iv) the total expense that Rosetta shall be obligated to
bear and pay under this Section 10.3.1 shall not exceed [***], the
amount of the Resolver-TM- Software license paid by DuPont.
10.3.2 DuPont will indemnify Rosetta against all liabilities
and costs, including reasonable attorneys' fees, for defense and
settlement of any and all claims against DuPont or Rosetta in the
event an allegation of infringement or violation of Intellectual
Property Rights of a third party is caused by (i) modification of the
Software by DuPont, (ii) any infringement caused by DuPont's use or
maintenance of the Software which conflicts with the terms and
conditions of this Agreement, and (iii) DuPont's willful use of the
Software after receipt of notice of infringement.
ARTICLE 11 -- DISPUTES BETWEEN THE PARTIES
11.1 SCOPE AND PURPOSE OF THIS ARTICLE. The purpose of this Article 11
is to set forth the procedures pursuant to which the Parties intend in good
faith to resolve any and all disagreements and disputes between the Parties
arising under or related to this Agreement or its making, or the activities of
the Parties in connection with the Program (collectively, "Disputes"). The
Parties shall follow these procedures fully and exhaustively before initiating
any litigation to resolve any Dispute. However, nothing herein shall prevent a
Party from filing suit seeking equitable relief (mandatory or prohibitive) to
prevent what it perceives as imminent, irreparable harm or to compel a Party to
specifically perform in accordance with this Article 11; provided, that if such
relief is granted, the Parties will stipulate that any further proceedings in
such suit shall be stayed pending the completion of the procedures set forth
herein. These procedures do not apply to any claims by unrelated parties. The
Parties stipulate that the running of any applicable statute of limitations
shall toll effective upon the first notice given under Section 11.2 until [***]
after the completion of the process provided in Section 11.3.
11.2 NOTICE OF DISPUTE. A Party that perceives a Dispute with the
other Party subject to this Article 11 may notify the other Party in writing of
any Disputes that it wants resolved ("Notifying Party"). The Notifying Party
shall include in the notice a detailed statement of the Disputes and a summary
of the evidence and arguments supporting the position asserted. The other Party
("Responsive Party") shall respond to the notice within [***] after receipt
thereof and may include with its response a cross-notice of any Disputes that
the Responsive Party wants resolved. If a Responsive Party raises an
additional Dispute, the Notifying Party shall then respond to such
cross-notice within [***] after receipt of the Responsive Party's
cross-notice. Notwithstanding Section 3.9, all notices, cross-notices and
responses shall be in writing and sent by facsimile with a confirming copy
sent by first class mail.
11.3 UNAIDED NEGOTIATIONS BETWEEN THE PARTIES. Initially the Program
Contacts and the General Managers of the business unit participating in the
Program shall meet at a mutually acceptable time and place within [***] after
delivery of the final response, and thereafter as often as they deem
necessary, to exchange relevant information and attempt to
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
resolve the dispute. If the matter is not resolved by these Managers within
[***] of receipt of the Notifying Party's first written notice, or if such
Managers fail to meet within [***] after delivery of the final response, the
Dispute shall be referred to the senior executives who have responsibility for
the respective organizations involved in the Dispute and who have full and
final authority to settle the Dispute. These senior executives shall likewise
meet, with or without the respective Business Managers and Program Managers,
at a mutually acceptable time and place within [***] after such referral, and
thereafter as often as they reasonably deem necessary, to exchange information
and attempt to resolve the Dispute. All meetings to be held under this Section
11.3 may be held in person, or may be held by means of telephone or similar
communications equipment.
11.4 LITIGATION. If, after completing the above procedures set out in
Section 11.3, the Parties involved in the Dispute have not resolved fully all
Disputes, any Party involved in an unresolved Dispute may file suit in a United
States District Court if the dispute involves a federal question and the other
requirements for federal jurisdiction are met, or in a State Court if the
dispute involves only non-federal questions or the requirements for federal
jurisdiction are not met. The venue for a suit filed by DuPont shall be Seattle,
Washington, and the venue for a suit filed by Rosetta shall be Wilmington,
Delaware.
11.5 GOVERNING LAW. This Agreement and all questions, claims,
disputes, remedies or procedural matters relating to Disputes under this
Agreement shall be interpreted in accordance with and governed exclusively by
the laws of the State of Delaware, U.S.A., without regard to the principles of
conflicts of law.
ARTICLE 12 -- MISCELLANEOUS
12.1 LEGAL STATUS OF THE PARTIES AND THE PROGRAM. Each Party is an
independent contractor and will act as such in accordance with the terms of this
Agreement in performing its respective obligations under this Agreement. This
Agreement is not intended to create, nor shall the activities of the Parties or
the Program be construed to create, a joint venture, partnership, or other
formal business organization. No Party shall represent to any third party that
this Agreement creates, or that the Program is, a joint venture, partnership, or
other formal business organization. Nothing herein shall be construed as
providing for the sharing of profits or losses. Except as expressly provided
herein, no Party can bind any other Party or create any relationship of
principal or agent. Except as expressly provided herein, nothing in this
Agreement shall grant to any Party the right to make future commitments of any
kind for or on behalf of the other Party. No employee of one Party shall be
deemed to be the employee of another Party by virtue of this Agreement. No Party
shall have any liability for any activities of any other Party by virtue of this
Agreement.
12.2 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
sole benefit of the Parties hereto, and unless expressly provided herein, no
rights or powers shall arise hereunder in favor of any third party.
12.3 FORCE MAJEURE. The failure of any Party to perform hereunder as a
result of governmental action, laws, orders, or regulations, or as a result of
events, such as war, acts of
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
public enemies, fires, floods, earthquakes, acts of God or any causes of like
kind beyond the reasonable control of such Party is excused for so long as such
cause exists, but only to the extent such failure is caused by such law, order,
regulation, or event.
12.4 EXPORTS. Each Party hereto shall be responsible for ensuring its
compliance with the laws and regulations of the United States government
relating to the export of goods and technology from the United States, and the
Party receiving technical information from another Party hereby agrees to comply
fully with the United States Export Administration Act and regulations
promulgated thereunder from time to time by the United States government with
respect to that technical information.
12.5 ASSIGNMENT. Neither Party may assign this Agreement nor any of
its rights or obligations hereunder without the prior written consent of the
other Party, except that a Party may assign its rights and obligations, without
the consent of the other Party, as part of an assignment of the entire
Agreement, in connection with (i) a change of the state of incorporation of a
Party, or (ii) a merger of a Party into its parent corporation, (iii) the
spin-out of the business with which this Agreement is associated into a wholly
owned corporation of a Party, (iv) the spin-out of the business with which this
Agreement is associated into a separate entity, (v) the subsequent merger of any
such wholly owned corporation or separate entity into another entity or (vi) the
sale of substantially all the assets of the business unit with which the
agreement is associated. Any permitted assignee shall assume all obligations of
its assignor under this Agreement. No assignment shall relieve any Party of
responsibility for the performance of any accrued obligation that such Party
then has under this Agreement without prior written consent of the other Party.
Any purported assignment by one Party in violation of this Section shall be
voidable by any other Party.
12.6 RULES OF CONSTRUCTION AND INTERPRETATION. This Agreement shall be
construed and fairly interpreted in accordance with its terms, without any
strict construction in favor of or against either Party. Ambiguities shall not
be interpreted against the drafting Party. Any ambiguities in this Agreement
shall be interpreted in accordance with the objectives stated in the Recitals.
In construing or interpreting this Agreement, the word "or" shall not be
construed as exclusive, and the word "including" shall not be limiting. The use
of the singular or plural form shall include the other form and the use of the
masculine, feminine or neuter gender shall include the other genders. All
captions and headings in this Agreement are for convenience only and shall not
be considered as substantive parts of this Agreement or determinative in the
interpretation of this Agreement.
12.7 AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended or waived only with the written consent of the parties. Any amendment or
waiver effected in accordance with this Section shall be binding upon the
parties and their respective successors and assigns.
12.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the Parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each Party as close as possible to that under the provision rendered
unenforceable. In the event that the Parties cannot reach a mutually
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<PAGE>
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
12.9 INTEGRATION. This Agreement, together with the Appendices
identified below, contains the entire understanding of the Parties as it relates
to the subject matter hereof and supersedes any prior agreements or
understandings between or among the Parties as to this subject matter:
12.9.1 Appendix A -- Features for Resolver-TM- Software for Stages 1,
2, and 3
12.9.2 Appendix B -- Virtual private network specification
12.9.3 Appendix C -- Specification of desktop computers to be used by
DuPont
12.10 DISPARAGEMENT. DuPont agrees not to disparage or make negative
comments about Rosetta's personnel, the Resolver-TM- System, or services
provided by Rosetta.
12.11 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
[Signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives on the date written below.
DUPONT PHARMACEUTICALS COMPANY ROSETTA INPHARMATICS, INC.
By /S/ By
---------------------------- ----------------------------
John J. King, II
DIRECTOR PROCUREMENT SR. VICE PRESIDENT
- ------------------------------ ----------------------------
Title Title
10/07/99 SEPTEMBER 30, 1999
- ---------------------------- ----------------------------
Date Date
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APPENDIX A -- FEATURES OF RESOLVER-TM- SOFTWARE FOR STAGES 1,2, AND 3 7
STAGEL: FEATURES IN INITIAL FEATURE RELEASE
IMAGE VIEWER
View and interpret images representing primary data for a given profiling
technology.
PLOT VIEWER
A flexible plotting engine for experiments, profiles, and genes with powerful
analytical features to help decision making and the presentation of results.
TABLE VIEWER
View expression data for experiments, profiles, and genes in a customizable
spreadsheet format. Sort & export data for use in other applications. Rearrange,
show, or hide columns to tailor the display to the user's needs.
CORRELATION PLOT VIEWER
Using the Correlation Plot Viewer, pairs of genes, profiles, or experiments in
the user's gene expression database can be quickly compared.
SYNCHRONIZATION
Synchronization refers to the Resolver application's ability to share selected
data among many different tools. Use synchronization to quickly and effectively
visualize and analyze data identified in one tool using a second tool.
ROLE-BASED SECURITY SYSTEM
The role-based security system delivered with the Resolver application provides
row-level access control for all cell lines, tissues, hybridizations, profiles,
and experiments.
PERSISTENT USER PROFILES
Persistent user profiles allow all users to set preferences for the way they use
the Resolver application --table configuration, statistical cutoffs,
highlighting, etc.--and have those same options in place the next time they use
the Resolver, even if the system is accessed using another client machine.
ANNOTATION MANAGERS FOR CELL LINES/TISSUES, NUCLEIC ACID PREPARATIONS (PREPS),
AND HYBRIDIZATIONS (HYBS) The Resolver application includes spreadsheet-like
interfaces and forms for scientists to effectively manage cell lines and
tissues, RNA samples, hybridizations, and experiments tracked within the system.
QUALITY STATISTICS
The Resolver application includes easy-to-understand quality statistics,
including P-values on every gene expression measurement. Using these statistics,
even the subtlest transcriptional responses can be characterized by repeating
expression profiles and combining them into statistically averaged experiments
within the Resolver application.
STAGE 2. SECOND FEATURE RELEASE INCLUDES ALL FEATURES IN INITIAL FEATURE
RELEASE, PLUS:
ROSETTA ARRAY SEARCH TOOL ("ROAST")
Use ROAST (Rosetta Array Search Tool), to compare one gene, experiment, or
expression profile against others in the database. This tool is analogous to the
BLAST sequence analysis tool.
USER-DEFINED BIOSETS
Use the BioSets features in the Resolver application to group and store
collections of genes or experiments of interest and perform set manipulation on
these groups. Add annotation and comments to BioSets and, if desired, share them
collaboratively with other Resolver users.
<PAGE>
COMMENT SYSTEM
An easy-to-use comment system allows users to add or view comments about genes,
experiments, expression profiles, or BioSets and even respond to comments made
by other users. View comments in hierarchical newsgroup-like format or in table
format.
INSTALINK-- PRODUCTIVITY LINK SYSTEM
Use InstaLink to quickly access bioinfonnatics resources within the Resolver
application, on the World Wide Web, or on the user's Intranet that aid in the
analysis of a particular datapoint within the application. Medline, Entrez, and
other databases can be searched with two clicks using this feature. The user can
add personalized productivity links to Internet and Intranet sites.
STAGE 3. FEATURE-COMPLETE RELEASE INCLUDES ALL FEATURES IN SECOND
FEATURE RELEASE, PLUS:
CLUSTER ANALYSIS ENGINE
Analyze gene expression data, and identify co-regulated gene sets and classes of
similar compounds using a high-performance, flexible cluster analysis engine.
CLUSTER TREE VIEWER
Visualize and analyze data from the Cluster Analysis Engine in a compact,
convenient hyperbolic display. Search for genes or experiments of interest, and
zoom, magnify, move, or rotate trees to identify clusters of interest.
SERVER ADMINISTRATION TOOLS
Use these configuration interfaces and control panels to administer and
customize the Resolver application.
* Resolver is a trademark of Rosetta Inphannatics, Inc.
<PAGE>
APPENDIX B -- VIRTUAL PRIVATE NETWORK SPECIFICATIONS
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
APPENDIX C -- DESKTOP COMPUTER MINIMUM SPECIFICATIONS
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
GENE EXPRESSION COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT (the "Agreement") is entered into as of
October 1, 1999 (the "Effective Date"), by and between ROSETTA INPHARMATICS,
INC., a corporation organized under the laws of the State of Delaware
("Rosetta"), and HEWLETT-PACKARD COMPANY, a corporation organized under the laws
of the State of Delaware.
RECITALS
A. Rosetta is a developer of new technology, products and services in
the analysis of gene expression and the manufacturing of In-Situ Arrays which
can be used to improve the activities of pharmaceutical and other types of
organizations.
B. Hewlett-Packard Company is a leading world-wide developer and
supplier of instrumentation, software, supplies and services to customers in
pharmaceutical and other industries including instrumentation, Arrays and
related software and reagents.
C. Hewlett-Packard Company and Rosetta wish to form a broad
collaboration to design, develop, manufacture, commercialize and use the
Collaborative Products as defined herein.
THE PARTIES THEREFORE AGREE:
1. DEFINITIONS
Each of the capitalized terms in this Agreement shall have the meaning
as defined below. Terms defined in singular form shall include the plural form
and vice versa.
[***]
"AFFILIATES" means any company or entity controlled by, controlling, or
under common control with, a Party hereto and shall include without limitation
any company more than fifty percent (50%) of whose voting stock or participating
profit interest is owned or controlled, directly or indirectly, by a Party, and
any company which owns or controls, directly or indirectly, more than fifty
percent (50%) of the voting stock of a Party.
"AFM" means the version of Hewlett-Packard Company's Accounting and
Finance Manual provided to Rosetta prior to the Effective Date subject to
Article 9 hereof.
"AGILENT" OR "AGILENT TECHNOLOGIES, INC." means the contracting Party
to this Agreement (other than Rosetta) which at the time of execution of this
Agreement shall be the Hewlett-Packard Company by and through those business
entities within the Hewlett-Packard Company which shall, on or about November 1,
1999, become Agilent Technologies, Inc. Upon the transfer of the Hewlett-Packard
Company assets and personnel dealing with the subject
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
matter of this Agreement to Agilent Technologies, Inc., Agilent shall mean
Agilent Technologies, Inc., a Delaware corporation, and this Agreement shall on
such date be automatically transferred to Agilent Technologies, Inc.
"AGILENT COLLABORATION INVENTION" means a Collaboration Invention
conceived or made by employees or agents of Agilent solely or jointly other than
with an employee or agent of Rosetta.
"AGILENT FIELD" means analysis of biological processes in research and
development and clinical trial support outside of the fields of [***].
"AGILENT KNOW-HOW" means all scientific, technical and engineering
information which (i) Agilent (or its predecessor-in-interest) owns or controls
or to which Agilent (or its predecessor-in-interest) has a license including the
right of sublicense as of the Effective Date or during the Term, (ii) Agilent
uses reasonable efforts to protect as a trade secret, (iii) is incorporated into
or used in the design, development, manufacture, commercialization or use of any
Collaboration Product or Collaboration Product Enhancement and (iv) is not
publicly known or available and is not the subject of a patent application.
"AGILENT NON-COLLABORATION PRODUCT" means a Non-Collaboration Product
offered to a Third Party by Agilent.
"AGILENT PATENTS" means (i) all patents including, without limitation,
any substitutions, extensions, reissues, renewals, supplementary protection
certificates and inventors' certificates, which have not been held invalid or
unenforceable by a non-appealable or non-appealed decision of a court of
competent jurisdiction and (ii) all patent applications filed in any
jurisdiction including, without limitation, any provisionals, divisionals,
continuations, and continuations-in-part which, in the case of each of clause
(i) and (ii) above (a) Agilent owns, controls or has a license to (with the
right to sublicense) as of the Effective Date or that cover Inventions or
discoveries that are generated during the Term solely by Agilent as a result of
activities conducted pursuant to or in anticipation of the Business Plan and (b)
generically or specifically claim all or any part of any Collaboration Product
or Collaboration Product Enhancement, or a process used in the design,
development, manufacture, commercialization or use of any Collaboration Product
or Collaboration Product Enhancement, or intermediates used in such processes.
Agilent Patents as of the Effective Date are identified on Exhibit A.
"AGILENT TECHNOLOGY" means Agilent Patents, Agilent Know-How and
Agilent copyrights relating to any Collaboration Product or Collaboration
Product Enhancement.
"ARRAY" means a substrate-bound spatially ordered collection of nucleic
acid molecules or nucleic acid analogs that can bind specifically to (a) nucleic
acid molecules or (b) molecules that can bind nucleic acids, where the spatially
ordered collection of such molecules is configured to allow for the simultaneous
probing of a plurality of specific and unique target molecules present in a
single sample mixture.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
"BANKRUPTCY EVENT" means an event or circumstance with respect to a
Party whereby such Party (i) ceases conducting its business in the normal
course, (ii) makes a general assignment for the benefit of its creditors, (iii)
petitions, applies for, or suffers or permits with or without its consent the
appointment of a custodian, receiver, trustee in bankruptcy or similar officer
for all or any substantial part of its business or assets or (iv) avails itself
or becomes subject to any proceeding under the U.S. Bankruptcy Code or any
similar state, federal or foreign statute relating to bankruptcy, insolvency,
reorganization, receivership, arrangement, adjustment of debts, dissolution or
liquidation, which proceeding is not dismissed within sixty (60) days of
commencement thereof.
"BUSINESS PLAN" has the meaning ascribed thereto in Section 3.1 hereof.
"CANNIBALISTIC TECHNOLOGY" means any Collaboration Product Enhancement,
Agilent New Product or Rosetta New Product, as the case may be, which could
reasonably be expected to displace (or render obsolete or generally
non-competitive) any Collaboration Product and which as a result thereof would
cause Net Revenues associated with the sale or other disposition of such
Collaboration Product by Agilent or Rosetta, as the case may be, to decline in a
material amount over a reasonable period of time.
"CDNA ARRAY" means an Array in which polynucleotides are (i) used as
probes, (ii) synthesized enzymatically in a template-dependent fashion (e.g., as
PCR products from cDNA templates) and (iii) thereafter deposited on a substrate
in a desired configuration.
"COHERENT DATABASE" means a specific collection of expression profiles
generated using a set of experimental criteria to which an organism or cell is
subjected that allows identification of similarities and differences in effects
on Gene Expression among compounds, conditions and traits.
"COLLABORATION INVENTION" means an Invention (other than a Joint
Collaboration Invention or an Invention outside the Agilent Field) conceived or
made or developed solely by one or more employees or agents of either Agilent or
Rosetta while working in the Collaborative Field during the Term and which
Invention is directed to all or any part of a Collaboration Product or
Collaboration Product Enhancement, or a process used in the design, development,
manufacture or use of any Collaboration Product or Collaboration Product
Enhancement or intermediates used in such processes.
"COLLABORATION MANAGER" shall have the meaning ascribed thereto in
Section 3.2(b) hereof.
"COLLABORATION PRODUCTS" means Resolver, Arrays, Oligo Set Design
Services, the Pamela System and Rosetta New Products and Agilent New Products
which become Collaboration Products pursuant to Section 2.2 hereof.
Collaboration Products are listed in Exhibit B as amended from time to time.
"COLLABORATIVE FIELD" means the design, development, manufacture,
commercialization and use of (i) Arrays, (ii) products and services for the
preparation of samples for use with
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
Arrays, (iii) products and services for the hybridization of samples to Arrays,
(iv) products and services for the extraction of data from Arrays after
hybridization (including, without limitation, scanning systems and Feature
Extraction Software) and (v) products and services principally for the analysis
of data extracted from Arrays, all solely within the Agilent Field.
"COLLABORATION PRODUCT ENHANCEMENTS" means enhancements or refinements
to Collaboration Products, or a process used in the design, development,
manufacture or use of any Collaboration Product or intermediates used in such
processes which, among other things, may increase the performance, reduce
manufacturing cost, or provide other benefits to one or more Collaboration
Products but which do not add Distinct Functionality, provided, however, for the
purposes of Section 10.3 and 10.4 hereof, Collaboration Product Enhancement
shall mean, to the extent covered by any Rosetta Technology or Agilent
Technology, as the case may be, actual enhancements or refinements to
Collaboration Products, or a process actually used in the design, development,
manufacture or use of any Collaboration Product or intermediates actually used
in such processes which, among other things, may increase the performance,
reduce manufacturing cost, or provide other benefits to one or more
Collaboration Products but which do not add Distinct Functionality.
"COMMERCIAL SALE" means, with respect to a Collaboration Product, any
sale other than a TAP Sale.
"COMPONENT" means an element of a Collaboration Product or a device,
method, or chemical used in the design, development, manufacture or use of a
Collaboration Product in the Agilent Field.
"COMPOUND INTERROGATION" means the storage, retrieval and analysis of
compound effects in non-Array based screening assays using pattern recognition
algorithms, clustering, and sophisticated methods to query such data.
"CONFIDENTIAL INFORMATION" means any information disclosed by one Party
to the other in connection with activities under this Agreement including, but
not limited to, scientific, technical and engineering information, reports
exchanged between the Parties, marketing and other business plans (including the
Business Plan and the Product Plans), information relating to a Party's
products, sales, financial and corporate affairs, suppliers, customers,
employees, or investors, and other comparable information; provided, that
information will be "Confidential Information" only if it is marked as
confidential at the time of disclosure or, if the material is not in written
form (E.G., orally disclosed), it is treated as confidential at the time of
disclosure .
"CUSTOM PARTNERING TOOLS" means software developed by Rosetta for a
Third Party in conjunction with a consulting or collaboration arrangement not
otherwise prohibited under this Agreement, provided, however, such software
shall constitute a Custom Partnering Tool only so long as it is not incorporated
into a release of Resolver available either for Commercial Sales or TAP Sales.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
"DEVELOPMENT PLAN" means the component of a Product Plan that sets
forth a detailed plan for the development of a particular Collaboration Product
as described in Section 3.2(b) hereof.
"DIAGNOSTIC PRODUCTS" means products that are subject to regulatory
approval requirements under applicable law, regulations or policies or
regulatory agencies (i.e., PMA or 510(k), or foreign equivalent) or are used for
chemical or biochemical analysis of human samples in a health care setting, such
as a reference laboratory, hospital laboratory, hospital, clinic, doctor's
office or at home, in each case where a patient or his insurance company pays
for such analysis, and veterinary products utilizing similar technology in a
similar setting to the above products.
"DISTINCT FUNCTIONALITY" means a functionality that a reasonable user
would consider to be meaningfully distinct from the functionality of a then
existing Collaboration Product or Component and which a reasonable person would
consider to be capable of supporting a new or separate revenue stream.
"EARLY TERMINATION DATE" shall have the meaning ascribed thereto in
Section 10.2 hereof.
"ENGINEERING RESPONSIBILITY" means, with respect to a Collaboration
Product or as otherwise set forth in Section 4.2 hereof, ultimate responsibility
for deciding upon final specifications and for developing the manufacturing
processes for meeting such specifications.
"EXCLUDED FIELD" means technology, techniques, products and methods
pertaining to the analysis or use of data or profiles other than as necessary to
use (a) Feature Extraction Software, (b) Resolver in accordance with the terms
of the license granted pursuant to Section 2.6(a)(i), (c) Oligo Set Design
Services or (d) New Products which become Collaboration Products or
Non-Collaboration Products.
"EXECUTIVE SPONSOR" shall have the meaning ascribed thereto in
Section 3.2(a).
"EXPIRATION DATE" shall have the meaning ascribed thereto in Section
10.1 hereof.
"FEATURE EXTRACTION SOFTWARE" means software that is used by or in an
Array scanner and which is limited to extraction of basic feature identity data
(I.E., association of a particular feature with a particular probe) and
intensity data (I.E., reporting of the signal and noise, background, confidence
and associated statistics) from such Array scanner.
"FINAL ORDER" means an order or judgment of a court of competent
jurisdiction as to which the time to appeal, petition for certiorari, or move
for reargument or rehearing has expired and as to which no appeal, petition for
certiorari, or other proceedings for reargument or rehearing shall then be
pending, or as to which any right of appeal, petition for certiorari or right of
rehearing shall have been waived by a Party hereto or, in the event that an
appeal, writ of certiorari, reargument or rehearing thereof has been sought,
such order or judgement of such court shall have been affirmed by the highest
court to which such order or judgement was
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
appealed, or from which reargument or rehearing was sought, or certiorari has
been denied, and the time to take any further appeal, petition for certiorari,
or move for reargument or rehearing shall have expired.
"GAAP" means United States generally accepted accounting principles.
"GENE EXPRESSION" means, with respect to a field of endeavor,
activities and products directed at identifying which genes of an organism in a
particular biological state or experiment are expressed, and/or the extent to
which such genes are expressed.
"GENOTYPING" means, with respect to a field of endeavor, activities and
products directed at the determination of the sequence variation which exist in
particular genes or genomic or sequences of a particular organism relative to
some defined population of the organism or related organisms, and the analysis
of such data to correlate sequence information with trait or phenotype.
"GENOTYPING SOFTWARE" means software that allows storage, retrieval and
analysis of nucleic acid sequence variations which exist in particular genes or
genomic sequences of a particular organism relative to some defined population
of the organism or related organisms and which may contain analysis components
which facilitate the correlation of genomic sequence information with trait or
phenotype.
"HEALTHCARE MANAGEMENT" means the use of software and other means
developed and intended to analyze data from clinical samples taken in the course
of individual patient care service delivery by a health-care provider in a
commercial setting. Healthcare Management Software does not include software
developed for use in research or clinical trial programs.
"HR-1 AGREEMENT" means the Collaboration Agreement between
Hewlett-Packard Company and Rosetta Inpharmatics, Inc., signed on behalf of
Rosetta on September 14, 1998.
"INKJET PATENTS" means the patent applications listed in Exhibit C
attached hereto, and all continuations, continuations-in-part, divisions, and
renewals thereof, all foreign counterparts thereof, and all U.S. or foreign
patents that may be granted thereon, and all reissues and extensions thereof,
and the inventions therein, to the extent that (a) Rosetta owns, controls or has
a license to any of the foregoing (with the right to sublicense) as of the
Effective Date or during the Term and (b) the foregoing generically or
specifically claim all or any part of any Collaboration Product, Collaboration
Product Enhancement or a process used in the design, development, manufacture,
commercialization or use of any Collaboration Product, Collaboration Product
Enhancement, or intermediates used in such processes.
"INKJET TECHNOLOGY" means Inkjet Patents and Rosetta Know-How relating
to the Inkjet Patents.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
"IN SITU ARRAY" means an Array in which oligonucleotides or
oligonucleotide analogs are used as probes and synthesized on a substrate from
individual nucleotides or nucleotide analogs.
"INVENTION" means anything that is potentially patentable under the
patent law of the United States (Title 35, U.S. Code Section 101 ET SEQ.).
"JOINT COLLABORATION INVENTION" is an Invention conceived or made
jointly by one or more employees or agents of Rosetta and one or more employees
or agents of Agilent during the Term and which Invention (other than an
Invention within the Excluded Field) is directed to all or part of a
Collaboration Product, or Collaboration Product Enhancement, or a process used
in the design, development, manufacture or use of a Collaboration Product, or
Collaboration Product Enhancement or intermediates used in such processes.
[***]
"MANUFACTURING PLAN" means the component of a Product Plan that sets
forth a detailed plan for the manufacturing of a Collaboration Product as set
forth in Section 5.2(a) hereof.
"MARKETING PLAN" means the component of a Product Plan that sets forth
a detailed plan for the marketing, sales and support of a Collaboration Product
as set forth in Article 3 hereof.
"NET REVENUES" means the amount invoiced by Agilent or Rosetta, as the
case may be, or their respective Affiliates or Third Party sublicensee(s), as
applicable, for the sale or other disposition to a Third Party of a
Collaboration Product, less (i) normal and customary trade discounts and
credits, (ii) freight, insurance, sales, use, value added and similar taxes or
duties imposed on the sale or other disposition and included in the gross amount
invoiced, and (iii) currency translation adjustments (if applicable).
"NON-COLLABORATION PRODUCT" shall have the meaning ascribed thereto in
Section 2.2(a)(iv) or Section 2.2(b)(iv) as the context may require.
"OLIGO SET DESIGN SERVICES" means consulting services provided by a
Party relating to the choice of probe sequences and their arrangement on Arrays,
which consulting services may include use of Pamela-Resident Set Design Software
or a Component thereof.
"OLIGO SET DESIGN PATENTS" means the patent applications listed in
Exhibit D attached hereto, and all continuations, continuations-in-part,
divisions, and renewals thereof, all foreign counterparts thereof, and all U.S.
or foreign patents that may be granted thereon, and all reissues and extensions
thereof, and the inventions therein, to the extent that (a) Rosetta owns,
controls or has a license to any of the foregoing (with the right to sublicense)
as of the Effective Date or during the Term and (b) the foregoing generically or
specifically claim all or any part of any Collaboration Product, Collaboration
Product Enhancement or a process used in the design, development, manufacture,
commercialization or use of any Collaboration Product, Collaboration Product
Enhancement, or intermediates used in such processes.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
"OLIGO SET DESIGN TECHNOLOGY" means Oligo Set Design Patents and
Rosetta Know-How relating to the Oligo Set Design Patents.
"OLIGO DEPOSITED ARRAY" is an Array in which oligonucleotides or
oligonucleotide analogs are (i) used as probes, (ii) synthesized in a
template-independent fashion and (iii) thereafter deposited on a substrate in a
desired configuration.
"PAMELA SYSTEM" means the instrument systems and Components offered by
or in cooperation with Agilent which are used in the performance or automation
of steps in the processing or use of Arrays including [***].
"PAMELA-RESIDENT SET DESIGN SOFTWARE" means the oligo set design
software developed by Agilent, if any, which is bundled with the Pamela System
and is adapted for use by an end user of a Pamela System for design capabilities
in respect of the choice and location of probes, together with such other
functions and capabilities as may be incorporated therein from time to time by
the Parties in accordance with Section 2.9.
"PARTY" and "PARTIES" means Agilent and/or Rosetta as the context
requires.
"POPULATED DATABASES" means sets of pre-compiled data populating a
database, including databases populated with Gene Expression profiles. The
Parties understand and agree that sets of pre-compiled data may be created using
Resolver, but in no event will a Populated Database be included within Resolver.
"PRODUCT MANAGER" shall have the meaning ascribed thereto in Section
3.2(c) hereof.
"PRODUCT PLAN" means, with respect to a Collaboration Product, the plan
established by the Parties pursuant to Article 3 of this Agreement. The Product
Plan shall include a Development Plan, a Manufacturing Plan and a
Marketing/Sales/Support Plan.
"PROTEOMICS" means the analysis of biological cells focused on or using
proteins, peptides or amino acids (excluding the analysis of proteins, peptides
or amino acids that bind to nucleic acid arrays).
"RELATED FINANCING DOCUMENTS" means, collectively, the Stock Purchase
Agreement, and the Fifth Amended Investors Rights Agreement , the Standstill
Agreement and the Voting Agreement (in each case as defined in the Stock
Purchase Agreement).
"RESOLVER" means Rosetta's software package with the features set forth
in Exhibit E (as modified from time to time) which has as its principal function
the analysis of expression profiles of unknown compounds, conditions and traits
by determining similarities and differences with the expression profiles of
known compounds, conditions and traits stored within a Coherent Database and
which has a database architecture for the storage, retrieval and analysis of
high throughput Gene Expression data. Resolver may also include a "plug and
play" ability to import
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
Gene Expression data compiled from other Gene Expression software platforms and
modules developed by either Party to allow for extensions and add-ons, as well
as provision for both horizontal and vertical integration. [***]
"RESOLVER PLATFORM" means certain Third Party computer hardware and
software configurations necessary for Resolver operation.
"ROSETTA COLLABORATION INVENTION" means a Collaboration Invention
conceived or made by employees or agents of Rosetta solely or jointly other than
with an employee or agent of Agilent.
"ROSETTA KNOW-HOW" means all scientific, technical and engineering
information which (i) Rosetta owns or controls or to which Rosetta has a license
including the right of sublicense as of the Effective Date or during the Term,
(ii) Rosetta uses reasonable efforts to protect as a trade secret, (iii) is
incorporated into or used in the design, development, manufacture,
commercialization or use of any Collaboration Product or Collaboration Product
Enhancement and (iv) is not publicly known or available and is not the subject
of a patent application.
"ROSETTA NON-COLLABORATION PRODUCT" means a Non-Collaboration Product
offered to a Third Party by Rosetta.
"ROSETTA PATENTS" means all patents including, without limitation, any
substitutions, extensions, reissues, renewals, supplementary protection
certificates and inventors' certificates, which have not been held invalid or
unenforceable by a non-appealable or non-appealed decision of a court of
competent jurisdiction and (ii) all patent applications filed in any
jurisdiction, including, without limitation, any provisionals, divisionals,
continuations, continuations-in-part, which, in the case of each of clause (i)
and (ii) above (a) Rosetta owns, controls or has a license to (with the right to
sublicense) as of the Effective Date or that cover Inventions or discoveries
that are generated during the Term solely by Rosetta as a result of activities
conducted pursuant to or in anticipation of the Business Plan and (b) which
generically or specifically claim all or part of any Collaboration Product or
Collaboration Product Enhancement, or a process for use in the design,
development, manufacture, commercialization or use of any Collaboration Product
or Collaboration Product Enhancement or intermediates used in such processes.
Rosetta Patents as of the Effective Date are identified on Exhibit F.
"ROSETTA TECHNOLOGY" means Rosetta Patents, Rosetta Know-How and
Rosetta copyrights relating to any Collaboration Product or Collaboration
Product Enhancement.
"ROYALTY BEARING PORTION" means, when used in connection with the
Pamela System, the Components thereof other than those sourced from a Third
Party and offered in the Pamela System on a marginal value added basis
(determined in reference to Agilent) and, when used in connection with Resolver,
any separately priced Component or Components thereof which incorporate Agilent
Technology.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
"SHARED COMMERCIAL REVENUES" means Net Revenues from Commercial Sales
of Resolver (and support and/or maintenance agreements in respect thereof),
provided, however, Shared Commercial Revenue shall not include revenues from (i)
the sale by Rosetta of consulting services and (ii) the sale or other
disposition in Commercial Sales by Rosetta or Agilent, as the case may be, of
the Resolver Platform, associated maintenance and support contracts for the
Resolver Platform and services related to the installation of the Resolver
Platform.
"SHARED DESIGN REVENUES" means Net Revenues from the sale of Oligo Set
Design Services.
"SHARED TAP REVENUES" means Net Revenues from TAP Sales of Resolver
(and support and/or maintenance agreements in respect thereof), provided,
however, Shared TAP Revenues shall not include revenues from (i) the sale by
Rosetta of consulting services and (ii) the sale or other disposition in TAP
Sales by Rosetta or Agilent, as the case may be, of the Resolver Platform,
associated maintenance and support contracts for the Resolver Platform and
services related to the installation of the Resolver Platform.
"STOCK PURCHASE AGREEMENT" means that certain Series D Preferred Stock
Purchase Agreement dated as of the date hereof between Agilent and Rosetta.
"TAP SALES" means a sale of one or more Collaboration Products or
enhancements thereto to a Third Party pursuant to a contract (which may include,
without limitation, a support and/or maintenance agreement) under which the
Third Party, [***]. The Parties reasonably expect as of the Effective Date that
TAP Sales will be made to the Third Parties identified on Exhibit G.
"TERM" shall have the meaning ascribed thereto in Section 10.1 hereof.
"THIRD PARTY" means any individual or entity other than Rosetta,
Agilent or Affiliates of either.
"UNIVERSITY OF WASHINGTON LICENSE AGREEMENT" means the license
agreement between Rosetta and the University of Washington dated as of September
1, 1997, and as amended as of January 28, 1998.
2. RIGHTS, OBLIGATIONS AND LICENSES
2.1 RIGHTS AND OBLIGATIONS REGARDING COLLABORATION PRODUCTS
(A) RESOLVER. Resolver shall be exclusively offered to Third
Parties by Agilent according to the Product Plan therefor developed by the
Parties hereunder. Agilent shall not, at any time during the Term, directly or
indirectly, sell or offer to sell to Third Parties (i) the Pamela System bundled
with any software for Gene Expression profiling other than Resolver, (ii)
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
any software functionally similar to, or competitive with, Resolver (iii)
Populated Databases or (iv) consulting services or products (except as expressly
permitted hereunder) related to the operation or use of Resolver, including but
not limited to Populated Databases and Custom Partnering Tools provided,
however, this clause (iv) shall not prohibit services provided under agreements
for TAP Sales and/or Resolver maintenance and support agreements.
(b) OLIGO SET DESIGN SERVICES. Oligo Set Design Services shall
be exclusively offered by Agilent to Third Parties according to the Product Plan
therefor developed by the Parties hereunder.
(c) ARRAYS. Arrays shall be exclusively offered to Third
Parties by Agilent according to the Product Plan therefor developed by the
Parties hereunder.
(d) PAMELA SYSTEM. The Pamela System shall be exclusively
offered to Third Parties by Agilent according to the Product Plan therefor
developed by the Parties hereunder. Rosetta shall not, at any time during the
Term, directly or indirectly, sell or offer to sell to Third Parties any product
competitive with the Pamela System or any Component thereof including, without
limitation, Feature Extraction Software.
2.2 RIGHTS AND OBLIGATIONS REGARDING NEW PRODUCTS.
(a) NEW PRODUCTS DEVELOPED BY ROSETTA. In the event that
Rosetta from time to time during the Term elects to undertake and completes
sufficient research activities in the Collaborative Field related to the
development of a new or improved product or service with Distinct Functionality
(a "Rosetta New Product") and the functionality of such Rosetta New Product has
been scientifically and financially validated by Rosetta in good faith pursuant
to reasonable methodologies, the following procedure shall apply:
(i) NOTICE TO AGILENT. Rosetta shall provide
Agilent with a proposal a ("Rosetta New Product Proposal") which (A) provides
data (scientific and financial) regarding the Rosetta New Product sufficient to
demonstrate that the product or service has Distinct Functionality, (B)
specifically identifies Agilent Technology, if any, incorporated or reasonably
expected to be incorporated in such Rosetta New Product and (C) proposes a
development plan therefor.
(ii) FIRST RIGHT OF NEGOTIATION. Agilent shall have
the first right of negotiation for an exclusive arrangement with Rosetta
regarding the Rosetta New Product.
(iii) EXERCISE OF RIGHT OF NEGOTIATION. Agilent shall
have one opportunity to exercise its first right of negotiation by providing
Rosetta, within thirty (30) days of Agilent's receipt of the Rosetta New Product
Proposal, an executed letter of intent setting forth the terms and conditions
under which Agilent would agree to participate in the design, development,
manufacture and commercialization of the Rosetta New Product, provided, however,
the Parties understand and agree that if the Rosetta New Product relates to the
design, development, manufacture or use of an Array, the terms and conditions of
any such letter of intent shall, in the event such Rosetta New Product
constitutes an Array not then currently
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
offered as a Collaboration Product, include, at a minimum, a royalty to be
paid to Rosetta in an amount not less than [***] nor greater than [***] of
the Net Revenues from the sale of such Rosetta New Product.
(iv) FAILURE TO REACH AN AGREEMENT. In the event
Agilent does not provide such executed letter of intent within such thirty (30)
day period, or in the event that the Parties cannot within the thirty (30) day
period following Rosetta's receipt of such executed letter of intent reach
agreement on the final terms and conditions of such exclusive arrangement after
negotiations taking into account in good faith each Party's collaborative
interests (including, without limitation, factors such as development, marketing
and sales responsibilities, market sizes, margins, cost of manufacture and price
comparables), Rosetta shall have the right, subject to Section 2.3 hereof, to
continue the design, development, manufacture and commercialization or use of
such Rosetta New Product internally, or to enter into an arrangement with a
Third Party in respect of such Rosetta New Product on terms which, taken as a
whole, are better to Rosetta than the terms specified in any letter of intent
delivered to Rosetta by Agilent in connection with such Rosetta New Product
Proposal. Any such arrangement with a Third Party shall be subject to the terms
of this Agreement relating to licensing of Agilent Technology, if any, contained
therein or used in the design, development, manufacture or commercialization
thereof. Upon the execution of any agreement relating to such arrangement with a
Third Party, the Rosetta New Product shall be deemed a "Non-Collaboration
Product," provided, however, in no event will Non-Collaboration Product include
any product or service which was not included in a Rosetta New Product Proposal.
(v) DESIGNATION AS COLLABORATION PRODUCT. Upon
agreement with respect to the terms and conditions under which the Rosetta New
Product will be exclusively designed, developed, manufactured and commercialized
by the Parties, such Rosetta New Product will be deemed a Collaboration Product
and the Parties shall amend this Agreement to include the agreement of the
Parties related to such Collaboration Product.
(b) NEW PRODUCTS DEVELOPED BY AGILENT. In the event that
Agilent from time to time during the Term elects to undertake and completes
sufficient research activities in the Collaborative Field related to the
development of a new or improved product or service with Distinct Functionality
and such product or service is (y) within the areas of Engineering
Responsibility assigned to Rosetta pursuant to Section 4.2(a) hereof or (z)
incorporates or is reasonably expected to incorporate Rosetta Technology (an
"Agilent New Product"), and the functionality of such Agilent New Product has
been scientifically and financially validated by Agilent in good faith pursuant
to reasonable methodologies, the following procedure shall apply:
(i) NOTICE TO ROSETTA. Agilent shall provide Rosetta
with a proposal ("Agilent New Product Proposal") which (A) provides data
(scientific and financial) regarding the Agilent New Product sufficient to
demonstrate that the product or service has Distinct Functionality, (B)
specifically identifies Rosetta Technology, if any, incorporates or reasonably
expected to be incorporated in such Agilent New Product and (C) proposes a
development plan therefor.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(ii) FIRST RIGHT OF NEGOTIATION. Rosetta shall have
the first right of negotiation for an exclusive arrangement with Agilent
regarding the Agilent New Product.
(iii) EXERCISE OF RIGHT OF NEGOTIATION. Rosetta shall
have one opportunity to exercise its first right of negotiation by providing
Agilent, within thirty (30) days of Rosetta's receipt of the Agilent New Product
Proposal, an executed letter of intent setting forth the terms and conditions
under which Rosetta would agree to exclusively participate in the design,
development, manufacture and commercialization of the Agilent New Product.
(iv) FAILURE TO REACH AN AGREEMENT. In the event
Rosetta does not provide such executed letter of intent within such thirty (30)
day period, or in the event that the Parties cannot within the thirty (30) day
period following Agilent's receipt of such executed letter of intent reach
agreement on the final terms and conditions of such exclusive arrangement after
negotiations taking into account in good faith each Party's collaborative
interests (including, without limitation, factors such as development, marketing
and sales responsibilities, market size, margins, costs of manufacture and price
comparables), Agilent shall have the right, subject to Section 2.3 hereof, to
continue the design, development, manufacture and commercialization or use of
such Agilent New Product internally, or to enter into an arrangement with a
Third Party in respect of such Agilent New Product on terms which, taken as a
whole, are better to Agilent than the terms specified in any letter of intent
delivered to Agilent by Rosetta in connection with such Agilent New Product
Proposal. Any such arrangement with a Third Party shall be subject to the terms
of this Agreement relating to the licensing of Rosetta Technology, if any,
contained therein or used in the design, development, manufacture or
commercialization thereof. Upon the execution of any agreement relating to such
arrangement with a Third Party, the Agilent New Product shall be deemed a
"Non-Collaboration Product," provided, however, in no event will
Non-Collaboration Product include any product or service which was not included
in an Agilent New Product Proposal, provided, further, in no event may any such
Non-Collaboration Product be bundled with a Collaboration Product without the
prior written consent of Rosetta (which consent will not be unreasonably
withheld).
(v) DESIGNATION AS COLLABORATION PRODUCT. Upon
agreement with respect to the terms and conditions under which such proposed
Agilent New Product will be exclusively designed, developed, manufactured and
commercialized by the Parties, such Agilent New Product or will be deemed a
Collaboration Product and the Parties shall amend this Agreement to include the
agreement of the Parties related to such Collaboration Product.
2.3 CANNIBALISTIC TECHNOLOGY.
(a) In the event Agilent, with respect to a Rosetta New
Product Proposal, or Rosetta, with respect to an Agilent New Product Proposal,
shall reasonably and in good faith determine that such a New Product Proposal
involves a Cannibalistic Technology, Agilent or Rosetta, as the case may be,
shall have the right by written notice to require that the other cease all
efforts to commercialize the Agilent New Product or the Rosetta New Product, as
the case may be, during the Term.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(b) If a Collaboration Product Enhancement or idea therefor
developed by a Party would, if incorporated into a product (the "Cannibalizing
Product") for which such Party has Engineering Responsibility, be a
Cannibalistic Technology with regard to a Collaboration Product under the
Engineering Responsibility of the other Party (the "Cannibalized Product"), the
Party with such Collaboration Product Enhancement or idea therefor shall prior
to any such incorporation, notify the other Party thereof. Thereafter, the Party
with Engineering Responsibility for the Cannibalized Product shall have the
right to block the other Party from incorporating the Collaboration Product
Enhancement into the Cannibalizing Product.
2.4 COLLABORATION PRODUCT ENHANCEMENTS.
(a) GENERAL. Collaboration Product Enhancements developed
during the Term and ideas for Collaboration Product Enhancements shall,
subject to Section 2.4(b) hereof, [***]. The Party with a Collaboration
Product Enhancement or idea therefor will provide it to the Party with
Engineering Responsibility for the Collaboration Product to which such
enhancement or idea applies. Such responsible Party shall decide whether
further development of such Collaboration Product Enhancement or idea
therefor is warranted. The Party with an idea for a Collaboration Product
Enhancement is not obligated to develop it, but is obligated to provide all
information in its possession related thereto to the Party with Engineering
Responsibility for the Collaboration Product to which it applies. Further
development shall be by the Party with Engineering Responsibility therefor,
provided, however, if the Party with Engineering Responsibility wants the
other Party to do further development, the Parties shall negotiate in good
faith regarding reimbursement for the expense of such further development. [***]
(b) THE PAMELA SYSTEM. Within fifteen (15) days of the
Effective Date, Rosetta and Agilent will meet to identify the technology held
by each Party with respect to certain potential enhancements and refinements
that Rosetta has developed and proposes be incorporated into the current
Pamela System (the "Rosetta Proposed Pamela Enhancements"). At least five (5)
days prior to the meeting, Rosetta will inform Agilent in writing of the
technology fields to be discussed. At such meeting Rosetta will deliver to
Agilent a written description of the Rosetta Proposed Pamela Enhancements,
and Agilent will deliver to Rosetta a written description of any products,
product features, enhancements or refinements that it has developed for
incorporation into the Pamela System (the "Agilent Proposed Pamela
Developments"). On or prior to the ninetieth (90) day following the Effective
Date, Agilent shall notify Rosetta in writing whether the Rosetta Proposed
Pamela Enhancements, taken together, will or will not be licensed by Agilent.
In the event Agilent shall elect to license such Rosetta Proposed Pamela
Enhancements, Agilent shall be required to pay Rosetta, in accordance with
Section 7.7 hereof, a royalty equal to [***] of the Net Revenues associated
with the Royalty Bearing Portion of the Pamela System. In the event Agilent
shall elect not to license such Rosetta Proposed Pamela Enhancements, Rosetta
shall be free, notwithstanding any term or condition herein to the contrary
(including, without limitation, 2.1(d)), to enter into an
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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arrangement with a Third Party or Third Parties with respect to the design,
development, manufacture, commercialization or use of any or all of such Rosetta
Proposed Pamela Enhancements or any enhancements or refinements thereto and,
notwithstanding any term or condition herein to the contrary, Agilent shall have
no rights of any kind with respect to, nor shall it use, any of such Rosetta
Proposed Pamela Enhancements or any enhancements or refinements thereto,
provided, however, the foregoing shall not restrict the use by Agilent in the
Pamela System or otherwise of the Agilent Proposed Pamela Developments or any
enhancements or refinements thereto.
2.5 NON-COLLABORATION PRODUCTS. Subject to Section 2.3 and Section
2.7(b) (in the case of Rosetta) and 2.6(b) (in the case of Agilent), each Party
is free to design, develop, manufacture, commercialize and use its
Non-Collaboration Products as it desires without the interference or consent of
the other Party, and such other Party will not be required in any manner to
provide support or service for any such Non-Collaboration Product. Where the
design, development, manufacture or use of any Non-Collaboration Product
requires the use of Agilent Patents in the case of Rosetta, or Rosetta Patents
in the case of Agilent, Rosetta or Agilent, as the case may be, shall agree to a
reasonable royalty arrangement which will allow such Non-Collaboration Product
to be brought to market. The term of any royalty payment obligation shall be as
set forth in Section 2.7(b)(ii) (in the case of payments to Agilent by Rosetta)
and 2.6(b)(ii) (in the case of payments to Rosetta by Agilent). Each Party shall
have the right to exploit Joint Collaboration Inventions outside the
Collaborative Field without accounting to the other.
2.6 LICENSES TO AGILENT
(a) COLLABORATION PRODUCTS
(i) RESOLVER. Subject to the terms and conditions
of this Agreement (including, without limitation, Section 7 hereof), Rosetta
hereby grants to Agilent a worldwide (outside of [***]) license, co-exclusive
with Rosetta, in, to and under the Rosetta Technology to market, distribute,
offer for sale, sell, support and use for internal purposes Resolver in the
Agilent Field; provided, however, that the license in, to and under the [***]
granted to Agilent in this Section 2.6(a)(i) shall be solely limited to a
worldwide (outside of [***]), non-exclusive license to use Resolver. [***] No
right is hereby granted to Agilent to decompile, reverse engineer or prepare
derivative works of Resolver. Rosetta represents that it has not heretofore
granted, and during the Term shall not grant, any other licenses in, to and
under the Rosetta Technology that would grant the licensee the right to
market, distribute, offer for sale, sell or support Resolver except within
the Excluded Field or except outside the Agilent Field. Agilent may, with the
prior written consent of Rosetta, sublicense the distribution rights to
Resolver set forth above. No other license rights granted to Agilent under
this subsection 2.6(a)(i) may be sublicensed or transferred by Agilent.
Rosetta will provide source code and documentation with respect to Resolver
to an escrow agent under terms set forth in Section 6.10 of this Agreement.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(ii) ARRAYS. Subject to the terms and conditions of
this Agreement (including, without limitation, Section 7 hereof) and the
University of Washington License Agreement, Rosetta hereby grants to Agilent (A)
a worldwide license, co-exclusive with Rosetta in, to and under the Inkjet
Technology and such aspects of the Rosetta Technology that pertain to the
fabrication of Arrays to develop and use Arrays for internal use [***], (B) a
worldwide exclusive license in, to and under the Inkjet Technology and such
aspects of the Rosetta Technology that pertain to the fabrication of Arrays to
manufacture for sale, market, offer for sale and sell Arrays [***] and (C) a
worldwide non-exclusive license in, to and under the Inkjet Technology and such
aspects of the Rosetta Technology that pertain to the fabrication of Arrays to
develop, manufacture for sale, market, offer for sale and sell Arrays in the
field of Diagnostic Products. Rosetta represents that it has not heretofore
granted, and during the Term shall not grant, any other licenses in, to and
under the Inkjet Technology or such aspects of the Rosetta Technology that
pertain to the fabrication of Arrays that would grant the licensee the right to
develop, manufacture for commercial sale, market, offer for sale, sell or use
Arrays except outside the Agilent Field. Agilent may sublicense the
manufacturing and the distribution rights granted to it under this subsection
2.6(a)(ii) to any Affiliate or to the entities indicated on Exhibit H and, with
the prior written consent of Rosetta (not to be unreasonably withheld), to any
other Third Party. No other license rights granted to Agilent pursuant to this
Section 2.6(a)(ii) may be sublicensed or transferred by Agilent.
(iii) OLIGO SET DESIGN SERVICES. Subject to the terms
and conditions of this Agreement (including, without limitation, Section 7
hereof), Rosetta hereby grants to Agilent a worldwide (outside of [***])
license, co-exclusive with Rosetta in, to and under the Oligo Set Design
Technology and such aspects of the Rosetta Technology incorporated into Oligo
Set Design Services and enhancements and refinements thereto that pertain to the
choice and layout of oligonucleotides on Arrays, to develop, market, offer for
sale and sell oligo set design methods and techniques applicable to Oligo Set
Design Services in the Agilent Field. No right under the Rosetta Technology is
hereby granted to Agilent to develop, market, offer for sale and sell oligo set
design methods and techniques applicable to Oligo Set Design Services outside
the Agilent Field. Rosetta represents that it has not heretofore granted, and
during the Term shall not grant, any licenses in, to and under the Oligo Set
Design Technology that would grant the licensee the right to develop, market,
offer for sale or sell oligo set design methods and techniques applicable to
Oligo Set Design Services except outside the Agilent Field. No license rights
granted to Agilent under this subsection 2.6(a)(iii) may be sublicensed or
transferred except with the written consent of Rosetta (not to be unreasonably
withheld).
(iv) PAMELA SYSTEM. Subject to the terms and
conditions of this Agreement (including, without limitation, Section 7
hereof), Rosetta hereby grants to Agilent, commencing on the date that
Agilent shall elect to license the Rosetta Proposed Pamela Enhancements
pursuant to and in accordance with Section 2.4(b), a worldwide license,
co-exclusive with Rosetta, in, to and under the Rosetta Technology to
develop, use, manufacture, market, offer for sale, sell and support the
Rosetta Proposed Pamela Enhancements and any enhancements and refinements
thereto with the Pamela System. No right is hereby granted in the Rosetta
Proposed Pamela Enhancements in the event Agilent shall elect not to license
the Rosetta
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Proposed Pamela Enhancements under Section 2.4(b). Subject to the terms
and conditions of this Agreement (including, without limitation, Section 7
hereof), Rosetta hereby grants to Agilent a worldwide non-exclusive license in,
to and under the Rosetta Technology (except for the Rosetta Proposed Pamela
Enhancements) to develop, use, manufacture, market, offer for sale, sell and
support the Pamela System (to the extent any Rosetta Technology is incorporated
into the Pamela System) in the Agilent Field. Agilent may sublicense the
manufacturing and distribution rights granted to it under this Section
2.6(a)(iv) except to the extent any Rosetta Technology shall be incorporated
into the Pamela System, in which event Agilent may sublicense such rights to any
Affiliate or to the entities indicated on Exhibit I and, with the prior written
consent of Rosetta (not to be unreasonably withheld), to any other Third Party.
(v) NEW PRODUCTS. Subject to the terms and conditions
of this Agreement (including, without limitation, Section 7 hereof), Rosetta
hereby grants to Agilent a worldwide, non-exclusive license in, to and under the
Rosetta Technology to develop Agilent New Products.
(vi) EXCLUDED GRANTS. Notwithstanding the license
grants set forth in Sections 2.6(a)(i) through 2.6(a)(v) and Sections 10.3 and
10.4, no license in, to or under the Rosetta Technology is granted to Agilent
with respect to the Excluded Field.
(vii) AGREEMENT TO NOTIFY OF PATENT COVERAGE. Rosetta
will notify Agilent in writing at the time Rosetta proposes to incorporate
subject matter claimed in a Rosetta Patent that was first applied for prior to
or during the Term into a Collaboration Product or Collaboration Product
Enhancement, or to practice such a Rosetta Patent in the development or
manufacture of a Collaboration Product or Collaboration Product Enhancement, or
at the time Rosetta learns that such Rosetta Patent covers a Collaboration
Product or Collaboration Product Enhancement.
(b) NON-COLLABORATION PRODUCTS.
(i) ROSETTA KNOW-HOW LICENSE. Subject to the terms
and conditions of this Agreement (including, without limitation, Section 7
hereof), Agilent shall have, and Rosetta hereby grants to Agilent, a
worldwide (outside of [***]), non-exclusive license to Rosetta Know-How to
develop, make, have made, use, import, offer for sale, sell and support, in
the Agilent Field, all Agilent Non-Collaboration Products that include
Rosetta Know-How for so long as such Rosetta Know-How incorporated therein is
material to the design, development, manufacture or use of such Agilent
Non-Collaboration Products and Agilent shall, for the duration of such period
(but in no event to exceed the [***] anniversary of the Expiration Date or
Early Termination Date, as the case may be), pay to Rosetta the royalty
required pursuant to Section 2.5 hereof, provided, however, that no right is
hereby granted to Agilent to reverse engineer, decompile or prepare
derivative works of Resolver. Upon request from Agilent, Rosetta will use
reasonable business efforts to provide to Agilent such Rosetta Know-How or to
allow Agilent access to such Rosetta Know-How in a reasonable format, subject
to Agilent's continued compliance with Article 9 hereof.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(ii) ROSETTA PATENT LICENSE. Subject to the terms and
conditions of this Agreement (including, without limitation, Section 7 hereof),
Agilent shall have, and Rosetta hereby grants Agilent, a worldwide (outside of
[***]), non-exclusive license to develop, make, have made, use, import, offer
for sale, sell and support in the Agilent Field, Agilent Non-Collaboration
Products that include Invention(s) covered by Rosetta Patents for the duration
of the term of any valid patent within the Rosetta Patents covering such Agilent
Non-Collaboration Product, and Agilent shall, for the duration of such period,
pay to Rosetta the royalty required pursuant to Section 2.5 hereof.
(c) RETAINED RIGHTS. All rights in Rosetta Technology not
expressly granted to Agilent in this Agreement are retained exclusively by
Rosetta.
2.7 LICENSES TO ROSETTA
(a) COLLABORATION PRODUCTS.
(i) RESOLVER. Subject to the terms and conditions of
this Agreement (including, without limitation, Section 7 hereof), Agilent hereby
grants to Rosetta a worldwide license, co-exclusive with Agilent, in, to and
under the Agilent Technology to develop, use, manufacture, market, distribute,
offer for sale, sell, reproduce, prepare derivative works of Resolver, display
and perform publicly, and support Resolver (to the extent any Agilent Technology
is incorporated into Resolver) provided that no right under the Agilent
Technology is granted to Rosetta to develop, use, manufacture, market,
distribute, offer for sale, sell, reproduce, prepare derivative works, display
and perform publicly, and support Resolver (to the extent any Agilent Technology
is incorporated into Resolver) in connection with [***]. Rosetta
may sublicense the manufacturing rights granted to it under this Section
2.7(a)(i) except to the extent any Agilent Technology shall be incorporated into
Resolver, in which event Rosetta may sublicense such rights only with the prior
written consent of Agilent (such consent not to be unreasonably withheld).
(ii) ARRAYS. Subject to the terms and conditions of
this Agreement (including, without limitation, Section 7 hereof), Agilent hereby
grants to Rosetta a worldwide license, co-exclusive with Agilent, in, to and
under Agilent Technology, to design, develop, use, support, and manufacture
Arrays for internal use only (internal use includes, without limitation, the
right to use Arrays in providing commercial services to Third Parties). Agilent
represents that it has not heretofore granted, and during the Term shall not
grant, any licenses in, to and under the Agilent Technology that would grant the
licensee the right to design, develop, manufacture, sell or use Arrays.
(iii) OLIGO SET DESIGN SERVICES. Subject to the terms
and conditions of this Agreement (including, without limitation, Section 7
hereof), Agilent hereby grants to Rosetta a worldwide license, co-exclusive with
Agilent, in, to and under the Agilent Technology to develop, market, offer for
sale, sell and use oligo set design methods and techniques applicable to Oligo
Set Design Services. No right under the Agilent Technology is hereby granted to
Rosetta to develop, market, offer for sale and sell oligo set design methods and
techniques applicable to Oligo Set Design Services in connection with [***].
Agilent represents that it has
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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not heretofore granted, and during the Term shall not grant, any licenses under
the Agilent Technology that would grant the licensee the right to develop,
market, offer for sale, sell or use oligo set design methods and techniques
applicable to Oligo Set Design Services. No license rights granted to Rosetta
under this subsection 2.7(a)(iii) may be sublicensed or transferred except with
the written consent of Agilent (not to be unreasonably withheld).
(iv) PAMELA SYSTEM. Subject to the terms and
conditions of this Agreement, Agilent hereby grants to Rosetta a royalty-free
license in, to and under the Agilent Technology to use for internal purposes
(including, without limitation, the right to use the Pamela System in providing
commercial services to Third Parties) only the Pamela Systems delivered to
Rosetta by Agilent pursuant to Section 7.5 hereof except for within the Excluded
Field and except in connection with [***].
(v) NEW PRODUCTS. Subject to the terms and conditions
of this Agreement (including, without limitation, Section 7 hereof), Agilent
hereby grants to Rosetta a worldwide, non-exclusive license in, to and under the
Agilent Technology to develop Rosetta New Products.
(vi) AGREEMENT TO NOTIFY OF PATENT COVERAGE. Agilent
will notify Rosetta in writing at the time Agilent proposes to incorporate
subject matter claimed in an Agilent Patent that was first applied for prior to
or during the Term into a Collaboration Product or Collaboration Product
Enhancement, or to practice such an Agilent Patent in the development or
manufacture of such a Collaboration Product or Collaboration Product
Enhancement, or at the time Agilent learns that such an Agilent Patent covers
such a Collaboration Product or Collaboration Product Enhancement.
(b) NON-COLLABORATION PRODUCTS.
(i) AGILENT KNOW-HOW LICENSE. Subject to the terms
and conditions of this Agreement (including, without limitation, Section 7
hereof), Rosetta shall have, and Agilent hereby grants to Rosetta, a
worldwide, non-exclusive license to develop, make, have made, use, import,
offer for sale, sell and support for Gene Expression purposes only, all
Rosetta Non-Collaboration Products that include Agilent Know-How for so long
as such Agilent Know-How incorporated therein is material to the design,
development, manufacture or use of such Rosetta Non-Collaboration Products
and Rosetta shall, for the duration of such period (but in no event to exceed
the [***] anniversary of the Expiration Date or Early Termination Date, as the
case may be) pay to Agilent the royalty required pursuant to Section 2.5
hereof. Upon request from Rosetta, Agilent will use reasonable business
efforts to provide to Rosetta such Agilent Know-How or to allow Rosetta
access to such Agilent Know-How in a reasonable format, subject to Rosetta's
continued compliance with Article 9 hereof.
(ii) AGILENT PATENT LICENSE. Subject to the terms and
conditions of this Agreement (including, without limitation, Section 7 hereof),
Agilent hereby grants Rosetta a worldwide, non-exclusive license to develop,
make, have made, use, import, offer for sale, sell and support for Gene
Expression purposes only, Rosetta Non-Collaboration Products that include
Invention(s) covered by Agilent Patents for the duration of the term of any
valid patent within the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Agilent Patents covering such Rosetta Non-Collaboration Product, and Rosetta
shall, for the duration of such period, pay to Agilent the royalty required
pursuant to Section 2.5 hereof.
(c) RETAINED RIGHTS. All rights in Agilent Technology not
expressly granted to Rosetta in this Agreement are retained exclusively by
Agilent.
2.8 FUTURE THIRD PARTY LICENSES. After the Effective Date, if either
Agilent or Rosetta believes that additional intellectual property or technology
controlled by a Third Party ("Third Party Technology") is required or desirable
in order to proceed without interference in the design, development,
manufacture, commercialization or use of one or more Collaboration Products and
the consideration required to acquire rights with respect to such Third Party
Technology would in the reasonable estimation of either Party materially deprive
such Party of the benefit of its bargain hereunder, then the Parties will
collectively determine whether to seek a license to such Third Party Technology,
and if so, on what terms.
2.9 OLIGO SET DESIGN FUNCTIONALITY. No later than thirty (30) days
after the Effective Date, Rosetta and Agilent will meet to identify the
technology held by each Party with respect to oligo set design methods and
techniques. On or prior to sixty (60) days following the Effective Date, Agilent
and Rosetta shall, based on the technology previously disclosed and market
considerations, determine the oligo set design functionality that will initially
be included in the Pamela-Resident Set Design Software and in the Oligo Set
Design Services offered hereunder. The Parties shall decide, in good faith,
whether such determination shall merit an adjustment to the revenue sharing or
royalty arrangements hereunder.
3. COLLABORATION MANAGEMENT
3.1 COLLABORATION PLANNING. Implementation of the design,
development, manufacture and commercialization of the Collaboration Products
will be guided by [***]. The planning and review process will include
preparation of a written business plan (the "Business Plan") which will
provide, among other things, [***]. The Parties will use reasonable business
efforts to complete the initial Business Plan by the end of the third month
following the Effective Date. [***] The process will be managed by the
Collaboration Managers of both Parties, who shall designate Business Planning
Teams representing the functional areas of Marketing/Sales/Support, Research
and Development, Manufacturing and Finance.
3.2 COLLABORATION MANAGEMENT. The purpose of the collaboration
management structure set forth below is to coordinate and expedite the design,
development, manufacture,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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commercialization and use of Collaboration Products. Each Party shall assign
individuals from within their respective organizations to each of the following
positions. Each Party may, in its sole discretion, replace the assigned
individuals at any time as necessary.
(a) EXECUTIVE SPONSORS.
(i) APPOINTMENT; MEETINGS. Within ten (10) days of
the Effective Date, each Party shall appoint one (1) individual to be its
executive sponsor ("Executive Sponsor") for the collaboration under this
Agreement. Each Party's Executive Sponsor shall be a senior executive of such
Party with the authority to make binding commitments on behalf of such Party
with respect to its rights and responsibilities hereunder.
(ii) RESPONSIBILITIES. The Executive Sponsors shall
have the following specific responsibilities:
(1) approving the Business Plan, by
execution thereof in writing;
(2) settling disputes or disagreements that
cannot be resolved by the Collaboration Managers; and
(3) performing such other functions as
appropriate to further the purposes of this Agreement as determined by the
Parties.
(iii) DECISION-MAKING. The Executive Sponsors shall
make decisions by unanimous vote. Whenever the Executive Sponsors are unable to
reach a consensus on a particular issue, such issue shall be discussed not less
than twice during consecutive meetings in order to ensure that all aspects and
concerns of both Parties are thoroughly reviewed and considered. If after such
discussions, the Executive Sponsors are still not able to reach a consensus on
such issue, the Parties shall be required to undertake the dispute resolution
procedures set forth in Article 12 hereof.
(b) COLLABORATION MANAGERS.
(i) APPOINTMENT; MEETINGS. Within ten (10) days of
the Effective Date, each Party shall appoint one (1) individual to be its
Collaboration Manager. The Collaboration Managers shall meet not less than
monthly during the Term, unless otherwise mutually agreed by the Parties.
Meetings of the Collaboration Managers will be held alternately at the
facilities of the Parties in Palo Alto, California, or Kirkland, Washington, or
by teleconference. Each Party's employees and agents involved in the
collaboration set forth herein shall, prior to such meeting, report to the
Collaboration Managers on all relevant issues relating to the design,
development, manufacture, commercialization and use of the Collaboration
Products. Minutes of the meetings of the Collaboration Managers shall be
prepared alternately by the Parties and such minutes shall promptly thereafter
be provided to the Executive Sponsors for review.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(ii) RESPONSIBILITIES. The Collaboration Managers
shall have general responsibility for preparation of the Business Plan and the
design, development, manufacture, commercialization and use of Collaboration
Products as expeditiously as practicable. The initial Business Plan shall be
completed by the Collaboration Managers within ninety (90) days of the Effective
Date. The Collaboration Managers shall also have the following specific
responsibilities:
(1) directing the process of preparing the
product plan (each, a "Product Plan") for each Collaboration Product.
(2) updating and revising the Business Plan
annually or as mutually agreed;
(3) monitoring and reviewing the progress of
research, development, manufacturing, marketing, distribution and finance
activities in order to ensure that satisfactory progress is being made with
respect to the execution of the Business Plan and Product Plans;
(4) discussing and agreeing upon remedial
measures if a Collaboration Manager determines that the progress in respect of
implementation of a Product Plan is unsatisfactory;
(5) settling disputes or disagreements that
cannot be resolved by the Product Managers;
(6) performing such other functions as
appropriate to further the purposes of this Agreement as determined by the
Parties.
(iii) DECISION-MAKING. Decisions of the Collaboration
Managers shall be made by unanimous vote. If the Collaboration Managers become
deadlocked on an issue, the issue shall be presented to the Executive Sponsors
for resolution.
(c) PRODUCT MANAGERS. Each Party shall appoint one of its
employees as a Product Manager for each Collaboration Product. Such Product
Manager will be responsible for overseeing the day-to-day operations of such
Party with respect to the Collaboration Product for which he or she is
responsible, and for facilitating the achievement of agreed development
milestones for such Collaboration Product. A Product Manager may be responsible
for more than one Collaboration Product.
(d) PROJECT TEAMS. Wherever practical, the Collaboration
Managers may, after consulting with an employee's immediate supervisor, consider
teaming employees from one Party to assist the other in areas where those
employees have relevant experience, provided that any disagreements regarding
staffing with respect to any Collaboration Product that cannot be resolved
between the Collaboration Managers will be resolved by the Party to whom
Engineering Responsibility is assigned in Sections 4.2(a) and 4.2(b).
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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4. COLLABORATION DEVELOPMENT
4.1 SCOPE. The Parties agree to use the [***]. Each Product Plan
will contain, among other things, a Development Plan, a
Marketing/Sales/Support Plan and a Manufacturing Plan, and will provide
processes for the implementation and review of such plans in a consistent and
logical framework. A copy of the [***] has been provided to Rosetta prior to
the Effective Date.
4.2 ALLOCATION OF ENGINEERING RESPONSIBILITIES.
(a) ROSETTA RESPONSIBILITIES. Rosetta will have Engineering
Responsibility for Resolver and Oligo Set Design Services, and integration of
each thereof into other Collaboration Products. Solely for purposes of Section
2.2(b) hereof, Rosetta will also have Engineering Responsibility for any
software (other than Feature Extraction Software) for Gene Expression profiling.
(b) AGILENT RESPONSIBILITIES. Agilent will have Engineering
Responsibility for the Pamela System, Arrays, Array manufacturing and overall
system integration of Collaboration Products, subject to Rosetta's Engineering
Responsibility as described in Section 4.2(a) hereof. Agilent will make
recommendations for each element of a Collaboration Product regarding the
performance characteristics thereof to ensure that all elements function as a
complete system when assembled. Agilent shall offer to Rosetta a first right of
negotiation for an exclusive arrangement with Agilent regarding any design,
development, and manufacture of software (other than Feature Extraction
Software) proposed by Agilent for Gene Expression profiling in connection with
[***].
(c) ALLOCATION OF FURTHER RESPONSIBILITIES IN THE DEVELOPMENT
PLANS. If Engineering Responsibility for a Collaboration Product is not
specified by Sections 4.2(a) and 4.2(b) above, such responsibility will be
specified in the Development Plan therefor as amended from time to time. The
Collaboration Managers may mutually agree to assign Engineering Responsibility
differently than provided in Sections 4.2(a) and 4.2(b) above on a case-by-case
basis.
4.3 DUE DILIGENCE. Each Party shall use diligent and reasonable
business efforts to carry out development of each Collaboration Product in
accordance with the mutually agreed Product Plans.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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5. MANUFACTURING
5.1 MANUFACTURING RESPONSIBILITIES
(a) MANUFACTURE BY ROSETTA. Rosetta shall be responsible for
the manufacture and supply of Resolver and the supply of the Resolver Platform.
Rosetta may, subject to Section 2.7(a)(i) hereof, engage Third Parties to
manufacture Resolver and supply the Resolver Platform, provided that Rosetta
retains ultimate responsibility for the final product.
(b) MANUFACTURE BY AGILENT. Agilent shall be responsible for
the manufacture and supply of Arrays and the Pamela System. Agilent may, subject
to Section 2.6(a)(iv) hereof, engage Third Parties to manufacture and supply
Arrays, Components of Arrays or the Pamela System, provided that Agilent retains
ultimate responsibility for the final product. Agilent may engage Rosetta to
manufacture Arrays under terms to be agreed between the Parties.
5.2 PRODUCTION PLANNING
(a) ESTABLISHMENT OF MANUFACTURING CAPACITY. The Manufacturing
Plan shall be designed to ensure sufficient supply of all Collaboration Products
to satisfy market demand.
(b) In the event the Parties determine it desirable to share
Array manufacturing responsibilities, the Parties shall enter into a
manufacturing arrangement wherein Agilent shall grant Rosetta the necessary
rights to make Arrays for Agilent on a mutually agreeable basis.
5.3 DUE DILIGENCE. Each Party shall use diligent and reasonable
business efforts in manufacturing the Collaboration Products for which such
Party has manufacturing responsibility.
6. MARKETING, SALES AND SUPPORT OF COLLABORATION PRODUCTS
6.1 AGILENT RESPONSIBILITIES. Agilent shall have the responsibility and
exclusive right to sell, distribute and support Arrays and the Pamela System.
All such activities shall be conducted in accordance with the terms of this
Agreement and the Product Plan for such Collaboration Products jointly developed
and agreed by the Parties as provided in Article 3. Agilent's activities
pursuant to this Section 6.1 shall be at its own expense.
6.2 ROSETTA RESPONSIBILITIES. Rosetta shall have the responsibility and
exclusive right to manufacture Resolver and to provide documentation and
marketing literature therefor. Rosetta shall also have the responsibility to
ship Resolver and provide support therefor. All such activities shall be
conducted in accordance with the terms of this Agreement and the Product Plan
for Resolver jointly developed and agreed by the Parties as provided in Article
3. Rosetta's activities pursuant to this Section 6.2 shall be at its own
expense.
6.3 SHARED RESPONSIBILITIES. Agilent and Rosetta will share
responsibility for selling Resolver (including maintenance and support
contracts) and Oligo Set Design Services for TAP
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Sales and Commercial Sales, provided that the Parties hereby acknowledge and
agree that Agilent will manage the customer interface and sales process for both
TAP Sales and Commercial Sales.
6.4 BRANDING.
(a) Rosetta will mark Resolver with appropriate "Rosetta" and
"Resolver" trademarks. Subject to Agilent's internal trademark clearance
procedures and corporate identity standards related to co-branding, Rosetta will
during the Term also mark Resolver, or permit Agilent to mark Resolver, with the
Agilent company and product trademarks as a prominent sub-brand.
(b) Subject to Agilent's internal trademark clearance
procedures and corporate identity standards relating to co-branding, Agilent
will mark, or allow Rosetta to mark, all IN SITU Arrays, all Oligo Deposited
Arrays designed with the use of Rosetta's Oligo Set Design Services and all
other Arrays incorporating any Rosetta Technology with appropriate "Rosetta"
trademarks as a prominent sub-brand.
6.5 DISTRIBUTORS. Subject to the terms and conditions of this
Agreement, Agilent will have the right to use Affiliates and the Third Parties
indicated on Exhibit J to distribute Resolver and to distribute and support
other Collaboration Products around the world. Agilent may also use Third
Parties not indicated on Exhibit J to distribute Resolver and to distribute and
support other Collaboration Products around the world with the prior written
consent of Rosetta (not to be unreasonably withheld).
6.6 PACKAGING AND LABELING. The Collaboration Products shall be
packaged and labeled consistent with the requirements of the applicable laws of
the countries where a Collaboration Product is sold.
(a) The Parties agree to discuss patent marking on a
case-by-case basis prior to product introduction in accordance with the Parties'
internal guidelines on patent marking to preserve patent rights and rights to
damages in the event of infringement. If applicable, such patent marking shall
identify Agilent and Rosetta as the manufacturers of such Collaboration Product.
(b) The Parties agree to label Collaboration Products
consistent with the requirements of licenses granted by Third Party licensors if
applicable.
6.7 ADVERTISING, PROMOTIONAL AND EDUCATIONAL MATERIALS. The Parties
shall in the Business Plan establish guidelines for the use of Agilent's and
Rosetta's corporate names, logos and trademarks in written sales, promotional,
educational and advertising materials relating to Collaboration Products. All
such written and visual materials and all documentary information and
promotional materials will portray Agilent, Rosetta and their respective
corporate names, logos and trademarks in a manner consistent with their
respective internal guidelines with respect thereto.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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6.8 CUSTOMER SUPPORT. Agilent shall manage the customer interface and
support process and shall provide a first level of support for all Collaboration
Products. Rosetta will use reasonable business efforts to provide backup
technical support to Agilent for any Collaboration Products using Rosetta
Technology to the extent such technical support involves the incorporated
Rosetta Technology. Rosetta shall provide support for Resolver and Oligo Set
Design. Agilent will use reasonable business efforts to provide backup
non-technical assistance to Rosetta in this endeavor with the understanding that
Agilent is not obligated to provide any dedicated technical staffing for such
efforts. The Collaboration Managers will agree on a mechanism by which Rosetta
and Agilent will obtain direct end-user customer feedback regarding
Collaboration Products.
6.9 DUE DILIGENCE. Each Party shall use reasonable business efforts in
marketing, promoting, selling and supporting the Collaboration Products
according to its responsibilities as set out in this Agreement.
6.10 SOFTWARE ESCROW. Upon the request of Agilent, Rosetta shall,
pursuant to the Source Code Escrow Agreement attached as Exhibit K, place in
escrow the source code of Resolver, the source code of any software product used
in Oligo Set Design Services, and any other software product developed by
Rosetta which is incorporated into, or becomes, a Collaboration Product. Should
Agilent develop any software to be incorporated into Resolver, Agilent shall
provide to Rosetta the source code and documentation related to such software.
7. FINANCIAL AND COMMERCIAL TERMS
7.1 EQUITY INVESTMENT. On the Effective Date, the Parties shall
execute, deliver and perform (to the extent applicable) the Stock Purchase
Agreement and Related Financing Documents.
7.2 RESEARCH AND DEVELOPMENT FUNDING.
(a) FUNDING SCHEDULE. Agilent shall make [***] in research
and development payments to Rosetta under this Agreement during the initial
[***] of the Term as follows:
Agilent shall pay Rosetta [***] on the Effective Date,
[***] on [***].
(b) ROSETTA RESEARCH AND DEVELOPMENT. Rosetta's research and
development activities funded with amounts paid by Agilent pursuant to Section
7.2(a) shall initially focus on continuing development of Resolver, Oligo Set
Design Services, Array design and Array manufacturing technologies. The research
and development funding provided Rosetta hereunder is intended to support these
efforts consistent with the agreed Business Plan.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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7.3 LICENSE MAINTENANCE FEE. On the Effective Date, Agilent shall pay
Rosetta [***] in consideration for the exclusive right to collaborate with
Rosetta in respect of the Collaboration Products, and to maintain during the
Term, subject to the terms and conditions of this Agreement, exclusive or
co-exclusive, as the case may be, license rights in respect of Rosetta
Technology used in the Collaboration Products pursuant to Section 2 hereof.
7.4 REVENUE SHARING/ ROYALTIES
(a) REVENUE SHARING COLLABORATION PRODUCTS. During the
Term, Agilent and Rosetta will allocate Shared Commercial Revenues, Shared
TAP Revenues and Shared Design Revenues as provided in Exhibit L, provided,
however, the Parties understand and agree that revenues from the sale or
other disposition in TAP Sales and Commercial Sales by Rosetta or Agilent, as
the case may be, of the Resolver Platform and maintenance and support
contracts for the Resolver Platform shall not be allocated between the
Parties, but that Agilent shall pay to Rosetta (and Rosetta shall be entitled
to retain) all such revenues in their entirety, provided, further, the
parties understand and agree that as of the Effective Date Rosetta is
negotiating agreements in respect of the sale or other disposition of
Resolver to DuPont Pharmaceuticals, Inc., [***], and in the event a sale or
other disposition of Resolver results therefrom within ninety (90) days after
the Effective Date, all Net Revenues associated therewith will not be
allocated between the Parties but will be Rosetta's exclusively.
(b) ROYALTY-BEARING COLLABORATION PRODUCTS. During the Term
and thereafter as provided in Section 10.3 or 10.4, as the case may be, Agilent
will pay royalties to Rosetta on Net Revenues of the Collaboration Products as
provided in Exhibit L.
7.5 PROVISION OF PAMELA SYSTEM AND RESOLVER.
(a) PAMELA SYSTEM. Within ninety (90) days of the Effective
Date, Agilent shall deliver to Rosetta [***] for use by Rosetta during the
Term for internal purposes only. The Parties shall agree on a delivery
schedule for additional Pamela Systems based on production schedules and
customer demand. Rosetta shall reimburse Agilent for the manufacturing costs
incurred by it in connection with each such Pamela System, provided, however,
in no event shall such manufacturing costs for each such Pamela System exceed
[***].
(b) RESOLVER. As soon as practicable after the Effective
Date, Rosetta shall deliver to Agilent [***] and the applicable Resolver
Platform for use by Agilent during the Term for internal purposes. Agilent
shall, in consideration for such Resolver, reimburse Rosetta for the costs
[***] incurred by Rosetta in connection with acquiring and configuring
Resolver and the Resolver Platform, including costs associated with
installation, documentation, training and support.
7.6 BUNDLING AND PRICING. Agilent will, subject to the next following
sentence, establish prices for Collaboration Products exclusively offered by
Agilent that reflect in good faith the fair market value of each such
Collaboration Product. Rosetta will establish the prices
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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for the Resolver Platform and maintenance and support contracts for the Resolver
Platform and will otherwise assist Agilent in establishing prices for Resolver
configurations and Oligo Set Design Services based on similar fair market value
considerations. The Parties further understand and agree that certain
Collaboration Products may be sold together as a kit or separately, as customers
may require from time to time. In the event Collaboration Products bearing
different royalty rates and non-royalty bearing Collaboration Products are sold
together as a package, royalties shall be calculated based on that portion of
the total purchase price reasonably determined by the Parties to be allocable to
such royalty-bearing Collaboration Products taking into consideration the
purchase price therefor when sold separately.
7.7 PAYMENTS AND REPORTS. Agilent shall make written reports
(consistent with GAAP or such other policies and practices as required by the
AFM) and royalty and revenue sharing payments (including payment of all amounts
related to the sale or other disposition in TAP Sales or Commercial Sales of the
Resolver Platform and maintenance and support contracts for the Resolver
Platform as provided in Section 7.4(a) hereof) to Rosetta within thirty (30)
days after the close of each Agilent fiscal quarter during the Term. Such
reports shall show for such fiscal quarter sales by Agilent, its Affiliates and
sublicensees, if any, of Collaboration Products, details of the quantities of
each Collaboration Product sold (including type and quantity of each category of
Array), Net Revenues from sales of Collaboration Products on a
product-by-product basis, trade discounts allowed and taken, and the revenue
sharing and royalty amounts due to Rosetta thereon pursuant hereto. In the event
Rosetta shall have sold any Collaboration Product or received any revenue in
connection with a sale of a Collaboration Product (other than pursuant to the
immediately preceding sentence), Rosetta shall likewise deliver to Agilent a
written report (consistent with GAAP) within thirty days (30) days after the
close of each Rosetta fiscal quarter during which any such Collaboration Product
was sold or revenue received by Rosetta and pay over to Agilent, concurrent with
the delivery of such report, any amounts received by Rosetta in connection with
such sale or which were otherwise received, net of the royalty or revenue
sharing amounts otherwise due Rosetta in connection therewith.
7.8 ACCOUNTING AND AUDIT
(a) Agilent will follow Agilent's standard financial
practices, processes and procedures as listed in the AFM. Rosetta will follow
GAAP and will make reasonable efforts in respect of the preparation and delivery
of reports required to be delivered to Agilent pursuant to Section 7.7 to follow
Agilent's standard financial practices, processes and procedures as detailed in
the AFM.
(b) Each Party may audit the financial records of the other
Party for the limited purpose of ensuring compliance with the financial
obligations of such other Party under this Agreement. Such an audit may be
conducted not more often than annually, during regular business hours, and on
reasonable advance notice. Such audit will be conducted by an independent
auditor which will be obligated to keep strictly confidential the audited
Party's financial records and other information. The auditor will disclose such
information to the auditing Party only to the extent necessary to establish
compliance or non-compliance with the audited Party's financial obligations and,
if the latter, the magnitude of any discrepancy. The
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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auditing Party will pay the costs of such audit unless the audit shows that
the audited Party is more than [***] delinquent in its obligations for the
period of the audit as of the end of such period, in which case the audited
Party will pay the costs of the audit.
7.9 SUPPLY OF ARRAYS TO ROSETTA
For so long as Agilent shall offer for sale or sell Arrays,
Agilent shall, in consideration for the licenses granted by Rosetta to
Agilent pursuant to Articles 2 and 10 herein, sell and deliver Arrays to
Rosetta upon Rosetta's request (and in accordance with Rosetta's reasonable
specifications) for use by Rosetta at Rosetta's facilities. Agilent's
standard terms of sale offered to other customers that purchase Arrays shall
apply to sales to Rosetta (including any disclaimer of infringement of Third
Party intellectual property rights), except that the price charged to Rosetta
for such Arrays shall be the greater of (i) [***] or (ii) [***] , provided,
however, [***], and Agilent shall [***]. The Arrays will be delivered on dates
that are reasonable and mutually agreed, and Rosetta will, during the Term,
provide Agilent every [***] a forecast of the number of Arrays it reasonably
expects to purchase during the next following [***]. All such forecasts will
be for the sole purpose of assisting Agilent in its product planning and will
not constitute an obligation of Rosetta to purchase the quantities indicated.
Agilent will invoice Rosetta for all Arrays purchased pursuant to this Section
7.9 promptly upon delivery of such Arrays to Rosetta. In no event will Agilent
set off amounts owing to it by Rosetta under this Section 7.9 against amounts
otherwise due and payable to Rosetta by Agilent hereunder.
7.10 ADDITIONAL ITEMS
(a) Rosetta agrees to provide Agilent promptly after the
Effective Date [***] in consideration for the payment to Rosetta of [***].
(b) Agilent agrees to provide Rosetta, when requested and
available, an Agilent-manufactured [***] in consideration for payment to
Agilent of its cost of fabrication.
(c) Rosetta shall obtain the right to sublicense Agilent under
the University of Washington License Agreement.
(d) In the event Rosetta (or any agent of Rosetta) shall sell
or otherwise dispose of any Resolver or Oligo Set Design Services to a Third
Party located in [***], all Net Revenues associated with such sale or other
disposition shall be allocated between the Parties in accordance with Section
7.4(a), and thereafter paid to Agilent by Rosetta in accordance with Section 7.7
hereof.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(e) Notwithstanding Sections 4.3, 5.3 and 6.9 hereof, Agilent
will use at least the same level of effort and diligence as Agilent uses or in
the past has used with respect to its own commercially successful products and
on which Agilent places or has placed a priority, in proceeding with (i) the
development, testing and manufacturing of Collaboration products for which it
has Engineering Responsibility and manufacturing obligations hereunder, (ii)
filing for or seeking regulatory approvals as may be determined in the Business
Plan, and (iii) the subsequent marketing and sales of Collaboration Products.
8. INTELLECTUAL PROPERTY OWNERSHIP; PROSECUTION AND RISK MANAGEMENT
8.1 OWNERSHIP OF INVENTIONS.
(a) Rosetta Collaboration Inventions and any patents and
patent applications on Rosetta Collaboration Inventions shall be owned by and
assigned to Rosetta. Agilent Collaboration Inventions and any patents and patent
applications on Agilent Collaboration Inventions shall be owned by and assigned
to Agilent. Joint Collaboration Inventions and any patents and patent
applications on Joint Collaboration Inventions will be owned jointly by Rosetta
and Agilent and treated as joint inventions under the United States laws
applicable to joint inventions. No Party will have any duty to account to the
other for profits or revenues generated from the commercialization of Joint
Collaboration Inventions except as otherwise specifically provided in this
Agreement.
(b) Rosetta shall disclose to Agilent the complete texts of
all patents and patent applications within the Inkjet Patents, Oligo Set Design
Patents, and Rosetta Patents filed by Rosetta which relate to any Collaboration
Product, Collaboration Product Enhancement or Collaboration Invention, as well
as all information received by it concerning the institution or possible
institution of any interference, opposition, re-examination, reissue,
revocation, nullification or any other official proceeding of which it has
knowledge in any jurisdiction involving any patent licensed to Agilent
hereunder. Rosetta agrees to keep Agilent promptly and fully informed of the
course of patent prosecution or other proceedings in respect of Collaboration
Products, Collaboration Product Enhancement or Collaboration Inventions
including by providing Agilent with copies of substantive communications, search
reports and Third Party observations submitted to or received from patent
offices. Agilent shall hold all information disclosed to it under this Section
8.1(b) as confidential in accordance with Section 9.
(d) Agilent shall disclose to Rosetta the complete texts of
all patents and patent applications filed by Agilent by or on behalf of its
Bioscience Products Division which relate to any Collaboration Product,
Collaboration Product Enhancement or Collaboration Invention, as well as all
information received by or on behalf of its Bioscience Products Division
concerning the institution or possible institution of any interference,
opposition, re-examination, reissue, revocation, nullification or any other
official proceeding of which it has knowledge in any jurisdiction involving any
patent licensed to Rosetta hereunder. Agilent agrees to keep Rosetta promptly
and fully informed of the course of patent prosecution or other proceedings in
respect of Collaboration Products, Collaboration Product Enhancement or
Collaboration
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Inventions including by providing Rosetta with copies of substantive
communications, search reports and Third Party observations submitted to or
received from patent offices. Rosetta shall hold all information disclosed to it
under this Section 8.1(c) as confidential in accordance with Section 9.
(d) If any Joint Collaboration Invention is patentable, the
Parties will mutually agree on whether and how to pursue patent protection of
the invention in the United States and elsewhere.
(e) Except as otherwise set forth in this Agreement, Rosetta
and Agilent shall retain their respective unrestricted rights to make, have
made, use and sell all Inventions and discoveries that are owned solely by them.
8.2 ABANDONED PATENTS. In the event either Rosetta or Agilent (acting
by or through its Bioscience Products Division), as the case may be, intends to
finally abandon any patent or patent application or any claim of a patent or
patent application licensed to the other under this Agreement, it shall notify
the other and such other Party shall have the right at its own expense to assume
responsibility for any such patent or the prosecution of any such claim in a
separate patent application.
8.3 LITIGATION RISKS. The Parties understand and acknowledge that there
are numerous and conflicting patent claims held by a number of Third Parties
which may or may not cover intellectual property used or useful in connection
with the design, development, manufacture, commercialization or use of
Collaboration Products. The Parties agree to cooperate with each other in
assessing and achieving freedom to practice the technologies which are contained
in the Collaboration Products.
9. CONFIDENTIALITY
9.1 CONFIDENTIALITY. Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing by the Party that originally
discloses Confidential Information (the "Disclosing Party"), the Party to
whom such Confidential Information is disclosed (the "Recipient") agrees to
keep the Disclosing Party's Confidential Information strictly confidential
for a period of [***] from the Expiration Date or Early Termination Date.
Further, until [***] from the Expiration Date or Early Termination Date,
neither Party shall use Confidential Information of the other except for the
limited purpose of performing its obligations or exercising its rights under
this Agreement.
9.2 EXCEPTIONS. The above obligations of non-disclosure and non-use
shall not apply to information which the Recipient can document:
(a) was publicly known or available at the time it was
communicated to the Recipient by the Disclosing Party;
(b) became publicly known or available subsequent to the time
it was communicated to the Recipient by the Disclosing Party through no fault of
the Recipient;
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(c) was in the Recipient's possession free of any obligation
of confidence at the time it was communicated to the Recipient by the Disclosing
Party;
(d) was rightfully communicated to the Recipient free of any
obligation of confidence subsequent to the time it was communicated to the
Recipient by the Disclosing Party;
(e) was independently developed by employees or agents of the
Recipient who had no knowledge of any Confidential Information communicated to
the Recipient by the Disclosing Party; or
(f) is or was required to be disclosed in response to a valid
order by a court or other governmental body, was otherwise required by law, or
was necessary to establish the rights of either Party vis a vis the other under
this Agreement.
9.3 AUTHORIZED DISCLOSURES
(a) Notwithstanding Sections 9.1 and 9.2 above, the Parties
hereby acknowledge each other's right to disclose Confidential Information to
Third Parties with whom they have entered into agreements for the purpose of
designing, developing, manufacturing, commercializing or using Collaboration
Products pursuant to and in accordance with the terms and conditions of this
Agreement. If either Party desires to disclose any of the other's Confidential
Information for the purposes set forth in the preceding sentence, prior to any
such disclosure the Parties shall meet to review such planned disclosure and
shall mutually agree on (i) the Confidential Information, if any, to be so
disclosed and (ii) the terms of any such disclosure, which shall include, at a
minimum, confidentiality obligations at least as stringent as those in this
Article 9.
(b) Each Party may disclose Confidential Information of the
other Party to the extent such disclosure is reasonably necessary to (i) comply
with applicable securities laws and regulations and other applicable
governmental regulations, (ii) file or prosecute patents relating to Joint
Collaboration Inventions and Collaboration Inventions and (iii) prosecute or
defend litigation relating to Collaboration Products. Notwithstanding the
foregoing, in the event a Party is required to make a disclosure of Confidential
Information as provided in this Section 9.3(b), it will give reasonable advance
notice to the other Party of such disclosure and use reasonable business efforts
to maintain the information as confidential or to secure confidential treatment
of such information. In any event, the Parties agree to take all reasonable
action to avoid disclosure of Confidential Information.
9.4 COMMUNICATION AND PUBLICITY
(a) Either prior to or promptly after the Effective Date, the
Parties shall, together with their respective counsel, meet to discuss a
strategy for public announcement of the collaboration under this Agreement in a
mutually agreed press release issued simultaneously by both Parties. Subject to
the further provisions of this Section 9.4, no Party shall originate any
subsequent written publicity, news release, or other announcement relating to
this Agreement or to performance hereunder or the existence of an arrangement
between the Parties or any
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Collaboration Product (collectively, "Written Disclosure"), without the prior
prompt review and written approval of the other. Once specific information has
been approved for disclosure, that information may be repeated in any subsequent
Written Disclosure without further approval.
(b) Notwithstanding the foregoing provisions of this Article
9, any Party may make any public Written Disclosure it believes in good faith
based upon the advice of counsel is required by applicable law or any listing or
trading agreement concerning its publicly traded securities, provided that prior
to making such Written Disclosure, the Disclosing Party shall provide the other
Party with a copy of the materials proposed to be disclosed and provide such
Party with a meaningful opportunity to review and comment on the proposed
Written Disclosure.
(c) The terms of this Agreement may be disclosed to Third
Parties so long as such disclosure is made pursuant to an agreement of
confidentiality and so long as material financial terms are not disclosed.
10. TERM AND TERMINATION
10.1 TERM.
The term ("Term") of the Agreement will commence on the
Effective Date and will expire on the earliest to occur of the date (the
"Expiration Date") which is (i) the seventh (7th) anniversary of the
Effective Date (ii) the date on which the design, development, manufacture,
commercialization or use of any Collaboration Product shall be permanently
enjoined pursuant to a Final Order, or (iii) the date on which it shall be
determined, after the Parties have exhausted the rights granted pursuant to
Article 12 hereof (other than a judicial determination), that Agilent shall
not have satisfied its obligations under Section 7.10(e) hereof, unless
earlier terminated pursuant to Section 10.2 hereof. Three hundred sixty-five
(365) days prior to the scheduled Expiration Date, the Parties shall begin
negotiations on an agreement to extend the Term for an additional [***]on
reasonable terms and conditions (and, in the event of such an agreement, the
Expiration Date shall thereafter be the date to which the Term shall be so
extended). On the Expiration Date, in the absence of a written agreement to
the contrary and to the extent not otherwise prohibited or enjoined by a
Final Order, the Parties shall be bound by Section 10.3 hereof.
10.2 EARLY TERMINATION.
A Party shall be entitled to terminate this Agreement prior
to the Expiration Date on any date (the "Early Termination Date") with [***]
prior written notice specifying such Early Termination Date in the event, but
only in the event, that (i) in material breach of the exclusive or
co-exclusive licensing or business relationships set forth in this Agreement,
the other Party shall have entered, directly or indirectly, into any
agreement, understanding or arrangement (or commitment with respect thereto)
with a Third Party regarding the design, development, manufacture,
commercialization or use (except with respect to the use by an end-user) of a
Collaboration Product, (ii) the other Party shall breach its obligations of
confidentiality contained in Article 9 hereof and, as a result thereof, such
Party shall have sustained material irreparable harm to its competitive
position generally or with respect to any Collaboration
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Product or other material product or service then offered by such Party or (iii)
a Bankruptcy Event shall have occurred with respect to the other Party.
10.3 CONSEQUENCES OF EXPIRATION.
Upon expiration of the Term of this Agreement pursuant to Section 10.1
hereof (except to the extent otherwise agreed in writing by the Parties or
prohibited or enjoined by a Final Order):
(a) PAYMENTS. On the Expiration Date, each Party shall pay the
other Party all sums accrued hereunder which are due to such other Party as of
the Expiration Date, including all revenue and royalty sharing amounts due
pursuant to Section 7 hereof.
(b) RESOLVER. On the Expiration Date, all rights granted to
Agilent by Rosetta hereunder in respect of Resolver including, without
limitation, Agilent's co-exclusive right in, to and under the Rosetta
Technology (including the [***]) to market, distribute, offer for sale, sell
and support and use for internal purposes Resolver in the Agilent Field,
shall terminate and expire. To the extent any Agilent Technology is
incorporated into the design, development, manufacture or use of Resolver or
any Component thereof as of the Expiration Date, Rosetta shall have, and
Agilent hereby grants to Rosetta, a worldwide, non-exclusive, irrevocable
license in, to and under such Agilent Technology to design, develop, use,
make, have made, market, distribute, offer for sale, sell, reproduce, prepare
derivative works, display and perform publicly and support Resolver or any
Component thereof for the duration of the term of any valid patent within the
Agilent Patents covering Resolver or any Component thereof, and Rosetta
shall, for the duration of such period, pay to Agilent a commercially
reasonable royalty on Net Revenues associated with the Royalty Bearing
Portion of Resolver taking into account the Agilent Technology so
incorporated; such royalty payments to be made at such times and pursuant to
the reports required to be delivered in accordance with Section 7.7 hereof.
In addition, Agilent shall have the right to purchase from
Rosetta, and Rosetta shall, for so long as it shall continue to offer for
sale or sell Resolver, sell Resolver to Agilent as a [***] at the lowest of
(i) [***] or (ii) [***].
(c) ARRAYS. On the Expiration Date, Rosetta shall retain the
right in, to and under the Agilent Technology to design, develop, use, support
and manufacture Arrays for internal use only (internal use includes, without
limitation, the right to use Arrays in providing commercial services to Third
Parties), and Rosetta shall retain the right to purchase Arrays pursuant to
Section 7.9 hereof. To the extent any Inkjet Technology or aspects of the
Rosetta Technology that pertain to the fabrication of Arrays is incorporated
into the development, manufacture or use of an Array or any Component thereof as
of the Expiration Date, Agilent shall have, and Rosetta hereby grants to
Agilent, a worldwide, non-exclusive, irrevocable license in, to and under such
Inkjet Technology and such aspects of the Rosetta Technology that pertain to the
fabrication of Arrays to manufacture, offer for sale and sell Arrays
including in connection with [***] except in connection with the field of
[***] for the later of (i) the duration of the term of any valid patent
within the licensed Inkjet Technology or
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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such aspects of the Rosetta Technology that pertain to the fabrication of
Arrays covering the design, manufacture or use of an Array or any Component
thereof or (ii) for so long (but in no event beyond the [***] of the
Expiration Date) as any Rosetta Know-How incorporated therein is material to
the design, development, manufacture or use of an Array or any Component
thereof, and Agilent shall, for the duration of such period, pay Rosetta a
commercially reasonable royalty on Net Revenues of such Arrays taking into
account the Rosetta Technology so incorporated (as evidenced by the royalty
rate, if any, in effect as of the Expiration Date); such royalty payments to
be made at such times and pursuant to the reports required to be delivered in
accordance with Section 7.7 hereof.
(d) PAMELA SYSTEM. On the Expiration Date, all rights
granted to Rosetta by Agilent hereunder in respect of the Pamela System
(other than the right to use the Pamela System for internal purposes,
including the right to use the Pamela System in providing commercial services
to Third Parties) shall terminate and expire. To the extent any Rosetta
Technology is incorporated into the design, development, manufacture or use
of the Pamela System as of the Expiration Date, Agilent shall have, and
Rosetta hereby grants to Agilent, a worldwide, non-exclusive, irrevocable
license in, to and under Rosetta Technology to develop, use, manufacture,
market, offer for sale, sell and support the Pamela System and any Component
thereof for the later of (i) the duration of the term of any valid patent
within the Rosetta Patents covering the design, manufacture or use of the
Pamela System or any Component thereof or (ii) for so long (but in no event
beyond the [***] of the Early Termination Date) as any Rosetta Know-How
incorporated therein is material to the design, development, manufacture or
use of the Pamela System or any Component thereof, and if on or prior to such
date Agilent shall have agreed or otherwise paid to Rosetta a royalty with
respect to Rosetta Technology incorporated into the design, development,
manufacture or use of the Pamela System, Agilent shall, for the duration of
such period, pay Rosetta a commercially reasonable royalty on Net Revenues
associated with the Royalty Bearing Portion of the Pamela System taking into
account the Rosetta Technology so incorporated (as evidenced by the royalty
rate in effect as of the Expiration Date); such royalty payments to be made
at such times and pursuant to the reports required to be delivered in
accordance with Section 7.7 hereof.
(e) NON-COLLABORATION PRODUCTS AND NEW PRODUCTS THAT BECOME
COLLABORATION PRODUCTS. The provisions of this Agreement and the arrangements of
the Parties for any royalties or other amounts owed one to the other on the sale
or other disposition of Non-Collaboration Products or New Products that become
Collaboration Products shall remain unchanged (unless otherwise agreed in
writing) due to the expiration of the Term.
(f) OLIGO SET DESIGN SERVICES. In the event this Agreement
expires pursuant to 10.1, the Parties shall agree on an allocation of rights
subsequent to the Expiration Date in respect of Oligo Set Design Services. The
Parties agree to allocate such rights in a manner consistent with and to the
extent possible to preserve the relative competitive positions and allocation of
expenses of the Parties after the Expiration Date with respect to such Oligo Set
Design Services.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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(g) ROSETTA OBLIGATIONS REGARDING RESOLVER. Rosetta shall
use commercially reasonable efforts for a period of [***] after the
Expiration Date to support and maintain versions of Resolver sold prior to
the Expiration Date to the installed customer base of Pamela System users,
but only for so long as any such customers use the then most current version
of Resolver.
10.4 CONSEQUENCES OF EARLY TERMINATION. Upon the early termination of
this Agreement pursuant to Section 10.2 (except to the extent otherwise agreed
in writing by the Parties):
(a) PAYMENTS. Each Party shall have the right to retain any
sums paid to it by the other as of the Early Termination Date, and each Party
shall on the Early Termination Date pay the other Party all sums accrued
hereunder which are due to such other Party, including all revenue and royalty
sharing amounts due pursuant to Article 7 hereof.
(b) RESOLVER. In the event Rosetta shall terminate this
Agreement pursuant to Section 10.2, all rights granted to Agilent by Rosetta
hereunder in respect of Resolver including, without limitation, Agilent's
co-exclusive right in, to and under the Rosetta Technology (including the [***])
to market, distribute, offer for sale, sell, support and use for internal
purposes Resolver in the Agilent Field, shall terminate and expire as of the
Early Termination Date. To the extent any Agilent Technology is incorporated
into the design, development, manufacture or use of Resolver or any Component
thereof as of the Early Termination Date, Rosetta shall have, and Agilent
hereby grants to Rosetta, a worldwide, non-exclusive, irrevocable license in,
to and under Agilent Technology to design, develop, use, make, have made,
market, distribute, offer for sale, sell, reproduce, prepare derivative
works, display and perform publicly and support Resolver or any Component
thereof for the duration of the term of any valid patent within the Agilent
Patents covering Resolver or any Component thereof and Rosetta shall, for the
duration of such period, pay to Agilent a royalty equal to [***] on Net
Revenues associated with the Royalty Bearing Portion of Resolver taking into
account the Agilent Technology so incorporated; such royalty payments to be
made at such times and pursuant to the reports required to be delivered in
accordance with Section 7.7 hereof.
In the event Agilent shall terminate this Agreement
pursuant to Section 10.2, Agilent shall, as of the Early Termination Date,
have the right to purchase from Rosetta, and Rosetta shall, for so long as it
shall continue to offer for sale or sell Resolver, sell Resolver to Agilent
as [***] at the lowest of (i) [***] or (ii) [***].
In the event Rosetta shall not as of the Early Termination
Date or at any time thereafter continue to offer for sale or sell Resolver,
Agilent shall have, and Rosetta hereby grants to Agilent, a non-exclusive,
worldwide (outside of [***]), irrevocable license in, to and under the Rosetta
Technology to design, develop, use, make, have made, market, distribute, offer
for sale, sell, reproduce, prepare derivative works, display and perform
publicly and support
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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Resolver and any Component thereof for the later of (i) the duration of the
term of any valid patent within the Rosetta Patents covering Resolver or any
Component thereof or (ii) for so long (but in no event beyond the [***] of
the Early Termination Date) as Rosetta Know-How incorporated therein remains
material to the design, development, manufacture or use thereof and Agilent
shall, for the duration of such period, pay to Rosetta commercially
reasonable royalty on Net Revenues associated with the Royalty Bearing
Portion of Resolver or any other software product offered for sale by Agilent
incorporating such Rosetta Technology into the design, development,
manufacture or use thereof. Upon the request of Agilent at any time after
Rosetta shall no longer be offering for sale or selling Resolver, Rosetta
shall provide Agilent the source code and related documentation therefor.
(c) ARRAYS. In the event either Rosetta or Agilent shall
terminate this Agreement pursuant to Section 10.2 hereof, Rosetta shall have,
and Agilent hereby grants, a fully paid, world-wide, non-exclusive, irrevocable,
royalty free license under the Agilent Technology to design, develop, use,
support and manufacture Arrays for internal use only (internal use includes,
without limitation, the right to use Arrays in providing commercial services to
Third Parties).
In the event Rosetta shall terminate this Agreement
pursuant to Section 10.2 hereof, as of the Early Termination Date, Rosetta
shall have right to purchase from Agilent, and Agilent shall, for so long as
it shall continue to offer for sale or sell Arrays, be obligated to sell to
Rosetta, Arrays at a [***] the price charged to Rosetta for Arrays pursuant
to Section 7.9 hereof, provided that if Agilent shall terminate this
Agreement pursuant to Section 10.2, Rosetta shall not have the right to any
special pricing of Arrays.
In the event after any termination pursuant to Section 10.2
Agilent shall continue to offer for sale or sell Arrays incorporating Inkjet
Technology or aspects of the Rosetta Technology that pertain to the
fabrication of Arrays in the development, manufacture or use thereof, Agilent
shall have, and Rosetta hereby grants to Agilent, a worldwide, non-exclusive,
irrevocable license in, to and under the Inkjet Technology or such aspects of
the Rosetta Technology that pertain to the fabrication of Arrays to
manufacture, market, offer for sale, sell and support Arrays (including in
connection with [***]) except in connection with the field of
[***] for the later of (i) the duration of the term of any valid patent
within the licensed Inkjet Technology or such aspects of the Rosetta
Technology that pertain to the fabrication of Arrays covering the design,
manufacture or use of an Array or any Component thereof or (ii) for so long
(but in no event beyond the [***] of the Early Termination Date) as Rosetta
Know-How incorporated therein remains material to the design, development,
manufacture or use of an Array or any Component thereof, and Agilent shall,
for the duration of such period, pay Rosetta a royalty equal to (A) [***] (if
Rosetta shall have terminated this Agreement pursuant to Section 10.2) or (B)
[***] (if Agilent shall have terminated this Agreement pursuant to Section
10.2), times the royalty (calculated on a percentage basis), if any, required
to be paid to Rosetta in connection with Net Revenues of such Arrays as of
the Early Termination Date, or if there shall not as of the Early Termination
Date be in effect any such royalty payment obligation, a royalty equal to (A)
[***] (if Rosetta shall have terminated this Agreement pursuant to Section
10.2) or (B) [***] (if Agilent shall
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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have terminated this Agreement pursuant to Section 10.2) times the royalty
(calculated on a percentage basis) that would otherwise constitute a
commercially reasonable royalty taking into account the Rosetta Technology so
incorporated; such royalty payments to be made at such times and pursuant to the
reports required to be delivered in accordance with Section 7.7 hereof.
(d) PAMELA SYSTEM. In the event Rosetta shall terminate
this agreement pursuant to Section 10.2, all rights granted to Agilent by
Rosetta hereunder in respect of the Pamela System (other than the right to
use the Pamela System for internal purposes) shall terminate and expire as of
the Early Termination Date. To the extent any Rosetta Technology is
incorporated into the design, development, manufacture or use of the Pamela
System or any Component thereof as of the Early Termination Date, Agilent
shall have, and Rosetta hereby grants to Agilent, a worldwide (outside of
[***]), non-exclusive, irrevocable license in, to and under the Rosetta
Technology to manufacture, market, offer for sale, sell and support the
Pamela System or any Component thereof, for the later of (i) the duration of
the term of any valid patent within the Rosetta Patents covering the design,
manufacture or use of the Pamela System or any Component thereof or (ii) for
so long (but in no event beyond the [***] of the Early Termination Date) as
Rosetta Know-How incorporated therein remains material to the design,
development, manufacture or use thereof, and if on or prior to such date
Agilent shall have agreed or otherwise paid to Rosetta a royalty with respect
to Rosetta Technology incorporated into the design, development,
manufacturing or use of the Pamela System, Agilent shall, for the duration of
such period, pay to Rosetta a royalty equal to [***] times the royalty
(calculated on a percentage basis) paid to Rosetta in connection with Net
Revenues associated with the Royalty Bearing Portion of any Pamela System
taking into account the Rosetta Technology so incorporated (as evidenced by
the royalty rate in effect as of the Early Termination Date); such royalty
payments to be made at such times and pursuant to the reports required to be
delivered in accordance with Section 7.7 hereof.
In the event Agilent shall terminate this Agreement
pursuant to Section 10.2, all rights granted to Rosetta by Agilent hereunder
in respect of the Pamela System (other than the right to use the Pamela
System for internal purposes) shall terminate and expire as of the Early
Termination Date. To the extent any Rosetta Technology is incorporated into
the design, development, manufacture or use of the Pamela System or any
Component thereof as of the Early Termination Date, Agilent shall have, and
Rosetta hereby grants to Agilent, a worldwide, non-exclusive, irrevocable
license in, to and under Rosetta Technology to manufacture, market, offer for
sale, sell and support the Pamela System and any Component thereof, for the
later of (i) the duration of the term of any valid patent within the Rosetta
Patents covering the design, manufacture or use of the Pamela System or any
Component thereof or (ii) for so long (but in no event beyond the [***] of
the Early Termination Date) as Rosetta Know-How incorporated therein remains
material to the design, development, manufacture or use thereof, and if on or
prior to such date Agilent shall have agreed or otherwise paid to Rosetta a
royalty with respect to Rosetta Technology incorporated into the design,
development, manufacture or use of the Pamela System, Agilent shall, for the
duration of such period, pay Rosetta a royalty equal to [***] of the royalty
(calculated on a percentage basis) required to be paid to Rosetta in
connection with Net Revenues associated with the Royalty Bearing Portion of
any Pamela System taking into account the Rosetta Technology so incorporated
(as evidenced by the royalty
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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rate in effect as of the Early Termination Date); such royalty payments to be
made at such times and pursuant to the reports required to be delivered in
accordance with Section 7.7 hereof.
(e) OLIGO SET DESIGN SERVICES AND OTHER COLLABORATION
PRODUCTS. In the event this Agreement is terminated by either Party pursuant to
Section 10.2, the Parties shall agree on an allocation of rights subsequent to
the Early Termination Date in respect of Oligo Set Design Services and
Collaboration Products which became Collaboration Products during the Term
pursuant to Section 2.2 hereof. The Parties agree to allocate such rights in a
manner consistent with the terms governing the allocation of rights with respect
to the Collaboration Products expressly set forth herein, and to the extent
possible to preserve the relative competitive positions of the Parties with
respect to such Oligo Set Design Services and Collaboration Products which
became Collaboration Products during the Term pursuant to Section 2.2 hereof.
(f) NON-COLLABORATION PRODUCTS AND NEW PRODUCTS THAT BECOME
COLLABORATION PRODUCTS. The provisions of this Agreement and the arrangements of
the Parties for any royalties or other amounts owed one to the other on the sale
or other disposition of Non-Collaboration Products or New Products that become
Collaboration Products shall remain unchanged (unless otherwise agreed in
writing) in the event of any termination by any Party pursuant to Section 10.2.
11. INDEMNIFICATION AND LIMITATION OF LIABILITY
11.1 INDEMNIFICATION BY ROSETTA. Rosetta shall (i) indemnify and hold
harmless Agilent, its Affiliates, and all their officers, directors, employees
and agents, for any losses, claims, damages, judgments, assessments, costs and
other liabilities, including reasonable out-of-pocket costs and expenses as they
are incurred by Agilent in connection with any demands, law suits and other
legal actions by Third Parties against Agilent arising from any gross negligence
or willful misconduct by Rosetta, its Affiliates, agents or sublicensees,
provided, however, for purposes of this Section 11.1(i), neither gross
negligence nor willful misconduct shall be deemed to include conduct determined
to be infringement of patent, copyright, trademark, trade name, other
proprietary right, or an unauthorized use of a trade secret and (ii)
notwithstanding clause (i) of this Section 11.1 at Agilent's option, indemnify,
defend and hold harmless Agilent, its Affiliates and subsidiaries, and their
respective officers, directors, employees, agents and customers (but only to the
extent Agilent or any of its Affiliates or subsidiaries is contractually
obligated to indemnify such customers) for any claims, damages, judgments,
assessments, costs and other liabilities, including reasonable out-of-pocket
costs and expenses as they are incurred by Agilent in connection with any claim,
suit, or proceeding alleging that Resolver, including Resolver support and
maintenance services, or Oligo Set Design Services provided by Rosetta
(excluding any Component of or Collaboration Product Enhancement to Resolver or
such Oligo Set Design Services for which Agilent has Engineering
Responsibility), or any other Collaboration Product for which Rosetta has
Engineering Responsibility (unless otherwise agreed) or any documentation
relating to such products and services (all such products, services and
documents hereinafter referred to as "Rosetta Indemnification Products"),
constitutes an infringement of any Third Party's patent, copyright, trademark,
trade name, other proprietary right, or an unauthorized use of a trade secret.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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11.2 INDEMNIFICATION BY AGILENT. Agilent shall (i) indemnify and hold
harmless Rosetta, its Affiliates, and all their officers, directors, employees
and agents, for any losses, claims, damages, judgments, assessments, costs and
other liabilities, including reasonable out-of-pocket costs and expenses as they
are incurred by Rosetta in connection with any demands, law suits and other
legal actions by Third Parties against Rosetta arising from any gross negligence
or willful misconduct by Agilent, its Affiliates, agents or sublicensees,
provided, however, for purposes of this Section 11.2(i), neither gross
negligence nor willful misconduct shall be deemed to include conduct determined
to be infringement of patent, copyright, trademark, trade name, other
proprietary right, or an unauthorized use of a trade secret and (ii)
notwithstanding clause (i) of this Section 11.1, at Rosetta's option, indemnify,
defend and hold harmless Rosetta, its Affiliates and subsidiaries, and their
respective officers, directors, employees, agents and customers (but only to the
extent Rosetta or any of its Affiliates or subsidiaries is contractually
obligated to indemnify such customers) for any claims, damages, judgments,
assessments, court costs and other liabilities, including reasonable
out-of-pocket costs and expenses as they are incurred by Rosetta in connection
with any claim, suit, or proceeding alleging that Arrays or the Pamela System or
any Component of either thereof (excluding any Component of or Collaboration
Product Enhancement to an Array or the Pamela System for which Rosetta has
Engineering Responsibility), or any other Collaboration Product for which
Agilent has Engineering Responsibility (unless otherwise agreed) or any
documentation relating to such products (all such products and documents
hereinafter referred to as "Agilent Indemnification Products"), constitutes an
infringement of any Third Party's patent, copyright, trademark, trade name,
other proprietary right, or an unauthorized use of a trade secret.
11.3 INJUNCTIONS. In case any Rosetta Indemnification Product or
Agilent Indemnification Product, as the case may be, or any Component of any
thereof is held to constitute an infringement and its use is enjoined, Rosetta
or Agilent, as the case may be, shall at its own expense, at its option (i)
procure the right for the Indemnitee to continue to use the Rosetta
Indemnification Product or the Agilent Indemnification Product, as the case may
be, or (ii) if applicable, replace the same with a non-infringing product,
service or documentation of equivalent function and performance, or (iii) modify
such product, service or documentation such that it shall be noninfringing
without materially detracting from its function or performance. In the event
that, through the exercise of reasonable commercial efforts, the Indemnitor is
unable to accomplish any of the three (3) options, further performance under
this Section 11.3 is excused.
11.4 CONDITIONS AND LIMITATIONS OF INDEMNIFICATION OBLIGATION.
(a) In order to maintain the right to be indemnified by the
other Party ("Indemnitor"), the Party claiming indemnification ("Indemnitee")
must:
(i) notify the Indemnitor promptly after learning of
any legal action undertaken by a Third Party and related to the subject matter
of this Article 11 (a "Third Party Claim");
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
(ii) allow the Indemnitor to manage and control (by
way of intervention or otherwise) the defense and settlement of any such Third
Party Claim against the Indemnitee;
(iii) cooperate with the Indemnitor in the defense or
the settlement negotiations of Third Party Claims as reasonable required by the
Indemnitor; and
(iv) abstain from making any statements or taking any
actions which damage the defense against a Third Party Claim (including, without
limitation, any statements against the interest of the Indemnitee or admissions
of causation or guilt).
(b) The Indemnitor shall not agree to any settlement that
adversely affects the Indemnitee's rights or interest without the Indemnitee's
prior written approval (which approval shall not be unreasonably withheld).
(c) The Indemnitor shall have no obligation to indemnify the
Indemnitee to the extent that a Third Party Claim results from the negligence or
willful misconduct of the Indemnitee.
11.5 LIMITATION OF LIABILITY. SUBJECT TO THE INDEMNIFICATION OBLIGATION
SET FORTH HEREIN AND UNLESS OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT,
NEITHER PARTY WILL BE LIABLE TO THE OTHER WITH RESPECT TO THE SUBJECT MATTER OF
THIS AGREEMENT FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL, OR PUNITIVE
DAMAGES, OR LOST PROFITS OR THE COST OF PROCUREMENT OF SUBSTITUTE GOODS,
TECHNOLOGY OR SERVICES REGARDLESS OF WHETHER ANY SUCH CLAIM FOR DAMAGES, LOST
PROFITS OR OTHER COSTS IS BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL
THEORY, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11.6 RISK OF FAILURE; NO REPRESENTATIONS. The Parties recognize that
risk is inherent in development efforts such as those being undertaken in this
Agreement. Both Parties voluntarily assume this risk. Accordingly, a failure of
any Agilent Technology, Rosetta Technology or Collaboration Product developed
under this Agreement to perform as desired despite the reasonable efforts of the
responsible Party or Parties will not be deemed to be a breach of this
Agreement. NO PARTY MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
WITH RESPECT TO PATENTS OWNED OR LICENSED BY THEM, OR ANY KNOW-HOW OR
COLLABORATION PRODUCTION INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
NONINFRINGEMENT, PATENTABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
12. DISPUTES BETWEEN THE PARTIES
12.1 SCOPE AND PURPOSE OF THIS ARTICLE. The purpose of this Article 12
is to set forth the procedures pursuant to which the Parties intend in good
faith to resolve any and all disagreements and disputes arising under or related
to this Agreement or its making, or the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
activities of the Parties in connection with their efforts hereunder
(collectively, "Disputes"), provided, however, neither Party will be bound by
this Article 12 in the event any Dispute arises under or relating to Section
10.2 or Section 10.4 of this Agreement. The Parties shall follow these
procedures fully and exhaustively before initiating any litigation to resolve
any Dispute. However, nothing herein shall prevent a Party from filing suit
seeking equitable relief (mandatory or prohibitive) to prevent what it perceives
as imminent, irreparable harm or to compel a Party to specifically perform in
accordance with this Article 12, particularly Section 12.4, provided that if
such relief is granted, the Parties will stipulate that any further proceedings
in such suit shall be stayed pending the completion of the procedures set forth
herein. These procedures do not apply to any claims by unrelated Parties. The
Parties stipulate that the running of any applicable statute of limitations
shall toll effective upon the first notice given under Section 12.2 until thirty
(30) days after the completion of the mediation process provided in Section
12.4.
12.2 NOTICE OF DISPUTE. A Party ("Notifying Party") that perceives a
Dispute with the other Party subject to this Section 12 may notify the other
Party in writing of any Disputes that it wants resolved. The Notifying Party
shall include in the notice a detailed statement of the Disputes and a summary
of the evidence and arguments supporting the position asserted. The other Party
("Responsive Party") shall respond to the notice within ten (10) days after
receipt thereof and may include with its response a cross-notice of any Disputes
that the Responsive Party wants resolved. If a Responsive Party raises an
additional Dispute, the Notifying Party shall then respond to such cross-notice
within seven (7) days after receipt of the Responsive Party's cross-notice. All
notices, cross-notices and responses shall be in writing and sent by facsimile
with a confirming copy sent by first class mail.
12.3 UNAIDED NEGOTIATIONS BETWEEN THE PARTIES. Initially the
Collaboration Managers shall meet at a mutually acceptable time and place within
fourteen (14) days after delivery of the final response, and thereafter as often
as they deem necessary, to exchange relevant information and attempt to resolve
the dispute. If the matter is not resolved by the Collaboration Managers within
thirty (30) days of receipt of the Notifying Party's first written notice, or if
such Collaboration Managers fail to meet within fourteen (14) days after
delivery of the final response, the Dispute shall be referred to the Executive
Sponsors. The Executive Sponsors shall likewise meet, with or without the
respective Collaboration Managers, at a mutually acceptable time and place
within ten (10) days after such referral, and thereafter as often as they
reasonably deem necessary, to exchange information and attempt to resolve the
Dispute. All meetings to be held under this Section 12.3 may be held in person,
or may be held by means of telephone or similar communications equipment.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
12.4 NON-BINDING MEDIATION.
(a) COMMENCEMENT OF NON-BINDING MEDIATION. If the Parties
involved in the Dispute have not succeeded in negotiating a resolution of the
Dispute through unaided negotiations as contemplated in Section 12.3, within
thirty (30) days of the first meeting of the Executive Sponsors, or if the
Executive Sponsors do not meet within ten (10) days after such referral, the
Notifying Party may initiate the process for having a formal mediation conducted
by an impartial mediator. The Parties shall select a mediator, who shall have a
background in the industry or subject matter of the Dispute, acceptable to each
Party involved in the Dispute. If all Parties involved in the Dispute do not
agree on the selection of a mediator, any Party to the Dispute may apply to the
court for appointment of a mediator. The person selected or appointed shall be
required, as a condition of serving as the mediator, to sign an agreement
providing that (a) the mediator hold in confidence and not disclose to any other
person any information, or material (whether disclosed orally or in writing)
that a Party designates as confidential and (b) the mediator be disqualified as
a trial witness, consultant, or expert of a Party, except for the limited
purpose of providing any agreed settlement. Within five (5) days of the
selection or appointment of the mediator, each Party involved in the Dispute
shall submit to the mediator all dates within the following sixty (60) days when
it would be available for mediation. The mediator shall select the date for the
mediation. The mediation shall be conducted in Santa Clara County, California in
the event the Notifying Party is Rosetta, and in King County, Washington in the
event Agilent is the Notifying Party.
(b) CONDUCT OF MEDIATION. The mediation shall be conducted in
accordance with the then current Model Procedure for Mediation of Business
Disputes promulgated by the Center for Public Resources, except as otherwise
provided herein or as the Parties involved in the Dispute may otherwise agree in
writing. The Parties may engage in discovery in accordance with the procedures
that the Parties adopt, or in the absence of such agreement, in accordance with
the procedures set out in such Model Procedure or as allowed by the mediator. At
least seven (7) days prior to the date set for the mediation, each Party
involved in the Dispute shall deliver to the other Party and the mediator any
documents, exhibits, briefs, or other materials it intends to introduce or offer
during the course of the mediation. The mediator may not consider any written,
graphic or visual information not so provided. Each Party involved in the
Dispute shall appear when directed by the mediator and be fully prepared to
discuss in good faith a resolution of all Disputes. No Party involved in the
Dispute shall have any ex parte contact with the mediator, unless such contact
is initiated by the mediator.
(c) EFFECT OF DECISION OR SETTLEMENT. The decision of the
mediator shall be in all respects non-binding. However, the Parties involved in
the Dispute may at any time enter into an enforceable, written settlement
agreement.
(d) CONFIDENTIALITY. All discussions, offers, notices,
responses or other oral or written statements made in connection with the
procedures set out in this Section 12.4 shall be treated as settlement
negotiations within the meaning of Federal Rule of Evidence 408 or the
applicable State counterpart. Evidence of conduct or statements made in
connection with these procedures shall not be admissible in any other forum or
proceeding, except to prove the terms of
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
an agreed settlement. This Section 12.4(d) does not require the exclusion of any
evidence, otherwise admissible, because of its use or disclosure in connection
with these procedures.
12.5 LITIGATION. If, after completing the above procedures set out in
Section 12.4, the Parties involved in the Dispute have not resolved fully all
Disputes, any Party involved in an unresolved Dispute may file suit in such
jurisdiction as it shall deem appropriate.
12.6 GOVERNING LAW. This Agreement and all questions, claims, disputes,
remedies or procedural matters relating to Disputes under this Agreement shall
be interpreted in accordance with and governed exclusively by the laws of the
State of California, U.S.A., without regard to the principles of conflicts of
law.
13. MISCELLANEOUS
13.1 EFFECTS OF BANKRUPTCY. The Parties understand and agree that the
rights and licenses granted under or pursuant to this Agreement by one Party to
the other are, for all purposes of Section 365(n) of Title 11 of the United
States Code, licenses of rights to "intellectual property" as defined in Title
11, and that each Party, as licensee of such rights under this Agreement shall
retain and may fully exercise all of its rights and elections under Title 11.
13.2 FORCE MAJEURE. Neither Party shall lose any rights hereunder or be
liable to the other Party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by government
action, war, fire, earthquake, explosion, flood, strike, lockout, embargo, act
of God, or any other similar or dissimilar cause beyond the control of the
defaulting Party, provided that the Party claiming force majeure has exerted all
reasonable efforts to avoid or remedy such force majeure.
13.3 NO RECRUITING. Neither Party shall solicit or seek to employ any
person who is an employee of the other Party during the term of this Agreement
and for [***] thereafter. However, this clause does not prevent either Party
from engaging in recruiting activities directed to the community at large and
not targeted specifically at employees of the other, even if such activities
result in recruiting an employee of the other. This shall not preclude either
Party from receiving and accepting unsolicited applications from such employees.
13.4 ASSIGNMENT; CONFLICT.
(a) Except as expressly permitted by this Agreement, neither
Party may assign any of its rights or obligations under this Agreement to a
Third Party except in connection with a merger, acquisition or similar
reorganization or the sale of all or substantially all of its assets, or
otherwise with the prior written consent of the other Party. This Agreement
shall survive any such merger, acquisition or reorganization of either Party
with or into, or such sale of assets to, another Party and no consent for such
merger, acquisition, reorganization or sale shall be required hereunder;
provided, that in the event of such merger, acquisition, reorganization or sale,
no intellectual property rights of the acquiring corporation shall be included
in the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
technology licensed hereunder. With regard to Agilent, this Section shall refer
to Agilent's Chemical Analysis Group and not the entire company.
(b) This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Parties. Any assignment
not in accordance with this Agreement shall be void. Not withstanding any
provisions in this Agreement to the contrary, upon the transfer of the
Hewlett-Packard Company assets and personnel dealing with the subject matter of
this Agreement to Agilent Technologies, Inc., on or about November 1, 1999, this
Agreement shall on such date be automatically transferred to, and shall be
binding upon, Agilent Technologies, Inc.
(c) If any term, condition or provision of the Business Plan,
Development Plan, Manufacturing Plan, Marketing Plan or Product Plan conflicts
with any term, condition or provision of this Agreement, this Agreement shall
control.
13.5 SEVERABILITY. If any term, condition or provision of this
Agreement is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the Parties to
this Agreement to the extent possible. In any event, all other terms, conditions
and provisions of this Agreement shall be deemed valid and enforceable to the
full extent.
13.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.
13.7 ENTIRE AGREEMENT; AMENDMENTS IN WRITING. This Agreement and the
Stock Purchase Agreement described in Section 7.1 together comprise the entire
understanding between the Parties with respect to their subject matter and
supersede any previous communications, representations, or agreements (including
the HR-1 Agreement, whether oral or written. All information heretofore
exchanged between the Parties pursuant to the Confidentiality Agreement
heretofore entered into between the Parties will henceforth be subject to the
applicable provisions of this Agreement. For purposes of construction, this
Agreement will be deemed to have been drafted by both Parties. No modification
of this Agreement will be binding on either Party unless in writing and signed
by an authorized representative of each Party.
13.8 NOTICE. Any notice or other communication required or permitted to
be given to either Party hereto shall be in writing and shall be deemed to have
been properly given and to be effective on the date of delivery if delivered in
person, by facsimile or by nationally recognized express courier, or effective
fourteen (14) days after mailing by U.S. Postal Service, postage prepaid, as
Registered or Express Mail, postage paid, to the other Party at the following
address:
Rosetta: Rosetta Inpharmatics, Inc.
12040 - 115th Ave. NE
Kirkland, WA 98034
Attn.: President
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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With copy to:
Venture Law Group
4750 Carillon Point
Kirkland, WA 98033
Attn.: William Ericson
Agilent: Hewlett-Packard Company
3500 Deer Creek Road
Palo Alto, CA 94304
Attn.: General Manager, Bioscience Products
with copy to:
Hewlett-Packard Company
Corporate Legal Dept.
3000 Hanover St.
Palo Alto, CA 94304
Attn.: General Counsel
Either Party may change its address for communications by a notice to
the other Party in accordance with this section.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.
ROSETTA INPHARMATICS, INC. HEWLETT-PACKARD COMPANY
By: By:
--------------------------------- --------------------------------
SIGNATURE PAGE TO
GENE EXPRESSION COLLABORATION AGREEMENT
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Exhibit 10.30
EXHIBIT A
BSP US PATENTS AND APPLICATIONS
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
EXHIBIT B
COLLABORATION PRODUCTS
The Collaboration Products include the following:
1. Arrays (as defined in the Agreement)
2. Resolver (as defined in the Agreement
3. Oligo Set Design Services (as defined in the Agreement)
4. Pamela System (as defined in the Agreement)
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-3-
<PAGE>
EXHIBIT C
INK JET PATENTS
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-4-
<PAGE>
EXHIBIT D
OLIGO SET DESIGN PATENTS
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
EXHIBIT E
FEATURES OF RESOLVER-TM- SOFTWARE
IMAGE VIEWER
View and interpret images representing primary data for a given profiling
technology.
PLOT VIEWER
A flexible plotting engine for experiments, profiles. and genes with powerful
analytical features to help decision making and the presentation of results.
TABLE VIEWER
View expression data for experiments, profiles, and genes in a customizable
spreadsheet format. Sort & export data for use in other applications. Rearrange,
show, or hide columns to tailor the display to the user's needs.
CORRELATION PLOT VIEWER
Using the Correlation Plot Viewer, pairs of genes, profiles, or experiments in
the user's gene expression database can be quickly compared.
SYNCHRONIZATION
Synchronization refers to the Resolver application's ability to share selected
data among many different tools. Use synchronization to quickly and effectively
visualize and analyze data identified in one tool using a second tool.
ROLE-BASED SECURITY SYSTEM
The role-based security system delivered with the Resolver application provides
row-level access control for all cell lines, tissues, hybridizations, profiles,
and experiments.
PERSISTENT USER PROFILES
Persistent user profiles allow all users to set preferences for the way they use
the Resolver application-table configuration, statistical cutoffs, highlighting,
etc., and have those same options in place the next time they use the Resolver,
even if the system is accessed using another client machine.
ANNOTATION MANAGERS FOR CELL LINES/TISSUES, NUCLEIC ACID PREPARATIONS (PREPS),
AND HYBRIDIZATIONS (HYBS)
The Resolver application includes spreadsheet-like interfaces and forms for
scientists to effectively manage cell lines and tissues, RNA samples,
hybridizations, and experiments tracked within the system.
QUALITY STATISTICS
The Resolver application includes easy-to-understand quality statistics,
including P-values on every gene expression measurement. Using these statistics,
even the subtlest transcriptional responses can be characterized by repeating
expression profiles and combining them into statistically averaged experiments
within the Resolver application.
ROSETTA ARRAY SEARCH TOOL ("ROAST")
Use ROAST (Rosetta Array Search Tool), to compare one gene, experiment, or
expression profile against others in the database. This tool is analogous to the
BLAST sequence analysis tool.
USER-DEFINED BIOSETS
Use the BioSets features in the Resolver application to group and store
collections of genes or experiments of interest and perform set manipulation on
these groups. Add annotation and comments to BioSets and, if desired, share them
collaboratively with other Resolver users.
COMMENT SYSTEM
An easy-to-use comment system allows users to add or view comments about genes,
experiments, expression profiles, or BioSets and even respond to comments made
by other users. View comments in hierarchical newsgroup-like format or in table
format.
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-6-
<PAGE>
INSTALINKR~ PRODUCTIVITY LINK SYSTEM
Use InstaLink to quickly access bioinformatics resources within the Resolver
application, on the World Wide Web, or on the user's Intranet that aid in the
analysis of a particular datapoint within the application. Medline, Entrez, and
other databases can be searched with two clicks using this feature. The user can
add personalized productivity links to Internet and Intranet sites.
CLUSTER ANALYSIS ENGINE
Analyze gene expression data, and identify co-regulated gene sets and classes of
similar compounds using a high-performance, flexible cluster analysis engine.
CLUSTER TREE VIEWER
Visualize and analyze data from the Cluster Analysis Engine in a compact,
convenient hyperbolic display. Search for genes or experiments of interest, and
zoom, magnify, move, or rotate trees to identify clusters of interest.
SERVER ADMINISTRATION TOOLS
Use these configuration interfaces and control panels to administer and
customize the Resolver application.
- -------------
* Resolver is a trademark of Rosetta Inpharmatics. Inc.
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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<PAGE>
EXHIBIT F
ROSETTA PATENTS
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-8-
<PAGE>
EXHIBIT G
POTENTIAL RESOLVER TAP SALES CUSTOMERS
CUSTOMER NAME
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-9-
<PAGE>
EXHIBIT H
PERMITTED ARRAY MANUFACTURING SUB-LICENSES
COMPANY NAME
None established or identified as of the Effective Date
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-10-
<PAGE>
EXHIBIT I
PERMITTED PAMELA MANUFACTURING SUB-LICENSES
COMPANY NAME
[***]
PERMITTED PAMELA DISTRIBUTORS
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-11-
<PAGE>
EXHIBIT J
PERMITTED RESOLVER DISTRIBUTORS
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-12-
<PAGE>
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-13-
<PAGE>
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-14-
<PAGE>
EXHIBIT K
PREFERRED ESCROW AGREEMENT
SEE TAB 3
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-15-
<PAGE>
EXHIBIT L
ROYALTY-BEARING COLLABORATION PRODUCTS
[***]
- ----------
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-16-
<PAGE>
Exhibit 10.31
THIS AGREEMENT is made on 16 March, 2000
BETWEEN
(1) OXFORD GENE TECHNOLOGY IP LIMITED a company incorporated in England and
Wales under number 3845467, whose registered office is at 12 School Road,
Kidlington, Oxford OX5 2HB, England ("OGT"); and
(2) ROSETTA INPHARMATICS, INC., a Delaware corporation whose principal
executive offices are at 12040 115th Ave, NE, Kirkland, WA 98034, USA
("ROSETTA")
RECITALS
(A) OGT controls patents and pending applications relating to Nucleic Acid
Arrays (as defined herein) and related technology.
(B) OGT has agreed to grant and Rosetta has agreed to take a license under
such patents subject to and in accordance with the terms of this
Agreement.
(C) Rosetta has exclusively licensed to Agilent Technologies, Inc., a Delaware
corporation (as successor in interest to certain holdings of the
Hewlett-Packard Company) ("AGILENT"), certain Inkjet Patents pursuant to
that certain Gene Expression Collaboration Agreement dated as of October
1, 1999 (the "ROSETTA/AGILENT COLLABORATION AGREEMENT") between Rosetta
and Agilent.
(D) Agilent may, with the consent of Rosetta and pursuant to the
Rosetta/Agilent Collaboration Agreement, sublicense certain of its rights
in, to and under the Inkjet Patents.
(E) Oxford Gene Technology (operations) Ltd. ("OGT OPERATIONS") (a
Wholly-owned Subsidiary of OGT) and Agilent have entered into a Supply
Agreement and License dated as of December 6, 1999 (the "OGT/AGILENT
AGREEMENT") pursuant to which Agilent has, subject to the consent of
Rosetta, sublicensed certain of its rights in, to and under the Inkjet
Patents.
(F) Rosetta will consent to the sublicense to OGT Operations by Agilent of
certain rights in, to and under the Inkjet Patents subject to and in
accordance with the terms and conditions of this Agreement.
OPERATIVE PROVISIONS
1. DEFINITIONS AND INTERPRETATIONS
1.1 In this Agreement the following words and expressions have the following
meanings:
"AFFILIATE" of a Party means any present or future Entity that Controls,
is Controlled by, or is under the Control of the same Entity or Entities
as, the Party, but only for so long as such Control continues;
"ARRAY MAKER" means a device designed to fabricate Nucleic Acid Arrays;
"CALENDAR QUARTER" means a period of three months ending on 31 March, 30
June, 30 September or 31 December;
"CONTROL(S)(LED)" means with respect to an Entity, the possession,
directly or indirectly, of more than fifty per cent (50%) of the issued
share capital or other issued stock or securities of, or the voting power
in, such Entity;
"COVERED BY A VALID CLAIM" means, in relation to a product, that its
manufacture, importation, Supply or use would, and in relation to a
process, that its practice would, but for the licenses herein or, in the
case of OGT, but for the licenses in the OGT/Agilent Agreement, infringe a
Valid Claim;
"DATABASE" means a collection of information derived from one or more
Nucleic Acid Arrays, which is licensed for value to multiple third
parties, but does not include a database for internal use exclusively by
an Entity;
"EFFECTIVE DATE" means the date first set forth above;
"END-USER" means an end-user of Royalty-Bearing Services Supplied by
Rosetta;
"ENTITY" means any natural or legal person, partnership, association or
governmental authority;
"EXCLUDED FIELDS" means any of the following activities:
(a) the use of a [***]
(b) the exercise of any of the rights licensed under this
Agreement for the purposes of [***]; and
(c) [***]
"INCYTE EXPRESSION DATABASE" means a Database consisting entirely or
substantially of gene expression data and containing at least five hundred
data points, where a single data point is data relating to the level of
expression of one gene in one sample;
"INKJET DEPOSITION" means a method for the fabrication of Nucleic Acid
Arrays on a solid support by deposition of a pre-synthesized
oligonucleotide on such solid support
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
2
<PAGE>
at a specific location using an inkjet printing device to deliver to
defined locations on the surface of the solid support such pre-synthesized
oligonucleotides;
"IN-SITU INKJET SYNTHESIS" means a method for the fabrication of Nucleic
Acid Arrays on a solid support by synthesizing by chemical means
individual nucleic acids directly on such solid support at specific
locations on the Nucleic Acid Array using an inkjet printing device to
deliver to defined locations on the surface of the solid support
precursors for or reagents which allow mononucleotide additions.
"INSTRUMENT" means readers, fluids stations, hybridization devices, sample
logging, handling and processing systems, detection and measurement
equipment, computer work stations (and associated software) and other
instruments or systems used in the preparation or use of Nucleic Acid
Arrays or the extraction or processing of data from Nucleic Acid Arrays;
"INKJET PATENTS" means all the rights held by Rosetta on the date of the
OGT/Agilent Agreement or acquired by Rosetta during the term of the
OGT/Agilent Agreement which are licensed to Agilent under the
Rosetta/Agilent Collaboration Agreement and which cover instrumentation
and methods for making Nucleic Acid Arrays. Inkjet Patents includes
patents required for the general use of an Array Maker to make Nucleic
Acid Arrays but excludes patents relating to particular Nucleic Acid
Arrays, Nucleic Acid Array or probe design, or probe sequences, provided,
however, if the Inkjet Patents are licensed to OGT Operations or any
successor to its business under Clauses 4.3 or 4.4, the reference to the
term of the OGT/Agilent Agreement shall be to the Term;
"LICENSED PROCESS" means any process, method or procedure which is Covered
by a Valid Claim;
"LICENSED PRODUCT" means a Nucleic Acid Array and any component thereof,
an Instrument, kit, reagent, computer software or other product, apparatus
or composition of matter of whatever nature which is Covered by a Valid
Claim, but not including a Database or other information (other than a
Database or information which is an integral part of a product);
"NET SALES" means amounts invoiced by Rosetta or OGT, as the case may be,
or an Affiliate of either on all arm's-length sales of Royalty Bearing
Services to a party which is not an Affiliate of the supplying Party, less
the following deductions from such gross amounts which are actually
incurred, to the extent that they are reasonable and customary:
(a) credits or allowances actually granted, rejection of results
derived from the Supply of Royalty Bearing Services, and
retroactive price reductions;
(b) freight, postage, shipping, customs duties and insurance
charges;
(c) normal and customary trade, cash and quantity discounts,
allowances and credits;
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
3
<PAGE>
(d) sales, value added or similar taxes measured by the invoice
amount, when included in invoice;
(e) charge back payments and rebates granted to managed health
care organizations or to federal, state and local governments,
their agencies, and purchasers and reimbursers;
(f) commissions paid to third parties other than sales personnel
and sale representatives or sales agents; and
(g) rebates (or equivalents thereof) granted to or charged by
national, state or local governmental authorities in countries
other than the United States.
The value of Royalty-Bearing Services Supplied or used by Rosetta or OGT,
as the case may be, or an Affiliate of either for quality control purposes
shall not be included in the calculation of Net Sales. Net Sales will
include technology access fees paid specifically in consideration of
access to Royalty-Bearing Services.
Except as otherwise provided above, if Rosetta or OGT, as the case may be,
or an Affiliate of either makes any Supply to commercial third parties of
Royalty-Bearing Services for other than monetary value in whole or in
part, or otherwise than at arm's length, such Supply shall be considered a
Supply hereunder for accounting and royalty purposes. Net Sales for any
such non-monetary transfer shall be calculated using the average realised
price for the Royalty-Bearing Service charged by Rosetta or OGT or their
respective Affiliates, as the case may be, during the royalty-paying
period in which such Supply occurs. If no such price is ascertainable, Net
Sales will be the fully-burdened cost to Rosetta or OGT or their
respective Affiliates, as the case may be, of providing the
Royalty-Bearing Service multiplied by [***].
Except as otherwise provided in Clause 6 hereof in respect of Rosetta, and
Clause 7 hereof in respect of OGT, in the event that a Royalty-Bearing
Service is Supplied in combination with other apparatus, products,
services, software or information, or in any other combination, and the
Royalty-Bearing Service is not separately valued on the invoice or other
document evidencing such Supply, the Net Sales of the Royalty-Bearing
Service shall be calculated using the price generally charged by Rosetta
or OGT or their respective Affiliates, as the case may be, for the
Royalty-Bearing Service during the royalty-paying period in question when
Supplied separately. If both the Royalty-Bearing Service and the other
components of the combination product or service may be invoiced
separately but are being Supplied at a combination price which is less
than the total if invoiced separately then the Net Sales of the
Royalty-Bearing Service shall be calculated by multiplying the invoice
amount for the combination by a fraction the numerator of which is the
price generally charged by Rosetta or OGT or their respective Affiliates,
as the case may be, for the Royalty-Bearing Service during the
royalty-paying period in question, and the denominator of which is the sum
of amounts generally charged by Rosetta or OGT or their respective
Affiliates, as the case may be, for the Royalty-Bearing Service and such
other components during the royalty-paying period in question. Where the
Royalty-Bearing
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
4
<PAGE>
Service has not previously been Supplied separately, does not have an
invoice price and is Supplied in combination as above, then Net Sales for
the purposes of calculating royalty will be calculated using the
fully-burdened cost to Rosetta or OGT or their respective Affiliates, as
the case may be, of providing of the Royalty-Bearing Service multiplied by
[***];
"NUCLEIC ACID ARRAY" means an array of nucleic acids attached to a solid
support;
"PATENT RIGHTS" means [***] and all continuations, continuations-in-part,
divisionals, re-examinations and reissues, and any patents issuing
therefrom or claiming common priority thereto, together with any other
patents which issue to OGT, or which otherwise come into the ownership
or under the control of OGT [***] and which OGT has the right to license,
and which relate, but only to the extent that they relate, to the general
use of Nucleic Acid Arrays, including methods for making or analyzing
Nucleic Acid Arrays and for creating Rosetta Ratio-based Databases, but
excluding therefrom any such patents that relate but only to the extent
that they relate to instrumentation for the reading of Nucleic Acid
Arrays, the design of probes for use on Nucleic Acid Arrays, particular
sequences used on Nucleic Acid Arrays, software used in instrumentation
for reading Nucleic Acid Arrays or in probe design, microfluidics or the
control or assurance of the quality of Nucleic Acid Arrays;
"ROSETTA RATIO-BASED DATABASE" means a Database containing relative levels
of expressed genes within or between cells wherein such Database may be
built from data where measurements from one RNA sample are compared with
those from another RNA sample; provided, however, a Rosetta Ratio-based
Database shall in no event include an Incyte Expression Database;
"RESOLVER SOFTWARE" means Rosetta's software package with the features set
forth in EXHIBIT A;
"ROYALTY-BEARING SERVICE" means any service which comprises the use by the
provider of the service of one or more Licensed Processes or Licensed
Products, including the licensing or Supply of, or rendition of services
related to, Rosetta Ratio-based Databases or other information which was
generated or a substantial proportion of which was generated by the use of
one or more Licensed Products or Licensed Processes;
"SUPPL(Y)(IED)(YING)" means sell, supply, lend, let out on hire, lease or
any other disposal, and in the case of services, includes the provision of
access to information;
"TERM" means the period of time from the Effective Date to and
including the date of the last to expire of [***] and all
continuations, continuations-in-part, divisionals, re-examinations and
reissues, and any patents issuing therefrom or claiming common priority
thereto;
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
5
<PAGE>
"VALID CLAIM" means a claim of an issued and subsisting patent in the OGT
Patent Rights or the Inkjet Patents, as the case may be, which claim has
not been finally held to be invalid or unenforceable in a proceeding from
which no further appeal may be taken within the time limit for taking such
appeal; and
"WHOLLY-OWNED SUBSIDIARY" of a Party means an Entity of which the Party
possesses, directly or indirectly, one hundred per cent (100%) (or the
maximum amount permitted by law) of the issued share capital or other
issued stock or securities, or the voting power, but only while such
possession continues.
1.2 In this Agreement:
(a) references to clauses are to the clauses of this Agreement;
(b) references to the Parties are to the parties to this Agreement;
(c) headings are used for convenience only and do not affect its
interpretation;
(d) references to the singular include the plural and vice versa;
(e) references to the masculine include the feminine;
(f) references to a statutory provision include references to the
statutory provision as modified or re-enacted or both from time to
time and to any subordinate legislation made under the statutory
provision; and
(g) references to the agreed form mean to a form agreed between the
parties prior to the date hereof and initialed by each of them.
2. GRANT OF RIGHTS TO ROSETTA BY OGT
2.1 Subject to the terms of this Agreement, OGT hereby grants to Rosetta and
Rosetta accepts, a non-exclusive, royalty-bearing, worldwide sub-license
under the OGT Patent Rights to manufacture, have manufactured and use
Nucleic Acid Arrays for internal purposes only, to create and contribute
to the creation of Rosetta Ratio-based Databases, and to Supply and offer
for Supply Royalty-Bearing Services, in each case in all fields other than
the Excluded Fields.
2.2 OGT will on or about each anniversary of the Effective Date notify Rosetta
in writing of any patents in the OGT Patent Rights which have issued or
been granted in the preceding 12 months. Any failure to so notify Rosetta
will have no effect on the rights granted hereunder.
2.3 No implied right or license is granted to Rosetta under the OGT Patent
Rights, including the right to grant sub-licenses. Other than as expressly
granted herein, no licenses or right to grant sub-licenses either by
estoppel, implication or otherwise are granted herein.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
6
<PAGE>
2.4 The licenses and other rights granted to Rosetta under this Agreement
extend to all Wholly-owned Subsidiaries of Rosetta, subject to such
Wholly-owned Subsidiaries undertaking in writing to OGT to accept all
corresponding obligations, exceptions and limitations. In particular,
Rosetta undertakes not to carry out during the Term any activities which
fall within the Excluded Fields.
3. ROSETTA CONSENT TO SUBLICENSE UNDER OGT/AGILENT AGREEMENT
3.1 Subject to the terms of this Agreement, Rosetta hereby consents to the
sublicense to OGT Operations by Agilent under the OGT/Agilent Agreement of
certain of Agilent's rights in, to and under the Inkjet Patents, but only
to the extent of the licenses granted in the OGT/Agilent Agreement.
3.2 Rosetta will on or about each anniversary of the Effective Date notify OGT
in writing of any patents in the Inkjet Patents which have issued or been
granted in the preceding 12 months. Any failure to so notify Rosetta will
have no effect on the rights granted under the OGT/Agilent Agreement.
3.3 No implied right or license is granted to OGT under the Inkjet Patents,
nor is any consent given hereby to a sublicense to the Inkjet Patents. No
license or right to grant sub-licenses either by estoppel, implication or
otherwise are granted nor is any consent to a further sublicense granted
hereby.
3.4 The consent provided by Rosetta to the sublicense to OGT Operations by
Agilent hereunder shall extend to all Wholly-owned Subsidiaries of OGT,
subject to such Wholly-owned Subsidiaries undertaking in writing to
Rosetta to accept all corresponding obligations, exceptions and
limitations.
4. ROSETTA'S OBLIGATIONS
4.1 In Rosetta's contracts with End-Users of Royalty-Bearing Services,
End-Users shall agree not to sell, or otherwise provide to any third party
in exchange for value, data derived from or contained in any Rosetta
Ratio-based Database created by Rosetta, or of which Rosetta substantially
contributed to the creation ("END-USER DATA"); provided, however, nothing
herein shall be construed as preventing or restricting an End-User's right
to provide access to End-User Data to a third party with which such
End-User has a Collaboration, or if the End-User Data is intended by the
End-User for use in the diagnosis and monitoring of a human disease, state
or condition of a particular person. A "Collaboration," as used herein,
means a bona fide scientific collaboration between an End-User and a third
party under a written contract and research plan in a specified area, in
which (a) such third party receives biological materials and/or
proprietary information of End-User or End-User receives biological
materials and/or proprietary information of the third party, (b) End-User
obtains significant proprietary rights if significant intellectual
property is generated in the collaboration, (c) the collaboration is
within End-User's normal business model but only to the extent End-User's
normal business model does not include the provision of
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
7
<PAGE>
nucleic acid hybridization services or products or database distribution
services or products for third parties, (d) End-User and its collaborator
provide significant scientific input to the collaboration in addition to
End-User Data, wherein significant scientific input includes, for example,
material input to experimental design, material contributions to
experimental execution and material data analysis and (e) the End-User
Data are used primarily to facilitate End-User's research, development, or
commercialization of particular molecules, classes of molecule, or
therapeutic areas. A Collaboration shall not include an arrangement in
which an End-User provides Royalty-Bearing Services on a fee-for-service
or similar basis.
4.2 Except as otherwise provided below, Rosetta agrees to indemnify and hold
OGT harmless from and against any losses, liabilities, damages and
expenses (including reasonable attorney's fees and costs) suffered or
incurred, and claims made, in connection with third party claims, demands,
actions or other proceedings for personal injuries or any product recall
to the extent caused by (a) any and all uses or Supply of Royalty-Bearing
Services by Rosetta or its Affiliates, (b) any manufacturing defect in any
Licensed Products manufactured by or on behalf of Rosetta or (c) any other
act or omission of Rosetta in connection with the Supply of
Royalty-Bearing Services except to the extent such losses, liabilities,
damages and expenses (including reasonable attorney's fees and costs)
result from the recklessness or intentional misconduct of OGT.
4.3 In the event that for any reason the OGT/Agilent Agreement shall terminate
or expire, Rosetta shall, to the extent that it shall not at such time be
prohibited, contractually or otherwise, license to OGT Operations or any
successor to its business the Inkjet Patents on the same terms and
conditions as the consent provided for herein for a period equal to the
remainder of the Term hereunder.
4.4 Rosetta shall provide notice to OGT promptly upon any expiration or
termination of the Rosetta/Agilent Collaboration Agreement, and upon any
such expiration or termination Rosetta shall, to the extent that it shall
not at such time be prohibited, contractually or otherwise, license to OGT
Operations or any successor to its business the Inkjet Patents on the same
terms and conditions as the consent provided for herein for a period equal
to the remainder of the Term.
4.5 Rosetta agrees to license to OGT Operations on the same terms as the
Inkjet Patents (including Clause 13.2), for the Term, all patents or other
intellectual property rights which it owns or controls during the Term
(other than the Inkjet Patents) which cover, but only to the extent that
they cover, instrumentation and methods for making Nucleic Acid Arrays,
but not including any patent rights which cover, but only to the extent
they cover, instrumentation for the reading of Nucleic Acid Arrays, the
design of probes for use on Nucleic Acid Arrays, particular sequences used
on Nucleic Acid Arrays, software used in instrumentation for reading
Nucleic Acid Arrays or in probe design, microfluidics or the control or
assurance of the quality of Nucleic Acid Arrays.
4.6 Rosetta agrees to comply promptly and in full with all requests by Agilent
made pursuant to and in accordance with the Rosetta/Agilent Collaboration
Agreement to enable Agilent to comply with its relevant obligations to OGT
Operations under the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
8
<PAGE>
OGT/Agilent Agreement, including in the manufacture and supply of Array
Makers and the provision of technical support in relation to such Array
Makers, subject to OGT complying with its corresponding obligations.
Rosetta further agrees with OGT itself to comply with such obligations of
Agilent under the OGT/Agilent Agreement both during the subsistence of
that Agreement and in the event that that Agreement is terminated for any
reason, subject always to OGT complying with its correponding obligations.
5. OGT'S OBLIGATIONS
5.1 Except as otherwise provided below, OGT agrees to indemnify and hold
Rosetta harmless from and against any losses, liabilities, damages and
expenses (including reasonable attorney's fees and costs) suffered or
incurred, and claims made, in connection with third party claims, demands,
actions or other proceedings to the extent caused by (a) any and all uses
of Inkjet Patents by OGT or its Affiliates, (b) any manufacturing defect
in any Licensed Products manufactured by or on behalf of OGT or its
Affiliates or (c) any other act or omission of OGT or its Affiliates in
connection with the use of Licensed Products or the Supply of
Royalty-Bearing Services except to the extent such losses, liabilities,
damages and expenses (including reasonable attorney's fees and costs)
result from the recklessness or intentional misconduct of Rosetta.
5.2 OGT agrees to cause OGT Operations to strictly abide by the terms and
conditions of the OGT/Agilent Agreement, and OGT agrees to provide notice
to Rosetta promptly upon any expiration or termination of the OGT/Agilent
Agreement. In no event will OGT use, or permit its Affiliates to use, any
process or method Covered by a Valid Claim of the Inkjet Patents to
fabricate for supply to any single third party customer during any
calendar year greater than [***] Nucleic Acid Arrays of a single design as
those terms are further elaborated in the OGT/Agilent Agreement.
5.3 [***]
6. CONSIDERATION PAID BY ROSETTA
6.1 Within seven days after the Effective Date, Rosetta will pay to OGT a
licence fee in the sum of [***]. The licence fee will not be creditable
against royalty or other payments due to OGT under this Agreement. In
addition, Rosetta will within seven days after the Effective Date,
pursuant to the Common Stock Issuance Agreement attached hereto as
EXHIBIT B, issue to OGT [***] shares of its common stock, par value
$0.001.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
9
<PAGE>
6.2 Rosetta shall pay to OGT (i) [***] related to the Supply by Rosetta of
Royalty Bearing Services substantially all of which consist of the
generation of data derived directly from Nucleic Acid Arrays and the
supply of such data to a single user and (ii) [***] related to the
Supply by Rosetta of all other Royalty Bearing Services whether or not
provided with Rosetta software, tools, annotated information or other
economically material services.
6.3 Rosetta will on request provide to OGT, at Rosetta's fully-burdened cost,
one copy of its Resolver Software for use by OGT for one year from the
date of delivery to OGT, and all maintenance related to such Resolver
Software will be provided to OGT by Rosetta without charge during such
one-year period. In addition, Rosetta will provide at the time of delivery
of the Resolver Software to OGT, at Rosetta's fully-burden cost, all
third-party hardware and software configurations necessary for operation
of the Resolver Software. If OGT shall elect to continue its use and
operation of Resolver Software beyond a period of one year from its
delivery to OGT, Rosetta shall provide maintenance and support services to
OGT at such rates as shall be consistent with licenses of Resolver
Software to licensees similarly situated to OGT.
6.4 If during the Term it is necessary or desirable for Rosetta to obtain a
license from any third party ("THIRD PARTY LICENSE") other than an
Affiliate or continue in effect any license in existence as of the
Effective Date with any person other than an Affiliate in order to avoid
infringing such third party's patent(s) in the course of Rosetta's Supply
of Royalty-Bearing Services, the amounts payable under Clause 6.2 hereof
shall be reduced by the amount of the royalties paid under the Third Party
License, provided that the amounts payable by Rosetta to OGT shall not be
reduced by more than [***] of the amount which would have been payable
in the absence of this clause 6.4.
7. CONSIDERATION PAID BY OGT
7.1 In consideration for the consent by Rosetta to the sublicense of the
Inkjet Patents under the OGT/Agilent Agreement, OGT shall pay to Rosetta
[***] related to the Supply by OGT of all Royalty Bearing Services.
7.2 If during the Term it is necessary or desirable for OGT to obtain a
license from any third party ("THIRD PARTY LICENSE") other than an
Affiliate or continue in effect any license in existence as of the
Effective Date with any person other than an Affiliate in order to avoid
infringing such third party's patent(s) in the course of OGT's Supply of
Royalty-Bearing Services, the amounts payable under Clause 7.1 hereof
shall be reduced by the amount of the royalties paid under the Third Party
License, provided that the amounts payable by OGT to Rosetta shall not be
reduced by more than [***] of the amount which would have been payable
in the absence of this clause 7.1.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
10
<PAGE>
8. PAYMENT TERMS
8.1 Amounts due under this Agreement shall be paid within [***] of the end
of each Calendar Quarter in respect of amounts that have accrued during
that Calendar Quarter pursuant to the provisions of Clause 6 and 7, and
within [***] of the end of the Term.
8.2 All sums due under this Agreement:
(a) are exclusive of Value Added Tax or other sales tax which where
applicable will be paid by the paying party;
(b) will be paid in US Dollars to the credit of a bank account nominated
by the payee;
(c) shall be made without deduction of income tax or other taxes,
charges or duties that may be imposed, except and so far as the
paying Party is required to deduct the same to comply with
applicable laws, in which case the parties will co-operate in all
reasonable respects necessary to take advantage of such double
taxation agreements as may be available; and
(d) shall be made by the due date, failing which the recipient party may
charge interest on any outstanding amount on a daily basis at a rate
equivalent to [***] per year above the Barclays Bank plc base
lending rate then in force.
8.3 If at any time during the Term a Party is prohibited from making any of
the payments required hereunder by a governmental authority in any country
then such Party will within the prescribed period for making such payments
in the appropriate manner use its best endeavors to secure from the proper
authority in the relevant country permission to make such payments and
will make them within seven days of receiving such permission. If such
permission is not received within 30 days of such Party making a request
for such permission then the Party to whom such payment is owed may
request the other Party to deposit the payments due in the currency of the
relevant country either in a bank account designated by such Party within
such country or such royalty payments will be made to an Affiliate
designated by such Party and having offices in the relevant country.
8.4 Each payment made hereunder shall be accompanied by a statement setting
out the total Net Sales for which amounts shall have accrued under Clause
6 or Clause 7, as the case may be, during the period to which the royalty
payment relates.
8.5 Each Party will keep for a minimum period of [***] from the time
of creation at its normal place of business detailed and up-to-date
records and accounts showing the value of Royalty-Bearing Services
Supplied by it sufficient to ascertain the amounts due under this
Agreement. Each Party will make such records and accounts available, on
reasonable notice, for inspection no more than once in any calendar year
during local business hours by an independent chartered or certified
accountant from a firm of accountants nominated by each party and
acceptable to other for the sole
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
11
<PAGE>
purpose of verifying the accuracy of any statement or report given to the
other pursuant hereto. The accountant will be required to keep
confidential all information learnt during any such inspection, and only
to disclose to the other party such details as may be necessary to report
on the accuracy of the statement or report. A Party requesting an audit
will be responsible for the accountant's charges unless the accountant is
satisfied that there is an underpayment of more than [***] in the
period audited, in which case the audited party will pay its reasonable
charges in respect of that inspection.
9. PATENT INFRINGEMENT AND ENFORCEMENT
9.1 If Rosetta detects or suspects any infringement of the OGT Patent Rights,
and if OGT detects or suspects any infringement of the Inkjet Patents,
each Party will promptly notify the other and provide all details within
its knowledge with respect to the same. Each of Rosetta and OGT will
cooperate and provide the other with all assistance requested for the
purpose of any such action brought by the other with respect to any such
infringement or suspected infringement.
9.2 No Party will be under any obligation by virtue of this Agreement to take
any action whether through the institution of legal proceedings or
otherwise with respect to any infringement or suspected infringement of
the OGT Patent Rights in the case of OGT, or Inkjet Patents in the case of
Rosetta; provided, however, if a party in its absolute discretion decides
to take any such action, then without prejudice to any separate agreement
that the Parties may enter into, or have entered into, it will do so at
its own costs and the other Party will have no claim to any sums received.
10. CONFIDENTIALITY
10.1 Each Party ("RECEIVING PARTY") undertakes:
(a) to maintain as secret and confidential all technical and commercial
information obtained directly or indirectly from the other Party
("DISCLOSING PARTY") in the course of or in anticipation of this
Agreement (including the terms and conditions of this Agreement) and
to respect the Disclosing Party's rights therein;
(b) to use the same exclusively for the purposes of this Agreement; and
(c) to disclose the same only to those of its employees, contractors,
consultants to whom and to the extent that such a disclosure is
reasonably necessary for the purposes of this Agreement and related
agreements between the Parties or their Affiliates.
10.2 The provisions of clause 10.1 will not apply to information which the
Receiving Party can demonstrate by reasonable, written evidence:
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
12
<PAGE>
(a) was, prior to its receipt by the Receiving Party from the Disclosing
Party, in the possession of the Receiving Party without an
obligation of confidentiality; or
(b) is subsequently disclosed to the Receiving Party without any
obligations of confidence by a third party who has not derived it
directly or indirectly from the Disclosing Party; or
(c) is or becomes generally available to the public through no act or
default of the Receiving Party or its agents, employees, Affiliates
or sublicensees; or
(d) the Receiving Party is required to disclose by or to the courts of
any competent jurisdiction, or to any government, regulatory agency
or financial authority, provided that the Receiving Party shall
(i) inform the Disclosing Party as soon as is reasonably
practicable, and
(ii) at the Disclosing Party's request seek to persuade the court,
agency or authority to have the information treated in a
confidential manner, where this is possible under the court,
agency or authority's procedures; or
(e) is independently developed by Recipient without the aid,
application, or use of information received from the Disclosing
Party, as can be demonstrated by written records created at the time
of such independent development; or
(f) in the case of information disclosed by OGT to Rosetta, is disclosed
to actual or potential End-Users of Royalty-Bearing Services, in so
far as such disclosure is reasonably necessary to promote the use of
Licensed Products or the Supply of Royalty-Bearing Services,
provided that the End-Users sign a written confidentiality
undertaking at least as restrictive as clauses 10.1 and 10.2.
10.3 The Receiving Party will procure that all of its employees, contractors
and sublicensees pursuant to this Agreement (if any) who could have access
to any of the Disclosing Party's information to which clause 10.1 applies
shall be made aware of and subject to these obligations and shall have
entered into written undertakings of confidentiality at least as
restrictive as clauses 10.1 and 10.2 and which apply to the Disclosing
Party's information.
11. WARRANTIES AND WARRANTY DISCLAIMERS
11.1 Each Party warrants to the other that it has the full right and power to
enter into this Agreement. OGT further warrants that it is entitled to
license the OGT Patent Rights as licensed herein and has not previously
assigned them or entered into any agreement relating to them which might
affect its ability to license the OGT Patent Rights in accordance with the
provisions of this Agreement.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
13
<PAGE>
11.2 Each Party acknowledges that in entering into this Agreement it does not
do so in reliance on any representation, warranty or other provision
except as expressly provided in this Agreement and any conditions,
warranties or other terms implied by statute or common law are excluded
from this Agreement to the full extent permitted by law.
11.3 Notwithstanding anything contained herein to the contrary, OGT does not
give any warranty, representation or undertaking:
(a) as to the efficacy or usefulness of the OGT Patent Rights or any
inventions claimed therein;
(b) that any of the OGT Patent Rights are or will be valid or subsisting
or (in the case of applications) will proceed to grant;
(c) that the exploitation of any the OGT Patent Rights or the
manufacture or use of Licensed Products or the Supply of
Royalty-Bearing Services or the exercise of any other rights
licensed hereunder, will not infringe any other intellectual
property or other rights of any other Entity; or
(d) as imposing any obligation on OGT to bring or prosecute actions or
proceedings against third parties for infringement or to defend any
actions or proceedings for revocation of any the OGT Patent Rights.
11.4 Notwithstanding anything contained herein to the contrary, Rosetta does
not give any warranty, representation or undertaking:
(a) as to the efficacy or usefulness of the Inkjet Patents or any
inventions claimed therein;
(b) that any of the patent rights comprising Inkjet Patents are or will
be valid or subsisting or (in the case of applications) will proceed
to grant;
(c) that the exploitation of any the Inkjet Patents or the manufacture,
use or sale of Nucleic Acid Arrays, will not infringe any other
intellectual property or other rights of any other Entity; or
(d) as imposing any obligation on Rosetta to bring or prosecute actions
or proceedings against third parties for infringement or to defend
any actions or proceedings for revocation of any the Inkjet Patents.
11.5 IT IS UNDERSTOOD AND AGREED BETWEEN THE PARTIES THAT, EXCEPT AS EXPRESSLY
PROVIDED IN THIS AGREEMENT, ANY AND ALL RIGHTS LICENSED, CONSENTS GRANTED
AND INFORMATION MADE AVAILABLE BY ONE PARTY TO THE OTHER IS LICENSED,
GRANTED AND MADE AVAILABLE "AS IS". NEITHER PARTY MAKES ANY
REPRESENTATIONS OR WARRANTIES (OTHER THAN THE WARRANTY IN CLAUSE 11.1) OF
ANY KIND, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO SUCH RIGHTS, CONSENT
OR INFORMATION, INCLUDING BUT NOT LIMITED TO
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
14
<PAGE>
ANY REPRESENTATION OR WARRANTY CONCERNING THE PERFORMANCE OF ANY LICENSED
PRODUCT OR ROYALTY-BEARING SERVICE. EACH PARTY DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF QUALITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
12. DURATION AND TERMINATION
12.1 This Agreement and the licenses granted under it will come into effect on
the Effective Date and unless terminated earlier in accordance with this
clause will continue in force until expiration of the Term.
12.2 Subject to the next following sentence, if Rosetta is in breach of any
payment obligation under this Agreement or is in material breach of any
other term or condition of this Agreement, OGT may give written notice to
Rosetta specifying the breach and requiring its remedy. If the breach has
not been remedied within a period of [***] from service of the notice to
Rosetta, OGT will have the right to terminate the licences granted to
Rosetta under this agreement. In no event will OGT have the right to
terminate this Agreement or the licences granted to Rosetta under this
Agreement by reason of any breach by Rosetta of the prohibition in this
Agreement relating to Incyte Expression Databases.
12.3 Either party may terminate the licences granted to the other under this
Agreement immediately by written notice if an interim order is applied for
or made, or a voluntary arrangement approved, or if a petition for a
bankruptcy order is presented or a bankruptcy order is made against the
other party or if a receiver or trustee in bankruptcy is appointed or a
voluntary arrangement is proposed or approved or an administration order
is made, or a receiver or administrative receiver is appointed of any of
the other party's assets or undertaking or a winding-up resolution or
petition is passed or presented (otherwise than for the purposes of
reconstruction or amalgamation) or if any circumstances arise which
entitle the court or a creditor to appoint a receiver, administrative
receiver or administrator or to present a winding-up petition or make a
winding-up order of other similar or equivalent action is taken against or
by such other party by reason of its insolvency or in consequence of debt.
12.4 OGT may terminate the licences granted to Rosetta under this Agreement
forthwith by written notice to Rosetta if any Entity or group of Entities
which does not have Control of Rosetta at the Effective Date acquires
Control (other than pursuant to the public offering of such Entity's
securities) during the Term hereof and within thirty (30) days of such
acquisition such Entity or Entities has not or have not agreed with OGT in
writing that any patent rights which cover instrumentation and methods for
making Nucleic Acid Arrays, but not including any patent rights which
cover instrumentation for the reading of Nucleic Acid Arrays, the design
of probes for use on Nucleic Acid Arrays, particular sequences used on
Nucleic Acid Arrays, software used in instrumentation for reading Nucleic
Acid Arrays or in probe design, microfluidics or the control or assurance
of the quality of Nucleic Acid Arrays, which are owned or controlled by it
or them or by any of its or their Affiliates, are licensed to OGT and its
Affiliates on substantially the same licensing terms as the Inkjet
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
15
<PAGE>
Patents are licensed to OGT under the OGT/Agilent Agreement for the Term,
except that no payment by OGT shall be due, except for royalties
rightfully due under Valid Claims of third party patent rights of amounts
not exceeding those payable by OGT hereunder.
12.5 On termination of the licences granted to Rosetta under this Agreement by
OGT pursuant to Clause 12.3:
(a) Rosetta will no longer be licensed to exploit in any way, either
directly or indirectly, any of the OGT Patent Rights;
(b) Rosetta will consent to the cancellation of any formal licence
granted to it, or of any registration of it in any register, in
relation to any of the OGTPatent Rights;
(c) subject as provided in this clause 12.5, and except in respect of
any accrued rights, OGT will be under any no further obligation to
Rosetta under this Agreement; and
(d) the provisions of clause 10 will survive termination of this
Agreement indefinitely.
13. GENERAL
13.1 This Agreement may only be amended in writing signed by duly authorized
representatives of the Parties.
13.2 The obligations of Rosetta hereunder will run in favor of the successors
and permitted assigns of OGT, and the obligations of OGT hereunder will
run in favor of the successors and permitted assigns of Rosetta. Neither
Party may assign, mortgage, charge or otherwise transfer its rights under
this Agreement in whole or part to any third party without the prior
written consent of the other, provided, however, either Party may assign
all of its rights and obligations under this Agreement to any party to
which it transfers all or substantially all of its assets and business
related to Nucleic Acid Arrays, provided that in either case the assignee
undertakes to be bound by and perform the obligations of the assignor
under this Agreement and provided further that where at the time of such
assignment the assignee or any Affiliates of the assignee own or control
patent rights in the field of Nucleic Acid Array technology the assignee
or relevant Affiliate agrees that such patent rights which cover
instrumentation and methods for making Nucleic Acid Arrays, but not
including any patent rights that cover instrumentation for the reading of
Nucleic Acid Arrays, the design of probes for use on Nucleic Acid Arrays,
particular sequences used on Nucleic Acid Arrays, software used in
instrumentation for reading Nucleic Acid Arrays or in probe design,
microfluidics or the control or assurance of the quality of Nucleic Acid
Arrays, will be licensed to the other Party hereunder on substantially the
same licensing terms as provided hereunder in the event of an assignment
by OGT or, in the event of an assignment by Rosetta, on substantially the
same terms as provided OGT under the OGT/Agilent Agreement, in each case
for the Term except that no
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
16
<PAGE>
additional payment shall be due, except for royalties rightfully due under
Valid Claim(s) of third party patent rights of amounts no greater than
under this Agreement or the OGT/Agilent Agreement, as the case may be.
Neither Party will have the right to assign this Agreement or any rights
hereunder if it is insolvent or any other circumstances described in
clauses 12.2 or 12.3 applies to it. In no event will any Party's rights or
obligations hereunder be assigned or assignable by any bankruptcy
proceedings. Nothing in this clause affects the continued existence or
validity of this Agreement as a result of any change in the Entity or
Entities having Control of either Party. . 13.3 No failure or delay on the
part of either Party to exercise any right or remedy under this Agreement
will be construed or operate as a waiver thereof, nor will any single or
partial exercise of any right or remedy preclude the further exercise of
such right or remedy.
13.4 Neither Party will act or describe itself as the agent of the other, nor
will it make or represent that it has authority to make any commitments on
the other's behalf.
13.5 Any notice to be given under this Agreement will be given in writing and
will be sent by first class internal mail or air mail, or by fax
(confirmed by first class internal mail or air mail) to the address of the
relevant Party, or to the relevant fax number, set out below, or such
other address or fax number as that Party may from time to time notify to
the other Party in accordance with this clause 13.5:
OGT: Oxford Gene Technology IP Limited
12 School Rd
Kidlington
Oxford
OX5 2HB
Attn. Company Secretary
Fax: # 44 (0)1865 379310
The Licensee: Rosetta Inpharmatics, Inc
12040 115th Avenue NE
Kirkland, WA 98034
Notices sent as above shall be deemed to have been received three working
days after the date of posting (in the case of inland first class mail),
or seven working days after the date of posting (in the case of air mail),
or on the next working day after transmission (in the case of faxed
messages, but only if a transmission report is generated by the sender's
fax machine recording a message from the recipient's fax machine,
confirming that the fax was sent to the number indicated above and
confirming that all pages were successfully transmitted).
13.6 Each Party agrees to execute, acknowledge and deliver such further
instruments, and do all further similar acts, as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
17
<PAGE>
13.7 Neither Party shall make any press or other public announcement concerning
any aspect of this Agreement, or make any use of the name of the other
Party in connection with or in consequence of this Agreement, without the
prior written consent of the other Party, except to the extent required by
applicable laws or regulations, in which case the Party obligated to make
the disclosure shall use reasonable efforts to notify the other Party
prior to such disclosure.
13.8 This Agreement sets out the entire agreement between the Parties or their
Affiliates relating to its subject matter and supersedes all prior oral or
written agreements, arrangements or understandings between them relating
to such subject matter. Save in the case of fraud, the Parties acknowledge
they are not relying on any representation, agreement, term or condition
which is not set out in this Agreement.
13.9 If any clause or part of any clause in this Agreement is declared invalid
or unenforceable by the judgement or decree by consent or otherwise of any
court or authority of competent jurisdiction from whose decision no appeal
is or can be taken, all other clauses or parts of clauses contained in
this Agreement will remain in full force and effect and will not be
affected thereby for the term of this Agreement, but the Parties will
negotiate appropriate amendments to this Agreement with a view to
restoring the balance of commercial interests as it stood prior to such
invalidity or unenforceability being declared.
13.10 This Agreement is made and will be construed in accordance with the laws
of England and Wales and, subject to Clause 13.11, the Parties submit to
the exclusive jurisdiction of the English courts.
13.11 All disputes, differences or questions arising out of this Agreement or as
to the rights or obligations of the Parties under it or in connection with
its construction, validity or subsistence, and any claim by either Party
that the other infringes its patent rights by exceeding the scope of the
licences granted hereunder or in respect to OGT, the OGT/Agilent
Agreement, may be referred to arbitration by a single arbitrator to be
agreed between the Parties, having the appropriate expertise to deal with
any technical, scientific or legal issues involved in the arbitration. If
the Parties are unable to agree on the arbitrator within a period of 60
days of a Party proposing arbitration to the other Party either Party may
request that an arbitrator is appointed by the President for the time
being of the Law Society of England and Wales having due regard to any
representations made to him as to the appropriate qualifications of such
arbitrator. The arbitration shall take place in Seattle, Washington, and
will be in accordance with rules and procedures agreed between the Parties
or in default of agreement determined by the arbitrator. Neither Party may
commence legal proceedings against the other (including seeking injunctive
relief) in relation to any matter the subject of possible arbitration
under this clause unless it has first served written notice on the other
Party and the other Party has not requested arbitration within a period of
60 days after service of such notice. There will be no right of appeal to
or review by the courts of any decision of the arbitrator in any
arbitration pursuant to this clause.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
18
<PAGE>
ATTESTATIONS
OXFORD GENE TECHNOLOGY IP LIMITED
Signature:______________________
Print Name:_____________________
Title:__________________________
ROSETTA INPHARMATICS, INC.
Signature:______________________
Print Name:_____________________
Title:__________________________
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
19
<PAGE>
Dated 16 March, 2000
(1) OXFORD GENE TECHNOLOGY IP LIMITED
and
(2) ROSETTA INPHARMATICS, INC.
-----------------------------------------------
LICENSE AGREEMENT
------------------------------------------------
<PAGE>
Exhibit 10.32
EXHIBIT B
ROSETTA INPHARMATICS, INC.
COMMON STOCK ISSUANCE AGREEMENT
This Common Stock Issuance Agreement (the "AGREEMENT") is made as of March
16, 2000, by and between Rosetta Inpharmatics, Inc., a Delaware corporation
("ROSETTA"), and Oxford Gene Technology IP Limited, a company incorporated in
England and Wales under number 3845467 ("OGT").
1. ISSUANCE OF STOCK. Subject to the terms and conditions of this
Agreement, on the Issuance Date (as defined below) Rosetta will issue to OGT,
and OGT agrees to accept from Rosetta, 686,928 shares of Rosetta's Common Stock
(the "SHARES") in partial consideration for the grant to Rosetta by OGT of the
license rights specifically set forth in that certain License Agreement of even
date herewith (the "LICENSE AGREEMENT") between Rosetta and OGT referred to in
paragraph 2 below. The term "SHARES" refers to the Shares issued pursuant hereto
and all securities received in replacement of or in connection with the Shares
pursuant to stock dividends or splits, all securities received in replacement of
the Shares in a recapitalization, merger, reorganization, exchange or the like,
and all new, substituted or additional securities or other properties to which
OGT is entitled by reason of OGT's ownership of the Shares.
2. ISSUANCE. The issuance of the Shares under this Agreement shall occur
at the principal office of Rosetta simultaneously with the execution of this
Agreement by the parties or at such other place or on such other date as Rosetta
and OGT shall agree (the "ISSUANCE DATE"). On the Issuance Date, Rosetta will
deliver to OGT a certificate representing the Shares to be issued to OGT (which
shall be issued in OGT's name) against delivery to Rosetta of a License
Agreement in terms approved by Rosetta and duly executed by OGT.
3. REPRESENTATIONS AND WARRANTIES OF ROSETTA.
Rosetta hereby represents and warrants to OGT as follows:
3.1 ORGANIZATION AND STANDING. Each of Rosetta and Acacia (as
defined in paragraph 3.3 below) are a corporation duly organized and validly
existing under, and by virtue of, the laws of Delaware and is in good standing
under such laws. Each of Rosetta and Acacia has the requisite corporate power to
own and operate its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted. Each of Rosetta and Acacia
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to qualify would have a material adverse
effect on its business or properties.
3.2 CORPORATE POWER. Rosetta will have as of the Issuance Date all
requisite legal and corporate power to execute and deliver this Agreement, to
issue the Shares hereunder, and to carry out and perform its obligations under
the terms of this Agreement
3.3 SUBSIDIARIES. Rosetta owns 100% of the outstanding capital stock
of Acacia Biosciences, Inc., a Delaware corporation ("ACACIA") and except for
Acacia, Rosetta has
<PAGE>
no subsidiaries or affiliated companies and does not otherwise own or control,
directly or indirectly, any other corporation, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of Rosetta
consists, or immediately prior to the Issuance Date will consist, of:
(a) PREFERRED STOCK. 18,000,000 shares of Preferred Stock, 6,225,000
shares of which have been designated Series A Preferred Stock (the "SERIES A
PREFERRED"), of which 4,462,500 shares are issued and outstanding immediately
prior to the Issuance Date, 1,600,000 shares of Series B Preferred Stock (the
"SERIES B PREFERRED"), of which 1,387,298 shares are issued and outstanding
immediately prior to the Issuance Date, 2,750,000 shares of Series C Preferred
Stock (the "SERIES C PREFERRED"), of which 2,019,452 shares are issued and
outstanding immediately prior to the Issuance Date, 2,285,714 shares of which
have been designated Series D Preferred Stock (the "SERIES D PREFERRED"), all of
which are issued and outstanding immediately prior to the Issuance Date,
4,469,087 shares of which have been designated Series E Preferred Stock (the
"SERIES E PREFERRED") of which 4,469,087 are issued and outstanding immediately
prior to the Issuance Date and 2,139,285 shares of undesignated Preferred Stock.
Rosetta's Sixth Amended and Restated Certificate of Incorporation as filed with
the Secretary of State of Delaware on 15 March 2000 is attached hereto as
EXHIBIT A (the "RESTATED CERTIFICATE").
(b) COMMON STOCK. 40,000,000 shares of Common Stock, 6,250,633
shares of which are issued and outstanding. Rosetta has reserved 6,225,000
shares of Common Stock for issuance upon conversion of the Series A Preferred,
1,600,000 shares of Common Stock for issuance upon conversion of the Series B
Preferred, 2,750,000 shares of Common Stock for issuance upon conversion of the
Series C Preferred, 2,285,714 shares of Common Stock for issuance upon
conversion of the Series D Preferred and 4,469,087 shares of Common Stock for
issuance upon conversion of the Series E Preferred. If the Conversion rights
attaching to the aforementioned Preferred Stock were exercised in full on the
Issuance Date by each of the holders thereof, the number of shares of Common
Stock to be issued in satisfaction of such rights would not exceed 14,624,051.
An additional 5,286,913 shares are reserved for issuance pursuant to Rosetta's
1997 Stock Plan to Employees and Consultants (as defined in the Plan), of which
1,469,720 shares have been issued pursuant to option exercises, and 1,984,583
shares are subject to outstanding, unexercised options.
(c) WARRANTS. Immediately prior to the Issuance Date, there were
issued and outstanding warrants to purchase up to an aggregate of (a) 891,636
shares of Common Stock (the "COMMON STOCK WARRANTS"), (b) 254,823 shares of
Rosetta Series A Preferred (the "SERIES A WARRANTS"), (c) 134,597 shares of
Series B Preferred (the "SERIES B WARRANTS") and (d) 54,949 shares of Series C
Preferred (the "SERIES C WARRANTS" and together with the Common Stock Warrants,
the Series A and the Series B Warrants, collectively, the "ROSETTA WARRANTS").
(d) All of the issued and outstanding shares of Common Stock and
Preferred Stock have been duly authorized and validly issued, are fully paid and
non-assessable and have been issued in compliance with applicable federal and
state securities laws. Except for (i) conversion privileges of the Preferred
Stock, (ii) the outstanding options issued pursuant to the Plan, (iii) the
Rosetta Warrants and (iv) as set forth in the Investors' Rights Agreement dated
March 14, 2000, there are no outstanding options, warrants, rights (including
conversion or
-2-
<PAGE>
preemptive rights and rights of first refusal or similar rights) or agreements,
orally or in writing, for the purchase or acquisition from or issuance by
Rosetta of any shares of its capital stock or other securities of any nature
whatsoever. Rosetta is not aware of any voting agreements among its
stockholders.
3.5 AUTHORIZATION. All corporate action on the part of Rosetta, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by Rosetta, the authorization, sale, issuance
and delivery of the Shares, and the performance of Rosetta's obligations
hereunder and thereunder has been taken or will be taken prior to the Issuance
Date.
3.6 VALID ISSUANCE OF SHARES. The Shares that are being issued to
OGT hereunder, when issued and delivered in accordance with the terms hereof for
the consideration expressed herein, will be duly and validly issued, fully paid
and non-assessable and free of restrictions on transfer other than restrictions
on transfer under this Agreement and applicable state and federal securities
laws. Based in part upon the representations of OGT in this Agreement, the
Shares will be issued in compliance with all applicable federal and state
securities laws.
4. REPRESENTATIONS AND WARRANTIES OF OGT; RESTRICTIONS ON TRANSFER
4.1 REPRESENTATIONS AND WARRANTIES OF OGT. OGT hereby represents and
warrants to Rosetta with respect to the issuance by Rosetta, and acceptance by
OGT, of the Shares:
(a) All action on the part of OGT for the authorization, execution,
delivery and performance by OGT of this Agreement and the License Agreement has
been taken. This Agreement and the License Agreement, when executed and
delivered by OGT, will constitute valid and legally binding obligations of OGT,
enforceable in accordance with their terms.
(b) OGT is an accredited investor within the meaning of Regulation D
prescribed by the Securities and Exchange Commission (the "COMMISSION") pursuant
to the Securities Act of 1933, as amended (the "ACT").
(c) OGT is acquiring the Shares for investment for its own account
and not with a view to, or for resale in connection with, any distribution. OGT
understands that the Shares to be issued to it have not been registered under
the Act by reason of a specific exemption from the registration provisions of
the Act which depends upon, among other things, the bona fide nature of the
investment intent as expressed herein.
(d) OGT understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, OGT may not sell or transfer or otherwise dispose of the Shares
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. OGT acknowledges that Rosetta has no
obligation to register or qualify the Shares for resale. OGT further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various
-3-
<PAGE>
requirements including, but not limited to, the time and manner of sale, the
holding period for the Shares, and requirements relating to Rosetta which are
state and federal corporate and securities laws).
(e) OGT understands that no public market now exists for any of the
securities issued by Rosetta and that there can be no assurance that a public
market will ever exist for the Shares.
(f) OGT has had an opportunity to discuss Rosetta's business,
management and financial affairs and the terms and conditions of the offering of
the Shares with Rosetta's management.
(g) OGT hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with the issuance
of the Shares to it hereunder or any use of this Agreement, including (i) the
legal requirements within its jurisdiction for its acceptance of the Shares in
partial consideration for the grant to Rosetta by OGT of the license rights
specifically set forth in the License Agreement, (ii) any foreign exchange
restrictions applicable to such issuance and acceptance, (iii) any governmental
or other consents that may need to be obtained, and (iv) the income tax and
other tax consequences, if any, that may be relevant to the acceptance, holding,
redemption, sale, or transfer of the Shares. OGT's acceptance and continued
beneficial ownership of the Shares will not violate any applicable securities or
other laws of England.
4.2 LEGENDS. Each certificate representing the Shares shall be
endorsed with the following legend (in addition to any legend required by
applicable state securities laws):
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) Any legend required by the Blue Sky laws of any state to
the extent such laws are applicable to the shares represented by the
certificate so legended.
Rosetta will not register a transfer of Shares, unless the conditions
specified in the foregoing legend are satisfied, and Rosetta may instruct its
transfer agent not to register the transfer of any of the Shares unless the
conditions specified in the foregoing legend are satisfied. In addition to any
other limitations on transferability imposed under the Act or applicable state
securities laws, until such time as the common stock of Rosetta is listed on a
national securities exchange or Nasdaq National Market, OGT agrees not to offer
for sale, sell, assign or otherwise dispose of all or any portion of the Shares
without the prior written consent of Rosetta (such consent not to be
unreasonably withheld).
-4-
<PAGE>
4.3 REMOVAL OF LEGENDS AND TRANSFER RESTRICTIONS. The legend
relating to the Act endorsed on a stock certificate pursuant to paragraph 4.2 of
this Agreement and the stop transfer instructions with respect to the Shares
represented by such certificate shall be removed and Rosetta shall issue a
certificate without such legend to the holder of such Shares if such Shares are
registered under the Act and a prospectus meeting the requirements of Section 10
of the Act is available or if such holder provides to Rosetta an opinion of
counsel for such holder of the Shares reasonably satisfactory to Rosetta, or a
no-action letter or interpretive opinion of the staff of the Commission to the
effect that a public sale, transfer or assignment of such Shares may be made
without registration and without compliance with any restriction such as Rule
144.
5. MARKET STANDOFF AGREEMENT. In connection with any initial public
offering of Rosetta's securities and upon request of Rosetta or the underwriters
managing such offering of Rosetta's securities, OGT agrees not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any securities of Rosetta without the prior written consent of Rosetta or
such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
Rosetta or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of Rosetta's
initial public offering.
6. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Washington, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
Shares and merges all prior discussions between them. No modification of or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
shall be effective unless in writing signed by the parties to this Agreement.
The failure by either party to enforce any rights under this Agreement shall not
be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel; accordingly, this Agreement shall be deemed to be the product of all of
the parties hereto, and no ambiguity shall be construed in favor of or against
any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 48
-5-
<PAGE>
hours after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, and addressed to the party to be notified at such party's
address or fax number as set forth below or as subsequently modified by written
notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by Rosetta's
successors and assigns.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
ROSETTA INPHARMATICS, INC.
By:______________________________
Title:___________________________
Address:
OXFORD GENE TECHNOLOGY IP LIMITED:
_________________________________
(Signature)
Address:
-7-
<PAGE>
COLLABORATION AGREEMENT
This Collaboration Agreement ("Agreement") is entered into as of December
20, 1999 (the "Effective Date"), by and between Rosetta Inpharmatics, Inc.,
("Rosetta"), a corporation organized and existing under the laws of the State of
Delaware and having a place of business at 12040 - 115th Avenue Northeast,
Kirkland, Washington 98034-6900 and Corixa Corporation ("Corixa"), a corporation
organized and existing under the laws of the State of Delaware and having a
place of business at 124 Columbia Street, Suite 200, Seattle, Washington
98104-2040.
The parties agree as follows:
1. BASIS FOR AGREEMENT. Corixa has samples of normal and diseased tissues
and wants to obtain information about the difference between those tissues.
Corixa has or will make certain nucleic acid material including cDNA for
constructing microarrays ("PCR Product" described in Section 2 below) and
ribonucleic acid samples from the normal and diseased tissues for hybridizing to
microarrays ("Sample RNA"). Corixa desires to know which genes are expressed in
cells in the diseased tissue relative to the normal tissue. Rosetta has
expertise in the area of using microarrays and analyzing microarray data to
determine gene expression. The purpose of this Agreement is to set forth the
terms and conditions under which (a) Corixa will supply Rosetta with PCR Product
and Sample RNA, and (b) Rosetta will conduct experiments using microarrays
constructed using PCR Product and hybridized with Sample RNA and provide Corixa
with an analysis of the data generated from such experiments. The procedures
that each party will follow in performing this Agreement are set forth in the
provisions herein and in Appendix A hereto, which is incorporated herein by this
reference.
2. SUPPLY OF PCR PRODUCT. For each cDNA clone that corresponds to a gene
of interest, Corixa shall supply Rosetta with PCR amplified product from each
cDNA clone ("PCR Product") with [***] of approximately [***] being supplied
per month; however, the number of clones per set can range from [***].
Corixa will use reasonable efforts to deliver the PCR Product to Rosetta
during the first [***] of each month, in order to permit Rosetta to establish
a schedule for its personnel and facilities; this delivery date can be
changed by agreement of the parties. Corixa shall provide no more than [***]
of PCR Product per month to Rosetta for up to [***] unless the parties agree
[***]. The procedures to be used for supply of the PCR Product by Corixa to
Rosetta are set forth in Appendix A under the heading "PCR Product Provided
by Corixa."
3. USE OF THE PCR PRODUCT BY ROSETTA. Within [***] of receipt of PCR
Product by Rosetta, Rosetta shall employ commercially reasonable efforts to
fabricate [***] microarrays that utilize the PCR Product provided by Corixa.
4. SUPPLY OF THE SAMPLE RNA. Sample RNA will be in the form of poly A+
RNA in matched sample pairs of no more than [***] per month. Corixa shall
deliver appropriate Sample RNA in [***] to Rosetta within [***] after
delivery of the PCR Product in any given month so that the appropriate
microarrays are available when Sample RNA is received. The procedures to be
used by Corixa for providing Sample RNA to Rosetta are set forth in Appendix
A under the heading "Sample RNA Provided by Corixa."
5. USE OF SAMPLE RNA BY ROSETTA. Within [***] of receipt
of Sample RNA, Rosetta will (a) label the Sample RNA, (b) hybridize the Sample
RNA to a microarray, (c) scan the microarray, (d) compile the experimental data
("Array Data"), and (e) provide an analysis of the data to Corixa in a written
form agreed upon by the parties.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Collaboration Agreement
Corixa/Rosetta Inpharmatics Page 2 of 7
6. ARRAY DATA ANALYSIS. Information that is the result of the microarray
experiments performed by Rosetta in analyzed form shall be termed herein the
"Analyzed Data." The Analyzed Data, whether or not the result of successful
experiments, shall be disclosed in a written report to Corixa within the
[***] period set forth in Section 5 herein. Array Data associated with
Analyzed Data will be provided to Corixa in spreadsheet form on a floppy disk
or other computer-readable format agreed upon by the parties.
7. ROSETTA DEVELOPED SOFTWARE TOOLS. In the event Corixa requires
Rosetta to provide Analyzed Data in other than spreadsheet form, Rosetta
shall use reasonable commercial efforts to develop and provide to Corixa
software tools for interpretation of Analyzed Data on site at Corixa. For
such development efforts by Rosetta, Corixa shall pay Rosetta the sum of [***]
per year for licensing the software tools. Corixa shall pay Rosetta [***]
upon initiation of such development efforts and the balance of [***] upon
delivery of the software tools to Corixa. The license fee of [***] for the
first-year license of the software tools shall be due upon delivery of the
software tools to Corixa. These development and licensee fees are in addition
to the compensation for services set forth in Section 10. Rights in the
software tools is described in Section 13. The capabilities and features of
the software tools to be provided to Corixa pursuant to this Section 7, if
any, shall be agreed upon between the parties prior to the initiation of any
development work by Rosetta.
8. QUALITY CONTROL. To determine whether failed results of a microarray
experiment are the result of Rosetta's procedures or material provided by
Corixa, the procedures of this Section 8 will be followed.
8.1 QUALITY OF PCR PRODUCT AND MICROARRAYS. Procedures to check the
quality of PCR Product provided by Corixa and the procedure used to
determine which party should pay for a repeated microarray experiment
are set forth in Appendix A under the heading "Quality of PCR Products
and Microarrays." In the event that a set of microarrays are re-printed
pursuant to the procedures set forth in the section entitled "Quality of
PCR Product and Microarrays" in Appendix A, Corixa will be invoiced the
sum of [***] for such re-printing. A set of microarrays shall comprise
[***] microarrays. If Corixa decides to provide Rosetta with a new batch
of PCR Product for re-printing a set of microarrays, the parties agree
to adjust the time-frames set forth in this Agreement in an appropriate
manner. For microarray experiments that are repeated by Rosetta because
of inadequate or poor quality PCR Product, Corixa will be invoiced for
such experiments at the following rates: [***]
8.2 QUALITY OF SAMPLE RNA. Procedures to check the quality of Sample
RNA provided by Corixa and the procedure used to determine which party
should pay for a repeated microarray experiment are set forth in Appendix A
under the heading "Quality of Sample RNA." For microarray experiments
repeated by Rosetta because of low Sample RNA quality, Corixa will be
invoiced for such experiments at the following rates: [***]
9. RETURN OF UNUSED REAGENTS. All PCR Product and Sample RNA provided by
Corixa that is not used by Rosetta shall be returned to Corixa.
10. COMPENSATION. As compensation for the services to be provided under
this
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Collaboration Agreement
Corixa/Rosetta Inpharmatics Page 3 of 7
Agreement, excluding the fees for software development described in Section
7, Corixa will pay Rosetta [***]. This sum shall be paid on the following
schedule: (a) [***]
11. CONFIDENTIAL INFORMATION. For the purposes of this Agreement, the term
"Confidential Information" shall mean, and collectively include, all non-public
information relating to the business, plans and/or technology of either party
including, but not limited to, technical information including inventions,
methods, plans, processes, specifications, source code, object code,
characteristics, raw data, equipment design, know-how, experience, and trade
secrets, developmental, marketing, sales, operating, performance, and cost
information; computer programming techniques; information relating to the PCR
Product, Sample RNA, Array Data, and Analyzed Data; and all record bearing media
containing or disclosing the foregoing information and techniques including
written business plans, patents and patent applications, grant applications,
notes, and memoranda, whether in writing or presented, stored or maintained in
or by electronic, magnetic, or other means, to the extent that such information,
as of the date of disclosure by the disclosing party to the receiving party, was
not (a) known to the receiving party as evidenced by written documentation; (b)
disclosed in published literature or otherwise generally available to the
public; or (c) obtained from a third party without binder of secrecy, PROVIDED,
HOWEVER, that such third party has no confidentiality obligations to the
disclosing party or any of its affiliates. Rosetta agrees to treat Array Data
and Analyzed Data as Confidential Information disclosed by Corixa to Rosetta
within the scope of this Agreement.
11.1. RESTRICTIONS ON USE AND DISCLOSURE OF CONFIDENTIAL INFORMATION.
11.1.1. Subject to the right of publication pursuant to Section
12 hereof and Rosetta's right to use Array Data and Analyzed Data
pursuant to Section 13 hereof, the receiving party agrees to treat as
confidential and not to use other than to perform this Agreement, and
not to reverse engineer or decompile any Confidential Information
disclosed to it by the disclosing party. The receiving party agrees
not to disclose to any third party any Confidential Information
disclosed to it by the disclosing party. The receiving party further
covenants that it will exercise every reasonable precaution to
preclude the unauthorized disclosure by any of its personnel or
employees to other parties of any Confidential Information disclosed
to it by the disclosing party under the provisions of this Agreement.
The receiving party agrees not to disclose the Confidential
Information it receives from the disclosing party to anyone except its
own personnel and employees, who (a) are actively and directly
evaluating the Confidential Information, and consequently need to know
such information and (b) are bound by confidentiality, nondisclosure,
and nonuse obligations AT LEAST AS STRINGENT AS THOSE SET forth in
this paragraph 11.1.1.
11.1.2. The obligations of paragraph 11.1.1 hereof will expire
with respect to each item of Confidential Information [***] from the
termination date of this Agreement.
11.1.3. Any such information which is characterized as
Confidential Information on the date of initial disclosure to the
receiving party shall cease to be Confidential Information and the
receiving party shall be released from the provisions of paragraph
11.1.1 hereof on the date when, through no fault or omission on the
part of the
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Collaboration Agreement
Corixa/Rosetta Inpharmatics Page 4 of 7
receiving party, such information becomes (a) disclosed in published
literature or otherwise generally available to the public, or (b)
obtained by the receiving party from a third party without binder of
secrecy, provided, however, that such third party has no
confidentiality obligations to the disclosing party or any of its
affiliates.
11.1.4. Notwithstanding the obligations of paragraph 11.1.1, the
receiving party shall be permitted to disclose Confidential
Information that is required to be disclosed by the receiving party to
comply with applicable laws, court order, or governmental regulations,
provided that the receiving party provides prior written notice of
such disclosure to the disclosing party and takes reasonable and
lawful actions to avoid and/or minimize the degree of such disclosure.
The prior written notice must be given in sufficient time to permit
the disclosing party to seek a protective order or some other
accommodation.
11.2 TERMS OF THIS AGREEMENT. The parties will keep the terms of this
Agreement confidential and not disclose them to any third party, except as
may be required by regulatory agencies or courts or as required by law, and
will then use all reasonable precautions to keep the terms of this
Agreement confidential.
12. PUBLICATION. Publication rights for the Array Data and Analyzed Data
shall belong to Corixa. Corixa agrees that in the event that it decides to
prepare and submit a manuscript that includes Array Data and/or Analyzed Data
for publication, it will include appropriate Rosetta personnel as authors on the
manuscript.
13. INTELLECTUAL PROPERTY.
13.1 All Array Data and Analyzed Data ("Intellectual Property") shall
be [***]. Any inventions or discoveries made solely by Rosetta through
use of the Intellectual Property in the field of [***] shall be owned by
Rosetta and Rosetta hereby grants Corixa an exclusive, royalty-free
license to use such inventions or discoveries to research, develop and
commercialize products in all other fields. [***] shall be deemed to mean
[***]. At Corixa's request, Rosetta shall promptly execute such
instruments as are necessary to perfect Corixa's rights to any Intellectual
Property.
13.2 Any and all intellectual property rights to the software tools
developed by Rosetta pursuant to Section 7 including, but not limited to,
patents, patent applications, trademarks, copyrights, know-how, moral
rights, and similar rights of any type under the laws of any governmental
authority, domestic or foreign, including all applications and
registrations relating to any of the foregoing, shall remain with Rosetta.
Upon development of the software tools and payment of the license fee set
forth in Section 7 to Rosetta, Rosetta grants Corixa a nonexclusive,
nontransferable, revocable license to use the software tools (in object
code form only, and without any right to sublicense or make derivative
works or any changes, modifications, corrections, improvements, or
extensions of the software tools) for internal use only in the United
States at Corixa's site located at Seattle, Washington.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Collaboration Agreement
Corixa/Rosetta Inpharmatics Page 5 of 7
14. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. NEITHER PARTY MAKES ANY
REPRESENTATIONS OR EXTENDS ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE PCR PRODUCT, THE SAMPLE RNA, THE
ARRAY DATA OR THE ANALYZED DATA INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
OWNERSHIP, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. Without
limitation of the foregoing generality, nothing contained herein or in any
disclosure of research conducted by Rosetta shall be construed as extending any
representation or warranty with respect to research using PCR Product or Sample
RNA or the results to be obtained by the use thereof or any products resulting
therefrom, or that use of the Array Data or Analyzed Data will be free from
infringement of patents or other proprietary rights of third parties. Neither
party makes any warranties whatsoever as to the commercial or scientific value
of the Array Data or Analyzed Data. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, CORIXA REPRESENTS AND WARRANTS THAT IT HAS THE RIGHT TO TRANSFER THE
PCR PRODUCT AND SAMPLE RNA TO ROSETTA ON THE TERMS AND CONDITIONS OF THIS
AGREEMENT.
15. INDEMNITY. Corixa agrees to indemnify and hold harmless Rosetta, its
directors, officers, employees, and agents, from all costs, expenses (including
attorneys' fees), interest, losses, obligations, liabilities, and damages paid
or liability for which is incurred by any of said parties, and which arise out
of or are in connection with or are for the purpose of avoiding any and all
claims, demands, actions, causes of action, suits, appeals, and proceedings, all
whether groundless or not, or the settlement thereof, based on any actual or
alleged injuries, damages, or liability of any kind whatsoever (including,
without limitation, personal injury, death, property damage, breach of warranty,
or breach of contract) arising, directly or indirectly, out of (a) any
manufacture, marketing, possession, use, sale, or other disposition of Array
Data and/or Analyzed Data and/or subject matter derived therefrom or by use
thereof by Corixa, its Affiliates, its sublicensees, or anyone claiming by,
through, or under any of them, or (b) any manufacture, possession, or use of PCR
Products or Sample RNA; PROVIDED, HOWEVER, that Corixa shall have no such
obligation to indemnify or hold harmless (x) in connection with Rosetta's
practice of the license granted to it by Corixa pursuant to Section 13.1 hereof
or (y) to the extent that the costs, expenses (including attorneys' fees),
interest, losses, obligations, liabilities, or damages referred to hereinabove
are the result of the negligence or willful misconduct of Rosetta or its
directors, officers, employees or agents. Corixa's indemnification obligations
under this Section 15 arise only if Rosetta: (i) notifies Corixa as soon as it
becomes aware of a claim; (ii) permits Corixa to control the defense and
settlement, at Corixa's expense, of any such claim; and (iii) does not settle
any such claim without the prior written approval and consent of Corixa.
16. TERM AND TERMINATION. This Agreement may expire or be terminated, as
follows:
16.1. COMPLETION OF WORK. This Agreement shall expire on December 31,
2000.
16.2. BY BREACH. In the event either party shall materially breach
any of the terms, conditions and agreements contained in this Agreement
to be kept, observed and performed by it, then the other party may
terminate this Agreement, at its option and without prejudice to any of
its other legal and equitable rights and remedies, by giving the party
who committed the breach [***] notice in writing, particularly
specifying the breach, unless the notified party within such [***]
period shall have rectified the breach.
16.3. BY ROSETTA. Rosetta may terminate this Agreement by giving
Corixa [***] notice in writing setting forth the effective date of such
termination.
16.4. BY CORIXA. Corixa may terminate this Agreement by giving Rosetta
[***] notice in writing setting forth the effective date of such
termination.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Collaboration Agreement
Corixa/Rosetta Inpharmatics Page 6 of 7
17. SURVIVAL OF OBLIGATIONS. The rights and obligations of Sections 11, 12,
13, 14, and 15 shall survive expiration or termination of this Agreement. In the
event of early termination of this Agreement pursuant to paragraphs 16.2, 16.3,
or 16.4, Rosetta shall provide Corixa with Array Data and Analyzed Data and
Corixa shall pay Rosetta for work completed prior to termination.
18. NO OBLIGATION TO LICENSE. Nothing contained herein shall be construed
by implication or otherwise (a) so as to obligate either of the parties to enter
into an agreement for purchase of or license to any products, technology, or
services; or (b) as the grant of any right or license by either party to any
Confidential Information or any intellectual property rights, except for the
rights provided in Section 13.
19. GENERAL PROVISIONS. The following general provisions shall apply to
this Agreement:
19.1. NOTICES. All notices and communications provided for hereunder
shall be in writing and shall be mailed, faxed, or otherwise delivered to
the business address or fax number of the respective parties
aforementioned, or to such other address or fax number as either party
shall designate in writing to the other.
19.2. BENEFITS. All terms and provisions of this Agreement shall bind
and inure to the benefit of the parties hereto, and upon their respective
successors and assigns.
19.3. COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed to be original but
all of which together shall constitute one and the same Agreement.
19.4. CONSTRUCTION AND INTERPRETATION. This Agreement shall be
construed and fairly interpreted in accordance with its terms, without any
strict construction in favor of or against either party. Ambiguities shall
not be interpreted against the drafting party. Any ambiguities in this
Agreement shall be interpreted in accordance with the objectives stated in
Section 1. In construing or interpreting this Agreement, the word "or"
shall not be construed as exclusive, and the word "including" shall not be
limiting. The use of the singular or plural form shall include the other
form and the use of the masculine, feminine or neuter gender shall include
the other genders. All captions and headings in this Agreement are for
convenience only and shall not be considered as substantive parts of this
Agreement or determinative in the interpretation of this Agreement.
19.5. ENTIRE UNDERSTANDING. This Agreement constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof. No modifications, extensions or waiver of any provisions hereof or
release of any right hereunder shall be valid, unless the same is in
writing and is consented to by both parties hereto.
19.6. CHOICE OF LAW. This Agreement shall be governed by the laws of
the State of Washington, excluding choice of law principles that would
cause the law of any other jurisdiction to apply.
19.7. AMENDMENT. This Agreement may be amended only by a written
agreement signed by both Parties hereto.
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
Collaboration Agreement
Corixa/Rosetta Inpharmatics Page 7 of 7
19.8. WAIVER. Waiver of any provision of this Agreement shall not be
deemed a waiver of any other provision of this Agreement.
19.10. FORCE MAJEURE. The failure of any party to perform hereunder as
a result of governmental action, laws, orders, or regulations, or as a
result of events, such as war, acts of public enemies, fires, floods,
earthquakes, acts of God or any causes of like kind beyond the reasonable
control of such party is excused for so long as such cause exists, but only
to the extent such failure is caused by such law, order, regulation, or
event.
19.11. SUBSEQUENT DISCUSSIONS. The parties agree to discuss in good
faith the use of other technologies resident at Rosetta for providing
Corixa with expression data. Such technologies include, but are not
limited to, ink-jet produced microarrays and a proprietary RNA
amplification procedure.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the date and year first written
above.
CORIXA CORPORATION ROSETTA INPHARMATICS, INC.
BY /s/ Mark McDade BY /s/ John J. King, II
- ---------------------------------- ----------------------------------
MARK MCDADE JOHN J. KING, II
- ---------------------------------- ----------------------------------
PRINT NAME PRINT NAME
PRESIDENT & SR. VICE PRESIDENT,
CHIEF OPERATING OFFICER CHIEF OPERATING OFFICER
- ---------------------------------- ----------------------------------
TITLE TITLE
22 DEC '99 DECEMBER 21, 1999
- ---------------------------------- ----------------------------------
DATE DATE
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
APPENDIX A
PCR PRODUCT PROVIDED BY CORIXA
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
A-1
<PAGE>
Exhibit 10.34
ROSETTA
June 21, 1997
Dr. Stephen H. Friend, M.D., Ph.D.
Fred Hutchinson Cancer Research Center
110 Fairview Ave. N. MS M-477
Seattle, WA 98104
Dear Stephen:
On behalf of Rosetta Biosystems, Inc. (the "COMPANY"), I am pleased to
offer you the position of Acting President and Chief Scientific Officer of the
Company. Speaking for myself, as well as the other members of the Company's
Board of Directors, we are all very impressed with the job you have done to get
the Company organized and financed and we look forward to your future success in
this position.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become the Acting President and Chief Scientific
Officer of the Company, working out of the Company's headquarters office in
Kirkland, Washington. As Acting President, you will have overall responsibility
for the operations of the Company. You will report to the Company's Board of
Directors. You understand that the Company intends to hire a full-time President
and/or Chief Executive Officer, and that at such time, your title and
responsibilities will be advised appropriately to, at a minimum, Senior Vice
President and Chief Scientific Officer.
b. You agree to the best of your ability and experience that
you will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. However, nothing in
this letter agreement will prevent you from -accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed
<PAGE>
on a national stock exchange or from continuing to provide services necessary to
fulfill existing obligations to the Fred Hutchinson Cancer Research Center
(FHCRC).
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on July
1, 1997. It is understood that you are currently on a one-year leave of absence
from the Fred Hutchinson Cancer Research Center, and your continued involvement
in the Company's affairs after that time will be negotiated in good faith by
yourself and the Company.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $12,500
(less applicable withholding), which is equivalent to $150,000 on an annualized
basis. Your salary will be payable in two equal payments per month pursuant to
the Company's regular payroll policy (or in the same manner as other officers of
the Company). On July 1, you will also be paid $15,000 in consideration of the
time you have spent involved in assisting with the formation and financing of
the Company.
b. BONUS. You will be eligible to receive an incentive in
accordance with the Company's policies in effect from time to time, as
determined by the Board of Directors.
c. ANNUAL REVIEW. Your base salary will be reviewed at the end
of each calendar year as part of the Company's normal salary review process.
5. STOCK OPTIONS; FOUNDER'S STOCK.
a. INITIAL SHARES. In connection with the founding of the
Company, the Company sold you ____________ shares of the Company's Common Stock
("Shares").
b. SUBSEQUENT OPTION GRANTS. Subject to the discretion of the
Company's Board of Directors, you may be eligible to receive additional grants
of stock options or purchase rights from time to time in the future, on such
terms and subject to such conditions as the Board of Directors shall determine
as of the date of any such grant.
6. BENEFITS.
a. INSURANCE BENEFITS. The Company will provide you with
standard medical and dental insurance benefits, as well as life insurance in an
amount equivalent to that which you currently receive at the Fred Hutchinson
Cancer Research Center. In addition, the Company currently indemnifies all
officers and directors to the maximum extent permitted by law, and you will be
requested to enter into the Company's standard form of Indemnification
<PAGE>
Agreement giving you such protection. Pursuant to the Indemnification Agreement,
the Company will agree to advance any expenses for which indemnification is
available to the extent allowed by applicable law.
b. VACATION. You will be entitled to paid vacation each year
in accordance with the Company's standard terms and conditions.
c. AUTO ALLOWANCE. You will also be entitled to a monthly car
allowance of $500.00 during the term of your employment.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
Agreement"), prior to or on your Start Date.
8. SEVERANCE AGREEMENT. If your employment is terminated by the Company
or its successor for any reason other than cause, as determined by the Company's
Board of Directors, you will be entitled to receive continuation of your base
salary and insurance benefits for six months following the date of termination
of your employment.
9. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
10. AT-WILL EMPLOYMENT. Notwithstanding the Company's obligation
described in Section 8 above, your employment with the Company will be on an "at
will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason, without further obligation
or liability.
We are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Confidentiality Agreement. This
letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
Sincerely yours, Accepted and Agreed:
/s/
John J. King, II /s/
---------------------------
<PAGE>
Senior Vice President and Stephen H. Friend
Chief Operating Officer Date: JULY 10, 1997
----------------------
<PAGE>
EXHIBIT 10.35
ROSETTA
June 6, 1997
Roland Stoughton
c/o SAIC
Mailstop C-4
10260 Campus Point Drive West
San Diego, CA 92121
Dear Roland:
On behalf of Rosetta Biosystems, Inc. (the "Company"), I am pleased to
offer you the position of Interim Director of the Bioinformatics Group of the
Company. Speaking for myself, as well as the other members of the Company's
management team, we are all very impressed with your credentials and we look
forward to your future success in this position.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become Interim Director of the Bioinformatics
Group of the Company, working out of the Company's offices in Kirkland,
Washington. As Interim Director of the Bioinformatics Group, you will report to
Stephen Friend, Chief Scientific Officer.
b. You agree to the best of your ability and experience that
you will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Not withstanding the
above the Company hereby acknowledges that you will maintain an affiliation with
your current employer (SAIC) as a consultant which will require no more than
five (5) hours per week for a sixth month term from your start date and
thereafter an amount of time to be mutually agreed upon. Nothing in this letter
agreement will prevent you from accepting speaking or presentation engagements
in exchange for honoraria or from serving on boards of charitable organizations,
or from owning no more than one percent (1%) of the outstanding equity
securities of a corporation whose stock is listed on a national stock exchange.
2. START DATE. Subject to fulfillment of any conditions
imposed by this letter agreement, you will commence this new position with
the Company on July 21, 1997.
<PAGE>
June 6, 1997
Page 2
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration
law, you will be required to provide to the Company documentary evidence of
your identity and eligibility for employment in the United States. Such
documentation must be provided to us within three (3) business days of your
date of hire, or our employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of
$10416.66, which is equivalent to $125,000.00 on an annualized basis. Your
salary will be payable in two equal payments per month pursuant to the Company's
regular payroll policy (or in the same manner as other employees of the
Company).
b. ANNUAL REVIEW. Your base salary will be reviewed at the end
of each calendar year as part of the Company's normal salary review process.
5. EXPENSES.
a. In connection with your employment, the Company agrees to
reimburse you for reasonable door to door travel expenses from San Diego to
Seattle which are expected to be incurred on a weekly basis for a period not to
exceed twelve (12) months from your start date or until you relocate your family
to Seattle which ever comes first.
6. STOCK OPTIONS.
a. INITIAL OPTION GRANT. In connection with the commencement
of your employment, the Company will recommend that the Board of Directors grant
you an option to purchase 51,500 shares (subject to stock splits and
recapitalizations) of the Company's Common Stock (the "Shares") with an exercise
price equal to the fair market value on the date of the grant. These options
will vest in accordance with the following schedule: twelve and one-half percent
(12 1/2%) of the Shares shall vest on the six-month anniversary of the Start
Date and 1/48th of the total number of Shares shall vest each month thereafter.
Vesting will, of course, depend on your continued employment or consultancy with
the Company. The option will be an incentive stock option to the maximum extent
allowed by the tax code and will be subject to the terms of the Company's 1997
Stock Option Plan and the Stock Option Agreement between you and the Company.
b. SUBSEQUENT OPTION GRANTS. Subject to the discretion of the
Company's Board of Directors, you may be eligible to receive additional grants
of stock options [or purchase rights] from time to time in the future, on such
terms and subject to such conditions as the Board of Directors shall determine
as of the date of any such grant.
<PAGE>
June 6, 1997
Page 3
7. BENEFITS.
a. INSURANCE BENEFITS. The Company will provide you with
standard medical, dental and group health insurance benefits in accordance with
the Company's policies in effect from time to time.
b. VACATION. You will be entitled to paid vacation each year,
under the Company's vacation policy in effect from time to time.
8. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENT. Your acceptance of this offer and commencement of employment with
the Company is contingent upon the execution, and delivery to an officer of
the Company, of the Company's Confidential Information and Invention
Assignment Agreement, a copy of which is enclosed for your review and
execution (the "Confidentiality Agreement"), prior to or on your Start Date.
9. CONFIDENTIALITY OF TERMS. You agree to follow the Company's
strict policy that employees must not disclose, either directly or
indirectly, any information, including any of the terms of this agreement,
regarding salary, bonuses, or stock purchase or option allocations to any
person, including other employees of the Company; provided, however, that you
may discuss such terms with members of your immediate family and any legal,
tax or accounting specialists who provide you with individual legal, tax or
accounting advice.
10. AT-WILL EMPLOYMENT. Your employment with the Company will
be on an "at will" basis, meaning that either you or the Company may
terminate your employment at any time for any reason or no reason, without
further obligation or liability.
We are delighted to be able to extend you this offer and look forward
to working with you. To indicate your acceptance of the Company's offer, please
sign and date this letter in the space provided below and return it to me, along
with a signed and dated copy of the Confidentiality Agreement. This letter,
together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
<PAGE>
June 6, 1997
Page 4
Very truly yours,
ROSETTA BIOSYSTEMS, INC
Stephen H. Friend, M.D., Ph.D.
President, Chief Scientific Officer
ACCEPTED AND AGREED:
ROLAND STOUGHTON
/s/
- -----------------------------
Signature
June 6, 1997
- ---------------------------------
Date
<PAGE>
Exhibit 10.36
ROSETTA BIOSYSTEMS, INC.
April 17, 1997
Mr. John King
Dear John:
This letter is to confirm the offer by Rosetta Biosystems, Inc. (the
"Company") to employ you in the position of Senior Vice President, Chief
Operating Officer and Chief Financial Officer as of April 15, 1997 (the "Start
Date"). As we have discussed, you will be paid a starting salary of $10,000 per
month.
In connection with the commencement of your employment, the Company has
agreed to sell you 164,415 shares of the Company's Common Stock (the "Shares")
with a purchase price of $0.01 per share. The shares are subject to the
Company's right of repurchase and such repurchase right will lapse with respect
to one-twelfth of the total number of Shares each month beginning on May 15,
1997. The purchase of the Shares are subject to the terms and conditions of a
Common Stock Purchase Agreement to be entered into between you and the Company.
Your employment with the Company will be on an "at will" basis, meaning
that either you or the Company may terminate your employment at any time for any
reason or no reason, without further obligation or liability. Notwithstanding
the foregoing, if you are terminated, other than for cause, the Company's right
of repurchase will lapse with respect to all Shares as of the date of such
termination.
In connection with the commencement of your employment, the Company
will recommend that the Board of Directors grant you an option to purchase
493,245 shares (SUBJECT TO STOCK SPLITS OR RECAPITALIZATIONS)of the Company's
Common Stock (the "OPTION SHARES") with an exercise price equal to the fair
market value on the date of the grant. These Option Shares would begin vesting
on May 15, 1998 and vest at the rate of 1/36th of the total number of Option
Shares each month. Vesting will, of course, depend on your continued employment
with the Company and termination of your employment for any reason would
terminate vesting immediately. The option will be an incentive stock option to
the maximum extent allowed by the tax code and will be subject to the terms of
the Company's 1997 Stock Option Plan and the Stock Option Agreement between you
and the Company.
Your acceptance of this offer and commencement of employment with the
Company is contingent upon the execution, and delivery to an officer of the
Company, of the Company's
<PAGE>
Confidential Information and Invention Assignment Agreement, a copy of which is
enclosed for your review and execution (the "CONFIDENTIALITY AGREEMENT").
John, we are all looking forward to working with you and hope you will
accept this offer and join us in our effort to create the Company's future.
Sincerely yours,
Stephen H. Friend
President
Accepted and Agreed:
_________________________
John King
Date:____________
<PAGE>
Exhibit 10.38
PILOT PROJECT COLLABORATION AGREEMENT
This Collaboration Agreement ("Agreement") is entered into as of
February 3rd, 2000 (the "Effective Date"), by and between Rosetta Inpharmatics,
Inc., ("Rosetta"), a corporation organized and existing under the laws of the
State of Delaware and having a place of business at 12040 - 115th Avenue
Northeast, Kirkland, Washington 98034-6900 and Monsanto Company and its
affiliates ("Monsanto"), a corporation organized and existing under the laws of
the State of Delaware and having a place of business at 800 North Lindbergh
Boulevard, St. Louis, Missouri 63167.
The parties agree as follows:
1. BASIS FOR AGREEMENT. Monsanto desires to conduct a pilot project
that will evaluate two aspects of Rosetta's technologies. One part of the
project will evaluate the Resolver-TM- Expression Data Analysis System
("Resolver-TM- System"). Rosetta and Monsanto both have possession of gene
expression data that will be used for evaluation of the Resolver. The second
part of the project will evaluate Rosetta's FlexJet-TM- microarray technology
including arrays ("F1exJet~ Arrays") and array design capabilities ("Array
Design"). For evaluation of the FlexJet~ Arrays and Array Design, Monsanto has
possession of gene sequence information that will be provided to Rosetta for the
construction of arrays and Monsanto has possession of nucleic acid material that
will be provided to Rosetta for hybridizing to microarrays ("Sample RNA").
Rosetta has expertise in the area of using microarrays and analyzing microarray
data to determine gene expression.
The purpose of this Agreement is to set forth the terms and conditions
under which (a) Monsanto will evaluate the Resolver, (b) Rosetta will conduct
experiments using FlexJet-TM- Arrays constructed using sequence information
provided by Monsanto and hybridized with Sample RNA and provide Monsanto with an
analysis of the data generated from such experiments, (c) both parties will
evaluate the data generated, and (d) the conditions under which a follow-on
collaboration between Monsanto and Rosetta would take place.
2. EVALUATION OF THE RESOLVER-TM- SYSTEM. Monsanto employees will
come to Rosetta's premises to use and evaluate the Resolver-TM- system for
analysis of multiple data types at a time to be agreed between the parties.
The timing for this evaluation will be dependent upon the availability of
data under Section 2.4 below. The parties agree that the Resolver-TM- System
evaluation session will involve up to [***] Monsanto employees who will
attend the evaluation concurrently. [***] of Rosetta personnel time will be
included for the evaluation session as hosts/guides. The following data types
will be analyzed as part of the evaluation:
2.1 ANALYSIS OF SINGLE CHANNEL DATA FROM ROSETTA. For this
purpose a yeast Genome Reporter Matrix (GRM) compound database containing at
least 500 different compound and mutant profiles will be used to analyze
`single channel' data in the Resolver-TM- System. The use of these data in
this evaluation is intended to demonstrate the applicability of
single-channel data for database construction, and the flexibility of the
Resolver-TM- System in analysis of such data.
2.2 ANALYSIS OF DUAL CHANNEL DATA FROM ROSETTA. For this
purpose a Rosetta cDNA array-based compendium of mutant and compound-treated
profiles will be utilized. The use of these data in this hands-on evaluation is
intended to demonstrate the applicability of dual-channel data for database
construction, and the flexibility of the Resolver-TM- System in analysis of such
data.
2.3 [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>
2.4 ANALYSIS OF MONSANTO INK JET DATA. Up to 100 (one
hundred) sets of FlexJet-TM- Array data will be loaded into Resolver-TM- from
the Monsanto evaluation set of data that will be generated as part of the
evaluation of Rosetta's FlexJet-TM- Technology under this Agreement.
3. EVALUATION OF FLEXJET-TM- TECHNOLOGV. The purpose of this part of
the pilot project is to evaluate the Rosetta ink jet microarray technology
for use in gene expression analysis in several species. This evaluation will
involve design and utilization of a multi-species array as follows:
3.1 [***]
3.1.1 [***]
3.1.2 [***]
3.1.3 [***]
3.2 [***]
3.2.1 [***]
3.2.2 [***]
3.2.3 [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-2-
<PAGE>
3.2.4 [***]
3.3 FABRICATION OF SAA. Within 15 (fifteen) business days of
receipt of all the Sequence Information by Rosetta and notification from
Monsanto of the genes to be represented on the SAA, Rosetta shall employ
commercially reasonable efforts to begin fabrication of SAAs that will be used
in this project.
3.4 SAA HYBRIDIZATIONS. Monsanto will provide whole RNA
samples to Rosetta ("Sample RNA"). All array hybridizations will be carried out
at Rosetta using a 2-color system to monitor relative expression in two (2) RNA
samples within four (4) weeks of receipt of the last RNA sample from Monsanto,
assuming that such receipt date is after initiation of the SAA fabrication.
Details of the samples, and hybridizations can be found in Appendix B --
Hybridizations Carried Out by Rosetta. This will result in a total of [***]
F1exJet~ Arrays being used in experiments. The experimental data
resulting from the hybridizations ("Array Data") will be loaded into the
Resolver~' System for analysis.
3.5 SUPPLY OF THE SAMOLE RNA. Sample RNA will be in the form
of whole RNA in matched sample pairs. The procedures to be used by Monsanto for
providing Sample RNA to Rosetta are set forth in Appendix C -- Sample RNA
Provided by Monsanto.
3.6 ANALYZED DATA DELIVERED TO MONSANTO. Information that is
the result of the microarray experiments performed by Rosetta under this
Agreement in analyzed form shall be termed herein the "Analyzed Data." The
Analyzed Data shall be disclosed in a written report to Monsanto within [***]
business days after completion of the last hybridization. Array Data
associated with Analyzed Data will be provided to Monsanto in Monsanto specified
TAB deliminated text files via compact disc.
4. JOINT EVALUATION MEETING. Within [***] business days of
completion of the experiments conducted to evaluate Rosetta's Resolver-TM-
System and FlexJet-TM- Technology, Rosetta and Monsanto will meet to
determine whether the results of the pilot project fulfilled the pre-defined
success criteria. The criteria that will be used to determine success or
failure of the pilot project are set forth below.
4.1 EVALUATION OF RESOLVER-TM- SYSTEM. That the Resolver-TM-
System compares favorably with other array data analysis packages and
effectively meets the analysis needs of Monsanto.
4.2 EVALUATION OF FLEXJET-TM- TECHNOLOGY. The following
criteria will be used:
4.2.1 Expression values reported by the FlexJet-TM-
Technology are at least as accurate and reproducible as alternative array
technologies. Monsanto personnel will present data pertaining to the relative
accuracy of the FlexJet-TM- technology as compared to the alternative
technologies.
5. [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-3-
<PAGE>
6. QUALITY CONTROL. To determine whether failed results of a microarray
experiment are the result of Rosetta's procedures or the Sequence Information or
Sample RNA provided by Monsanto, the procedures Set forth in Appendix C under
"Quality of Sample RNA" will be followed.
7. RETURN OF UNUSED REAGENTS. All Sample RNA provided by Monsanto that
are not used by Rosetta shall be returned to Monsanto or destroyed, at
Monsanto's discretion.
8. COMPENSATION. As compensation for Rosetta's contributions for
conducting the pilot project, Monsanto will pay Rosetta a non-refundable sum of
[***]
The remaining [***] shall be paid on completion of the pilot project.
9. TERM AND TERMINATION. This Agreement may expire or be terminated, as
follows:
9.1. COMPLETION OF WORK. This Agreement shall expire upon
completion of the pilot project which shall be after the meeting(s) set forth in
Section 4. Details of the anticipated timeframe for this agreement can be found
in Appendix D -- Statement of Work for the Monsanto/Rosetta Pilot Agreement.
9.2 BY BREACH. In the event either party shall materially
breach any of the terms, conditions and agreements contained in this Agreement
to be kept, observed and performed by it, then the other party may terminate
this Agreement, at its option and without prejudice to any of its other legal
and equitable rights and remedies, by giving the party who committed the breach
[***] notice in writing, particularly specifying the breach, unless the notified
party within such [***] period shall have rectified the breach.
10. INTELLECTUAL PROPERTY AND HANDLING OF INFORMATION AND DATA.
10.1 EVALUATION OF RESOLVER-TM- SYSTEM. Based upon use of
the Resolver-TM- System in analyzing Monsanto and Rosetta data, the parties
agree that the following will apply.
10.1.1 [***]
10.1.2 Specific details of the generation,
constituent parts, and implementation of error models generated for [***] will
be solely owned by [***] and will not be communicated to [***] personnel.
10.1.3 Any discoveries (independent of the generation
of an error model) made by [***] personnel utilizing [***] data in the
Resolver-TM- System shall be owned by [***].
10.2 EVALUATION OF FLEXJET-TM- TECHNOLOGY. The following will
apply to information,
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-4-
<PAGE>
data, discoveries, and inventions related to this evaluation.
10.2.1 All Monsanto sequence data shall remain the
property of Monsanto and proprietary to it, and as such Rosetta shall ensure the
security of all such information.
10.2.2 All proprietary Monsanto sequence data will be
permanently removed from Rosetta storage devices at the conclusion of the pilot
project
10.2.3 Specific details of the parameters and
techniques used in oligonucleotide set selection and the oligonucleotide
sequences used will not be disclosed to Monsanto nor shall Rosetta disclose this
information to any third party.
10.2.4 Rosetta shall not use oligonucleotides
designed using Monsanto proprietary Sequence Information in future array
designs. However, this restriction shall not prevent Rosetta from independently
creating the same oligonucleotide or make arrays for the same Sequence
Information if such same Sequence Information is provided independently by a
third party in the future.
10.2.5 During the pilot project, all arrays will be
fabricated and hybridized at Rosetta.
10.2.6 [***]
10.2.7 Specific details of the generation,
constituent parts, and implementation of error models generated for SAAs will be
solely owned by Rosetta and will not be communicated to Monsanto personnel.
11. CONFIDENTIAL INFORMATION. For the purposes of this Agreement, the
term "Confidential Information" shall mean, and collectively include, all
non-public information relating to the business, plans and/or technology of
either party including, but not limited to, this Agreement, technical
information including inventions, methods, plans, processes, specifications,
source code, object code, characteristics, raw data, equipment design, know-how,
experience, and trade secrets, developmental, marketing, sales, operating,
performance, and cost information; computer programming techniques; information
relating to the Sample RNA, designed oligonucleotides, Array Data, and Analyzed
Data; and all record bearing media containing or disclosing the foregoing
information and techniques including written business plans, patents and patent
applications, grant applications, notes, and memoranda, whether in writing or
presented, stored or maintained in or by electronic, magnetic, or other means,
to the extent that such information (a) as of the date of disclosure by the
disclosing party to the receiving party, was not known to the receiving party as
evidenced by written documentation, (b) was not disclosed in published
literature or otherwise generally available to the public, (c) became generally
available to the public after the date of disclosure, (d) was obtained from a
third party without binder of secrecy, provided, however, that such third party
has no confidentiality obligations to the disclosing party or any of its
affiliates or (e) is at any time independently developed by employees or agents
of the receiving party who have had no access to or use of such information.
11.1 Rosetta agrees that Sample RNA, designed
oligonucleotides, Array Data and Analyzed Data constitute highly Confidential
Information of Monsanto. [***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-5-
<PAGE>
11.2 RESTRICTIONS ON USE AND DISCLOSURE OF CONFIDENTIAL
INFORMATION.
11.2.1 The receiving party agrees to treat as
confidential and not to use other than to perform this Agreement, and not to
reverse engineer or decompile any Confidential Information disclosed to it by
the disclosing party. The receiving party agrees not to disclose to any third
party any Confidential Information disclosed to it by the disclosing party. The
receiving party further covenants that it will exercise every reasonable
precaution to preclude the unauthorized disclosure by any of its personnel or
employees to third parties of any Confidential Information disclosed to it by
the disclosing party under the provisions of this Agreement. The receiving party
agrees not to disclose the Confidential Information it receives from the
disclosing party to anyone except its own personnel and employees, who (a) are
actively and directly evaluating the Confidential Information, and consequently
need to know such information and (b) are bound by confidentiality,
nondisclosure, and nonuse obligations at least as stringent as those set forth
in this paragraph 11.2.1.
11.2.2 The obligations of paragraph 11.2.1 hereof
will expire with respect to each item of Confidential Information [***] from
the termination date of this Agreement.
11.2.3 Notwithstanding the obligations of paragraph
11.2.1, the receiving party shall be permitted to disclose Confidential
Information that is required to be disclosed by the receiving party to comply
with applicable laws, court order, or governmental regulations, provided that
the receiving party provides prior written notice of such disclosure to the
disclosing party and takes reasonable and lawful actions to avoid and/or
minimize the degree of such disclosure. The prior written notice must be given
in sufficient time to permit the disclosing party to seek a protective order or
some other accommodation to protect the confidentiality of the information.
11.3 TERMS OF THIS AGREEMENT. The parties will keep the terms
of this Agreement confidential and not disclose them to any third party other
than affiliates which the party has an interest in of at least a fifty percent,
except as may be required by regulatory agencies or courts or as required by
law, and will then use all reasonable and lawful actions to keep the terms of
this Agreement confidential. The party required to make such disclosure will
provide sufficient prior written notice about such disclosure to the other party
to allow the other party to review the form of the disclosure and make requested
revisions or modifications if possible.
12. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. NEITHER PARTY MAKES
ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY
MA1TER WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE SAMPLE RNA, THE ARRAY DATA,
OR THE ANALYZED DATA INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF OWNERSHIP,
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. Without limitation of the
foregoing generality, nothing contained herein or in any disclosure of research
conducted by Rosetta shall be construed as extending any representation or
warranty with respect to research using Sample RNA or the results to be obtained
by the use thereof or any products resulting therefrom, or that use of the Array
Data or Analyzed Data will be free from infringement of patents or other
proprietary rights of third parties. Neither party makes any warranties
whatsoever as to the commercial or scientific value of the Array Data or
Analyzed Data. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, MONSANTO
REPRESENTS AND WARRANTS
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
-6-
<PAGE>
THAT IT HAS THE RIGHT TO TRANSFER THE SAMPLE RNA TO ROSETTA ON THE TERMS AND
CONDITIONS OF THIS AGREEMENT.
13. SURVIVAL OF OBLIGATIONS. The rights and obligations of Sections
10, 11, and 12 shall survive expiration or termination of this Agreement.
14. NO OBLIGATION TO LICENSE. Nothing contained herein shall be
construed by implication or otherwise (a) so as to obligate either of the
parties to enter into an agreement for purchase of or license to any products,
technology, or services; or (b) as the grant of any right or license by either
party to any Confidential Information or any intellectual property rights,
except as set forth in this Agreement.
15. ASSIGNMENT This Agreement may be assigned or transferred by
Monsanto to the acquirer of substantially all of the assets of Monsanto relating
to this Agreement.
16. GENERAL PROVISIONS. The following general provisions shall apply
to this Agreement:
16.1 NOTICES. All notices and communications provided for
hereunder shall be in writing and shall be mailed, faxed, or otherwise delivered
to the business address or fax number of the respective parties set forth below,
or to such other address or fax number as either party shall designate in
writing to the other.
- If to Rosetta: Rosetta Inpharmatics
12040- 115th Avenue NE
Kirkland, WA 98034
Attention: Chief Operating Officer
If to Monsanto Monsanto Company
800 North Lindbergh Blvd
St. Louis, Missouri, 63167
Attention: Vice President, Genomics
Technologies
16.2 BENEFITS. All terms and provisions of this Agreement
shall bind and inure to the benefit of the parties hereto, and upon their
respective successors and assigns.
16.3 COUNTERPARTS. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed to be
original but all of which together shall constitute one and the same Agreement.
16.4 CONSTRUCTION AND INTERPRETATION. This Agreement shall be
construed and fairly interpreted in accordance with its terms, without any
strict construction in favor of or against either party. Ambiguities shall not
be interpreted against the drafting party. Any ambiguities in this Agreement
shall be interpreted in accordance with the objectives stated in Section 1. In
construing or interpreting this Agreement, the word "or" shall not be construed
as exclusive, and the word "including" shall not be limiting. The use of the
singular or plural form shall include the other form and the use of the
masculine, feminine or neuter gender shall include the other genders. All
captions and headings in this Agreement are for convenience only and shall not
be considered as substantive parts of this Agreement or determinative in the
interpretation of this Agreement.
16.5 ENTIRE UNDERSTANDING. This Agreement constitutes the
entire understanding between the parties hereto with respect to the subject
matter hereof. No modifications, extensions or
-7-
<PAGE>
waiver of any provisions hereof or release of any right hereunder shall be
valid, unless the same is in writing and is consented to by both parties hereto.
16.6 CHOICE OF LAW. This Agreement shall be governed by the
laws of the State of Washington, excluding choice of law principles that would
cause the law of any other jurisdiction to apply.
16.7 AMENDMENT. This Agreement may be amended only by a
written agreement signed by both Parties hereto.
16.8 WAIVER. Waiver of any provision of this Agreement shall
not be deemed a waiver of any other provision of this Agreement.
16.9 FORCE MAJEURE. The failure of any party to perform
hereunder as a result of governmental action, laws, orders, or regulations, or
as a result of events, such as war, acts of public enemies, fires, floods,
earthquakes, acts of God or any causes of like kind beyond the reasonable
control of such party is excused for so long as such cause exists, but only to
the extent such failure is caused by. such law, order, regulation, or event.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized representatives to execute this Agreement as of the date and year
first written above.
MONSANTO COMPANY ROSETTA INPHARMATICS, INC.
By /s/ SLOAN RAUSSER By /s/ JOHN J. KING, II
----------------------------- ------------------------------------
SLOAN RAUSSER JOHN J. KING, II
- --------------------------------- -----------------------------------
Print Name Print Name
DIRECTOR, BUSINESS DEVELOPMENT SR. VICE PRESIDENT, CHIEF OPERATING
OFFICER
- --------------------------------- ---------------------------------------
Title Title
2/3/00 2/1/00
- --------------------------------- ---------------------------------------
Date Date
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<PAGE>
APPENDIX A -- DESIGN OF THE SAA
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
A-1
<PAGE>
APPENDIX B - HYBRIDIZATIONS CARRIED OUT BY ROSETTA
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
A-2
<PAGE>
APPENDIX C -- SAMPLE RNA PROVIDED BY MONSANTO
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
A-6
<PAGE>
APPENDIX D -- STATEMENT OF WORK FOR THE MONSANTO/ROSETTA PILOT
[***]
* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
A-7
<PAGE>
Exhibit 10.39
PROMISSORY NOTE
$1,575,000 Kirkland, Washington
March 14, 2000
For value received, the undersigned promises to pay Rosetta
Inpharmatics, Inc., a Delaware corporation (the "COMPANY"), at its principal
office the principal sum of $1,575,000 with interest from the date hereof at a
rate of 6.35% per annum, compounded semiannually, on the unpaid balance of such
principal sum. Such principal and interest shall be due and payable on March 14,
2004.
If the undersigned's employment or consulting relationship with the
Company is terminated prior to payment in full of this Note, this Note shall be
within ninety (90) days of such termination. Further, in the event the
undersigned has had the opportunity prior to March 14, 2004 to sell, transfer,
hypothecate or otherwise liquidate shares of stock obtained pursuant to that
certain Early Exercise Notice and Restricted Stock Purchase Agreement between
the Company and the undersigned dated as of March 14, 2000 (the "AGREEMENT",
that portion of the this Note equal to the proceeds (net of any federal or state
income tax liability) of any such liquidation shall become immediately due and
payable and shall be paid in full; provided, however, that the foregoing shall
not apply to a transfer made pursuant to 3(b)(vi) of the Agreement.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
___________________________
Mark Boguski, M.D., Ph.D.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated February 18, 2000 relating to the financial statements of
Rosetta Inpharmatics, Inc., and our report dated March 19, 1999 relating to
the financial statements of Acacia Biosciences, Inc. which appear in such
Registration Statement. We also consent to the reference to us under the
headings "Expert" and "Selected Financial Data" in such Registration
Statement.
Seattle, Washington
March 31, 2000
