<PAGE>
As filed with the Securities and Exchange Commission on February 29, 2000
Registration No. 333-95461
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INTRABIOTICS PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 2834 94-3200380
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
----------------
1255 Terra Bella Avenue
Mountain View, CA 94043
(650) 526-6800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
Kenneth J. Kelley
President and Chief Executive Officer
IntraBiotics Pharmaceuticals, Inc.
1255 Terra Bella Avenue
Mountain View, CA 94043
(650) 526-6800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies to:
<TABLE>
<S> <C>
Robert L. Jones Patrick T. Seaver
Laura A. Berezin Charles K. Ruck
COOLEY GODWARD LLP LATHAM & WATKINS
Five Palo Alto Square 650 Town Center Drive
3000 El Camino Real 20(th) Floor
Palo Alto, CA 94306-2155 Costa Mesa, CA 92626
(650) 843-5000 (714) 540-1235
</TABLE>
----------------
Approximate date of proposed sale to the public:
As soon as practicable after the registration statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate
Title of Securities Amount to Offering Price Offering Amount of
to be Registered be Registered Per Share Price(1)(2) Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $.001 par value.......... 8,625,000 $15.00 $129,375,000 $34,155
</TABLE>
(1) Includes 1,125,000 shares of common stock issuable upon exercise of the
underwriter's over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933 of which $23,760 has been previously paid.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission becomes effective. This preliminary
prospectus is not an offer to sell these securities nor does it seek offers to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
<PAGE>
Subject to Completion, Dated February 29, 2000
[LOGO]
7,500,000 Shares
Common Stock
This is the initial public offering of IntraBiotics Pharmaceuticals, Inc. and we
are offering 7,500,000 shares of our common stock. We anticipate that the
initial public offering price will be between $13.00 and $15.00 per share. We
have applied to list our common stock on the Nasdaq National Market under the
symbol "IBPI."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions IntraBiotics
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to 1,125,000
additional shares to cover over-allotments.
Deutsche Banc Alex. Brown
Warburg Dillon Read LLC
SG Cowen
Adams, Harkness & Hill, Inc.
The date of this prospectus is , 2000
<PAGE>
[This graphic will include a figure of the human body with arrows pointing to
the body to indicate the areas targeted by our product programs. Below this is a
chart which briefly describes the clinical use, development stage and
territorial rights for each of our development programs.]
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE
ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE
MAKING AN INVESTMENT DECISION.
OUR BUSINESS
IntraBiotics Pharmaceuticals, Inc. develops and intends to commercialize new
antibacterial and antifungal drugs for the prevention or treatment of serious
infectious diseases. We are about to begin expanded human clinical trials to
test for efficacy and safety, known as phase III trials, for our two lead
product candidates, Ramoplanin Oral and Protegrin IB-367 Rinse. We recently
obtained statistically significant data from human clinical trials that test for
preliminary safety and efficacy, known as phase II trials, that indicate each of
these products was well tolerated and support further efficacy trials. Our new
antibiotics may solve medical problems for patients who currently have few or no
satisfactory alternatives. Since these antibiotics kill bacteria and fungi in
new ways, they may be particularly useful in fighting multi-drug resistant
bacteria that cannot be killed with currently available antibiotics. The
increasing incidence of multi-drug resistant bacterial infections has created a
global health care problem, commonly referred to as the antibiotics crisis.
OUR PRODUCT PORTFOLIO
Ramoplanin is an antibacterial drug that selectively kills certain types of
bacteria, including one of the most problematic, multi-drug resistant types,
called vancomycin resistant enterococci, or VRE. This strain of bacteria is
particularly difficult to treat, as it is resistant to the most commonly
prescribed antibiotics, including one of the most powerful, vancomycin. Because
of this resistance, patients with VRE bloodstream infections are twice as likely
to die as patients with infections caused by the non-resistant strain. In
addition, VRE infections are expensive to treat, generating incremental costs
estimated at $86,000 per case. The incidence of this strain of bacteria is
increasing rapidly in U.S. hospitals, creating a significant and widely
acknowledged public health problem.
We are developing Ramoplanin Oral for the elimination of VRE in the
intestines of hospitalized patients to prevent VRE from crossing over into the
bloodstream and causing bloodstream infections. We recently completed a
phase II trial indicating that the drug was well tolerated and was effective in
reducing VRE in the patients' intestines. We are now preparing to start our
phase III trial that, if successful, would demonstrate Ramoplanin Oral's ability
to prevent VRE bloodstream infections. We hold the exclusive rights to this drug
in the U.S. and Canada through licensed patents and trade secrets.
Protegrin IB-367 is a new antibiotic that rapidly kills many types of
bacteria and fungi. We are developing Protegrin IB-367 Rinse for oral mucositis,
a condition characterized by painful mouth ulcers that often form as a side
effect of cancer therapies. Patients often identify oral mucositis as the single
most troublesome side effect of cancer therapy. In severe cases of oral
mucositis, patients may not be able to eat and may have to discontinue or reduce
cancer treatment because of the pain. Oral mucositis often requires additional
patient care, including extended hospitalization, estimated at between $4,500
and $20,000 per case.
We recently completed a phase II trial indicating the drug was well
tolerated, appeared not to be absorbed into the bloodstream from the mouth and
reduced the severity of oral mucositis. To our knowledge, Protegrin IB-367 Rinse
is the first drug in a phase II trial to successfully reduce the severity of
oral mucositis in chemotherapy patients. We are about to begin phase III trials
of
1
<PAGE>
Protegrin IB-367 Rinse that, if successful, will demonstrate a reduction in
severity of oral mucositis in cancer patients receiving chemotherapy or
radiation therapy. We hold exclusive worldwide rights to this drug.
In addition to Ramoplanin Oral and Protegrin IB-367 Rinse, we are about to
begin early stage human clinical testing, known as phase I trials, with two
other clinical uses and formulations of Protegrin IB-367. We have three other
antibiotic compounds for which we have identified nearly final chemical
structures, or lead candidates. These compounds are in preclinical laboratory
research. Our current product portfolio is presented below.
[CHART]
We plan to fund our product development and commercialization efforts
primarily through the sale of equity although we may also receive revenues from
corporate partnerships. To date, we funded our operations primarily through
private equity sales as well as revenue from a prior collaboration agreement,
from which we will not receive any additional funding and proceeds of equipment
financing arrangements.
OUR BUSINESS STRATEGY
We pursue parallel development of product candidates at various stages to
maximize the probability for successful product commercialization. Our
development programs focus on significant unmet medical needs that we believe
provide substantial commercial opportunity and limited competition. We have
in-licensed five antibiotic compounds or technologies, and we intend to continue
to pursue attractive in-licensing opportunities to add breadth and depth to our
research and development portfolio. We are evaluating new formulations and
clinical uses for our product candidates as well.
We plan to market and sell our products, if they receive FDA approval, in
the U.S. through a direct sales force focused on major hospitals. We believe
that a relatively small sales force will initially be effective, as our first
two products target oncology-related indications treated by roughly the same
physician group. This sales force may also be used to market and sell our future
products. We intend to license our foreign product rights to other
pharmaceutical companies to commercialize our products abroad.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by IntraBiotics......... 7,500,000 shares
Common stock to be outstanding upon
completion of this offering................ 28,581,054 shares
Use of proceeds.............................. Clinical trials, development and scale-up of
manufacturing processes by our contract
manufacturers, research and development
activities, acquisition of new technologies
or products, working capital and other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... IBPI
</TABLE>
The number of shares of common stock to be outstanding upon completion of
this offering is based on the number of shares outstanding as of December 31,
1999 and excludes:
- 3,746,896 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $1.16 per share;
- 677,000 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $9.50 per share; and
- 123,501 shares of common stock available for issuance under our stock plan
as of December 31, 1999, and 5,500,000 additional shares of common stock
that were approved for issuance under stock plans after December 31, 1999.
------------------------
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO COMMON
STOCK UPON THE CLOSING OF THIS OFFERING; AND
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
IntraBiotics effected a 1-for-2 reverse stock split of our common stock on
February 28, 2000.
3
<PAGE>
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues.................................... $ -- $ -- $ 5,507 $ 6,357 $ 7,863
Operating expenses:
Research and development.................. 2,181 4,049 8,103 21,997 26,102
General and administrative................ 682 949 1,960 2,533 6,082
------- ------- ------- -------- --------
Total operating expenses................ 2,863 4,998 10,063 24,530 32,184
------- ------- ------- -------- --------
Operating loss............................ (2,863) (4,998) (4,556) (18,173) (24,321)
Interest income, net........................ 41 182 481 791 1,206
------- ------- ------- -------- --------
Net loss.................................. $(2,822) $(4,816) $(4,075) $(17,382) $(23,115)
======= ======= ======= ======== ========
Basic and diluted net loss per share........ $(14.25) $(11.92) $ (6.39) $ (20.89) $ (21.62)
======= ======= ======= ======== ========
Shares used in computing basic and diluted
net loss per share........................ 198 404 638 832 1,069
======= ======= ======= ======== ========
Pro forma basic and diluted net loss
per share................................. $ (1.27)
========
Shares used in computing pro forma basic and
diluted net loss per share................ 18,172
========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Actual As Adjusted (1)
-------- ----------------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments......... $31,429 $128,029
Working capital........................................... 25,743 122,343
Total assets.............................................. 35,958 132,558
Long-term obligations, less current portion............... 1,725 1,725
Deferred stock compensation............................... (12,650) (12,650)
Accumulated deficit....................................... (52,874) (52,874)
Total stockholders' equity................................ 27,914 124,514
</TABLE>
- ------------------------
(1) The as adjusted column reflects the sale of 7,500,000 shares of our common
stock in the public offering at an assumed initial public offering price of
$14.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses.
We were incorporated in Delaware in 1994. Our executive offices and
laboratories are located at 1255 Terra Bella Avenue, Mountain View, California,
94043. Our telephone number is (650) 526-6800 and our web site is
www.IntraBiotics.com. The information on our website is not incorporated into
and is not intended to be a part of this prospectus.
IntraBiotics and the IntraBiotics logo are trademarks of IntraBiotics. All
other trademarks used in this prospectus are the property of their respective
owners.
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE
WHETHER TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD SUFFER
SIGNIFICANTLY. IN ANY SUCH CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON
STOCK.
Risks Related to Our Business
We depend on the outcome of our clinical trials and if they are unsuccessful, we
may not be able to commercialize our products.
Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical research and clinical trials
that our drug candidates are safe and effective for use in humans. Conducting
clinical trials is a time-consuming and expensive process, and the outcome of
these trials is uncertain. If any of our clinical trials do not demonstrate
safety and efficacy, we would be unable to obtain regulatory approval from the
FDA for that product.
Preclinical and clinical data can be interpreted in different ways. A number
of new drugs have shown promising results in clinical trials, but subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals. A number of companies have suffered significant setbacks
in advanced clinical trials, even after promising results in earlier trials. We
currently have two drug candidates which have completed phase II clinical
trials, Ramoplanin Oral and Protegrin IB-367 Rinse. If either drug candidate
fails to establish safety and efficacy in phase III clinical trials, we would be
unable to commercialize the drug candidate, and our business will be harmed and
our future profitability, if achieved, will be significantly delayed.
Timing of the completion of our clinical trials is uncertain, and any delays may
affect our ability to file and receive FDA approvals and to become profitable.
Completion of clinical trials may take several years or more. Our product
development costs will increase if we have delays in trials or the FDA approval
process or if we need to perform more or larger clinical trials.
Our commencement and completion of clinical trials may be delayed by many
factors, including:
- slower than expected rate of patient recruitment;
- inability to adequately obtain data about patients after their treatment;
- inability to manufacture sufficient quantities of materials used for
clinical trials;
- unforeseen safety issues; or
- inability to show efficacy with statistical significance during the
clinical trials.
If the delays are substantial, our financial results and the commercial
potential for our drug candidates could be harmed, and our ability to become
profitable will be impaired.
If our collaborative partners assisting in our clinical trials fail to
appropriately manage our clinical trials, they could be delayed or could fail.
We have limited experience in conducting and managing clinical trials. We
rely on several contract research organizations including, PharmaNet, Inc.,
Amarex Clinical Research and Axio
5
<PAGE>
Research Corporation, to assist us in managing and monitoring our clinical
trials. Our reliance on such third parties may result in delays in completing,
or failure to complete, such trials if they fail to perform under our agreements
with them.
If we fail to obtain the capital necessary to fund our operations, we will be
unable to develop our drug candidates and may have to cease operations.
We will continue to expend substantial resources for the expansion of
research and development, including costs associated with researching drug
candidates, securing in-licensing opportunities, conducting preclinical research
and clinical trials and obtaining regulatory approval for our drug candidates.
We expect that significant additional financing will be required in the future
to fund our operations. We do not know whether additional financing will be
available when needed or on acceptable terms, if at all. If we are unable to
raise additional financing when necessary, we may have to delay some or all of
our product development efforts or be forced to cease operations.
We may be forced to raise additional capital sooner than currently anticipated.
We believe that the proceeds from this offering, together with our current
cash balances, cash equivalents, short-term investments and cash generated from
our collaborative arrangements will be sufficient to meet our operating and
capital requirements for at least the next 12 months. However, we have based
this estimate on assumptions that may prove to be wrong. Our future liquidity
and capital requirements will depend on many factors, including the timing,
cost, extent and results of clinical trials, payments associated with
manufacturing scale-up and the costs and timing of regulatory approvals.
Additional factors are discussed in more detail in "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Results of
Operations."
Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Collaborative
arrangements may require us to relinquish our rights to certain of our
technologies, drug candidates or marketing territories. If funding is not
available, our development and commercialization activities may be impaired.
We expect to continue to incur future operating losses and may never achieve
profitability.
We have never generated revenue from product sales and have incurred
significant net losses in each year since inception. We incurred net losses of
$4.1 million in 1997, $17.4 million in 1998 and $23.1 million in 1999. As of
December 31, 1999, our accumulated deficit was approximately $52.9 million. We
expect to continue to incur substantial additional losses for the foreseeable
future primarily as a result of increases in clinical trial expense costs, and
we may never become profitable. In addition, we expect increases in preclinical
research and manufacturing and development costs. To date, we have financed our
operations primarily through the private sale of equity securities, funds
received from a terminated collaboration agreement and the proceeds of equipment
financing arrangements. We will receive product revenues only if we complete
clinical trials with respect to one or more products, receive regulatory
approvals and successfully commercialize such products.
If our single-source third party manufacturers fail to produce clinical or
commercial quantities of our drug candidates, our product development, sales and
marketing efforts will be harmed.
We rely on PolyPeptide Laboratories A/S and Biosearch Italia S.p.A. to
manufacture our bulk drug substances on a commercial scale. While we maintain a
limited inventory of our drug candidates, we depend on these single-source
contract manufacturers to produce each of our products for use in our clinical
trials. If our contract manufacturers are unable or fail to produce the required
quantities of our drug candidates for clinical use or commercial sale on a
timely basis, at
6
<PAGE>
commercially reasonable prices and with sufficient purity, our current and
future clinical trials, our product development and sales and marketing efforts
will be impaired. In addition, we currently intend to contract with third
parties for the manufacturers of the final formulation. We cannot guarantee that
we will be able to contract with a reliable manufacturer on commercially
reasonable terms.
Our contract manufacturers have a limited number of facilities in which our
drug candidates can be produced. In addition, together with our third-party
manufacturers, we are required to register manufacturing facilities with the FDA
and foreign regulatory authorities. The facilities will then be subject to
inspections assessing compliance with current good manufacturing practice
requirements established by the FDA or corresponding foreign regulatory
agencies. If these facilities become unavailable for any reason or if our
contract manufacturers fail to comply with the FDA's current good manufacturing
practices or if our contract manufacturers terminate their agreements with us,
we would have to find an alternative source for manufacturing our drug
candidates. There are, on a worldwide basis, a limited number of contract
facilities in which our drug candidates can be produced under current good
manufacturing practice regulations. It can also take a substantial period of
time for a contract facility to begin producing antibiotics in sufficient
commercial quantities and according to current good manufacturing practices. In
addition, the manufacturing processes for Protegrin IB-367 and Ramoplanin are
extremely complex and proprietary. If we are unable to continue having Protegrin
IB-367 or Ramoplanin manufactured by our current contract manufacturers, we do
not know if we could engage another contract manufacturer when needed or on
acceptable terms, if at all.
We currently intend to continue using our contract manufacturers to produce
commercial quantities of our drug candidates if they receive regulatory
approval. Our contract manufacturers have no experience in manufacturing
Protegrin IB-367 and Ramoplanin in quantities sufficient for commercialization.
Contract manufacturers often encounter difficulties in scaling up production,
including problems involving production yields, quality control, quality
assurance and shortage of qualified personnel. If our contract manufacturers are
unable to scale up production to meet our commercial needs, our revenue would be
adversely affected.
Development and commercialization of competitive products could harm our revenue
and results of operations.
We may be unable to compete successfully if others develop and commercialize
competitive products that are less expensive, more effective, have fewer side
effects or are easier to administer than our drug candidates. If we are unable
to compete successfully with our drug candidates, our revenue and results of
operations would be adversely affected.
There are several drugs under development that might compete with Ramoplanin
Oral and Protegrin IB-367 Rinse. To the best of our knowledge, there are no
direct competitors approved or under development for the prevention of VRE
bloodstream infections. However, there is one approved product for the treatment
of VRE infections, Synercid-Registered Trademark-, and another product,
Zyvox-Registered Trademark-, is currently under review by the FDA. For oral
mucositis, there is one approved device, Radiacare-Registered Trademark-, and
several drugs in early stage clinical trials. These include two growth factors,
keratinocyte growth factor and interleukin-11, as well as a chemoprotective
agent, Ethyol-Registered Trademark-. The companies sponsoring these trials have
successfully commercialized products in the past. In addition, there may be
products under development of which we are unaware for the prevention of VRE
bloodstream infections or the treatment of oral mucositis.
Many of our competitors and related private and public research and academic
institutions have substantially greater experience, financial resources and
larger research and development staffs than we do. In addition, many of these
competitors, either alone or together with their collaborative
7
<PAGE>
partners, have significantly greater experience than we do in developing drugs,
obtaining regulatory approvals and manufacturing and marketing products. We also
compete with these organizations and other companies for in-licensing
opportunities for future drug candidates and in attracting scientific and
management personnel.
We are subject to extensive government regulation, and failure to obtain FDA
approvals would delay or prevent commercialization of our drug candidates.
None of our drug candidates has been approved for sale in the U.S. or any
foreign market. We must obtain approval from the FDA in order to sell our drug
candidates in the U.S. and from foreign regulatory authorities in order to sell
our drug candidates in other countries. We must successfully complete our
phase III clinical trials and demonstrate manufacturing capability before we can
file with the FDA for approval to sell our products. The FDA could require us to
repeat clinical trials as part of the regulatory review process. Delays in
obtaining or failure to obtain regulatory approvals may:
- delay or prevent the successful commercialization of any of our drug
candidates;
- diminish our competitive advantage; and
- adversely affect our receipt of revenues or royalties.
The regulatory review and approval process is lengthy, expensive and
uncertain. Securing FDA approval requires the submission of extensive
preclinical and clinical data and supporting information to the FDA for each
indication to establish safety and effectiveness. We have limited experience in
obtaining such approvals, and cannot be certain when we will receive these
regulatory approvals, if ever.
In addition to initial regulatory approval, our drug candidates are subject
to extensive and rigorous ongoing domestic government regulation. The FDA
regulates, among other things, the development, testing, manufacture,
record-keeping, labeling, storage, promotion and distribution of our products.
After approval, changes to a product such as manufacturing changes or additional
indications or labeling claims are subject to further FDA review and approval.
Any approvals, once obtained, may be withdrawn if compliance with regulatory
requirements is not maintained or safety problems are identified. If our
products are marketed abroad, they also are subject to extensive regulation by
foreign governments. Failure to comply with these requirements may subject us to
stringent penalties.
If we are not able to adequately protect our intellectual property, our
competitive position would be harmed.
We rely on a combination of patents, trade secrets and contractual
provisions to protect our intellectual property. Our success depends in part on
our ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
8
<PAGE>
We try to protect our proprietary position by filing U.S. and foreign patent
applications related to our proprietary technology, inventions and improvements
that are important to the development of our business. However, the patent
position of biopharmaceutical companies involves complex legal and factual
questions. We cannot predict the enforceability or scope of any issued patents
or those that may issue in the future. Patents, if issued, may be challenged,
invalidated or circumvented. Consequently, if any patents that we own or license
from third parties do not provide sufficient protection, our competitive
position would be harmed. Furthermore, others may independently develop similar
technologies or duplicate any technology that we have developed. In addition,
our pending patent applications, those we may file in the future, or those we
may license from third parties, may not result in patents being issued.
Because we rely on trade secrets related to the manufacture of certain products,
any unauthorized use or disclosure of our trade secrets would harm our
competitive position.
In addition to patents, we rely on trade secrets and proprietary know-how.
Our contract manufacturers perform the manufacturing processes covered by these
trade secrets. Accordingly, our contract manufacturers and we must maintain
confidentiality. We have confidentiality and proprietary information agreements
with our contract manufacturers and with our employees. These agreements may not
provide meaningful protection or adequate remedies for our technology in the
event of unauthorized use or disclosure of confidential and proprietary
information.
We may be subject to intellectual property litigation which could be costly and
time-consuming.
The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Third parties may assert infringement or other intellectual property claims
against us. We may have to pay substantial damages, including treble damages,
for past infringement if it is ultimately determined that our products infringe
a third party's proprietary rights. The defense and prosecution of intellectual
property suits, U.S. Patent and Trademark Office interference proceedings and
related legal and administrative proceedings in the U.S. and internationally are
costly and time-consuming to pursue and their outcome is uncertain. If we become
involved in any of these proceedings, we will incur substantial expense and the
efforts of our technical and management personnel will be significantly
diverted. An adverse determination may result in the invalidation of our patents
subject us to significant liabilities or require us to seek licenses that may
not be available from third parties on satisfactory terms, or at all. Any public
announcements related to litigation or interference proceedings initiated or
threatened against us could cause our stock price to decline.
If physicians and patients do not accept our products, we may be unable to
generate significant revenue, if any.
Our drug candidates may not gain market acceptance among physicians,
patients, and the medical community. If any of our drug candidates fails to
achieve market acceptance, we may be unable to successfully market and sell the
product, which would limit our ability to generate revenue and harm our results
of operations. The degree of market acceptance of any drug candidate depends on
a number of factors, including:
- demonstration of clinical efficacy and safety;
- cost-effectiveness;
- convenience and ease of administration;
- potential advantage over alternative treatment methods; and
- marketing and distribution support.
9
<PAGE>
Physicians will not recommend our products until such time as clinical data
or other factors demonstrate the safety and efficacy of our drugs as compared to
other treatments. In practice, competitors may be more effective in marketing
their drugs. Even if the clinical safety and efficacy of our antibiotic products
is established, physicians may elect not to recommend products.
If we fail to obtain acceptable prices or adequate reimbursement from
third-party payors, our ability to generate revenue from product sales will be
impaired.
In both domestic and foreign markets, sales of our drug candidates will
depend in part upon the availability of reimbursement from government health
administration authorities, managed care providers, private health insurers and
other organizations. These third-party payors are increasingly challenging the
price and examining the cost effectiveness of medical products and services. In
addition, significant uncertainty exists as to the reimbursement status of newly
approved health care products. For example, in the U.S., Medicare and
third-party payors are increasingly attempting to contain health care costs by
limiting both the coverage and the level of reimbursement for new drugs and by
refusing to provide coverage for use of approved drugs for disease indications
for which the FDA has not granted labeling approval. Adequate third-party
reimbursement may not be available to enable us to maintain price levels
sufficient to realize an appropriate return on our investment in product
development. If the government and third-party payors fail to provide adequate
coverage and reimbursement rates for our drug candidates, sales of our products
will be adversely affected.
If we are unable to establish sales, marketing and distribution capabilities or
enter into agreements with third parties to perform these services, we will be
unable to commercialize our drug products.
We do not currently have marketing, sales or distribution capabilities. For
our initial products, we intend to establish a direct marketing and sales force
in the U.S. and Canada. To market any of our products directly we must develop a
marketing and sales force with technical expertise and distribution
capabilities. We may not successfully develop marketing and sales experience or
have sufficient resources to do so. We intend to enter into arrangements with
third parties to market and sell most of our products outside of the U.S. and
Canada. We may not be able to enter into marketing and sales arrangements with
others on acceptable terms, if at all. To the extent that we enter into
marketing and sales arrangements with other companies, our revenues will be
lower than if we marketed the products directly and will depend on the efforts
of others. If we fail to establish successful marketing and sales capabilities
or fail to enter into successful marketing arrangements with third parties, we
would be unable to commercialize our drug products.
If we fail to recruit and retain key personnel, our product development and
commercialization efforts will be adversely affected.
We are highly dependent on our management and technical staff. Competition
for personnel is intense. If we lose the services of any of our senior
management, our product development and commercialization efforts would be
adversely affected. We do not maintain key person life insurance and do not have
employment agreements with our management and technical staff. In order to
pursue product development, marketing and commercialization plans, we will need
to hire additional qualified scientific personnel to perform research and
development. We will also need to hire personnel with expertise in clinical
testing, government regulation, manufacturing, marketing and finance. We may not
be able to attract and retain personnel on acceptable terms given the
competition for such personnel among biotechnology, pharmaceutical and other
companies.
10
<PAGE>
In addition, we rely on consultants to assist us in formulating our research
and clinical development strategy. All of our consultants are employed by other
entities. They may have commitments to, or relationships with, other entities
that may limit their availability to us. If we lose the services of these
personnel, our research and development efforts may be delayed.
If product liability lawsuits are successfully brought against us, we could face
substantial liabilities.
The use of any of our drug candidates in clinical trials, and the sale of
any approved products, may expose us to liability claims. These claims might be
made directly by consumers, health care providers or by pharmaceutical
companies. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial damages that could exceed our financial
resources. We currently have clinical trial insurance, which includes product
liability insurance. We intend to expand our insurance coverage to include the
sale of commercial products if marketing approval is obtained for our drug
candidates. However, insurance coverage is becoming increasingly expensive. We
may not be able to obtain or maintain product liability coverage at a reasonable
cost or in sufficient amounts to protect us against loss.
Risks Related to This Offering
Directors, executive officers, principal stockholders and affiliated entities
own a significant portion of our capital stock and will have substantial control
over our activities.
Upon completion of this offering, our directors, executive officers,
principal stockholders and affiliated entities will beneficially own, in the
aggregate, approximately 50% of our outstanding common stock. These
stockholders, if acting together, will be able to significantly influence all
matters requiring approval by our stockholders. Such matters include the
election of directors and the approval of mergers or other business combination
transactions. We may be adversely impacted by the control that such stockholders
will have with respect to matters affecting us.
Antitakeover provisions in our charter documents and under Delaware law may make
an acquisition of us more difficult.
Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders.
These provisions:
- provide for a classified board of directors of which approximately one
third of the directors will be elected each year;
- allow the authorized number of directors to be changed only by resolution
of the board of directors;
- require that stockholder actions must be effected at a duly called
stockholder meeting and prohibit stockholder action by written consent;
- establish advance notice requirements for nominations to the board of
directors or for proposals that can be acted on at stockholder meetings;
and
- limit who may call stockholder meetings.
In addition, because we are incorporated in Delaware, we are governed by the
provisions of Section 203 of the Delaware General Corporation Law which may
prohibit large stockholders from
11
<PAGE>
consummating a merger with or acquisition of us. These provisions may prevent a
merger or acquisition that would be attractive to stockholders and could limit
the price that investors would be willing to pay in the future for our common
stock.
If our stockholders sell substantial amounts of our common stock after the
offering, the market price of our common stock may decline.
The number of shares of common stock available for sale in the public market
is limited by restrictions under federal securities law and under lockup
agreements with our underwriters. These lockup agreements restrict our
stockholders from disposing of their shares for 180 days after the date of this
prospectus without the prior written consent of Deutsche Bank Securities Inc.
However, Deutsche Bank Securities Inc. may release all or any portion of the
common stock from the restrictions in the lockup agreements. Any sales of
substantial amounts of common stock after the offering, including shares issued
upon the exercise of outstanding options and warrants, may cause the market
price of our common stock to decline. The following table indicates when the
21,473,480 shares of our common stock which are not being sold in this offering
but which were outstanding at February 25, 2000, will be eligible for sale into
the public market:
<TABLE>
<CAPTION>
Shares Eligible
Days After Prospectus Date for Sale Comment
-------------------------- --------------- -------
<S> <C> <C>
Upon effectiveness........................ 222,476 Freely tradable shares eligible for sale
under Rule 144(k) and not locked-up
90 days................................... 882,032 Shares not locked-up and saleable under
Rules 144 and 701
180 days.................................. 17,243,972 Lock-up released; shares saleable under
Rules 144 and 701
Various dates thereafter.................. 3,125,000 Restricted securities held for one year
or less as of 180 days following
effectiveness
</TABLE>
Our stock price may be volatile, and the value of your investment may decline.
Prior to this offering there has been no public market for our common stock.
An active public market for our stock may not develop or be sustained after the
offering. The initial public offering price will be determined by negotiations
between us and our underwriters and may not be indicative of future market
prices. The market prices for securities of biotechnology companies in general
have been highly volatile and our stock may be subject to volatility. The
following factors, in addition to the other risk factors described in this
section, may have a significant impact on the market price of our common stock:
- announcements of technological innovations or new commercial products by
our competitors or us;
- developments concerning proprietary rights;
- publicity regarding actual or perceived adverse events in our clinical
trials or relating to products under development by our competitors;
- regulatory developments in the U.S. or foreign countries;
- litigation;
- significant short selling in our common stock;
- economic and other external factors; and
12
<PAGE>
- period-to-period fluctuations in our financial results and changes in
analysts' recommendations.
New investors in our common stock will experience immediate and substantial
dilution.
The initial public offering price is substantially higher than the book
value per share of our common stock. Investors purchasing common stock in the
offering will therefore incur immediate dilution in the net tangible book value
per share of common stock. In addition, the number of shares available for
issuance under our stock option and employee stock purchase plans will
automatically increase without stockholder approval. Investors will incur
additional dilution upon the exercise of outstanding stock options and warrants.
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
We make many statements in the prospectus under the captions Summary, Risk
Factors, Management's Discussion and Analysis of Financial Condition and Results
of Operations and Business and elsewhere that are forward-looking and are not
based on historical facts. These statements relate to our future plans,
objectives expectations and intentions. We may identify these statements by the
use of words such as believe, expect, will, anticipate, intend and plan and
similar expressions. These forward looking statements involve a number of risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those we discuss in Risk Factors and elsewhere in this prospectus.
These forward-looking statements speak only as of the date of this prospectus,
and we caution you not to rely on these statements without considering the risks
and uncertainties associated with these statements and our business that are
addressed in this prospectus.
These forward-looking statements are included, for example, in the
discussion about:
- our strategy;
- sufficiency of cash resources;
- product development;
- our research and development and other expenses; and
- operational and legal risks.
Given these uncertainties, you should not place undue reliance on such
forward-looking statements. We are not under any duty to update any of the
forward-looking statement after the date of this prospectus to conform these
statements to actual results except as required by law.
Information regarding market and industry statistics contained in the
Summary and Business sections is included based on information available to us
that we believe is accurate. It is generally based on academic and other
publications that are not produced for purposes of securities offerings or
economic analysis. We have not reviewed or included data from all sources and
cannot assure you of the accuracy of the data we have included.
14
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of 7,500,000 shares of common stock we are
offering are estimated to be $96.6 million ($111.2 million if the underwriters'
over-allotment option is exercised in full) assuming an initial public offering
price of $14.00 per share and after deducting the underwriting discounts and
commissions and our estimated offering expenses. We intend to use the net
proceeds of the offering primarily for funding clinical trials and the
development and scale up of manufacturing processes by our contract
manufacturers. The balance of the proceeds, as well as existing cash, will be
used to fund other research and development activities including identification,
testing and acquisition of additional potential in-licensing candidates, further
development of our other programs currently in process, expansion of research
and development capabilities, working capital and other general corporate
purposes. 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.
The amount and timing of our actual expenditures will depend on many factors
including the timing, extent, cost and progress of clinical trials, the costs
and success of manufacturing drug substances, and opportunities for in-licensing
technologies and compounds. Until the funds are used as described above, we
intend to invest the net proceeds of the offering in short-term, interest-
bearing, investment grade securities.
DIVIDEND POLICY
The payment of dividends is within the discretion of our board of directors.
Our ability to pay any future dividends will depend on our earnings, operating
and financial condition, projected capital requirements and restrictions under
our credit facilities. In this regard, our term loan and security agreement with
Silicon Valley Bank prohibits the payment of dividends without the consent of
the lender. We have never declared or paid any cash dividends on shares of our
capital stock and do not intend to do so at any time in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of December 31, 1999;
- our pro forma capitalization as of that date after giving effect to the
conversion of all outstanding shares of preferred stock into 19,741,900
shares of common stock upon completion of this offering; and
- our pro forma capitalization as adjusted to reflect the receipt of net
proceeds from our sale of 7,500,000 shares of common stock at an assumed
initial public offering price of $14.00 per share in this offering, less
the underwriting discounts and commissions and estimated offering
expenses.
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share
and per share data)
<S> <C> <C> <C> <C>
Long-term obligations, less current portion.................. $ 1,725 $ 1,725 $ 1,725
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.001 par value; 40,937,873
shares authorized, actual and pro forma,
5,000,000 shares authorized, pro forma as
adjusted: 39,483,873 shares issued and
outstanding, actual; none issued and outstanding
pro forma and pro forma as
adjusted................................................... 79,609 -- --
Common stock, $0.001 par value; 67,500,000 shares
authorized; actual and pro forma; 50,000,000
shares authorized pro forma as adjusted;
1,339,154 shares issued and outstanding, actual;
21,081,054 shares issued and outstanding, pro
forma; and 28,581,054 shares issued and
outstanding, pro forma as
adjusted................................................... 1 21 29
Additional paid-in capital................................... 13,828 93,417 190,009
Deferred stock compensation.................................. (12,650) (12,650) (12,650)
Accumulated deficit.......................................... (52,874) (52,874) (52,874)
-------- -------- --------
Total stockholders' equity................................... 27,914 27,914 124,514
-------- -------- --------
Total capitalization......................................... $ 29,639 $ 29,639 $126,239
======== ======== ========
</TABLE>
The number of shares of common stock referenced above excludes as of
December 31, 1999:
- 3,746,896 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $1.16 per share.
- 677,000 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $9.50.
- 123,501 shares of common stock available for issuance under our stock plan
as of December 31, 1999, and 5,500,000 additional shares of common stock
that were approved for issuance under stock plans after December 31, 1999.
16
<PAGE>
DILUTION
Our pro forma net tangible book value of the common stock as of
December 31, 1999 was approximately $27.9 million, or approximately $1.32 per
share of common stock assuming conversion of all outstanding preferred stock
into an aggregate of 19,741,900 shares of common stock upon the closing of the
offering. After giving effect to the sale of 7,500,000 shares of common stock in
this offering at an assumed price of $14.00 per share and after deduction of the
underwriting discount and estimated offering expenses, our pro forma net
tangible book value after the offering would have been approximately
$124.5 million, or $4.36 per share.
Pro forma net tangible book value per share before the 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. The offering will result in an increase in pro
forma as adjusted net tangible book value of $3.04 per share to existing
investors and an immediate dilution of $9.64 per share to new investors, or
approximately 69% of the assumed offering price of $14.00 per share. Dilution is
determined by subtracting pro forma net tangible book value per share after the
offering from the assumed initial public offering price. The following table
illustrates this calculation of per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share as of
December 31, 1999...................................... $1.32
Increase per share attributable to new investors........ 3.04
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.36
------
Dilution per share to new investors......................... $ 9.64
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock issued by
IntraBiotics, the total consideration paid and the average price per share paid
by the existing stockholders and by new investors, before deducting underwriting
discounts and commissions and estimated offering expenses, at an assumed initial
public offering price of $14.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
---------------------- ----------------------- Price Per
Number Percent Amount Percent Share
----------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 21,081,054 74% $81,394,000 44% $ 3.86
New investors........................... 7,500,000 26 105,000,000 56 14.00
---------- --- ----------- ---
Total................................... 28,581,054 100% 186,394,000 100%
========== === =========== ===
</TABLE>
These tables do not assume exercise of stock options and warrants
outstanding at December 31, 1999. At December 31, 1999, there were 3,746,896
shares of common stock issuable upon exercise of outstanding stock options at a
weighted average exercise price of $1.16 per share and 677,000 shares of common
stock issuable upon exercise of outstanding warrants at a weighted average
exercise price of $9.50 per share. Giving effect to the exercise of the options
and warrants outstanding and exercisable as of December 31, 1999, the pro forma
net tangible book value per share would be $1.54, the dilution per share to new
investors would be $9.63.
17
<PAGE>
SELECTED FINANCIAL DATA
This section presents our historical financial data. You should read
carefully the financial statements included in this prospectus, including the
notes to the financial statements, and Management's Discussion and Analysis of
Financial Condition and Results of Operations. The statement of operations data
for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data
as of December 31, 1998 and 1999 have been derived from our financial statements
that have been audited by Ernst & Young LLP, independent auditors, and are
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1995 and 1996 and the balance sheet data as of
December 31, 1995, 1996 and 1997 have been derived from financial statements
that have been audited by Ernst & Young LLP, and are not included elsewhere in
this prospectus. Historical results are not necessarily indicative of future
results. See notes to the financial statements for an explanation of the method
used to determine the number of shares used in computing pro forma basic and
diluted net loss per share.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Contract revenue................................... $ -- $ -- $ 3,507 $ 5,357 $ 7,863
License fee and milestone revenue.................. -- -- 2,000 1,000 --
------- ------- ------- -------- --------
Total revenue.................................... -- -- 5,507 6,357 7,863
Operating expenses:
Research and development........................... 2,181 4,049 8,103 21,997 26,102
General and administrative......................... 682 949 1,960 2,533 6,082
------- ------- ------- -------- --------
Total operating expenses......................... 2,863 4,998 10,063 24,530 32,184
------- ------- ------- -------- --------
Operating loss....................................... (2,863) (4,998) (4,556) (18,173) (24,321)
Interest income...................................... 121 243 575 963 1,372
Interest expense..................................... (80) (61) (94) (172) (166)
------- ------- ------- -------- --------
Net loss....................................... $(2,822) $(4,816) $(4,075) $(17,382) $(23,115)
======= ======= ======= ======== ========
Basic and diluted net loss per share................. $(14.25) $(11.92) $ (6.39) $ (20.89) $ (21.62)
======= ======= ======= ======== ========
Shares used in computing basic and diluted net loss
per share.......................................... 198 404 638 832 1,069
======= ======= ======= ======== ========
Pro forma basic and diluted net loss per share....... $ (1.27)
========
Shares used in computing pro forma basic and diluted
net loss per share................................. 18,172
========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data(1):
Cash, cash equivalents and short-term investments... $ 1,280 $ 4,713 $ 20,779 $ 29,869 $ 31,429
Working capital..................................... 815 4,252 18,851 21,279 25,743
Total assets........................................ 1,712 5,312 24,987 32,099 35,958
Long-term obligations, less current portion......... 302 407 1,036 867 1,725
Deferred stock compensation......................... -- -- -- (1,145) (12,650)
Accumulated deficit................................. (3,487) (8,302) (12,377) (29,759) (52,874)
Total stockholders' equity.......................... 923 4,410 19,765 22,498 27,914
</TABLE>
- --------------------------
(1) The balance sheet data presented above reflect the effects of net proceeds
from the issuance of convertible preferred stock of $19.4 million,
$20.0 million and $27.5 million in the years ended December 31, 1997, 1998
and 1999, respectively.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ TOGETHER WITH "SELECTED FINANCIAL DATA" AND OUR
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS, INCLUDING BUT NOT LIMITED TO THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
Overview
We are engaged in the development of novel antibiotic drugs for the
prevention or treatment of serious infectious diseases. Since our inception in
January 1994, we have devoted substantially all of our resources to the
acquisition, preclinical research and clinical development of antibiotic
compounds. We currently have two antibiotic drug candidates, Ramoplanin Oral and
Protegrin IB-367 Rinse in late stage clinical development.
Our sole source of revenue has been a development and commercialization
collaboration agreement entered into in October 1997 with Pharmacia & Upjohn
S.p.A for Protegrin IB-367 Rinse. This agreement was terminated by mutual
agreement of the parties in July 1999 with funding continuing through the end of
1999. We will not receive any additional research funding or revenue under this
agreement. The termination of this agreement eliminated a source of cash for the
funding of these development efforts and eliminated the related future contract
revenues. As a result, our net loss is expected to increase for the next several
years as we develop this drug candidate. We do not believe the termination of
this agreement will have a material impact on our ability to continue to fund
our research and development programs from our available resources.
Since our inception, we have been unprofitable and, as of December 31, 1999,
we had an accumulated deficit of approximately $52.9 million. The process of
developing our drugs will require significant additional research and
development, preclinical studies and clinical trials, as well as regulatory
approval and manufacturing and commercialization activities. These activities,
together with our general and administrative expenses, are expected to result in
significant additional operating losses for the foreseeable future. We will
receive revenue from product sales only if we complete clinical trials, obtain
regulatory approvals and successfully commercialize at least one of our drug
candidates.
Results of Operations
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUE. Revenue increased to $7.9 million for the year ended December 31,
1999, from $6.4 million for the year ended December 31, 1998, and $5.5 million
for the year ended December 31, 1997. To date, all of our revenue has been
generated under the prior agreement with Pharmacia & Upjohn. The increases from
1998 to 1999 and 1997 to 1998 were primarily the result of increased contract
revenue under the terms of this agreement, partially offset by the timing of
license fees and milestone revenue recognized under this agreement. We
recognized a nonrefundable, noncreditable license fee of $2.0 million in 1997
upon execution of the license with Pharmacia & Upjohn. There were no future
performance obligations in connection with the grant of the license. We also
recognized revenue based upon reimbursement of expenses and the number of
full-time equivalent employees working on the Protegrin IB-367 Rinse program. In
1998, we recognized a nonrefundable payment of $1.0 million upon completion of a
development milestone. The contract was terminated in July 1998, and we will not
recognize any additional revenue under this agreement. We do not anticipate any
product revenue in the near future.
19
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$26.1 million for the year ended December 31, 1999, from $22.0 million for the
year ended December 31, 1998, and $8.1 million for the year ended December 31,
1997. The increase in 1999 was primarily due to the phase II clinical trials for
Protegrin IB-367 Rinse and Ramoplanin Oral totaling approximately $700,000, an
increase in research and development personnel of approximately $2.0 million and
expenses related to a new facility of approximately $800,000. The research and
development expenses in 1999 also included amortization of $648,000 of deferred
stock compensation in connection with the grant of stock options to officers and
employees. The increase from 1997 to 1998 was primarily the result of increases
in clinical costs associated with expanding from one to four clinical programs.
In addition, in 1998, $5.1 million in license fees and milestones were expensed,
including $2.0 million payable to third parties in connection with rights to
develop and commercialize product candidates. Of the $5.1 million in license
fees and milestones, $4.0 million is related to Ramoplanin Oral including
$2.0 million for the purchase of rights to develop and commercialize Ramoplanin,
a product then in phase I clinical trials and $2.0 million incurred for the
commencement of the phase II clinical trials. The early stage clinical trials
and the early laboratory studies had been completed, which allowed us to start
phase II clinical trials soon after signing the agreement. This product
candidate is now entering phase III clinical trials. The timing of completion of
the clinical trials and the commercialization of the product candidate is
uncertain. We expect that research and development expenses will increase
significantly in the future as new and existing product candidates advance into
later stages of clinical development, in particular phase III clinical trials
for Protegrin IB-367 Rinse and Ramoplanin Oral.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $6.1 million for the year ended December 31, 1999, from $2.5 million for the
year ended December 31, 1998, and $2.0 million for the year ended December 31,
1997. The increase in 1999 was primarily due to increases in finance and
administrative personnel of approximately $600,000, market research expenses
associated with clinical trials for Protegrin IB-367 Rinse and Ramoplanin Oral
of approximately $1.0 million, and expenses related to the new facility of
approximately $400,000. General and administrative expenses in 1999 also
included amortization of $333,000 of deferred stock compensation in connection
with the grant of stock options to officers and employees. We expect that
general and administrative expenses will continue to increase as we build
infrastructure to support our product development efforts, establish our sales
and marketing capabilities and to operate as a public company.
INTEREST INCOME. Interest income increased to $1.4 million for the year
ended December 31, 1999, from $963,000 for the year ended December 31, 1998, and
$575,000 for the year ended December 31, 1997. The increase from 1998 to 1999
was primarily due to increased cash balances resulting from the sale of
preferred stock. The increase from 1997 to 1998 was primarily due to increased
cash balances resulting from the sale of preferred stock, license fee and
milestone payments and contract revenue from the Pharmacia & Upjohn agreement.
INTEREST EXPENSE. Interest expense was $166,000 for the year ended
December 31, 1999, compared to $172,000 for the year ended December 31, 1998,
and $94,000 for the year ended December 31, 1997. Interest expense consists of
interest paid on equipment financing arrangements.
Income Taxes
Since inception, we have incurred operating losses and accordingly have not
recorded a provision for income taxes for any of the periods presented. As of
December 31, 1999, our net operating loss carryforwards for federal and state
income tax purposes were approximately $46.0 million and $23.0 million,
respectively. We also had federal research and development tax
20
<PAGE>
credit carryforwards of approximately $1.0 million. If not utilized, the net
operating loss and credit carryforwards will expire at various dates beginning
in 2002 through 2019. Utilization of net operating losses and credits may be
subject to a substantial annual limitation due to ownership change limitations
provided by the Internal Revenue Code of 1986. The annual limitation may result
in the expiration of our net operating loss and credit carryforwards before they
can be used. Please read note 8 of the notes to financial statements for further
information.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
placements of preferred stock and warrants, funds received from our prior
collaboration with Pharmacia & Upjohn and from the proceeds of equipment
financing arrangements. As of December 31, 1999, we had raised aggregate net
proceeds from the sale of preferred stock and warrants of $79.6 million. Prior
to termination of the Pharmacia & Upjohn agreement, we received an aggregate of
$21.4 million in cash payments under this agreement, of which $1.7 million of
unused development funding will be returned to Pharmacia & Upjohn.
Cash, cash equivalents and short-term investments were $31.4 million at
December 31, 1999, compared to $29.9 million at December 31, 1998. Net cash used
for operating activities was $24.7 million and $9.3 million for the years ended
December 31, 1999 and 1998, respectively. The increase from 1998 to 1999
consisted primarily of operating expenses related to conducting clinical trials
and other research, development and administrative activities, and the timing of
cash payments related to these activities. Net cash used for investing
activities was $15.1 million and $597,000 for the years ended December 31, 1999
and 1998, respectively. The increase from 1998 to 1999 was primarily related to
$12.6 million in purchases, net of maturities, of short-term investments and a
$1.9 million increase in capital expenditures in 1999. Net cash provided by
financing activities was $28.8 million and $19.0 million for the years ended
December 31, 1999 and 1998, respectively. This increase was primarily related to
the sale of preferred stock and additional equipment financing received in 1999.
In March 1999, we entered into an equipment financing agreement with GE
Capital, to finance up to $3.0 million of equipment. The term of the loan is
42 months. The interest rate varies according to U.S. Treasury rates. As of
December 31, 1999, we had drawn down a total of approximately $2.0 million at an
average interest rate of 10.0%. We currently have $967,000 available under this
arrangement which can be drawn down on or before February 29, 2000. We
anticipate we will utilize substantially all of this balance.
In addition, we have two prior equipment financing arrangements with
GE Capital with an outstanding balance of $900,000 as of December 31, 1999. We
are currently repaying this amount at an annual average interest rate of 11.0%.
In connection with these equipment financings, we issued a warrant to purchase
54,000 shares of, Series B Preferred Stock, which converts into a warrant to
purchase 27,000 shares of common stock at an exercise price of $2.00 per share
upon the closing of the offering. This warrant expires in July 2001. We also
issued a warrant to purchase 50,000 shares of Series D Preferred Stock at an
exercise price of $2.50 per share which expires upon this offering.
In August 1999, we entered into a term loan agreement with Silicon Valley
Bank for $5.0 million. As of December 31, 1999, we had not drawn down funds on
the loan arrangement. The loan may be drawn down prior to August 2000 and will
bear interest at the bank's prime rate of interest plus 1.25%. We anticipate
using this loan by August 2000 to fund our in-licensing programs, and ongoing
general corporate needs. This term loan will require us to comply with various
financial covenants, including minimum tangible net worth of $10.0 million and
minimum liquidity of two times the amount outstanding on the loan.
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We expect to continue to incur substantial operating losses. We believe that
existing capital resources together with the net proceeds of this offering and
interest income will be sufficient to fund our operations for at least the next
12 months. This forecast is a forward-looking statement that involves risks and
uncertainties, and actual results could vary. Our future capital requirements
will depend on many factors, including:
- the timing, cost, extent and results of clinical trials;
- payments to third parties for manufacturing scale up;
- the costs and timing of regulatory approvals;
- the costs of establishing sales, marketing and distribution capabilities;
- the progress of our research and development activities;
- availability of technology in-licensing opportunities; and
- future opportunities for raising capital.
Until we can generate sufficient cash from our operations, which we do not
expect for the foreseeable future, we expect to finance future cash needs
through private and public financings, including equity financings. We cannot be
certain that additional funding will be available when needed or on favorable
terms. If funding is not available, we may need to delay or curtail our
development and commercialization activities to a significant extent.
Stock Compensation
In connection with the grant of stock options to employees, we recorded
deferred compensation totaling $12.5 million for the year ended December 31,
1999 and $1.2 million for the year ended December 31, 1998, representing the
difference between the exercise price and the deemed fair value of our common
stock for financial reporting purposes on the date those options were granted.
This amount is initially recorded as a component of stockholders' equity and is
being amortized over the vesting period of the individual options. We amortized
deferred stock compensation expense of $981,000 for the year ended December 31,
1999 and $48,000 for the year ended December 31, 1998. At December 31, 1999, we
had a total of $12.7 million remaining to be amortized over the vesting periods
of the stock options.
We expect to amortize deferred stock compensation for options granted as of
December 31, 1999 as follows:
<TABLE>
<CAPTION>
Year Amount
- ---- ------------
<S> <C>
2000............................................. $2.8 million
2001............................................. 2.8 million
2002............................................. 2.7 million
2003............................................. 2.2 million
2004............................................. 1.7 million
2005............................................. 0.5 million
</TABLE>
In addition, we expect to record additional deferred compensation of
approximately $2.1 million for options granted in January 2000, which will also
be amortized over the vesting periods of these options. Please read note 6 of
the notes to financial statements for more information.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" which provides a comprehensive mechanism
and consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133, as deferred by SFAS 137, is
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effective for our fiscal year ended December 31, 2001. SFAS 133 is not
anticipated to have an impact on our results of operations or financial
condition when adopted as we do not currently hold any derivative financial
instruments and do not engage in hedging activities.
Quantitative and Qualitative Disclosure Regarding Market Risk
The primary objective of our investment activities is to preserve our
capital until it is required to fund operations while at the same time
maximizing the income we receive from our investments without significantly
increasing risk. We own financial instruments that are sensitive to market risks
as part of our investment portfolio. To minimize this risk, we maintain a
portfolio of cash equivalents and short-term investments in a variety of
securities, including commercial paper, money market funds, government and
non-government debt securities. The average duration of all our investments in
1999 was less than one year. Due to the short term nature of these investments,
a 10% movement in market interest rates would not have a material impact on the
total fair value of our portfolio as of December 31, 1999.
Year 2000 Compliance
We are not aware of any significant adverse effects of the year 2000 issue
on any of our systems and those of our vendors.
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BUSINESS
IntraBiotics develops and intends to commercialize novel antibacterial and
antifungal drugs for the prevention or treatment of serious infectious diseases.
Our clinical and development programs focus on solving medical problems for
patients who currently have few or no satisfactory alternatives. Because our
drug candidates use novel mechanisms of action to kill bacteria or fungi, we
expect them to be particularly useful in fighting microorganisms that are
resistant to currently available antibiotics. The incidence of multi-drug
resistant bacterial infections is increasing throughout the world, a problem
referred to as the antibiotics crisis. As a result, there is a critical need for
new and effective antibiotic drug therapies.
Our current product portfolio includes two drug candidates, Ramoplanin Oral
and Protegrin IB-367 Rinse, that are about to begin phase III clinical trials.
Ramoplanin Oral is being developed to prevent bloodstream infections caused by
vancomycin resistant enterococcus, or VRE. VRE infections are a particular
problem in hospitalized patients, and in many cases, prove fatal. Protegrin
IB-367 Rinse is being developed to treat oral mucositis. Oral mucositis is a
common debilitating side effect of cancer therapy and is characterized by severe
mouth ulcers that often become infected. We recently completed the phase II
clinical trials for both Ramoplanin Oral and Protegrin IB-367 Rinse in which
both drugs were well tolerated and achieved statistically significant clinical
results. In December 1999, we reviewed data and discussed our proposed phase III
protocols with the FDA. We expect to begin the phase III trials for both
products in the first half of 2000.
Antibiotics Overview
Since the discovery of penicillin more than 50 years ago, many types of
antibiotics have been developed to fight microorganisms. Every antibiotic kills
or inhibits bacteria in a specific way. For example, penicillins, cephalosporins
and vancomycin interfere with the bacterial cell's ability to manufacture cell
walls. Erythromycin and tetracyclines stop the production of proteins within the
cell that are needed for the bacteria to grow. Ciprofloxacin interferes with the
cell's replication of DNA necessary for survival of the bacteria.
Until recently, these traditional antibiotics have successfully treated
infectious disease. Over time, bacteria and fungi have grown resistant to
traditional antibiotics, a worldwide phenomenon commonly referred to as the
antibiotics crisis. Bacterial and fungal resistance developed because of the
prolonged exposure of the bacteria and fungi to sub-lethal doses of antibiotics,
allowing them to evolve until the antibiotics are no longer effective.
Microorganisms have developed resistance to antibiotics by:
- blocking the entry of the drug into the cell;
- changing the part of the cell that was the drug's original target;
- creating new ways to metabolize the drug; and
- developing ways to pump the drug out of the bacteria or fungi.
The incidence of antibiotic-resistant bacterial infections is increasing.
For example, one type of bacteria that has demonstrated increased resistance is
enterococcus, a type of bacteria commonly found in the intestines. In 1997, the
Centers for Disease Control and Prevention reported that 23% of all enterococcal
samples from patients in intensive care units were resistant to the antibiotic
vancomycin. This is an alarming increase from 0.4% in 1989. Vancomycin
resistance presents a serious challenge since the enterococci are frequently
also resistant to most other currently available antibiotics. Researchers at The
Johns Hopkins University reported that in 1999, 31% of patients with VRE
bloodstream infections died as a result of their infections.
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There is also an increasing population of patients with impaired immune
systems who are at increased risk of infection. These include the millions of
patients undergoing chemotherapy or radiotherapy to treat cancer, patients
undergoing major surgical or organ transplant procedures, and patients affected
by HIV or other diseases that impair or destroy the patients' immune systems.
These patients often spend significant time in the hospital, where multi-drug
resistant bacteria and fungi are usually found.
The antibiotics crisis was not widely recognized as a significant medical
problem until the 1990s. As a result, until recently, many pharmaceutical
companies believed there was little need for new antibiotics and diverted
research funds to other diseases. The number of antibiotics at all stages of
development decreased in the 1980s with a corresponding decrease in antibiotic
drug approvals. Consequently, at the same time that new, resistant strains of
bacteria began to emerge, development of antibiotics began to decrease.
Our Business Strategy
IntraBiotics is responding to the challenge raised by the antibiotics
crisis. We intend to develop and commercialize antibiotics specifically targeted
for multi-drug resistant microorganisms as well as other organisms that cause
serious diseases.
ACQUIRE PROMISING NEW ANTIBIOTIC CANDIDATES. We believe that in-licensing
is the most cost-effective way to build a diverse portfolio of drug candidates
at various stages of development. This allows us to capitalize on research
conducted and funded by others, including academic research laboratories and
pharmaceutical and biotechnology companies. We believe that our approach saves
substantial time and money and increases the probability of successfully
developing a new antibiotic. We evaluate new in-licensing opportunities by
rigorously screening each product candidate against a diverse set of criteria
that are designed to allow us to assess the economic return against the cost and
probability of success of each development program. Using this evaluation
process, we have identified and in-licensed Ramoplanin and Protegrin technology.
We intend to continue to evaluate and acquire new compounds that have shown
potential for use as antibiotics.
TARGET DRUG CANDIDATES THAT ADDRESS SIGNIFICANT UNMET MEDICAL NEEDS. We
have deliberately chosen to target diseases where the medical need is high and
the current therapy options are limited or non-existent. This increases the
likelihood that successful drug candidates will initially have limited
competition. The lack of existing therapies also allows us to test our drug
candidates against placebos, which permits us to use smaller, less costly and
less time consuming clinical trials compared to non-placebo trials. In addition,
there is great interest in the medical community to participate in the clinical
testing of new drugs for unsolved medical problems. We believe this increased
interest will facilitate enrollment in the clinical trials of our drug
candidates.
UTILIZE THIRD PARTY MANUFACTURERS. We intend to use contract manufacturers
to prepare our drugs instead of developing an internal manufacturing capability.
We have contracted for supply of bulk drug substance for our two lead
candidates. We have not yet selected contract manufacturers for final
formulation of commercial products. By using third party manufacturers, we can
leverage their expertise and capital investment.
DEVELOP MULTIPLE PRODUCT CANDIDATES IN PARALLEL TO OPTIMIZE THE CHANCE OF
SUCCESS DURING THE DRUG DEVELOPMENT PROCESS. We intend to have multiple drug
candidates at various stages of clinical development to improve the chance of
successful development. Historically, we have conducted our two lead programs
roughly in parallel from phase II trials to the beginning of phase III trials.
In
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addition, we have two drug programs which we are pursuing in parallel which are
beginning phase I clinical trials and three programs in preclinical research. We
are constantly evaluating new in-licensing opportunities to add depth and
breadth to our portfolio.
DEVELOP NEW PRODUCTS BASED ON A SINGLE SUCCESSFUL ANTIBIOTIC. Once we have
sufficient indication of clinical safety and efficacy for a drug candidate, we
intend to develop new drug products using different formulations of the same
antibiotic for other clinical uses. We expect this to allow us to leverage our
prior development effort and expense. For example, Protegrin IB-367 Gel is in
development for ventilator-associated pneumonia based on the experience and data
gained from the Protegrin IB-367 Rinse program. The preclinical research, and
clinical development and manufacturing scale-up conducted for Protegrin IB-367
Rinse may allow us to develop the drug for ventilator-associated pneumonia more
quickly and with lower costs.
MARKET AND SELL OUR OWN PRODUCTS IN THE U.S. If we gain approval on our
lead product candidates, we plan to market and sell our products through a
direct sales force in the U.S. and Canada. We believe that a relatively small
sales force of fewer than 100 sales representatives will initially be effective,
as our first two products target oncology-related indications treated by roughly
the same group of physicians. This sales force may also be used to market and
sell our future products. Initially, our plan is to focus our product sales
efforts primarily in hospital settings. In the future, we may target sales in
outpatient settings, as well. We plan to partner with other pharmaceutical
companies to commercialize our products abroad. This will allow us to utilize
their expertise in foreign regulations and existing relationships and avoid the
cost of establishing a foreign sales force.
Our Development Programs
Since our inception six years ago, we have in-licensed five antibiotic
technologies. These include Protegrins from the University of California,
Ramoplanin from Biosearch Italia, antibacterial compounds, the IB-880 series,
and antifungal compounds, IB-863 series, from BioSource Pharm, Inc., and an
antifungal compound, the IB-974 series, from NAEJA Pharmaceuticals, Inc. From
these technologies, we have advanced four product candidates into clinical
trials, including two programs that are entering phase III clinical trials and
two programs entering phase I clinical trials.
[Chart showing the intended clinical uses and territorial rights for the
Company's product portfolio.]
Preclinical research includes laboratory evaluation of product chemistry,
toxicity and formulation, as well as animal studies. Phase I trials usually
involve the initial introduction of an investigational new drug into a limited
number of healthy volunteers to evaluate its safety and dose. Phase II usually
involves trials in a limited patient population to evaluate dose, identify
possible adverse side effects and safety risks and evaluate preliminarily the
efficacy of the drug for specific indications. Phase III trials further assess
clinical efficacy of a drug and further test for safety by using a drug in its
final form in an expanded patient population.
Ramoplanin Oral for Prevention of VRE Infections
DISEASE CHARACTERIZATION
Enterococci are bacteria that typically are found in the intestinal tract of
healthy humans. Under various circumstances, they may cause infections at sites
outside the intestine, including in the bloodstream, urinary tract and surgical
wounds. This species of bacteria is receiving increased medical attention
because many strains of the species have become highly resistant to almost all
antibiotic drugs. Infections caused by VRE are a serious threat to patients
because these infections often cannot be successfully treated with vancomycin or
any other currently available antibiotics.
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Some patients are at greater risk for VRE infection than others. While many
people may carry VRE in their intestines, it is harmless either until the
patient's immune system is weakened or the patient's intestinal tract is
damaged, enabling VRE to cross over into the patient's bloodstream. For example,
patients undergoing cancer treatments, patients who have had solid organ
transplants, patients with AIDS, patients on hemodialysis, and patients in
intensive care units are at an increased risk of developing VRE infections.
In many cases, VRE bloodstream infections prove fatal. According to a study
conducted by the CDC, 36% of patients with VRE bloodstream infections died as a
result of their infection as compared to 16% of those with bloodstream
infections that could be treated with vancomycin.
MARKET OPPORTUNITY FOR RAMOPLANIN ORAL
Since the identification of VRE in 1989, a rapid increase in the incidence
of this strain has occurred in the U.S. The CDC tracks the occurrence of VRE
infections as part of its national surveillance efforts. In 1997, it found that
23% of all enterococcal samples from patients in intensive care units were
vancomycin-resistant, which is an increase from 0.4% in 1989. Some hospitals
have reported rates of vancomycin resistance among specific enterococcal strains
as high as 60%.
There are an estimated 3 million patients hospitalized each year in
intensive care. Based on a 1999 surveillance program, approximately 26% of these
patients are expected to carry VRE bacterial in their intestines. In addition,
based on the medical literature, 14% to 20% of patients with low white blood
cell counts and VRE bacteria in their intestines are expected to develop a VRE
bloodstream infection. Researchers from The Johns Hopkins University have
reported that each treated case of VRE bloodstream infection generates an
average of $86,000 in incremental health care costs. In addition, VRE
bloodstream infections are often fatal. Because of the high economic burden on
our health care system and the severity of the disease, there is a substantial
economic and public health interest in the prevention of these infections.
PRODUCT DESCRIPTION
Ramoplanin is a naturally occurring peptide produced by fermentation of a
microorganism. Many microorganisms produce antibiotic compounds to attack other
microorganisms competing for resources in their environment. In the laboratory,
microorganisms can be fermented in carefully controlled conditions to produce
large amounts of these antibiotic compounds such as Ramoplanin.
Ramoplanin kills many types of bacteria by blocking the action of one of the
enzymes needed to make the cell wall. Although many antibiotics block cell wall
production, Ramoplanin is novel because it interferes with a different bacterial
enzyme than other currently available antibiotics. To date, more than
800 bacterial samples have been tested, showing Ramoplanin's uniform ability to
kill bacteria.
In laboratory studies, bacterial resistance to Ramoplanin was not detected
under conditions that might be expected to foster resistance. We believe that
this is due to the different mechanism of action of Ramoplanin on bacterial cell
wall production. We cannot guarantee that certain species of bacteria may not
develop resistance in the future to Ramoplanin.
We are developing Ramoplanin Oral to prevent VRE bloodstream infections in
hospitalized patients. Initially we will focus on patients undergoing
chemotherapy or bone marrow transplants. Ramoplanin is administered as an oral
solution to patients known to have VRE bacteria in their intestinal tracts. By
killing the intestinal VRE bacteria while the patient undergoes chemotherapy or
other procedures that leave the patient at high risk for infection, Ramoplanin
Oral may reduce the overall number of VRE bloodstream infections. In addition to
being very active against VRE,
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Ramoplanin Oral does not appear to be absorbed from the intestines into the
bloodstream. As a result, Ramoplanin Oral will not be developed to treat VRE
bloodstream infections. However, we believe that this lack of absorption makes
it a good candidate for development against other disease-causing bacteria in
the intestines and makes it less likely to have side effects in other parts of
the body.
CLINICAL STUDY RESULTS
Our clinical trials have demonstrated that Ramoplanin Oral can reduce
intestinal levels of VRE by at least 99.9% to undetectable levels. In a recently
completed randomized, double-blind, placebo-controlled phase II clinical trial,
18 of the 20 (90%) patients treated with Ramoplanin Oral had no detectable VRE
bacteria in their intestines after seven days of treatment. All of the patients
treated with placebo had detectable levels of VRE in their intestines after
seven days of treatment. The difference between placebo and Ramoplanin Oral was
highly statistically significant, with a p-value of less than 0.01. This means
that, applying widely-used statistical methods, the chance that these results
occurred by accident is less than 1 in 100. Ramoplanin Oral was well tolerated
by the subjects, and no serious adverse effects related to Ramoplanin Oral were
reported.
In December 1999, we reviewed these data and discussed our proposed phase
III protocol with the FDA. We intend to initiate in the first half of 2000 a
randomized, double-blind, placebo-controlled phase III trial to evaluate
Ramoplanin Oral's ability to prevent VRE infections in cancer patients
undergoing chemotherapy or bone marrow transplantation. In this study, our goal
will be to demonstrate a reduction in VRE bloodstream infections in patients
treated with Ramoplanin Oral, in contrast to the phase II clinical trial which
demonstrated a reduction in VRE levels in the intestines. If our phase III trial
is successful, we will submit the results to the FDA to support regulatory
approval of the product. However, we cannot be certain that Ramoplanin Oral will
prove to be safe or effective in preventing VRE infections, will receive
regulatory approvals, or will be successfully commercialized. The FDA has
granted fast track designation for Ramoplanin Oral. The FDA issues fast track
designation for some drugs under development with the potential to address unmet
medical needs for serious, life-threatening conditions. See Government
Regulation for a discussion of the benefits associated with fast track
designation.
Protegrin IB-367 Rinse for Reduction in Severity of Oral Mucositis
DISEASE CHARACTERIZATION
Oral mucositis, a common side effect of chemotherapy and radiation therapy
in cancer patients, is characterized by sores and painful ulcers in the mouth.
Chemotherapy and radiation therapy damage the cells that line the mouth,
allowing the bacteria and fungi normally found inside the mouth to invade tissue
and cause infection. Oral mucositis is often identified by cancer patients as
the single worst side effect of chemotherapy and radiation therapy, causing pain
so severe as to prevent eating and sleeping. Often, patients receive intravenous
nourishment and narcotic painkillers to treat the condition, and in some cases
are forced to interrupt cancer treatment. Oral mucositis also creates a
significant risk of infection elsewhere in the body.
MARKET OPPORTUNITY FOR PROTEGRIN IB-367 RINSE
According to a recent report by the Transplant Registries, there are over
30,000 bone marrow transplants performed annually in the U.S. and Europe
combined. The treatment for certain leukemias and some solid cancers involves
administration of near lethal doses of chemotherapy to maximize eradication of
the cancer. Academic studies report that these very aggressive cancer and bone
marrow transplant treatments cause oral mucositis in approximately 75% of the
patients. Two recent studies by researchers from the International Bone Marrow
Transplant Registry and the
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Department of Oral Medicine at Harvard University have estimated the duration of
hospitalization is increased by two to 11 days for bone marrow transplant
patients who experience oral mucositis. They incur on average an increase of
approximately $20,000 in hospital charges.
In addition, as reported in the National Cancer Data Base, more than 80,000
head and neck cancer patients in the U.S. and Europe are treated with radiation
therapy. Oral mucositis is reported as a side effect in approximately 80% of
these patients. As reported by the International Society for Pharmacoeconomic
Outcomes, management of severe oral mucositis in these patients costs
approximately $4,500 in additional costs per patient. The treatment of oral
mucositis places a high economic burden on our health care system, resulting in
substantial interest for a new treatment option.
PRODUCT DESCRIPTION
Protegrin IB-367 is a synthetic analog of the Protegrin family of antibiotic
peptides found in mammals. Antibiotic peptides with differing structures can be
found in all living creatures, where they form part of the first line of defense
against invading bacteria and fungi. In mammals, antibiotic peptides cover moist
surfaces, such as those in the mouth and in the airways of the lungs, and are
present in the types of white blood cells that engulf and kill invading
microorganisms.
Protegrin IB-367 destroys the cell membranes of bacteria and fungi, thus
damaging the structural integrity of the microorganism. Protegrin's chemical
structure and its mechanism of action are different from traditional
antibiotics. Protegrin IB-367 kills an unusually wide variety of microorganisms,
including bacteria and certain fungi, and is effective against many of the
serious drug resistant, disease causing bacteria. In addition, Protegrin IB-367
kills microorganisms extremely rapidly. We have demonstrated that Protegrin
IB-367 can reduce the number of bacteria in a test tube by at least 100,000-fold
in less than five minutes. In contrast, with traditional antibiotics a treatment
time of between four and 24 hours is needed to obtain a similar reduction in the
number of bacteria.
In preclinical studies we have conducted, bacteria have not become highly
resistant to Protegrin IB-367 under laboratory conditions that cause significant
resistance to traditional antibiotics. We believe that this difference results
from the fact that Protegrin IB-367 targets the cell membrane, a structure that
bacteria cannot readily change, and because Protegrin IB-367 kills
microorganisms extremely rapidly. By comparison, traditional antibiotics target
single enzymes or structures that the bacteria can change more easily.
Traditional antibiotics are also slower to kill or inhibit growth of the
bacteria, allowing the bacteria time to develop resistance mechanisms. We cannot
guarantee that some species of bacteria may not develop resistance in the future
to Protegrin IB-367.
We are developing Protegrin IB-367 Rinse for the reduction in severity of
oral mucositis. Cancer patients who are undergoing aggressive chemotherapy or
radiation treatment will swish Protegrin IB-367 Rinse in their mouths several
times per day while undergoing cancer therapy in an attempt to eliminate the
bacteria and lessen the severity of the ulcers. We believe Protegrin IB-367 is
well suited for the treatment of oral mucositis because it quickly kills the
bacteria and fungi found in the mouth.
CLINICAL STUDY RESULTS
In clinical trials, Protegrin IB-367 Rinse has been well tolerated and does
not appear to be absorbed into the bloodstream. In a recently completed
randomized, double-blind, placebo-controlled phase II clinical trial, Protegrin
IB-367 Rinse reduced the severity of oral mucositis in patients undergoing
chemotherapy. A total of 180 patients were randomized to receive either
Protegrin IB-367 Rinse or a placebo six times a day. Protegrin IB-367 Rinse was
found to reduce the severity of oral mucositis by 22% in the 134 evaluable
patients, a clinically meaningful reduction. These
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results were statistically significant with a p-value of less than 0.05. This
means that, applying widely-used statistical methods, the chance that these
results occurred by accident is less than 1 in 20.
Approximately one half of the patients in this trial started treatment with
Protegrin IB-367 Rinse within three days of the start of their chemotherapy. In
the group of 76 patients who started treatment early with Protegrin IB-367
Rinse, there was a 40% reduction (p = 0.047) in the severity of oral mucositis,
which represents a statistically significant improvement over the patients who
were treated with a placebo. In our phase II trial, there were a large number of
patients who discontinued the trial early while they still had oral mucositis.
They included both patients who were given a placebo as well as those who were
given Protegrin IB-367 Rinse. This prevented us from determining the duration of
their disease and whether Protegrin IB-367 Rinse was able to reduce the length
of time the patients had severe ulcers. In our management of the phase III
trial, we intend to implement several changes that are designed to improve
compliance.
In December 1999, we reviewed this data and discussed our proposed phase III
protocol with the FDA. We intend to initiate two randomized, double-blind,
placebo-controlled phase III trials to further assess its safety and efficacy in
the reduction in severity of oral mucositis in cancer patients receiving either
chemotherapy or radiotherapy.
If our phase III trials are successful, we intend to submit the results to
the FDA to support regulatory approval of the product. However, we cannot be
certain after further study that Protegrin IB-367 will prove to be safe or
effective in reducing the severity of oral mucositis in cancer patients
receiving either chemotherapy or radiotherapy, will receive regulatory
approvals, or will be successfully commercialized.
Protegrin IB-367 Gel for Prevention of Ventilator-Associated Pneumonia
Patients who need mechanical breathing assistance are at risk of developing
pneumonia. Because these patients have ventilator tubes in their mouths and
throats, microorganisms in their saliva can get into their lungs and cause
pneumonia. By killing these bacteria, we believe that we may be able to reduce
the incidence of ventilator-associated pneumonia. There are presently no
therapies approved for the prevention of ventilator-associated pneumonia.
In the U.S., there are approximately 740,000 patients placed on ventilators
each year. The risk of acquiring ventilator-associated pneumonia varies widely
and is based on each patient's condition and length of time on mechanical
ventilation. It is estimated that between 25% and 40% of patients who undergo
mechanical ventilation for more than 48 hours will develop ventilator-associated
pneumonia. Academic sources report that 10% to 15% of patients who have
contracted ventilator-associated pneumonia will die from their pneumonia.
Patients contracting ventilator-associated pneumonia require significant
hospital resources, including prolongation of their hospital stay by an average
of four to 13 days.
Published clinical trials of other antibiotics applied in the mouth have
demonstrated a reduction in the number of patients who develop
ventilator-associated pneumonia. The use of these antibiotics for this
indication is not widespread because of the need to combine several antibiotic
products to achieve the desired effect. Physicians are reluctant to prescribe
these antibiotics to prevent ventilator-associated pneumonia because of the risk
of developing resistant strains of the microorganisms. Protegrin IB-367 kills
most types of bacteria and yeast that are typically found in the mouth very
quickly. To date, there has been little evidence of bacterial resistance
developing to Protegrin IB-367.
A gel form of Protegrin IB-367 is being developed to kill bacteria that
might reside in the mouth. In a phase I clinical trial of Protegrin IB-367 Gel
conducted in healthy volunteers, the number
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of bacteria and fungi found in the mouth one hour after treatment was reduced by
99.9%. An additional phase I trial of Protegrin IB-367 Gel in ventilated
patients evaluating safety and antimicrobial activity is planned for the first
half of 2000. However, we cannot be certain that Protegrin IB-367 Gel will prove
to be safe or effective in the prevention of ventilator-associated pneumonia or
that Protegrin IB-367 Gel will receive regulatory approvals, or will be
successfully commercialized.
Protegrin IB-367 Aerosol for Treatment of Respiratory Infections
Currently available antibiotics have not been effective in treating many of
the most severe forms of respiratory infection, including those associated with
cystic fibrosis. According to the Cystic Fibrosis Registry, cystic fibrosis
afflicts an estimated 23,000 people annually in the U.S. More than 95% of these
patients develop chronic respiratory infections, many of which are fatal. Over
the course of repeated treatments, bacteria colonize in patients' airways and
slowly become resistant to antibiotics. As the airway infection persists, the
patients develop progressive, destructive lung disease. The median survival age
for these patients is 31 years.
We believe Protegrin IB-367 Aerosol, when inhaled into the lung, may be
effective in treating respiratory infections. The initial goal of our clinical
development program is to determine whether Protegrin IB-367 Aerosol can safely
reduce the levels of bacteria in the lungs of patients with cystic fibrosis. We
are currently conducting a phase I trial to evaluate the safety of a single dose
of Protegrin IB-367 Aerosol in cystic fibrosis patients with chronic respiratory
infections. To date, this study has demonstrated that single inhaled doses of
Protegrin IB-367 Aerosol are well tolerated. We cannot be certain that Protegrin
IB-367 Aerosol will prove to be safe or effective in treating respiratory
infections, will receive regulatory approvals, or will be successfully
commercialized.
Our Research Programs
Our research focuses on discovering and developing compounds with novel
chemical structures and mechanisms of antimicrobial activity against bacteria or
fungi. We are also modifying the structure of some existing antibiotics to
improve their toxicity and efficacy profiles. We intend to file patent
applications on these compounds when appropriate. We currently have three
compounds in the preclinical research stage.
IB-880 SERIES
We are conducting a research program focused on a particular class of
antibiotics produced by microbial fermentation. This program is conducted in
collaboration with BioSource Pharm, Inc. We produced synthetic derivatives of
the natural products that have demonstrated efficacy against infections in
animals. We are in the process of further testing to identify a candidate drug
for clinical testing.
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IB-863 SERIES
We are also collaborating with BioSource Pharm, Inc. to identify appropriate
candidates for a new antifungal drug. To date, we have produced proprietary new
drug candidates with improved efficacy and reduced toxicity in animals compared
to other existing antifungals. A patent application has been filed on these new
compounds and further work is ongoing to select the best candidate compound for
preclinical evaluation.
IB-974 SERIES
We are collaborating with NAEJA Pharmaceuticals, Inc. on the development of
novel antifungal compounds that, in laboratory tests, kill a wide variety of
yeasts and other fungi. This new type of compound is chemically distinct from
the two main types of antifungal drugs currently on the market. We are in the
process of identifying appropriate candidates for preclinical testing.
Strategic Relationships
BIOSEARCH ITALIA S.P.A., GERENZANO, ITALY
In May 1998, we entered into a license agreement with Biosearch, under which
we have exclusive rights in the U.S. and Canada to develop and commercialize
products containing certain formulations of Ramoplanin for the treatment or
prevention of human disease. In addition to a licensing fee, we will make
payments to Biosearch upon the occurrence of specific development milestones. We
will share clinical data with Biosearch to assist in registration of products
containing Ramoplanin elsewhere in the world. Biosearch is also responsible for
the manufacture of Ramoplanin and will receive royalties and a manufacturing
margin on our sales of products containing Ramoplanin within the U.S. and
Canada. We have rights to manufacture Ramoplanin or to transfer manufacturing to
third parties in the event that Biosearch ceases or is unable to supply
Ramoplanin or if Biosearch's supply price for Ramoplanin rises above agreed
levels. We may terminate the agreement at will with respect to the U.S. or
Canada at any time prior to governmental approval.
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
In April 1994, we entered a license agreement with The Regents of the
University of California, under which we have exclusive rights, to develop and
commercialize Protegrin-based products. In addition to a licensing fee, we are
obligated to make payments to the Regents upon the occurrence of specific
development milestones. We will also make royalty payments to the Regents based
on sales of Protegrin-based products.
We may terminate the agreement upon written notice. The Regents may
terminate the agreement if any of the following occur: we fail to use diligent
efforts to develop and commercialize Protegrin-based products, we are unable to
meet certain targets for raising capital or expending resources for development
and commercialization of Protegrin-based products, or we cannot achieve the
commercialization milestones stated in a development plan that we present to the
Regents.
PolyPeptide Laboratories A/S, Hiller /, Denmark
In January 1997, we entered into both a Development Supply Agreement and a
Purchase Supply Agreement with PolyPeptide for the development of manufacturing
processes for Protegrin IB-367 and for the clinical and commercial manufacture
and supply of Protegrin IB-367, as a bulk
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drug substance. Under the Development Supply Agreement, we make payments to
PolyPeptide upon achievement of certain development milestones. Under the
Purchase Supply Agreement, we will pay PolyPeptide for set volumes and at set
prices.
The Development Supply Agreement will terminate after certain files relating
to Protegrin IB-367 are ready for submission to the FDA in connection with a new
drug application. PolyPeptide is manufacturing Protegrin IB-367 exclusively for
us. However, we can transfer the manufacturing process to a third party if we
choose.
Manufacturing
We intend to use contract manufacturers to prepare our drugs instead of
developing this capability internally. We have contracted for supply of bulk
drug substance for our two lead candidates. We have not yet selected contract
manufacturers for final formulation for commercialization. By using third party
manufacturers we can leverage their expertise and capital investment.
We have contracted with Biosearch for the manufacture of Ramoplanin.
Biosearch uses proprietary fermentation and purification processes to
manufacture Ramoplanin. Biosearch has improved the fermentation process, and
full-scale fermentation and purification at the proposed commercial
manufacturing site is currently ongoing. See "Strategic Relationships."
We have contracted with PolyPeptide for the manufacture of Protegrin IB-367.
PolyPeptide has manufactured the peptide on a pilot scale to our specifications.
The manufacturing process is now being scaled up at the proposed commercial
facility in advance of the commencement of our phase III clinical trial.
PolyPeptide is an established world leader in peptide manufacturing.
PolyPeptide and Biosearch are our single source suppliers of bulk drug
substance Ramoplanin and Protegrin, respectively. We have long-term supply
agreements in place and we expect to have sufficient capacity to enable
commercialization. If our contract manufacturers are unable or fail to produce
the required quantities of our drug candidates for clinical use on a timely
basis, at commercially reasonable prices, our current and future clinical trials
and our product development efforts will be delayed. If these facilities become
unavailable for any reason, if our contract manufacturers fail to comply with
the FDA's current good manufacturing practices, or if our contract manufacturers
terminate their agreements with us, we would have to find an alternative source
for manufacturing our drug candidates. Contract manufacturers often encounter
difficulties in scaling up production, including problems involving production
yields, quality control and quality assurance and shortage of qualified
personnel. If our contract manufacturers are unable to scale up production to
meet our commercial needs, our revenue may be adversely affected.
Intellectual Property
Pursuant to the agreement relating to Biosearch's manufacture of Ramoplanin,
we have licensed from Biosearch intellectual property providing U.S. and
Canadian development and marketing rights. This intellectual property consists
of trade secret protection of the fermentation and purification process used to
make Ramoplanin and a U.S. patent expiring in 2007 that covers certain aspects
of the fermentation process.
We own two U.S. patents directed to Protegrin IB-367. Together, these
patents contain claims to composition of matter, pharmaceutical compositions and
methods of use, including the treatment or prevention of oral mucositis. These
patents expire in 2015. In addition, we are either the assignee, or the
exclusive licensee, from the University of California of four other U.S. patents
that cover related Protegrins. International patent applications and an
additional U.S. patent application covering Protegrin IB-367 and the related
Protegrins and specific methods of use are pending. In addition, we have filed a
U.S. patent application for the IB-863 Series of antifungal compounds.
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We cannot guarantee that patents will be issued as a result of any patent
application or that patents that have issued will be sufficient to protect our
technology or products. We cannot predict the enforceability or scope of any
issued patent or those that may issue in the future. Moreover, others may
independently develop similar technologies or duplicate the technology we have
developed. We also rely on trade secrets and proprietary know-how for protection
of certain of our intellectual property. We cannot guarantee that our
confidentiality agreements provide adequate protection or remedies in the event
of unauthorized use or disclosure of our intellectual property. Third parties
may assert infringement or other claims against us. Even if these claims are
without merit, defending a lawsuit takes significant time, may be expensive and
may divert management attention from other business concerns and if
unsuccessful, we may be forced to license the intellectual property or
discontinue sales.
Marketing and Sales
We intend to market and sell our two initial products through a direct sales
force in the U.S. and Canada. We believe that a relatively small sales force of
fewer than 100 sales representatives can be used for these products because
prescribing decisions will be made by roughly the same group of physicians,
primarily oncologists. We plan to begin hiring this sales force upon successful
completion of phase III trials. This sales force will initially target the
largest 200 hospitals and cancer centers in the U.S. We cannot guarantee that we
will develop a sales force with the necessary technical expertise and
distribution capabilities.
We are evaluating opportunities to partner with other pharmaceutical
companies to develop and commercialize our products for which we have rights
abroad. We cannot guarantee that we will successfully develop or commercialize
our product candidates, achieve significant market penetration, or generate any
revenues from our products.
Competition
There are no products currently approved for the prevention of VRE
bloodstream infections. However there are products in development and on the
market for the treatment of VRE blood-stream infections. Currently, there is no
FDA approved drug for oral mucositis. Ice chips, local painkillers and narcotics
are often used to reduce the patient's pain. Doctors routinely prescribe
mouthwashes containing traditional antibacterial and antifungal drugs for the
treatment of oral mucositis, although most clinical trials have shown that they
have suboptimal efficacy.
There are two additional means of addressing oral mucositis currently under
development in the pharmaceutical industry: chemoprotection and growth
modulation. Chemoprotection is a strategy to protect the rapidly dividing cells
that line the inside of the mouth from the side effects of the chemotherapy so
that this protective barrier is not destroyed, and microorganisms do not invade
the tissue. The growth modulation strategy seeks to reestablish the protective
barrier in the mouth to keep microorganisms out of the tissue by encouraging the
growth of new cells. These two approaches are currently under development and
can be used together with our antibiotic approach. We believe that these
therapies may be used in combination.
Our competitors include fully integrated pharmaceutical companies and
biotechnology companies. We are aware that several of these companies are
actively engaged in research and development in the areas related to cancer
therapy and antibiotic development, including some companies that address the
same disease indications as we address. Many of these companies have
substantially greater experience, financial and other resources than we do. In
addition, they may have greater experience in developing drugs, obtaining
regulatory approvals and manufacturing and marketing products. We cannot
guarantee that we can effectively compete with these other
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pharmaceutical and biotechnology companies. We believe the principal bases for
competition for our drug candidates are effectiveness, price and reimbursement
status, ease of administration and side effect profile.
Government Regulation
Governmental authorities in the U.S. and other countries extensively
regulate the research, development, testing, manufacture, labeling, promotion,
advertising, distribution, and marketing, among other things, of our products.
The FDA regulates drugs, including antibiotics, under the Federal Food, Drug,
and Cosmetic Act and its implementing regulations. Failure to comply with the
applicable U.S. requirements may subject us to administrative or judicial
sanctions, such as FDA refusal to approve pending new drug applications, warning
letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, and/or criminal prosecution.
The steps required before a drug may be marketed in the U.S. include:
- preclinical laboratory tests, animal studies, and formulation studies;
- submission to the FDA of an investigational new drug exemption for human
clinical testing, which must become effective before human clinical trials
may commence;
- adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication;
- submission to the FDA of a new drug application;
- satisfactory completion of an FDA inspection of the manufacturing facility
or facilities at which the drug is produced to assess compliance with
current good manufacturing practices; and
- FDA review and approval of the new drug application.
Preclinical tests include laboratory evaluation of product chemistry,
toxicity, and formulation, as well as animal studies. The results of the
preclinical tests, together with manufacturing information and analytical data,
are submitted to the FDA as part of an investigational new drug exemption, which
must become effective before human clinical trials may be commenced. An
investigational new drug exemption will automatically become effective 30 days
after receipt by the FDA, unless before that time the FDA raises concerns or
questions about issues such as the conduct of the trials as outlined in the
investigational new drug exemption. In such a case, the investigational new drug
exemption sponsor and the FDA must resolve any outstanding FDA concerns or
questions before clinical trials can proceed. We cannot be sure that submission
of an investigational new drug exemption will result in the FDA allowing
clinical trials to commence.
Clinical trials involve the administration of the investigational drug to
human subjects under the supervision of qualified investigators. Clinical trials
are conducted under protocols detailing the objectives of the study, the
parameters to be used in monitoring safety, and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational new drug exemption.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap or be combined. Each trial must be reviewed and approved by
an independent Institutional Review Board before it can begin. Phase I usually
involves the initial introduction of the investigational drug into people to
evaluate its safety, dosage tolerance, pharmacodynamics, and, if possible, to
gain an early indication of its effectiveness. Phase II usually involves trials
in a limited patient population to:
- evaluate dosage tolerance and appropriate dosage;
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- identify possible adverse effects and safety risks; and
- evaluate preliminarily the efficacy of the drug for specific indications.
Phase III trials usually further evaluate clinical efficacy and test further
for safety by using the drug in its final form in an expanded patient
population. We cannot guarantee that phase I, phase II, or phase III testing
will be completed successfully within any specified period of time, if at all.
Furthermore, we or the FDA may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
an unacceptable health risk.
Assuming successful completion of the required clinical testing, the results
of the preclinical studies and of the clinical studies, together with other
detailed information, including information on the manufacture and composition
of the drug, are submitted to the FDA in the form of a new drug application
requesting approval to market the product for one or more indications. Before
approving a new drug application, the FDA usually will inspect the facility or
the facilities at which the drug is manufactured, and will not approve the
product unless current good manufacturing practices compliance is satisfactory.
If the FDA determines the new drug application and the manufacturing facilities
are acceptable, the FDA will issue an approval letter. If the FDA determines the
new drug application submission or manufacturing facilities are not acceptable,
the FDA will outline the deficiencies in the submission and often will request
additional testing or information. Notwithstanding the submission of any
requested additional information, the FDA ultimately may decide that the new
drug application does not satisfy the regulatory criteria for approval. The
testing and approval process requires substantial time, effort, and financial
resources, and we cannot be sure that any approval will be granted on a timely
basis, if at all. After approval, certain changes to the approved product, such
as adding new indications, manufacturing changes, or additional labeling claims
are subject to further FDA review and approval.
If regulatory approval is obtained, we will be required to comply with a
number of post-approval requirements. For example, as a condition of approval of
the new drug application, the FDA may require postmarketing testing and
surveillance to monitor the drug's safety or efficacy. In addition, holders of
an approved new drug application are required to report certain adverse
reactions, if any, to the FDA, and to comply with certain requirements
concerning advertising and promotional labeling for their products. Also,
quality control and manufacturing procedures must continue to conform to current
good manufacturing practices after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with current good manufacturing
practices. Accordingly, manufacturers must continue to expend time, money, and
effort in the area of production and quality control to maintain compliance with
current good manufacturing practices.
We use and will continue to use third-party manufacturers to produce our
products in clinical and commercial quantities, and we cannot be sure that
future FDA inspections will not identify compliance issues at our facilities or
at the facilities of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to correct. In addition,
discovery of problems with a product may result in restrictions on a product,
manufacturer, or holder of an approved new drug application, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of our products
under development.
The FDA's fast track program is intended to facilitate the development and
expedite the review of drugs intended for the treatment of serious or
life-threatening diseases and that demonstrate the potential to address unmet
medical needs for such conditions. Under this program, the FDA can, for example,
review portions of a new drug application for a fast track product before the
entire application is complete, thus potentially beginning the review process at
an earlier time. We have been granted fast track status for Ramoplanin and we
may seek to have some of our other drug candidates designated as fast track
products, with the goal of reducing the development and review
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time. We cannot guarantee that the FDA will grant any of our requests for fast
track designation, that any fast track designation would affect the time of
review, or that the FDA will approve the new drug application submitted for any
of our drug candidates, whether or not fast track designation is granted.
Additionally, the FDA approval of a fast track product can include restrictions
on the product's use or distribution (such as permitting use only for specified
medical procedures or limiting distribution to physicians or facilities with
special training or experience). Approval of fast track products can be
conditional with a requirement for additional clinical studies after approval.
FDA procedures also provide priority review of new drug applications
submitted for drugs that, compared to currently marketed products, offer a
significant improvement in the treatment, diagnosis, or prevention of a disease.
The FDA is supposed to review new drug applications that are granted priority
status more quickly than new drug applications given standard status. FDA's
current goal is to act on 90% of priority new drug applications within six
months of receipt. Although the FDA historically has not met such goals, the
agency has made significant improvements in the timeliness of the review
process. We anticipate seeking priority review of Ramoplanin, and may do so with
regard to some of our other drug candidates. We cannot guarantee that the FDA
will grant priority review status in any instance, that priority review status
would affect the time review, or that the FDA will approve the new drug
application submitted for any of our drug candidates, whether or not priority
review status is granted.
Under certain circumstances, the FDA provides periods of marketing
exclusivity for new drugs that are the subject of an approved new drug
application. Ramoplanin and Protegrin IB-367, if approved, may qualify for
marketing exclusivity, which would prevent any competitors from seeking approval
of a generic version until five years (four years, in some cases) after approval
of our product. We cannot be sure, however, that Ramoplanin, Protegrin IB-367 or
any of our other products will qualify for marketing exclusivity. Among other
reasons, until recently, antibiotics were not able to obtain such exclusivity,
and the new law making antibiotics eligible for exclusivity includes transition
provision that could lead the FDA to conclude that certain of our antibiotic
products are not eligible for marketing exclusivity. Additionally, even if a
product is approved and granted exclusivity, that does not guarantee that a
competing product might be approved and brought to market.
Outside the U.S., our ability to market our products will also be contingent
upon receiving marketing authorizations from the appropriate regulatory
authorities. The foreign regulatory approval process includes all the risks
associated with FDA approval described above. The requirements governing conduct
of clinical trials and marketing authorization vary widely from country to
country.
Under a new regulatory system in the European Union, marketing
authorizations may be submitted either under a centralized or decentralized
procedure. The centralized procedure provides for the grant of a single
marketing authorization that is valid for all European Union member states. The
decentralized procedure provides for mutual recognition of national approval
decisions. Under this procedure, the holder of a national marketing
authorization may submit an application to the remaining member states. Within
90 days of receiving the applications and assessment report, each member state
must decide whether to recognize approval.
We plan to choose the appropriate route of European regulatory filing in an
attempt to accomplish the most rapid regulatory approvals. However, the chosen
regulatory strategy may not secure regulatory approvals or approvals of the
chosen product indications. In addition, these approvals, if obtained, may take
longer than anticipated. We cannot guarantee that any of our products will prove
to be safe or effective, will receive regulatory approvals, or will be
successfully commercialized.
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Employees
As of February 25, 2000, we had 94 full-time employees, 72 of whom were
engaged in product development and research activities and 22 of whom were
engaged in general and administrative activities. Many of our current employees
hold post-graduate degrees, including 6 M.D.s and 22 Ph.D.s. Our employees are
not represented by a collective bargaining agreement. We believe our relations
with our employees are good.
Facilities
We are currently leasing three adjacent facilities in Mountain View,
California. These facilities provide approximately 16,000 square feet, 18,000
square feet and 7,000 square feet respectively. The leases on the two larger
facilities, containing laboratory and office space, expire in July 2004. The
lease for the smaller facility expires at the end of 2001. We have signed an
agreement to add two additional facilities in Mountain View, California. These
facilities provide approximately 58,000 and 66,000 square feet. This lease will
expire in 2011. These facilities are adequate for our current requirements.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of February 25, 2000.
<TABLE>
<CAPTION>
Name Age Position
- ---- -------- --------
<S> <C> <C>
Kenneth J. Kelley............................ 40 President, Chief Executive Officer, and Director
Karen S. Campbell............................ 45 Vice President, Marketing
John C. Fiddes, Ph.D......................... 48 Vice President, Research and Development
Henry J. Fuchs, M.D.......................... 42 Vice President, Clinical Affairs
Chee-liang Leo Gu, Ph.D...................... 49 Vice President, Pharmaceutical Development
Natalie McClure, Ph.D........................ 47 Vice President, Regulatory Affairs
Sandra J. Wrobel............................. 40 Vice President, Corporate Strategy and Finance
Jane E. Shaw, Ph.D........................... 61 Director, Chairman of the Board
Michael F. Bigham............................ 42 Director
Fritz Buhler, Prof. Dr. med.................. 59 Director
Kathleen D. LaPorte.......................... 38 Director
Gary A. Lyons................................ 48 Director
John M. Padfield, Ph.D....................... 53 Director
Liza Page Nelson............................. 40 Director
Jack S. Remington, M.D....................... 69 Director
</TABLE>
- ------------------------
KENNETH J. KELLEY founded IntraBiotics in 1994 and has served as President,
Chief Executive Officer and Director since our inception. Prior to founding
IntraBiotics, Mr. Kelley co-founded Calydon, a biotechnology company focused on
prostate cancer and has served as a director since its founding in 1994. From
1988 to 1993, Mr. Kelley was a Senior Associate at Institutional Venture
Partners, a venture capital firm. From 1991 to 1992, Mr. Kelley served as Chief
Operating Officer for CV Therapeutics, a cardiovascular biotechnology company.
Mr. Kelley has also held positions at McKinsey & Company, an international
consulting firm, and at Integrated Genetics (now Genzyme, Inc.). Mr. Kelley
holds an M.B.A. degree from Stanford Graduate School of Business and a B.A.
degree in biochemical sciences from Harvard University.
KAREN S. CAMPBELL has served as our Vice President, Marketing since
July 1998. From 1995 to 1998, Ms. Campbell was the Director of Marketing for
Roche Laboratories, a global pharmaceutical company and focused primarily on
building the U.S. Transplant and Autoimmune Diseases business. From 1983 to
1994, Ms. Campbell held various marketing, sales and new product development
positions at Syntex Laboratories Inc., a pharmaceutical company. Ms. Campbell
holds an M.A. degree in Public Administration and a B.A. degree in Political
Science from the University of Delaware.
JOHN C. FIDDES, PH.D., has served as our Vice President, Research and
Development since June 1994. From 1991 to 1994, Dr. Fiddes was Vice President of
Discovery Research at ImmuLogic Pharmaceutical Corporation, a biotechnology
company. Dr. Fiddes conducted postdoctoral research in molecular biology at the
Department of Biochemistry and Biophysics at the University of California, San
Francisco and received a Ph.D. in molecular biology from King's College,
Cambridge University, where he conducted research at the MRC Laboratory for
Molecular Biology. Dr. Fiddes also holds a B.Sc. degree in molecular biology
from the University of Edinburgh in the United Kingdom.
HENRY J. FUCHS, M.D., has served as our Vice President, Clinical Affairs
since October 1996. From 1987 to 1996, Dr. Fuchs held various positions at
Genentech, a biotechnology company,
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where among other things, he had responsibility for the clinical program that
led to the approval for Genentech's Pulmozyme-Registered Trademark-. Dr. Fuchs
was also responsible for the Phase III development program that led to the
approval of Herceptin-Registered Trademark- to treat metastatic breast cancer.
Dr. Fuchs received an M.D. degree from George Washington University and a B.A.
degree in biochemical sciences from Harvard University.
CHEE-LIANG LEO GU, PH.D., has served as our Vice President, Pharmaceutical
Development since October 1999. From 1995 to 1999, Dr. Gu served as our Senior
Director of Pharmaceutical Development. Prior to joining IntraBiotics, Dr. Gu
held a series of senior scientific and management positions in pharmaceutical
development and formulation for Syntex Corporation (now Roche Bioscience), a
pharmaceutical company, and served as director in charge of manufacturing and
controls for CellCept-Registered Trademark-. Dr. Gu received his Ph.D. degree in
physical organic chemistry from the University of California, Los Angeles and
his B.S. degree in chemistry from National Taiwan University.
NATALIE MCCLURE, PH.D., has served as our Vice President, Regulatory Affairs
since October 1999. Dr. McClure has over 20 years experience in regulatory
affairs. From 1993 to 1999, Dr. McClure held various regulatory affairs
positions including Vice President, and Quality Assurance for Matrix
Pharmaceutical, Inc., a pharmaceutical company. Dr. McClure has seven chemical
publications and patents. Dr. McClure received her Ph.D. in organic chemistry
from Stanford University and her B.S. in chemistry from the University of
Michigan.
SANDRA J. WROBEL has served as our Vice President, Corporate Strategy and
Finance since October 1999. From 1987 to 1999, Ms. Wrobel held various positions
with Strategic Decisions Group (currently Navigant Consulting, Inc.), a
management consulting firm, where most recently she was Senior Managing Director
of its Pharmaceuticals and Life Sciences Strategy Consulting Practice. Prior to
this position, Ms. Wrobel was Managing Director of Strategic Decisions Group's
180-person headquarters office in Menlo Park, CA. While at Strategic Decisions
Group, Ms. Wrobel specialized in corporate strategy development, Research and
Development portfolio management, decision process transformation and
organizational change. Ms. Wrobel received her M.B.A. from the Stanford
University Graduate School of Business and her B.S. in Chemical and Petroleum
Refining Engineering from the Colorado School of Mines.
JANE E. SHAW, PH.D., has served as our Chairman of the Board since August
1996 and a director of the company since May 1996. Dr. Shaw is Chairman and
Chief Executive Officer of AeroGen, Inc., a privately held drug delivery
company. From 1987 to 1994 Dr. Shaw was President and Chief Operating Officer of
ALZA Corporation, a pharmaceutical company, where she held various other senior
management positions after starting her career at ALZA as a research scientist
in 1970. Dr. Shaw is a member of the Board of Directors of Intel Corporation,
McKesson Corporation, Boise Cascade Corporation, and Aviron. She received her
D.Sc. from Worcester Polytechnic Institute in Worcester, Massachusetts, and her
Ph.D. and B.Sc. degrees in Physiology from Birmingham University in the United
Kingdom.
MICHAEL F. BIGHAM has served as a director since October 1996. Mr. Bigham is
currently President and Chief Executive Officer of Coulter
Pharmaceutical, Inc., a publicly-traded biotechnology company focused on
oncology therapeutics. From 1988 to 1996, Mr. Bigham was Executive Vice
President and Chief Financial Officer of Gilead Sciences, Inc., a biotechnology
company. From 1984 to 1988, Mr. Bigham was the co-head of Healthcare Investment
Banking at Hambrecht & Quist, LLC. Mr. Bigham currently serves on the boards of
Datron Systems, Inc. and LJL BioSystems, Inc. Mr. Bigham is a CPA and received
his M.B.A. from Stanford Graduate School of Business and his B.S. degree in
Commerce from the University of Virginia.
FRITZ R. BUHLER, PROF. DR. MED., has served as a director since
December 1998. Prof. Dr. Buhler is currently Vice Chairman of the Board of
International Biomedicine Management Partners Inc. and
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Director of the European Center for Pharmaceutical Medicine at the University
Hospital of Basel in Switzerland. From 1991 to 1995, Prof. Dr. Buhler was
responsible for worldwide clinical research and development at F. Hoffmann-La
Roche Ltd., a pharmaceutical company. From 1987 to 1990, Prof. Dr. Buhler was
head of the Department of Research at the University Hospital of Basel in
Switzerland and did clinical work as a cardiologist at the University Hospitals,
as well as at Columbia University in New York and Harvard University in Boston.
Prof. Dr. Buhler received his M.D. from University of Basel, Switzerland.
KATHLEEN D. LAPORTE has served as a director since January 1994. From
January 1993 to the present, Ms. LaPorte has been affiliated with the Sprout
Group, the venture capital affiliate of Donaldson, Lufkin & Jenrette, and has
served as a general partner since December 1993. From August 1987 to
January 1993 Ms. LaPorte was a principal at Asset Management Company, a venture
capital firm focused on early stage biotechnology investments. Ms. LaPorte
currently serves on the boards of other companies including Lynx Therapeutics
and four privately held companies. She holds a B.S. in Biology from Yale
University and an M.B.A. from Stanford Graduate School of Business.
GARY A. LYONS has served as a director since December 1999. From 1993 to the
present, Mr. Lyons has been President and Chief Executive Officer of Neurocrine
Biosciences, Inc, a biopharmaceutical company. From 1983 to 1993, Mr. Lyons was
affiliated with Genentech and served as Vice President of Business Development
and Vice President of Sales. Mr. Lyons is a member of the Board of Directors of
Vical Inc., a gene delivery biopharmaceutical company. Mr. Lyons holds a B.S. in
Marine Biology from the University of New Hampshire and an M.B.A. from
Northwestern University's J.L. Kellogg Graduate School of Management.
JOHN M. PADFIELD, PH.D., has served as a director since June 1998. From 1999
to the present Dr. Padfield has been the Chief Executive Officer of Nycomed
Amersham Imaging, a diagnostic imaging and biotechnology supply company based in
Buckinghamshire, England and a member of the Board of Directors of Nycomed
Amersham plc, a health care company. From 1994 to the present Dr. Padfield was
Chief Executive Officer of Chiroscience Group plc, an emerging pharmaceutical
company based in Cambridge, England. His is also the past Chairman of the Board
of Directors of the BioIndustry Association in the United Kingdom. From 1979 to
1994 Dr. Padfield was affiliated with Glaxo Holdings plc, where he held board
positions in several subsidiary companies, most recently as Managing Director of
Glaxo Manufacturing Services Ltd. Dr. Padfield has a B.S. and Ph.D. in Pharmacy
from the University of Nottingham, England.
LIZA PAGE NELSON has served as a director since December 1999. From 1998 to
the present Ms. Nelson has been a Managing Director at Investor Growth, Inc., a
private equity investment group that advises Investor AB and its affiliates
(including Investor Guernsey Ltd.) on investments in healthcare and information
technology. Investor AB is an industrial holding company publicly traded in
Stockholm and London. From 1988 to 1998 Ms. Nelson was affiliated with
Pfizer Inc., a pharmaceutical company, where she held a variety of business
development and strategic planning positions including, Senior Director-Business
Development for Pfizer US Pharmaceuticals and Pfizer Health Solutions, Inc.
Ms. Nelson holds a B.A. in Economics from Wesleyan University and an M.B.A. from
Yale University's School of Management.
JACK S. REMINGTON, M.D., has served as a director since October 1996.
Dr. Remington is a nationally recognized authority in the field of infectious
disease medicine, and received the 1996 Bristol Award of the Infectious Disease
Society of America (IDSA). Dr. Remington currently serves as Chairman,
Department of Immunology and Infectious Diseases at the Research Institute of
the Palo Alto Medical Foundation and Professor, Department of Medicine, Division
of Infectious Diseases and Geographic Medicine, Stanford University School of
Medicine. In addition, Dr. Remington consults to leading pharmaceutical
companies with regard to antibiotic research and
41
<PAGE>
development and serves on numerous editorial boards of medical journals. In the
past, he has served as the President of the Infectious Disease Society of
America. Dr. Remington served his internship and residency at the University of
California, San Francisco, and received his M.D. and B.S. degrees from the
University of Illinois.
Committees of the Board of Directors
Our compensation committee consists of Dr. Shaw, Mr. Bigham, and
Dr. Padfield. The compensation committee makes recommendations regarding our
various incentive compensation and benefit plans and determines salaries for our
executive officers and incentive compensation for our employees and consultants.
Our audit committee consists of Dr. Shaw, Ms. LaPorte, and Ms. Nelson. The
audit committee makes recommendations to the board of directors regarding the
selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our internal controls.
Board Composition
We currently have nine directors. Upon the closing of this offering the
terms of office of the board of directors will be divided into three classes. As
a result, a portion of our board of directors will be elected each year.
- The class I directors will be Ms. Nelson, Mr. Remington and Mr. Bigham and
their term will expire at the annual meeting of stockholders to be held in
2001.
- The class II directors will be Ms. LaPorte, Mr. Lyons and Dr. Shaw and
their term will expire at the annual meeting of stockholders to be held in
2002.
- The class III directors will be Mr. Kelley, Dr. Padfield and Dr. Buhler
and their term will expire at the annual meetings of stockholders to be
held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of IntraBiotics.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee was, at any time since our
formation, an officer or employee of IntraBiotics. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of our
board of directors or compensation committee.
Director Compensation
Our directors receive no cash compensation for their services as directors
but are reimbursed for their reasonable expenses in attending board meetings.
All directors are eligible to participate in the 1995 Stock Option Plan and the
2000 Equity Incentive Plan. Employee directors will be eligible to participate
in our 2000 Employee Stock Purchase Plan. See "Employee Benefit Plans" for
additional information relating to these plans.
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<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during 1999 to our Chief Executive Officer and each of the four other
most highly compensated executive officers that earned more than $100,000 during
1999. These people are referred to as the named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Securities
-------------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- --------- -------- ------------
<S> <C> <C> <C>
Kenneth J. Kelley......................................... $277,083 $50,000 75,000
President, Chief Executive Officer
and Director
Henry J. Fuchs, M.D....................................... 221,667 -- 34,791
Vice President, Clinical Affairs
John C. Fiddes, Ph.D...................................... 205,423 -- 21,875
Vice President, Research
and Development
Karen S. Campbell......................................... 195,417 -- 35,416
Vice President, Marketing
Chee-liang Leo Gu, Ph.D................................... 158,333 -- 57,500
Vice President, Pharmaceutical
Development
</TABLE>
In accordance with the rules of the Commission, the compensation described
in this table does not include medical, group life insurance or other benefits
received by the named executive officers that are available generally to all our
salaried employees and certain perquisites and other personal benefits received
by the named executive officers, which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.
Option Grants in 1999
The following table sets forth each grant of stock options granted during
1999 to each of the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value of Assumed
Securities Options Annual Rates of Stock
Total Granted to Price Appreciation for
Underlying Employees Exercise Option Term
Options in Fiscal Price (per Expiration -------------------------
Name Granted Year share) Date 5% 10%
- ---- ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth J. Kelley.................. 75,000 3.6% $1.50 6/10/09 $1,597,839 $2,610,390
Henry J. Fuchs, M.D................ 34,791 1.7% 1.50 6/10/09 741,206 1,211,158
John C. Fiddes, Ph.D............... 21,875 1.0% 1.50 6/10/09 466,036 761,521
Karen S. Campbell.................. 35,416 1.7% 1.50 6/10/09 754,521 1,232,916
Chee-liang Leo Gu, Ph.D............ 57,500 2.7% 1.50 9/16/09 1,255,010 2,001,713
</TABLE>
The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table is based upon options to purchase an aggregate of
2,098,782 shares of common stock that were granted to all employees as a group,
including the named executive officers, in the fiscal year ended December 31,
1999.
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<PAGE>
The exercise price per share of each option granted was equal to the fair
market value of the common stock as determined by the board of directors on the
date of the grant.
Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial offering
price of $14.00 per share, (b) assuming that the aggregate stock value derived
from that calculation compounds at the annual 5% or 10% rate shown in the table
for the entire ten-year term of the option and (c) subtracting from that result
the aggregate option exercise price. The 5% and 10% assumed annual rates of the
stock price appreciation are mandated by the rules of the Commission and do not
represent our estimate or projection of future common stock prices.
Aggregate Option Exercises in 1999 and Year-end Values at December 31, 1999
The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
December 31, 1999.
The information regarding the value realized reflects the fair market value
of our common stock underlying the option of date of exercise minus the
aggregate exercise price of the option.
The information regarding the value of unexercised in-the-money options is
based on a value of $14.00 per share, the initial public offering price, minus
the per share exercise price, multiplied by the number of shares underlying the
option.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1999 December 31, 1999
Acquired on Value -------------------------- ----------------------------
Name Exercise Realized Vested Unvested Exercisable Unexercisable
- ---- ------------ -------- -------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth J. Kelley............... 75,520 $55,624 73,439 376,041 $ 957,832 $4,882,284
Henry J. Fuchs, M.D............. -- -- 92,707 152,084 1,275,294 1,982,093
John C. Fiddes, Ph.D............ -- -- 77,604 134,271 1,067,914 1,750,523
Karen S. Campbell............... -- -- 35,416 100,000 460,408 1,282,292
Chee-liang Leo Gu, Ph.D......... 48,000 63,900 28,092 71,408 379,337 903,513
</TABLE>
Employee Benefit Plans
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
GENERAL. Our board of directors adopted our Amended and Restated 1995 Stock
Option Plan in February 1995, and our stockholders approved it in April 1995.
The stock option plan will terminate as of the effective date of this initial
public offering. The termination of the stock option plan will have no effect on
the options that have been granted thereunder. However, following the
termination of the stock option plan, no new stock options may be granted under
it.
CORPORATE TRANSACTIONS. If we dissolve or liquidate, then stock options
outstanding under the stock option plan will terminate immediately prior to such
event. However, we treat outstanding stock options differently in the following
situations:
- a merger or consolidation in which we are not the surviving corporation;
or
- a sale of substantially all of our property.
In these situations, the surviving corporation may either assume all outstanding
stock options under the stock option plan or substitute other options for the
outstanding options. In addition, in these situations, all outstanding options
held by employees will become immediately vested and exercisable as to one-half
of the then unvested shares subject to such options. Options held by employees
who are officers will become fully vested and exercisable in the event that such
officers
44
<PAGE>
are involuntarily terminated without cause or voluntarily resign for good
reason, in either case within thirteen months following the transaction
described above. If the surviving corporation does not assume or substitute,
then, the options will terminate immediately prior to the occurrence of the
event described above.
STOCK OPTIONS GRANTED. As of December 31, 1999, we had issued 653,157
shares upon the exercise of options under the stock option plan and options to
purchase 3,746,896 shares at a weighted average exercise price of $1.16 were
outstanding.
2000 EQUITY INCENTIVE PLAN
GENERAL. Our board of directors adopted our 2000 Equity Incentive Plan in
January 2000, and our stockholders approved it in February 2000. The 2000 Equity
Incentive Plan is intended to replace and supersede our 1995 Stock Option Plan.
SHARE RESERVE. We have reserved a total of 5,000,000 shares of our common
stock for issuance under the incentive plan. On December 31 of each year
starting with December 31, 2000 and continuing through and including
December 31, 2008, the share reserve will automatically be increased by a number
of shares equal to the LEAST of:
- 5% of our then outstanding shares of common stock on a fully-diluted
basis;
- 2,000,000 shares; or
- a lesser number of shares determined by our board of directors prior to
each anniversary date.
If the recipient of a stock award does not purchase the shares subject to
such stock award before the stock award expires or otherwise terminates, the
shares that are not purchased will again become available for issuance under the
incentive plan.
ADMINISTRATION. The board administers the incentive plan unless it
delegates administration to a committee. The board has the authority to
construe, interpret and amend the incentive plan as well as to determine the
recipients of awards under the incentive plan and the terms of such awards
including the number of shares subject to the awards, the vesting and/or
exercisability of the awards and the exercise price of the awards.
ELIGIBILITY. The board may grant incentive stock options qualified under
Section 422 of the Internal Revenue Code to our employees and to the employees
of our affiliates. The board also may grant nonstatutory stock options, stock
bonuses and restricted stock purchase awards to our employees, directors and
consultants as well as to the employees, directors and consultants of our
affiliates.
OPTION TERMS. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock on
the grant date and nonstatutory stock options with an exercise price as low as
85% of the fair market value of a share on the grant date.
Incentive stock options granted to persons who, at the time of the grant,
own or are deemed to own stock possessing more than 10% of our total combined
voting power or the total combined voting power of one of our affiliates must
have an exercise price of at least 110% of the fair market value of the stock on
the grant date and a term of five or fewer years. For other options, the maximum
term is 10 years.
No employee may receive incentive stock options that exceed the $100,000 per
year fair market value limitation set forth in Section 422(d) of the Internal
Revenue Code. To determine
45
<PAGE>
whether the $100,000 per year limitation has been exceeded, we calculate the
fair market value of the aggregate number of shares under all incentive stock
options granted to an employee that will become exercisable for the first time
during a calendar year. Under the incentive plan, options covering stock in
excess of the $100,000 limitation are automatically converted into nonstatutory
stock options.
The board may provide for exercise periods of any length following an
optionholder's termination of service in individual options. Generally, options
will provide that they terminate three months after the optionholder's service
to us and our affiliates terminates. In the case of an optionholder's disability
or death, the exercise period generally is extended to 12 months or 18 months,
respectively.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate as
beneficiary to exercise either type of option following the optionholder's
death. If the optionholder does not designate a beneficiary, the optionholder's
option rights will pass to his or her heirs by will or the laws of descent and
distribution.
Section 162(m) of the Internal Revenue Code denies a deduction to publicly
held corporations for compensation paid to the corporation's chief executive
officer and its four highest compensated officers in a taxable year to the
extent that the compensation for each such officer exceeds $1,000,000. In order
to qualify options granted under the incentive plan for an exemption for
performance based compensation provided under Section 162(m), no employee may be
granted options under the incentive plan covering an aggregate of more than
1,500,000 shares in any calendar year.
TERMS OF OTHER STOCK AWARDS. The board determines the purchase price of
other stock awards, which may not be less than 85% of the fair market value of
our common stock on the grant date. However, the board may award stock bonuses
in consideration of past services without a cash purchase price. Shares that we
sell or award under the incentive plan may, but need not be, restricted and
subject to a repurchase option in our favor in accordance with a vesting
schedule that the board determines. The board, however, may accelerate the
vesting of such awards.
OTHER PROVISIONS. In the event of certain corporate transactions not
involving our receipt of consideration, such as a merger, consolidation,
reorganization, stock dividend, or stock split, the board will appropriately
adjust the incentive plan and outstanding awards as to the class and the maximum
number of shares subject to the incentive plan and to the Section 162(m) limit.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately prior to such event. Upon certain change in control transactions,
the surviving corporation may assume all outstanding awards under the incentive
plan or substitute other awards for the outstanding awards. If the surviving
corporation does not assume or substitute, then the awards will accelerate and
will terminate immediately prior to the occurrence of the change in control. In
addition, upon certain change in control transactions, all outstanding awards
held by employees will become immediately vested and exercisable as to one-half
of the then unvested shares subject to such awards. Awards held by employees who
are officers will become fully vested and exercisable in the event that such
officers are involuntarily terminated without cause or voluntarily resign for
good reason, in either case within thirteen months following the change in
control.
STOCK AWARDS GRANTED. No stock awards have been issued under the incentive
plan.
PLAN TERMINATION. The incentive plan will terminate in 2010 unless the
board terminates it sooner.
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<PAGE>
2000 EMPLOYEE STOCK PURCHASE PLAN
GENERAL. Our board adopted the 2000 Employee Stock Purchase Plan in January
2000, and our stockholders approved it in February 2000.
SHARE RESERVE. We have authorized the issuance of 500,000 shares of our
common stock pursuant to purchase rights granted to eligible employees under the
purchase plan. On December 31 of each year, starting with December 31, 2000, and
continuing through and including December 31, 2008, the share reserve will
automatically be increased by a number of shares equal to the LESSER of:
- 1% of our then outstanding shares of common stock on a fully diluted
basis;
- 500,000 shares; or
- a number of shares to be determined by the Board of Directors.
ELIGIBILITY. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which eligible employees may purchase our
common stock through payroll deductions. We implement the purchase plan by
offerings of purchase rights to eligible employees. Generally, all of our
full-time employees and full-time employees of our affiliates incorporated in
the United States may participate in offerings under the purchase plan. However,
no employee may participate in the purchase plan if, immediately after we grant
the employee a purchase right, the employee has voting power over 5% or more of
our outstanding capital stock. As of the date hereof, no shares of common stock
had been purchased under the purchase plan.
ADMINISTRATION. Under the purchase plan, the board may specify offerings of
up to 27 months. Unless the board otherwise determines, common stock will be
purchased for accounts of participating employees at a price per share equal to
the lower of:
- 85% of the fair market value of a share on the first day of the offering;
or
- 85% of the fair market value of a share on the purchase date.
For the first offering, which will begin on the effective date of this
initial public offering, we will offer shares registered on a Form S-8
registration statement. The fair market value of the shares on the first date of
this offering will be the price per share at which our shares are first sold to
the public as specified in the final prospectus with respect to our initial
public offering. Otherwise, fair market value generally means the closing sales
price (rounded up where necessary to the nearest whole cent) for such shares (or
the closing bid, if no sales were reported) as quoted on the Nasdaq National
Market on the trading day prior to the relevant determination date, as reported
in THE WALL STREET JOURNAL.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan; or
- 85% of the fair market value of a share on the purchase date.
If authorized by the board, participating employees may authorize payroll
deductions of up to 15% of their base compensation for the purchase of stock
under the purchase plan. Generally
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<PAGE>
employees may end their participation in the offering at any time up to 10 days
before a purchase period ends. Their participation ends automatically on
termination of their employment or loss of full-time status.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights, together with any other
purchase rights granted under other employee stock purchase plans established by
us or by our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate which exceeds $25,000 of fair market value of our
stock for each calendar year in which the purchase rights are outstanding.
Upon a change in control, a surviving corporation may assume outstanding
purchase rights or substitute other purchase rights therefor. If the surviving
corporation does not assume or substitute the purchase rights, the offering
period will be shortened and our stock will be purchased for the participants
immediately before the change in control.
401(K) PLAN
We maintain a retirement and deferred savings plan for our U.S. employees.
The retirement and deferred savings plan is intended to qualify as a
tax-qualified plan under Section 401 of the Internal Revenue Code. The
retirement and deferred savings plan provides that each participant may
contribute up to 25% of his or her pre-tax compensation (up to a statutory
limit, which is $10,500 in calendar year 2000). Under the plan, each employee is
fully vested in his or her deferred salary contributions. Employee contributions
are held and invested by the plan's trustee. The retirement and deferred savings
plan also permits us to make discretionary contributions, subject to established
limits and a vesting schedule. To date, we have not made any discretionary
contributions to the retirement and deferred savings plan on behalf of
participating employees.
Limitations on Liability and Indemnification Matters
Our amended and restated certificate of incorporation includes a provision
that eliminates the personal liability of our directors for monetary damages to
the fullest extent permitted by law. Current Delaware law does not permit the
elimination of monetary damages:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by applicable law, subject to very limited exceptions;
- we may indemnify our other, employees and other agents to the same extent
that we indemnify our directors and officers, unless such indemnification
is prohibited by law; and
- we may secure insurance on behalf of any officer, director, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, indemnify our
48
<PAGE>
directors and executive officers for certain expenses, including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by us arising out of such person's
services as our director or executive officer, any of our subsidiaries or any
other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
Currently, there is no pending litigation or proceeding involving any of our
directors, executive officers or employees for which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
We plan to obtain directors' and officers' liability insurance prior to the
effectiveness of this offering.
49
<PAGE>
CERTAIN TRANSACTIONS
PREFERRED STOCK SALES
In April 1997, we issued and sold an aggregate of 5,714,286 shares of
Series D preferred stock at a price per share of $1.75. These shares currently
convert into common stock at the rate of one share of common stock for each two
shares of Series D preferred stock.
In October 1997, we issued and sold an aggregate of 2,725,000 shares of
Series E preferred stock at a price per share of $2.75. These shares currently
convert into common stock at the rate of one share of common stock for each two
shares of Series E preferred stock.
In October 1997 and May 1998, we issued and sold an aggregate of 750,000
shares of Series F preferred stock at a price per share of $4.00. These shares
currently convert into common stock at the rate of one share of common stock for
each two shares of Series F preferred stock.
From November 1998 to January 1999, we issued and sold an aggregate of
7,656,981 shares of Series G preferred stock at a price per share of $3.00.
These shares currently convert into common stock at the rate of one share of
common stock for each two shares of Series G preferred stock.
In October 1999 we issued and sold an aggregate of 6,250,000 shares of
Series H preferred stock at a price per share of $4.00. In addition, we issued
warrants to purchase an aggregate of 1,250,000 shares of Series H preferred
stock, 1,100,000 of which were issued to Investor (Guernsey) Ltd., at an
exercise price of $5.00 per share. These shares currently convert into common
stock at the rate of one share of common stock for each two shares of Series H
preferred stock.
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The following 5% stockholders and stockholders associated with certain of
our officers and directors purchased shares in the financings. Upon the closing
of this offering, the following shares of preferred stock convert into common
stock at the rate of one share of common stock for each two shares of preferred
stock.
<TABLE>
<CAPTION>
Shares of Shares of Shares of Shares of Shares of
Series D Series E Series F Series G Series H
Preferred Preferred Preferred Preferred Preferred Total Aggregate
Purchaser Stock Stock Stock Stock Stock Shares Consideration
- --------- --------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ENTITIES AFFILIATED WITH THE
SPROUT GROUP
Sprout Capital VI, L.P.... 281,803 -- -- -- -- 281,803 $ 493,155
Sprout Capital VII,
L.P...................... 427,791 -- -- -- -- 427,791 $ 748,634
DLJ Capital Corporation... 44,719 -- -- -- -- 44,719 $ 78,258
Sprout CEO Fund, L.P...... 4,969 -- -- -- -- 4,969 $ 8,695
ENTITIES AFFILIATED WITH
SPINNAKER TECHNOLOGIES
Spinnaker Technology Fund,
L.P...................... 2,571,429 459,836 -- -- -- 3,031,265 $ 5,764,550
Spinnaker Technology
Offshore Fund, Ltd....... -- 425,389 -- -- -- 425,389 $ 1,169,820
Spinnaker Founders Fund... -- 1,454,600 -- -- -- 1,454,600 $ 4,000,150
Spinnaker Clipper Fund,
L.P...................... -- 35,175 -- -- -- 35,175 $ 96,731
Lawrence Bowman........... -- 285,714 -- -- -- 285,714 $ 785,714
ENTITIES AFFILIATED WITH
ST. PAUL VENTURE CAPITAL
St. Paul Fire and Marine
Insurance Company........ -- -- -- -- -- -- --
St. Paul Venture Capital
IV LLC................... 114,286 -- -- -- -- 114,286 $ 200,000
New York Life Insurance
Company................... 685,715 -- -- -- -- 685,715 $ 1,200,001
International BM Biomedicine
Holdings Inc.............. -- -- -- 1,833,334 -- 1,833,334 $ 5,500,002
Investor (Guernsey)
Ltd.(1)................... -- -- -- -- 5,500,000 5,500,000 $22,000,000
Beatrice G. Fuchs........... -- -- -- 120,000 -- 120,000 $ 360,000
Darlene & David Bossen...... -- -- -- 33,334 -- 33,334 $ 100,002
</TABLE>
- --------------------------
(1) In connection with this purchase, Investor (Guernsey) Ltd, was issued a
warrant to purchase 1,100,000 shares at an exercise price of $5.00 per
share.
In connection with the above transactions, we entered into agreements with
the investors providing for registration rights with respect to these shares.
The most recent such agreement is an Amended and Restated Investor Rights
Agreement dated October 15, 1999, which restates and incorporates the
registration rights of all investors. For more information regarding this
agreement, see "Description of Capital Stock--Registration Rights."
Ms. LaPorte, our director, is a general partner of Sprout Capital VI, L.P.
and Sprout Capital VII, L.P., funds managed by The Sprout Group, the venture
capital affiliate of Donaldson, Lufkin & Jenrette. Dr. Buhler, our director, is
Vice Chairman of the Board of International Biomedicine
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<PAGE>
Management Partners Inc. the management company of International BM Biomedicine
Holdings Inc. Ms. Nelson, our director, is a managing director at Investor
Growth Capital, Inc. and advises Investor (Guernsey) Ltd. on investments in
health care and information technology.
Dr. Fuchs, our Vice President, Clinical Affairs, is the son of Beatrice
Fuchs and the son-in-law of Darlene and David Bossen.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as officers or directors. See Management--Limitations of
Liability and Indemnification Matters for more information regarding
indemnification of our officers and directors.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides summary information regarding the beneficial
ownership of our outstanding common stock as of February 25, 2000:
- each person or group who beneficially owns more than 5% of our common
stock;
- each of our directors;
- each of the executive officers named in the Summary Compensation Table;
and
- all of our executive officers and directors as a group.
Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all shares of common stock held by them. Shares of common stock
subject to options currently exercisable or exercisable within 60 days of
February 25, 2000 and not subject to repurchase as of that date are deemed
outstanding for calculating the percentage of outstanding shares of the person
holding these options, but are not deemed outstanding for calculating the
percentage of any other person. Applicable percentage ownership in the following
table is based on 21,473,480 shares of common stock outstanding as of
February 25, 2000, after giving effect to the conversion of all outstanding
shares of preferred stock into common stock upon the closing of the offerings,
and 28,973,480 shares of common stock outstanding immediately following the
completion of this offering.
Unless otherwise indicated, the address of each of the named individuals is
c/o IntraBiotics Pharmaceuticals, Inc., 1255 Terra Bella Ave., Mountain View,
California 94043.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
--------------------------------
Name and Address Shares Before Offering After Offering
- ---------------- --------- --------------- --------------
<S> <C> <C> <C>
Entities affiliated with The Sprout Group (1)........ 3,652,140 17.0% 12.6%
3000 Sand Hill Road, Suite 4-270
Menlo Park, CA 94025
Investor (Guernsey) Ltd. (2)......................... 3,300,000 15.0 11.2
P.O. Box 626
National Westminster House
Le Truchot St. Peter Port
Guernsey Channel Island
GY1 4PW
Entities affiliated with Spinnaker Technology (3).... 2,751,595 12.8 9.5
1875 South Grant Street, Suite 600
San Mateo, CA 94402
Entities affiliated with St. Paul Venture Capital
Inc. (4)........................................... 1,943,971 9.1 6.7
10400 Viking Dr., Suite 550
Eden Prairie, MN 55344
New York Life Insurance Company...................... 1,225,209 5.7 4.2
51 Madison Avenue, Suite 207
New York, NY 10010
Michael F. Bigham (5)................................ 52,101 * *
Fritz Buhler, Prof. Dr. med. (6)..................... 916,667 4.3 3.2
Kenneth J. Kelley (7)................................ 750,792 3.5 2.6
Gary A. Lyons (8).................................... 1,250 * *
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
--------------------------------
Name and Address Shares Before Offering After Offering
- ---------------- --------- --------------- --------------
<S> <C> <C> <C>
Kathleen D. LaPorte (1).............................. 3,652,140 17.0 12.6
Liza Page Nelson (2)................................. 3,300,000 15.0 11.2
John M. Padfield, Ph.D. (9).......................... 3,750 * *
Jack S. Remington, M.D. (10)......................... 9,791 * *
Jane E. Shaw, Ph.D. (11)............................. 39,619 * *
Karen S. Campbell (12)............................... 43,750 * *
John C. Fiddes, Ph.D (13)............................ 235,937 1.1 *
Henry J. Fuchs (14).................................. 103,125 * *
Chee-Liang Leo Gu, Ph.D. (15)........................ 97,342 * *
All executive officers and directors as a group
(15 people) (16)................................... 9,207,514 41.1 30.8
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes of 2,052,933 shares held by Sprout Capital VII, L.P., 1,352,727
shares held by Sprout Capital VI, L.P., 214,093 shares held by DLJ Capital
Corporation and 23,846 shares held by Sprout CEO Fund, L.P. Also includes
8,541 shares that DLJ Capital Corporation has the right to acquire pursuant
to options exercisable within 60 days of February 25, 2000. DLJ Capital
Corporation is the managing general partner of the Sprout funds.
Ms. LaPorte, a director of IntraBiotics, is a general partner of Sprout
Capital VI, L.P. and Sprout Capital VII, L.P., funds managed by The Sprout
Group. In such capacity, Ms. LaPorte may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
owned by the Sprout funds and DLJ Capital Corporation. Ms. LaPorte disclaims
beneficial ownership of the shares held by the Sprout funds and DLJ Capital
Corporation within the meaning of Rule 13d-3 under the Securities Act of
1934.
(2) Includes 550,000 shares Investor (Guernsey) Ltd. has the right to acquire
pursuant to an outstanding warrant exercisable within 60 days of
February 25, 2000. The sole stockholder of Investor (Guernsey) Ltd. is
Expibel B.V. Marc Hollander, Guje Holmberg and Claes VonPost are the
managing directors of Expibel B.V. and have voting and dispositive power
over the shares held by Investor (Guernsey) Ltd. Messrs. Hollander and
VonPost and Ms. Holmberg each disclaim beneficial ownership of the shares
held by Investor (Guernsey) Ltd. except to the extent of their pecuniary
interest. Ms. Nelson disclaims beneficial ownership of these shares within
the meaning of Rule 13d-3 under the Securities Act of 1934.
(3) Includes of 1,029,953 shares held by Spinnaker Technology Fund, L.P.,
885,871 shares held by Spinnaker Technology Offshore Fund, Ltd., 675,327
shares held by Spinnaker Founders Fund, 17,587 shares held by Spinnaker
Clipper Fund, L.P. and 142,857 shares held by Lawrence Bowman, president of
Bowman Capital Management. Bowman Capital Management is the fund manager for
the various Spinnaker funds.
(4) Includes of 1,886,828 shares held by St. Paul Fire and Marine Insurance
Company and 57,143 shares held by St. Paul Venture Capital IV LLC. St. Paul
Venture Capital Inc. exercises sole investment and dispositive power of the
shares held by St. Paul Fire and Marine Insurance Company and St. Paul
Venture Capital IV LLC. There is no one single person at St. Paul Venture
Capital Inc. that exercises voting or dispositive power over these shares.
Voting of these shares is conducted by an internal mechanism at St. Paul
Venture Capital Inc., which requires unanimous approval by an investment
committee consisting of at least three of eight executive officers of St.
Paul Venture Inc., one of which is the deal sponsor.
54
<PAGE>
(5) Includes 9,791 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(6) All of these shares are held by International BM Biomedicine Holdings Inc.
Dr. Buhler, a director of IntraBiotics, is Vice Chairman of the Board of
International Biomedicine Management Partners Inc. In such capacity,
Dr. Buhler be deemed to have an indirect interest in an indeterminate
portion of the shares beneficially owned by International BM Biomedicine
Holdings Inc, Dr. Buhler disclaims beneficial ownership of the shares held
by International BM Biomedicine Holdings Inc. within the meaning of
Rule 13d-3 under the Securities Act of 1934.
(7) Includes 94,272 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000. Also includes 10,000 shares held in
irrevocable trusts with an independent trustee for Mr. Kelley's children.
Mr. Kelley disclaims beneficial ownership of the shares held by his
children.
(8) Includes 1,250 shares issuable upon the exercise of options exercisable
within 60 days of February 25, 2000.
(9) Includes 3,750 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(10) Includes 9,791 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(11) Includes 25,333 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(12) Includes 43,750 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(13) Includes 85,937 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000.
(14) Includes 103,125 shares issuable upon exercise of options exercisable
within 60 days of February 25, 2000.
(15) Includes 2,292 shares issuable upon exercise of options exercisable within
60 days of February 25, 2000 and 10,000 shares held in the name of Dr. Gu's
minor children.
(16) See footnotes 1,2 and 5 through 15 above, as applicable.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
Our authorized capital stock as of December 31, 1999 consisted of 67,500,000
shares of common stock, and 40,937,873 shares of preferred stock. As of
December 31, 1999 our outstanding stock was held of record by a total of 163
stockholders.
Upon the closing of this offering:
- our certificate of incorporation will be amended and restated to provide
for a total of authorized capital consisting of 50,000,000 shares of
common stock and 5,000,000 shares of preferred stock; and
- all shares of preferred stock will convert into common stock, and a total
of 28,581,054 shares of common stock and no shares of preferred stock will
be outstanding, based on the number of shares outstanding as of
December 31, 1999 and assuming no exercise of the underwriters'
over-allotment option, after giving effect to the sale of the common stock
we are offering.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferences that may be applicable to any
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive ratably any dividends out of assets legally
available therefor as our board of directors may from time to time determine.
Upon liquidation, dissolution or winding up of IntraBiotics, holders of our
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding shares of
preferred stock. Holders of common stock have no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable.
PREFERRED STOCK
According to our amended and restated certificate of incorporation, our
board of directors will have the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock, in one or more
series. Our board shall determine the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of any series. The issuance of preferred stock could diminish voting power of
holders of common stock, and the likelihood that holders of preferred stock will
receive dividend payments and payments upon liquidation may have the effect of
delaying, deferring or preventing a change in control of IntraBiotics, which
could depress the market price of our common stock. We have no present plan to
issue any shares of preferred stock.
Warrants
As of December 31, 1999, we had the following warrants outstanding:
- a warrant to purchase 54,000 shares of Series B preferred stock was
outstanding at an exercise price of $1.00 per share, which expires in
July 2001. Upon the closing of this
56
<PAGE>
offering, the warrant to purchase Series B preferred stock will become
exercisable for common stock at a rate of one share of common stock for
each two shares of Series B preferred stock at an exercise price of $2.00
per share.
- a warrant to purchase 50,000 shares of Series D preferred stock was
outstanding at an exercise price of $2.50 per share, which expires upon
the closing of this offering. Upon the closing of this offering, the
warrant to purchase Series D preferred stock will become exercisable for
common stock at a rate of one share of common stock for each two shares of
Series D preferred stock.
- warrants to purchase an aggregate of 1,250,000 shares of Series H
preferred stock were outstanding at an exercise price of $5.00 per share,
which expire in December 2001. Upon the closing of this offering, the
warrants to purchase Series H preferred stock will become exercisable for
common stock at a rate of one share of common stock for each two shares of
Series H Preferred Stock.
Each of the warrants contain provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrants in the event of stock dividends, stock splits, reorganizations and
reclassifications and consolidations.
Registration Rights
Upon completion of this offering, holders of an aggregate of 19,603,479
shares of common stock (and warrants to purchase an aggregate of 625,000 shares
of common stock) will be entitled to rights to register these shares under the
Securities Act. These rights are provided under the Amended and Restated
Investor Rights Agreement, dated October 15, 1999. If we propose to register any
of our securities under the Securities Act after this offering, either for our
own account or for the account of others, the holders of these shares are
entitled to notice of the registration and are entitled to include, at our
expense, their shares of common stock in the registration and any related
underwriting, provided, among other conditions, that the underwriters may limit
the number of shares to be included in the registration. In addition, the
holders of these shares may require us, at our expense and on not more than two
occasions at any time beginning six months from the date of the closing of the
offering, to file a registration statement under the Securities Act with respect
to their shares of common stock, and we will be required to use our best efforts
to effect the registration. Further, the holders may require us at our expense
to register their shares on Form S-3 when this form becomes available.
Anti-Takeover Provisions of Delaware Law and Charter Provisions
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly-held Delaware corporation from
engaging in any business combination with any interested stockholder for
a period of three years following the date that the stockholder became an
interested stockholder unless:
- prior to that date, our board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers, and by employee stock plans in which shares
held subject to the plan will be tendered in a tender or exchange offer;
or
57
<PAGE>
- on or subsequent to that date, the business combination is approved by our
board of directors and is authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; and
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our amended and restated certificate of incorporation requires that upon
completion of this offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Additionally, our
certificate of incorporation:
- substantially limits the use of cumulative voting in the election of
directors;
- provides that the authorized number of directors may be changed only by
resolution of our board of directors; and
- authorizes our board of directors to issue blank check preferred stock to
increase the amount of outstanding shares without stockholder approval.
Our amended and restated bylaws provide that candidates for director may be
nominated only by our board of directors or by a stockholder who gives written
notice to us no later than 90 days prior nor earlier than 120 days prior to the
first anniversary of the last annual meeting of stockholders. Our amended and
restated certificate of incorporation and bylaws provide for a classified board
of directors, in which approximately one third of the directors will be elected
each year. Our board of directors may appoint new directors to fill vacancies or
newly created directorships. Our bylaws also limit who may call a special
meeting of stockholders.
Delaware law and these charter provisions may have the effect of deterring
hostile takeovers or delaying changes in control of our management, which could
depress the market price of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Securities
Transfer & Trust, Inc.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 28,973,480 shares of common
stock outstanding. Of these shares, the 7,500,000 shares sold in this offering
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. A significant number of shares of our stock outstanding prior to
this offering is subject to 180-day lock-up agreements, and may not be sold in
the public market prior the expiration of the lock-up agreements. Deutsche Bank
Securities Inc. may release the shares subject to the lock-up agreements in
whole or in part at any time without prior public notice. However, Deutsche Bank
Securities Inc. has no current plans to effect such a release. Upon the
expiration of the lock-up agreements, approximately 17,243,972 additional shares
will be available for sale in the public market, subject in some cases to
compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
Days after Date Shares
of this Prospectus Eligible for Sale Comment
- ------------------ ----------------- -------
<S> <C> <C>
Upon effectiveness........................ 222,476 Freely tradable shares eligible for sale
under Rule 144(k) and not locked-up
90 days................................... 882,032 Shares not locked-up and saleable under
Rules 144 and 701
180 days.................................. 17,243,972 Lock-up released; shares saleable under
Rules 144 and 701
Various dates thereafter.................. 3,125,000 Restricted securities held for one year
or less as of 180 days following
effectiveness
</TABLE>
Rule 144
In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year is entitled to sell
within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of
- 1% of the then outstanding shares of our common stock (approximately
289,734 shares immediately after this offering) or
- the average weekly trading volume during the four calendar weeks preceding
such sale, subject to the filing of a Form 144 with respect to the sale.
A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.
We cannot estimate the number of shares that will be sold under Rule 144, as
this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.
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<PAGE>
Lock-Up Agreements
We and our directors, executive officers and certain of our stockholders
have agreed pursuant to the underwriting agreement and other agreements not to
sell any of our common stock without the prior consent of Deutsche Bank
Securities Inc. until 180 days from the date of this prospectus. Transfers or
dispositions can be made sooner only with the prior written consent of Deutsche
Bank Securities Inc.
Stock Options
We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1995 Stock Option Plan, our 2000
Equity Incentive Plan and our 2000 Employee Stock Purchase Plan 90 days
following the effectiveness of this registration statement, which permits the
resale of these shares by nonaffiliates in the public market without restriction
under the Securities Act.
Rule 701
Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitations or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144
holding period restrictions, in each case commencing 90 days after the date of
this prospectus.
Registration Rights
After this offering the holders of 19,603,479 shares of our common stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of these shares under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act except for shares purchased by affiliates. See Description of
Capital Stock--Registration Rights.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwritings named below, through their representatives Deutsche Bank
Securities Inc., Warburg Dillon Read LLC, SG Cowen Securities Corporation and
Adams, Harkness & Hill, Inc. have severally agreed to purchase from IntraBiotics
the following respective number of shares of common stock at a public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................
Warburg Dillon Read LLC.....................................
SG Cowen Securities Corporation.............................
Adams, Harkness & Hill, Inc.................................
---------
Total................................................... 7,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The underwriters may allow, and these
dealers may re-allow, a concession of not more than $ per share to other
dealers. After the initial public offering, representatives of the underwriters
may change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 1,125,000
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the common stock offered
hereby. To the extent that the underwriters exercise this option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above tables bears
to the total number of shares of common stock offered hereby. We will be
obligated, pursuant to the option, to sell these additional shares of common
stock to the underwriters to the extent the option is exercised. If any
additional shares of common stock are purchased, the underwriters will offer the
additional shares on the same terms as those on which the 7,500,000 shares are
being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is
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<PAGE>
currently expected to be approximately 7% of the initial public offering price.
We have agreed to pay the underwriters the following fees, assuming either no
exercise or full exercise by the underwriters of the underwriters'
over-allotment option:
<TABLE>
<CAPTION>
Total Fees
---------------------------------------------
With Full Exercise of
Without Exercise of Over-Allotment
Fee Per Share Over-Allotment Option Option
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by IntraBiotics................ $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, and certain holders of our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. We have entered into a similar agreement with the representatives of the
underwriters, except that we may grant options and issue shares under our 1995
Plan, and 2000 Equity Incentive Plan and sell shares under our 2000 Employee
Stock Purchase Plan. In addition, we can sell up to an aggregate of 1,000,000
shares to strategic and corporate partners and equipment lessors without such
consent. There are no agreements between the representatives and any of our
stockholders or affiliates releasing them from these lock-up agreements prior to
the expiration of the 180-day period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 375,000 shares for our vendors, employees, family
members of employees, customers and other third parties. The number of shares of
our common stock available for sale to the general public will
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<PAGE>
be reduced to the extent these reserved shares are purchased. Any reserved
shares that are not purchased by these persons will be offered by the
underwriters to the general public on the same basis as the other shares in this
offering.
Pricing of This Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies that
we and the representatives of the underwriters believe to be comparable to
our business; and
- estimates of our business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
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<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Palo Alto, California, will provide us with an opinion
as to the validity of the common stock offered under this prospectus. Latham &
Watkins, Costa Mesa, California, will pass upon certain legal matters related to
the offering for the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999. We have included our financial statements in
this prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given upon their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered under this prospectus. This prospectus does not contain all
of the information in the registration statement and the exhibits and schedule
to the registration statement. For further information with respect to us and
our common stock, we refer you to the registration statement and to the exhibits
and schedule to registration statement. Statements contained in this prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete, and in each instance, we refer you to the copy of the
contract or other document filed as an exhibit to the registration statement.
Each of these statements is qualified in all respects by this reference. You may
inspect a copy of the registration statement without charge at the SEC's
principal office in Washington, D.C., and copies of all or any part of the
registration statement may be obtained from the Public Reference Section of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of fees
prescribed by the SEC. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the Web site
is HTTP://WWW.SEC.GOV. The SEC's toll free investor information service can be
reached at 1-800-SEC-0330. Information contained on our website does not
constitute part of this prospectus.
Upon completion of the offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited interim financial information. Our telephone number is
(650) 526-6800.
64
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
IntraBiotics Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of IntraBiotics
Pharmaceuticals, Inc. as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IntraBiotics
Pharmaceuticals, Inc. at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 14, 2000,
except for the second paragraph of Note 1,
as to which the date is
February 28, 2000
F-2
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro forma
stockholders'
December 31, equity to
------------------- December 31,
1998 1999 1999 (Note 1)
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted deposits
of $350.................................................. $ 29,869 $ 18,862
Short-term investments.................................... -- 12,567
Other current assets...................................... 144 633
-------- --------
Total current assets.................................... 30,013 32,062
Property and equipment, net................................. 2,045 3,828
Other assets................................................ 41 68
-------- --------
Total assets............................................ $ 32,099 $ 35,958
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,773 $ 2,295
Accrued clinical costs.................................... 1,310 916
Other accrued liabilities, principally related to
development milestones in 1998........................... 3,408 535
Amount payable to contract partner........................ -- 1,677
Deferred revenue.......................................... 738 --
Current portion of equipment financing obligations........ 505 896
-------- --------
Total current liabilities............................... 8,734 6,319
Long-term equipment financing obligations................... 867 1,725
Commitments
STOCKHOLDERS' EQUITY:
Preferred stock, at amounts paid in, $0.001 par value:
35,205,892 and 40,937,873 convertible shares authorized at
December 31, 1998 and 1999, 5,000,000 shares of preferred
stock authorized pro forma; 32,388,207 and 39,483,873
shares issued and outstanding at December 31, 1998 and
1999, respectively (aggregate liquidation preference of
$81,245), no shares of preferred stock issued and
outstanding pro forma..................................... 52,152 79,609 $ --
Common stock, $0.001 par value: 60,000,000 and 67,500,000
shares authorized at December 31, 1998 and 1999,
50,000,000 shares authorized pro forma; 1,001,030 and
1,339,154 shares issued and outstanding at December 31,
1998 and 1999, respectively, 21,081,054 shares issued and
outstanding pro forma..................................... 1 1 21
Additional paid-in capital.................................. 1,249 13,828 93,417
Deferred stock compensation................................. (1,145) (12,650) (12,650)
Accumulated deficit......................................... (29,759) (52,874) (52,874)
-------- -------- --------
Total stockholders' equity.............................. 22,498 27,914 $ 27,914
-------- -------- ========
Total liabilities and stockholders' equity................ $ 32,099 $ 35,958
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Contract revenue.......................................... $ 3,507 $ 5,357 $ 7,863
License fee and milestone revenue......................... 2,000 1,000 --
------- -------- --------
Total revenues.............................................. 5,507 6,357 7,863
------- -------- --------
Operating expenses:
Research and development.................................. 8,103 21,997 26,102
General and administrative................................ 1,960 2,533 6,082
------- -------- --------
Total operating expenses.................................... 10,063 24,530 32,184
------- -------- --------
Operating loss.............................................. (4,556) (18,173) (24,321)
Interest income............................................. 575 963 1,372
Interest expense............................................ (94) (172) (166)
------- -------- --------
Net loss.................................................... $(4,075) $(17,382) $(23,115)
======= ======== ========
Basic and diluted net loss per share........................ $ (6.39) $ (20.89) $ (21.62)
======= ======== ========
Shares used to compute basic and diluted net loss per
share..................................................... 638 832 1,069
======= ======== ========
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (1.27)
========
Shares used to compute pro forma basic and diluted net loss
per share (unaudited)..................................... 18,172
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Convertible Additional Deferred Total
Preferred Common Paid-In Stock Accumulated Stockholders'
Stock Stock Capital Compensation Deficit Equity
----------- --------- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996......... $12,697 $1 $ 14 $ -- $ (8,302) $ 4,410
Issuance of 17 shares of common stock
upon exercise of options for cash... -- -- 3 -- -- 3
Issuance of 5,714 shares of Series D
convertible preferred stock for cash
(net of issuance costs of $50)...... 9,950 -- -- -- -- 9,950
Issuance of 2,725 shares of Series E
convertible preferred stock for cash
(net of issuance costs of $17)...... 7,477 -- -- -- -- 7,477
Issuance of 500 shares of Series F
convertible preferred stock for
cash................................ 2,000 -- -- -- -- 2,000
Net loss and comprehensive loss....... -- -- -- -- (4,075) (4,075)
------- -- ------- -------- -------- --------
Balances at December 31, 1997......... 32,124 1 17 -- (12,377) 19,765
Issuance of 205 shares of common stock
upon exercise of options for cash... -- -- 39 -- -- 39
Issuance of 250 shares of Series F
convertible preferred stock for
technology license.................. 1,000 -- -- -- -- 1,000
Issuance of 6,811 shares of Series G
convertible preferred stock for cash
(net of issuance costs of $1,406)... 19,028 -- -- -- -- 19,028
Deferred stock compensation........... -- -- 1,193 (1,193) -- --
Amortization of deferred stock
compensation........................ -- -- -- 48 -- 48
Net loss and comprehensive loss....... -- -- -- -- (17,382) (17,382)
------- -- ------- -------- -------- --------
Balances at December 31, 1998......... 52,152 1 1,249 (1,145) (29,759) 22,498
Issuance of 338 shares of common stock
upon exercise of options for cash... -- -- 93 -- -- 93
Issuance of 846 shares of Series G
convertible preferred stock for
cash................................ 2,580 -- -- -- -- 2,580
Issuance of 6,250 shares of Series H
convertible preferred stock and
warrants to purchase 1,250 shares of
Series H convertible preferred stock
for cash (net of issuance costs of
$123)............................... 24,877 -- -- -- -- 24,877
Deferred stock compensation........... -- -- 12,486 (12,486) -- --
Amortization of deferred stock
compensation........................ -- -- -- 981 -- 981
Net loss and comprehensive loss....... -- -- -- -- (23,115) (23,115)
------- -- ------- -------- -------- --------
Balances at December 31, 1999......... $79,609 $1 $13,828 $(12,650) $(52,874) $ 27,914
======= == ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net loss.................................................. $(4,075) $(17,382) $(23,115)
Adjustments to reconcile net loss to net cash used in
operating activities:
Preferred stock issued in exchange for technology
license expense........................................ -- 1,000 --
Depreciation and amortization........................... 204 489 740
Amortization of deferred stock compensation............. -- 48 981
Changes in assets and liabilities:
Accounts receivable................................... (2,225) 2,225 --
Other current assets.................................. 1 (111) (489)
Other assets.......................................... -- (28) (27)
Accounts payable...................................... 237 2,316 (478)
Accrued clinical costs................................ 632 678 (394)
Other accrued liabilities............................. 861 2,440 (2,873)
Amount payable to contract partner.................... -- -- 1,677
Deferred revenue...................................... 1,705 (967) (738)
------- -------- --------
Net cash used in operating activities............... (2,660) (9,292) (24,716)
Investing activities
Capital expenditures...................................... (1,589) (597) (2,523)
Purchases of short-term investments....................... -- -- (14,862)
Maturities of short-term investments...................... -- -- 2,295
------- -------- --------
Net cash used in investing activities..................... (1,589) (597) (15,090)
Financing activities
Proceeds from issuance of preferred stock, net of issuance
costs.................................................... 19,427 19,028 27,457
Proceeds from issuance of common stock.................... 3 39 93
Proceeds from equipment financing......................... 1,131 397 2,033
Payments on equipment financing........................... (246) (485) (784)
------- -------- --------
Net cash provided by financing activities............... 20,315 18,979 28,799
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 16,066 9,090 (11,007)
Cash and cash equivalents at beginning of period............ 4,713 20,779 29,869
------- -------- --------
Cash and cash equivalents at end of period.................. $20,779 $ 29,869 $ 18,862
======= ======== ========
Supplemental disclosure of cash flow information
Interest paid............................................... $ 94 $ 172 $ 166
</TABLE>
See accompanying notes.
F-6
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
IntraBiotics Pharmaceuticals, Inc. ("IntraBiotics" or the "Company"), was
incorporated in the state of Delaware on January 19, 1994. IntraBiotics develops
and intends to commercialize novel antibacterial and antifungal drugs for the
prevention or treatment of serious infectious diseases. The Company has devoted
substantially all of its efforts and resources since incorporation to research
and development related to its antimicrobial products.
REVERSE STOCK SPLIT
On February 28, the Company effected a one-for-two reverse split of its
common stock. All common share and per share amounts have been retroactively
restated to reflect the split in the accompanying financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes, including amounts accrued for clinical trial costs. Actual
results could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash equivalents and
short-term investments include money market funds, commercial paper, and
government and commercial debt securities. All cash equivalents and short-term
investments are classified as available-for-sale and mature within one year.
Available-for-sale securities are carried at amortized cost, which approximated
fair value at December 31, 1998 and 1999. Material unrealized gains and losses,
if any, are reported in stockholders' equity and included in other comprehensive
loss. Fair value is estimated based on available market information. The cost of
securities sold is based on the specific identification method. For the years
ended December 31, 1998 and 1999, gross realized gains and losses on
available-for-sale securities were immaterial.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, including cash and cash
equivalents, short-term investments, and equipment financing approximate their
carrying value. The fair value of the equipment financing is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation,
which is provided using the straight-line method over the estimated useful lives
of the respective assets, generally three to five years. Leasehold improvements
are depreciated over the terms of the building leases of up to seven years.
F-7
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
Contract revenue from collaboration research and development reimbursement
funding has been recognized as earned, according to the terms of the
collaboration agreement, and is based on contract expenses incurred during the
period and the number of full-time equivalent employees working on the contract.
These funds were generally received in advance and were recorded as deferred
revenue until earned. Revenue related to license fees with noncancelable,
nonrefundable terms and no significant future performance obligations were
recognized upon execution of the collaboration agreement when collection was
assured. Revenue associated with milestones was recognized as earned, based on
completion of development milestones, either upon receipt, or when collection
was assured.
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101 "Revenue Recognition." The Company is evaluating
the impact of SAB 101 on its financial statements and its future revenue
recognition policy, but does not believe the application of SAB 101 to its
financial statements will result in a material change upon adoption in the first
quarter of 2000.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Research and development expenses, including direct and allocated expenses,
consist of independent research and development costs, costs associated with
collaborative research and development arrangements, and, in 1998, license fees
related to the acquisition of in-process research and development with no
alternative future use.
STOCK-BASED COMPENSATION
The Company has elected to account for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"), using an intrinsic value approach to
measure compensation expense, if any. Deferred stock compensation calculated
according to APB 25 is amortized over the vesting period of the options, ranging
from four to six years, on a straight-line basis. Appropriate pro forma net loss
disclosures using a fair value-based method, as provided by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), are also reflected in Note 6. Options issued to
nonemployees are accounted for in accordance with SFAS 123 and EITF Consensus
96 -18 using a fair value approach, and the compensation cost of such options is
subject to remeasurement over their vesting terms, as the options are earned.
COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The
Company's comprehensive loss was not materially different from the net loss for
the years ended December 31, 1997, 1998, and 1999.
F-8
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NET LOSS PER SHARE
Net loss per share has been computed according to Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" ("SFAS 128"), which
requires disclosure of basic and diluted earnings per share. Basic and diluted
earnings per share is calculated using the weighted-average number of shares of
common stock outstanding during the period, less shares subject to repurchase.
Diluted earnings per share includes the impact of potentially dilutive
securities. As the Company's potentially dilutive securities (convertible
preferred stock, stock options, and warrants) were antidilutive for all periods,
they were not included in the computation of weighted-average shares used in
computing diluted net loss per share. Pro forma basic and diluted net loss per
common share, as presented in the statements of operations, has been computed
for the year ended December 31, 1999 as described above, and also gives effect
to the conversion of the convertible preferred stock which will automatically
convert to common stock immediately prior to the completion of the Company's
initial public offering (using the if-converted method) from the original date
of issuance.
Following the guidance given by the Securities and Exchange Commission Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock that
has been issued or granted for nominal consideration prior to the anticipated
effective date of the initial public offering must be included in the
calculation of basic and diluted net loss per common share as if these shares
had been outstanding for all periods presented. To date, the Company has not
issued or granted shares for nominal consideration.
The following is a reconciliation of the numerator and denominator of basic
and diluted net loss per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Basic and diluted:
Net loss.................................................. $(4,075) $(17,382) $(23,115)
======= ======== ========
Weighted-average shares of common stock outstanding....... 783 856 1,069
Less: weighted-average shares subject to repurchase....... (145) (24) --
------- -------- --------
Weighted-average shares used in computing basic and
diluted net loss per share............................... 638 832 1,069
======= ======== ========
Basic and diluted net loss per share........................ $ (6.39) $ (20.89) $ (21.62)
======= ======== ========
Pro forma basic and diluted:
Shares used above......................................... 1,069
Pro forma adjustment to reflect weighted-average effect of
assumed conversion of preferred stock from the date of
issuance................................................. 17,103
--------
Total weighted-average shares of common stock outstanding
pro forma................................................. 18,172
========
Basic and diluted pro forma loss per share.................. $ (1.27)
========
</TABLE>
F-9
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The total number of shares excluded from the calculations of diluted net
loss per share, prior to application of the treasury stock method for options,
warrants and convertible preferred stock was 14,147,012, 18,462,550, and
24,165,796 for the years ended December 31, 1997, 1998, and 1999, respectively.
Such securities, had they been dilutive, would have been included in the
computations of diluted net loss per share (see Note 6 for further information
on these securities).
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS 133"), which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as "derivatives") and for hedging
activities. SFAS 133 (as deferred by SFAS 137) is effective for the Company's
year ending December 31, 2001. As the Company does not currently hold
derivatives or engage in hedging transactions, there would be no current impact
to the Company's results of operations, financial position, or cash flows upon
the adoption of SFAS 133.
3. COLLABORATION AGREEMENT WITH PHARMACIA & UPJOHN S.p.A.
In October 1997, the Company entered into a collaboration agreement with
Pharmacia & Upjohn S.p.A. ("Pharmacia"), to develop and commercialize the
Company's Protegrin IB-367, on a worldwide basis. The Company was to receive up
to $35,000,000 in research and milestone payments, if specified research and
development goals were achieved, an equity investment, and license fees. A
nonrefundable license fee of $2,000,000 associated with the transfer of
development and commercialization rights to Pharmacia was received and
recognized as revenue in 1997. A nonrefundable development milestone of
$1,000,000 was received and recognized as revenue in 1998.
Pharmacia shared equally with the Company the costs of developing Protegrin
IB-367 for the United States market. Both parties had the right to codevelop,
copromote, and share defined profits and losses in the United States, should
IB-367 result in a marketable drug. Pharmacia had the right to develop and
promote Protegrin IB-367 outside the United States and would pay the Company
royalties on defined profits, if any. The Company recognized research contract
revenues of $3,507,000, $5,357,000, and $7,863,000 in 1997, 1998, and 1999,
respectively, relating to the reimbursement of shared development costs.
In connection with the collaboration, the Company sold to Pharmacia 500,000
shares of Series F preferred stock at $4.00 per share for an aggregate purchase
price of $2,000,000 in 1997.
The Company mutually agreed with Pharmacia in July 1999 to terminate the
agreement with funding through December 31, 1999. As a result of the
termination, the Company has retained global rights to Protegrin IB-367.
Pharmacia has no further obligations to pay future milestones or development
expenses, or to purchase additional shares of common stock subsequent to the
termination. Approximately $1.7 million of unused development funding will be
returned to Pharmacia.
F-10
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Machinery and equipment........................... $1,802 $ 2,753
Furniture and fixtures............................ 116 320
Construction in progress.......................... 34 --
Leasehold improvements............................ 970 2,372
------ -------
2,922 5,445
Less accumulated depreciation and amortization.... (877) (1,617)
------ -------
Property and equipment, net....................... $2,045 $ 3,828
====== =======
</TABLE>
5. LEASE COMMITMENTS AND EQUIPMENT FINANCING ARRANGEMENTS
The Company leases its facilities under operating lease agreements which
expire in December 2001 and July 2004. At December 31, 1999, the Company has
made available letters of credit for $350,000 in connection with these leases.
Total rent expense for the years ended December 31, 1997, 1998, and 1999 was
approximately $342,000, $502,000, and $786,000, respectively.
The Company has financed an aggregate of $2,251,000 and $4,284,000 at
December 31, 1998 and 1999, respectively, of property and equipment purchases
with borrowings under equipment financing agreements. The loans are secured by
the related assets. The total availability under the equipment financing
agreements was $5,500,000, of which $967,000 remains available through
February 29, 2000 and $249,000 expired unused. The interest rates applicable to
the obligations range from 9.9% to 13.7% at December 31, 1999, and the weighted
average interest rate during each of 1998 and 1999 was 10.9%. The carrying value
of the obligations approximates fair value based on a discounted cash flow
analysis using the Company's incremental borrowing rate for similar obligations.
At December 31, 1999, future minimum lease payments under operating leases
and principal payments under the equipment financing arrangements are as follows
(in thousands):
<TABLE>
<CAPTION>
Operating Financing
Leases Arrangements
--------- ------------
<S> <C> <C>
2000................................................ $1,050 $ 896
2001................................................ 838 822
2002................................................ 860 764
2003................................................ 873 139
2004................................................ 462 --
------ ------
Total minimum payments required..................... $4,083 2,621
======
Less current portion................................ (896)
------
Long-term portion................................... $1,725
======
</TABLE>
F-11
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. LEASE COMMITMENTS AND EQUIPMENT FINANCING ARRANGEMENTS (Continued)
In August 1999, the Company entered into a term loan agreement with Silicon
Valley Bank for $5,000,000. The loan agreement has a revolving draw period
expiring in August 2000, and bears interest at prime plus 1.25%. Interest-only
payments are due until August 2000, and thereafter principal and interest is
payable thereafter over four years. The term loan also includes various
financial covenents and a restriction on paying dividends. No amounts had been
drawn under this arrangement at December 31, 1999.
6. STOCKHOLDERS' EQUITY
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Shares of common stock of the Company reserved for future issuance at
December 31, 1999 were as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock................... 19,741,900
Stock option plan........................................... 3,870,397
Warrants.................................................... 677,000
----------
24,289,297
==========
</TABLE>
CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 40,937,873 shares of convertible
preferred stock at December 31, 1999. Each share of convertible preferred stock
has voting rights equal to shares of common stock on an "if-converted" basis.
The convertible preferred stock authorized, issued and outstanding at
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Shares Issued Aggregate
Shares and Liquidation
Authorized Outstanding Preference
----------- ------------- -----------
(In
thousands)
<S> <C> <C> <C>
Series A.............................. 821,429 821,429 $ 411
Series B.............................. 5,803,996 5,749,996 4,025
Series C.............................. 9,816,181 9,816,181 8,344
Series D.............................. 5,764,286 5,714,286 10,000
Series E.............................. 2,725,000 2,725,000 7,494
Series F.............................. 750,000 750,000 3,000
Series G.............................. 7,656,981 7,656,981 22,971
Series H.............................. 7,600,000 6,250,000 25,000
---------- ---------- -------
40,937,873 39,483,873 $81,245
========== ========== =======
</TABLE>
Series A, B, C, D, E, F, G, and H stockholders are entitled to noncumulative
quarterly dividends, when and as declared by the board of directors, at the rate
of $0.04, $0.06, $0.07, $0.15, $0.23, $0.35, $0.25, and $0.35 per share,
respectively (as adjusted for any stock dividends, combinations, or splits with
respect to such shares). No dividends have been declared or paid by the Company.
F-12
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (Continued)
In the event of a liquidation or winding up of the Company, holders of
Series A, B, C, D, E, F, G, and H stockholders are entitled to a liquidation
preference of $0.50, $0.70, $0.85, $1.75, $2.75, $4.00, $3.00, and $4.00 per
share, respectively, plus all declared but unpaid dividends. After payment has
been made to the preferred stockholders, the remaining assets of the Company
legally available for distribution, if any, shall be distributed ratably to the
holders of the common stock and preferred stock on an if-converted basis.
Each two shares of preferred stock are convertible at any time at the option
of the holder into one share of common stock adjusted, if applicable, for unpaid
dividends, stock splits, combinations, and certain other events. Conversion of
the preferred stock into common stock is automatic at the earlier of an initial
public offering in excess of $25,000,000 at an offering price of not less than
$12.00 per share (subsequently reduced to $10.00 per share in January 2000), or
the election by more than 66 2/3% of the shares held by the preferred
stockholders, voting together as a class.
At the election of the holders of at least 50% of the outstanding preferred
stock, the Company shall file a registration statement with an aggregate
offering price to the public in excess of $3,000,000.
Prior to an initial public offering, certain preferred stockholders have the
right of first refusal with respect to certain future issuances of preferred or
common stock.
WARRANTS
In July 1995 and October 1997, the Company issued warrants to purchase
54,000 and 50,000 shares of the Company's Series B and D preferred stock at
exercise prices of $1.00 and $2.50 per share, respectively. These warrants were
issued in connection with an equipment financing agreement. The 1995 warrants
expire on the earlier of July 2001 or the sale of substantially all of the
Company's assets. The 1997 warrants expire on the earlier of October 2003 or the
closing of the Company's initial public offering, the merger of the Company with
or into another corporation and the sale of substantially all of the Company's
assets. The value assigned to these warrants was not material.
In October 1999, the Company issued warrants to purchase 1,250,000 shares of
the Company's Series H preferred stock at an exercise price of $5.00 per share.
These warrants were issued in connection with the Series H preferred stock
financing, and expire on December 31, 2001. The value of these warrants is
included with the Series H preferred stock issued on that date.
Through December 31, 1999, no warrants have been exercised.
1995 INCENTIVE STOCK PLAN
The 1995 Incentive Stock Plan (the "Plan") was amended and restated in 1999
and allows the granting of options for up to 4,523,554 shares of common stock to
employees, consultants, and directors.
Stock options granted under the Plan may be either incentive stock options
or nonstatutory stock options. Incentive stock options may be granted to
employees with exercise prices of no less than the fair value and nonstatutory
options not less than 85% of the fair value of the common stock on the date of
grant, as determined by the board of directors. All options are to have a term
F-13
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (Continued)
not greater than 10 years from the date of grant. The board of directors shall
determine the time or times during the term when the options may be exercised
and the number of shares for which an option may be granted. Options generally
vest ratably over a period ranging from four to six years.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at December 31, 1996....................... 935,575 $0.17
Granted.......................................... 527,650 $0.45
Exercised........................................ (17,446) $0.19
Canceled......................................... (14,194) $0.27
---------
Balance at December 31, 1997....................... 1,431,585 $0.27
Granted.......................................... 1,128,800 $0.99
Exercised........................................ (205,253) $0.19
Canceled......................................... (138,650) $0.53
---------
Balance at December 31, 1998....................... 2,216,482 $0.63
Granted.......................................... 2,160,782 $1.54
Exercised........................................ (338,124) $0.27
Canceled......................................... (292,244) $0.92
---------
Balance at December 31, 1999....................... 3,746,896 $1.16
=========
</TABLE>
At December 31, 1997, 1998, and 1999, options to purchase 520,298, 690,253,
and 818,569 shares, respectively, of common stock were exercisable. The
following tables summarize information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------- -------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number of Remaining Average Exercise Number of Average Exercise
Exercise Price Shares Contractual Life Price Shares Price
- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(Years)
<S> <C> <C> <C> <C> <C>
$0.10-$0.90 765,207 6.4 $0.31 570,900 $0.28
$1.00-$1.00 1,210,907 8.5 $1.00 194,590 $1.00
$1.50-$1.50 1,276,182 9.6 $1.50 51,258 $1.50
$2.00-$2.00 494,600 10.0 $2.00 1,821 $2.00
----------------- -----------------
3,746,896 8.6 $1.16 818,569 $0.53
================= =================
</TABLE>
The weighted-average fair value of options granted during 1997, 1998, and
1999 was $0.05, $0.09, and $5.50, respectively.
F-14
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (Continued)
Pro forma information regarding net income (loss) is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using the minimum value method with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Risk-free interest rates....................... 6.5% 5.0% 5.5%
Dividend yield................................. -- -- --
Expected life of option........................ 4 years 4 years 4.5 years
</TABLE>
Pro forma net loss information applying the minimum value method to the
Company's stock options granted in 1997, 1998, and 1999 is as follows. Future
pro forma net income (loss) results may be materially different from actual
amounts reported.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss--as reported......................... $(4,075) $(17,382) $(23,115)
Net loss--pro forma........................... $(4,096) $(17,429) $(25,172)
Basic and diluted net loss per share--as
reported.................................... $ (6.39) $ (20.89) $ (21.62)
Basic and diluted net loss per share--pro
forma....................................... $ (6.42) $ (20.95) $ (23.55)
</TABLE>
During the years ended December 31, 1998 and 1999, in connection with the
grant of certain stock options to employees and officers, the Company recorded
deferred stock compensation of $1,193,000 and $12,486,000, respectively,
representing the difference between the exercise price and the deemed fair value
of the Company's common stock for financial reporting purposes on the date such
stock options were granted. The deemed fair value of the common stock was
determined based on an analysis of key events and milestones in our research and
development programs, including progress with clinical studies and FDA
regulatory matters, and the closing of preferred stock financings. The weighted
average deemed fair value of the common stock associated with stock options
granted during the years ended December 31, 1998 and 1999 and for January 2000
was $2.11, $7.66 and $10.40 (unaudited) per share, respectively. Deferred
compensation is included as a component of stockholders' equity and is being
amortized to expense on a straight-line basis over the vesting period of the
options, ranging from four to six years. During the years ended December 31,
1998 and 1999, the Company recorded amortization of deferred stock compensation
expense of approximately $48,000 and $981,000, respectively. Additional deferred
compensation of approximately $2,100,000 (unaudited) is expected to be recorded
based on the deemed fair value of common stock options granted to employees
during January 2000.
7. LICENSING, RESEARCH, AND TECHNOLOGY CONTRACTS
The Company has entered into agreements with academic institutions under
which it obtained certain licenses to technology under development. In exchange
for the licenses, the Company made certain payments, and agreed to pay the
institutions additional amounts and specified royalties upon the occurrence of
certain events. The academic institutions may terminate the agreements upon the
occurrence of certain events.
F-15
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. LICENSING, RESEARCH, AND TECHNOLOGY CONTRACTS (Continued)
From 1994 to 1997, the Company entered into a series of agreements with The
Regents of the University of California under which it obtained certain licenses
to its protegrin technology under development. In consideration for the license,
the Company has made certain payments totaling $75,000, and agreed to pay The
Regents of the University of California additional amounts and specified
royalties upon occurrence of certain events related to the development of the
technology. These events include commencement of clinical trials, drug
approvals, and product sales.
In January 1997, the Company entered into an agreement with PolyPeptide
Laboratories A/S to develop a manufacturing process for its drug substance
Protegrin IB-367 and was obligated to pay up to $2,895,000 based upon
achievement of certain development milestones. The Company also entered into a
related purchase and supply agreement with PolyPeptide. For the years ended
December 31, 1997, 1998, and 1999, the Company has incurred milestone payments
of approximately $910,000, $1,025,000 and $760,000, respectively, under the
agreement, which were charged to research and development expense.
During 1998, the Company recorded $2,000,000 in license fee expense in
connection with the purchase of rights from Biosearch Italia S.P.A to develop
and commercialize Ramoplanin, which was a phase I clinical-stage product
candidate. At the date of the agreement, the full scientific feasibility of the
product candidate had not been established. The Company is responsible for the
development of the licensed product. Biosearch Italia has agreed to manufacture
all Company bulk product requirements for development and commercialization at
an agreed to transfer price and royalty percentage, although the Company has the
ability to elect to manufacture the product. The purchase price, which was
expensed as in-process research and development as the rights had no alternative
future use, consisted of the issuance of 250,000 shares of Series F preferred
stock at $4.00 per share and $1,000,000 in cash. In 1998, the Company incurred a
milestone of $2,000,000 for the commencement of the phase II clinical trial. The
Company may pay up to an additional $12,000,000 in license fees and milestone
payments, if specified research and development goals are reached. The goals
that will result in additional payments include commencement of clinical trials,
drug approvals, and product sales. The Company expects to expense any of such
future payments made prior to receipt of FDA marketing approval as research and
development expense, and payments made upon or after FDA approval are expected
to be capitalized and amortized over the applicable benefit period.
8. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $46,000,000 and $23,000,000, respectively.
The Company also had federal research and development tax credit carryforwards
of approximately $1,000,000. The net operating loss and credit carryforwards
will expire at various dates beginning on 2002 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 the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
F-16
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
----------- --------
<S> <C> <C>
Net operating loss carryforwards..................... $ 11,000 $ 17,300
Research credits..................................... 1,100 1,300
Capitalized research and development................. 500 1,200
Intangible assets.................................... -- 1,500
Other................................................ -- (200)
-------- --------
Total deferred tax assets............................ 12,600 21,100
Valuation allowance.................................. (12,600) (21,100)
-------- --------
Net deferred tax assets.............................. $ -- $ --
======== ========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $2,000,000, $7,400,000 and $8,500,000 during the years ended
December 31, 1997, 1998 and 1999, respectively.
9. EVENTS SUBSEQUENT TO THE DATE OF INDEPENDENT AUDITORS' REPORT
PUBLIC OFFERING
In January 2000, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
8,625,000 shares of its common stock in connection with a proposed initial
public offering. If the offering is consummated under the terms currently
anticipated, the convertible preferred stock outstanding as of the closing date
will be converted into shares of the Company's common stock. The pro forma
stockholders' equity in the accompanying balance sheet as of December 31, 1999
reflects conversion of the outstanding preferred stock into 19,741,900 shares of
common stock.
2000 EQUITY INCENTIVE PLAN
In January 2000, the board adopted the 2000 Equity Incentive Plan (the
"equity incentive plan") which was approved by stockholders in February 2000.
The aggregate number of shares that may be issued pursuant to stock awards
granted under the equity incentive plan is 5,000,000 shares. On December 31 of
each year, beginning on December 31, 2000, through December 31, 2008, the
authorized shares will automatically be increased by a number of shares equal to
the lesser of:
- 5% of the then outstanding shares of common stock on a fully-diluted
basis;
- 2,000,000 shares; or
- a lesser number of shares determined by the board of directors prior to
each anniversary date.
F-17
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. EVENTS SUBSEQUENT TO THE DATE OF INDEPENDENT AUDITORS' REPORT (Continued)
2000 EMPLOYEE STOCK PURCHASE PLAN
In January 2000, the board adopted the 2000 Employee Stock Purchase Plan
(the "purchase plan"), which was approved by stockholders in February 2000,
authorizing the issuance of 500,000 shares of common stock pursuant to purchase
rights granted to employees.
On December 31 of each year, starting with December 31, 2000 through
December 31, 2008, the share reserve will automatically be increased by a number
of shares equal to the lesser of:
- 1% of the then outstanding shares of common stock on a fully diluted
basis;
- 500,000 shares; or
- a lesser number of shares to be determined by the board of directors.
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. As of the date hereof, no shares of common stock have been purchased
under the purchase plan.
The purchase plan permits eligible employees to purchase common stock at a
discount, but only through payroll deductions, during defined offering periods.
The price at which stock is purchased under the purchase plan is equal to 85% of
the fair market value of the common stock on the first or last day of the
offering period, whichever is lower. The initial offering period will commence
on the effective date of the offering.
FACILITIES LEASE AGREEMENT
In February 2000, the Company entered into a lease agreement for two
additional facilities. This lease expires in 2011, and the Company has the right
to extend the term for an additional period of 5 years. Future minimum payments
under the lease are $1,047,000 in 2000 and $3,366,000 in 2001. Payments in
future years range from $4,620,000 per year in 2002 to $5,952,000 per year in
2011.
F-18
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. We are offering to sell, and seeking offers to buy, shares of
common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Summary................................... 1
Risk Factors.............................. 5
Special Note Regarding Forward-Looking
Statements and Industry Data............ 14
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Financial Data................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 19
Business.................................. 24
Management................................ 39
Certain Transactions...................... 50
Principal Stockholders.................... 53
Description of Capital Stock.............. 56
Shares Eligible for Future Sale........... 59
Underwriting.............................. 61
Legal Matters............................. 64
Experts................................... 64
Where You Can Find Additional
Information............................. 64
Index to Financial Statements............. F-1
</TABLE>
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. Dealers are also
obligated to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
[LOGO]
7,500,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Warburg Dillon Read LLC
SG Cowen
Adams, Harkness & Hill, Inc.
Prospectus
, 2000
<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 the
underwriting discounts 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>
<S> <C>
SEC registration fee........................................ $ 34,155
NASD filing fee............................................. 13,438
Nasdaq National Market listing fee.......................... 95,000
Blue Sky Fees and expenses.................................. 5,000
Transfer Agent and Registrar fees........................... 10,000
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 450,000
Printing and engraving costs................................ 165,000
Miscellaneous expenses...................................... 27,407
----------
Total..................................................... $1,050,000
==========
</TABLE>
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- for any breach of duty of loyalty to us or to our stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payment of dividends or unlawful stock repurchases or
redemptions under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and officers and may indemnify our employees and
agents to the fullest extent permitted by Delaware law. We believe that
indemnification under our amended and restated certificate of incorporation
covers negligence and gross negligence on the part of indemnified parties.
We have entered into indemnification agreements with each of our directors
and officers. These agreements, among other things, require us to indemnify each
director and officer for certain expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by or in the right of IntraBiotics
Pharmaceuticals, Inc., arising out of the person's services as our director or
officer, any subsidiary of ours or any other company or enterprise to which the
person provides services at our request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of IntraBiotics Pharmaceuticals, Inc., our directors, our
officers who sign the registration statement, and our controlling persons for
some liabilities, including liabilities arising under the Securities Act.
II-1
<PAGE>
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth information regarding all securities sold by
the Registrant since January 1, 1997:
1. In April 1997, we issued and sold 5,714,286 shares of Series D preferred
stock, each two of which will convert into one share of common stock upon
completion of this offering, at $1.75 per share to 17 accredited investors,
787,854 of which were sold to two of our executive officers and/or directors
(and related entities).
2. In October 1997, we issued a warrant to purchase 50,000 shares of Series D
preferred stock, which will convert into a warrant to purchase shares of
common stock upon the completion of this offering, to one accredited
investor, at an exercise price of $2.50 per share.
3. In October 1997, we issued and sold 2,725,000 shares of Series E preferred
stock, each two of which will convert into one share of common stock upon
completion of this offering, at $2.75 per share to five accredited
investors.
4. In October 1997 and May 1998, we issued and sold 500,000 and 250,000 shares
of Series F preferred stock, respectively, each two of which will convert
into one share of common stock upon completion of this offering, at $4.00
per share to two accredited investors.
5. In November 1998, December 1998 and January 1999, we issued and sold
6,197,315, 614,000 and 845,666 shares of Series G preferred stock,
respectively, each two of which will convert into one share of common stock
upon completion of this offering, at $3.00 per share to 62 accredited
investors, 1,833,334 of which were sold to one of our executive officers
and/or directors (and related entities).
6. In October 1999, we issued and sold 6,250,000 shares of Series H preferred
stock, each two of which will convert into one share of common stock upon
completion of this offering, at $4.00 per share to four accredited
investors, 5,500,000 of which were sold to one of our executive officers
and/or directors (and related entities).
7. In October 1999, we issued warrants to purchase an aggregate of 1,250,000
shares of Series H preferred stock, which will convert into warrants to
purchase shares of common stock upon the completion of this offering, to
four accredited investors, at an exercise price of $5.00 per share. One
warrant to purchase 1,100,000 shares was issued to one of our executive
officers/directors (and related entities).
8. Between January 1, 1997 and February 25, 2000, we granted options to
purchase an aggregate of 4,152,982 shares of common stock at exercise prices
ranging from $0.20 to $4.00 per share with a weighted exercise price of
$1.45 per share.
The sales and issuances of common stock made pursuant to the exercise of
stock options granted under the 1995 Incentive Stock Plan to our officers,
directors, employees and consultants as described in paragraph (8) above were
made in reliance on Rule 701 promulgated under the Securities Act.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (7) above were made in reliance of Rule 506 of
Regulation D promulgated under the Securities Act. These sales were made without
general solicitation or advertising. Each purchaser was a sophisticated investor
with access to all relevant information necessary to evaluate the investment and
represented to the Registrant that the shares were being acquired for
investment.
II-2
<PAGE>
Item 16. (A) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Exhibit
Number Description
- ----------------------- ------------------------------------------------------------
1.1* Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2+ Form of Certificate of Amendment of Certificate of
Incorporation.
3.3+ Form of Amended and Restated Certificate of Incorporation,
to be filed prior to the closing of this offering.
3.4+ Form of Amended and Restated Certificate of Incorporation,
to be filed upon the closing of this offering.
3.5+ Bylaws, as currently in effect.
3.6+ Form of Bylaws to be effective upon the closing of this
offering.
4.1 Specimen Common Stock Certificate.
4.2+ Amended and Restated Investor Rights Agreement, dated
October 15, 1999.
5.1* Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement.
10.2+ Amended and Restated 1995 Stock Option Plan and related
documents.
10.3+ 2000 Equity Incentive Plan and related documents.
10.4++ Purchase Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997.
10.5++ Development Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997.
10.6++ Second Amendment to the License Agreement by and
IntraBiotics and The Regents of the University of California
dated June 12, 1996.
10.7++ Third Amendment to the License Agreement by and between
IntraBiotics and The Regents of the University of California
dated September 16, 1997.
10.8++ License and Supply Agreement by and between IntraBiotics and
Biosearch Italia S.p.A. dated May 8, 1998.
10.9 2000 Employee Stock Purchase Plan and related documents.
10.10+ Lease by and between IntraBiotics and 1245 Terra Bella
Partners dated April 30, 1997.
10.11+ Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated July 31, 1998 and First Amendment to
Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated August 12, 1998.
10.12+ Financing Agreement by and between IntraBiotics and G.E.
Capital Equipment dated March 15, 1999.
10.13+ Loan and Security Agreement by and between IntraBiotics and
Silicon Valley Bank dated August 25, 1999.
10.14+ Warrant to Purchase Series H Preferred Stock dated October
15, 1999 to Investor (Guernsey) Ltd.
10.15+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Vulcan Ventures, Inc.
10.16+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to New England Partners Capital, Inc.
10.17+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Jonathan Reingold.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.18+ Warrant to Purchase Series D Preferred Stock dated
October 10, 1997 to Lease Management Services, Inc.
10.19+ Warrant to Purchase Series B Preferred Stock dated July 20,
1995 to Lease Management, Inc.
10.20 Lease Agreement by and between IntraBiotics and
EOP-Shoreline Technology Park, LLC dated February 7, 2000
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney (contained on signature page).
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
++ Confidential treatment requested with respect to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
Item 17. UNDERTAKINGS
The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1993, as amended, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Mountain View, State
of California on the 29(th) day of February, 2000.
<TABLE>
<S> <C> <C>
INTRABIOTICS PHARMACEUTICALS INC.
By: /s/ KENNETH J. KELLEY
-----------------------------------------
Kenneth J. Kelley
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ KENNETH J. KELLEY President, Chief Executive
-------------------------------------- Officer and Director February 29, 2000
Kenneth J. Kelley (Principal Executive Officer)
*
-------------------------------------- Controller (Principal Financial February 29, 2000
Russell L. Hughes and Accounting Officer)
*
-------------------------------------- Director February 29, 2000
Jane E. Shaw
*
-------------------------------------- Director February 29, 2000
Michael F. Bigham
*
-------------------------------------- Director February 29, 2000
Fritz Buhler
*
-------------------------------------- Director February 29, 2000
Gary A. Lyons
*
-------------------------------------- Director February 29, 2000
Kathleen D. LaPorte
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
*
-------------------------------------- Director February 29, 2000
Liza Page Nelson
*
-------------------------------------- Director February 29, 2000
John M. Padfield
*
-------------------------------------- Director February 29, 2000
Jack S. Remington
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ KENNETH J. KELLEY
--------------------------------------
Attorney-in-fact
</TABLE>
II-6
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ----------------------------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation, as
currently in effect.
3.2+ Form of Certificate of Amendment of Certificate of
Incorporation.
3.3+ Form of Amended and Restated Certificate of Incorporation,
to be filed prior to the closing of this offering.
3.4+ Form of Amended and Restated Certificate of Incorporation,
to be filed upon the closing of this offering.
3.5+ Bylaws, as currently in effect.
3.6+ Form of Bylaws to be effective upon the closing of this
offering.
4.1 Specimen Common Stock Certificate.
4.2+ Amended and Restated Investor Rights Agreement, dated
October 15, 1999.
5.1* Opinion of Cooley Godward LLP.
10.1+ Form of Indemnity Agreement.
10.2+ Amended and Restated 1995 Stock Option Plan and related
documents.
10.3+ 2000 Equity Incentive Plan and related documents.
10.4++ Purchase Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997.
10.5++ Development Supply Agreement by and between IntraBiotics and
Polypeptide dated January 3, 1997.
10.6++ Second Amendment to the License Agreement by and
IntraBiotics and The Regents of the University of California
dated June 12, 1996.
10.7++ Third Amendment to the License Agreement by and between
IntraBiotics and The Regents of the University of California
dated September 16, 1997.
10.8++ License and Supply Agreement by and between IntraBiotics and
Biosearch Italia S.p.A. dated May 8, 1998.
10.9 2000 Employee Stock Purchase Plan and related documents.
10.10+ Lease by and between IntraBiotics and 1245 Terra Bella
Partners dated April 30, 1997.
10.11+ Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated July 31, 1998 and First Amendment to
Standard Industrial/Commercial Single Tenant Lease by and
between IntraBiotics and Clint S. Carter and Esther Carter
Family Trust dated August 12, 1998.
10.12+ Financing Agreement by and between IntraBiotics and G.E.
Capital Equipment dated March 15, 1999.
10.13+ Loan and Security Agreement by and between IntraBiotics and
Silicon Valley Bank dated August 25, 1999.
10.14+ Warrant to Purchase Series H Preferred Stock dated October
15, 1999 to Investor (Guernsey) Ltd.
10.15+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Vulcan Ventures, Inc.
10.16+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to New England Partners Capital, Inc.
10.17+ Warrant to Purchase Series H Preferred Stock dated
October 15, 1999 to Jonathan Reingold.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.18+ Warrant to Purchase Series D Preferred Stock dated
October 10, 1997 to Lease Management Services, Inc.
10.19+ Warrant to Purchase Series B Preferred Stock dated July 20,
1995 to Lease Management, Inc.
10.20 Lease Agreement by and between IntraBiotics and
EOP-Shoreline Technology Park, LLC dated February 7, 2000
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1+ Power of Attorney (contained on signature page).
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
++ Confidential treatment requested with respect to certain portions of this
exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
<PAGE>
NUMBER [LOGO] SHARES
I N T R A B I O T I C S
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 46116T 10 0
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.001 PAR VALUE OF
- ----------------------INTRABIOTICS PHARMACEUTICALS, INC.-----------------------
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON
OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE
SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED:
[INTRABIOTICS PHARMACEUTICALS, INC.
CORRPORATE SEAL
JAN. 19, 1994
DELAWARE]
/s/ Robert L. Jones /s/ Kenneth J. Kelley
CORPORATE SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
PO BOX 1598
DENVER, COLORADO 88901
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION SHALL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF
THE CORPORATION OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUESTS SHALL BE MADE TO
THE CORPORATION'S SECRETARY AT THE PRINCIPAL OFFICE OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-- ........................ Custodian ........................
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to
JT TEN -- as joint tenants with right of Minors Act.................................................
survivorship and not as tenants (State)
in common UNIF YRF MIN ACT -- ....................... Custodian (under age...............)
(Cust)
....................................under Uniform Transfere
(Minor)
of Minor Act ..............................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________________ HEREBY SELL(S), ASSIGN(S) AND
TRANSFER(S) UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
//////////////////////////////////////
/ /
//////////////////////////////////////
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
_______________________________________________________________________ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ____________________
X _____________________________________________
X _____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
By____________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. FILE 17/AC-15.
<PAGE>
EXHIBIT 10.9
INTRABIOTICS PHARMACEUTICALS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
APPROVED BY THE BOARD OF DIRECTORS JANUARY 25, 2000
APPROVED BY STOCKHOLDERS FEBRUARY 25, 2000
1. PURPOSE.
(a) The purpose of this 2000 Employee Stock Purchase Plan (the "Plan")
is to provide a means by which employees of IntraBiotics Pharmaceuticals, Inc.
(the "Company") and its Affiliates, as defined in subparagraph 1(b), which are
designated as provided in subparagraph 2(b), may be given an opportunity to
purchase common stock of the Company (the "Common Stock").
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
1.
<PAGE>
exercise of this power, may correct any defect, omission or inconsistency in the
Plan, in a manner and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) To terminate or suspend the Plan as provided in paragraph
15.
(vi) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section 423
of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to
adjustments upon changes in stock and subject to the increases in the number
of reserved shares described below, the stock that may be sold pursuant to
rights granted under the Plan shall not exceed in the aggregate five hundred
thousand (500,000) shares of Common Stock (the "Reserved Shares"). On
December 31 of each year starting with December 31, 2000, and continuing
through and including December 31, 2008, the number of Reserved Shares will
be increased automatically by the lesser of (i) one percent (1%) of the total
number of shares of Common Stock outstanding on such anniversary date, (ii)
500,000 shares, or (iii) such lesser amount as approved by the Board. If any
right granted under the Plan shall for any reason terminate without having
been exercised, the Common Stock not purchased under such right shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate
2.
<PAGE>
Offerings need not be identical, but each Offering shall include (through
incorporation of the provisions of this Plan by reference in the document
comprising the Offering or otherwise) the period during which the Offering shall
be effective, which period shall not exceed twenty-seven (27) months beginning
with the Offering Date, and the substance of the provisions contained in
paragraphs 5 through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns 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 Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
3.
<PAGE>
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan; PROVIDED, HOWEVER, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
4.
<PAGE>
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's wages (including amounts
thereof elected to be deferred by the employee, that would otherwise have been
paid, under any arrangement established by the Company that is intended to
comply with Section 125, Section 401(k), Section 402(h) or Section 403(b) of the
Code or that provides non-qualified deferred compensation), which shall include
overtime pay, bonuses, incentive pay, and commissions, but shall exclude profit
sharing or other remuneration paid directly to the employee, the cost of
employee benefits paid for by the Company or an Affiliate, education or tuition
reimbursements, imputed income arising under any group insurance or benefit
program, traveling expenses, business and moving expense reimbursements, income
received in connection with stock options, contributions made by the Company or
an Affiliate under any employee benefit plan, and similar items of compensation,
as determined by the Board or the Committee. The payroll deductions made for
each participant shall be credited to an account for such participant under the
Plan and shall be deposited with the general funds of the Company. A participant
may reduce (including to zero) or increase such payroll deductions, and an
eligible employee may begin such payroll deductions, after the beginning of any
Offering only as provided for in the Offering. A participant may make additional
payments into his or her account only if specifically provided for in the
Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated employee all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have been
used to acquire stock for the terminated employee), under the Offering, without
interest.
5.
<PAGE>
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
6.
<PAGE>
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan, due to a change in corporate
capitalization and without the receipt of consideration by the Company (through
reincorporation, stock dividend, stock split, reverse stock split, combination
or reclassification of shares), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 3(a), and the outstanding rights will be appropriately adjusted in
the class(es) and number of securities and price per share of stock subject to
such outstanding rights. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive.
(b) In the event of: (1) a dissolution, liquidation or sale of all or
substantially all of the securities or assets of the Company, (2) a merger or
consolidation in which the Company is not the surviving corporation or (3) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then any surviving corporation may assume outstanding rights
or substitute similar rights for those under the Plans. In the event that no
surviving corporation assumes outstanding rights or substitutes similar rights
therefor, participants' accumulated payroll deductions shall be used to purchase
Common Stock immediately prior to the transaction described above and the
participants' rights under the ongoing Offering shall terminate immediately
following such purchase.
7.
<PAGE>
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under
the Plan;
(ii) Modify the provisions as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
16b-3")); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant 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 during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the
8.
<PAGE>
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.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at
any time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
(c) Notwithstanding the foregoing, the Plan shall terminate and no
rights may be granted under the Plan after the tenth anniversary of the
Effective Date.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective simultaneously with the effectiveness
of the Company's registration statement under the Securities Act with respect to
the initial public offering of shares of the Company's Common Stock (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date.
9.
<PAGE>
INTRABIOTICS PHARMACEUTICALS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED JANUARY 25, 2000
1. GRANT; OFFERING DATE.
(a) The Board of Directors of IntraBiotics Pharmaceuticals, Inc. (the
"Company"), pursuant to the Company's 2000 Employee Stock Purchase Plan (the
"Plan"), hereby authorizes the grant of rights to purchase shares of the common
stock of the Company ("Common Stock") to all Eligible Employees (an "Offering").
The first Offering shall begin simultaneously with the effectiveness of the
Company's registration statement under the Securities Act of 1933 with respect
to the initial public offering of the Company's Common Stock and end on June 30,
2002 (the "Initial Offering"). Offerings shall begin on the next following July
1 and thereafter every other year on July 1 and each such Offering shall end on
the day prior to the second anniversary of its Offering Date. For example, the
second Offering under the Plan shall begin on July 1, 2002 and end on June 30,
2004. The first day of an Offering is that Offering's "Offering Date." If an
Offering Date falls on a day during which the Common Stock is not actively
traded, then the Offering Date shall be the next succeeding day during which the
Common Stock is actively traded.
(b) Prior to the commencement of any Offering, the Board of Directors
(or the Committee described in subparagraph 2(c) of the Plan, if any) may change
any or all terms of such Offering and any subsequent Offerings. The granting of
rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (a) the Board of Directors (or such
Committee) determines that such Offering shall not occur, or (b) no shares
remain available for issuance under the Plan in connection with the Offering.
(c) Notwithstanding anything to the contrary, in the event that the
fair market value of a share of Common Stock on any Purchase Date during an
Offering is less than the fair market value of a share of Common Stock on the
Offering Date of such Offering, then following the purchase of Common Stock on
such Purchase Date: (i) the Offering shall terminate and (ii) all participants
in the just-terminated Offering shall automatically be enrolled in a new
Offering that shall commence on the day following the Purchase Date on the same
terms on which such participants were enrolled in the terminated Offering. Such
new Offering shall end on the day prior to the second anniversary of its
Offering Date.
2. ELIGIBLE EMPLOYEES.
All employees of the Company and each of its Affiliates (as defined in
the Plan) incorporated in the United States shall be granted rights to purchase
Common Stock under each Offering on the Offering Date of such Offering, provided
that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan (an "Eligible Employee"). Notwithstanding the
foregoing, the following employees shall not be Eligible Employees or be granted
rights under an Offering: (i) part-time or seasonal employees whose customary
employment is less than twenty (20) hours per week or less than five (5) months
per calendar
1.
<PAGE>
year, and (ii) 5% stockholders (including ownership through unexercised options)
described in subparagraph 5(c) of the Plan shall not be eligible to participate.
Each person who first becomes an Eligible Employee during any Offering
shall be granted a right to purchase Common Stock under such Offering on the
next January 1 or July 1 during such Offering, which right shall thereafter be
deemed to be a part of such Offering. Such right shall have the same
characteristics as any rights originally granted under the Offering except that:
(a) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right; and
(b) the Offering for such right shall begin on its Offering Date and
end coincident with the ongoing Offering.
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on
each Offering Date each Eligible Employee shall be granted the right to purchase
the number of shares of Common Stock purchasable with up to fifteen percent
(15%) of such Participant's Earnings (as defined in the Plan) paid during the
period of such Offering.
(b) The maximum number of shares that may be purchased by an eligible
employee on a Purchase Date shall not exceed five thousand (5,000) shares.
The maximum aggregate number of shares available to be purchased by all Eligible
Employees under an Offering shall be the number of shares remaining available
under the Plan on the Offering Date. If the aggregate purchase of shares of
Common Stock upon exercise of rights granted under the Offering would exceed the
maximum aggregate number of shares available, the Board shall make a pro rata
allocation of the shares available in a uniform and equitable manner.
(c) Notwithstanding the foregoing, no employee shall be granted an
option under the Plan which permits such employee's right to purchase stock
under this Plan and all other employee stock purchase plans (described in
Section 423 of the Code) of the Company to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of fair market value of such stock (determined
at the time such option is granted) for each calendar year in which such option
is outstanding at any time.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of (a) eighty-five percent (85%) of the fair market value of the Common
Stock on the Offering Date (or eighty-five percent (85%) of the fair market
value of the Common Stock on the first day on which the Company's Common Stock
is actively traded that immediately follows the Offering Date if an Offering
Date falls on a day during which the Company's Common Stock is not actively
traded) or (b) eighty-five percent (85%) of the fair market value of the Common
Stock on the Purchase Date (or eighty-five percent (85%) of the fair market
value of the Common Stock on the first day on which the Company's Common Stock
is actively traded that
2.
<PAGE>
immediately precedes the Purchase Date if a Purchase Date falls on a day during
which the Company's Common Stock is not actively traded).
5. PARTICIPATION.
(a) Except as otherwise provided herein or in the Plan, an Eligible
Employee may elect to begin payroll deductions under an Offering as of the
beginning of the Offering or as of the day after any Purchase Date (i.e., any
January 1 or July 1 other than July 1, 2000). Such an election shall be made by
delivering an agreement authorizing payroll deductions. Such deductions shall be
made each pay period and must be in whole percentages not to exceed fifteen
percent (15%) of Earnings. The agreement shall be made on such enrollment form
as the Company or a designated Affiliate provides and must be delivered to the
Company or designated Affiliate before the Offering Date to be effective for
such Offering, unless a later time for filing the enrollment form is set by the
Company for all Eligible Employees with respect to a given Offering Date. As to
the Initial Offering, the time for filing an enrollment form and commencing
participation for individuals who are Eligible Employees on the Offering Date
for the Initial Offering shall be determined by the Company and communicated to
such Eligible Employees. A participant may not make additional contributions
under the Plan.
(b) A participant may increase or reduce (including to zero) his or her
participation level as of any January 1 or July 1 during an Offering. Any such
change in participation shall be made by delivering a notice to the Company or a
designated Affiliate in such form and at such time as the Company provides. In
addition, a participant may withdraw from an Offering and receive his or her
accumulated payroll deductions from the Offering (reduced to the extent, if any,
such deductions have been used to acquire Common Stock for the Participant on
any prior Purchase Dates), without interest, at any time prior to the end of the
Offering, excluding the fifteen (15) day period immediately preceding the
Purchase Date, by delivering a withdrawal notice to the Company or designated
Affiliate in such form as the Company of designated Affiliate provides. A
participant who has withdrawn from an Offering shall not again participate in
such Offering but may participate in subsequent Offerings under the Plan by
submitting a new participation agreement in accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date,
each participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole shares of Common Stock, up
to the maximum number of shares permitted under the Plan and the Offering.
"Purchase Date" shall be defined as December 31, 2000, and each June 30 and
December 31 thereafter. If a Purchase Date falls on a day during which the
Common Stock is not actively traded then the Purchase Date shall be the nearest
prior day on which the Common Stock is actively traded.
7. NOTICES.
Any notices or agreements provided for in the Offering or the Plan
shall be given in writing, in a form provided by the Company, and unless
specifically provided for in the Plan or this Offering shall be deemed
effectively given upon receipt or, in the case of notices and
3.
<PAGE>
agreements delivered by the Company, five (5) days after deposit in the United
States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the stockholders of the Company as required for the Plan to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
4.
<PAGE>
SHORELINE TECHNOLOGY PARK
MOUNTAIN VIEW, CALIFORNIA
OFFICE LEASE AGREEMENT
BETWEEN
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY
("LANDLORD")
AND
INTRABIOTICS PHARMACEUTICALS, INC., A DELAWARE CORPORATION
("TENANT")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. BASIC LEASE INFORMATION.. . . . . . . . . . . . . . . . . . . . .1
II. LEASE GRANT.. . . . . . . . . . . . . . . . . . . . . . . . . . .4
III. POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
IV. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
V. COMPLIANCE WITH LAWS; USE.. . . . . . . . . . . . . . . . . . . .10
VI. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . .10
VII. SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
VIII. LEASEHOLD IMPROVEMENTS. . . . . . . . . . . . . . . . . . . . . .11
IX. REPAIRS, MAINTENANCE AND ALTERATIONS. . . . . . . . . . . . . . .11
X. USE OF UTILITY SERVICES BY TENANT.. . . . . . . . . . . . . . . .13
XI. ENTRY BY LANDLORD.. . . . . . . . . . . . . . . . . . . . . . . .13
XII. ASSIGNMENT AND SUBLETTING.. . . . . . . . . . . . . . . . . . . .13
XIII. LIENS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
XIV. INDEMNITY AND WAIVER OF CLAIMS. . . . . . . . . . . . . . . . . .15
XV. INSURANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
XVI. SUBROGATION.. . . . . . . . . . . . . . . . . . . . . . . . . . .17
XVII. CASUALTY DAMAGE.. . . . . . . . . . . . . . . . . . . . . . . . .17
XVIII. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . .17
XIX. EVENTS OF DEFAULT.. . . . . . . . . . . . . . . . . . . . . . . .18
XX. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
XXI. LIMITATION OF LIABILITY.. . . . . . . . . . . . . . . . . . . . .20
XXII. NO WAIVER.. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
XXIII. QUIET ENJOYMENT.. . . . . . . . . . . . . . . . . . . . . . . . .20
XXIV. RELOCATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .20
XXV. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . .20
XXVI. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE. . . . . . . . .20
XXVII. ATTORNEYS' FEES.. . . . . . . . . . . . . . . . . . . . . . . . .21
XXVIII. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
XXIX. EXCEPTED RIGHTS.. . . . . . . . . . . . . . . . . . . . . . . . .21
XXX. SURRENDER OF PREMISES.. . . . . . . . . . . . . . . . . . . . . .22
XXXI. MISCELLANEOUS.. . . . . . . . . . . . . . . . . . . . . . . . . .22
XXXII. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
i
<PAGE>
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (the "Lease") is made and entered into
as of the 7th day of February, 2000, by and between EOP-SHORELINE
TECHNOLOGY PARK, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY ("Landlord")
and INTRABIOTICS PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant").
I. BASIC LEASE INFORMATION.
A. "Buildings" shall collectively mean the buildings in Mountain
View, California located at (i) 2021 Stierlin Court
("Building 2") and (ii) 2011 Stierlin Court ("Building 1").
B. "Rentable Square Footage of the Buildings" shall collectively
be deemed to be 124,032 square feet which consists of
(i) 58,176 rentable square feet in Building 2 ("the "Rentable
Square Footage of Building 2"); and (ii) 65,856 rentable
square feet in Building 1 (the "Rentable Square Footage of
Building 1").
C. "Premises" shall mean (i) for the period commencing on the
Premises 2 Commencement Date (as hereinafter defined) through
the day which is immediately prior to the Premises 1
Commencement Date (as hereinafter defined), the 58,176
rentable square feet in Building 2 ("Building 2 Premises") as
shown on EXHIBIT A-1 to this Lease, and (ii) for the period
commencing on the Premises 1 Commencement Date through the
Termination Date (as hereinafter defined), the Building 2
Premises plus the 65,856 rentable square feet in Building 1
("Building 1 Premises") as shown on EXHIBIT A-1 to this Lease.
The "Rentable Square Footage of the Premises" for the period
commencing on the Premises 2 Commencement Date through the day
which is immediately prior to the Premises 1 Commencement Date
is deemed to be the Rentable Square Footage of Building 2.
The "Rentable Square Footage of the Premises" for the period
commencing on the Premises 1 Commencement Date through the
Termination Date shall be 124,032 square feet (i.e.
collectively, the Rentable Square Footage of Building 2 and
the Rentable Square Footage of Building 1). Landlord and
Tenant stipulate and agree that the Rentable Square Footage of
the Buildings and the Rentable Square Footage of the Premises
are correct and shall not be remeasured.
D. "Base Rent":
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
SCHEDULE OF BASE RENT FOR BUILDING 2
------------------------- --------------------------- ---------------------------- -----------------
ANNUAL RATE ANNUAL MONTHLY
PERIOD PER SQUARE FOOT BASE RENT BASE RENT
------------------------- --------------------------- ---------------------------- -----------------
<S> <C> <C> <C>
5/1/00 - 4/30/01 $36.00 $2,094,336.00 $174,528.00
------------------------- --------------------------- ---------------------------- -----------------
5/1/01 - 4/30/02 $37.20 $2,164,147.20 $180,345.60
------------------------- --------------------------- ---------------------------- -----------------
5/1/02 - 4/30/03 $38.40 $2,233,958.40 $186,163.20
------------------------- --------------------------- ---------------------------- -----------------
5/1/03 - 4/30/04 $39.60 $2,303,769.60 $191,980.80
------------------------- --------------------------- ---------------------------- -----------------
5/1/04 - 4/30/05 $40.80 $2,373,580.80 $197,798.40
------------------------- --------------------------- ---------------------------- -----------------
5/1/05 - 4/30/06 $42.00 $2,443,392.00 $203,616.00
------------------------- --------------------------- ---------------------------- -----------------
5/1/06 - 4/30/07 $43.20 $2,513,203.20 $209,433.60
------------------------- --------------------------- ---------------------------- -----------------
5/1/07 - 4/30/08 $44.40 $2,583,014.40 $215,251.20
------------------------- --------------------------- ---------------------------- -----------------
5/1/08 - 4/30/09 $45.60 $2,652,825.60 $221,068.80
------------------------- --------------------------- ---------------------------- -----------------
5/1/09 - 4/30/10 $46.80 $2,722,636.80 $226,886.40
------------------------- --------------------------- ---------------------------- -----------------
5/1/10 - 4/30/11 $48.00 $2,792,448.00 $232,704.00
------------------------- --------------------------- ---------------------------- -----------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
SCHEDULE OF BASE RENT FOR BUILDING 1
------------------------- --------------------------- ---------------------------- -----------------
ANNUAL RATE ANNUAL MONTHLY
PERIOD PER SQUARE FOOT BASE RENT BASE RENT
------------------------- --------------------------- ---------------------------- -----------------
<S> <C> <C> <C>
5/1/01 - 4/30/02 $37.20 $2,449,843.20 $204,153.60
------------------------- --------------------------- ---------------------------- -----------------
5/1/02 - 4/30/03 $38.40 $2,528,870.40 $210,739.20
------------------------- --------------------------- ---------------------------- -----------------
5/1/03 - 4/30/04 $39.60 $2,607,897.60 $217,324.80
------------------------- --------------------------- ---------------------------- -----------------
5/1/04 - 4/30/05 $40.80 $2,686,924.80 $223,910.40
------------------------- --------------------------- ---------------------------- -----------------
5/1/05 - 4/30/06 $42.00 $2,765,952.00 $230,496.00
------------------------- --------------------------- ---------------------------- -----------------
5/1/06 - 4/30/07 $43.20 $2,844,979.20 $237,081.60
------------------------- --------------------------- ---------------------------- -----------------
5/1/07 - 4/30/08 $44.40 $2,924,006.40 $243,667.20
------------------------- --------------------------- ---------------------------- -----------------
5/1/08 - 4/30/09 $45.60 $3,003,033.60 $250,252.80
------------------------- --------------------------- ---------------------------- -----------------
5/1/09 - 4/30/10 $46.80 $3,082,060.80 $256,838.40
------------------------- --------------------------- ---------------------------- -----------------
5/1/10 - 4/30/11 $48.00 $3,161,088.00 $263,424.00
------------------------- --------------------------- ---------------------------- -----------------
</TABLE>
Landlord and Tenant acknowledge that the schedule of Base Rent
described above is based on the assumption that the Building 2
Term (as hereinafter defined) will commence on May 1, 2000,
and that the Building 1 Term (as hereinafter defined) will
commence on May 1, 2001. If the Building 2 Term does not
commence on May 1, 2000, and/or if the Building 1 Term does
not commence on May 1, 2002, the beginning and ending dates
set forth in the above schedule with respect to the payment of
any installment(s) of Base Rent shall be appropriately
adjusted on a per diem basis and set forth in the Commencement
Letter to be prepared by Landlord. In the event that the Base
Rent rate adjusts (up or down) on any day other than the first
day of the month, Base Rent for the month on which such
adjustment occurs shall be determined based on the number of
days in such month for which each particular Base Rent rate is
applicable.
Notwithstanding the above schedules of Base Rent to the
contrary, as long as Tenant is not in default beyond any
applicable notice and cure periods, Tenant shall be entitled
to (i) an abatement of Base Rent in the amount of
(a) $5,817.60 per day for 60 consecutive days of the
Building 2 Term commencing on the Building 2 Commencement Date
(the "Building 2 Abatement Period") for a total amount of
$349,056.00 (the "Building 2 Abated Base Rent") and (b) an
abatement of $6,805.12 per day for 60 consecutive days of the
Building 1 Term commencing on the Building 1 Commencement Date
(the "Building 1 Abatement Period") for a total amount of
$408,307.20 (the "Building 1 Abated Base Rent") (the
Building 2 Abated Base Rent and the Building 1 Abated Base
Rent shall collectively be referred to herein as the "Abated
Base Rent"); and (ii) an abatement of 60 consecutive days of
Expenses and Taxes (as hereinafter defined) for Building 2
during the Building 2 Abatement Period (the "Building 2 Abated
Expenses and Taxes") and an abatement of 60 consecutive days
of Expenses and Taxes for Building 1 during the Building 1
Abatement Period (the "Building 1 Abated Expenses and Taxes")
(the Building 2 Abated Expenses and Taxes and the Building 1
Abated Expenses and Taxes are collectively referred to herein
as the "Abated Expenses and Taxes"). In the event of a
monetary or material non-monetary default by Tenant at any
time during the Term, an amount equal to the unamortized
portion of all Abated Base Rent and Abated Expenses and Taxes
which Tenant is entitled to hereunder (as amortized on a
straight-line basis over the initial Term of this Lease) shall
immediately become due and payable (the "Recoverable Abated
Rent"). The payment by Tenant of the Recoverable Abated Rent
in the event of a of a monetary or material non-monetary
default by Tenant shall not limit or affect any of Landlord's
other rights, pursuant to this Lease or at law or in equity.
During the Building 2 Abatement Period and the Building 1
Abatement Period, only Base Rent and Expenses and Taxes with
respect to Building 2 and Building 1, respectively, shall be
abated, and all Additional Rent and other costs and charges
specified in this Lease shall remain as due and payable
pursuant to the provisions of this Lease. In the event that
Tenant substantially completes the Initial Alterations (as
defined in EXHIBIT D of this Lease) for Building 2 prior to
the last day of the Building 2 Abatement Period, or in the
event Tenant substantially completes the Initial Alterations
for Building 1 prior to the last day of the Building 1
Abatement Period, Tenant shall commence paying Base Rent in
accordance with the above Base Rent schedules and Expenses and
Taxes in accordance with Article IV of this
2
<PAGE>
Lease for Building 2 or Building 1, as the case may be,
commencing with the day after the date the Initial
Alterations for Building 2 or Building 1, as the case may
be, are substantially completed. For purposes of this
paragraph, the applicable Initial Alterations for Building 2
or Building 1, as the case may be, shall be deemed
substantially completed on the date that, in Landlord's
reasonable judgment, all Initial Alterations have been
performed, other than any details of construction,
mechanical adjustment or any other similar matter, the
noncompletion of which does not materially interfere with
Tenant's use of Building 2 or Building 1, as the case may be.
E. "Tenant's Pro Rata Share": 100%.
F. "Term": The "Building 2 Term" shall commence on May 1, 2000
("Building 2 Commencement Date"), and unless terminated early
in accordance with this Lease, shall end on April 30, 2011
(the "Termination Date"). The "Building 1 Term" shall
commence on May 1, 2001 ("Building 1 Commencement Date"), and
unless terminated early in accordance with this Lease, shall
end on the Termination Date. The Building 2 Term and the
Building 1 Term are together referred to herein as the "Term".
Landlord and Tenant acknowledge that as of the date of this
Lease, it is currently anticipated that the Building 2
Commencement Date shall be May 1, 2000 and the Building 1
Commencement Date shall be May 1, 2001. In the event the
Building 2 Commencement Date is not May 1, 2000 or in the
event the Building 1 Commencement Date is not May 1, 2001,
Landlord and Tenant shall enter into a commencement letter in
the form attached as EXHIBIT C.
G. Tenant allowance(s): $5.00 per rentable square foot of the
Premises as more fully described on EXHIBIT D of this Lease.
H. "Security Deposit": $1,600,000.00. The Security Deposit shall
be in the form of an irrevocable letter of credit (the "Letter
of Credit"), as more fully described in Article VI of this
Lease.
I. "Guarantor(s)": None.
J. "Broker(s)": Cornish & Carey Commercial/Oncor International
for the Landlord and Vertex Real Estate Group and BT
Commercial Real Estate for the Tenant.
K. "Permitted Use": Office, research and development,
manufacturing, storage and other legal uses as permitted by
local zoning laws applicable to the Premises and otherwise
permitted by the Governing Documents (as that term is defined
in Article XXXI.M. below).
L. "Notice Addresses":
Tenant:
On and after the Commencement Date, notices shall be sent to
Tenant at the Premises. Prior to the Commencement Date,
notices shall be sent to Tenant at the following address:
1245 Terra Bella Avenue
Mountain View, California 94043
Attention: __________________
Phone #: ______________________
Fax #: ________________________
With a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Toni Pryor Wise, Esq.
3
<PAGE>
If Tenant's attorney listed above fails to receive the copy of
the notice of a Tenant default, the validity of the notice
served on Tenant shall not be affected thereby.
Landlord: With a copy to:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C. Equity Office Properties
c/o Equity Office Properties Trust Two North Riverside Plaza
4 Palo Alto Square Suite 2200
3000 El Camino Real, Suite 130 Chicago, Illinois 60606
Palo Alto, California 94306-2122 Attention: Regional Counsel - Pacific
Attention: Building Manager Region
Rent (defined in Section IV.A) is payable to the order of
EQUITY OFFICE PROPERTIES at the following address: EOP
OPERATING LIMITED PARTNERSHIP, AS AGENT FOR EOP-SHORELINE
TECHNOLOGY PARK, DEPT. #8824, LOS ANGELES, CALIFORNIA
90084-8824.
M. "Business Day(s)" are Monday through Friday of each week,
exclusive of New Year's Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day ("Holidays").
Landlord may designate additional Holidays, provided that the
additional Holidays are commonly recognized by other office
buildings in the area where the Buildings are located.
N. INTENTIONALY OMITTED.
O. "Law(s)" means all applicable statutes, codes, ordinances,
orders, rules and regulations of any municipal or governmental
entity.
P. "Property" means the Buildings and the parcel(s) of land
underneath and directly surrounding the Buildings. At
Landlord's option, the definition of "Property" may
subsequently be expanded to include the Buildings' parking
areas and other improvements serving the Buildings, if any,
and the parcel(s) of land on which they are located; provided
such additional areas will not then be included as part of the
"Common Areas" for purposes of determining Tenant's
obligations with respect to the payment of Expenses and Taxes
as provided in Article IV below.
Q. "Project" shall mean the development located on approximately
51.83 acres commonly described as Shoreline Technology Park,
which includes the Buildings and the Property, as well as the
other buildings and property as outlined on EXHIBIT A-2
attached hereto and incorporated herein.
R. "Rentable Square Footage of the Project" is deemed to be
726,508 rentable square feet.
S. "Allocable Share of the Buildings" means (i) for the period
commencing on the Premises 2 Commencement Date through the
date which is immediately prior to the Premises 1 Commencement
Date, 8.008%; and (ii) for the period commencing on the
Premises 1 Commencement Date through the end of the Term of
this Lease, 17.0724%.
II. LEASE GRANT.
Landlord leases the Premises to Tenant and Tenant leases the Premises
from Landlord, together with the right in common with others to use any portions
of the Project that are designated by Landlord for the common use of tenants and
others, such as sidewalks, unreserved parking areas, artificial lakes, walkways,
water amenities, landscaping, plaza, roads, driveways and recreation areas
(collectively, the "Common Areas"), including, but not limited to, that certain
recreational area which is maintained by Landlord in the location and
configuration shown on EXHIBIT A-3 attached hereto. Notwithstanding the
foregoing to the contrary, Tenant's right to use the Recreational Area shall be
subject to the right of the City of Mountain View ("City") to require that a
portion of the Recreational Area be paved and used for parking purposes at a
time to be determined at the discretion of the City. The area to be used for
parking purposes is indicated as "Potential Parking Area" on EXHIBIT A-3. If
the City requires
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the parking, Tenant shall have the non-exclusive right to use the parking
spaces created thereby.
III. POSSESSION.
A. INTENTIONALLY OMITTED
B. Subject to Landlord's obligations under Section IX.B. and
Landlord's obligation to deliver the Premises to Tenant in
broom clean condition, the Premises are accepted by Tenant
in "as is" condition and configuration. By taking possession
of the Premises, Tenant agrees that the Premises are in good
order and satisfactory condition, and that there are no
representations or warranties by Landlord regarding the
condition of the Premises or the Buildings. Notwithstanding
anything to the contrary contained in the Lease, Landlord
shall not be obligated to tender possession of any portion
of the Premises or other space leased by Tenant from time to
time hereunder that, on the date possession is to be
delivered, such space is occupied by a tenant or other
occupant or that is subject to the rights of any other
tenant or occupant, nor shall Landlord have any other
obligations to Tenant under this Lease with respect to such
space until the date Landlord: (1) recaptures such space
from such existing tenant or occupant; and (2) regains the
legal right to possession thereof. This Lease shall not be
affected by any such failure to deliver possession and
Tenant shall have no claim for damages against Landlord as a
result thereof, all of which are hereby waived and released
by Tenant. If Landlord is delayed delivering possession of
any portion of the Premises or any other space due to the
holdover or unlawful possession of such space by any party,
Landlord shall use reasonable efforts to obtain possession
of the space. In such event, the Building 2 Commencement
Date and/or the Building 1 Commencement Date, as the case
may be, shall be postponed until the date Landlord delivers
possession of the applicable portion of the Premises to
Tenant free from occupancy by any party, and the Termination
Date, at the option of Landlord, may be postponed by an
equal number of days. Notwithstanding the foregoing, if the
Building 2 Commencement Date does not occur by October 1,
2000 (the "Building 2 Outside Completion Date"), or the
Building 1 Commencement Date does not occur by October 1,
2001 (the "Building 1 Outside Completion Date"), Tenant, as
its sole remedy, may terminate this Lease with respect to
both Building 2 and Building 1 by giving Landlord written
notice of termination on or before the earlier to occur of:
(i) 5 Business Days after the Building 2 Outside Completion
Date or the Building 1 Outside Completion Date, as the case
may be; and (ii) the Building 2 Commencement Date or the
Building 1 Commencement Date, as the case may be. In such
event, this Lease shall be deemed null and void and of no
further force and effect with respect to Building 2 and
Building 1, and Landlord shall promptly refund any prepaid
rent and Security Deposit previously advanced by Tenant
under this Lease with respect to Building 2 and Building 1
(subject to Landlord's right to apply all or a portion of
the Security Deposit as provided in Article VI below), and,
so long as Tenant has not previously defaulted under any of
its obligations under the Work Letter, the parties hereto
shall have no further responsibilities or obligations to
each other under this Lease (other than any obligations
which may have accrued prior to such early termination date
under this Lease) with respect to Building 2 and Building 1.
Landlord and Tenant acknowledge and agree that: (i) the
determination of the Building 2 Commencement Date and the
Building 1 Commencement Date shall take into consideration
the effect of any delays by Tenant; and (ii) the Building 2
Outside Completion Date and the Building 1 Outside
Completion Date shall be postponed by the number of days the
Building 2 Commencement Date or the Building 1 Commencement
Date, as applicable, is delayed due to events of Force
Majeure. Notwithstanding anything herein to the contrary,
if Landlord determines that it will be unable to cause the
Building 2 Commencement Date or the Building 1 Commencement
Date to occur by the Building 2 Outside Completion Date or
the Building 1 Outside Completion Date, as applicable,
Landlord shall have the right to provide Tenant with written
notice (the "Outside Extension Notice") of such inability,
which Outside Extension Notice shall set forth the date on
which Landlord reasonably believes that the Building 2
Commencement Date or the Building 1 Commencement Date, as
applicable, will occur. Upon receipt of the Outside
Extension Notice, Tenant shall have the right to terminate
this Lease with respect to Building 2 and Building 1 by
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providing written notice of termination to Landlord within 5
Business Days after the date of the Outside Extension
Notice. In the event that Tenant does not terminate this
Lease with respect to Building 2 and Building 1 within such
5 Business Day period, the Building 2 Outside Completion
Date or the Building 1 Outside Completion Date, as
applicable, shall automatically be amended to be the date
set forth in Landlord's Outside Extension Notice.
C. If Tenant takes possession of the Building 2 Premises before
the Building 2 Commencement Date, or if Tenant takes
possession of the Building 1 Premises before the Building 1
Commencement Date, such possession shall be subject to the
terms and conditions of this Lease and Tenant shall pay Rent
(defined in Section IV.A.) to Landlord for each day of
possession before the Building 2 Commencement Date and/or the
Building 1 Commencement Date, as the case may be. However,
except for the cost of services requested by Tenant (if any),
Tenant shall not be required to pay Rent for any days of
possession of the Building 2 Premises before the Building 2
Commencement Date and/or any days of possession of the
Building 1 Premises before the Building 1 Commencement Date,
as the case may be, during which Tenant, with the approval of
Landlord, is in possession of the applicable portion of the
Premises for the sole purpose of performing improvements or
installing improvements, fixtures, furniture, equipment or
other personal property.
IV. RENT.
A. PAYMENTS. As consideration for this Lease, Tenant shall pay
Landlord, without any setoff or deduction, the total amount of
Base Rent and Additional Rent due for the Term. "Additional
Rent" means all sums (exclusive of Base Rent) that Tenant is
required to pay Landlord hereunder. Additional Rent and Base
Rent are sometimes collectively referred to as "Rent". Base
Rent and recurring monthly charges of Additional Rent shall be
due and payable in advance on the first day of each calendar
month without notice or demand, provided that the installment
of Base Rent for the 3rd full calendar month of the Term shall
be payable upon the execution of this Lease by Tenant. All
other items of Rent shall be due and payable by Tenant on or
before 30 days after billing by Landlord. All payments of
Rent shall be by good and sufficient check or by other means
(such as automatic debit or electronic transfer) acceptable to
Landlord. If Tenant fails to pay any item or installment of
Rent when due, Tenant shall pay Landlord an administration fee
equal to 5% of the past due Rent, provided that Tenant shall
be entitled to a grace period of 5 days for the first 2 late
payments of Rent in a given calendar year. If the Term
commences on a day other than the first day of a calendar
month or terminates on a day other than the last day of a
calendar month, the monthly Base Rent and Tenant's Pro Rata
Share of Expenses (defined in Section IV.C.) and Taxes
(defined in Section IV.D.) for the month shall be prorated
based on the number of days in such calendar month.
Landlord's acceptance of less than the correct amount of Rent
shall be considered a payment on account of the earliest Rent
due. No endorsement or statement on a check or letter
accompanying a check or payment shall be considered an accord
and satisfaction, and either party may accept the check or
payment without prejudice to that party's right to recover the
balance or pursue other available remedies. Tenant's covenant
to pay Rent is independent of every other covenant in this
Lease.
B. PAYMENT OF TENANT'S PRO RATA SHARE OF EXPENSES AND TAXES.
Tenant shall pay Tenant's Pro Rata Share of the total amount
of Expenses (defined in Section IV.C.) and Taxes (defined in
Section IV.D) for each calendar year during the Term. Landlord
shall provide Tenant with a good faith estimate of the total
amount of Expenses and Taxes for each calendar year during the
Term. On or before the first day of each month, Tenant shall
pay to Landlord a monthly installment equal to one-twelfth of
Tenant's Pro Rata Share of Landlord's estimate of the total
amount of Expenses and Taxes. If Landlord determines that its
good faith estimate was incorrect by a material amount,
Landlord may provide Tenant with a revised estimate. After
its receipt of the revised estimate, Tenant's monthly payments
shall be based upon the revised estimate. If Landlord does
not provide Tenant with an estimate of the total amount of
Expenses and Taxes by January 1 of a calendar year, Tenant
shall continue to pay monthly
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installments based on the previous year's estimate until
Landlord provides Tenant with the new estimate. Upon
delivery of the new estimate, an adjustment shall be made
for any month for which Tenant paid monthly installments
based on the previous year's estimate. Tenant shall pay
Landlord the amount of any underpayment within 30 days after
receipt of the new estimate. Any overpayment shall be
refunded to Tenant within 30 days or credited against the
next due future installment(s) of Additional Rent.
As soon as is practical following the end of each calendar
year, Landlord shall furnish Tenant with a statement of the
actual amount of Expenses and Taxes for the prior calendar
year and Tenant's Pro Rata Share of the actual amount of
Expenses and Taxes for the prior calendar year. If the
estimated amount of Expenses and Taxes for the prior calendar
year is more than the actual amount of Expenses and Taxes for
the prior calendar year, Landlord shall apply any overpayment
by Tenant against Additional Rent due or next becoming due,
provided if the Term expires before the determination of the
overpayment, Landlord shall refund any overpayment to Tenant
after first deducting the amount of Rent due. If the
estimated amount of Expenses and Taxes for the prior calendar
year is less than the actual amount of Expenses and Taxes for
such prior year, Tenant shall pay Landlord, within 30 days
after its receipt of the statement of Expenses and Taxes, any
underpayment for the prior calendar year. Any overpayment or
underpayment of Taxes relating to the year in which this Lease
terminates shall be treated in a similar manner. The
provisions of this subsection shall survive the termination of
this Lease.
C. EXPENSES DEFINED. "Expenses" means the sum of (y) 100% of all
direct and indirect costs and expenses incurred in each
calendar year in connection with operating, maintaining,
repairing, managing and owning the Premises, the Building(s)
in which the Premises is located and the Property, and (z) the
Allocable Share of the Building(s) of the direct and indirect
costs of operating and maintaining the Common Areas of the
Project (including, but not limited to, the parking
structure(s) or parking lot(s) predominantly serving the
Building(s) in which the Premises are located, unless the same
are included by Landlord as part of the "Property"), the
Allocable Share of the Building(s) of all costs, fees,
expenses or other amounts payable by Landlord to the
Association (as defined in Article XXXI.M. below), if any, and
the Allocable Share of the Building(s) of all fees payable to
the company or the Association, if applicable, managing the
parking areas within the Project, including, without
limitation, the following:
1. Labor costs, including, wages, salaries, social security
and employment taxes, medical and other types of
insurance, uniforms, training, and retirement and pension
plans.
2. Management fees, the cost of equipping and maintaining a
management office, accounting and bookkeeping services,
legal fees not attributable to leasing or collection
activity, and other administrative costs. Landlord, by
itself or through an affiliate, shall have the right to
directly perform or provide any services under this Lease
(including management services), provided that the cost
of any such services shall not exceed the cost that would
have been incurred had Landlord entered into an
arms-length contract for such services with an
unaffiliated entity of comparable skill and experience.
3. The cost of services, including amounts paid to service
providers and the rental and purchase cost of parts,
supplies, tools and equipment.
4. Premiums and deductibles paid by Landlord for insurance,
including workers compensation, fire and extended
coverage, earthquake, general liability, rental loss,
elevator, boiler and other insurance customarily carried
from time to time by owners of comparable buildings.
5. Electrical Costs (defined below) and charges for water,
gas, steam and sewer applicable to the Common Areas.
"Electrical Costs" means: (a) charges paid by Landlord
for electricity; (b) costs incurred in connection with an
energy management program for the Common Areas
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of the Project; and (c) if and to the extent permitted
by Law, a fee for the services provided by Landlord in
connection with the selection of utility companies and
the negotiation and administration of contracts for
electricity, provided that such fee shall not exceed
50% of any savings obtained by Landlord.
6. The amortized cost of capital improvements (as
distinguished from replacement parts or components
installed in the ordinary course of business) made to the
Property and the Common Areas which are: (a) performed
primarily to reduce operating expense costs or otherwise
improve the operating efficiency of the Property and the
Common Areas; or (b) required to comply with any Laws
that are enacted, or first interpreted to apply to the
Property and the Common Areas, after the date of this
Lease. The cost of capital improvements shall be
amortized by Landlord over the lesser of the Payback
Period (defined below) or 10 years. The amortized cost
of capital improvements may, at Landlord's option,
include actual or imputed interest at the rate that
Landlord would reasonably be required to pay to finance
the cost of the capital improvement. "Payback Period"
means the reasonably estimated period of time that it
takes for the cost savings resulting from a capital
improvement to equal the total cost of the capital
improvement.
If Landlord incurs Expenses for the Project together with one
or more other buildings or properties, whether pursuant to a
reciprocal easement agreement, common area agreement or
otherwise, the shared costs and expenses shall be equitably
prorated and apportioned between the Project and the other
buildings or properties. Expenses shall not include: the cost
of capital improvements (except as set forth above);
depreciation; interest (except as provided above for the
amortization of capital improvements); principal payments of
mortgage or ground leases and other non-operating debts of
Landlord; the cost of repairs or other work to the extent
Landlord is reimbursed by insurance or condemnation proceeds;
costs in connection with leasing space in the Buildings or
other buildings in the Project, including brokerage
commissions; lease concessions, including rental abatements
and construction allowances, granted to specific tenants;
costs incurred in connection with the sale, financing or
refinancing of the Buildings; fines, interest and penalties
incurred due to the late payment of Taxes (defined in
Section IV.D) or Expenses or otherwise in connection with
operation of the Buildings or the Project; organizational
expenses associated with the creation and operation of the
entity which constitutes Landlord; or any penalties or damages
that Landlord pays to Tenant under this Lease or to other
tenants in the Buildings under their respective leases.
D. TAXES DEFINED. "Taxes" shall mean: (1) all real estate taxes
and other assessments on the Buildings and/or Property,
including, but not limited to, assessments for special
improvement districts and building improvement districts,
taxes and assessments levied in substitution or
supplementation in whole or in part of any such taxes and
assessments and the Buildings' and the Property's share of any
real estate taxes and assessments under any reciprocal
easement agreement, common area agreement or similar agreement
as to the Property or the Buildings; (2) all personal property
taxes for property that is owned by Landlord and used in
connection with the operation, maintenance and repair of the
Property and the Buildings; (3) all costs and fees incurred in
connection with seeking reductions in any tax liabilities
described in (1) and (2), including, without limitation, any
costs incurred by Landlord for compliance, review and appeal
of tax liabilities; and (4) the Allocable Share of the
Building(s) of (i) all real estate taxes and other assessments
of the Common Areas of the Project, including but not limited
to assessments for special improvement districts and building
improvement districts, taxes and assessments levied in
substitution or supplementation in whole or in part of any
such taxes and assessments and any real estate taxes and
assessments under any reciprocal easement agreement, common
area agreement or similar agreement as to the Common Areas,
(ii) all personal property taxes for property that is owned by
Landlord and used in connection with the operation,
maintenance and repair of the Common Areas, and (iii) all
costs and fees incurred in connection with seeking reductions
in any tax liabilities described in (i) and (ii) above,
including, without limitation, any costs
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incurred by Landlord for compliance, review and appeal of
tax liabilities. Without limitation, Taxes shall not include
any income, capital levy, franchise, capital stock, gift,
estate or inheritance tax, or tax on Landlord's income from
all sources. However, Tenant shall pay and be liable for all
rental, sales and use taxes, if any, imposed upon or
measured by Rent under applicable Law. If an assessment is
payable in installments, Taxes for the year shall include
the amount of the installment and any interest due and
payable during that year. For all other real estate taxes,
Taxes for that year shall, at Landlord's election, include
either the amount accrued, assessed or otherwise imposed for
the year or the amount due and payable for that year,
provided that Landlord's election shall be applied
consistently throughout the Term. If a change in Taxes is
obtained for any year of the Term, then Taxes for that year
will be retroactively adjusted and Landlord shall provide
Tenant with a credit, if any, based on the adjustment.
Tenant shall be responsible for, and shall pay prior to
delinquency, taxes or governmental service fees, possessory
interest taxes, fees or charges in lieu of any such taxes,
capital levies, or other charges imposed upon, levied with
respect to, or assessed against, its personal property, and
its interest pursuant to this Lease. To the extent that any
such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced to Tenant by
Landlord prior to the delinquency of such taxes. In the event
that the tenant improvements in the Buildings which correspond
to the Initial Alterations, as defined in this Lease, are
assessed and taxed separately by the applicable taxing
authority, then Tenant shall be liable and shall pay that
portion of the Taxes applicable to the value of the Initial
Alterations in the Premises based on the value attributed
thereto by the applicable taxing authority to either (a) the
applicable taxing authority prior to the delinquency of such
taxes in the event Tenant is billed directly by such taxing
authority, or (b) the Landlord within 30 days after written
demand, in the event Landlord is billed directly by the
applicable taxing authority.
E. AUDIT RIGHTS. Tenant may, within 90 days after receiving
Landlord's statement of Expenses, give Landlord written notice
("Review Notice") that Tenant intends to review Landlord's
records of the Expenses for that calendar year. Within a
reasonable time after receipt of the Review Notice, Landlord
shall make all pertinent records available for inspection that
are reasonably necessary for Tenant to conduct its review. If
any records are maintained at a location other than the office
of the Project, Tenant may either inspect the records at such
other location or pay for the reasonable cost of copying and
shipping the records. If Tenant retains an agent to review
Landlord's records, the agent must be with a licensed CPA
firm. Tenant shall be solely responsible for all costs,
expenses and fees incurred for the audit. Within 60 days
after the records are made available to Tenant, Tenant shall
have the right to give Landlord written notice (an "Objection
Notice") stating in reasonable detail any objection to
Landlord's statement of Expenses for that year. If Tenant
fails to give Landlord an Objection Notice within the 60 day
period or fails to provide Landlord with a Review Notice
within the 90 day period described above, Tenant shall be
deemed to have approved Landlord's statement of Expenses and
shall be barred from raising any claims regarding the Expenses
for that year. If Tenant provides Landlord with a timely
Objection Notice, Landlord and Tenant shall work together in
good faith to resolve any issues raised in Tenant's Objection
Notice. If Expenses for the calendar year are less than
reported, Landlord shall provide Tenant with a credit against
the next installment of Rent in the amount of the overpayment
by Tenant. Likewise, if Expenses for the calendar year are
greater than reported, Tenant shall pay Landlord the amount of
any underpayment within 30 days. The records obtained by
Tenant shall be treated as confidential. In addition, if
Expenses for the Building for the year in question were less
than stated by more than 10%, Landlord, within 30 days after
its receipt of paid invoices therefor from Tenant, shall
reimburse Tenant for any reasonable amounts paid by Tenant to
third parties in connection with such review by Tenant. In no
event shall Tenant be permitted to examine Landlord's records
or to dispute any statement of Expenses unless Tenant has paid
and continues to pay all Rent when due.
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V. COMPLIANCE WITH LAWS; USE.
The Premises shall be used only for the Permitted Use and for no other
use whatsoever. Tenant shall not use or permit the use of the Premises for any
purpose which is illegal, dangerous to persons or property or which, in
Landlord's reasonable opinion, unreasonably disturbs any other tenants of the
Project or interferes with the operation of the Buildings or the Project.
Tenant shall comply with all Laws, including the Americans with Disabilities
Act, regarding the operation of Tenant's business and the use, condition,
configuration and occupancy of the Premises. Tenant, within 10 days after
receipt, shall provide Landlord with copies of any notices it receives regarding
a violation or alleged violation of any Laws relating to its use of the
Premises. Tenant shall comply with the rules and regulations of the Project
attached as EXHIBIT B and such other reasonable, nondiscriminatory rules and
regulations adopted by Landlord from time to time. Tenant shall also cause its
agents, contractors, subcontractors, employees, customers, and subtenants to
comply with all rules and regulations. Landlord shall not knowingly
discriminate against Tenant in Landlord's enforcement of the rules and
regulations. In the event of a conflict between any rules and regulations
enacted after the date hereof and the Lease, this Lease shall control.
VI. SECURITY DEPOSIT.
The Security Deposit shall be in the form of 2 irrevocable letters of
credit (the "Letters of Credit") which shall: (a) be in the amounts of
$1,000,000.00 and $600,000.00, respectively; (b) be issued on the form attached
hereto as EXHIBIT G; (c) name Landlord as its beneficiary; (d) be drawn on an
FDIC insured financial institution reasonably satisfactory to Landlord; and
(e) be annually renewable so as to expire no earlier than 60 days after the
Termination Date of this Lease. The Security Deposit shall be delivered to
Landlord in the form of 2 Letters of Credit, the first of which shall be in the
amount of $1,000,000.00 and shall be delivered to Landlord upon the execution of
this Lease by Tenant, and the second of which shall be in the amount of
$600,000.00 and shall be delivered to Landlord on the Building 1 Commencement
Date. The Security Deposit shall be held by Landlord without liability for
interest (unless required by Law) as security for the performance of Tenant's
obligations. The Security Deposit is not an advance payment of Rent or a
measure of Tenant's liability for damages. Landlord may, from time to time,
without prejudice to any other remedy, use all or a portion of the Security
Deposit to satisfy past due Rent or to cure any uncured default by Tenant. If
Landlord uses the Security Deposit, Tenant shall on demand restore the Security
Deposit to its original amount. Landlord shall return any unapplied portion of
the Security Deposit to Tenant on the later to occur of (1) 45 days after the
date Tenant surrenders possession of the Premises to Landlord in accordance with
this Lease; or (2) 45 days after the Termination Date. If Landlord transfers
its interest in the Premises, Landlord may assign the Security Deposit to the
transferee and, following the assignment, Landlord shall have no further
liability for the return of the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from its other accounts.
VII. SERVICES.
A. Tenant will be responsible, at its sole cost and expense, for
the furnishing of all services and utilities to the Premises,
including, but not limited to, heating, ventilation and air-
conditioning, electricity, water, light, power, trash pick-up,
sewer charges, telephone, janitorial and interior building
security services and all other utility services supplied to
the Premises, and all taxes and surcharges thereon. Landlord
agrees to maintain and repair the Property as described in
Article IX.B.
B. Any interruption or termination of services due to the
application of Laws, the failure of any equipment, the
performance of repairs, improvements or alterations, or the
occurrence of any other event (a "Service Failure") shall not
render Landlord liable to Tenant, constitute a constructive
eviction of Tenant, give rise to an abatement of Rent, nor
relieve Tenant from the obligation to fulfill any covenant or
agreement. Furthermore, in no event shall Landlord be liable
to Tenant for any loss or damage, including the theft of
Tenant's Property (defined in Article XV), arising out of or
in connection with the failure of any security services,
personnel or equipment.
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VIII. LEASEHOLD IMPROVEMENTS.
All improvements to the Premises (collectively, "Leasehold
Improvements") shall be owned by Landlord and shall remain upon the Premises
without compensation to Tenant. Leasehold Improvements shall not include
Tenant's trade fixtures or any of the items listed on EXHIBIT H, which items
shall at all times be owned by Tenant. Leasehold Improvements shall not include
Tenant's trade fixtures or any of the items listed on EXHIBIT H, which items
shall at all times be owned by Tenant. However, Landlord, by written notice to
Tenant within 30 days prior to the Termination Date, may require Tenant to
remove, at Tenant's expense: (1) Cable (defined in Section IX.A) installed by
or for the exclusive benefit of Tenant and located in the Premises or other
portions of the Project; and (2) any Leasehold Improvements that are performed
by or for the benefit of Tenant and, in Landlord's reasonable judgment, are of a
nature that would require removal and repair costs that are materially in excess
of the removal and repair costs associated with standard improvements to
buildings of this kind (collectively referred to as "Required Removables").
Without limitation, it is agreed that Required Removables include internal
stairways, raised floors, personal baths and showers, vaults, rolling file
systems and structural alterations and modifications of any type. The Required
Removables designated by Landlord shall be removed by Tenant before the
Termination Date, provided that upon prior written notice to Landlord, Tenant
may remain in the Premises for up to 15 days after the Termination Date for the
sole purpose of removing the Required Removables. Tenant's possession of the
Premises shall be subject to all of the terms and conditions of this Lease,
including the obligation to pay Rent on a per diem basis at the rate in effect
for the last month of the Term. Tenant shall repair damage caused by the
installation or removal of Required Removables. If Tenant fails to remove any
Required Removables or perform related repairs in a timely manner, Landlord, at
Tenant's expense, may remove and dispose of the Required Removables and perform
the required repairs. Tenant, within 30 days after receipt of an invoice, shall
reimburse Landlord for the reasonable costs incurred by Landlord.
Notwithstanding the foregoing, Tenant, at the time it requests approval for a
proposed Alteration (defined in Section IX.C) or the Initial Alterations
(defined in EXHIBIT D), may request in writing that Landlord advise Tenant
whether the Alteration or the Initial Alterations, or any portion of the
Alteration or the Initial Alterations, will be designated as a Required
Removable. Within 10 days after receipt of Tenant's request, Landlord shall
advise Tenant in writing as to which portions of the Alteration or the Initial
Alterations, if any, will be considered to be Required Removables.
IX. REPAIRS, MAINTENANCE AND ALTERATIONS.
A. TENANT'S REPAIR AND MAINTENANCE OBLIGATIONS. Tenant shall, at
its sole cost and expense, promptly perform all maintenance
and repairs to the Premises that are not Landlord's express
responsibility under this Lease, and shall keep the Premises
(interior and exterior) in good condition and repair
(including the replacement of any applicable improvements and
appurtenances when necessary), reasonable wear and tear
excepted. Tenant's repair and replacement obligations include,
without limitation, repairs to and replacements of: (1) floor
covering; (2) interior partitions; (3) doors; (4) walls and
wall coverings; (5) electronic, phone and data cabling and
related equipment (collectively, "Cable") that is installed by
or for the exclusive benefit of Tenant and located in the
Premises or other portions of the Project; (6) supplemental
air conditioning units, private showers and kitchens,
including hot water heaters, and similar facilities;
(7) mechanical (including HVAC), plumbing fixtures, sewer
connections (within the Buildings), wiring, electrical,
lighting, and fire, life safety equipment and systems serving
the Buildings and the Premises; (8) windows, glass and plate
glass; (9) ceilings; (10) roof membrane, roof screens and roof
screen penetrators; (11) skylights; (12) fixtures and
equipment; and (13) Alterations performed by contractors
retained by Tenant, including related HVAC balancing. All
work shall be performed in accordance with the rules and
procedures described in Section IX.C. below. In addition,
Tenant shall, at its sole cost and expense, provide janitorial
service to the Premises in a manner consistent with other
similar projects in the Mountain View, California area. The
janitorial service to be provided by Tenant shall include, but
not be limited to, the obligation to clean the exterior
windows (no more frequently than two (2) times per year) and
to keep the interior of the Premises such as the windows,
floors, walls, doors, showcases and fixtures clean and neat in
appearance and to remove all trash and debris which may be
found in or around the Premises. In addition, Tenant shall
keep and maintain the Premises in accordance with (i) the
Institute of Laboratory Animal Resources "Guide for the Care
and Use of Laboratory
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Animals", (ii) the Animal Welfare Act (7 U.S.C. 2131 et.
seq.), and (iii) all other applicable Federal, State and
local laws, guidelines and policies relating to the
operation and maintenance of biomedical laboratory
facilities (collectively, the "Lab Standards"). Tenant
shall also enter into and keep and maintain in effect,
service contracts reasonably acceptable to Landlord with
contractors reasonably acceptable to Landlord for the
maintenance of those systems servicing the Buildings as
Landlord may reasonably designate, including, without
limitation, the HVAC and life safety systems of the
Buildings. In addition, Tenant shall perform infrared
testing of the electrical systems in the Buildings on a
commercially reasonable, regular basis to ensure that such
electrical systems are maintained in the manner required
herein. Without limiting the foregoing, Tenant shall, at
Tenant's sole cost and expense, (a) immediately replace all
broken glass in the Premises with glass equal to or in
excess of the specification and quality of the original
glass; and (b) repair any damage caused by Tenant, Tenant's
agents, employees, invitees, visitors, subtenants or
contractors. If Tenant fails to make any required repairs
to the Premises within 15 days after notice from Landlord
(although notice shall not be required if there is an
emergency), Landlord may make the repairs and Tenant shall
pay the reasonable cost of the repairs to Landlord within 30
days after receipt of an invoice, together with an
administrative charge in an amount equal to 10% of the cost
of the work performed. In addition, in the event Tenant
fails to make any required repairs or provide the required
janitorial services to the Premises and such failure
continues beyond the applicable cure period provided in
Article XIX.B. below, such failure shall constitute a
default under this Lease. Tenant shall maintain written
records of maintenance and repairs, as required by Law, and
shall use certified technicians to perform any such
maintenance and repairs, as so required.
B. LANDLORD'S REPAIR OBLIGATIONS. Landlord shall keep and
maintain in good repair and working order and make repairs to
and perform maintenance upon: (1) structural elements of the
Buildings, including Building foundations; (2) Common Areas
(including utility lines which run through the Common Areas);
and (3) the roof of the Buildings (other than the roof
membrane, roof screens and roof screen penetrators). Landlord
shall promptly make repairs (considering the nature and
urgency of the repair) for which Landlord is responsible.
C. ALTERATIONS. Tenant shall not make alterations, additions or
improvements to the Premises or install any Cable in the
Premises or other portions of the Buildings or the Project
(collectively referred to as "Alterations") without first
obtaining the written consent of Landlord in each instance,
which consent shall not be unreasonably withheld or delayed.
However, Landlord's consent shall not be required for any
Alteration that satisfies all of the following criteria (a
"Cosmetic Alteration"): (1) is not visible from the exterior
of the Premises or Buildings; (2) will not materially or
adversely affect the systems or structure of the Buildings;
and (3) cost less than $50,000.00 individually or $150,000.00
in the aggregate during any one year of the Term. However,
even though consent is not required, the performance of
Cosmetic Alterations shall be subject to all the other
provisions of this Section IX.C. Prior to starting work,
Tenant shall furnish Landlord with plans and specifications
reasonably acceptable to Landlord; names of contractors
reasonably acceptable to Landlord (provided that Landlord may
designate specific contractors with respect to building
systems); copies of contracts; necessary permits and
approvals; evidence of contractor's and subcontractor's
insurance in amounts reasonably required by Landlord; and any
security for performance that is reasonably required by
Landlord. Material changes to the plans and specifications
must also be submitted to Landlord for its approval.
Alterations shall be constructed in a good and workmanlike
manner using materials of a quality that is at least equal to
the quality designated by Landlord as the minimum standard for
the Buildings and the Project. To the extent reasonably
necessary to avoid disruption to the occupants of the
Buildings and the Project and to ensure that any work
performed at the Buildings is performed in a good and
workmanlike manner in accordance with all applicable Laws and
the terms of this Lease, Landlord may designate reasonable
rules, regulations and procedures for the performance of work
in the Buildings and the Project and Landlord shall have the
right to designate the time when Alterations may be performed.
Tenant shall reimburse Landlord within 30 days after receipt
of an invoice for sums paid by Landlord for third party
examination of Tenant's
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plans for non-Cosmetic Alterations. In addition, within 30
days after receipt of an invoice from Landlord, Tenant shall
pay Landlord a fee for Landlord's oversight and coordination
of any non-Cosmetic Alterations equal to 5% of the cost of
the non-Cosmetic Alterations. Upon completion, Tenant shall
furnish "as-built" plans (except for Cosmetic Alterations),
completion affidavits, full and final waivers of lien in
recordable form, and receipted bills covering all labor and
materials. Tenant shall assure that the Alterations comply
with all insurance requirements and Laws. Landlord's
approval of an Alteration shall not be a representation by
Landlord that the Alteration complies with applicable Laws
or will be adequate for Tenant's use.
X. USE OF UTILITY SERVICES BY TENANT.
A. Electricity, gas, water and other utility services used by
Tenant in the Premises shall be paid for by Tenant by separate
charge billed by the applicable utility company and payable
directly by Tenant. Electrical service to the Common Areas
may be furnished by one or more companies providing electrical
generation, transmission and distribution services, and the
cost of electricity may consist of several different
components or separate charges for such services, such as
generation, distribution and stranded cost charges. Landlord
shall have the exclusive right to select any company providing
electrical service to the Common Areas, to aggregate the
electrical service for the Common Areas of the Project with
other buildings, to purchase electricity through a broker
and/or buyers group and to change the providers and manner of
purchasing electricity. Landlord shall be entitled to receive
a fee (if permitted by Law) for the selection of utility
companies and the negotiation and administration of contracts
for electricity, provided that the amount of such fee shall
not exceed 50% of any savings obtained by Landlord.
B. Tenant's use of electrical service shall not exceed, either in
voltage, rated capacity, or overall load, the Buildings'
electrical capacity (as reasonably determined by Landlord).
If Tenant requests permission to consume excess electrical
service, Landlord may refuse to consent or may condition
consent upon conditions that Landlord reasonably elects
(including, without limitation, the installation of utility
service upgrades, meters, submeters, air handlers or cooling
units), and the additional usage (to the extent permitted by
Law), installation and maintenance costs shall be paid by
Tenant. Landlord's consent to any such request shall not be
unreasonably withheld, conditioned or delayed. Landlord shall
have the right to separately meter electrical usage for the
Premises and to measure electrical usage by survey or other
commonly accepted methods.
XI. ENTRY BY LANDLORD.
Subject to Tenant's reasonable security and operating procedures,
Landlord, its agents, contractors and representatives may enter the Premises to
inspect or show the Premises, to clean and make repairs, alterations or
additions to the Premises, and to conduct or facilitate repairs, alterations or
additions to any portion of the Buildings or the Project, including other
tenants' premises. Except in emergencies or to provide regularly scheduled
services, Landlord shall provide Tenant with reasonable prior notice of entry
into the Premises, which may be given orally. If reasonably necessary for the
protection and safety of Tenant and its employees, Landlord shall have the right
to temporarily close all or a portion of the Premises to perform repairs,
alterations and additions. However, except in emergencies, Landlord will not
close the Premises if the work can reasonably be completed on weekends and after
the hours of 8:00 A.M. to 5:00 P.M. on Business Days. Entry by Landlord shall
not constitute constructive eviction or entitle Tenant to an abatement or
reduction of Rent.
XII. ASSIGNMENT AND SUBLETTING.
A. Except in connection with a Permitted Transfer (defined in
Section XII.E. below), Tenant shall not assign, sublease,
transfer or encumber any interest in this Lease or allow any
third party to use any portion of the Premises (collectively
or individually, a "Transfer") without the prior written
consent of Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned, subject to Landlord's
termination rights under Section XII.B below. Without
limitation, it is agreed that Landlord's consent shall not be
considered unreasonably withheld if:
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(1) the proposed transferee's financial condition does not
meet the criteria Landlord uses to select Project tenants
having similar leasehold obligations; (2) the proposed
transferee's business is not suitable for the Building(s) or
the Project considering the business of the other tenants
and the Project's prestige, or would result in a violation
of another tenant's rights; (3) the proposed transferee is a
governmental agency or occupant of the Project; (4) Tenant
is in default after the expiration of the notice and cure
periods in this Lease; or (5) any portion of the
Building(s), Project or Premises would likely become subject
to additional or different Laws as a consequence of the
proposed Transfer. Notwithstanding the foregoing, Landlord
will not withhold its consent solely because the proposed
subtenant or assignee is an occupant of the Project if
Landlord does not have space available for lease in the
Project that is comparable to the space Tenant desires to
sublet or assign. For purposes hereof, Landlord shall be
deemed to have comparable space if it has space available on
any floor of any Building of the Project that is
approximately the same size as the space Tenant desires to
sublet or assign within 6 months of the proposed
commencement of the proposed sublease or assignment, and
such comparable space is configured and improved in such a
manner that the space which Tenant desires to sublease or
assign and the Landlord's comparable space can be utilized
for substantially similar uses (e.g. science labs). Tenant
shall not be entitled to receive monetary damages based upon
a claim that Landlord unreasonably withheld its consent to a
proposed Transfer and Tenant's sole remedy shall be an
action to enforce any such provision through specific
performance or declaratory judgment. Any attempted Transfer
in violation of this Article shall, at Landlord's option, be
void. Consent by Landlord to one or more Transfer(s) shall
not operate as a waiver of Landlord's rights to approve any
subsequent Transfers. In no event shall any Transfer or
Permitted Transfer release or relieve Tenant from any
obligation under this Lease.
B. As part of its request for Landlord's consent to a Transfer,
Tenant shall provide Landlord with financial statements for
the proposed transferee, a complete copy of the proposed
assignment, sublease and other contractual documents and such
other information as Landlord may reasonably request.
Landlord shall, by written notice to Tenant within 20 Business
Days of its receipt of the required information and
documentation, either: (1) consent to the Transfer by the
execution of a consent agreement in a form reasonably
designated by Landlord or reasonably refuse to consent to the
Transfer in writing; or (2) in the event of (i) a sublease of
any portion of the Premises which would (a) result in 50% or
more of the Premises in the aggregate being subject to
sublease(s), or (b) be for more than 50% of the then remaining
Term, or (ii) an assignment of this Lease, exercise its right
to terminate this Lease with respect to the portion of the
Premises that Tenant is proposing to assign or sublet. Any
such termination shall be effective on the proposed effective
date of the Transfer for which Tenant requested consent.
Tenant shall pay Landlord a review fee of $750.00 for
Landlord's review of any Permitted Transfer or requested
Transfer, provided if Landlord's actual reasonable costs and
expenses (including reasonable attorney's fees) exceed
$750.00, Tenant shall reimburse Landlord for its actual
reasonable costs and expenses in lieu of a fixed review fee,
up to a maximum of $1,500.00.
C. Tenant shall pay Landlord 50% of all rent and other
consideration which Tenant receives as a result of a Transfer
that is in excess of the Rent payable to Landlord for the
portion of the Premises and Term covered by the Transfer.
Tenant shall pay Landlord for Landlord's share of any excess
within 30 days after Tenant's receipt of such excess
consideration. Tenant may deduct from the excess all
reasonable and customary expenses directly incurred by Tenant
attributable to the Transfer (other than Landlord's review
fee), including brokerage fees, legal fees, construction costs
and the unamortized cost of all Tenant improvements paid for
by Tenant in connection with the Transfer. If Tenant is in
Monetary Default (defined in Section XIX.A. below), Landlord
may require that all sublease payments be made directly to
Landlord, in which case Tenant shall receive a credit against
Rent in the amount of any payments received (less Landlord's
share of any excess).
D. Except as provided below with respect to a Permitted Transfer,
if Tenant is a corporation, limited liability company,
partnership, or similar entity, and if the
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entity which owns or controls a majority of the voting
shares/rights at any time changes for any reason (including
but not limited to a merger, consolidation or
reorganization), such change of ownership or control shall
constitute a Transfer provided, however, that none of the
following shall constitute a Transfer, or be considered in
determining whether or not a change of control has occurred:
(i) any transfer of stock in a corporation that is the
Tenant if the stock of such corporation is publicly held and
traded through a recognized security exchange; and (ii) if
Tenant is a corporation, any initial public offering of such
stock in connection with the listing of such stock on a
recognized security exchange. Additionally, the foregoing
change of control provisions shall not apply if at least 80%
of its voting stock is owned by another entity, the voting
stock of which is listed on a recognized security exchange.
Notwithstanding the foregoing to the contrary, any change in
control resulting from the addition of additional equity
investors shall not require Landlord's prior consent,
provided (a) Landlord shall be notified of such change in
control within 30 days following the effective date of such
change in control, and (b) the management and operations of
Tenant do not materially change as a result of such change
in control.
E. Notwithstanding anything to the contrary contained herein or
in Section XII.D., Tenant may assign its entire interest under
this Lease or sublet the Premises to a wholly owned
corporation, partnership or other legal entity or affiliate,
subsidiary or parent of Tenant or to any successor to Tenant
by purchase, merger, consolidation or reorganization
(hereinafter, collectively, referred to as "Permitted
Transfer") without the consent of Landlord, provided:
(i) Tenant is not in default under this Lease; (ii) if such
proposed transferee is a successor to Tenant by purchase,
merger, consolidation or reorganization, the continuing or
surviving entity shall own all or substantially all of the
assets of Tenant and shall have a net worth which is at least
equal to the greater of Tenant's net worth at the date of this
Lease or Tenant's net worth at the date of the Transfer;
(iii) such proposed transferee operates the business in the
Premises for the Permitted Use and no other purpose; and
(iv) in no event shall any Permitted Transfer release or
relieve Tenant from any of its obligations under this Lease.
Tenant shall give Landlord written notice at least 10 Business
Days prior to the effective date of such Permitted Transfer.
As used herein: (a) "parent" shall mean a company which owns
a majority of Tenant's voting equity; (b) "subsidiary" shall
mean an entity wholly owned by Tenant or at least 51% of whose
voting equity is owned by Tenant; and (c) "affiliate" shall
mean an entity controlled, controlling or under common control
with Tenant. Notwithstanding the foregoing, sale of the shares
of equity of any affiliate or subsidiary to which this Lease
has been assigned or transferred other than to another parent,
subsidiary or affiliate of the original Tenant named hereunder
shall be deemed to be an assignment requiring the consent of
Landlord hereunder.
XIII. LIENS.
Tenant shall not permit mechanic's or other liens to be placed upon
the Project, Property, Premises or Tenant's leasehold interest in connection
with any work or service done or purportedly done by or for benefit of
Tenant. If a lien is so placed, Tenant shall, within 10 days of notice from
Landlord of the filing of the lien, fully discharge the lien by settling the
claim which resulted in the lien or by bonding or insuring over the lien in
the manner prescribed by the applicable lien Law. If Tenant fails to
discharge the lien, then, in addition to any other right or remedy of
Landlord, Landlord may bond or insure over the lien or otherwise discharge
the lien. Tenant shall reimburse Landlord for any amount paid by Landlord to
bond or insure over the lien or discharge the lien, including, without
limitation, reasonable attorneys' fees (if and to the extent permitted by
Law) within 30 days after receipt of an invoice from Landlord.
XIV. INDEMNITY AND WAIVER OF CLAIMS.
A. Except to the extent caused by the negligence or willful
misconduct of Landlord or any Landlord Related Parties
(defined below), Tenant shall indemnify, defend and hold
Landlord, its trustees, members, principals, beneficiaries,
partners, officers, directors, employees, Mortgagee(s)
(defined in Article XXVI) and agents ("Landlord Related
Parties") harmless against and from all liabilities,
obligations, damages, penalties, claims, actions, costs,
charges and expenses, including, without limitation,
reasonable attorneys' fees and other professional fees (if and
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to the extent permitted by Law), which may be imposed upon,
incurred by or asserted against Landlord or any of the
Landlord Related Parties and arising out of or in connection
with any damage or injury occurring in the Premises or any
acts or omissions (including violations of Law) of Tenant, the
Tenant Related Parties (defined below) or any of Tenant's
transferees, contractors or licensees.
B. Except to the extent caused by the negligence or willful
misconduct of Tenant or any Tenant Related Parties (defined
below), Landlord shall indemnify, defend and hold Tenant, its
trustees, members, principals, beneficiaries, partners,
officers, directors, employees and agents ("Tenant Related
Parties") harmless against and from all liabilities,
obligations, damages, penalties, claims, actions, costs,
charges and expenses, including, without limitation,
reasonable attorneys' fees and other professional fees (if and
to the extent permitted by Law), which may be imposed upon,
incurred by or asserted against Tenant or any of the Tenant
Related Parties and arising out of or in connection with the
acts or omissions (including violations of Law) of Landlord,
the Landlord Related Parties or any of Landlord's contractors.
C. Landlord and the Landlord Related Parties shall not be liable
for, and Tenant waives, all claims for loss or damage to
Tenant's business or loss, theft or damage to Tenant's
Property or the property of any person claiming by, through or
under Tenant resulting from: (1) wind or weather; (2) the
failure of any sprinkler, heating or air-conditioning
equipment, any electric wiring or any gas, water or steam
pipes; (3) the backing up of any sewer pipe or downspout;
(4) the bursting, leaking or running of any tank, water
closet, drain or other pipe; (5) water, snow or ice upon or
coming through the roof, skylight, stairs, doorways, windows,
walks or any other place upon or near the Buildings or the
Project; (6) any act or omission of any party other than
Landlord or Landlord Related Parties; and (7) any causes not
reasonably within the control of Landlord. Notwithstanding
the foregoing, except as provided in Article XVI to the
contrary, Tenant shall not be required to waive any claims
against Landlord (other than for loss or damage to Tenant's
business) where such loss or damage is due to Landlord's
negligence. Nothing herein shall be construed as to diminish
the repair and maintenance obligations of Landlord contained
elsewhere in this Lease. Tenant shall insure itself against
such losses under Article XV below.
XV. INSURANCE.
Tenant shall carry and maintain the following insurance ("Tenant's
Insurance"), at its sole cost and expense: (1) Commercial General Liability
Insurance applicable to the Premises and its appurtenances providing, on an
occurrence basis, a minimum combined single limit of $3,000,000.00; (2) All Risk
Property/Business Interruption Insurance, written at replacement cost value and
with a replacement cost endorsement covering all of Tenant's trade fixtures,
equipment, furniture and other personal property within the Premises ("Tenant's
Property"); (3) Workers' Compensation Insurance as required by the state in
which the Premises is located and in amounts as may be required by applicable
statute; and (4) Employers Liability Coverage of at least $1,000,000.00 per
occurrence. Any company writing any of Tenant's Insurance shall have an A.M.
Best rating of not less than A-VIII. All Commercial General Liability Insurance
policies shall name Tenant as a named insured and Landlord (or any successor),
Equity Office Properties Trust, a Maryland real estate investment trust, EOP
Operating Limited Partnership, a Delaware limited partnership, and their
respective members, principals, beneficiaries, partners, officers, directors,
employees, and agents, and other designees of Landlord as the interest of such
designees shall appear, as additional insureds. All policies of Tenant's
Insurance shall contain endorsements that the insurer(s) shall give Landlord and
its designees at least 30 days' advance written notice of any reduction in
coverage, cancellation, termination or lapse of insurance. Tenant shall provide
Landlord with a certificate of insurance evidencing Tenant's Insurance prior to
the earlier to occur of the Commencement Date or the date Tenant is provided
with possession of the Premises for any reason, and upon renewals at least 15
days prior to the expiration of the insurance coverage. Landlord shall maintain
standard so called All Risk property insurance on the Buildings in an amount
equal to 90% of the replacement cost thereof at the time in question, as
reasonably estimated by Landlord. Except as specifically provided to the
contrary, the limits of either party's' insurance shall not limit such party's
liability under this Lease.
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XVI. SUBROGATION.
Notwithstanding anything in this Lease to the contrary, Landlord and
Tenant hereby waive and shall cause their respective insurance carriers to waive
any and all rights of recovery, claim, action or causes of action against the
other and their respective trustees, principals, beneficiaries, partners,
officers, directors, agents, and employees, for any loss or damage that may
occur to Landlord or Tenant or any party claiming by, through or under Landlord
or Tenant, as the case may be, with respect to Tenant's Property, the Project,
the Buildings, the Premises, any additions or improvements to the Project,
Buildings or Premises, or any contents thereof, including all rights of
recovery, claims, actions or causes of action arising out of the negligence of
Landlord or any Landlord Related Parties or the negligence of Tenant or any
Tenant Related Parties, which loss or damage is (or would have been, had the
insurance required by this Lease been carried) covered by insurance.
XVII. CASUALTY DAMAGE.
A. If all or any part of the Premises is damaged by fire or other
casualty, Tenant shall immediately notify Landlord in writing.
During any period of time that all or a material portion of
the Premises is rendered untenantable as a result of a fire or
other casualty, the Rent shall abate for the portion of the
Premises that is untenantable and not used by Tenant.
Landlord shall have the right to terminate this Lease if:
(1) one or both of the Buildings or the Project shall be
damaged so that, in Landlord's reasonable judgment,
substantial alteration or reconstruction of one or both of the
Buildings or the Project shall be required (whether or not the
Premises has been damaged); (2) Landlord is not permitted by
Law to rebuild one or both of the Buildings or the Project in
substantially the same form as existed before the fire or
casualty; (3) the Premises have been materially damaged and
there is less than 2 years of the Term remaining on the date
of the casualty; (4) any Mortgagee requires that the insurance
proceeds be applied to the payment of the mortgage debt; or
(5) a material uninsured loss to one or both of the Buildings
or the Project occurs. Landlord may exercise its right to
terminate this Lease by notifying Tenant in writing within 90
days after the date of the casualty. If Landlord does not
terminate this Lease, Landlord shall commence and proceed with
reasonable diligence to repair and restore the Building(s) and
the Leasehold Improvements (excluding any Alterations that
were performed by Tenant in violation of this Lease).
However, in no event shall Landlord be required to spend more
than the insurance proceeds received by Landlord. Landlord
shall not be liable for any loss or damage to Tenant's
Property or to the business of Tenant resulting in any way
from the fire or other casualty or from the repair and
restoration of the damage. Landlord and Tenant hereby waive
the provisions of any Law relating to the matters addressed in
this Article, and agree that their respective rights for
damage to or destruction of the Premises shall be those
specifically provided in this Lease.
B. If all or any portion of the Premises shall be made
untenantable by fire or other casualty, Landlord shall, with
reasonable promptness, cause an architect or general
contractor selected by Landlord to provide Landlord and Tenant
with a written estimate of the amount of time required to
substantially complete the repair and restoration of the
Premises and make the Premises tenantable again, using
standard working methods ("Completion Estimate"). If the
Completion Estimate indicates that the Premises cannot be made
tenantable within 270 days from the date the repair and
restoration is started, then regardless of anything in
Section XVII.A above to the contrary, either party shall have
the right to terminate this Lease by giving written notice to
the other of such election within 10 days after receipt of the
Completion Estimate. Tenant, however, shall not have the
right to terminate this Lease if the fire or casualty was
caused by the negligence or intentional misconduct of Tenant,
Tenant Related Parties or any of Tenant's transferees,
contractors or licensees.
XVIII. CONDEMNATION.
Either party may terminate this Lease if the whole or any material
part of the Premises shall be taken or condemned for any public or quasi-public
use under Law, by eminent domain or private purchase in lieu thereof (a
"Taking"). Landlord shall also have the right to terminate this Lease if there
is a Taking of any portion of one or both of the Buildings, the Property or the
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Project which would leave the remainder of one or both of the Buildings or the
Project unsuitable for use as an office building or an office park, as the case
may be, in a manner comparable to the use of the Buildings and/or the Project
prior to the Taking. In order to exercise its right to terminate the Lease,
Landlord or Tenant, as the case may be, must provide written notice of
termination to the other within 45 days after the terminating party first
receives notice of the Taking. Any such termination shall be effective as of
the date the physical taking of the Premises or the portion of the Project,
Buildings or Property occurs. If this Lease is not terminated, the Rentable
Square Footage of the Buildings, the Rentable Square Footage of the Premises,
the Rentable Square Footage of the Project and Tenant's Pro Rata Share shall, if
applicable, be appropriately adjusted. In addition, Rent for any portion of the
Premises taken or condemned shall be abated during the unexpired Term of this
Lease effective when the physical taking of the portion of the Premises occurs.
All compensation awarded for a Taking, or sale proceeds, shall be the property
of Landlord, any right to receive compensation or proceeds being expressly
waived by Tenant. However, Tenant may file a separate claim at its sole cost
and expense for Tenant's Property and Tenant's reasonable relocation expenses,
provided the filing of the claim does not diminish the award which would
otherwise be receivable by Landlord.
XIX. EVENTS OF DEFAULT.
Tenant shall be considered to be in default of this Lease upon the
occurrence of any of the following events of default:
A. Tenant's failure to pay when due all or any portion of the
Rent, if the failure continues for 3 days after written notice
to Tenant ("Monetary Default").
B. Tenant's failure (other than a Monetary Default) to comply
with any term, provision or covenant of this Lease, if the
failure is not cured within 30 days after written notice to
Tenant. However, if Tenant's failure to comply cannot
reasonably be cured within 30 days, Tenant shall be allowed
additional time as is reasonably necessary to cure the failure
so long as: (1) Tenant commences to cure the failure within
30 days, and (2) Tenant diligently pursues a course of action
that will cure the failure and bring Tenant back into
compliance with the Lease. However, if Tenant's failure to
comply creates a hazardous condition, the failure must be
cured immediately upon notice to Tenant. In addition, if
Landlord, in good faith, provides Tenant with notice of
Tenant's failure to comply with any particular term, provision
or covenant of the Lease on 3 occasions during any 12 month
period, Tenant's subsequent violation of such term, provision
or covenant shall, at Landlord's option, be an incurable event
of default by Tenant.
C. Tenant or any Guarantor becomes insolvent, makes a transfer in
fraud of creditors or makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts
when due.
D. The leasehold estate is taken by process or operation of Law.
XX. REMEDIES.
A. Upon the occurrence of any event or events of default under
this Lease, whether enumerated in Article XIX or not, Landlord
shall have the option to pursue any one or more of the
following remedies without any notice (except as expressly
prescribed herein) or demand whatsoever (and without limiting
the generality of the foregoing, Tenant hereby specifically
waives notice and demand for payment of Rent or other
obligations and waives any and all other notices or demand
requirements imposed by applicable Law):
1. Terminate this Lease and Tenant's right to possession of
the Premises and recover from Tenant an award of damages
equal to the sum of the following:
(a) The Worth at the Time of Award of the unpaid Rent
which had been earned at the time of termination;
(b) The Worth at the Time of Award of the amount by
which the unpaid Rent which would have been earned
after termination until
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the time of award exceeds the amount of such Rent
loss that Tenant affirmatively proves could have
been reasonably avoided;
(c) The Worth at the Time of Award of the amount by
which the unpaid Rent for the balance of the Term
after the time of award exceeds the amount of such
Rent loss that Tenant affirmatively proves could be
reasonably avoided;
(d) Any other amount necessary to compensate Landlord
for all the detriment either proximately caused by
Tenant's failure to perform Tenant's obligations
under this Lease or which in the ordinary course of
things would be likely to result therefrom; and
(e) All such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time
under applicable law.
The "Worth at the Time of Award" of the amounts referred
to in parts (a) and (b) above, shall be computed by
allowing interest at the lesser of a per annum rate equal
to: (i) the greatest per annum rate of interest permitted
from time to time under applicable law, or (ii) the Prime
Rate plus five percent (5%). For purposes hereof, the
"Prime Rate" shall be the per annum interest rate
publicly announced as its prime or base rate by a
federally insured bank selected by Landlord in the State
of California. The "Worth at the Time of Award" of the
amount referred to in part (c), above, shall be computed
by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%);
2. Employ the remedy described in California Civil Code
Section 1951.4 (Landlord may continue this Lease in
effect after Tenant's breach and abandonment and recover
Rent as it becomes due, if Tenant has the right to sublet
or assign, subject only to reasonable limitations); or
3. Notwithstanding Landlord's exercise of the remedy
described in California Civil Code Section 1951.4 in
respect of an event or events of default, at such time
thereafter as Landlord may elect in writing, to terminate
this Lease and Tenant's right to possession of the
Premises and recover an award of damages as provided
above in Paragraph XX.A.1.
B. The subsequent acceptance of Rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant
of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular Rent so accepted,
regardless of Landlord's knowledge of such preceding breach at
the time of acceptance of such Rent. No waiver by Landlord of
any breach hereof shall be effective unless such waiver is in
writing and signed by Landlord.
C. TENANT HEREBY WAIVES ANY AND ALL RIGHTS CONFERRED BY SECTION
3275 OF THE CIVIL CODE OF CALIFORNIA AND BY SECTIONS 1174 (c)
AND 1179 OF THE CODE OF CIVIL PROCEDURE OF CALIFORNIA AND ANY
AND ALL OTHER LAWS AND RULES OF LAW FROM TIME TO TIME IN
EFFECT DURING THE LEASE TERM PROVIDING THAT TENANT SHALL HAVE
ANY RIGHT TO REDEEM, REINSTATE OR RESTORE THIS LEASE FOLLOWING
ITS TERMINATION BY REASON OF TENANT'S BREACH. TENANT ALSO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY PROCEEDING BASED UPON A BREACH
OF THIS LEASE.
D. No right or remedy herein conferred upon or reserved to
Landlord is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing by agreement,
applicable law or in equity. In addition to other remedies
provided in this Lease, Landlord shall be entitled, to the
extent permitted by applicable Law, to injunctive relief, or
to a decree compelling performance of any of the covenants,
agreements, conditions or provisions of this Lease, or to
any other remedy allowed to Landlord at law or in equity.
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Forbearance by Landlord to enforce one or more of the
remedies herein provided upon an event of default shall not
be deemed or construed to constitute a waiver of such
default.
E. This Article XX shall be enforceable to the maximum extent
such enforcement is not prohibited by applicable Law, and the
unenforceability of any portion thereof shall not thereby
render unenforceable any other portion.
XXI. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO TENANT SHALL BE LIMITED
TO THE INTEREST OF LANDLORD IN THE PROJECT. TENANT SHALL LOOK SOLELY TO
LANDLORD'S INTEREST IN THE PROJECT FOR THE RECOVERY OF ANY JUDGMENT OR AWARD
AGAINST LANDLORD. NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE
PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. BEFORE FILING SUIT FOR AN
ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S)
(DEFINED IN ARTICLE XXVI BELOW) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES
(DEFINED IN ARTICLE XXVI BELOW) ON THE PROJECT, BUILDING OR PREMISES, NOTICE AND
REASONABLE TIME TO CURE THE ALLEGED DEFAULT.
XXII. NO WAIVER.
Either party's failure to declare a default immediately upon its
occurrence, or delay in taking action for a default shall not constitute a
waiver of the default, nor shall it constitute an estoppel. Either party's
failure to enforce its rights for a default shall not constitute a waiver of its
rights regarding any subsequent default. Receipt by Landlord of Tenant's keys
to the Premises shall not constitute an acceptance or surrender of the Premises.
XXIII. QUIET ENJOYMENT.
Tenant shall, and may peacefully have, hold and enjoy the Premises,
subject to the terms of this Lease, provided Tenant pays the Rent and fully
performs all of its covenants and agreements. This covenant and all other
covenants of Landlord shall be binding upon Landlord and its successors only
during its or their respective periods of ownership of the Buildings, and shall
not be a personal covenant of Landlord or the Landlord Related Parties.
XXIV. RELOCATION.
INTENTIONALLY OMITTED.
XXV. HOLDING OVER.
Except for any permitted occupancy by Tenant under Article VIII, if
Tenant fails to surrender the Premises at the expiration or earlier termination
of this Lease, occupancy of the Premises after the termination or expiration
shall be that of a tenancy at sufferance. Tenant's occupancy of the Premises
during the holdover shall be subject to all the terms and provisions of this
Lease and Tenant shall pay an amount (on a per month basis without reduction for
partial months during the holdover) equal to 140% of the greater of: (1) the sum
of the Base Rent and Additional Rent due for the period immediately preceding
the holdover; or (2) the fair market gross rental for the Premises as reasonably
determined by Landlord. No holdover by Tenant or payment by Tenant after the
expiration or early termination of this Lease shall be construed to extend the
Term or prevent Landlord from immediate recovery of possession of the Premises
by summary proceedings or otherwise. In addition to the payment of the amounts
provided above, if Landlord is unable to deliver possession of the Premises to a
new tenant, or to perform improvements for a new tenant, as a result of Tenant's
holdover and Tenant fails to vacate the Premises within 15 days after Landlord
notifies Tenant of Landlord's inability to deliver possession, or perform
improvements, Tenant shall be liable to Landlord for all damages, including,
without limitation, consequential damages, that Landlord suffers from the
holdover.
XXVI. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE.
Tenant accepts this Lease subject and subordinate to any mortgage(s),
deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising
upon the Premises, the Buildings,
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the Property or the Project, and to renewals, modifications, refinancings and
extensions thereof (collectively referred to as a "Mortgage"). The party
having the benefit of a Mortgage shall be referred to as a "Mortgagee". This
clause shall be self-operative, but upon request from a Mortgagee, Tenant
shall execute a commercially reasonable subordination agreement in favor of
the Mortgagee. In lieu of having the Mortgage be superior to this Lease, a
Mortgagee shall have the right at any time to subordinate its Mortgage to
this Lease. If requested by a successor-in-interest to all or a part of
Landlord's interest in the Lease, Tenant shall, without charge, attorn to the
successor-in-interest. Landlord and Tenant shall each, within 10 days after
receipt of a written request from the other, execute and deliver an estoppel
certificate to those parties as are reasonably requested by the other
(including a Mortgagee or prospective purchaser). The estoppel certificate
shall include a statement certifying that this Lease is unmodified (except as
identified in the estoppel certificate) and in full force and effect,
describing the dates to which Rent and other charges have been paid,
representing that, to such party's actual knowledge, there is no default (or
stating the nature of the alleged default) and indicating other matters with
respect to the Lease that may reasonably be requested. Notwithstanding the
foregoing, upon written request by Tenant, Landlord will use reasonable
efforts to obtain a non-disturbance, subordination and attornment agreement
from Landlord's then current Mortgagee on such Mortgagee's then current
standard form of agreement. "Reasonable efforts" of Landlord shall not
require Landlord to incur any cost, expense or liability to obtain such
agreement, it being agreed that Tenant shall be responsible for any fee or
review costs charged by the Mortgagee. Upon request of Landlord, Tenant will
execute the Mortgagee's commercially reasonable form of non-disturbance,
subordination and attornment agreement and return the same to Landlord for
execution by the Mortgagee. Landlord's failure to obtain a non-disturbance,
subordination and attornment agreement for Tenant shall have no effect on the
rights, obligations and liabilities of Landlord and Tenant or be considered
to be a default by Landlord hereunder.
XXVII. ATTORNEYS' FEES.
If either party institutes a suit against the other for violation of
or to enforce any covenant or condition of this Lease, or if either party
intervenes in any suit in which the other is a party to enforce or protect its
interest or rights, the prevailing party shall be entitled to all of its costs
and expenses, including, without limitation, reasonable attorneys' fees.
XXVIII. NOTICE.
If a demand, request, approval, consent or notice (collectively
referred to as a "notice") shall or may be given to either party by the other,
the notice shall be in writing and delivered by hand or sent by registered or
certified mail with return receipt requested, or sent by overnight or same day
courier service at the party's respective Notice Address(es) set forth in
Article I, except that if Tenant has vacated the Premises (or if the Notice
Address for Tenant is other than the Premises, and Tenant has vacated such
address) without providing Landlord a new Notice Address, Landlord may serve
notice in any manner described in this Article or in any other manner permitted
by Law. Each notice shall be deemed to have been received or given on the
earlier to occur of actual delivery or the date on which delivery is refused,
or, if Tenant has vacated the Premises or the other Notice Address of Tenant
without providing a new Notice Address, three (3) days after notice is deposited
in the U.S. mail or with a courier service in the manner described above.
Either party may, at any time, change its Notice Address by giving the other
party written notice of the new address in the manner described in this Article.
XXIX. EXCEPTED RIGHTS.
This Lease does not grant any rights to light or air over or about
the Buildings or the Project. Subject to Tenant's reasonable security and
operating procedures and the provisions of Article XI of this Lease, Landlord
excepts and reserves to itself the use of: (1) roofs, (2) telephone and
electrical closets, (3) equipment rooms, Building risers or similar areas,
(4) rights to the land and improvements below the floor of the Premises, (5)
the improvements and air rights above the Premises and the Project, (6) the
improvements and air rights outside the demising walls of the Premises, and
(7) the areas within the Premises used for the installation of utility lines
and other installations serving occupants of the Buildings and/or the
Project. Notwithstanding the foregoing to the contrary, and subject to the
terms of Article IX above, Tenant shall have the right to access the areas
specified in subclauses (1), (2), (3) and (7) above. Landlord has the right
to change the name or address of the Buildings and/or the Project. Landlord
also has the right to make such other changes to the Project, Property and
Buildings as Landlord deems appropriate, provided the changes do not
materially affect
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Tenant's ability to use the Premises for the Permitted Use or increase any
Rent payable by Tenant (except to the extent provided and permitted pursuant
to Article IV above). Landlord shall also have the right (but not the
obligation) to temporarily close the Buildings and/or the Project if Landlord
reasonably determines that there is an imminent danger of significant damage
to the Buildings or the Project or of personal injury to Landlord's employees
or the occupants of the Buildings and/or the Project. The circumstances
under which Landlord may temporarily close the Buildings and/or the Project
shall include, without limitation, electrical interruptions, hurricanes and
civil disturbances. A closure of the Buildings and/or the Project under such
circumstances shall not constitute a constructive eviction nor entitle Tenant
to an abatement or reduction of Rent.
XXX. SURRENDER OF PREMISES.
At the expiration or earlier termination of this Lease or Tenant's
right of possession, Tenant shall remove Tenant's Property (defined in
Article XV) from the Premises, and quit and surrender the Premises to Landlord,
broom clean, and in good order, condition and repair, ordinary wear and tear
excepted. Tenant shall also be required to remove the Required Removables in
accordance with Article VIII. If Tenant fails to remove any of Tenant's
Property within 2 days after the termination of this Lease or of Tenant's right
to possession, Landlord, at Tenant's sole cost and expense, shall be entitled
(but not obligated) to remove and store Tenant's Property. Landlord shall not
be responsible for the value, preservation or safekeeping of Tenant's Property.
Tenant shall pay Landlord, upon demand, the expenses and storage charges
incurred for Tenant's Property. In addition, if Tenant fails to remove Tenant's
Property from the Premises or storage, as the case may be, within 30 days after
written notice, Landlord may deem all or any part of Tenant's Property to be
abandoned, and title to Tenant's Property shall be deemed to be immediately
vested in Landlord.
XXXI. MISCELLANEOUS.
A. This Lease and the rights and obligations of the parties shall
be interpreted, construed and enforced in accordance with the
Laws of the State of California and Landlord and Tenant hereby
irrevocably consent to the jurisdiction and proper venue of
such state. If any term or provision of this Lease shall to
any extent be invalid or unenforceable, the remainder of this
Lease shall not be affected, and each provision of this Lease
shall be valid and enforced to the fullest extent permitted by
Law. The headings and titles to the Articles and Sections of
this Lease are for convenience only and shall have no effect
on the interpretation of any part of the Lease.
B. Tenant shall not record this Lease or any memorandum without
Landlord's prior written consent.
C. Landlord and Tenant hereby waive any right to trial by jury in
any proceeding based upon a breach of this Lease.
D. Whenever a period of time is prescribed for the taking of an
action by Landlord or Tenant, the period of time for the
performance of such action shall be extended by the number of
days that the performance is actually delayed due to strikes,
acts of God, shortages of labor or materials, war, civil
disturbances and other causes beyond the reasonable control of
the performing party ("Force Majeure"). However, events of
Force Majeure shall not extend any period of time for the
payment of Rent or other sums payable by either party or any
period of time for the written exercise of an option or right
by either party.
E. Landlord shall have the right to transfer and assign, in whole
or in part, all of its rights and obligations under this Lease
and in the Project, Buildings and/or Property referred to
herein, and upon such transfer Landlord shall be released from
any further obligations hereunder, and Tenant agrees to look
solely to the successor in interest of Landlord for the
performance of such obligations. Notwithstanding the
foregoing, unless such liability is assumed in writing by its
successor in interest hereunder, Landlord shall remain liable
after its period of ownership with respect to any sums due in
connection with a breach or default that arose during such
period of ownership.
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F. Tenant represents that it has dealt directly with and only
with the Broker as a broker in connection with this Lease.
Tenant shall indemnify and hold Landlord and the Landlord
Related Parties harmless from all claims of any other brokers
claiming to have represented Tenant in connection with this
Lease. Landlord agrees to indemnify and hold Tenant and the
Tenant Related Parties harmless from all claims of any brokers
claiming to have represented Landlord in connection with this
Lease. Landlord agrees to pay a brokerage commission to
Broker in accordance with the terms of a separate written
commission agreement to be entered into by and between
Landlord and Broker, provided that in no event shall Landlord
be obligated to pay a commission to Broker in connection with
any extension of the Term or in connection with any additional
space that is leased by Tenant pursuant to the terms of this
Lease.
G. Tenant covenants, warrants and represents that: (1) each
individual executing, attesting and/or delivering this Lease
on behalf of Tenant is authorized to do so on behalf of
Tenant; (2) this Lease is binding upon Tenant; and (3) Tenant
is duly organized and legally existing in the state of its
organization and is qualified to do business in the State of
California. Landlord covenants, warrants and represents that
(1) each individual executing, attesting and/or delivering
this Lease on behalf of Landlord is authorized to do so on
behalf of Landlord; (2) this Lease is binding upon Landlord;
and (3) Landlord is duly organized and legally existing in the
state of its organization and is qualified to do business in
the State of California. If there is more than one Tenant, or
if Tenant is comprised of more than one party or entity, the
obligations imposed upon Tenant shall be joint and several
obligations of all the parties and entities. Notices,
payments and agreements given or made by, with or to any one
person or entity shall be deemed to have been given or made
by, with and to all of them.
H. Time is of the essence with respect to Tenant's exercise of
any expansion, renewal or extension rights granted to Tenant.
This Lease shall create only the relationship of landlord and
tenant between the parties, and not a partnership, joint
venture or any other relationship. This Lease and the
covenants and conditions in this Lease shall inure only to the
benefit of and be binding only upon Landlord and Tenant and
their permitted successors and assigns.
I. The expiration of the Term, whether by lapse of time or
otherwise, shall not relieve either party of any obligations
which accrued prior to or which may continue to accrue after
the expiration or early termination of this Lease. Without
limiting the scope of the prior sentence, it is agreed that
Tenant's obligations under Articles VIII, XIV, XX, XXV and
XXX, and any accrued obligations under Article IV shall
survive the expiration or early termination of this Lease.
J. Landlord has delivered a copy of this Lease to Tenant for
Tenant's review only, and the delivery of it does not
constitute an offer to Tenant or an option. This Lease shall
not be effective against any party hereto until an original
copy of this Lease has been signed by such party.
K. All understandings and agreements previously made between the
parties are superseded by this Lease, and neither party is
relying upon any warranty, statement or representation not
contained in this Lease. This Lease may be modified only by a
written agreement signed by Landlord and Tenant.
L. Tenant, within 15 days after request, shall provide Landlord
with a current financial statement and such other information
as Landlord may reasonably request in order to create a
"business profile" of Tenant and determine Tenant's ability to
fulfill its obligations under this Lease. Landlord, however,
shall not require Tenant to provide such information unless
Landlord is requested to produce the information in connection
with a proposed financing or sale of the Building(s) and/or
the Project. Upon written request by Tenant, Landlord shall
enter into a commercially reasonable confidentiality agreement
covering any confidential information that is disclosed by
Tenant.
M. This Lease shall be subject to the terms and conditions of
(a) Declaration Of Covenants, Conditions And Restrictions Of
Shoreline Technology Park ("Declaration") imposing certain
covenants, conditions and restrictions on the use
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and management of Shoreline Technology Park, (b) the Bylaws
("Bylaws") of Shoreline Park Association ("Association"), a
California nonprofit mutual benefit corporation charged with
the responsibility of managing Shoreline Technology Park in
accordance with the Declaration, Articles Of Incorporation of
the Association ("Articles") and the Bylaws, and (c) the rules
("Rules") adopted from time to time by the Association in
accordance with the Declaration providing for restrictions on
the use of Shoreline Technology Park. The Declaration,
Bylaws, Articles and Rules are collectively referred to herein
as the "Governing Documents". Any failure to comply with the
Governing Documents shall be a default under the terms of this
Lease.
N. Except with regard to requests for consent or approval that
require Landlord to make a determination of the aesthetics of
certain signage, alterations or other things that would be
visible from outside the Premises or Buildings or to assume
certain risks, including, without limitation, the risk that a
certain alteration, addition and/or improvement could
adversely affect the mechanical systems or structure of the
Buildings or require excess removal costs, Landlord and Tenant
agree to act reasonably in granting approval or disapproval of
any requests by the other for consent or approval.
XXXII. ENTIRE AGREEMENT.
This Lease and the following exhibits and attachments constitute the
entire agreement between the parties and supersede all prior agreements and
understandings related to the Premises, including all lease proposals, letters
of intent and other documents: EXHIBIT A-1 (Outline and Location of Premises),
EXHIBIT A-2 (Outline and Location of Project), EXHIBIT A-3 (Outline and Location
of Recreational Area), EXHIBIT B (Rules and Regulations), EXHIBIT C
(Commencement Letter), EXHIBIT D (Work Letter Agreement), EXHIBIT E (Additional
Provisions), EXHIBIT F (Parking Agreement), EXHIBIT G (Form of Letter of Credit)
and EXHIBIT H (Tenant's Trade Fixtures and Equipment).
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Landlord and Tenant have executed this Lease as of the day and year
first above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership, a Delaware
limited partnership, its sole member
By: Equity Office Properties Trust, a
Maryland real estate investment trust,
its managing general partner
By: /s/ Peter H. Adams
--------------------------------
Name: Peter H. Adams
--------------------------------
Title: Senior Vice President
--------------------------------
TENANT:
INTRABIOTICS PHARMACEUTICALS, INC., A DELAWARE
CORPORATION
By: /s/ Kenneth J. Kelley
-----------------------------
Name: Kenneth J. Kelley
-----------------------------
Title: President and CEO
-----------------------------
By: /s/ Sandra J. Wrobel
-----------------------------
Name: Sandra J. Wrobel
-----------------------------
Title: V.P. Corp. Strategy & Finance
-----------------------------
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EXHIBIT "A"
Date:
To: Silicon Valley Bank
3003 Tasman Drive Re: Standby Letter of Credit
Santa Clara, CA 95054 No. SVBF00IS2056 Issued By
Attn: International Division. Silicon Valley Bank, Santa Clara
Standby Letters of Credit L/C Amount:
Gentlemen:
For value received, the undersigned Beneficiary hereby irrevocably transfers to:
(Name of Transferee)
(Address)
All rights of the undersigned Beneficiary to draw under the above letter of
credit up to its available amount as shown above as of the date of this
transfer.
By this transfer, all rights of the undersigned Beneficiary in such letter of
credit are transferred to the Transferee. Transferee shall have the sole right
as Beneficiary thereof, including sole rights relating to any amendments,
whether increases or extensions or other amendments, and whether now existing or
hereafter made. All amendments are to be advised direct to the Transferee
without necessity of any consent of or notice to the undersigned Beneficiary.
The original of such letter of credit is returned herewith, and we ask you to
endorse the transfer on the reverse thereof, and forward it directly to the
Transferee with your customary Notice of Transfer.
Sincerely,
- -----------------------
(Beneficiary's Name)
- -----------------------
Signature of Beneficiary
- -----------------------
(Name of Bank)
- -----------------------
Authorized Signature
<PAGE>
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2056
Date: February 1, 2000
Beneficiary:
EOP-Shoreline Technology Park, L.L.C.
Two North Riverside Plaza
Suite 2200
Chicago, IL 60606
As "Landlord"
Applicant:
IntraBiotics Pharmaceuticals, Inc.
1255 Terra Bella Ave.
Mountain View, CA 94043
As "Tenant"
Amount: US$1,000,000.00 (One Million and No/100 U.S. Dollars)
Expiration Date: May 1, 2001
Location: At our counters in Santa Clara, California
Dear Sir/Madam:
We hereby establish our irrevocable standby letter of credit No. SVB00IS2056 in
your favor available by your drafts drawn on us at sight and accompanied by the
following documents:
1. The original of this letter of credit and all amendment(s), if any.
2. A dated certification signed by an authorized officer of the beneficiary,
followed by its designated title, stating the following:
(A) "This draw in the amount of U.S. $___________ (amount in words) under
your irrevocable letter of credit number: SVB00IS2056 represents funds
due and owing to us as a result of the Applicant's failure to comply
with one or more of the terms of that certain lease by and between
EOP-Shoreline Technology Park, L.L.C., as Landlord, and IntraBiotics
Pharmaceuticals, Inc., as Tenant."
Partial draws are allowed. This letter of credit must accompany any drawings
hereunder for endorsement of the drawing amount and will be returned to the
beneficiary unless it is fully utilized.
This letter of credit shall be automatically extended for an additional period
of one year, without amendment, from the present or each future expiration date
but in any event not beyond June 30, 2011 which shall be the final expiration
date of this letter of credit, unless, at least sixty (60) days prior to the
then current expiration date we notify you by registered mail/overnight courier
service at the above address, with a copy of such notice to: Equity Office
Properties Trust, 2
<PAGE>
IRREVOCABLE STANDBY LETTER OF CREDIT NO. SVB00IS2056
Date: February 1, 2000
North Riverside Plaza, Suite 2200, Chicago, IL 60606, Attention: Senior Vice
President, Treasurer. That this letter of credit will not be extended beyond
the current expiration date. Upon receipt of such notice you may draw your
sight draft drawn on us for the available amount under this standby letter of
credit accompanied by your dated statement signed by one of your authorized
officers, followed by their designated title, certifying the following: "We
are in receipt of your notice that you have elected not to renew your
irrevocable standby letter of credit No.: SVB00IS2056 and Applicant has
failed to provide us with an acceptable substitute irrevocable letter of
credit in accordance with the terms of the above referenced lease."
This letter of credit may only be transferred in its entirety by the issuing
bank upon our receipt of the attached "Exhibit A" duly completed and executed
by the Beneficiary and accompanied by the original letter of credit and all
amendment(s), if any, together with the payment of our transfer fee of 1/4 of
1% of the transfer amount (minimum USD250.00).
Draft(s) and documents must indicate the number and date of this letter of
credit.
Documents must be forwarded to us by overnight delivery service to: Silicon
Valley Bank, 3003 Tasman Drive, Santa Clara, CA 95054, Attn: International
Division.
We hereby agree with the drawers, endorsers and bonafide holders that the drafts
drawn under and in accordance with the terms and conditions of this letter of
credit shall be duly honored upon presentation to the drawee, if negotiated on
or before the expiration date of this credit. We further acknowledge and agree
that upon receipt of the documentation required herein, we will honor your draws
against this irrevocable standby letter of credit without inquiry into the
accuracy of Beneficiary's signed statement and regardless of whether Applicant
disputes the content of such statement.
This letter of credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500.
- -------------------------- --------------------------
Authorized Signature Authorized Signature
<PAGE>
EXHIBIT A-1
OUTLINE AND LOCATION OF PREMISES
This Exhibit is attached to and made a part of the Lease dated as of
February 7, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and INTRABIOTICS
PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant") for space in the
Buildings located at 2011 Stierlin Court and 2021 Stierlin Court, Mountain View,
California.
[MAP]
EXHIBIT A
Page 1
<PAGE>
EXHIBIT A-2
OUTLINE AND LOCATION OF PROJECT
This Exhibit is attached to and made a part of the Lease dated as of
February 7, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and INTRABIOTICS
PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant") for space in the
Buildings located at 2011 Stierlin Court and 2021 Stierlin Court, Mountain View,
California.
[MAP]
EXHIBIT A
Page 2
<PAGE>
EXHIBIT A-3
OUTLINE AND LOCATION OF RECREATIONAL AREA
This Exhibit is attached to and made a part of the Lease dated as of
February 7, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and INTRABIOTICS
PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant") for space in the
Buildings located at 2011 Stierlin Court and 2021 Stierlin Court, Mountain View,
California.
[MAP]
EXHIBIT A
Page 3
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to
the Premises, the Building, and the Property. Capitalized terms have the same
meaning as defined in the Lease.
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenant or used by Tenant for any
purpose other than ingress and egress to and from the Premises. No
rubbish, litter, trash, or material shall be placed, emptied, or
thrown in those areas. At no time shall Tenant permit Tenant's
employees to loiter in Common Areas or elsewhere about the Buildings,
Property or Project except in connection with such employees'
legitimate use of the Common Areas, Buildings, Property and Project
pursuant to the terms of this Lease.
2. Plumbing fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other
unsuitable material shall be thrown or placed in the fixtures or
appliances. Damage resulting to fixtures or appliances by Tenant, its
agents, employees or invitees, shall be paid for by Tenant, and
Landlord shall not be responsible for the damage.
3. No signs, advertisements or notices shall be painted or affixed to
windows, doors or other parts of the Buildings or Project, except
those of such color, size, style and in such places as are first
approved in writing by Landlord. All tenant identification and suite
numbers at the entrance to the Premises shall be installed by
Landlord, at Tenant's cost and expense, using the standard graphics
for the Building.
4. Tenant shall not place any lock(s) on any door in the Premises,
Buildings or Project without Landlord's prior written consent (which
consent shall not be unreasonably withheld) and Landlord shall have
the right to retain at all times and to use keys to all locks within
and into the Premises. All keys shall be returned to Landlord at the
expiration or early termination of this Lease.
5. Movement in or out of the Buildings and/or the Project of furniture or
equipment, or, in the event more than one tenant occupies the
Buildings (other than pursuant to a sublease), dispatch or receipt by
Tenant of merchandise or materials requiring the use of elevators,
stairways, lobby areas or loading dock areas, shall be restricted to
hours designated by Landlord. In such event, Tenant shall obtain
Landlord's prior approval by providing a detailed listing of the
activity. If approved by Landlord, the activity shall be under the
reasonable supervision of Landlord and performed in the manner
reasonably required by Landlord. Tenant shall assume all risk for
damage to articles moved and injury to any persons resulting from the
activity. If equipment, property, or personnel of Landlord or of any
other party is damaged or injured as a result of or in connection with
the activity, Tenant shall be solely liable for any resulting damage
or loss.
6. Landlord shall have the right to approve the weight, size, or location
of heavy equipment or articles in and about the Premises, which
consent shall not be unreasonably withheld, delayed or conditioned.
Damage to the Building(s) and/or the Project by the installation,
maintenance, operation, existence or removal of Tenant's Property
shall be repaired at Tenant's sole expense.
7. Corridor doors, when not in use, shall be kept closed.
8. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building(s) and/or the Project, or
otherwise interfere in any way with other tenants or persons having
business in the Project; (2) solicit business or distribute, or cause
to be distributed, in any portion of the Building(s) and/or the
Project, handbills, promotional materials or other advertising; or
(3) conduct or permit other activities in the Buildings and/or the
Project, that might, in Landlord's sole opinion, constitute a
nuisance.
9. No aquariums shall be brought into the Buildings and/or the Project,
or kept in or about the Premises.
10. No inflammable, explosive or dangerous fluids or substances shall be
used or kept by Tenant in the Premises, Buildings, Project or about
the Property, except for commercially
EXHIBIT B
Page 1
<PAGE>
reasonable quantities of cleaning supplies and office supplies and
substances utilized by Tenant in connection with its business and
operation in the Premises, provided that Tenant keeps, maintains,
stores, removes and disposes of such materials in accordance with
applicable Laws and any manufacturers' instructions and provided
further that Landlord has first reviewed and approved (in the
exercise of its reasonable discretion) in writing the quantities
and types of substances to be utilized by Tenant. Notwithstanding
the foregoing, Tenant shall not, without Landlord's prior written
consent, spill, remove, release or dispose of, within or about the
Premises or any other portion of the Property or Project, any
asbestos-containing materials or any solid, liquid or gaseous
material now or subsequently considered toxic or hazardous under
the provisions of 42 U.S.C. Section 9601 et seq. or any other
applicable environmental Law which may now or later be in effect.
Tenant shall comply with all Laws pertaining to and governing the
use of the materials described in this Paragraph 10 by Tenant, and
shall remain solely liable for the costs of abatement and removal.
11. Tenant shall not use or occupy the Premises in any manner or for any
purpose which might injure the reputation or impair the present or
future value of the Premises, the Buildings or the Project. Tenant
shall not use, or permit any part of the Premises to be used, for
lodging, sleeping or for any illegal purpose.
12. Tenant shall not take any action which would violate Landlord's labor
contracts or which would cause a work stoppage, picketing, labor
disruption or dispute, or interfere with Landlord's or any other
tenant's or occupant's business or with the rights and privileges of
any person lawfully in the Buildings or the Project ("Labor
Disruption"). Tenant shall take the actions necessary to resolve the
Labor Disruption, and shall have pickets removed and, at the request
of Landlord, immediately terminate any work in the Premises that gave
rise to the Labor Disruption, until Landlord gives its written consent
for the work to resume. Tenant shall have no claim for damages
against Landlord or any of the Landlord Related Parties, nor shall the
Commencement Date of the Term be extended as a result of the above
actions.
13. Tenant shall not install, operate or maintain in the Premises or in
any other area of the Buildings or the Project, electrical equipment
that would overload the electrical system beyond its capacity for
proper, efficient and safe operation as determined solely by Landlord.
Except as otherwise permitted or provided by Article VII and
Article X.B. of this Lease, Tenant shall not furnish cooling or
heating to the Premises, including, without limitation, the use of
electronic or gas heating devices, without Landlord's prior written
consent. Tenant shall not use more than its proportionate share of
telephone lines and other telecommunication facilities available to
service the Buildings and/or the Project.
14. Tenant shall not operate or permit to be operated a coin or token
operated vending machine or similar device (including, without
limitation, telephones, lockers, toilets, scales, amusement devices
and machines for sale of beverages, foods, candy, cigarettes and other
goods), except for machines for the exclusive use of Tenant's
employees and invitees.
15. Landlord may from time to time adopt systems and procedures for the
security and safety of the Buildings, the Project and their occupants,
entry, use and contents. Tenant, its agents, employees, contractors,
guests and invitees shall comply with Landlord's reasonable systems
and procedures.
16. Landlord shall have the right to prohibit the use of the name of the
Buildings and/or the Project or any other publicity by Tenant that in
Landlord's sole opinion may impair the reputation of the Buildings
and/or the Project or their desirability. Upon written notice from
Landlord, Tenant shall refrain from and discontinue such publicity
immediately.
17. Tenant shall not canvass, solicit or peddle in or about the Buildings,
the Property or the Project.
18. Neither Tenant nor its agents, employees, contractors, guests or
invitees shall smoke or permit smoking in the Common Areas, unless the
Common Areas have been declared a designated smoking area by Landlord,
nor shall the above parties allow smoke from the Premises to emanate
into the Common Areas or any other part of the Buildings or the
Project. Landlord shall have the right to designate the Buildings
(including the Premises) and/or the Project as a non-smoking building
or area.
EXHIBIT B
Page 2
<PAGE>
19. Landlord shall have the right to designate and approve standard window
coverings for the Premises and to establish rules to assure that the
Buildings and the Project present a uniform exterior appearance.
Tenant shall ensure, to the extent reasonably practicable, that window
coverings are closed on windows in the Premises while they are exposed
to the direct rays of the sun.
20. Deliveries to and from the Premises shall be made only at the times,
in the areas and through the entrances and exits reasonably designated
by Landlord. Tenant shall not make deliveries to or from the Premises
in a manner that might interfere with the use by any other tenant of
its premises or of the Common Areas, any pedestrian use, or any use
which is inconsistent with good business practice.
EXHIBIT B
Page 3
<PAGE>
EXHIBIT C
COMMENCEMENT LETTER
(EXAMPLE)
Date ______________________
Tenant ______________________
Address ______________________
______________________
______________________
Re: Commencement Letter with respect to that certain Lease dated as of
___________, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK,
L.L.C., A DELAWARE LIMITED LIABILITY COMPANY, as Landlord, and
INTRABIOTICS PHARMACEUTICALS, INC., A DELAWARE CORPORATION, as Tenant,
for 124,032 rentable square feet in the Buildings located at 2011
Stierlin Court and 2021 Stierlin Court, Mountain View, California.
Dear __________________:
In accordance with the terms and conditions of the above referenced
Lease, Tenant accepts possession of the Premises and agrees:
1. The Building ___ Commencement Date is
________________________;
2. The Termination Date of the Lease is
____________________________.
Please acknowledge your acceptance of possession and agreement to the
terms set forth above by signing all 3 counterparts of this Commencement Letter
in the space provided and returning 2 fully executed counterparts to my
attention.
Sincerely,
___________________________________
Property Manager
Agreed and Accepted:
Tenant:______________________
By: ______________________
Name: ______________________
Title: ______________________
Date: ______________________
EXHIBIT C
Page 1
<PAGE>
EXHIBIT D
WORK LETTER
This Exhibit is attached to and made a part of the Lease dated as of
February 7, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and INTRABIOTICS
PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant") for space in the
Buildings located at 2011 Stierlin Court and 2021 Stierlin Court, Mountain View,
California.
I. ALTERATIONS AND ALLOWANCE.
A. Tenant, following the delivery of the Premises by Landlord and
the full and final execution and delivery of this Lease and
all prepaid rental and security deposits required hereunder,
shall have the right to perform alterations and improvements
in the Premises (the "Initial Alterations"). Notwithstanding
the foregoing, Tenant and its contractors shall not have the
right to perform Initial Alterations in the Premises unless
and until Tenant has complied with all of the terms and
conditions of Article IX.C. of this Lease, including, without
limitation, approval by Landlord of the final plans for the
Initial Alterations and the contractors to be retained by
Tenant to perform such Initial Alterations. Tenant shall be
responsible for all elements of the design of Tenant's plans
(including, without limitation, compliance with law,
functionality of design, the structural integrity of the
design, the configuration of the premises and the placement of
Tenant's furniture, appliances and equipment), and Landlord's
approval of Tenant's plans shall in no event relieve Tenant of
the responsibility for such design. Tenant may choose the
general contractor that shall perform the Initial Alterations
in the Premises, subject to Landlord's approval. Landlord's
approval of the contractors to perform the Initial Alterations
shall not be unreasonably withheld. The parties agree that
Landlord's approval of the general contractor to perform the
Initial Alterations shall not be considered to be unreasonably
withheld if any such general contractor (i) does not have
trade references reasonably acceptable to Landlord, (ii) does
not maintain insurance as required pursuant to the terms of
this Lease, (iii) does not have the ability to be bonded for
the work in an amount of no less than $1,000,000.00, (iv) does
not provide current financial statements reasonably acceptable
to Landlord, or (v) is not licensed as a contractor in the
state/municipality in which the Premises is located. Tenant
acknowledges the foregoing is not intended to be an exclusive
list of the reasons why Landlord may reasonably withhold its
consent to a general contractor.
B. Provided Tenant is not in default, Landlord agrees to
contribute the sum of $290,880.00 (the "Building 2 Allowance")
and $329,280.00 (the "Building 1 Allowance") (collectively,
the "Allowance") toward the cost of performing the Initial
Alterations in preparation of Tenant's occupancy of the
Premises. The Allowance may only be used for the cost of
preparing design and construction documents and mechanical and
electrical plans for the Initial Alterations and for hard
costs (including, without limitation, payments to contractors,
subcontractors, suppliers and consultants) in connection with
the Initial Alterations. The Allowance shall be paid to
Tenant or, at Landlord's option, to the order of the general
contractor that performs the Initial Alterations, in periodic
disbursements within 30 days after receipt of the following
documentation: (i) an application for payment and sworn
statement of contractor substantially in the form of AIA
Document G-702 covering all work for which disbursement is to
be made to a date specified therein; (ii) a certification from
an AIA architect substantially in the form of the Architect's
Certificate for Payment which is located on AIA Document G702,
Application and Certificate of Payment; (iii) Contractor's,
subcontractor's and material supplier's waivers of liens which
shall cover all Initial Alterations for which disbursement is
being requested and all other statements and forms required
for compliance with the mechanics' lien laws of the State of
California, together with all such invoices, contracts, or
other supporting data as Landlord or Landlord's Mortgagee may
reasonably require; (iv) a cost breakdown for each trade or
subcontractor performing the Initial Alterations; (v) plans
and specifications for the Initial Alterations, together with
a certificate from an AIA architect that such plans and
specifications comply in all material respects with all laws
affecting the Building,
EXHIBIT D
Page 1
<PAGE>
Property and Premises; (vi) copies of all construction
contracts for the Initial Alterations, together with copies
of all change orders, if any; and (vii) a request to
disburse from Tenant containing an approval by Tenant of the
work done and a good faith estimate of the cost to complete
the Initial Alterations. Upon completion of the Initial
Alterations with respect to Building 2 or Building 1, as the
case may be, and prior to final disbursement of the Building
2 Allowance or the Building 1 Allowance, as the case may be,
Tenant shall furnish Landlord with the following with
respect to Building 2 or Building 1, as the case may be: (1)
general contractor and architect's completion affidavits,
(2) full and final waivers of lien, (3) receipted bills
covering all labor and materials expended and used, (4)
as-built plans of the Initial Alterations, and (5) the
certification of Tenant and its architect that the Initial
Alterations have been installed in a good and workmanlike
manner in accordance with the approved plans, and in
accordance with applicable laws, codes and ordinances. In
no event shall Landlord be required to disburse the
Allowance more than one time per month. If the cost of the
Initial Alterations for Building 2 or Building 1, as the
case may be, exceeds the Building 2 Allowance or the
Building 1 Allowance, respectively, Tenant shall be entitled
to the Building 2 Allowance or the Building 1 Allowance, as
the case may be, in accordance with the terms hereof, but
each individual disbursement of the Building 2 Allowance or
the Building 1 Allowance, as the case may be, shall be
disbursed in the proportion that the Building 2 Allowance or
the Building 1 Allowance, as the case may be, bears to the
total cost for the Initial Alterations for Building 2 or
Building 1, as the case may be. Notwithstanding anything
herein to the contrary, Landlord shall not be obligated to
disburse any portion of the Allowance during the continuance
of an uncured default under the Lease, and Landlord's
obligation to disburse shall only resume when and if such
default is cured.
C. In no event shall the Allowance be used for the purchase of
equipment, furniture or other items of personal property of
Tenant. In the event Tenant does not use the Building 2
Allowance by December 31, 2000, or in the event Tenant does
not use the entire Building 1 Allowance by December 31, 2001,
any unused amount shall accrue to the sole benefit of
Landlord, it being understood that Tenant shall not be
entitled to any credit, abatement or other concession in
connection therewith. Tenant shall be responsible for all
applicable state sales or use taxes, if any, payable in
connection with the Initial Alterations and/or Allowance.
D. Tenant agrees to accept the Premises in its "as-is" condition
and configuration, it being agreed that Landlord shall not be
required to perform any work or, except as provided above with
respect to the Allowance, incur any costs in connection with
the construction or demolition of any improvements in the
Premises.
E. This EXHIBIT D shall not be deemed applicable to any
additional space added to the original Premises at any time or
from time to time, whether by any options under the Lease or
otherwise, or to any portion of the original Premises or any
additions to the Premises in the event of a renewal or
extension of the original Term of this Lease, whether by any
options under the Lease or otherwise, unless expressly so
provided in the Lease or any amendment or supplement to the
Lease.
EXHIBIT D
Page 2
<PAGE>
Landlord and Tenant have executed this Exhibit as of the day and year
first above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its sole member
By: Equity Office Properties Trust,
a Maryland real estate investment
trust, its managing general partner
By: /s/ Peter H. Adams
-----------------------------
Name: Peter H. Adams
-----------------------------
Title: Senior Vice President
-----------------------------
TENANT:
INTRABIOTICS PHARMACEUTICALS, INC., A DELAWARE
CORPORATION
By: /s/ Kenneth J. Kelley
------------------------------
Name: Kenneth J. Kelley
------------------------------
Title: President and CEO
------------------------------
By: /s/ Sandra J. Wrobel
------------------------------
Name: Sandra J. Wrobel
------------------------------
Title: V.P., Corp. Strategy & Finance
------------------------------
EXHIBIT D
Page 3
<PAGE>
EXHIBIT E
ADDITIONAL PROVISIONS
This Exhibit is attached to and made a part of the Lease dated as of
February 7, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and INTRABIOTICS
PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant") for space in the
Buildings located at 2011 Stierlin Court and 2021 Stierlin Court, Mountain View,
California.
I. RENEWAL OPTION.
A. Tenant shall have the right to extend the Term (the "Renewal
Option") for the entire Premises only for one additional
period of 5 years commencing on the day following the
Termination Date of the initial Term and ending on the 5th
anniversary of the Termination Date (the "Renewal Term"), if:
1. Landlord receives notice of exercise of the Renewal
Option ("Initial Renewal Notice") not less than 18 full
calendar months prior to the expiration of the initial
Term and not more than 24 full calendar months prior to
the expiration of the initial Term; and
2. Tenant is not in default under the Lease beyond any
applicable cure periods at the time that Tenant delivers
its Initial Renewal Notice or at the time Tenant delivers
its Binding Notice (as hereinafter defined); and
3. No part of the Premises is sublet (other than pursuant to
a Permitted Transfer) at the time that Tenant delivers
its Initial Renewal Notice or at the time Tenant delivers
its Binding Notice; and
4. The Lease has not been assigned (other than pursuant to a
Permitted Transfer) prior to the date that Tenant
delivers its Initial Renewal Notice or prior to the date
Tenant delivers its Binding Notice.
B. The initial Base Rent rate per rentable square foot for the
Premises during the Renewal Term shall equal the Prevailing
Market (hereinafter defined) rate per rentable square foot for
the Premises.
C. Tenant shall pay Additional Rent (i.e. Expenses and Taxes) for
the Premises during the Renewal Term in accordance with
Article IV of the Lease.
D. Within 30 days after receipt of Tenant's Initial Renewal
Notice, Landlord shall advise Tenant of the applicable Base
Rent rate for the Premises for the Renewal Term. Tenant,
within 15 days after the date on which Landlord advises Tenant
of the applicable Base Rent rate for the Renewal Term, shall
either (i) give Landlord final binding written notice
("Binding Notice") of Tenant's exercise of its option, or
(ii) if Tenant disagrees with Landlord's determination,
provide Landlord with written notice of rejection (the
"Rejection Notice"). If Tenant fails to provide Landlord with
either a Binding Notice or Rejection Notice within such 15 day
period, Tenant's Renewal Option shall be null and void and of
no further force and effect. If Tenant provides Landlord with
a Binding Notice, Landlord and Tenant shall enter into the
Renewal Amendment upon the terms and conditions set forth
herein. If Tenant provides Landlord with a Rejection Notice,
Landlord and Tenant shall work together in good faith to agree
upon the Prevailing Market Base Rent rate for the Premises
during the Renewal Term. Upon agreement Tenant shall provide
Landlord with Binding Notice and Landlord and Tenant shall
enter into the Renewal Amendment in accordance with the terms
and conditions hereof. Notwithstanding the foregoing, if
Landlord and Tenant are unable to agree upon the Prevailing
Market Base Rent rate for the Premises within 30 days after
the date on which Tenant provides Landlord with a Rejection
Notice, Tenant may elect to either rescind its intention to
renew, or subject the process to binding arbitration.
Tenant's election to cause the disagreement to be resolved by
arbitration shall be deemed to be its Binding Notice. If
Tenant fails to require arbitration by notice (the
"Arbitration Notice") within 3 days of the expiration of the
EXHIBIT E
Page 1
<PAGE>
30 day period set forth above, Tenant's right to extend the
Lease shall be null and void and of no further force and
effect.
If Tenant provides Landlord with an Arbitration Notice,
Landlord and Tenant, within 10 days after the date of the
Arbitration Notice, shall each simultaneously submit to the
other, in a sealed envelope, its good faith estimate of the
Prevailing Market rate (collectively referred to as the
"Estimates"). If the higher of such Estimates is not more
than 105% of the lower of such Estimates, then Prevailing
Market rate shall be the average of the two Estimates. If the
Prevailing Market rate is not resolved by the exchange of
Estimates, Landlord and Tenant, within 7 days after the
exchange of Estimates, shall each select an appraiser to
determine which of the two Estimates most closely reflects the
Prevailing Market rate for the Premises during the Renewal
Term. Each appraiser so selected shall be certified as an MAI
appraiser or as an ASA appraiser and shall have had at least 5
years experience within the previous 10 years as a real estate
appraiser working in the Mountain View, California area, with
working knowledge of current rental rates and practices. For
purposes of this Lease, an "MAI" appraiser means an individual
who holds an MAI designation conferred by, and is an
independent member of, the American Institute of Real Estate
Appraisers (or its successor organization, or in the event
there is no successor organization, the organization and
designation most similar), and an "ASA" appraiser means an
individual who holds the Senior Member designation conferred
by, and is an independent member of, the American Society of
Appraisers (or its successor organization, or, in the event
there is no successor organization, the organization and
designation most similar). Upon selection, Landlord's and
Tenant's appraisers shall work together in good faith to agree
upon which of the two Estimates most closely reflects the
Prevailing Market rate for the Premises during the Renewal
Term. The Estimate chosen by such appraisers shall be binding
on both Landlord and Tenant as the Base Rent rate for the
Premises during the Rnewal Term. If either Landlord or Tenant
fails to appoint an appraiser within the seven day period
referred to above, the appraiser appointed by the other party
shall be the sole appraiser for the purposes hereof. If the
two appraisers cannot agree upon which of the two Estimates
most closely reflects the Prevailing Market within the 20 days
after their appointment, then, within 10 days after the
expiration of such 20 day period, the 2 appraisers shall
select a third appraiser meeting the aforementioned criteria.
Once the third appraiser has been selected as provided for
above, then, as soon thereafter as practicable but in any case
within 14 days, the third appraiser shall make his
determination of which of the two Estimates most closely
reflects the Prevailing Market rate and such Estimate shall be
binding on both Landlord and Tenant as the Base Rent rate for
the Premises during the Renewal Term. If the third appraiser
believes that expert advice would materially assist him, he
may retain one or more qualified persons, to provide such
expert advice. The parties shall share equally in the costs
of the third appraiser and of any experts retained by the
third appraiser. Any fees of any appraiser, counsel or
experts engaged directly by Landlord or Tenant, however, shall
be borne by the party retaining such appraiser, counsel or
expert. In the event that the Prevailing Market rate has not
been determined by the commencement date of the Renewal Term,
Tenant shall pay Base Rent upon the terms and conditions in
effect for initial Term until such time as the Prevailing
Market rate has been determined. Upon such determination, the
Base Rent for the Premises during the Renewal Term shall be
retroactively adjusted to the commencement of the Renewal
Term. If such adjustment results in an underpayment of Base
Rent by Tenant, Tenant shall pay Landlord the amount of such
underpayment within 30 days after the determination thereof.
If such adjustment results in an overpayment of Base Rent by
Tenant, Landlord shall credt such overpayment against the next
installment of Base Rent due under the Lease and, to the
extent necessary, any subsequent installments until the entire
amount of such overpayment has been credited against Base
Rent.
E. If Tenant is entitled to and properly exercises its Renewal
Option, Landlord shall prepare an amendment (the "Renewal
Amendment") to reflect changes in the Base Rent, Term,
Termination Date and other appropriate terms. The Renewal
Amendment shall be:
EXHIBIT E
Page 2
<PAGE>
1. sent to Tenant within a reasonable time after receipt of
the Binding Notice; and
2. executed by Tenant and returned to Landlord in accordance
with Paragraph A.5. above.
An otherwise valid exercise of the Renewal Option shall, at
Landlord's option, be fully effective whether or not the
Renewal Amendment is executed.
F. For purpose hereof, "Prevailing Market" shall mean the annual
rental rate per rentable square foot under renewal leases and
amendments entered into on or about the date on which the
Prevailing Market is being determined hereunder for space
comparable to the Premises in the Project. The determination
of Prevailing Market shall take into account any material
economic differences between the terms of this Lease and any
comparison lease, such as rent abatements, construction costs
and other concessions and the manner, if any, in which the
Landlord under any such lease is reimbursed for operating
expenses and taxes. The determination of Prevailing Market
shall also take into consideration any reasonably anticipated
changes in the Prevailing Market rate from the time such
Prevailing Market rate is being determined and the time such
Prevailing Market rate will become effective under this Lease.
G. Landlord and Tenant acknowledge and agree that Tenant's
Renewal Option is personal to Tenant only and in no event
shall Tenant's Renewal Option be assignable or transferable,
except in connection with a Permitted Transfer.
II. CONTINGENCY. This Lease specifically is contingent upon the
modification of that certain lease dated April 18, 1985 (the "Prior
Tenant Lease"), by and between Landlord (as successor by merger to
Beacon Properties, L.P., the successor in interest to Sparks
Properties, Inc.), and Silicon Graphics, Inc., a California
corporation ("Prior Tenant") relating to the Premises. Landlord
currently is negotiating the terms of an agreement with Prior Tenant
to terminate or modify the Prior Tenant Lease (the "Prior Tenant
Modification Agreement") with respect to the Premises. If Landlord
fails to enter into the Prior Tenant Modification Agreement with Prior
Tenant in form and substance satisfactory to Landlord on or before the
later of (i) February 12, 2000, or (ii) 5 days following the date this
Lease, executed by Tenant, together with all prepaid rental and
security deposits required hereunder, is delivered to Landlord, then
Landlord may terminate this Lease by providing written notice thereof
to Tenant.
III. HAZARDOUS MATERIALS. Landlord shall indemnify, defend, protect, save,
hold harmless, and reimburse Tenant, its partners, officers, directors
and employees for, from and against any and all costs, losses,
liabilities, damages, assessments, lawsuits, deficiencies, demands,
claims and expenses incurred in connection with, arising out of,
resulting from or incident to, the production, use, generation,
storage, treatment, disposal, discharge, release or other handling or
disposition of any Hazardous Materials (defined below) on or about the
Project by Landlord, its officers, employees, agents (in their
capacity as agents) and/or independent contractors (in their capacity
as independent contractors), including, without limitation, the
effects of handling of any Hazardous Materials on any person or
property within or outside the boundaries of the Project; but
excluding from the foregoing indemnity, Tenant's negligence or the
handling by Tenant during Tenant's occupancy of the Premises of any
Permitted Materials (as hereinafter defined) and/or Hazardous
Materials on or about the Project at levels which pose a risk to
persons located on or about the Project, and which prompt the
initiation of a removal, response, remedial or other action by a
governmental agency or authority possessing and exercising
jurisdiction over the Project. For purposes hereof "Hazardous
Materials" shall mean any flammable explosives, radioactive materials,
hazardous wastes, toxic substances, or any related materials or
substances, including, without limitation, any substance defined as or
included in the definition of "hazardous substances" under any
applicable federal, state or local law, regulation or ordinance
(collectively, "Hazardous Materials"). Tenant shall indemnify,
defend, protect, save, hold harmless, and reimburse Landlord, its
partners, officers, directors and employees for, from and against any
and all costs, losses, liabilities, damages, assessments, lawsuits,
deficiencies, demands, claims and expenses incurred in connection
with, arising out of, resulting from or incident to, the production,
use, generation, storage, treatment, disposal, discharge, release or
other handling or disposition of any Hazardous Materials
EXHIBIT E
Page 3
<PAGE>
on or about the Project by Tenant, its officers, employees, agents
and/or independent contractors, including, without limitation, the
effects of such handling of any Hazardous Materials on any person
or property within or outside the boundaries of the Project; but
excluding from the foregoing indemnity, Landlord's negligence or
the handling by Landlord of any Permitted Materials and/or
Hazardous Materials on or about the Project at levels which pose a
risk to persons located on or about the Project, and which prompt
the initiation of a removal, response, remedial or other action by
a governmental agency or authority possessing and exercising
jurisdiction over the Project. Notwithstanding the provisions of
this section, Tenant and Landlord shall have the right to use,
generate and store on the Premises and the Building, and transport
to and from the premises and the Building, those Hazardous
Materials which are generally used in the ordinary course in first
class office buildings (collectively, "Permitted Materials");
provided, however, that Tenant's use, generation, storage and
transport thereof is in compliance with all applicable federal,
state and local laws, regulations andordinances and any
manufacturers' instructions.
IV. PERMITTED USE.
A. Landlord acknowledges that as part of Tenant's operations in
the Premises, Tenant shall perform certain medical research
work on the following types of animals: mice, rats, rabbits,
guinea pigs and hamsters (the "Permitted Animals"). Tenant
shall not perform any research work on any animals (or parts
thereof) other than the Permitted Animals, and Tenant shall
not permit any animals in the Premises other than the
Permitted Animals. Tenant shall at all times keep and
maintain the Permitted Animals utilized by Tenant in
accordance with the Lab Standards (as defined in Article IX.A.
of the Lease). All animals brought into the Project shall be
transported in accordance with such rules and regulations as
Landlord shall reasonably designate. All animals kept in the
Premises shall be caged or restrained at all times. In no
event shall Tenant use or occupy the Premises in a manner that
would be inconsistent with the character and dignity of the
Building or the Project and Landlord may require Tenant to
immediately cease any business, procedures, activities or
other use which is causing disturbance of, or interference
with Landlord's operation and management of the Project or the
use and occupancy thereof by any tenant therein.
B. Without limiting the limitations imposed by the Permitted Use
clause, Tenant shall not use or permit the Premises to be used
for any purpose that would allow animal, medical or medicinal
odors, fumes or noises to emanate from the Premises. In the
event such odors, fumes or noises do emanate from the
Premises, Tenant, at its sole cost and expense, shall be
responsible for taking whatever steps are necessary in
accordance with all applicable Laws and the terms of this
Lease in order to either eliminate such odors, fumes or noises
or to keep such odors, fumes or noises from emanating from the
Buildings in a manner approved by Landlord. Such steps may
include the installation of an exhaust system or sound
proofing in accordance with plans and specifications approved
by Landlord. If Landlord and Tenant are unable to reach an
agreement on the course of action Tenant will take to correct
the odor or noise problem, as the case may be, within 10 days
after the date Landlord first contacts Tenant to inform Tenant
of the odor or noise problem, Landlord (in its sole
discretion) shall determine the course of action Tenant shall
take to correct the odor or noise problem. Such work to
correct the odor or noise problem shall be completed by Tenant
within 30 days of the date a determination is made by either
Landlord or Landlord and Tenant (as applicable) as to the
scope of work Tenant shall perform.
C. Tenant agrees to be solely responsible for the disposal of all
medical, infectious and hazardous waste (including without
limitation, all needles, syringes, bloodbags, bandages and
vials) and all animal bodies or parts that are generated in
the Tenant's Premises and to indemnify and hold Landlord
harmless from and against all liabilities, obligations,
damages, penalties, claims, costs, charges and expenses which
may be imposed upon, incurred by, or asserted against Landlord
in connection with the generation and existence of such
medical, infectious and/or hazardous waste (including without
limitation, all needles, syringes, bloodbags, bandages and
vials) and all animal bodies or parts and the removal thereof
from the Premises. Tenant agrees to comply with all Laws,
ordinances,
EXHIBIT E
Page 4
<PAGE>
orders, rules, and regulations of any governmental
or regulatory agency with respect to the generation,
existence, removal, storage and disposal of any such medical,
infectious and/or hazardous waste (including without
limitation, all needles, syringes, bloodbags, bandages and
vials) and all animal bodies and parts.
D. Tenant agrees to contract with a licensed and insured medical
waste disposal vendor acceptable to Landlord for the lawful
disposal of all medical, infectious and hazardous waste
(including without limitation, all needles, syringes, blood
bags, bandages and vials) and all animal bodies and parts that
are generated in Tenant's Premises, and to provide a copy of
such contract to Landlord. If vendors are changed, Tenant
agrees to notify Landlord of such change prior to the
effective date thereof and to provide the appropriate
documentation to Landlord. In no event shall any medical,
infectious and/or hazardous waste be placed or stored outside
of the Premises, it being agreed that all such materials shall
be kept in the Premises until picked up by the approved
medical waste disposal vendor.
E. Tenant, at Tenant's sole cost and expense, shall obtain and
maintain throughout the Term any licenses, permits or zoning
approvals required by any governmental body for the conduct of
Tenant's business and medical uses with the Premises.
F. In the event Tenant's activities in the Project results in any
disturbance, disruption of or interference with the business
of the Project, including, but not limited to, demonstrations,
pickets, boycotts and/or confrontations or disputes on or
about the Project opposing or supporting Tenant's activities
(a "Use Dispute"), then Tenant shall take all actions
necessary to resolve the Use Dispute and to have the
demonstrators, picketers or other individuals engaged in the
Use Dispute removed from the Project in an expeditious manner.
Tenant shall have no claim for damages against Landlord or any
of the Landlord Related Parties, as a result of the above
actions.
V. SECURITY SYSTEM. Tenant shall have the right to install a separate
security system for the Premises ("Security System") provided that any
such Security System shall be subject to Landlord's prior review and
approval of the plans and specifications for such Security System.
Tenant shall keep and maintain the Security System in good working
order, condition and repair throughout the Term of this Lease. The
installation, maintenance, use and operation of the Security System
shall comply with all applicable governmental laws, rules, regulations
and ordinances and the terms of the Lease. Tenant shall provide
Landlord with key cards or access codes, as applicable to permit
Landlord access to the Premises at all times. Tenant acknowledges and
agrees that the Tenant's use of the Security System and the
installation, operation, maintenance and use thereof shall be at
Tenant's sole risk and Landlord shall have no liability whatsoever in
connection therewith. Tenant hereby waives any and all claims against
Landlord for any damages arising from Tenant's exercise of its rights
under this Section. Furthermore, Tenant agrees to indemnify, defend
and hold Landlord harmless from and against any and all damages,
losses, claims, liabilities, costs and expenses (including, but not
limited to, reasonable attorneys' and other professional fees),
actions or causes of action, or judgments arising in any manner from
Tenant's installation, operation, use and maintenance of the Security
System. At the expiration or earlier termination of the Lease, Tenant
shall, at Landlord's option, remove the Security System from the
Premises and restore the Premises to the condition which existed prior
to the installation of the Security System.
EXHIBIT E
Page 5
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit as
of the day and year first above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership, a Delaware
limited partnership, its sole member
By: Equity Office Properties Trust,
a Maryland real estate investment trust, its
managing general partner
By: /s/ Peter H. Adams
--------------------------------
Name: Peter H. Adams
--------------------------------
Title: Senior Vice President
--------------------------------
TENANT:
INTRABIOTICS PHARMACEUTICALS, INC., A DELAWARE
CORPORATION
By: /s/ Kenneth J. Kelley
-------------------------------
Name: Kenneth J. Kelley
-------------------------------
Title: President and CEO
-------------------------------
By: /s/ Sandra J. Wrobel
-------------------------------
Name: Sandra J. Wrobel
-------------------------------
Title: V.P. Corp. Strategy and Finance
-------------------------------
EXHIBIT E
Page 6
<PAGE>
EXHIBIT F
PARKING AGREEMENT
This Exhibit is attached to and made a part of the Lease dated as of
February 7, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and INTRABIOTICS
PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant") for space in the
Buildings located at 2011 Stierlin Court and 2021 Stierlin Court, Mountain View,
California.
1. Effective as of the Building 2 Commencement Date, Landlord hereby
grants to Tenant and persons designated by Tenant a license to use 215
non-priority parking spaces in the parking areas ("Parking Facility")
servicing the Buildings. Effective as of the Building 1 Commencement
Date, Landlord hereby grants to Tenant and persons designated by
Tenant a license to use an additional 244 non-priority parking spaces
in the Parking Facility, so that effective as of the Building 1
Commencement Date, Tenant and persons designated by Tenant shall have
a license to use a total of 459 non-priority parking spaces (the
"Parking Spaces") in the Parking Facility, and shall continue until
the earlier to occur of the Termination Date under the Lease, the
sooner termination of the Lease, or Tenant's abandonment of the
Premises thereunder. Tenant may, from time to time request additional
parking spaces, and if Landlord shall provide the same, such parking
spaces shall be provided and used on a month-to-month basis, and
otherwise on the foregoing terms and provisions, and at such
prevailing monthly parking charges as shall be established from time
to time.
2. Tenant shall at all times comply with all applicable ordinances,
rules, regulations, codes, laws, statutes and requirements of all
federal, state, county and municipal governmental bodies or their
subdivisions respecting the use of the Parking Facility. Landlord
reserves the right to adopt, modify and enforce reasonable rules
("Rules") governing the use of the Parking Facility from time to time
including any key-card, sticker or other identification or entrance
system and hours of operation. The rules set forth herein are
currently in effect. Landlord may refuse to permit any person who
violates such rules to park in the Parking Facility, and any violation
of the rules shall subject the car to removal from the Parking
Facility.
3. Unless specified to the contrary above, the parking spaces hereunder
shall be provided on a non-designated "first-come, first-served"
basis. Tenant acknowledges that Landlord has no liability for claims
arising through acts or omissions of any Operator (as hereinafter
defined) of the Parking Facility, if any. Landlord shall have no
liability whatsoever for any damage to items located in the Parking
Facility, nor for any personal injuries or death arising out of any
matter relating to the Parking Facility, and in all events, Tenant
agrees to look first to its insurance carrier and to require that
Tenant's employees look first to their respective insurance carriers
for payment of any losses sustained in connection with any use of the
Parking Facility. Tenant hereby waives on behalf of its insurance
carriers all rights of subrogation against Landlord or Landlord's
agents. Landlord reserves the right to assign specific parking
spaces, and to reserve parking spaces for visitors, small cars,
handicapped persons and for other tenants, guests of tenants or other
parties, which assignment and reservation or spaces may be relocated
as determined by Landlord from time to time, and Tenant and persons
designated by Tenant hereunder shall not park in any location
designated for such assigned or reserved parking spaces. Tenant
acknowledges that the Parking Facility may be closed entirely or in
part in order to make repairs or perform maintenance services, or to
alter, modify, re-stripe or renovate the Parking Facility, or if
required by casualty, strike, condemnation, act of God, governmental
law or requirement or other reason beyond the operator's reasonable
control.
4. If Tenant shall default under this Parking Agreement, the Landlord or
the Operator, as the case may be, shall have the right to remove from
the Parking Facility any vehicles hereunder which shall have been
involved or shall have been owned or driven by parties involved in
causing such default, without liability therefor whatsoever. In
addition, if Tenant shall default under this Parking Agreement,
Landlord shall have the right to cancel this Parking Agreement on 10
days' written notice, unless within such 10 day period, Tenant cures
such default. If Tenant defaults with respect to the same term or
condition under this Parking Agreement more than 3 times during any 12
month period, and Landlord notifies Tenant thereof promptly after each
such default, the next default of such term or condition during the
succeeding 12 month period, shall, at Landlord's election, constitute
an
EXHIBIT F
Page 1
<PAGE>
incurable default. Such cancellation right shall be cumulative and
in addition to any other rights or remedies available to Landlord at
law or equity, or provided under the Lease (all of which rights and
remedies under the Lease are hereby incorporated herein, as though
fully set forth). Any default by Tenant under the Lease shall be a
default under this Parking Agreement, and any default under this
Parking Agreement shall be a default under the Lease.
RULES
(i) Tenant shall have access to the Parking Facility on a 24 hour
basis, 7 days a week. Tenant shall not store or permit its
employees to store any automobiles in the Parking Facility
without the prior written consent of the Landlord. Except for
emergency repairs, Tenant and its employees shall not perform
any work on any automobiles while located in the Parking
Facility, or on the Property. If it is necessary for Tenant
or its employees to leave an automobile in the Parking
Facility overnight, Tenant shall provide the Landlord with
prior notice thereof designating the license plate number and
model of such automobile.
(ii) Cars must be parked entirely within the stall lines painted on
the floor, and only small cars may be parked in areas reserved
for small cars.
(iii) All directional signs and arrows must be observed.
(iv) The speed limit shall be 5 miles per hour.
(v) Parking spaces reserved for handicapped persons must be used
only by vehicles properly designated.
(vi) Parking is prohibited in all areas not expressly designated
for parking, including without limitation:
(a) Areas not striped for parking
(b) aisles
(c) where "no parking" signs are posted
(d) ramps
(e) loading zones
(vii) Parking stickers, key cards or any other devices or forms of
identification or entry supplied by the Landlord or the
Operator, as the case may be, shall remain the property of the
Landlord or the Operator. Such device must be displayed as
requested and may not be mutilated in any manner. The serial
number of the parking identification device may not be
obliterated. Parking passes and devices are not transferable
and any pass or device in the possession of an unauthorized
holder will be void.
(viii) Parking Facility managers or attendants are not authorized to
make or allow any exceptions to these Rules.
(ix) Every parker is required to park and lock his/her own car.
(x) Loss or theft of parking pass, identification, key cards or
other such devices must be reported to Landlord and to the
Parking Facility manager immediately. Any parking devices
reported lost or stolen found on any authorized car will be
confiscated and the illegal holder will be subject to
prosecution. Lost or stolen passes and devices found by
Tenant or its employees must be reported to the office of the
garage immediately.
(xi) Washing, waxing, cleaning or servicing of any vehicle by the
customer and/or his agents is prohibited. Parking spaces may
be used only for parking automobiles, vans, light trucks and
sport utility vehicles.
(xii) By signing this Parking Agreement, Tenant agrees to acquaint
all persons to whom Tenant assigns a parking pass with these
Rules.
EXHIBIT F
Page 2
<PAGE>
5. Landlord may elect to provide parking cards or keys to control access
to the Parking Facility or surface parking areas, if any. In such
event, Landlord shall provide Tenant with one card or key for each
parking space that Tenant is entitled to hereunder, provided that
Landlord shall have the right to require Tenant or its employees to
place a deposit on such access cards or keys and to pay a fee for any
lost or damaged cards or keys.
6. Landlord hereby reserves the right to enter into a management
agreement or lease with an entity for the Parking Facility
("Operator"). In such event, Tenant upon request of Landlord, shall
enter into a parking agreement with the Operator and pay the Operator
the monthly charge established hereunder, and Landlord shall have no
liability for claims arising through acts or omissions of the Operator
unless caused by Landlord's negligence or willful misconduct. It is
understood and agreed that the identity of the Operator may change
from time to time during the Term. In connection therewith, any
parking lease or agreement entered into between Tenant and an Operator
shall be freely assignable by such Operator or any successors thereto.
7. NO LIABILITY. TENANT ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST
EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY
LOSS OR DAMAGE TO TENANT OR TENANT'S PROPERTY (INCLUDING, WITHOUT
LIMITATIONS, ANY LOSS OR DAMAGE TO TENANT'S AUTOMOBILE OR THE CONTENTS
THEREOF DUE TO THEFT, VANDALISM OR ACCIDENT) ARISING FROM OR RELATED
TO TENANT'S USE OF THE PARKING FACILITY OR EXERCISE OF ANY RIGHTS
UNDER THIS PARKING AGREEMENT, EXCEPT TO THE EXTENT SUCH LOSS OR DAMAGE
RESULTS FROM LANDLORD'S ACTIVE NEGLIGENCE, NEGLIGENT OMISSION OR
WILLFUL MISCONDUCT.
8. Release of Liability. Without limiting the provisions of Paragraph 8
above, Tenant hereby voluntarily releases, discharges, waives and
relinquishes any and all actions or causes of action for personal
injury or property damage occurring to Tenant arising as a result of
parking in the Parking Facility, or any activities incidental thereto,
wherever or however the same may occur, and further agrees that Tenant
will not prosecute any claim for personal injury or property damage
against Landlord or any of its officers, agents, servants or employees
for any said causes of action except to the extent caused by
Landlord's negligence or willful misconduct.
9. The provisions of Article XXI of the Lease are hereby incorporated by
reference as if fully recited.
Tenant acknowledges that Tenant has read the provisions of this
Parking Agreement, has been fully and completely advised of the potential
dangers incidental to parking in the Parking Facility and is fully aware of the
legal consequences of signing this instrument.
EXHIBIT F
Page 3
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit as
of the day and year first above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its sole member
By: Equity Office Properties
Trust, a Maryland real estate investment
trust, its managing general partner
By: /s/ Peter H. Adams
--------------------------
Name: Peter H. Adams
--------------------------
Title: Senior Vice President
--------------------------
TENANT:
INTRABIOTICS PHARMACEUTICALS, INC., A DELAWARE
CORPORATION
By: /s/ Kenneth J. Kelley
-----------------------------
Name: Kenneth J. Kelley
-----------------------------
Title: President and CEO
-----------------------------
By: /s/ Sandra J. Wrobel
-----------------------------
Name: Sandra J. Wrobel
-----------------------------
Title: V.P. Corp. Strategy & Finance
-----------------------------
EXHIBIT F
Page 4
<PAGE>
EXHIBIT G
FORM OF LETTER OF CREDIT
This Exhibit is attached to and made a part of the Lease dated as of
_____________, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and INTRABIOTICS
PHARMACEUTICALS, INC., A DELAWARE CORPORATION ("Tenant") for space in the
Buildings located at 2011 Stierlin Court and 2021 Stierlin Court, Mountain View,
California.
________________________
[Name of Financial Institution]
Irrevocable Standby
Letter of Credit
No. ______________________
Issuance Date: _____________
Expiration Date: ____________
Applicant:__________________
BENEFICIARY
EOP-Shoreline Technology Park, L.L.C., a Delaware limited liability company
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Ladies/Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your
favor for the account of the above referenced Applicant in the amount of One
Million Six Hundred Thousand and 00/100 U.S. Dollars ($1,600,000.00) available
for payment at sight by your draft drawn on us when accompanied by the following
documents:
1. An original copy of this Irrevocable Standby Letter of Credit.
2. Beneficiary's dated statement purportedly signed by one of its
officers reading: "This draw in the amount of ______________________
U.S. Dollars ($____________) under your Irrevocable Standby Letter of
Credit No. ____________________ represents funds due and owing to us
as a result of the Applicant's failure to comply with one or more of
the terms of that certain lease by and between ______________________,
as landlord, and _____________, as tenant."
It is a condition of this Irrevocable Standby Letter of Credit that it
will be considered automatically renewed for a one year period upon the
expiration date set forth above and upon each anniversary of such date, unless
at least sixty (60) days prior to such expiration date or applicable anniversary
thereof, we notify you in writing by certified mail, return receipt requested,
that we elect not to so renew this Irrevocable Standby Letter of Credit. A copy
of any such notice shall also be sent to: Equity Office Properties Trust, 2
North Riverside Plaza, Suite 2200, Chicago, IL 60606, Attention: Senior Vice
President-Treasurer. In addition to the foregoing, we understand and agree that
you shall be entitled to draw upon this Irrevocable Standby Letter of Credit in
accordance with 1 and 2 above in the event that we elect not to renew this
Irrevocable Standby Letter of Credit and, in addition, you provide us with a
dated statement proportedly signed by one of Beneficiary's officers stating that
the Applicant has failed to provide you with an acceptable substitute
irrevocable standby letter of credit in accordance with the terms of the above
referenced lease. We further acknowledge and agree that: (a) upon receipt of
the documentation required herein, we will honor your draws against this
Irrevocable Standby Letter of Credit without inquiry into the accuracy of
Beneficiary's signed statement and regardless of whether Applicant disputes the
content of such statement; (b) this Irrevocable Standby Letter of Credit shall
permit partial draws and, in the event you elect to draw upon less than the full
stated amount hereof, the stated amount of this Irrevocable Standby Letter of
Credit shall be automatically reduced by the amount of such partial draw; and
(c) you shall be entitled to assign your interest in this Irrevocable Standby
Letter of Credit from time to time without our approval
EXHIBIT G
Page 1
<PAGE>
and without charge. In the event of an assignment, we reserve the right to
require reasonable evidence of such assignment as a condition to any draw
hereunder.
This Irrevocable Standby Letter of Credit is subject to the Uniform
Customs and Practice for Documentary Credits (1993 revision) ICC Publication No.
500.
We hereby engage with you to honor drafts and documents drawn under
and in compliance with the terms of this Irrevocable Standby Letter of Credit.
All communications to us with respect to this Irrevocable Standby
Letter of Credit must be addressed to our office located at
______________________________________________ to the attention of
__________________________________.
Very truly yours,
______________________
[name]
______________________
[title]
______________________
EXHIBIT G
Page 2
<PAGE>
EXHIBIT H
TENANT'S TRADE FIXTURES AND EQUIPMENT
Items belonging to tenant not deemed real property including but not limited to:
1. Water dionization/purification systems
2. Facility vacuum system
3. Facility clean dry air system
4. Telecommunications systems
5. Computer network systems
6. Waste neutralization and monitoring systems
7. Trash compactor system
8. Satellite signal receivers/transmitters
9. Compressed gas distribution system
10. Audio-visual equipment
11. Electronic security and monitoring systems
12. Back-up and emergency electrical power equipment
13. Laboratory casework including fume hoods
14. Moveable benches and tables
15. Office furniture and equipment
16. Bicycle lockers
17. Laboratory equipment including autoclaves, glass washers, ice
makers, cage washers, dryers, animal cages, environmental
chambers
18. Kitchen equipment including dishwashers, disposals,
refrigerators, freezers, ice makers, cooking equipment
19. Fermentation system equipment
EXHIBIT H
Page 3
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated January 14,
2000 (except for the second paragraph of Note 1, as to which the date is
February 28, 2000) in Amendment No. 1 to the Registration Statement (Form S-1
No. 333-95461) and related Prospectus of IntraBiotics Pharmaceuticals, Inc. for
the registration of 8,625,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 28, 2000
